Core Scientific, Inc./tx 10-Q

Item 1. Financial Statements 5 Core Scientific, Inc. Condensed Consolidated Balance Sheets (in thousands, except par value) September 30, 2024 December 31, 2023 Assets (Unaudited) Current Assets: Cash and cash equivalents $ 253,019 $ 50,409 Restricted cash 783 19,300 Accounts receivable 6,244 1,001 Digital assets — 2,284 Prepaid expenses and other current assets 17,810 24,022 Total Current Assets 277,856 97,016 Property, plant and equipment, net 550,432 585,431 Operating lease right-of-use assets 74,733 7,844 Other noncurrent assets 18,830 21,865 Total Assets $ 921,851 $ 712,156 Liabilities and Stockholders’ Deficit Current Liabilities: Accounts payable $ 6,504 $ 154,751 Accrued expenses and other current liabilities 31,726 179,636 Deferred revenue 9,944 9,830 Operating lease liabilities, current portion 7,486 77 Finance lease liabilities, current portion 2,380 19,771 Notes payable, current portion 17,941 124,358 Contingent value rights, current portion 533 — Total Current Liabilities 76,514 488,423 Operating lease liabilities, net of current portion 65,335 1,512 Finance lease liabilities, net of current portion 4 35,745 Convertible and other notes payable, net of current portion 474,596 684,082 Contingent value rights, net of current portion 6,458 — Warrant liabilities 1,017,299 — Other noncurrent liabilities 11,040 — Total liabilities not subject to compromise 1,651,246 1,209,762 Liabilities subject to compromise — 99,335 Total Liabilities 1,651,246 1,309,097 Commitments and contingencies (Note 9) Stockholders’ Deficit: Preferred stock; $ 0.00001 par value; 2,000,000 and nil shares authorized at September 30, 2024 and December 31, 2023, respectively; none issued and outstanding at September 30, 2024 and December 31, 2023 — — Common stock; $ 0.00001 par value; 10,000,000 shares authorized at September 30, 2024 and December 31, 2023; 279,821 and 386,883 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively 3 36 Additional paid-in capital 2,740,279 1,823,260 Accumulated deficit ( 3,469,677 ) ( 2,420,237 ) Total Stockholders’ Deficit ( 729,395 ) ( 596,941 ) Total Liabilities and Stockholders’ Deficit $ 921,851 $ 712,156 See accompanying notes to unaudited condensed consolidated financial statements. 6 Core Scientific, Inc. Condensed Consolidated Statements of Operations (in thousands, except per share amounts) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Revenue: Digital asset self-mining revenue $ 68,138 $ 83,056 $ 328,840 $ 278,164 Digital asset hosted mining revenue from customers 16,878 27,020 71,050 72,245 Digital asset hosted mining revenue from related parties — 2,828 — 10,062 HPC hosting revenue 10,338 — 15,857 — Total revenue 95,354 112,904 415,747 360,471 Cost of revenue: Cost of digital asset self-mining 74,555 72,603 236,120 212,125 Cost of digital asset hosted mining services 11,914 24,882 49,388 64,187 Cost of HPC hosting services 9,041 — 13,932 — Total cost of revenue 95,510 97,485 299,440 276,312 Gross (loss) profit ( 156 ) 15,419 116,307 84,159 Change in fair value of digital assets ( 206 ) — ( 247 ) — Gain from sale of digital assets — 363 — 2,358 Impairment of digital assets — ( 681 ) — ( 2,864 ) Change in fair value of energy derivatives — — ( 2,757 ) — Loss on disposal of property, plant and equipment ( 509 ) ( 340 ) ( 4,061 ) ( 514 ) Operating expenses: Research and development 2,841 2,253 6,814 5,308 Sales and marketing 3,151 1,041 7,099 3,133 General and administrative 34,356 23,511 74,742 69,671 Total operating expenses 40,348 26,805 88,655 78,112 Operating (loss) income ( 41,219 ) ( 12,044 ) 20,587 5,027 Non-operating (income) expenses, net: Loss (gain) on debt extinguishment 317 ( 374 ) 487 ( 21,135 ) Interest expense, net 7,072 2,196 35,934 2,317 Reorganization items, net — 28,256 ( 111,439 ) 78,270 Change in fair value of warrant and contingent value rights 408,520 — 1,144,441 — Other non-operating (income) expense, net ( 2,003 ) ( 1,090 ) 144 ( 3,978 ) Total non-operating expenses, net 413,906 28,988 1,069,567 55,474 Loss before income taxes ( 455,125 ) ( 41,032 ) ( 1,048,980 ) ( 50,447 ) Income tax expense 134 114 484 347 Net loss $ ( 455,259 ) $ ( 41,146 ) $ ( 1,049,464 ) $ ( 50,794 ) Net loss per share (Note 12): Basic $ ( 1.17 ) $ ( 0.11 ) $ ( 3.71 ) $ ( 0.13 ) Diluted $ ( 1.17 ) $ ( 0.11 ) $ ( 3.71 ) $ ( 0.13 ) Weighted average shares outstanding: Basic 292,486 382,483 253,058 378,107 Diluted 292,486 382,483 253,058 378,107 See accompanying notes to unaudited condensed consolidated financial statements. 7 Core Scientific, Inc. Condensed Consolidated Statements of Changes in Stockholders’ Deficit For the Three Months Ended September 30, 2024 (in thousands) (Unaudited) Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders’ Deficit Shares Amount Balance at July 1, 2024 187,892 $ 2 $ 1,930,542 $ ( 3,014,418 ) $ ( 1,083,874 ) Net loss — — — ( 455,259 ) ( 455,259 ) Stock-based compensation — — 20,523 — 20,523 Restricted stock awards issued, net of tax withholding obligations 224 — 2 — 2 Exercise of warrants 51,645 1 553,985 — 553,986 Issuance of new common stock for New Secured Convertible Notes conversion 40,060 — 235,227 — 235,227 Balance at September 30, 2024 279,821 $ 3 $ 2,740,279 $ ( 3,469,677 ) $ ( 729,395 ) See accompanying notes to unaudited condensed consolidated financial statements. 8 Core Scientific, Inc. Condensed Consolidated Statements of Changes in Stockholders’ Deficit For the Nine Months Ended September 30, 2024 (in thousands) (Unaudited) Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders’ Deficit Shares Amount Balance at January 1, 2024 386,883 $ 36 $ 1,823,260 $ ( 2,420,237 ) $ ( 596,941 ) Cumulative effect of adoption of ASU 2023-08, Accounting for and Disclosure of Crypto Assets — — — 24 24 Balance at January 1, 2024, adjusted 386,883 36 1,823,260 ( 2,420,213 ) ( 596,917 ) Net loss — — — ( 1,049,464 ) ( 1,049,464 ) Stock-based compensation — — 27,957 — 27,957 Cancellation of common stock in connection with emergence ( 386,883 ) ( 36 ) 36 — Issuance of new common stock in connection with emergence 152,576 2 296,893 — 296,895 Issuance of new common stock under the Equity Rights Offering 15,649 — 55,000 — 55,000 Issuance of new common stock for the Equity Rights Offering backstop commitment 2,111 — 5,475 — 5,475 Issuance of new common stock for Bitmain obligation 10,735 — 27,839 — 27,839 Conversion premium on the issuance of the New Secured Convertible Notes — — 33,202 — 33,202 Issuance of warrants — — ( 345,856 ) — ( 345,856 ) Exercise of stock options — — 9 — 9 Restricted stock awards issued, net of tax withholding obligations 1,624 — ( 3,390 ) — ( 3,390 ) Restricted stock awards forfeited ( 40 ) — — — — Exercise of warrants 51,699 1 554,405 — 554,406 Issuance of new common stock for New Secured Convertible Notes conversion 44,585 — 261,772 — 261,772 Issuance of new common stock for PIK interest 882 — 3,677 — 3,677 Balance at September 30, 2024 279,821 $ 3 $ 2,740,279 $ ( 3,469,677 ) $ ( 729,395 ) See accompanying notes to unaudited condensed consolidated financial statements. 9 Core Scientific, Inc. Condensed Consolidated Statements of Changes in Stockholders’ Deficit For the Three and Nine Months Ended September 30, 2023 (in thousands) (Unaudited) Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders’ Deficit Shares Amount Balance at July 1, 2023 379,091 $ 36 $ 1,790,921 $ — $ ( 2,183,398 ) $ ( 392,441 ) Net loss — — — ( 41,146 ) ( 41,146 ) Stock-based compensation — — 14,861 — 14,861 Restricted stock awards issued, net of shares withheld for tax withholding obligations 7,154 — — — — Restricted stock awards forfeited ( 377 ) — — — — Balance at September 30, 2023 385,868 $ 36 $ 1,805,782 $ ( 2,224,544 ) $ ( 418,726 ) Balance at January 1, 2023 375,225 $ 36 $ 1,764,368 $ ( 2,173,750 ) $ ( 409,346 ) Net loss — — — ( 50,794 ) ( 50,794 ) Stock-based compensation — — 41,414 — 41,414 Restricted stock awards issued, net of shares withheld for tax withholding obligations 11,020 — — — — Restricted stock awards forfeited ( 377 ) — — — — Balance at September 30, 2023 385,868 $ 36 $ 1,805,782 $ ( 2,224,544 ) $ ( 418,726 ) See accompanying notes to unaudited condensed consolidated financial statements. 10 Core Scientific, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (Unaudited) Nine Months Ended September 30, 2024 2023 Cash flows from Operating Activities: Net loss $ ( 1,049,464 ) $ ( 50,794 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 87,164 64,800 Amortization of operating lease right-of-use assets 3,802 703 Stock-based compensation 27,957 41,414 Digital asset self-mining revenue ( 328,840 ) ( 278,164 ) Loss (gain) on debt extinguishment 487 ( 21,135 ) Change in fair value of energy derivatives ( 2,262 ) — Change in fair value of warrant liabilities 1,223,775 — Change in fair value of contingent value rights ( 79,334 ) — Change in fair value of digital assets 247 — Amortization of debt discount 2,362 — Losses on disposal of property, plant and equipment 4,061 514 Impairment of digital assets — 2,864 Gain on sale of digital assets — ( 2,358 ) Non-cash reorganization items ( 143,791 ) — Non-cash PIK interest expense 3,946 — Changes in operating assets and liabilities: Accounts receivable, net ( 4,562 ) ( 875 ) Accounts receivable from related parties — 23 Digital assets 330,900 277,823 Deposits for equipment — ( 600 ) Prepaid expenses and other current assets 2,687 ( 10,650 ) Accounts payable ( 11,640 ) 32,771 Accrued expenses and other ( 44,873 ) 13,001 Deferred revenue 115 ( 15,015 ) Other noncurrent assets and liabilities, net 6,354 ( 10,911 ) Net cash provided by operating activities 29,091 43,411 Cash flows from Investing Activities: Purchases of property, plant and equipment ( 66,203 ) ( 4,516 ) Investments in internally developed software — ( 840 ) Other ( 191 ) — Net cash used in investing activities ( 66,394 ) ( 5,356 ) Cash flows from Financing Activities: Proceeds from issuance of new common stock 55,000 — Proceeds for the issuance of 3 % senior convertible notes, net 447,609 — Issuance costs for 3 % senior convertible notes ( 2,529 ) — Proceeds from draw from exit facility 20,000 — Principal repayments of finance leases ( 5,328 ) ( 3,411 ) Principal payments on debt ( 291,888 ) ( 22,941 ) Restricted stock tax holding obligations ( 3,390 ) — Proceeds from exercise of stock options 9 — Proceeds from exercise of warrants 1,913 — Net cash provided by (used in) financing activities 221,396 ( 26,352 ) Net increase in cash, cash equivalents and restricted cash 184,093 11,703 Cash, cash equivalents and restricted cash—beginning of period 69,709 52,240 Cash, cash equivalents and restricted cash—end of period $ 253,802 $ 63,943 11 Reconciliation of cash, cash equivalents, and restricted cash within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows above: Cash and cash equivalents $ 253,019 $ 42,146 Restricted cash 783 21,797 Total cash, cash equivalents and restricted cash $ 253,802 $ 63,943 Supplemental disclosure of other cash flow information: Cash paid for interest $ 26,175 $ 1,508 Income tax refunds $ ( 1,288 ) $ ( 336 ) Cash paid for reorganization items $ 53,835 $ 62,590 Supplemental disclosure of noncash investing and financing activities: Change in accrued capital expenditures $ 9,028 $ ( 39,660 ) Decrease in equipment related to debt extinguishment — 17,849 Decrease in notes payable in exchange for equipment — ( 38,610 ) Reduction in plant, property, and equipment basis related to Bitmain purchase ( 26,101 ) — Reclass of other current and non-current assets to plant, property, and equipment 9,268 — Increase in right-of-use assets due to lease commencement 70,690 — Extinguishment of convertible notes upon emergence ( 559,902 ) — Extinguishment of accounts payable, accrued expenses, finance lease liability, and notes payable upon emergence ( 321,773 ) — Cancellation of common stock in connection with emergence ( 36 ) — Issuance of new common stock in connection with emergence 296,893 — Issuance of new common stock for Bitmain obligation 27,839 — Issuance of new common stock for the Equity Rights Offering backstop commitment 5,475 — Issuance of contingent value rights 86,325 — Issuance of warrants 345,856 — Issuance of New Secured Convertible Notes 260,000 — Issuance of Secured Notes, net of discount 149,520 — Issuance of Exit Credit Agreement including $ 1.2 million paid in kind upfront fee 41,200 — Issuance of miner equipment lender facility loans 52,947 — Issuance of notes related to settlement 9,092 — Cumulative effect of adoption of ASU 2023-08, Accounting for and Disclosure of Crypto Assets 24 — Issuance of new common stock for New Secured Convertible Notes conversion 261,772 — Issuance of new common stock for PIK interest 3,677 — Noncash exercise of warrants 37,924 — Property, plant and equipment disposed of through settlements — 6,301 Purchase of insurance policies financed by short-term note payable — 5,011 Issuance of notes payable through settlements — 21,035 See accompanying notes to unaudited condensed consolidated financial statements. 12 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements 1. ORGANIZATION AND DESCRIPTION OF BUSINESS Core Scientific, Inc. (“Core Scientific” or the “Company”) is a leader in digital infrastructure for bitcoin mining and high-performance computing. We operate dedicated, purpose-built facilities for digital asset mining and are a premier provider of digital infrastructure, software solutions and services to our third-party customers. We employ our own large fleet of computers (“miners”) to earn digital assets for our own account and we provide hosting services for large bitcoin mining customers and are in the process of allocating and converting a significant portion of our nine operational data centers in Alabama (1), Georgia ( 2 ), Kentucky ( 1 ), North Carolina ( 1 ), North Dakota ( 1 ) and Texas ( 3 ), and our facility in development in Oklahoma to support artificial intelligence-related workloads under a series of contracts that entail the modification of certain of our data centers to deliver hosting services for high-performance computing (“HPC”). We derive the majority of our revenue from earning bitcoin for our own account (“self-mining”). The Company has historically focused on designing, developing and operating digital infrastructure to engage in digital asset mining for its own account and providing hosting solutions for third-party digital asset miners. Beginning on March 6, 2024, we announced a series of new contractual agreements with a third-party provider of HPC operations for customers using specialized graphics processing units (“GPUs”). These new agreements leverage the Company’s existing digital infrastructure and expertise in third-party hosting solutions. We currently operate in three segments: “Digital Asset Self-Mining,” consisting of digital asset mining for our own account, “Digital Asset Hosted Mining,” consisting of our digital infrastructure and third-party hosting services for digital asset mining, and “HPC Hosting,” consisting of our digital infrastructure and third-party hosting services for client HPC operations. Prior to April 1, 2024, we operated only in the Digital Asset Self-Mining and Digital Asset Hosted Mining segments. Our digital asset hosted mining business provides a full suite of services to our digital asset mining customers. We provide deployment, monitoring, troubleshooting, optimization and maintenance of our customers’ digital asset mining equipment and provide necessary electrical power, repair and other infrastructure services necessary for our customers to operate, maintain and efficiently mine digital assets. Our HPC hosting services provide colocation, facilities operations, security and other services to third-party HPC customers to support workloads for machine learning and artificial intelligence. The extension of our business into the HPC Hosting segment involves significant risk, including risks involving facility construction, supply chain and the risk of nonperformance by our single customer, as disclosed further in Part II, Item 1A. — “Risk Factors” in this Quarterly Report on Form 10-Q. Chapter 11 Filing and Emergence from Bankruptcy On December 21, 2022, the Company and certain of its affiliates (collectively, the “Debtors”) filed voluntary petitions (the “Chapter 11 Cases”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”) seeking relief under Chapter 11 of the United States Code (the “Bankruptcy Code”). The Chapter 11 Cases were jointly administered under Case No. 22-90341. The Debtors continued to operate their business and manage their properties as “debtors-in-possession” (“DIP”) under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. For detailed discussion about the Chapter 11 Cases, refer to Note 3 — Chapter 11 Filing and Emergence from Bankruptcy. On January 15, 2024, the Debtors filed the Fourth Amended Joint Chapter 11 Plan of Reorganization of Core Scientific, Inc. and its Debtor Affiliates (with Technical Modifications) (the “Plan of Reorganization”) with the Bankruptcy Court. On January 16, 2024, the Bankruptcy Court entered an order (the “Confirmation Order”) among other things, confirming the Plan of Reorganization. On January 23, 2024 (the “Effective Date”), the conditions to the effectiveness of the Plan of Reorganization were satisfied or waived and the Company emerged from bankruptcy. The Company was not required to apply fresh start accounting based on the provisions of Accounting Standards Codification (“ASC”) 852, Reorganizations , since the entity’s reorganization value immediately before the date of confirmation is more than the total of all its post-petition liabilities and allowed claims. 