What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-22 compared with 2022-05-13 · 1448 added, 290 removed, 822 unchanged (68% of the section changed)

8 unchanged sentences

Restricted cash 11,938 13,807

Accounts receivable 168 1,382

Accounts receivable, net 2,840 1,382

Accounts receivable from related parties 677 300

23 unchanged sentences

Total Liabilities 1,428,706 1,053,178

Contingently redeemable preferred stock;

Contingently redeemable convertible preferred stock;

$ 0.0001 par value;

2,000,000 shares authorized;

— and 10,826 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively;

$ — and $ 45,164 total liquidation preference at March 31, 2022 and December 31, 2021, respectively

— and 10,826 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively;

$ — and $ 45,164 total liquidation preference at June 30, 2022 and December 31, 2021, respectively

Commitments and contingencies (Note 10)

2 unchanged sentences

$ 0.0001 par value;

10,000,000 shares authorized at both March 31, 2022 and December 31, 2021;

324,564 and 271,576 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

10,000,000 shares authorized at both June 30, 2022 and December 31, 2021;

353,481 and 271,576 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

Additional paid-in capital 1,695,748 1,379,581

7 unchanged sentences

(in thousands, except per share amounts)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Hosting revenue from customers $ 31,338 $ 11,895 $ 58,676 $ 20,251

Hosting revenue from related parties

7,598 6,667 13,474 11,003

Equipment sales to customers

3,507 36,457 3,923 60,499

Equipment sales to related parties

Digital asset mining income

11,687 9,519 37,576 17,403

Digital asset mining revenue

109,842 10,765 242,842 20,393

Total revenue

7 unchanged sentences

12,717 24,538 82,720 39,071

Gain from sales of digital assets

Gain (loss) from sales of digital assets

11,808 ( 16 ) 13,971 14

Impairment of digital assets ( 150,213 ) — ( 204,198 ) —

Impairment of goodwill and other intangibles ( 790,753 ) — ( 790,753 ) —

Losses on exchange or disposal of property, plant and equipment ( 13,057 ) ( 17 ) ( 13,057 ) ( 17 )

Operating expenses:

Research and development

14,773 1,437 18,113 2,645

Sales and marketing

10,238 720 11,636 1,254

General and administrative

90,874 6,822 131,034 10,617

Total operating expenses

115,885 8,979 160,783 14,516

Operating (loss) income

( 1,045,383 ) 15,526 ( 1,072,100 ) 24,552

Non-operating expenses, net:

Loss on debt from extinguishment

Non-operating (income) expenses, net:

Loss on debt extinguishment

— 7,974 — 8,016

Interest expense, net

Fair value adjustments on convertible notes 386,037 —

Fair value adjustments on derivative warrant liabilities ( 10,275 ) —

Other non-operating (income), net

Total non-operating expense, net

27,116 10,846 48,792 12,981

Fair value adjustment on convertible notes ( 195,061 ) — 190,976 —

Fair value adjustment on derivative warrant liabilities ( 22,189 ) — ( 32,464 ) —

Other non-operating expenses, net

3,876 2 3,519 2

Total non-operating (income) expenses, net

( 186,258 ) 18,822 210,823 20,999

(Loss) income before income taxes

( 859,125 ) ( 3,296 ) ( 1,282,923 ) 3,553

Income tax expense

Income tax (benefit) expense

( 48,650 ) 118 ( 6,244 ) 118

Net (loss) income

10 unchanged sentences

(in thousands, except per share amounts)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Net (loss) income

2 unchanged sentences

Change in fair value attributable to instrument-specific credit risk of convertible notes measured at fair value under the fair value option, net of tax effect of $ — , $ — , $ — and $ —

8,582 — 35,746 —

Total other comprehensive income, net of income taxes

8,582 — 35,746 —

Comprehensive (loss) income

8 unchanged sentences

Paid-In Capital Accumulated

Deficit Accumulated Other Comprehensive Income

Deficit Accumulated Other Comprehensive Income Total

Stockholders’

Shares Amount Shares Amount

Balance at December 31, 2020

6,766 $ 44,476 98,607 $ 1 $ 163,967 $ ( 74,744 ) $ — $ 89,224

Retroactive application of the

recapitalization 4,060 — 59,179 15 — — — 15

Balance at December 31, 2020, as adjusted 10,826 44,476 157,786 16 163,967 ( 74,744 ) — 89,239

— — — — — 6,849 — 6,849

Stock-based compensation — — — — 588 — — 588

Issuances of common stock- warrants and options — — — — 496 — — 496

Balance at March 31, 2022 — — 324,564 32 1,604,116 ( 493,636 ) 16,198 1,126,710

10,826 44,476 157,786 16 165,051 ( 67,895 ) — 97,172

Net loss — — — — — ( 810,475 ) — ( 810,475 )

Other comprehensive income — — — — — — 8,582 8,582

Stock-based compensation — — — — 115,492 — — 115,492

Issuance of common stock - employee stock options — — 1,321 — 3,846 — — 3,846

Issuance of common stock - restricted stock and restricted stock units, net of shares withheld for tax withholding obligations — — 27,399 3 ( 29,280 ) — — ( 29,277 )

Issuance of common stock - exercise of convertible notes — — 197 — 1,574 — — 1,574

Balance at June 30, 2022 — — 353,481 35 1,695,748 ( 1,304,111 ) 24,780 416,452

Balance at December 31, 2021 10,826 44,476 271,576 27 1,379,581 ( 27,432 ) ( 10,966 ) 1,341,210

10,826 44,476 271,576 27 1,379,581 ( 27,432 ) ( 10,966 ) 1,341,210

— — — — — ( 466,204 ) — ( 466,204 )

Net loss — — — — — ( 1,276,679 ) — ( 1,276,679 )

Other comprehensive income — — — — — — 35,746 35,746

— — — — — — 27,164 27,164

Stock-based compensation — — — — 136,065 — — 136,065

Issuance of common stock - restricted stock and restricted stock units — — 6,803 1 ( 1 ) — — —