13 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Refer to the significant accounting policies described in Note 2 — Summary of Significant Accounting Policies to the consolidated financial statements and accompanying notes in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2023. Basis of Presentation Our consolidated balance sheet as of December 31, 2023, which was derived from our audited consolidated financial statements, and our unaudited interim condensed consolidated financial statements provided herein have been prepared in accordance with the instructions for Form 10-Q. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). However, in our opinion, the disclosures made therein are adequate to make the information presented not misleading. We believe the unaudited interim financial statements herein furnished reflect all adjustments which are, in the opinion of management, necessary to present a fair statement of the results for the interim periods presented. All of these adjustments are of a normal recurring nature. The interim condensed consolidated results of operations and cash flows are not necessarily indicative of the consolidated results of operations and cash flows that might be expected for the entire year. These condensed consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023. Debtor-in Possession On the Effective Date, the Company emerged from bankruptcy and was no longer considered debtors-in-possession under the Bankruptcy Code. For detailed discussion about the Chapter 11 Cases and our emergence from bankruptcy, refer to Note 3 — Chapter 11 Filing and Emergence from Bankruptcy. The Plan of Reorganization (i) eliminated substantial debt and debt service, (ii) established new debt in the form of a secured credit agreement, publicly traded notes and convertible notes, and debt to equipment lenders, and (iii) established new publicly traded equity and warrants. The settlement of accrued and payable claims through new debt and equity issuance and the extension of debt service to future periods on the Effective Date substantially eliminated the reported working capital deficit at December 31, 2023. During the nine months ended September 30, 2024, we converted or repaid substantially all of the notes, credit agreements, and other payable obligations resulting from the Plan of Reorganization on the Effective date. The majority of this activity occurred during the three months ended September 30, 2024, through the mandatory conversion of the New Secured Convertible Notes (as defined below) and repayment of the Exit Credit Agreement (as defined below) and Secured Notes (as defined below) from proceeds from the 2029 Convertible Notes Offering (as defined below) issuance as described further in Note 6 — Convertible and Other Notes Payable. Liquidity and Financial Condition For the nine months ended September 30, 2024, the Company generated a net loss of $ 1.05 billion, of which $ 1.22 billion related to the change in the fair value of warrants which will be settled with common stock shares. The Company had unrestricted cash and cash equivalents of $ 253.0 million as of September 30, 2024, compared to $ 50.4 million as of December 31, 2023. The Company has historically generated cash primarily through sales of digital assets received as digital asset self-mining revenue, revenue from contracts with customers, and the issuance of debt and common stock. As of September 30, 2024, the Company had net working capital of $ 201.3 million and a total stockholders’ deficit of $ 729.4 million. Management has concluded that as of September 30, 2024, the Company’s capital, cash flow from operations, and other sources of liquidity are sufficient to fund its operations and debt service obligations for at least the next 12 months following the date these condensed consolidated financial statements were issued. Digital Assets The Company sells bitcoin it receives through mining. As of August 19, 2024, the Company is no longer required to sell bitcoin it earns through mining within ten days of receipt as provided by the terms of the recently extinguished debt facilities (Exit Credit Agreement, the Secured Notes and the New Secured Convertible Notes). See Note 6 — Convertible and Other Notes Payable. In the future, the Company intends to optimize cash received from bitcoin mining which may entail, subject to market conditions, holding bitcoin for future sale at any particular point in time. Digital assets are classified as current assets on the Company’s Condensed Consolidated Balance Sheets. Sales of digital assets awarded to the Company through its self-mining activities are classified as cash flows from operating activities. The Company does not have any off-balance sheet holdings of digital assets and does not safeguard digital assets for third parties. 14 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-08, Intangibles-Goodwill and Other-Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”). ASU 2023-08 is intended to improve the accounting for certain crypto assets by requiring an entity to measure those crypto assets at fair value each reporting period with changes in fair value recognized in net income (loss). The amendments also improve the information provided to investors about an entity’s crypto asset holdings by requiring disclosure about significant holdings, contractual sale restrictions, and changes during the reporting period. ASU 2023-08 is effective for annual and interim reporting periods beginning after December 15, 2024, with early adoption permitted. The Company’s digital assets are within the scope of ASU 2023-08 and the Company elected to early adopt the new standard effective January 1, 2024. The transition guidance requires a cumulative-effect adjustment as of the beginning of the current fiscal year for any difference between the carrying amount of the Company’s digital assets and fair value. The early adoption did not have a material impact on the Company’s condensed consolidated financial statements. The Company did not have any digital asset holdings as of September 30, 2024. The Company’s digital assets have active markets with observable prices and are considered Level 1 fair value measurements. The following table presents a roll-forward of total digital assets for the nine months ended September 30, 2024, based on the fair value model under ASU 2023-08, and the nine months ended September 30, 2023 (in thousands): September 30, 2024 September 30, 2023 Digital assets, beginning of period $ 2,284 $ 724 Cumulative effect of ASU 2023-08, adopted January 1, 2024 24 — Digital assets, beginning of period, as adjusted 2,308 724 Digital asset self-mining revenue, net of receivables 1 329,799 278,100 Mining proceeds from shared hosting 15,693 10,321 Proceeds from sales of digital assets ( 347,397 ) ( 287,769 ) Change in fair value of digital assets ( 247 ) — Gain from sale of digital assets — 2,351 Impairment of digital assets — ( 2,864 ) Payment of board fee ( 89 ) ( 304 ) Other ( 67 ) — Digital assets, end of period $ — $ 559 1 As of September 30, 2024 and December 31, 2023, there was $ 0.7 million and $ 1.7 million, respectively, of digital asset receivable included in prepaid expenses and other current assets on the condensed consolidated balance sheets. Use of Estimates The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Some of the more significant estimates include assumptions used to estimate the Company’s ability to continue as a going concern, the valuation of digital assets, property, plant and equipment, the initial measurement of lease liabilities, stock-based compensation, the fair value of derivative liabilities, and income taxes. These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ from management’s estimates. Cash, Cash Equivalents, and Restricted Cash Cash and cash equivalents include all cash balances and highly liquid investments with original maturities of three months or less from the date of acquisition. As of September 30, 2024, the Company had cash and cash equivalents of $ 253.0 million, substantially all of which exceeded Federal Deposit Insurance Corporation insured limits. Cash equivalents included $ 243.8 million of highly liquid money market funds, which are classified as Level 1 within the fair value hierarchy. Restricted cash consists of cash held in escrow to pay for construction and development activities. 15 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Property, Plant and Equipment, Net Property, plant, and equipment includes the cost of land, buildings, and improvements for datacenter and support facilities and the Company’s corporate office space. Property and equipment further consists of computer, mining, network, electrical and other equipment, including property and equipment under finance leases. Property, plant and equipment, net is stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized at cost and amortized over the shorter of their estimated useful lives or the lease term. Future obligations related to finance leases are presented as Finance lease liabilities, current portion and Finance lease liabilities, net of current portion in the Company’s Consolidated Balance Sheets. Depreciation expense, including amortization of assets held under finance leases, is primarily included in Cost of revenue in the Company’s Consolidated Statements of Operations. Property, plant and equipment capitalized costs include the directly identifiable costs incurred to acquire, construct, install, or otherwise prepare the asset for its intended use and to put it into service. Directly identifiable costs include construction payroll and benefits, demolition necessary for construction to purpose, and other direct capital project costs. Intersegment transfers of property, plant, and equipment are recorded at their net carrying value with no resulting gain or loss. Revenue Recognition - HPC Hosting Revenue Our HPC hosting segment generates revenue by licensing data center space to our customers under licensing agreements. These arrangements contain lease components for the right to use data center space and nonlease components for power delivery, physical security, and maintenance services. We have elected the practical expedient available under ASC Topic 842, Leases , to combine the nonlease revenue components that have the same pattern of transfer as the related operating lease components into a single combined component. The single combined component is accounted for under ASC Topic 842 as an operating lease if the lease components are the predominant components and is accounted for under ASC Topic 606 if the nonlease components are the predominant components. The lease components are the predominant components in our current licensing arrangements and the single combined component in these arrangements are accounted for under the operating lease guidance of ASC Topic 842. We have concluded that it is probable that substantially all of the payments will be collected over the term of the arrangements and recognize the total combined component license payments under the agreements on a straight-line basis over the non-cancellable term. Straight-line license revenue represents the difference in revenue recognized during the period and the license payments due pursuant to the underlying arrangement as deferred revenue in the condensed consolidated balance sheets. Certain arrangements include options to extend the term. These extension options are not reasonably certain to be exercised and are excluded from the lease term and calculation of lease payments at lease commencement. Certain licensing arrangements provide for variable payments for power delivery services and maintenance services on customer assets and reimbursements for lessor costs such as taxes. Payments for physical security and other routine maintenance services are included in the fixed lease payments. Power delivery services represent a stand ready obligation to make power available to the customer over the coterminous lease term and have the same pattern of transfer as the related operating lease components. Customers may request and the Company may provide maintenance services on customer assets during the coterminous lease term. Customers are charged monthly for fees incurred on these maintenance services delivered and actual power costs incurred at current utility or fuel cost rates. These payments from customers for power delivery and maintenance services are recognized as variable lease payments in accordance with the practical expedient elected. Variable lease payments are presented on a gross basis and are included in HPC hosting revenue in the Condensed Consolidated Statements of Operations. Performance Obligation Commitments The Company’s performance obligation commitments relate to digital asset hosted mining services. The Company has performance obligations associated with commitments in customer digital asset hosted mining contracts for future services that have not yet been recognized in the financial statements. As of September 30, 2024, for contracts with original terms that exceed one year (typically ranging from 15 to 24 months), we expect to recognize approximately $ 16.2 million of revenue in the future related to performance obligations associated with existing hosted mining contracts. The Company expects to recognize approximately 100 % of this amount over the next 12 months. 16 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Deferred Revenue The Company records contract liabilities in Deferred revenue on the Condensed Consolidated Balance Sheets when cash payments are received in advance of performance and recognizes them as revenue when the performance obligations are satisfied. The Company’s total deferred revenue balance as of September 30, 2024 and December 31, 2023, was $ 16.9 million and $ 9.8 million, respectively. In the three and nine months ended September 30, 2024, the Company recognized $ 0.1 million and $ 6.6 million of revenue, respectively, that was included in the deferred revenue balance as of the beginning of the year. In the three and nine months ended September 30, 2023, the Company recognized $ 2.7 million and $ 20.5 million of revenue, respectively, that was included in the deferred revenue balance as of the beginning of the year. Advanced payments are typically recognized in the following month for hosted mining services and are generally recognized within 30 months of license order commencement for HPC hosting services. Stock-Based Compensation Under ASC 718, Stock Compensation (“ASC 718”) estimated fair value uses a fair-value-based method. Stock-based compensation expense is measured at the grant date based on the estimated fair value of the equity award. The estimated fair value of restricted stock units (“RSUs”) with only service conditions is based on the closing market price of the Company’s common stock on the date of grant. The estimated fair value of market condition restricted stock units (“MSUs”) is estimated on the date of grant using the Monte-Carlo pricing model for each service and market condition tranche. The estimated fair value of stock option awards is estimated on the date of grant using the Black-Scholes option-pricing model. For stock option and RSU awards with only service conditions, the estimated fair value of the equity awards is recognized as expense on a straight-line basis, less actual forfeitures as they occur, over the requisite service period for the entire award, which is generally the vesting period. For RSU awards with service and market conditions, the compensation expense is recognized for each separately vesting portion of the award, or tranche, as if it were a separate award with its own vesting and exercise conditions (i.e., on an accelerated attribution basis). The estimated fair value of each tranche is recognized as expense on a straight-line basis, less actual forfeitures as they occur, over the requisite service for the tranche. The requisite service period of each tranche is the greater of the