Issuance of common stock - employee stock options — — 1,321 — 3,846 — — 3,846

Issuance of common stock - restricted stock and restricted stock units, net of shares withheld for tax withholding obligations — — 34,202 4 ( 29,281 ) — — ( 29,277 )

Issuance of common stock - exercise of convertible notes — — 197 — 1,574 — — 1,574

Issuance of common stock - exercise of warrants — — 3,001 — — — — —

Issuance of common stock - conversion of contingently redeemable preferred stock to common stock ( 10,826 ) ( 44,476 ) 10,826 1 44,475 — — 44,476

Conversion of contingently redeemable preferred stock to common stock ( 10,826 ) ( 44,476 ) 10,826 1 44,475 — — 44,476

Issuances of common stock - Merger with XPDI — — 30,778 3 163,456 — — 163,459

Costs attributable to issuance of common stock and equity instruments- Merger with XPDI — — — — ( 16,642 ) — — ( 16,642 )

Issuances of common stock - vendor settlement — — 1,580 — 12,674 — — 12,674

Costs attributable to issuance of common stock and equity instruments - Merger with XPDI — — — — ( 16,642 ) — — ( 16,642 )

Balance at June 30, 2022 — — 353,481 35 1,695,748 ( 1,304,111 ) 24,780 416,452

See accompanying notes to unaudited consolidated financial statements.

Core Scientific, Inc.

Consolidated Statements of Changes in Contingently Redeemable Convertible Preferred Stock and Stockholders’ Equity

(in thousands)

Contingently Redeemable

Convertible Preferred

Stock Common Stock Additional

Paid-In Capital Accumulated

Deficit Accumulated Other Comprehensive Income

Stockholders’

Shares Amount Shares Amount

Balance at March 31, 2021 10,826 44,476 157,786 16 165,036 ( 67,895 ) — 97,157

Net loss — — — — — ( 3,414 ) — ( 3,414 )

Stock-based compensation — — — — 2,136 — — 2,136

Issuances of common stock- warrants and options — — 40 — — — — —

Balance at June 30, 2021

10,826 44,476 157,826 16 167,172 ( 71,309 ) — 95,879

Balance at December 31, 2020

6,766 $ 44,476 98,607 $ 1 $ 163,967 $ ( 74,744 ) $ — $ 89,224

Retroactive application of the recapitalization 4,060 — 59,179 15 ( 15 ) — — —

Balance at December 31, 2020, as adjusted 10,826 44,476 157,786 16 163,952 ( 74,744 ) — 89,224

Net income — — — — — 3,435 — 3,435

Stock-based compensation — — — — 2,724 — — 2,724

Issuances of common stock- warrants and options — — 40 — 496 — — 496

Balance at June 30, 2021

10,826 44,476 157,826 16 167,172 ( 71,309 ) — 95,879

See accompanying notes to unaudited consolidated financial statements.

2 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from Operating Activities:

1 unchanged sentence

$ ( 1,276,679 ) $ 3,435

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:

Depreciation and amortization 91,974 5,991

1 unchanged sentence

Stock-based compensation 136,795 2,724

Digital asset mining income ( 133,000 ) ( 9,628 )

Digital asset mining revenue ( 242,842 ) ( 20,393 )

Deferred income taxes ( 8,527 ) —

Gain on sale of intangible assets ( 5,904 ) —

Loss on debt extinguishment

1 unchanged sentence

Fair value adjustment on convertible notes 206,859 2,580

Fair value adjustment on other liabilities 9,430 —

Amortization of debt discount and debt issuance costs 3,920 742

Impairments of digital assets 53,985 —

Losses on exchange or disposal of property, plant and equipment

Impairment of digital assets 204,198 —

Impairment of goodwill and other intangibles 790,753 —

Changes in working capital components:

9 unchanged sentences

Other noncurrent assets and liabilities, net ( 2,436 ) ( 21,345 )

Net cash (used by) provided by operating activities ( 3,615 ) 15,412

Net cash provided by (used in) operating activities 141,273 ( 121,331 )

Cash flows from Investing Activities:

1 unchanged sentence

Deposits for self-mining equipment ( 217,677 ) —

Proceeds from sale of intangibles 10,850 —

Other ( 276 ) ( 142 )

1 unchanged sentence

Cash flows from Financing Activities:

Proceeds from issuance of common stock upon Merger with XPDI, net of transaction costs 195,010 496

Proceeds from issuance of common stock, net of transaction costs 198,857 496

Proceeds from debt, net of issuance costs 216,257 245,372

Principal repayments of financing leases ( 10,256 ) —

Repurchase of common shares to pay employee withholding taxes ( 29,278 ) —

Principal repayments of finance leases ( 23,177 ) —

Principal payments on debt ( 49,490 ) ( 35,670 )

Net cash provided by financing activities 313,169 210,198

(Decrease) Increase in cash, cash equivalents, and restricted cash ( 21,246 ) 25,672

Net increase in cash, cash equivalents and restricted cash 8,802 49,650

Cash, cash equivalents and restricted cash—beginning of period 131,678 8,721

29 unchanged sentences

Notes to Unaudited Consolidated Financial Statements

The Merger provides gross proceeds of approximately $ 221.6 million from the XPDI trust account, resulting in approximately $ 195.0 million in net cash proceeds to Core Scientific, after the payment of transaction expenses.

As a result of the Transaction, former Core Scientific stockholders own 90.7 %, former XPDI public stockholders own 6.7 % and XPDI’s sponsor owns 2.6 % of the issued and outstanding shares of common stock, respectively, of the Company, excluding the impact of unvested restricted stock units and options.

The proceeds from the Merger will be used to fund mining equipment purchases and infrastructure build-out as the Company expands its leadership position.

The Merger provided gross proceeds of approximately $ 221.6 million from the XPDI trust account, resulting in approximately $ 195.0 million in net cash proceeds to Core Scientific, after the payment of transaction expenses, which is presented within Proceeds from issuance of common stock, net of transaction costs on the consolidated statements of cash flows.