derived service period from the market condition or the service condition vesting period. See Note 10 — Stockholders' Deficit for more information about the service and market conditions associated with the Company’s equity awards. Convertible and Other Notes Payable Convertible and other notes payable (“Notes payable”) are accounted for under ASC 470, Debt (“ASC 470”) and are presented at their carrying value, which is their remaining par or face amount net of any related unamortized premium, discount and issuance costs. Notes payable are initially recognized at their present value. When cash proceeds are received for the issuance of Notes payable, the proceeds are used to establish their present value. When cash proceeds are not received for the issuance of Notes payable, their present value is based on the consideration exchanged. This present value generally will be the Notes payable’s cash flows discounted at a market rate when it is more evident than the noncash consideration exchanged. When the present value of Notes payable on issuance varies from its par or face amount, an original discount or premium results and any related issuance costs are used to determine an effective interest rate. Original premium, discount and issuance costs are amortized using the level effective rate interest method. Amortization is recognized as a component of current interest expense. Notes payable are evaluated at issuance to determine whether or not they have features or terms which would be treated as embedded derivatives that are required to be bifurcated under ASC 815, Derivatives and Hedging (“ASC 815”). As of September 30, 2024 and December 31, 2023, Notes payable did not have any embedded derivatives required to be bifurcated. Contingent Value Rights Liabilities As described in Note 7 — Contingent Value Rights and Warrant Liabilities, on the Effective Date, pursuant to the Plan of Reorganization, the Company entered into a contingent value rights agreement (the “Contingent Value Rights Agreement”) which provides for the issuance of the contingent value rights (the “CVRs”) to certain creditors and provides for the issuance of CVRs issued to holders of allowed general unsecured claims (“GUC”) (in such capacity, the “GUC Payees”) (the “GUC CVRs”). The CVRs and GUC CVRs are equity-linked instruments which are either only cash settled or in some instances share settled at the Company’s sole 17 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements discretion. The Company determined that these equity-linked instruments are not indexed to the Company’s stock and are required to be recognized as liabilities which are, initially and subsequently, measured at fair value with changes in value reflected in Net loss. On the Effective Date, the CVRs and GUC CVRs were recognized at their fair value of $ 86.3 million. On July 1, 2024, the GUC CVR obligations were extinguished as described in Note 7 — Contingent Value Rights and Warrant Liabilities. As of September 30, 2024, the CVRs were reported at a fair value of $ 7.0 million in Contingent value rights on the Condensed Consolidated Balance Sheets. During the three and nine months ended September 30, 2024, the decrease in fair value of $ 6.0 million and $ 79.3 million, respectively, was included in Change in fair value of warrant and contingent value rights on the Company’s Condensed Consolidated Statements of Operations. Warrant Liabilities As described in Note 7 — Contingent Value Rights and Warrant Liabilities, on the Effective Date, pursuant to the Plan of Reorganization, holders of the Company’s previous common stock received warrants. The warrants are equity-linked instruments. The Company determined that these equity-linked instruments are not indexed to the Company’s stock and are required to be recognized as liabilities which are, initially and subsequently, measured at fair value with changes in value reflected in Net income (loss). On the Effective Date, the warrants were recognized at their fair value of $ 345.9 million. As of September 30, 2024, the warrants were reported at a fair value of $ 1.02 billion in Warrant liabilities on the Condensed Consolidated Balance Sheets. During the three and nine months ended September 30, 2024, the decrease in fair value of $ 414.5 million and the increase in fair value of $ 1.22 billion, respectively, were included in Change in fair value of warrant and contingent value rights on the Company’s Condensed Consolidated Statements of Operations. Accounting Standards Not Yet Adopted In December 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which will improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in ASU 2023-07 will be applied retrospectively and are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements and related disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. Under this ASU, public business entities must annually “(1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income [or loss] by the applicable statutory income tax rate).” The amendments in ASU 2023-09 will be applied on a prospective basis and are effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements and related disclosures. There are no other new accounting pronouncements that are expected to have a significant impact on the Company’s unaudited condensed consolidated financial statements. 3. CHAPTER 11 FILING AND EMERGENCE FROM BANKRUPTCY Chapter 11 On December 21, 2022 (the “Petition Date”), the Debtors filed the Chapter 11 Cases in the Bankruptcy Court seeking relief under Chapter 11 of the Bankruptcy Code. The Chapter 11 Cases are jointly administered under Case No. 22-90341. The Debtors continued to operate their business and managed their properties as DIP under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. On June 20, 2023, the Debtors filed with the Bankruptcy Court (i) a proposed Joint Chapter 11 Plan of Reorganization of Core Scientific, Inc. and its Debtor Affiliates and a related proposed form of Disclosure Statement, and on January 15, 2024, the Debtors filed the Fourth Amended Joint Chapter 11 Plan of Reorganization of Core Scientific, Inc. and its Affiliated Debtors (with Technical Modifications) with the Bankruptcy Court. 18 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements On January 16, 2024, the Bankruptcy Court entered the Confirmation Order among other things, confirming the Plan of Reorganization. On the Effective Date, the conditions to the effectiveness of the Plan of Reorganization were satisfied or waived and the Company emerged from bankruptcy. Replacement DIP Credit Agreement On February 2, 2023, the Bankruptcy Court entered an interim order authorizing, among other things, the Debtors to obtain senior secured non-priming super-priority replacement post-petition financing (the “Replacement DIP Facility”). On February 27, 2023, the Debtors entered into a senior secured super-priority replacement debtor-in-possession loan and security agreement governing the Replacement DIP Facility (the “Replacement DIP Credit Agreement”), with B. Riley Commercial Capital, LLC, as administrative agent (the “Administrative Agent”), and the lenders from time to time party thereto (collectively, the “Replacement DIP Lender”). Proceeds of the Replacement DIP Facility were used to, among other things, repay amounts outstanding under the original debtor-in-possession facility that was entered into in connection with the filing of the Chapter 11 Cases (the “Original DIP Facility”), including payment of all fees and expenses required to be paid under the terms of the Original DIP Facility. These funds, along with ongoing cash generated from operations, were anticipated to provide the necessary financing to effectuate the planned restructuring, facilitate the emergence from Chapter 11, and cover the fees and expenses of legal and financial advisors. In January 2024, the Replacement DIP Facility was repaid in full and terminated on the Effective Date of the Company’s Plan of Reorganization. Reorganization items, net and Liabilities Subject to Compromise Effective on December 21, 2022, the Company began to apply the provisions of ASC 852, Reorganizations (“ASC 852”), which is applicable to companies under bankruptcy protection, and requires amendments to the presentation of certain financial statement line items. ASC 852 requires that the financial statements for periods including and after the filing of the Chapter 11 Cases distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Expenses (including professional fees), realized gains and losses, and provisions for losses that can be directly associated with the reorganization must be reported separately as Reorganization items, net in the Consolidated Statements of Operations beginning December 21, 2022, the date of filing of the Chapter 11 Cases. As of December 31, 2023, liabilities that were affected by the Plan of Reorganization were classified as liabilities subject to compromise at the amounts expected to be allowed by the Bankruptcy Court, even if they may have been settled for lesser amounts as a result of the Plan of Reorganization or negotiations with creditors. If there was uncertainty about whether a secured claim was under secured, or would be impaired under the Plan of Reorganization, the entire amount of the claim was included with prepetition claims in liabilities subject to compromise. After the Effective Date, any resulting changes in classification were reflected in subsequent financial statements. As a result of the filing of the Chapter 11 Cases on December 21, 2022, the classification of pre-petition indebtedness was generally subject to compromise pursuant to the Plan of Reorganization. Generally, actions to enforce or otherwise effect payment of pre-bankruptcy filing liabilities were stayed. The Bankruptcy Court granted the Debtors authority to pay certain pre-petition claims in designated categories and subject to certain terms and conditions. This relief generally was designed to preserve the value of the Debtors’ businesses and assets. Among other things, the Bankruptcy Court authorized the Debtors to pay certain pre-petition claims relating to employee wages and benefits, taxes and critical vendors. The Debtors paid undisputed post-petition liabilities in the ordinary course of business. In addition, the Debtors rejected certain pre-petition executory contracts and unexpired leases with respect to their operations with the approval of the Bankruptcy Court. Any damages resulting from the rejection of executory contracts and unexpired leases were treated as general unsecured claims and paid in full. 19 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Reorganization items, net incurred as a result of the Chapter 11 Cases presented separately in the accompanying Condensed Consolidated Statements of Operations were as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Professional fees and other bankruptcy related costs $ — $ 25,113 $ 21,480 $ 62,970 Negotiated settlements — ( 61 ) ( 2,269 ) ( 61 ) Satisfaction of allowed claims: Extinguishment of secured and other convertible notes — — ( 10,831 ) — Extinguishment of miner equipment lender loans and leases — — ( 102,024 ) — Satisfaction of general unsecured creditor claims — — ( 31,167 ) — Satisfaction of cures and other claims — — 231 — Total satisfaction of allowed claims — — ( 143,791 ) — Reimbursed claimant professional fees — — 12,802 — Debtor-in-possession financing costs — 3,204 339 15,361 Reorganization items, net $ — $ 28,256 $ ( 111,439 ) $ 78,270 During the nine months ended September 30, 2024, there were significant reorganization related gains resulting primarily from satisfaction of allowed claims under the Plan of Reorganization on the Effective Date and negotiated settlements, partially offset by professional fees and other bankruptcy related costs. These reorganization related impacts were classified as Reorganization items, net until the Effective Date. Reorganization costs incurred after the Effective Date have been classified as General and administrative expense. The accompanying Consolidated Balance Sheet as of December 31, 2023, includes amounts classified as Liabilities subject to compromise, which represented liabilities the Company estimated would be allowed as claims in the Chapter 11 Cases by the Court. These amounts represented the Company's estimate of known or potential obligations to be resolved in connection with the Chapter 11 Cases. Liabilities subject to compromise consisted of the following (in thousands): December 31, 2023 Accounts payable $ 36,678 Accrued expenses and other current liabilities 20,300 Accounts payable, and accrued expenses and other current liabilities $ 56,978 Debt subject to compromise $ 41,777 Accrued interest on liabilities subject to compromise 580 Leases, debt and accrued interest 42,357 Liabilities subject to compromise $ 99,335 Pre-petition unsecured and secured claims which were identified as impaired and subject to compromise during the bankruptcy process were reclassified to Liabilities subject to compromise. Final determination of the value at which liabilities were settled was made when the Plan of Reorganization became effective and the Company emerged from bankruptcy. 20 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements 4. PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, net as of September 30, 2024 and December 31, 2023 consist of the following (in thousands): September 30, 2024 December 31, 2023 Estimated Useful Lives Land and improvements 1 $ 20,008 $ 21,852 20 years Building and improvements 2 231,502 191,615 12 to 39 years Mining and network equipment 3 428,875 414,284 3 to 5 years Electrical equipment 4 78,016 64,810 5 to 15 years Other property, plant and equipment 5 2,683 2,935 5 to 7 years Total 761,084 695,496 Less: accumulated depreciation and amortization 6 364,510 293,974 Total 396,574 401,522 Add: Construction in progress 153,858 183,909 Property, plant and equipment, net $ 550,432 $ 585,431 1 Estimated useful life of improvements. Land is not depreciated. 2 Includes finance lease assets of $ 1.0 million and $ 6.6 million at September 30, 2024 and December 31, 2023, respectively. 3 Includes finance lease assets of nil and $ 40.0 million at September 30, 2024 and December 31, 2023, respectively. 4 Includes finance lease assets of $ 8.7 million and $ 12.7 million at September 30, 2024 and December 31, 2023, respectively. 5 Includes finance lease assets of $ 0.4 million and $ 0.4 million at September 30, 2024 and December 31, 2023, respectively. 6 Includes accumulated amortization for assets under finance leases of $ 3.8 million and $ 43.4 million at September 30, 2024 and December 31, 2023, respectively. Depreciation expense, including amortization of finance lease assets, for the three months ended September 30, 2024 and 2023, was $ 28.5 million, and $ 24.0 million, respectively, and for the nine months ended September 30, 2024 and 2023, was $ 86.6 million and $ 64.7 million, respectively. 5. LEASES Lessee Accounting The Company has entered into non-cancellable operating and finance leases for office space, data facilities, computer and networking equipment, electrical infrastructure and office equipment, with lease periods expiring through 2051. Variable lease payments are not included in the initial measurement of leases and are expensed as incurred. On September 30, 2024, the Company entered into a lease agreement by and between the Company and Aubix, LLC (the "Aubix Lease") for approximately 5.7 acres of land, including a 40,000 square foot building that the Company intends to use for its HPC hosting operations. The Aubix Lease is anticipated to commence in November 2024 as the Company begins occupancy of the leased space. The term of the Aubix Lease is 10 years from the commencement date. The Company has the right to extend the term of the Aubix Lease up to an additional 15 years in 5 year increments. The total future minimum lease payments related to the Aubix Lease is approximately $ 43.5 million. 