Following the Transaction, former Core Scientific stockholders owned 90.7 %, former XPDI public stockholders owned 6.7 % and XPDI’s sponsor owned 2.6 % of the issued and outstanding shares of common stock, respectively, of the Company, excluding the impact of unvested restricted stock units and options.

The proceeds from the Merger were used to fund mining equipment purchases and infrastructure build-out.

The Merger is accounted for as a reverse recapitalization with the Company being the accounting acquirer.

3 unchanged sentences

The net assets of XPDI are stated at historical costs, with no goodwill or other intangible assets recorded.

The Company identified $ 18.6 million of direct and incremental transaction costs, which consist of legal, accounting, and other professional services directly related to the Merger, of which $ 10.7 million were recorded in other noncurrent assets on the consolidated balance sheets as of December 31, 2021 and the remaining $ 7.9 million were recording in the three months ended March 31, 2022.

These transaction costs have been allocated to all instruments assumed or issued in the merger on a relative fair value basis as of the date of the merger.

1 unchanged sentence

The cash outflows related to these costs have been netted against the proceeds from the issuance of common stock upon the Merger with XPDI within financing activities on the Company’s consolidated statement of cash flows.

Transaction costs of $ 2.0 million have been allocated to liability-classified instruments that are measured at fair value through earnings and have been recognized as incurred within general and administrative expenses in the three months ended March 31, 2022.

Transaction costs of $ 2.0 million have been allocated to liability-classified instruments that are measured at fair value through earnings and have been recognized as a charge within general and administrative expenses in the six months ended June 30, 2022.

Immediately prior to the Effective Time, each share of Series A convertible preferred stock, par value $ 0.00001 , of Core Scientific automatically converted into one share of Core Scientific common stock, par value $ 0.00001 per share (“Core Scientific Common Stock”), and each share of Series B convertible preferred stock, par value $ 0.00001 , of Core Scientific automatically converted into one share of Core Scientific Common Stock.

1 unchanged sentence

1.7 million shares (“SPAC Vesting Shares”) are subject to vesting conditions, and will vest i) upon the date on which New Core Common Stock’s volume-weighted average price is greater than $ 12.50 per share for any 20 trading days within any 30 consecutive trading day period within five years of the Closing Date or ii) upon any Company Sale that is consummated within five years of the Closing Date that results in the holders of the Company’s common stock receiving a Company Sale Price equal to or in excess of $ 12.50 per share.

A Company Sale means any change in control of the Company, or a sale of substantially of the Company’s assets that results in a change in control.

A Company Sale means any change in control of the Company, or a sale of substantially all of the Company’s assets that results in a change in control.

Company Sale Price means the price per share paid to holders of common stock in a Company Sale.

3 unchanged sentences

As a result, each stock option and warrant was converted into an option or warrant to purchase shares New Core Common Stock based on an exchange ratio of 1.6001528688 .

Each award of the Company’s RSUs was converted into RSUs of New Core based on an exchange ratio of 1.6001528688 .

Each award of the Company’s restricted stock units (“RSUs”) was converted into RSUs of New Core based on an exchange ratio of 1.6001528688 .

Each convertible note is convertible into New Core Common Stock in accordance with the terms of such convertible promissory note;

19 unchanged sentences

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 March 31, 2022, cash equivalents included $ 90.0 million of highly liquid money market funds, which are classified as Level 1 within the fair value hierarchy.

As of June 30, 2022 and December 31, 2021, cash equivalents included $ 105.1 million and $ 100.0 million of highly liquid money market funds, respectively, 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.

The following table provides a reconciliation of the amount of cash, cash equivalents and restricted cash reported on the Consolidated Balance Sheets to the total of the same amount shown in the Consolidated Statements of Cash Flows (in thousands):

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Cash and cash equivalents

10 unchanged sentences

Leasehold improvements are capitalized at cost and amortized over the shorter of their estimated useful lives or the lease term.

Property, plant and equipment, net included construction in progress of $ 65.5 million and $ 42.6 million as of March 31, 2022 and December 31, 2021, respectively.

Property, plant and equipment, net included construction in progress of $ 171.7 million and $ 42.6 million as of June 30, 2022 and December 31, 2021, respectively.

Core Scientific, Inc.

1 unchanged sentence

Subsequent to January 1, 2022, 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.

Finance lease right-of-use assets are included within Property and equipment, net on our Condensed Consolidated Balance Sheets.

Finance lease right-of-use assets are included within Property and equipment, net on our Consolidated Balance Sheets.

Depreciation expense, including amortization of right-of-use assets held under finance leases, is primarily included in cost of revenue in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income.

Prior to January 1, 2022, future obligations related to capital leases accounted for under ASC 840 are presented as Finance lease liabilities, current portion and Finance lease liabilities, net of current portion on the Company’s Consolidated Balance Sheets.

Capital lease assets for those periods are included within Property and equipment, net on our Condensed Consolidated Balance Sheets.

Amortization of capital lease assets for periods prior to January 1, 2022 are primarily included in Cost of Revenue in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income.

Prior to January 1, 2022, future obligations related to capital leases accounted for under ASC 840, Leases, are presented as Finance lease liabilities, current portion and Finance lease liabilities, net of current portion on the Company’s Consolidated Balance Sheets.

Capital lease assets for those periods are included within Property and equipment, net on our Consolidated Balance Sheets.

Amortization of capital lease assets for periods prior to January 1, 2022 is primarily included in cost of revenue in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income.

Self-mining computer equipment that is subsequently contracted for sale to customers is valued at the lower of cost or net realizable value, with any write-down recognized as cost of equipment sales in the Company’s Consolidated Statements of Operations.

5 unchanged sentences

Accordingly, the Company recognizes the warrant instruments as liabilities at fair value and adjusts the instruments to fair value at each reporting period.

The liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s consolidated statements of operations and presented as Fair value adjustments on derivative warrant liabilities.

The liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s Consolidated Statements of Operations and presented as fair value adjustment on derivative warrant liabilities.

The initial and subsequent estimated fair value of both the Public Warrants and Private Placement Warrants was based on the listed price in an active market for the Public Warrants.

1 unchanged sentence

Simplifying Income Taxes

In December 2019 , the FASB issued ASU 2019-12 , Income Taxes (Topic 740):

In December 2019 , the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12 , Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing the exceptions to the incremental approach for intra-period tax allocation in certain situations, the requirement to recognize a deferred tax liability for a change in the status of a foreign investment, and the general methodology for computing income taxes in an interim period when year-to date loss exceeds the anticipated loss for the year.

21 unchanged sentences

The Company has not elected to apply the practical expedient to not separate lease and non-lease components for the Company’s leases as of the transition date of January 1, 2022 but may apply the practical expedient prospectively to certain asset classes.

The cumulative effect of initially applying the new lease standard on January 1, 2022 is as follows:

The cumulative effect of initially applying the new lease standard on January 1, 2022 is as follows (in thousands):

January 1, 2022

14 unchanged sentences

• Upon adoption on January 1, 2022, Operating lease right-of-use assets of $ 6.7 million were recorded in Other noncurrent assets , which included $ 0.5 million related to prepaid rent that was reclassified from Prepaid expenses and other current assets and $ 4.8 million related to prepaid rent and other that had already previously been presented as Other noncurrent assets on the Consolidated Balance Sheets.

In addition, upon adoption on January 1, 2022, the current portion of operating lease liabilities of $ 0.2 million were recorded in Accrued expenses and the noncurrent portion of operating lease liabilities of $ 1.2 million were recorded within Other noncurrent liabilities on the Consolidated Balance Sheets.

In addition, upon adoption on January 1, 2022, the current portion of operating lease liabilities of $ 0.2 million were recorded in Accrued expenses and other and the noncurrent portion of operating lease liabilities of $ 1.2 million were recorded within Other noncurrent liabilities on the Consolidated Balance Sheets.

Core Scientific, Inc.

10 unchanged sentences

Notes to Unaudited Consolidated Financial Statements

ACQUISITIONS, DISPOSITIONS AND RESTRUCTURING

In June 2020, Core Scientific entered into an Asset Purchase Agreement with Atrio Inc.

6 unchanged sentences

Accordingly, the asset purchases are accounted for as asset acquisitions where the cost of the acquisition, measured as the fair value of the cash consideration transferred and the common stock issued by the Company, is allocated to the assets acquired.

In March 2022, the Company reclassified all the software intangible assets related to the Atrio and RStor asset acquisitions to held for sale as a result of the expected sale of the software anticipated to occur in 2022.

As of March 31, 2021, the Company had $ 2.2 million of software intangible assets classified as held for sale and presented within Prepaid expenses and other current assets on the Company’s Consolidated Balance Sheets.

The Company did not record any loss on the software intangible assets held for sale during the three months ended March 31, 2022 .

In March 2022, the Company reclassified $ 2.2 million of intangible assets related to the Atrio and RStor asset acquisitions to held for sale as a result of the expected sale of the software and related patents.

The intangible assets were sold in June 2022 for proceeds of $ 10.9 million, resulting in a gain on sale of intangible assets of $ 5.9 million.

The resulting gain is reflected within other non-operating expenses, net in the Statement of Operations.

Blockcap Acquisition

3 unchanged sentences

While Blockcap did sell or exchange the digital assets it mined to fund its growth strategies or for general corporate purposes from time to time, it generally retained its digital assets as investments in anticipation of continued adoption of digital assets as a “store of value” and a more accessible and efficient medium of exchange than traditional fiat currencies.

In addition to mining, holding and exchanging digital assets, Blockcap also evaluated and completed investments in related technologies and ancillary businesses, including RADAR, an early stage company focused on technology enhancement and development in the digital asset industry that it acquired on July 1, 2021.

In addition to mining, holding and exchanging digital assets, Blockcap also evaluated and completed investments in related technologies and ancillary businesses, including Radar Relay, Inc.

(“RADAR”), an early stage company focused on technology enhancement and development in the digital asset industry that it acquired on July 1, 2021.

The acquisition of Blockcap significantly expanded the Company’s self-mining operations and increased the number of miners it owns.

The Company intends to utilize RADAR’s business assets and the technical expertise of its principals in enhancing the Company’s existing blockchain mining technology and software and in further strengthening the Company’s leadership position and value creation potential through the development of products and services that utilize blockchain technologies.

Consideration consisted of the issuance of 113.9 million shares of the Company’s common stock, approximately 6.8 million shares of the Company’s restricted stock and approximately 7.3 million options to purchase shares of the Company’s common stock.

1 unchanged sentence

The Company and Blockcap had preexisting relationships which were settled on the acquisition date.

Using the estimated purchase price for the transaction, the Company has allocated the purchase price to identifiable assets and liabilities based upon preliminary fair value estimates.

Using the estimated purchase price for the transaction, the Company has allocated the purchase price to identifiable assets and liabilities based upon fair value estimates.

The excess of the purchase price over the fair value of the net identifiable assets acquired was allocated to goodwill.

In a business combination, the initial allocation of the purchase price is considered preliminary and therefore subject to change until the end of the measurement period (not to exceed one year from the acquisition date).

Because the measurement period is still open, certain fair value estimates may change once all information necessary to make a final fair value assessment has been received.

Specifically, the measurement period is still open for consideration transferred, property, plant and equipment, net and deferred tax liabilities as the Company is still in the process of obtaining information about certain shares allocated to Blockcap shareholders and certain transactions between Blockcap and Core that were outstanding as of July 30, 2021.

During the three months ended June 30, 2022, we determined that a measurement period adjustment to the accounting for the Blockcap acquisition was necessary based upon obtaining updated information about property, plant and equipment, net acquired, resulting in an increase in fair value of property, plant and equipment, net of $ 0.7 million, a decrease in goodwill of $ 1.0 million and additional depreciation expense of $ 0.3 million recognized in the three months ended June 30, 2022.