21 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements The components of operating and finance leases are presented on the Company’s Condensed Consolidated Balance Sheets as follows (in thousands): Financial statement line item September 30, 2024 December 31, 2023 Assets: Operating lease right-of-use assets Operating lease right-of-use assets $ 74,733 $ 7,844 Finance lease right-of-use assets Property, plant and equipment, net $ 6,220 $ 16,268 Liabilities: Operating lease liabilities, current portion Operating lease liabilities, current portion $ 7,486 $ 77 Operating lease liabilities, net of current portion Operating lease liabilities, net of current portion $ 65,335 $ 1,512 Finance lease liabilities, current portion Finance lease liabilities, current portion $ 2,380 $ 19,771 Finance lease liabilities, net of current portion Finance lease liabilities, net of current portion $ 4 $ 35,745 Supplemental disclosure of noncash investing and financing activities in the Company’s Condensed Consolidated Statements of Cash Flows includes a decrease in lease liability due to lease satisfactions on the Effective Date of $ 50.7 million presented in Extinguishment of accounts payable, accrued expenses, finance lease liability, and notes payable upon emergence for the nine months ended September 30, 2024. The components of lease expense were as follows (in thousands): Three Months Ended September 30, Financial statement line item 2024 2023 Operating lease expense Cost of HPC hosting services $ 4,833 $ — Operating lease expense General and administrative expenses ( 1,005 ) 77 Short-term lease expense General and administrative expenses 68 161 Finance lease expense: Amortization of right-of-use assets Cost of revenue 231 2,580 Interest on lease liabilities Interest expense, net 91 766 Total finance lease expense 322 3,346 Total lease expense $ 4,218 $ 3,584 Nine Months Ended September 30, Financial statement line item 2024 2023 Operating lease expense Cost of HPC hosting services $ 7,930 $ — Operating lease expense General and administrative expenses 1,405 675 Short-term lease expense General and administrative expenses 262 523 Finance lease expense: Amortization of right-of-use assets Cost of revenue 880 9,708 Interest on lease liabilities Interest expense, net 1,132 1,508 Total finance lease expense 2,012 11,216 Total lease expense $ 11,609 $ 12,414 22 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Information relating to the lease term and discount rate is as follows: September 30, 2024 September 30, 2023 Weighted Average Remaining Lease Term (Years) Operating leases 6.9 15.4 Finance leases 1.0 1.3 Weighted Average Discount Rate Operating leases 9.3 % 7.1 % Finance leases 12.5 % 12.9 % Information relating to lease payments is as follows (in thousands): Nine Months Ended September 30, 2024 2023 Lease Payments Operating lease payments $ 5,414 $ 499 Finance lease payments 1 $ 7,147 $ 3,501 1 Approximately $ 4.6 million of finance lease liabilities were reinstated pursuant to the Plan of Reorganization. Of the $ 7.1 million of finance lease payments made during the nine months ended September 30, 2024, $ 4.4 million related to cure payments from emergence on the Effective Date. The Company’s minimum payments under noncancelable operating and finance leases having initial terms and bargain renewal periods in excess of one year are as follows at September 30, 2024, and thereafter (in thousands): Operating leases Finance leases Remaining 2024 $ 3,392 $ 685 2025 13,891 1,855 2026 14,302 3 2027 14,725 — 2028 15,160 — Thereafter 38,199 — Total lease payments 99,669 2,543 Less: imputed interest 26,848 159 Total $ 72,821 $ 2,384 Lessor Accounting We generate revenue by leasing property to customers under licensing agreements. The manner in which we recognize these transactions in our financial statements is described in Note 2 — Summary of Significant Accounting Policies — Revenue Recognition — HPC Hosting Segment. The components of lease revenue were as follows (in thousands): Three Months Ended September 30, 2024 Nine Months Ended September 30, 2024 Lease Revenue Operating lease revenue $ 7,806 $ 11,625 Variable lease revenue 2,532 4,232 Total lease revenue $ 10,338 $ 15,857 23 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements The following table represents the maturity analysis of operating lease payments expected to be received at September 30, 2024, and thereafter (in thousands): Operating leases Remaining 2024 $ 3,680 2025 22,577 2026 23,254 2027 23,952 2028 24,670 Thereafter 58,174 Total $ 156,307 24 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements 6. CONVERTIBLE AND OTHER NOTES PAYABLE Notes payable as of September 30, 2024 and December 31, 2023, consist of the following (in thousands): Stated Interest Rate Effective Interest Rates Maturities September 30, 2024 December 31, 2023 Replacement DIP Credit Agreement 1 10.0 % 10.0 % 2024 $ — $ 4,273 Exit Credit Agreement 9.0 % 9.0 % 2027 — — Other Convertible Notes 2 10.0 % 10.0 % 2025 — 322,396 Secured Convertible Notes 2 10.0 % 10.0 % 2025 — 237,584 Secured Notes 12.5 % 12.6 % 2028 — — New Secured Convertible Notes 6.0 % - 10.0 % 10.0 % 2029 — — 2029 Convertible Notes 3.0 % 3.7 % 2029 460,000 — Miner Financing: Blockfi loan 9.7 % - 13.1 % 10.1 % - 13.1 % 2023 — 53,913 Blockfi takeback loan 3.0 % - 8.0 % 11.9 % 2029 — — Liberty/Stonebriar loan 10.6 % 10.6 % 2024 — 6,968 Liberty/Stonebriar takeback loan 3.0 % - 8.0 % 11.9 % 2029 6,366 — ACM note — % 15.0 % 2025 4,137 6,519 Mass Mutual Barings loans 9.8 % - 13.0 % 9.8 % - 13.0 % 2025 — 63,844 Anchor Labs loan 12.5 % 12.5 % 2024 — 25,159 Trinity loan 11.0 % 11.0 % 2024 — 23,356 Equipment and Settlement: Bremer loan 5.5 % 5.5 % 2027 11,674 18,331 HMC note 5.0 % 15.0 % 2026 10,764 14,208 Didado note 5.0 % 15.0 % 2027 10,315 13,000 Harper note 5.0 % 15.0 % 2026 3,587 4,678 Trilogy note 5.0 % 15.0 % 2026 2,379 2,927 Unsecured: B. Riley Bridge Notes 7.0 % 7.0 % 2023 — 41,777 Other: First Insurance note 7.6 % 7.6 % 2024 — 2,538 Stockholder loan 10.0 % 20.0 % 2023 — 10,000 Kentucky Note 5.0 % 5.0 % 2023 — 529 Other 5.0 % - 7.7 % 7.1 % - 15.0 % 2024 - 2025 326 2,453 Notes payable, prior to reclassification to Liabilities subject to compromise 509,548 854,453 Less: Notes payable in Liabilities subject to compromise 3 — 41,777 Less: Unamortized discounts - post-petition 17,011 4,236 Total notes payable, net 492,537 808,440 Less: current maturities 17,941 124,358 Convertible and other notes payable, net of current portion $ 474,596 $ 684,082 1 Replacement DIP Credit Agreement, see Note 3 — Chapter 11 Filing and Emergence from Bankruptcy for further information. 2 Other Convertible Notes and Secured Convertible Notes included principal balances at issuance and PIK interest. 3 In connection with the Company's Chapter 11 Cases, $ 41.8 million of outstanding notes payable were reclassified to Liabilities subject to compromise in the Company's Consolidated Balance Sheets as of December 31, 2023, at their expected allowed amount. Up to the Petition Date, the Company continued to accrue interest expense in relation to these reclassified debt instruments. As of December 31, 2023, $ 0.6 million of accrued interest was classified as Liabilities subject to compromise. 25 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements 3.00 % Convertible Senior Notes due 2029 On August 19, 2024, the Company completed a private offering (the “2029 Convertible Notes Offering”) of $ 460.0 million aggregate principal amount of 3.00 % Convertible Senior Notes due 2029 (the “2029 Convertible Notes”), which included the exercise in full of the initial purchasers’ option to purchase up to an additional $ 60.0 million aggregate principal amount of 2029 Convertible Notes. The 2029 Convertible Notes were issued pursuant to, and are governed by, an indenture (the “2029 Convertible Notes Indenture”), dated as of August 19, 2024, between the Company and U.S. Bank Trust Company, National Association, as trustee (the “2029 Convertible Notes Trustee”). The 2029 Convertible Notes accrue interest at a rate of 3.00 % per annum, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2025. The 2029 Convertible Notes will mature on September 1, 2029, unless earlier converted, redeemed or repurchased by the Company. Noteholders may convert their 2029 Convertible Notes at their option only in the following circumstances: (i) during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ending on December 31, 2024, if the last reported sale price per share of the Company’s New Common Stock (as defined below), $ 0.00001 par value per share, exceeds 130 % of the conversion price for each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (ii) during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “Measurement Period”) if the trading price per $1,000 principal amount of 2029 Convertible Notes for each trading day of the Measurement Period was less than 98 % of the product of the last reported sale price per share of the New Common Stock on such trading day and the conversion rate on such trading day; (iii) upon the occurrence of certain corporate events or distributions on the New Common Stock, as described in the 2029 Convertible Notes Indenture; (iv) if the Company calls any 2029 Convertible Notes for redemption; and (v) at any time from, and including, June 1, 2029 until the close of business on the scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of New Common Stock or a combination of cash and shares of New Common Stock, at the Company’s election, based on the applicable conversion rate(s). The initial conversion rate is 90.9256 shares of New Common Stock per $1,000 principal amount of 2029 Convertible Notes, which represents an initial conversion price of approximately $ 11.00 per share of New Common Stock. The conversion rate and conversion price will be subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the 2029 Convertible Notes Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time. The 2029 Convertible Notes are redeemable, in whole or in part (subject to certain limitations described below), at the Company’s option at any time, and from time to time, on or after September 7, 2027 and on or before the 20 th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the 2029 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if certain liquidity conditions are satisfied and the last reported sale price per share of the New Common Stock exceeds 130 % of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (ii) the trading day immediately before the date the Company sends such notice. However, the Company may not redeem less than all of the outstanding 2029 Convertible Notes unless at least $ 100.0 million aggregate principal amount of 2029 Convertible Notes are outstanding and not called for redemption as of the time the Company sends the related redemption notice. In addition, calling any 2029 Convertible Note for redemption will constitute a Make-Whole Fundamental Change with respect to that 2029 Convertible Note, in which case the conversion rate applicable to the conversion of that 2029 Convertible Note will be increased in certain circumstances if it is converted after it is called for redemption. If a “Fundamental Change” (as defined in the 2029 Convertible Notes Indenture) occurs, then, subject to a limited exception for certain cash mergers, noteholders may require the Company to repurchase their 2029 Convertible Notes at a cash repurchase price equal to the principal amount of the 2029 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the Fundamental Change Repurchase Date (as defined in the 2029 Convertible Notes Indenture). The definition of Fundamental Change includes certain business combination transactions involving the Company and certain de-listing events with respect to the New Common Stock. The 2029 Convertible Notes have customary provisions relating to the occurrence of “Events of Default” (as defined in the 2029 Convertible Notes Indenture), which include the following: (i) certain payment defaults on the 2029 Convertible Notes (which, in the case of a default in the payment of interest on the 2029 Convertible Notes, will be subject to a 30 -day cure period); (ii) the Company’s failure to send certain notices under the 2029 Convertible Notes Indenture within specified periods of time; (iii) the Company’s failure to convert a 2029 Convertible Note in accordance with the 2029 Convertible Notes Indenture upon exercise of the conversion right with respect thereto; (iv) the Company’s failure to comply with certain covenants in the 2029 Convertible Notes 26 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Indenture relating to the Company’s ability to consolidate with or merge with or into, or sell, lease or otherwise transfer, in one transaction or a series of transactions, all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, to another person; (v) a default by the Company in its other obligations or agreements under the 2029 Convertible Notes Indenture or the 2029 Convertible Notes if such default is not cured or waived within 60 days after notice is given in accordance with the 2029 Convertible Notes Indenture; (vi) certain defaults by the Company or any of its “Significant Subsidiaries” (as defined in the 2029 Convertible Notes Indenture) with respect to indebtedness for borrowed money of at least $ 25.0 million; (vii) the rendering of certain judgments against the Company or any of its Significant Subsidiaries for the payment of at least $ 25.0 million, where such judgments are not discharged or stayed within 60 days after date on which the right to appeal has expired or on which all rights to appeal have been extinguished; and (viii) certain events of bankruptcy, insolvency and reorganization involving the Company or any of its Significant Subsidiaries. If an Event of Default involving bankruptcy, insolvency or reorganization events with respect to the Company (and not solely with respect to a Significant Subsidiary of the Company) occurs, then the principal amount of, and all accrued and unpaid interest on, all of the 2029 Convertible Notes then outstanding will immediately become due and payable without any further action or notice by any person. If any other Event of Default occurs and is continuing, then, the 2029 Convertible Notes Trustee, by notice to the Company, or noteholders of at least 25 % of the aggregate principal amount of 2029 Convertible Notes then outstanding, by notice to the Company and the 2029 Convertible Notes Trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the 2029 Convertible Notes then outstanding to become due and payable immediately. However, notwithstanding the foregoing, the Company may elect, at its option, that the sole remedy for an Event of Default relating to certain failures by the Company to comply with certain reporting covenants in the 2029 Convertible Notes Indenture consists exclusively of the right of the noteholders to receive special interest on the 2029 Convertible Notes for up to 365 days at a specified rate per annum equal to 0.25 % of the principal amount thereof for the first 180 days on which special interest accrues and, thereafter, at a rate per annum equal to 0.50 % of the principal amount thereof. The net proceeds from the 2029 Convertible Notes Offering were approximately $ 447.6 million, after deducting the initial purchasers’ discounts and commissions and the Company’s estimated offering expenses. The Company used approximately $ 62.0 million of the net proceeds from the 2029 Convertible Notes Offering to repay in full the outstanding loans under the Exit Credit Agreement, of which $ 0.8 million was paid for interest. Additionally, the Company used approximately $ 154.1 million of the net proceeds from the 2029 Convertible Notes Offering to redeem all of the outstanding Secured Notes, of which $ 4.1 million was paid for interest. The Company intends to use the remaining net proceeds from the 2029 Convertible Notes Offering for general corporate purposes, including working capital, operating expenses, capital expenditures, acquisitions of complementary businesses, or other repurchases of its securities. Miner Equipment Lender Agreements (BlockFi and Stonebriar) On September 6, 2024, the Company paid $ 49.6 million to repay the BlockFi facility in full, of which $ 0.7 million was paid for interest. On October 2, 2024, the Company paid $ 6.5 million to repay the Stonebriar facility in full, of which $ 0.1 million was paid for interest. Below is a description of the Miner Equipment Lender Agreements prior to their repayment. On the Effective Date, under the terms of the Plan of Reorganization, the Company entered into separate New Miner Equipment Lender Agreements (Election 2) with each holder of an Allowed Miner Equipment Lender Secured Claim that was a Settling Miner Equipment Lender that elected on its ballot to receive and was receiving the Miner Equipment Lender Treatment Election 2 (the “Election 2 Miner Equipment Facility Lenders”), in each case, in the principal amount of eighty percent ( 80 %) of each applicable Holders’ Allowed Miner Equipment Lender Claim as of the Effective Date (the “Miner Equipment Lender Facility”). The maturity date on the Miner Equipment Lender Facility was January 23, 2029. Loans issued under the Miner Equipment Lender Facility accrued interest (1) from the Effective Date to and including the second anniversary of the Effective Date, (x) if the Company did not deliver an Election Notice (as defined below), at a rate of 13.0 % per annum and was payable 3.0 % in cash interest and 10.0 % paid-in-kind, and (y) if the Company delivered a written notice to the Election 2 Miner Equipment Facility Lenders five (5) business days prior to the due date of any interest payment during this period (an “Election Notice”), the Company could elect to have interest accrue at either (a) 12.0 % per annum, payable 5.0 % in cash and 7.0 % paid-in-kind or (ii) 8.0 % per annum, payable in cash and (2) following the second anniversary of the Effective Date, at a rate of 10.0 % per annum, payable in cash. Upon the occurrence and during the continuance of an Event of Default (as such term is defined in the New Miner Equipment Lender Agreements (Election 2)), the obligations under the Miner Equipment Lender Facility could, at the option of the Election 2 Miner Equipment Facility Lenders, accrue interest at a rate equal to an additional 2.0 % per annum over the rate otherwise applicable, with such interest being payable in cash on demand. 27 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Loans issued under the Miner Equipment Lender Facility were secured by a first-priority, duly-perfected and validly enforceable lien on (i) the collateral securing each Election 2 Miner Equipment Facility Lenders’ existing equipment loan/lease and (ii) new, non-financed miners acquired by the Company after the Effective Date, in an aggregate amount of up to $ 18.2 million (collectively, the “Equipment Priority Collateral”). On the Effective Date, under the terms of the Plan of Reorganization, each Miner Equipment Facility Lender entered into a separate intercreditor agreement with the Secured Convertible Notes Agent, the Secured Notes Agent and the Exit Agent (as defined in the Plan of Reorganization) with respect to the Equipment Priority Collateral. The present value of the Miner Equipment Lender Facility’s cash flows were estimated to be equal to its par amount, therefore no discount or premium was recorded on issuance. The Miner Equipment Lender Facility contained customary covenants, representations and warranties. Previous Indebtedness Extinguished During Fiscal 2024 Emergence The Replacement DIP Facility provided for a non-amortizing super-priority senior secured term loan facility in an aggregate principal amount not to exceed $ 70 million. Under the Replacement DIP Facility, (i) $ 35 million was made available following Bankruptcy Court approval of the interim debtor-in-possession order and (ii) $ 35 million was made available following Bankruptcy Court approval of the final debtor-in-possession order on March 1, 2023. Loans under the Replacement DIP Facility bore interest at a rate of 10 %, which was payable in kind in arrears on the first day of each calendar month. On January 4, 2024, the Company pre-paid the outstanding balance of $ 4.5 million on the Replacement DIP Facility provided by B. Riley Financial, the Company’s DIP lender. The $ 4.5 million payment included exit fees of approximately $ 0.2 million. The Replacement DIP Facility was terminated on the Effective Date. On January 24, 2024, the Company entered into a settlement agreement with Dalton Utilities which resulted in the issuance of an unsecured promissory note with a principal amount of $ 9.1 million dated December 29, 2023. The note bore interest at a contractual rate of 5.0 % per annum and matured on May 2, 2024. On the Effective Date, the obligations of the Company under the Company’s April convertible notes, August convertible notes, replacement debtor-in-possession credit agreement, stock certificates, book entries, and any other certificate, share, note, bond, indenture, purchase right, option, warrant, or other instrument or document, directly or indirectly, evidencing or creating any indebtedness or obligation of or ownership interest in the Debtors giving rise to any claim or interest (except such certificates, notes or other instruments or documents evidencing indebtedness or obligations of, or interests in, the Debtors that are specifically reinstated pursuant to the Plan of Reorganization) were cancelled, and the duties and obligations of all parties thereto were deemed satisfied in full, canceled, released, discharged, and of no force or effect. Extinguishments On the Effective Date, the holders of Secured and Other Convertible Notes received Secured Notes Indenture, New Secured Convertible Notes Indenture, New Common Stock and CVRs. Certain holders of New Secured Convertible Notes also funded and received the Exit Credit Agreement. The exchange and underlying agreements were executed contemporaneously and in contemplation of each other and were analyzed on a combined basis under ASC 470. The Company determined that extinguishment accounting was applicable, as the debt terms in the exchange are substantially different: (a) the present value of the cash flows of the new and remaining instruments differ by more than 10%, (b) the fair value of the conversion option changed by more than 10% of the carrying amount of the original instruments, and (c) a substantive conversion feature was added to the debt terms. The gain on extinguishment is reported in Reorganization items, net. Two previous miner equipment lender loans were exchanged for Miner Equipment Lender Agreements. The Company determined that extinguishment accounting was applicable, as the loans had original maturities near the exchange on the Effective Date. The remaining miner equipment lender loans and leases were exchanged for New Common Stock. The Company determined that extinguishment accounting was applicable, as the remaining miner equipment lender loans and leases were settled by the issuance of equity-classified shares. The gain on extinguishment is reported in Reorganization items, net. 28 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Issuances On the Effective Date, pursuant to the Plan of Reorganization, the Company issued the following debt instruments, which are defined and described in further detail below (in thousands): Principal Balance on the Effective Date Exit Credit Agreement $ 61,200 Secured Notes Indenture $ 150,000 New Secured Convertible Notes Indenture $ 260,000 Miner Equipment Lender Agreements $ 52,947 In addition, approximately $ 15.0 million of debt was reinstated pursuant to the Plan of Reorganization. Exit Credit Agreement Below is a description of the Exit Credit Agreement prior to its repayment in full on August 19, 2024. There is currently no outstanding Exit Credit Agreement. On the Effective Date, under the terms of the Plan of Reorganization, the Company entered into a credit and guaranty agreement, dated as of January 23, 2024 (the “Exit Credit Agreement”), by and among the Company, as borrower, the guarantors named therein, the lenders party thereto and Wilmington Trust, National Association, as administrative agent and collateral agent, consisting of an $ 80 million first-lien credit facility with certain holders of the Company’s April convertible notes and August convertible notes (in such capacity, the “Exit Lenders”) equal to (i) a $ 40 million term loan comprised of (x) a $ 20 million initial term loan and (y) a $ 20 million delayed-draw term loan and (ii) a $ 40 million roll-up of the outstanding balance of the April convertible notes and August convertible notes (the “Exit Facility”). The maturity date of the Exit Facility was January 23, 2027. From the Effective Date, cash borrowings under the Exit Facility bore interest at 9.0 % per annum, payable on the first business day of each Fiscal Quarter (as defined in the Exit Credit Agreement), commencing on April 1, 2024. The Exit Facility amortized in equal quarterly installments of $ 1.25 million beginning on January 1, 2026. Upon the occurrence and during the continuance of an Event of Default (as such term is defined in the Exit Credit Agreement), the obligations under the Exit Facility automatically bore interest at a rate equal to an additional 2.0 % per annum over the rate otherwise applicable, with such interest being payable in cash on each interest payment date (unless the administrative agent demands prior payment). At issuance, the Company identified embedded features in the Exit Facility and evaluated them for potential bifurcation in accordance with ASC 815-15. The identified embedded features were determined to be clearly and closely related to the debt host and not subject to bifurcation. The present value of the Exit Facility’s cash flows were estimated to be equal to its par amount, therefore no discount or premium was recorded on issuance. Obligations under the Exit Credit Agreement were secured by a valid and perfected lien and security interest on substantially all assets and property of the Company and the guarantors thereof, including a first-priority lien on all new, unencumbered miner equipment purchased by the Company or any subsidiary thereof other than the following, which were each secured by a second priority lien on, (i) Equipment Priority Collateral (as defined below) and (ii) future financed equipment. Obligations under the Exit Credit Agreement were guaranteed by all direct and indirect subsidiaries of the Company. The Exit Facility provided for affirmative, negative and financial covenants, that, among other things, limited the ability of the Company and, in certain cases, certain of the Company’s subsidiaries, to incur more indebtedness; pay dividends, redeem stock or make other distributions; make investments; grant or permit certain liens; transfer or sell assets; merge or consolidate; and enter into certain transactions with our affiliates. The Exit Facility also imposed financial maintenance covenants in the form of a maximum leverage ratio and minimum liquidity requirements. The Exit Facility contained certain events of default, including, without limitation, nonpayment of principal, nonpayment of interest, fees or other obligations after three business days, bankruptcy events of the Company or any of its subsidiaries and certain changes of control. 29 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Secured Notes Indenture Below is a description of the Secured Notes (as defined below) prior to their repayment in full on August 19, 2024. There are currently no outstanding Secured Notes. On the Effective Date, under the terms of the Plan of Reorganization, the Company issued $ 150.0 million aggregate principal amount of senior secured notes due 2028 (the “Secured Notes”) pursuant to a secured notes indenture (the “Secured Notes Indenture”) among (i) the Company, as the issuer, (ii) the guarantors named therein and (iii) Wilmington Trust, National Association, as trustee and collateral agent (the “Secured Notes Agent”). The maturity date of the Secured Notes was January 23, 2028. The Secured Notes bore interest at a rate of 12.5 % per annum, payable on March 15, June 15, September 15 and December 15 of each year, beginning on June 15, 2024. There was no amortization on the Secured Notes prior to maturity. The Secured Notes were secured by a valid and perfected second lien and security interest on substantially all assets of the Company and the guarantors thereof, which liens were junior in priority to liens securing the Exit Facility and were subject to the terms of the New Intercreditor Agreement. The Secured Notes were guaranteed by all direct and indirect subsidiaries of the Company. The Company was entitled to prepay the notes prior to maturity. If the notes were prepaid after the first year (including in the event that the notes are accelerated), or if the notes were not paid when due at the stated maturity, the Company was required to pay a premium on the outstanding principal amount equal to: (a) 1.00 % of the aggregate principal amount of the notes then outstanding, if the notes were prepaid on or after the first anniversary of the Issue Date (as such term is defined in the Secured Notes Indenture) and prior to the second anniversary of the Issue Date, (b) 2.00 % of the aggregate principal amount of the notes then outstanding, if the notes were prepaid on or after the second anniversary of the Issue Date and prior to the third anniversary of the Issue Date and (c) 3.00 % of the aggregate principal amount of the notes then outstanding, if the notes were prepaid on or after the third anniversary of the Issue Date or if the notes were not paid when due at maturity, in each case whether such payment was made before or after an event of default or an acceleration (including any acceleration as a result of an insolvency proceeding) of all or part of the notes. No prepayment premium shall be applicable in connection with any prepayment, repayment or refinancing that occurs prior to the first anniversary of the Issue Date. At issuance, the Company identified embedded features in the Secured Notes and evaluated them for potential bifurcation in accordance with ASC 815-15. The identified embedded features were determined to be clearly and closely related to the debt host and not subject to bifurcation. The present value of the Secured Notes’ cash flows at issuance were estimated to be $ 149.5 million, the discount was amortized to result in recognition of a level effective interest rate. The Secured Notes Indenture contained affirmative and negative covenants consistent with those in the Exit Facility and the New Secured Convertible Notes Indenture (as defined below) that, among other things, limited the ability of the Company and, in certain cases, certain of the Company’s subsidiaries to incur more indebtedness; pay dividends, redeem stock or make other distributions; make investments; grant or permit certain liens; transfer or sell assets; merge or consolidate; and enter into certain transactions with its affiliates. The Secured Notes Indenture contained certain events of default, including, without limitation, nonpayment of principal, nonpayment of fees, interest or other obligations after three business days, violations of the covenants (subject, in the case of certain affirmative covenants, to certain grace periods), and bankruptcy events of the Company or any of its subsidiaries. New Secured Convertible Notes Indenture; Interest Payment and Mandatory Conversion The New Secured Convertible Notes (as defined below) were mandatorily converted as of July 10, 2024 and are no longer outstanding. On the Effective Date, under the terms of the Plan of Reorganization, the Company issued $ 260.0 million aggregate principal amount of secured convertible notes due 2029 (the “New Secured Convertible Notes”) pursuant to a secured convertible notes indenture (the “New Secured Convertible Notes Indenture”) among (i) Core Scientific, Inc., as the issuer, (ii) the guarantors party thereto and (iii) Wilmington Trust, National Association, as trustee and as collateral agent for the New Secured Convertible Notes (in such capacity, the “Secured Convertible Notes Agent”). The New Secured Convertible Notes were issued to holders of the Company’s April convertible notes and August convertible notes. 