The measurement period for the Blockcap acquisition closed during the three months ended June 30, 2022.

The following table summarizes the fair values for each major class of assets acquired and liabilities assumed at the acquisition date.

The Company retained the services of certified valuation specialists to assist with assigning estimated values to certain acquired assets and assumed liabilities.

Amounts initially disclosed for the estimated values of certain acquired assets and liabilities assumed were adjusted through March 31, 2022 based on information arising after the initial preliminary valuation.

Amounts initially disclosed for the estimated values of certain acquired assets and liabilities assumed were adjusted through June 30, 2022 based on information arising after the initial preliminary valuation.

Core Scientific, Inc.

39 unchanged sentences

As a result, the consideration transferred to Blockcap has been adjusted by the deferred revenue balances that were settled at the time of acquisition.

For a reconciliation of the carrying amount of goodwill at the beginning and end of the reporting period see Note 4.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

Intangible Assets and Liabilities

1 unchanged sentence

The goodwill recognized includes the assembled workforce of Blockcap and intangible assets that do not qualify for separate recognition.

None of the goodwill resulting from the acquisition is deductible for tax purposes.

All of the goodwill acquired is allocated to the Mining segment.

None of the goodwill resulting from the acquisition is deductible for income tax purposes.

All of the goodwill acquired was allocated to the Mining segment.

Management believes the acquisition of Blockcap strengthens its presence in the data mining market due to the scale of its operations.

These factors are the basis for the excess purchase price paid over the value of the assets acquired and liabilities assumed, resulting in goodwill.

Other intangible assets acquired in the Blockcap acquisition consisted of $ 2.8 million developed technology intangibles and $ 0.1 million of customer relationships with a weighted-average useful life of 3 years.

Other intangible assets acquired in the Blockcap acquisition consisted of $ 2.8 million of developed technology intangibles and $ 0.1 million of customer relationships with a weighted average useful life of 3 years.

2022 Restructuring

Current market conditions have led management to reevaluate operations and focus its efforts and resources on the core activities of its hosting and mining segments.

During the three months ended June 30, 2022, management initiated a plan to exit certain activities, technologies and ancillary businesses, and to reduce portions of the Company’s workforce including those acquired through Blockcap’s acquisition of RADAR.

Management anticipates that the restructuring will be complete by September 30, 2022.

Relating to this restructuring plan, estimated cash severance payments under the Company’s ongoing severance policy of $ 1.4 million were accrued and expensed as compensation in general and administrative expenses during the three and six months ended June 30, 2022.

As a result of exiting Blockchain Technologies, $ 2.0 million of intangible assets will cease to be used.

Consequently, we recorded an impairment of other intangible assets of $ 2.0 million, which is presented within impairment of goodwill and other intangibles on the Company’s Consolidated Statements of Operations for the three and six months ended June 30, 2022.

Goodwill associated with these activities is entirely impaired in the mining reporting unit goodwill impairment charge of $ 788.7 million.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

The following table provides the reconciliation of the carrying amount of goodwill by segment at the beginning and end of the reporting period (in thousands):

Equipment Sales and Hosting Segment Mining Segment Total Goodwill

Balance as of December 31, 2021 $ 58,241 $ 997,519 $ 1,055,760

Subsequent measurement period adjustment — ( 1,000 ) ( 1,000 )

Impairment of goodwill — ( 788,722 ) ( 788,722 )

Balance as of June 30, 2022 $ 58,241 $ 207,797 $ 266,038

As of June 30, 2022 and December 31, 2021, the carrying amount of goodwill was $ 266.0 million and $ 1.06 billion, respectively.

There were $ 788.7 million of accumulated impairment losses as of June 30, 2022, and $ 788.7 million and no impairment losses were recorded for the six months ended June 30, 2022 and 2021, respectively.

The Company does not amortize goodwill, but tests it for impairment annually as of October 31, or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable.

The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair values of the reporting units are less than their carrying amounts as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test.

If management determines that it is more likely than not that the fair value of a reporting unit is less than the reporting unit’s carrying amount, or management chooses not to perform a qualitative assessment, then the quantitative goodwill impairment test will be performed.

The quantitative test compares the fair value of the reporting unit with the reporting unit’s carrying amount.

If the carrying amount exceeds its fair value, the excess of the carrying amount over the fair value is recognized as an impairment loss, and the resulting measurement of goodwill becomes its new cost basis.

The Company’s reporting units are the same as its reportable and operating segments.

The Company identified a triggering event as of June 30, 2022 due to a decline in the Company’s stock price and market decline in the value of bitcoin and, as such, the Company performed the quantitative test to compare the fair value to the carrying amount for each reporting unit.

The Company concluded the carrying amount of the Mining reporting unit exceeded its fair value and, as such, recorded an $ 788.7 million impairment of goodwill in its Mining reporting unit, which is presented within impairment of goodwill and other intangibles on the Company’s Consolidated Statements of Operations.

The Company concluded the fair value of the Equipment Sales and Hosting reporting unit exceeded its carrying amount, with an excess of fair value over carrying amount of approximately 136 % of the carrying amount, and as such, did not record an impairment in its Equipment Sales and Hosting reporting unit.

The Company’s analysis involved the use of a market approach and an income approach, with equal weighting given to both approaches.

Valuations using the market approach are derived from metrics of publicly traded companies.

A significant judgment in using the market approach includes the selection of comparable businesses based on the markets in which each reporting unit operates, with consideration of risk profiles, size, geography, and business operations.

Significant assumptions used in the income approach include growth (revenue, earnings before interest, taxes, depreciation, and amortization (EBITDA) and earnings before interest and taxes (EBIT) margin, and terminal value) and discount rates, margins, capital expenditures, and the Company’s weighted average cost of capital.

The Company used historical performance and management estimates of future performance to estimate margins and revenue growth rates.

The Company’s growth rates and mining margins are impacted significantly by the future value of bitcoin.