30 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements The maturity date of the New Secured Convertible Notes was January 23, 2029. The New Secured Convertible Notes bore interest payable quarterly on March 15, June 15, September 15 and December 15, beginning on June 15, 2024, at the Company’s option, (i) in cash at a rate of 10.0 % per annum, or (ii) in cash at a rate of 6.0 % of per annum and in stock at a rate of 6.0 % of per annum (the “Cash/PIK Interest”); provided that the payable-in-stock portion of the Cash/PIK Interest was payable in New Common Stock using a price equal to the volume weighted average price of the New Common Stock for the 20 consecutive trading day period immediately preceding the date that was three business days prior to the applicable interest payment date. The Company exercised its option to make the June 15, 2024 interest payment 6 % in cash for approximately $ 6.0 million and 6 % in stock and issued 881,610 shares of its New Common Stock to the holders of the New Secured Convertible Notes on that date for total interest expense of approximately $ 9.8 million. Prior to the mandatory conversion on July 10, 2024, $ 26.4 million of New Secured Convertible Notes including interest were voluntarily converted for 4.5 million shares of New Common Stock. On July 5, 2024, the mandatory conversion feature of the New Secured Convertible Notes pursuant to the Indenture, dated as of January 23, 2024 (the “Indenture”), by and among the Company, as issuer, Wilmington Trust, National Association (“Wilmington Trust”), as trustee and collateral agent, and the other parties thereto, was triggered when the trading price of the Company’s New Common Stock on a daily volume weighted average basis (“VWAP”) exceeded the applicable threshold specified in the Indenture for the 20 th consecutive trading day. In connection with the mandatory conversion of the Notes, which took place on July 10, 2024, each registered holder of the New Secured Convertible Notes was entitled to receive (1) a number of shares of the Company’s New Common Stock equal to the aggregate principal amount of his, her or its notes outstanding, divided by the conversion price of $ 5.8317 (not including fractional shares), and (2) an amount of cash equal to the number of the resulting fractional shares, multiplied by the closing trading price of the Company’s New Common Stock on July 9, 2024. Following the mandatory conversion of the New Secured Convertible Notes, 40.1 million shares of the Company’s New Common Stock in the aggregate were issued in exchange for $ 233.6 million aggregate principal amount of the New Secured Convertible Notes. Description of the New Secured Convertible Notes Indenture Prior to the Mandatory Conversion Below is a description of the New Secured Convertible Notes prior to their mandatory conversion on July 10, 2024. There are currently no outstanding New Secured Convertible Notes. The New Secured Convertible Notes were secured by a valid and perfected third lien and security interest on substantially all assets of the Company and the guarantors thereof, and which liens were junior in priority to liens securing the Exit Facility and Secured Notes and were subject to the terms of the New Intercreditor Agreement. The New Secured Convertible Notes were guaranteed by all direct and indirect subsidiaries of the Company. Upon the occurrence of a Fundamental Change (as such term is defined in the New Secured Convertible Notes Indenture), the holders of the New Secured Convertible Notes had the right to require the Company to purchase all or any portion of such holder’s New Secured Convertible Notes at the principal amount thereof plus accrued interest to the repurchase date. Holders could elect to convert the New Secured Convertible Notes into shares of New Common Stock at any time prior to maturity at an initial conversion rate of 171.48 shares of New Common Stock per $1,000 principal amount of New Secured Convertible Notes (equal to a conversion price of $ 5.8317 per share of New Common Stock), which the Company could deliver in cash, New Common Stock or a combination thereof. The conversion price was subject to anti-dilution adjustments upon (among other triggering events) the occurrence of certain dilutive transactions, including share dividends, splits, combinations and reclassification. The New Secured Convertible Notes also automatically converted into New Common Stock if the volume weighted average price for each day for any 20 consecutive trading days was greater than or equal to 133.6 % of the as-adjusted conversion price of $ 7.79 . At issuance, the Company identified embedded features in the New Secured Convertible Notes and evaluated them for potential bifurcation in accordance with ASC 815-15. The conversion feature was determined to be indexed to the Company’s own stock and would be classified in equity if it were freestanding meeting a scope exception from derivative accounting under ASC 815. The other identified embedded features were determined to be clearly and closely related to the debt host and not subject to bifurcation. Convertible debt instruments not specifically addressed in other GAAP are accounted for in accordance with ASC 470-20. Under that guidance a substantial premium is presumed to attributable to the conversion feature. A conversion feature which is not bifurcated as a derivative is initially recognized in equity as additional paid-in capital. The New Secured Convertible Notes were estimated to have a present value of $ 293.2 million on issuance. $ 260.0 million was initially recognized as debt and $ 33.2 million was 31 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements initially recognized as additional paid-in capital. Under the relevant guidance, neither balance was subject to recognition of recurring remeasurements. The New Secured Convertible Notes Indenture contained affirmative and negative covenants consistent with those in the Exit Facility and the Secured Notes Indenture that, among other things, limited the ability of the Company and, in certain cases, certain of the Company’s subsidiaries to incur more indebtedness; pay dividends, redeem stock or make other distributions; make investments; grant or permit certain liens; transfer or sell assets; merge or consolidate; and enter into certain transactions with its affiliates. The New Secured Convertible Notes Indenture contained certain events of default, including, without limitation, nonpayment of principal, nonpayment of interest, fees or other obligations after three business days, and bankruptcy events of the Company or any of its subsidiaries. 7. CONTINGENT VALUE RIGHTS AND WARRANT LIABILITIES Contingent Value Rights Agreement On the Effective Date, under the terms of the Plan of Reorganization, the Company entered into the Contingent Value Rights Agreement and recorded the liabilities at fair value as of the Effective Date. Pursuant to the Contingent Value Rights Agreement, the Company issued 51,783,625 CVRs to holders of the Company’s April convertible notes and August convertible notes who received New Common Stock (in such capacity, the “Payees”) in an aggregate amount of 51,783,625 shares of New Common Stock (the “Corresponding New Common Stock”). The CVRs require the Company to make payments to each Payee, of: • (i) at the first testing date, cash equal to such Payee’s pro rata share (the “Year 1 Contingent Payment Obligation”) of the lesser of (a) $ 43,333,333.33 and (b) the difference between (1) $ 260,000,000 and (2) the fair market value of the Corresponding New Common Stock (the “First Anniversary Payment Amount”); provided that the Year 1 Contingent Payment Obligation will be extinguished if the fair market value of the Corresponding New Common Stock is equal to or in excess of $ 260,000,000 with respect to the first testing date; as of September 30, 2024, the fair market value of the Corresponding New Common Stock was in excess of $ 260,000,000 . • (ii) at the second testing date, cash or New Common Stock (or a combination of cash and New Common Stock), in the Company’s sole discretion, equal to such Payee’s pro rata share (the “Year 2 Contingent Payment Obligation”) of the lesser of (a) $ 43,333,333.33 and (b) the difference between (1) $ 260,000,000 minus the First Anniversary Payment Amount and (2) the fair market value of the Corresponding New Common Stock (the “Second Anniversary Payment Amount”); provided that the Year 2 Contingent Payment Obligation will be extinguished if the fair market value of the Corresponding New Common Stock is equal to or in excess of $ 260,000,000 minus the First Anniversary Payment Amount, if any, with respect to the second testing date; and • (iii) at the third testing date, cash or New Common Stock (or a combination of cash and New Common Stock), in the Company’s sole discretion, equal to such Payee’s pro rata share (the “Year 3 Contingent Payment Obligation”) of the lesser of (a) $ 43,333,333.33 and (b) the difference between (1) $ 260,000,000 minus the sum of the First Anniversary Payment Amount and the Second Anniversary Payment Amount and (2) the fair market value of the Corresponding New Common Stock (the “Third Anniversary Payment Amount”); provided that the Year 3 Contingent Payment Obligation will be extinguished if the fair market value of the Corresponding New Common Stock is equal to or in excess of $ 260,000,000 minus (1) the First Anniversary Payment amount, if any and (2) the Second Anniversary Payment Amount, if any, with respect to the third testing date. GUC Contingent Value Rights and Extinguishment On the Effective Date, pursuant to the Plan of Reorganization, the Company issued (i) 20,335,491 shares of New Common Stock to holders of allowed general unsecured claims (the “GUC Equity Distribution”) and (ii) GUC CVRs to holders of allowed general unsecured claims. The terms of the GUC CVRs provided that unless the value of the GUC Equity Distribution, as implied by the volume weighted average (“VWAP”) of the closing price during any 20 trading days over any consecutive 30 trading day period during the period beginning on the Effective Date and ending on the date 18 months following the Effective Date (the “ GUC CVR Testing Period”), is equal to or in excess of the GUC Equity Distribution at Plan Value, the Company would be required to pay to each GUC Payee New Common Stock in an amount equal to the lesser of (i) such GUC Payee’s pro rata share of the New Common Stock with an aggregate value, based on Plan Value, of $ 7,100,000 and (ii) the difference between (a) the GUC Equity Distribution at Plan Value and (b) the 32 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements value of the GUC Equity Distribution as implied by the volume weighted average of the closing price of the GUC Equity Distribution during the 60 trading days prior to the GUC CVR Testing Date. On July 1, 2024, the GUC CVR obligations were extinguished pursuant to their terms when the VWAP of the Company’s New Common Stock on Nasdaq National Market System exceeded $ 5.02 for 20 trading days within the applicable 30 consecutive trading day period. Warrant Agreement On the Effective Date and pursuant to the Plan of Reorganization and the Confirmation Order, the Company entered into a warrant agreement (the “Warrant Agreement”) providing for the issuance of 98,313,313 warrants, each exercisable for one share of New Common Stock at an exercise price of $ 6.81 per share (the “Tranche 1 Warrants”) and (ii) an aggregate of 81,927,898 warrants, each exercisable for one share of New Common Stock at an exercise price of $ 0.01 per share (the “Tranche 2 Warrants” and, together with the Tranche 1 Warrants, the “Warrants”). Pursuant to the Plan of Reorganization, holders of the Company’s previous common stock received, for each share of the Company’s previous stock held, 0.253244 Tranche 1 Warrants and 0.211037 Tranche 2 Warrants. Each whole Tranche 1 Warrant entitles the registered holder to purchase one whole share of New Common Stock at an exercise price of $ 6.81 per share (the “Tranche 1 Exercise Price”). Each whole Tranche 2 Warrant entitles the registered holder to purchase one whole share of New Common Stock at an exercise price of $ 0.01 per share at any time following the time the volume weighted average price per share of New Common Stock equals or exceeds $ 8.72 per share on each trading day for 20 consecutive trading days (the “Triggering Event”), which event occurred on July 11, 2024. The Tranche 1 and Tranche 2 Exercise Prices are subject to adjustment for specific events as set forth in the Warrant Agreement. The Tranche 1 Warrants will expire on January 23, 2027, and the Tranche 2 Warrants will expire on January 23, 2029, each at 5:00 p.m., New York City time, or earlier upon the occurrence of certain events as set forth in the Warrant Agreement. The Warrant Agreement provides that the Warrant Agreement, with respect to the Tranche 1 Warrants or Tranche 2 Warrants, may be amended with the prior written consent of holders holding a majority of the shares then issuable upon exercise of the Tranche 1 Warrants or Tranche 2 Warrants then outstanding, as applicable; provided, however, that any amendment or supplement to the Warrant Agreement that would reasonably be expected to materially and adversely affect any right of a holder of Warrants shall require the written consent of such holder. In addition, the consent of each holder of Warrants affected shall be required for any amendment pursuant to which the applicable exercise price would be increased, the number of shares issuable upon exercise of Warrants would be decreased (other than pursuant to adjustments provided in the Warrant Agreement) or the applicable expiration date would be revised to an earlier date; provided, however, that the Company and the Warrant Agent may amend the Warrant Agreement without the consent of holders of Warrants to (i) to cure any ambiguity; (ii) correct any defective provision; or (iii) make any other provisions with respect to matters or questions arising under the Warrant Agreement as long as the new provisions do not adversely affect (other than a de minimis adverse effect) the interest of holders of Warrants. The Warrants may be exercised upon prior written notice of such election, payment of the applicable exercise price (together with any applicable taxes and governmental charges) and, with respect to Warrants held through the book-entry facilities of the Depository (as defined in the Warrant Agreement), surrender of the warrant certificate on or prior to the settlement date. The Tranche 2 Warrants may be exercised on a cashless basis, pursuant to which the holder shall be entitled to receive a number of shares of New Common Stock equal to one share of New Common Stock multiplied by a fraction equal to (x) the fair market value (as of the business day immediately preceding the date on which the exercise notice was delivered) of one share of New Common Stock, minus the applicable exercise price, divided by (y) such fair market value. Holders of Warrants do not have the rights or privileges of holders of New Common Stock or any voting rights until they exercise their Warrants and receive shares of New Common Stock. After the issuance of shares of New Common Stock upon exercise of the Warrants, each holder will be entitled to the same rights as holders of New Common Stock. Pursuant to the Warrant Agreement, holders of Warrants may exercise their Warrants only for a whole number of shares of New Common Stock. If, upon exercise, a holder would be entitled to receive a fractional interest in a share, such fractional interest will be rounded to the next higher whole number of the number of shares of New Common Stock to be issued to the holder. Effective January 24, 2024, the Tranche 1 Warrants and Tranche 2 Warrants began trading on the Nasdaq Global Select Market under the symbols “CORZW” and “CORZZ,” respectively. 33 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements During the three and nine months ended September 30, 2024, 0.2 million and 0.2 million Tranche 1 Warrants were exercised, respectively, which resulted in cash receipts of $ 1.1 million and $ 1.5 million, respectively. The Tranche 2 Warrants became exercisable as of the close of trading on July 11, 2024, when the daily volume weighted average trading price of the Company’s New Common Stock exceeded $ 8.72 per share for the 20 th consecutive trading day pursuant to the Warrant Agreement. During the three and nine months ended September 30, 2024, 51.5 million Tranche 2 Warrants were exercised, which resulted in cash receipts of $ 0.4 million. 8. FAIR VALUE MEASUREMENTS The Company measures certain assets and liabilities at fair value on a recurring or non-recurring basis in certain circumstances. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value: Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets. Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3 — Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment. The Company uses observable market data when determining fair value whenever possible and relies on unobservable inputs only when observable market data is not available. Recurring Fair Value Measurements The CVRs, GUC CVRs and Warrants are recognized as derivative liabilities in accordance with ASC 815 and are initially and subsequently measured at fair value with changes in fair value reflected in Net loss. When these instruments were recognized on the Effective Date, observable market data was not available. As of September 30, 2024, observable Level 1 market data was available for the CVRs and Warrants. The following presents the levels of the fair value hierarchy for the Company's derivatives measured at fair value on a recurring basis as of September 30, 2024 (in thousands): September 30, 2024 Fair value hierarchy Level 1 Level 2 Level 3 Fair value Contingent value rights liabilities: Contingent value rights $ 6,991 $ — $ — $ 6,991 Total contingent value rights liabilities 6,991 — — 6,991 Warrants liability: Warrants 1,017,299 — — 1,017,299 Total warrants liability 1,017,299 — — 1,017,299 Total liabilities measured at fair value on a recurring basis $ 1,024,290 $ — $ — $ 1,024,290 34 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Level 2 Recurring Fair Value Measurements In October 2023, the Company entered into an energy forward purchase contract to fix a specified component of the energy price related to forecasted energy purchases at the Cottonwood 1 facility from November 1, 2023 through May 31, 2024 (the “Energy Derivatives”). The Energy Derivatives are recognized as derivatives in accordance with ASC 815 initially and subsequently measured at fair value with changes in value reflected in Net income (loss). The following table summarizes the fair value of the energy forward purchase contract on the Company’s Condensed Consolidated Balance Sheets (in thousands): Fair Value (Level 2) Financial statement line item September 30, 2024 December 31, 2023 Energy forward purchase contract Accrued expenses and other current liabilities $ — $ 2,262 The Company recorded the following losses related to the energy forward purchase contract on the Company’s Condensed Consolidated Statements of Operations (in thousands): Three Months Ended September 30, Nine Months Ended September 30, Financial statement line item 2024 2023 2024 2023 Energy forward purchase contract Change in fair value of energy derivatives $ — $ — $ ( 2,757 ) $ — Nonrecurring fair value measurements The Company’s non-financial assets, including property, plant and equipment, and intangible assets are measured at estimated fair value on a nonrecurring basis. These assets are adjusted to fair value only when an impairment is recognized, or the underlying asset is held for sale. No non-financial assets were classified as Level 3 as of September 30, 2024 or December 31, 2023. Fair value of financial instruments The Company’s financial instruments, that are not subject to recurring fair value measurements, include cash and cash equivalents, restricted cash, accounts receivable, accounts payable, leases, notes payable and certain accrued expenses and other liabilities. Except for the Convertible Notes, the carrying amount of these financial instruments materially approximate their fair values. As of September 30, 2024, the fair value of the Convertible Notes using Level 1 active market price was $ 631.1 million. 9. COMMITMENTS AND CONTINGENCIES Commitments As of September 30, 2024, the Company had open commitments related to construction contracts of approximately $ 660.1 million, substantially all of which is reimbursable by the customer. On July 5, 2024, the Company entered into a purchase agreement with Block, Inc. for the purchase of 3 nanometer Application Specific Integrated Circuits chips (“ASIC chips”) representing approximately 15 EH/s of hash rate. On July 12, 2024, the Company paid a $ 10.0 million deposit which will be applied evenly towards the ASIC chips. Payments are due in installments, starting six months prior to delivery. Delivery of the ASIC chips is expected to begin by the end of 2025. Legal Proceedings —The Company is subject to legal proceedings arising in the ordinary course of business. The Company accrues losses for a legal proceeding when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. However, the uncertainties inherent in legal proceedings make it difficult to reasonably estimate the costs and effects of 35 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements resolving these matters. Accordingly, actual costs incurred may differ materially from amounts accrued and could materially adversely affect the Company’s business, cash flows, results of operations, financial condition and prospects. Unless otherwise indicated, the Company is unable to estimate reasonably possible losses in excess of any amounts accrued. Purported Shareholder Class Action (“Pang”) On November 14, 2022, Plaintiff Mei Pang filed a purported class-action complaint against Core Scientific, Inc., its former chief executive officer, Michael Levitt, and others in the United States District Court, Western District (Austin) of Texas asserting that the Company violated the Securities and Exchange Act by allegedly failing to disclose to investors that among other things the Company was vulnerable to litigation given its decision to pass power costs to its customers, that certain clients had breached their contracts, and that this impacted the Company’s profitability and ability to continue as a going concern. The complaint seeks monetary damages. Core filed a notice of suggestion of bankruptcy stating that its petition for bankruptcy—filed on December 21, 2022—operates as a stay to the continuation of this matter. Plaintiff subsequently withdrew its claims against Core. A lead plaintiff was appointed in April 2023 and proofs of claim were filed in the Company’s Chapter 11 Cases. After the Company filed its motion to dismiss and a subsequent motion for consideration with respect to remaining claims not dismissed, all remaining claims in the complaint against the individual defendants were subsequently dismissed without prejudice in April 2024. On December 7, 2023, the United States Bankruptcy Court for the Southern District of Texas in Houston, sustained the Company’s objection to the filed class proof of claim without prejudice to re-file a proof of claim on an individual basis by December 20, 2023; and denied plaintiff’s Motion for Class Treatment under Fed. R. Bankr. P. 7023. No individual proof of claim was filed by any of the class representatives of the purported class action by December 20, 2023, and a separately filed objection to confirmation of Debtors’ Fourth Amended Chapter 11 Plan and Disclosure Statement was overruled by the Bankruptcy Court on January 16, 2024. On January 29, 2024, plaintiff filed a notice of appeal of the order confirming the Company’s Plan of Reorganization. On June 7, 2024, Plaintiff refiled its complaint asserting that the individual defendants violated the Securities Exchange Act by allegedly failing to disclose to investors that among other things the Company failed to disclose known trends or uncertainties that would have an impact on the Company’s financial performance. The Company’s motion to dismiss the refiled complaint is pending with the United States District Court in Austin, Texas. Purported Shareholder Class Action (“Ihle”) On July 24, 2023, Plaintiff Brad Ihle filed a purported class action complaint against certain officers and directors of Power & Digital Infrastructure Acquisition Corp. (the former name of the current corporate entity operating our business, or “XPDI”) and XMS Sponsor LLC et al, in the Court of Chancery State of Delaware. The complaint alleges breach of fiduciary duties arising out of the merger of XPDI and the entity that conducted our business operations prior to the merger (“Legacy Core”) and the marketing and solicitation of shareholders pursuant to that merger agreement dated July 20, 2021. Certain of the defendants have notified the Company of their intention to seek defense and indemnification in this matter pursuant to Delaware law and the Company’s bylaws. Employment Claim On September 30, 2022, Harlin Dean, a former executive of Blockcap, Inc. (n/k/a Core Scientific Acquired Mining, LLC) sent a demand letter to the Company, seeking approximately $ 9.8 million. Along with the demand letter, Mr. Dean enclosed a complaint that had been filed in the 419 th Judicial District Court, Travis County, Texas, which asserted the following causes of action: (1) breach of employment agreement; (2) quantum meruit; (3) promissory estoppel; (4) conversion; (5) declaratory relief; (6) equitable relief/specific performance; (7) imposition of constructive trust; (8) accounting; and (9) attorneys’ fees and costs. According to Mr. Dean, the Company failed to honor the terms of his employment agreement upon his resignation. Following the Company’s filing of the Chapter 11 Cases, Mr. Dean filed proofs of claim in the Chapter 11 Cases alleging the Company breached Mr. Dean’s employment agreement and various equity award agreements. Mr. Dean seeks a total recovery of approximately $ 8 million. The Debtors filed an objection to Mr. Dean’s proofs of claim on September 19, 2023. Mr. Dean filed a reply in support of his claim and moved for summary judgment on October 19. Adjudication of the validity and value of Mr. Dean’s proof of claim is pending. As a general unsecured creditor under the Plan of Reorganization, any amount determined to be owed to plaintiff will be paid in common shares of the Company as provided in the Plan of Reorganization. 36 Core Scientific, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Contract Claims GEM Mining 1, LLC, GEM Mining 2, LLC, GEM Mining 2B, LLC, and GEM Mining 4, LLC (together “GEM”) have filed proofs of claim in the Chapter 11 Cases alleging the Company breached its hosting agreements with GEM and are seeking to recover approximately $ 4.1 million. The Debtors filed an initial objection to GEM’s proofs of claim on May 4, 2023, and filed a supplemental objection on May 6, 2023. GEM filed a response in opposition to Debtors’ objections on September 6, 2023. Additionally, GEM 1 and GEM 4 filed proofs of claim in the Chapter 11 Case asserting approximately $ 8 million in rejection damages. The Debtors are currently preparing an objection to these claims along with a reply to GEM’s response to the Debtors’ earlier filed objections. As a general unsecured creditor under the Plan of Reorganization, any amount determined to be owed to plaintiff will be paid in common shares of the Company as provided in the Plan of Reorganization. As of September 30, 2024 and December 31, 2023, there were no other material loss contingency accruals for legal matters. Leases —See Note 5 — Leases for additional information. 10. STOCKHOLDERS' DEFICIT Equity Rights Offering On November 20, 2023, the Company commenced an equity rights offering (the “Equity Rights Offering”) of common shares of the reorganized Company (the “ERO Shares”) in an aggregate amount of $ 55 million. On the Effective Date, the Company issued 15,648,896 shares on account of the Equity Rights Offering in exchange for the cash proceeds. Also, on November 16, 2023, the Company entered into an agreement (the “Backstop Commitment Letter”) with the parties named therein (the “Commitment Parties”), pursuant to which the Commitment Parties agreed to severally and not jointly backstop $ 37.1 million of the Equity Rights Offering (the “Backstop Commitment”), subject to the terms and conditions of the Backstop Commitment Letter. The subscription period for the ERO expired on January 5, 2024. The Equity Rights Offering was oversubscribed and the aggregate subscriptions (including over subscriptions) exceeded the number of ERO Shares offered to be purchased as part of the Equity Rights Offering. The results of the Equity Rights Offering rendered the previously arranged Backstop Commitment unnecessary, however, on the Effective Date, the Company issued 2,111,178 New Common Stock shares on account of the underlying backstop fee associated with the Backstop Commitment. Emergence from Bankruptcy As disclosed in Note 1 — Organization and Description of Business, on December 21, 2022, the Debtors filed the Chapter 11 Cases in the Bankruptcy Court seeking relief under Chapter 11 of the Bankruptcy Code. On January 15, 2024, the Debtors filed with the Bankruptcy Court the Plan of Reorganization, and on January 16, 2024, the Bankruptcy Court entered the Confirmation Order. On the Effective Date, the Plan of Reorganization became effective in accordance with its terms and the Debtors emerged from the Chapter 11 Cases. On the Effective Date, in connection with the effectiveness of, and pursuant to the terms of, the Plan of Reorganization and the Confirmation Order, the Company’s common stock outstanding immediately before the Effective Date was canceled and is of no further force or effect, and the new organizational documents of the Company became effective, authorizing the issuance of shares of common stock, par value $ 0.00001 per share (the “New Common Stock”). In accordance with the foregoing, on the Effective Date, the Company, as reorganized on the Effective Date and in accordance with the Plan of Reorganization, issued the: (i) New Common Stock, (ii) Warrants, (iii) CVRs, (iv) New Secured Convertible Notes, (v) Secured Notes and (vi) the GUC CVRs (each, as defined below). Such securities, rights, or interests were issued in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) provided by section 1145 of the Bankruptcy Code. On the Effective Date, all equity interests in the Company that existed immediately prior to the Effective Date were cancelled, including the Company’s then-existing common stock and warrants, and the Company issued or caused to be issued the New Common Stock in accordance with the terms of the Plan of Reorganization. On the Effective Date, pursuant to the Plan of Reorganization, the Company issued or held in reserve as issuable: • 176,266,782 shares of New Common Stock; • 4,725,091 shares of New Common Stock held in reserve for disputed claims; 37 • 180,241,211 Warrants, composed of 98,313,313 Tranche 1 Warrants and 81,927,898 Tranche 2 Warrants; • 51,783,625 CVRs; and • GUC CVRs. The 4,725,091 shares of New Common Stock held in reserve for disputed claims will be distributed in settlement of previously disputed claims which become allowed by the Court. On the one-year anniversary from the Effective Date, or at such earlier date as all disputed claims are considered resolved, any reserved shares not distributed in settlement of previously disputed claims which become allowed will be issued to holders of the common stock immediately prior to the Effective Date. As these shares will be issued and only the recipient is contingent, the Company accounts for these shares as outstanding in its Condensed Consolidated Balance Sheets and in the Basic and Diluted Weighted average shares outstanding in its Condensed Consolidated Statements of Operations. Shares estimated by the Company to be issued to disputed claims are included in the gain on satisfaction of the GUC claims reported in Reorganization items, net. New Common Stock and Preferred Stock The Company is authorized to issue 10,000,000,000 shares of New Common Stock and 2,000,000,000 shares of preferred stock (the “Preferred Stock”), each having a par value of $ 0.00001 per share. The rights and preferences of the New Common Stock shall at all times be subject to the rights of the Preferred Stock as may be set forth in one or more certificates of designations filed with the Secretary of State of the State of Delaware from time to time in accordance with the Delaware General Corporation Law and the Charter. The Charter authorized the Board of Directors to provide for the issuance of a share or shares of Preferred Stock in one or more series and to fix for each such series (i) the number of shares constituting such series and the designation of such series, (ii) the voting powers (if any) of the shares of such series, (iii) the powers, preferences, and relative, participating, optional or other special rights of the shares of each such series, and (iv) the qualifications, limitations, and restrictions thereof. The authority of the Board of Directors with respect to the Preferred Stock shall include, but not be limited to, determination of (i) the number of shares constituting any series, (ii) the dividend rate or rates on the shares of any series, (iii) the voting rights, if any, of such series and the number of votes per share, (iv) conversion privileges, (v) whether the shares of any series shall be redeemable, (vi) whether any series shall have a sinking fund for the redemption or purchase of shares of such series, (vii) the rights of the shares in the event of voluntary or involuntary liquidation, dissolution or winding up of the Company and (viii) any other powers, preferences, rights, qualifications, limitations and restrictions of any series. Incentive Pl an In accordance with the Plan of Reorganization, the Company adopted an equity-based management incentive plan on April 26, 2024 (the “Incentive Plan”). The Incentive Plan provides for the grant of non-qualified stock options, stock appreciation rights, shares of restricted stock, restricted stock units, performance awards, dividend equivalent rights and other stock-based awards. The Incentive Plan provides for grants of up to 40,000,000 shares of the Company’s Common Stock in respect of awards, subject to adjustment as provided in the Incentive Plan, and limits the aggregate compensation that may be paid to the Company’s non-employee directors in respect of any single fiscal year (including awards under the Incentive Plan) to a total of $ 800,000 . The form of outstanding grants under the Incentive Plan currently includes RSUs and MSUs. The participants in the Incentive Plan, the timing and allocations of the awards to participants, and the other terms and conditions of such awards (including, but not limited to, vesting, exercise prices, base values, hurdles, forfeiture, repurchase rights and transferability) is determined by the Compensation Committee of the Board of Directors in its discretion, as plan administrator. Under the Incentive Plan, certain executives have been granted MSUs which are subject to the achievement of market-based share price goals and the executives’ continued service until the relevant vesting date. The number of shares which vest as of the end of each measurement period on each vesting date are conditioned on the highest 20 -day volume weighted average price of the Company's share price achieved during the tranche’s measurement vesting period since grant. The MSU vesting schedule is proportionate over a three-year service period where such proportions are identified as tranches with separate service conditions and measurement periods for the market conditions. If certain market-based share price goals are not met during certain tranche measurement periods, the ability to satisfy such goals apply in subsequent measurement periods and permit vesting if such market 38 conditions are then met (and the service conditions are then satisfied). The following table presents additional information relating to each MSU award: Share Price Goal Incremental Units Tranche Cumulative Units December 31, 2024 Vesting: $ 3.14 147,691 147,691 $ 5.00 147,691 295,382 $ 8.00 147,692 443,074 $ 10.00 147,692 590,766 $ 12.00 147,692 738,458 $ 14.00 147,692 886,150 December 31, 2025 Vesting: $ 3.14 147,691 147,691 $ 5.00 147,691 295,382 $ 8.00 147,692 443,074 $ 10.00 147,692 590,766 $ 12.00 147,692 738,458 $ 14.00 147,692 886,150 December 31, 2026 Vesting: $ 3.14 147,691 147,691 $ 5.00 147,691 295,382 $ 8.00 147,692 443,074 $ 10.00 147,692 590,766 $ 12.00 147,692 738,458 $ 14.00 147,692 886,150 Stock-Based Compensation During the nine months ended September 30, 2024, the Company did no t grant any stock options, while 1.9 million stock options expired or were forfeited. Total unrecognized stock-based compensation expense related to unvested stock options was immaterial as of September 30, 2024. 