The income approach utilizes projected cash flow estimates developed by the Company to determine fair value, which are unobservable, Level 3 inputs.

Unobservable inputs are used to measure fair value to the extent that relevant observable inputs are not available.

The Company developed its estimates using the best information available at the time.

The Company used discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses.

Assumptions used, such as forecasted growth rates, capital expenditures, and the Company’s cost of capital, are consistent with its internal projections and operating plans.

Changes in management’s estimates or any of its other assumptions used in its analysis could result in a different conclusion.

Further declines in the Company’s market capitalization or the deterioration of bitcoin’s value in the market could result in future goodwill impairments.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

DERIVATIVE WARRANT LIABILITIES

As of March 31, 2022, the Company had 14.9 million warrants outstanding including:

(a) 8.6 million Public Warrants and (b) 6.3 million Private Placement Warrants issued to XPDI Sponsor LLC (“Sponsor”) and certain institutional investors (“Anchor Investors”).

As of June 30, 2022, the Company had 14.9 million warrants outstanding including:

(a) 8.6 million Public Warrants and (b) 6.3 million Private Placement Warrants issued t o XPDI Sponsor LLC (“Sponsor”) and certain institutional investors (“Anchor Investors”).

Each Public Warrant and Private Placement Warrant became exercisable 30 days following the Closing Date of the XPDI Merger and may be exercised for one share of common stock at an exercise price of $ 11.50 per share.

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• at $ 0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares determined by reference to an agreed table based on the redemption date and the “fair market value” (as defined below) of common stock;

• if, and only if, the the last reported sales price of the Company’s common stock for any twenty ( 20 ) trading days within the thirty ( 30 ) trading-day period ending on the third trading day prior to the date on which notice of the redemption is given (the “Reference Value”) equals or exceeds $ 10.00 per share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a warrant);

• if, and only if, the last reported sales price of the Company’s common stock for any twenty ( 20 ) trading days within the thirty ( 30 ) trading-day period ending on the third trading day prior to the date on which notice of the redemption is given (the “Reference Value”) equals or exceeds $ 10.00 per share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a warrant);

• if the Reference Value is less than $ 18.00 per share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a warrant), the Private Placement Warrants must also concurrently be called for redemption on the same terms as the outstanding Public Warrants, as described above.

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Notes to Unaudited Consolidated Financial Statements

If the Company fails to cause a registration statement for the underlying common shares to be effective by the sixtieth ( 60 th) day following the Closing Date, or fails to maintain such registration statement at any time, the holders of the Private Placement Warrants and Public Warrants may exercise such warrants on a cashless basis by exchanging the warrants for that number of shares of common stock equal to the lesser of (A) the quotient obtained by dividing (x) the product of the number of shares of common stock underlying the Warrants, multiplied by the excess of the “Fair Market Value” (as defined below) less the Warrant Price by (y) the Fair Market Value and (B) the product of the number of Warrants surrendered and 0.361 , subject to adjustment.

If the Company fails to maintain a registration statement for the underlying common shares at any time, the holders of the Private Placement Warrants and Public Warrants may exercise such warrants on a cashless basis by exchanging the warrants for that number of shares of common stock equal to the lesser of (A) the quotient obtained by dividing (x) the product of the number of shares of common stock underlying the Warrants, multiplied by the excess of the “Fair Market Value” (as defined below) less the Warrant Price by (y) the Fair Market Value and (B) the product of the number of Warrants surrendered and 0.361 , subject to adjustment.

“Fair Market Value” shall mean the volume-weighted average price of the shares of common stock as reported during the ten ( 10 ) trading day period ending on the trading day prior to the date that notice of exercise is received.

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Both the Public Warrants and Private Placement Warrants are classified as a liability on the Company’s Consolidated Balance Sheet because their settlement amount is subject to change based on the existence of an effective registration statement for the underlying shares and the holder of the warrant (for Private Placement Warrants only).

As of March 31, 2022 the liability balance was $ 28.0 million .

For the three months ended March 31, 2022, the Company recorded a mark to market gain of $ 5.9 million and $ 4.3 million within the Consolidated Statement of Operations for the Public Warrants and Private Placement Warrants, respectively.

A s of June 30, 2022, the liability balance was $ 5.8 million .

For the three months ended June 30, 2022, the Company recorded a mark to market gain of $ 12.9 million and $ 9.3 million within the Consolidated Statement of Operations for the Public Warrants and Private Placement Warrants, respectively.

For the six months ended June 30, 2022, the Company recorded a mark to market gain of $ 18.8 million and $ 13.7 million within the Consolidated Statement of Operations for the Public Warrants and Private Placement Warrants, respectively.

Refer to Note 8 for further information about the fair value measurement of the warrants.

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NOTES PAYABLE

Notes payable as of March 31, 2022 and December 31, 2021 consist of the following (in thousands):

Notes payable as of June 30, 2022 and December 31, 2021 consist of the following (in thousands):

2022 December 31

Kentucky note $ 784 $ 1,032

Stockholder loan 10,000 10,000

Genesis loan — 552

NYDIG loan 48,642 67,435

Stockholder loan 10,000 10,000

Trinity loan 26,148 19,641

Bremer 19,902 15,066

Blockfi 74,130 60,000

Anchor Labs 20,000 —

Mass Mutual Barings 30,000 —

Bremer loan 20,116 15,066

Blockfi loan 60,652 60,000

Anchor Labs loan 30,016 —

Mass Mutual Barings loans 65,550 —

Riley Bridge Notes 75,000 —

Liberty loan 8,676 —

Secured Convertible Notes 1

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Unamortized discount and debt issuance costs ( 4,214 ) ( 3,187 )

Fair value adjustments to convertible notes 393,738 34,910

Fair value adjustment on convertible notes 190,273 34,910

Total notes payable, net $ 1,069,997 $ 728,209

1 Secured Convertible Notes (includes principal balance at issuance and PIK interest) which considers the minimum payoff at maturity of two times the face value of the note plus accrued interest.

The minimum payoff at maturity related to the principal balance was $ 448.4 million on March 31, 2022.

The minimum payoff at maturity related to the principal balance was $ 455.1 million on June 30, 2022.

The minimum payoff at maturity related to the principal balance was $ 441.7 million on December 31, 2021.

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The note bears interest at a rate per annum of 5 % and the Company is required to make monthly payments of principal and interest.

Interest expense on the notes has been recognized based on an effective interest rate of 5 % .

Interest expense on the note has been recognized based on an effective interest rate of 5 % .

The loan is secured by the underlying property purchased.

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Loans under the credit facility have terms of 20 months, bear interest at a rate per annum of 16 % plus a fixed risk premium, and require monthly payments.

Interest expense on the loans have been recognized based on an effective interest rate of 28 %, which includes the amortization of a debt discount.

Interest expense on the loans has been recognized based on an effective interest rate of 28 %, which includes the amortization of a debt discount.

The loan is secured by blockchain computing equipment financed by the loans.

The loan was paid off in April 2022.

NYDIG Loan —In October 2020, the Company entered into a master equipment finance agreement with NYDIG and received a loan of $ 0.8 million to finance the Company’s acquisition of blockchain computing equipment.

In March 2021, the Company received $ 3.8 million of additional loans under the master equipment finance agreement with NYDIG to finance the Company’s acquisition of blockchain computing equipment.

The loan bears an interest rate of 15 % and has a term of 24 months from issuance.

Interest expense on the loan has been recognized based on an effective interest rate of 16 %.

The loans bear an interest rate of 15 % and have a term of 24 months from issuance.

Interest expense on the loans has been recognized based on an effective interest rate of 16 %.

The loans are secured by the blockchain computing equipment financed by the loans.

In May 2021, the Company received $ 13.4 million of additional loans under the master equipment finance agreement with NYDIG to finance the Company’s acquisition of blockchain computing equipment that bear an interest rate of 14.25 % and have a term of 24 months from issuance.

Interest expense on the loans issued in May 2021 has been recognized based on an effective interest rate of 17 %.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

of 24 months from issuance.

Interest expense on the loans issued in May 2021 has been recognized based on an effective interest rate of 17 %.

In July 2021, the Company received blockchain computing equipment from NYDIG (which had been concurrently acquired by NYDIG from Blockcap in exchange for settlement of Blockcap’s debt with NYDIG) in exchange for $ 26.1 million of additional loans under the master equipment finance agreement with NYDIG that bear an interest rate of 14.25 % and have a term of 24 months from issuance.

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The loan is secured by the blockchain computing equipment financed by the loan.

Convertible Notes —In April 2021, the Company entered into a secured convertible note purchase agreement and issued $ 215.0 million of secured convertible notes to new and existing lenders (the “Secured Convertible Notes”).

In addition, in August 2021 the Company entered into a convertible note purchase agreement and issued $ 299.8 million of convertible notes in August through November 2021 under substantially the same terms and conditions as the original April 2021 notes except that the August through November 2021 notes have a minimum payoff based on the face value plus accrued interest rather than two times the outstanding face amount plus accrued interest.

In addition, the August through November 2021 notes were unsecured until an IPO or SPAC merger and then became secured pari passu with the Secured Convertible Notes in January 2022 upon the closing of the Merger Agreement with XPDI (together with the Secured Convertible Notes, the “Convertible Notes”).

In addition, the Company also issued $ 15.2 million from issuance through March 31, 2022 as payment-in-kind interest on convertible notes outstanding during the period.

The Convertible Notes have a maturity date of April 2025 and bear interest at a rate of 10 % per annum, of which 4 % is payable in cash and 6 % is payable in kind.

Upon the closing of the Merger Agreement with XPDI in January 2022, the Convertible Notes became convertible into common shares at the option of the holder at a conversion price equal to $ 8.00 per share.

The proceeds from the Convertible Notes were used, in part, to repay $ 30.0 million of senior secured loans to Silverpeak Credit Partners LP.

As discussed in Note 7, the Company has elected to measure its Convertible Notes at fair value and accordingly recognized $ 13.1 million of debt issuance costs as incurred at the time of issuance within Interest Expense, Net in the Company’s Consolidated Statements of Operations and Comprehensive (loss) income.

The Convertible Notes had a fair value of $ 923.7 million compared to a principal amount of $ 530.0 million at March 31, 2022.

The Company presents changes in fair value of the Convertible Notes during the period as follows:

(1) the 10 % contractual rate of interest on the convertible notes (consisting of 4 % cash interest and 6 % PIK interest) is presented as interest expense, net on the Consolidated Statements of Operations;

(2) changes in fair value attributable to the Company’s own credit risk are presented within accumulated other comprehensive loss on the Consolidated Balance Sheets and as a component of other comprehensive income on the Consolidated Statements of Comprehensive (Loss) Income;

and (3) other fair value changes are presented within other non-operating expense, net on the Consolidated Statements of Operations.

The fair value of the Company’s convertible notes as of December 31, 2021 included the effect of a negotiation discount, which is a calibration adjustment that reflects the illiquidity of the instruments and the Company's negotiating position.

Since the transaction was an orderly transaction, the Company deemed that the fair value equaled the transaction price at initial recognition.

However, the closing of the merger of XPDI (which represents the occurrence of a qualified financing event as defined by the terms of the notes) in January 2022 resulted in the elimination of the negotiation discount along with other changes in fair value resulted in a significant increase in the fair value of the convertible notes (excluding interest expense and instrument-specific credit risk) of $ 386.0 million for the three months ended March 31, 2022.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

The following summarizes the fair value adjustments and debt issuance costs recognized on the convertible notes (in thousands):

Financial statement line item Three months ended March 31, 2022

Cash interest payments Interest expense, net $ 5,227

Payment-in-kind (PIK) interest Interest expense, net 7,851

Instrument specific credit risk Other comprehensive income ( 27,164 )

Other fair value adjustments Fair value adjustments on convertible notes 386,037

Total fair value adjustments $ 371,951

The principal amount of the Convertible Notes as of March 31, 2022 reflects the proceeds received plus any PIK interest added to the principal balance of the notes.