39 A summary of RSU and MSU activity for the nine months ended September 30, 2024, is as follows (amounts in thousands, except per share amounts): Restricted Stock Units Market Condition Restricted Stock Units Number of Shares Weighted-Average Grant Date Fair Value Number of Shares Weighted-Average Grant Date Fair Value Unvested - January 1, 2024 38,358 $ 2.69 — $ — Cancellation of common stock in connection with emergence ( 38,358 ) 2.69 — — Issuance of new common stock in connection with emergence 3,836 26.93 — — Unvested - Effective Date 3,836 26.93 — — Granted 20,466 6.49 2,814 5.95 Vested ( 1,817 ) 26.14 — — Forfeited ( 2,238 ) 18.33 ( 155 ) 3.99 Unvested - September 30, 2024 20,247 $ 7.29 2,659 $ 6.06 As of September 30, 2024, the Company had approximately $ 125.6 million of unrecognized stock-based compensation expense related to RSUs, which is expected to be recognized over a weighted average time period of 2.7 years, and an additional $ 11.4 million of unrecognized stock-based compensation expense related to MSUs for which some or all of the requisite service has been provided under the service conditions but had market conditions that had not yet been achieved. The unrecognized stock-based compensation expense related to MSUs is expected to be recognized over a weighted average time period of 2.3 years. Stock-based compensation expense for the three and nine months ended September 30, 2024 and 2023, is included in the Company’s Condensed Consolidated Statements of Operations as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Cost of revenue $ 2,338 $ 1,503 $ 5,496 $ 3,607 Research and development 1,077 334 1,739 1,144 Sales and marketing 1,814 517 4,048 1,561 General and administrative 15,059 12,507 16,439 35,102 Stock-based compensation expense, net of amounts capitalized 20,288 14,861 27,722 41,414 Capitalized stock-based compensation 1 235 — 235 — Total stock-based compensation cost $ 20,523 $ 14,861 $ 27,957 $ 41,414 1 Represents the amounts of stock-based compensation capitalized to property, plant, and equipment. 11. INCOME TAXES Current income tax expense represents the amount expected to be reported on the Company’s income tax returns, and deferred tax expense or benefit represents the change in net deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. Valuation allowances are recorded as appropriate to reduce deferred tax assets to the amount considered likely to be realized. 40 The income tax expense and effective income tax rate for the three and nine months ended September 30, 2024 and 2023 were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (in thousands, except percentages) Income tax expense $ 134 $ 114 $ 484 $ 347 Effective income tax rate — % ( 0.3 ) % — % ( 0.7 ) % For the three and nine months ended September 30, 2024, the Company recorded $ 0.1 million and $ 0.5 million, respectively, of income tax expense which consisted of discrete state taxes. The Company's estimated annual effective income tax rate without consideration of discrete items is 0.0 %, compared to the U.S. federal statutory rate of 21.0% due to projected changes in the valuation allowance 1.0 %, state taxes 0.1 %, non-deductible loss on warrant and contingent liabilities ( 21.9 )% and other items ( 0.2 )%. The Company has a full valuation allowance on its net deferred tax asset as the evidence indicates that it is not more likely than not expected to realize such asset. For the three and nine months ended September 30, 2023, the Company recorded $ 0.1 million and $ 0.3 million, respectively, of income tax expense. The Company's estimated annual effective income tax rate was ( 0.7 )%, compared to the U.S. federal statutory rate of 21.0% due to a change in the valuation allowance 2.3 %, state taxes ( 0.4 )%, non-deductible transaction costs ( 22.8 )% and other items ( 0.1 )%. The Company has a full valuation allowance on its net deferred tax asset as the evidence indicates that it is not more likely than not expected to realize such asset. 12. NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS Basic earnings per share (“EPS”) is measured as the income or loss available to common stockholders divided by the weighted average common shares outstanding for the period. Approximately 30.5 million shares of common stock issuable upon the exercise of the Tranche 2 Warrants are included in the number of outstanding shares used for the computation of basic net loss per share for the three and nine months ended September 30, 2024. Additionally, the basic EPS numerator includes an adjustment to eliminate the change in fair value effects that have been recorded in net income from the close of trading on July 11, 2024, the date the Tranche 2 Warrants became exercisable, through September 30, 2024. Since the shares are issuable for little or no consideration, sometimes referred to as “penny warrants”, they are considered outstanding in the computation of basic EPS, as discussed in ASC 260-10-45-13. Diluted EPS presents the dilutive effect on a per-share basis from the potential conversion of convertible securities or the exercise of options and/or warrants; the dilutive impacts of potentially convertible securities are calculated using the if-converted method; the potentially dilutive effect of options or warrants are computed using the treasury stock method. Securities that potentially have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the diluted EPS calculation. 41 The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted loss per share (in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Numerator: Net loss $ ( 455,259 ) ( 41,146 ) $ ( 1,049,464 ) $ ( 50,794 ) Add: Change in fair value of Tranche 2 Warrants 111,834 — 111,834 — Basic and diluted net loss $ ( 343,425 ) $ ( 41,146 ) $ ( 937,630 ) $ ( 50,794 ) Denominator: Weighted average shares outstanding - basic 292,486 382,483 253,058 378,107 Weighted average shares outstanding - diluted 292,486 382,483 253,058 378,107 Net loss per share - basic $ ( 1.17 ) $ ( 0.11 ) $ ( 3.71 ) $ ( 0.13 ) Net loss per share - diluted $ ( 1.17 ) $ ( 0.11 ) $ ( 3.71 ) $ ( 0.13 ) Pote ntially dilutive securities include securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive. Potentially dilutive securities are as follows (in common stock equivalent shares, in thousands): Three and Nine Months Ended September 30, 2024 September 30, 2023 Stock options 369 22,025 Tranche 1 Warrants 98,079 — Restricted stock units 20,247 38,646 Market condition restricted stock units 1,772 — Warrants — 14,892 Convertible Notes 41,825 69,998 SPAC Vesting Shares — 1,725 Total potentially dilutive securities 162,292 147,286 13. SEGMENT REPORTING The Company’s operating segments are aggregated into reportable segments only if they exhibit similar economic characteristics and have similar business activities. The Company now has three operating segments: “Digital Asset Self-Mining”, consisting of performing digital asset mining for its own account; “Digital Asset Hosted Mining”, consisting of providing hosting services to third-parties for digital asset mining; and “HPC Hosting”, consisting of providing hosting services to third parties for GPU-based HPC operations. The Company’s HPC operations met the criteria to be considered a new segment during the second quarter of 2024. The Digital Asset Self-Mining segment generates revenue from operating owned digital infrastructure and computer equipment as part of a pool of users that process transactions conducted on one or more blockchain networks. In exchange for these services, the Company receives digital assets. The Digital Asset Hosted Mining business generates revenue through the sale of consumption-based contracts for its digital asset hosted mining services which are recurring in nature. The HPC Hosting business generates revenue through licensing agreements and orders with licensees that include fixed and variable payments on a recurring basis. The primary financial measures used by the chief operating decision maker (“CODM”) to evaluate performance and allocate resources are revenue and gross profit. The CODM does not evaluate performance or allocate resources based on segment asset or liability information; accordingly, the Company has not presented a measure of assets by segment. The segments’ accounting policies are the same as those described in the summary of significant accounting policies. The Company excludes certain operating expenses and other expenses from the allocations to operating segments. 42 The following table presents revenue and gross profit by reportable segment for the periods presented (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Digital Asset Self-Mining Segment (in thousands, except percentages) Digital asset self-mining revenue $ 68,138 $ 83,056 $ 328,840 $ 278,164 Cost of digital asset self-mining 74,555 72,603 236,120 212,125 Digital Asset Self-Mining gross (loss) profit $ ( 6,417 ) $ 10,453 $ 92,720 $ 66,039 Digital Asset Self-Mining gross margin ( 9 ) % 13 % 28 % 24 % Digital Asset Hosted Mining Segment Digital asset hosted mining revenue from customers $ 16,878 $ 29,848 $ 71,050 $ 82,307 Cost of digital asset hosted mining services 11,914 24,882 49,388 64,187 Digital Asset Hosted Mining gross profit $ 4,964 $ 4,966 $ 21,662 $ 18,120 Digital Asset Hosted Mining gross margin 29 % 17 % 30 % 22 % HPC Hosting Segment HPC hosting revenue $ 10,338 $ — $ 15,857 $ — Cost of HPC hosting services 9,041 — 13,932 — HPC Hosting gross profit $ 1,297 $ — $ 1,925 $ — HPC Hosting gross margin 13 % — % 12 % — % Consolidated Consolidated total revenue $ 95,354 $ 112,904 $ 415,747 $ 360,471 Consolidated cost of revenue $ 95,510 $ 97,485 $ 299,440 $ 276,312 Consolidated gross (loss) profit $ ( 156 ) $ 15,419 $ 116,307 $ 84,159 Consolidated gross margin — % 14 % 28 % 23 % For the three months ended September 30, 2024 and 2023, cost of revenue included depreciation expense of $ 27.4 million and $ 22.0 million, respectively, for the Digital Asset Self-Mining segment. For the three months ended September 30, 2024 and 2023, cost of revenue included d epreciation expense of $ 0.9 million and $ 1.9 million, respectively for the Digital Asset Hosted Mining segment. For the three months ended September 30, 2024 and 2023, cost of revenue included d epreciation expense of a nominal amount and nil , respectively for the HPC Hosting segment. For the nine months ended September 30, 2024 and 2023, cost of revenue included depreciation expense of $ 83.1 million and $ 60.8 million, respectively for the Digital Asset Self-Mining segment. For the nine months ended September 30, 2024 and 2023, cost of revenue included d epreciation expense of $ 3.2 million and $ 3.7 million, respectively, for the Digital Asset Hosted Mining segment. For the nine months ended September 30, 2024 and 2023, cost of revenue included d epreciation expense of a nominal amount and nil , respectively, for the HPC Hosting segment. Concentrations of Revenue and Credit Risk Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. Credit risk with respect to accounts receivable is concentrated with a small number of customers. The Company places its cash and cash equivalents with major financial institutions, which management assesses to be of high credit quality, in order to limit the exposure to credit risk. As of September 30, 2024 and December 31, 2023, all of the Company’s fixed assets were located in the United States. For the three and nine months ended September 30, 2024 and 2023, all of the Company’s revenue was generated in the United States. For the three and nine months ended September 30, 2024, 71 % and 79 %, respectively, of the Company’s total revenue was generated from digital asset mining of bitcoin, which is subject to extreme price volatility, from one customer. For the three and nine months ended September 30, 2023, 74 % and 77 %, respectively, of the Company’s total revenue was generated from digital asset mining of bitcoin from one customer. 43 For the three and nine months ended September 30, 2024 and 2023, the concentration of customers comprising 10% or more of the Company’s Digital Asset Self-Mining, Digital Asset Hosted Mining, and HPC Hosting segment revenue were as follows: Three Months Ended September 30, Three Months Ended September 30, Three Months Ended September 30, 2024 2023 2024 2023 2024 2023 Percent of Digital Asset Self-Mining segment revenue: Percent of Digital Asset Hosted Mining segment revenue: Percent of HPC Hosting segment revenue: Customer G 100 % 100 % N/A N/A N/A N/A F N/A N/A 73 % 45 % N/A N/A H N/A N/A 19 % 19 % N/A N/A I N/A N/A N/A 12 % N/A N/A J N/A N/A N/A N/A 100 % N/A Nine Months Ended September 30, Nine Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 2024 2023 Percent of Digital Asset Self-Mining segment revenue: Percent of Digital Asset Hosted Mining segment revenue: Percent of HPC Hosting segment revenue: Customer G 100 % 100 % N/A N/A N/A N/A F N/A N/A 59 % 48 % N/A N/A H N/A N/A 23 % 12 % N/A N/A E (related party) ** N/A N/A N/A 12 % N/A N/A J N/A N/A N/A N/A 100 % N/A 44 A reconciliation of the reportable segment gross (loss) profit to loss before income taxes included in the Company’s C ondensed Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and 2023, is as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Reportable segment gross (loss) profit $ ( 156 ) $ 15,419 $ 116,307 $ 84,159 Change in fair value of digital assets ( 206 ) — ( 247 ) — Gain from sale of digital assets — 363 — 2,358 Impairment of digital assets — ( 681 ) — ( 2,864 ) Change in fair value of energy derivatives — — ( 2,757 ) — Loss on disposal of property, plant and equipment ( 509 ) ( 340 ) ( 4,061 ) ( 514 ) Operating expenses: Research and development 2,841 2,253 6,814 5,308 Sales and marketing 3,151 1,041 7,099 3,133 General and administrative 34,356 23,511 74,742 69,671 Total operating expenses 40,348 26,805 88,655 78,112 Operating (loss) income ( 41,219 ) ( 12,044 ) 20,587 5,027 Non-operating (income) expenses, net: Loss (gain) on debt extinguishment 317 ( 374 ) 487 ( 21,135 ) Interest expense, net 7,072 2,196 35,934 2,317 Reorganization items, net — 28,256 ( 111,439 ) 78,270 Change in fair value of warrant and contingent value rights 408,520 — 1,144,441 — Other non-operating (income) expense, net ( 2,003 ) ( 1,090 ) 144 ( 3,978 ) Total non-operating expenses, net 413,906 28,988 1,069,567 55,474 Loss before income taxes $ ( 455,125 ) $ ( 41,032 ) $ ( 1,048,980 ) $ ( 50,447 ) 14. RELATED-PARTY TRANSACTIONS In the ordinary course of business, the Company from time to time has entered into various transactions with related parties. The Company had agreements to provide hosting services to various entities that are managed and invested in by individuals who were directors and executives of Core Scientific during fiscal 2023. For the three and nine months ended September 30, 2024, there were no related-party transactions. For the three and nine months ended September 30, 2023, the Company recognized hosting revenue of $ 2.8 million and $ 10.1 million, respectively, from contracts with related parties. 15. SUBSEQUENT EVENTS On October 22, 2024, the Company announced the exercise by CoreWeave of its final option to contract for an additional 120 MW of infrastructure to host CoreWeave’s GPUs for its HPC operations. 45