Upon the closing of the Merger Agreement with XPDI in January 2022, the conversion price for the Convertible Notes became fixed at 80 % of the financing price ($ 8.00 per share of common stock) and the holders now have the right to convert at any time until maturity.

At maturity, any Secured Convertible Notes not converted will be owed two times the original face value plus accrued interest;

any other Convertible Notes (other than the Secured Convertible Notes) not converted will be owed the original face value plus accrued interest.

In addition, at any time (both before and after the merger with XPDI), the Company has the right to prepay the Secured Convertible Notes at the minimum payoff of two times the outstanding face value plus accrued interest and for other Convertible Notes the outstanding face value plus accrued interest.

All of the Convertible Notes, totaling $ 530.0 million as of March 31, 2022, are scheduled to mature on April 19th, 2025, which includes $ 224.2 million for the face value of the Secured Convertible Notes which have payoff at maturity of two times the face value of the note plus accrued interest.

The total amount that would be owed on the Secured Convertible Notes outstanding as of March 31, 2022 if held to maturity was $ 448.4 million.

The total amount that would be owed on the Convertible Notes if prepaid as of March 31, 2022 was $ 767.3 million.

See Note 7 for further information on fair value measurement of the Convertible Notes.

Trinity Loans —In August 2021, the Company entered into a $ 30.0 million master equipment finance facility agreement with Trinity Capital Inc.

Trinity Loan —In August 2021, the Company entered into a $ 30.0 million master equipment finance facility agreement with Trinity Capital Inc.

(“Trinity”) to finance the Company’s acquisition of blockchain computing equipment and received a loan of $ 1.0 million at close.

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The remaining balance of $ 10.0 million was drawn in February 2022.

Bremer Loan – In October 2021, the Company entered into a lending agreement with Bremer Bank, National Association to borrow up to $ 16.2 million in two tranches through May 22, 2022 for the purchase of blockchain mining equipment and improvements to data center and infrastructure.

The loan is secured by the blockchain computing equipment financed by the loan.

Bremer Loan —In October 2021, the Company entered into a lending agreement with Bremer Bank, National Association to borrow up to $ 16.2 million in two tranches through May 22, 2022 for the purchase of blockchain mining equipment and for improvements to data center and infrastructure.

In December 2021, the Company entered into an additional term loan to borrow up to $ 9.6 million.

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The Company borrowed an additional $ 4.8 million in January through March 2022.

In April 2022, the Company borrowed an additional $ 0.7 million from Bremer to finance the construction of our North Dakota facility.

The loans bear interest at 5.5 % annually and are due at the earlier of the date of sale of the underlying mining equipment or 60 months from issuance.

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The loans are secured by a first priority security interest in certain of the assets financed by the loans.

Additionally, an interest buydown agreement was made between Grand Forks Growth Fund and the Bank of North Dakota acting on behalf of the PACE Program for the purpose of a buydown on the interest for certain the Company’s loans financed through Bremer Bank.

The total amount of interest buydown over the term of the loan is $ 0.8 million and payments will begin to be received beginning when principal payments are due from the Company beginning May 2022.

Additionally, an interest buydown agreement was made between Grand Forks Growth Fund and the Bank of North Dakota acting on behalf of the PACE Program for the purpose of a buydown on the interest for certain of the Company’s loans financed through Bremer Bank.

The total amount of interest buydown over the term of the loan is $ 0.8 million.

In order to receive the interest buydown incentive, the Company must (a) continue operation in the jurisdiction for a minimum of five years from the benefit date, (b) employ 13 new full-time employees within two years of receiving the incentive and continue to keep them employed for the duration of the agreement and (c) continue to make debt payments and no event of default should occur.

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If after two years , the Company does not employ 13 new full-time employees, the interest buydown will be prorated to reflect any partial fulfillment and the Company, at a minimum, is required to pay back the value of the incentive to the Bank of North Dakota.

For the three months ended March 31, 2022 and 2021, there was no interest buydown.

For the six months ended June 30, 2022 and 2021, there was no interest buydown.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

Blockfi – In December 2021, the Company entered into two lending agreements with Blockfi Lending, LLC to borrow up to $ 110.0 million for the purchase of blockchain mining equipment.

Blockfi Loan —In December 2021, the Company entered into two lending agreements with Blockfi Lending, LLC to borrow up to $ 110.0 million for the purchase of blockchain mining equipment.

The first agreement consists of $ 10.0 million and bears interest at 9.7 % with a term of 24 months from issuance.

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The loans are secured by a first priority security interest in certain of the assets financed by the loans.

Anchor Labs — In March 2022, the Company entered into a $ 20.0 million equipment loan and security agreement with Anchorage Lending CA, LLC.

Anchor Labs Loan —In March 2022, the Company entered into a $ 20.0 million equipment loan and security agreement with Anchorage Lending CA, LLC.

(“Anchor Labs”) to finance the Company’s purchase of blockchain computing equipment.

The Company borrowed $ 20.0 million in March 2022.

The loan has a term of 24 months from issuance.

Interest expense on the loan has been recognized based on an effective interest rate of 12.5 %.

The loans are secured by a first priority security interest in certain of the assets financed by the loans.

Mass Mutual Barings — In March 2022, the Company entered into a $ 100.0 million equipment loan and security agreement with Barings BDC, Inc., Barings Capital Investment Corporation and Barings Private Credit Corp.

(“Barings”) to finance the Company’s purchase of blockchain computing equipment.

In March 2022, the Company borrowed the first tranche of $ 30.0 million.

In May 2022, the Company entered into a $ 11.7 million equipment loan and security agreement with Anchor Labs to finance the Company’s purchase of blockchain computing equipment.

The Company borrowed $ 11.7 million in May 2022.

The loan has a term of 24 months from issuance.

Interest expense on the loan has been recognized based on an effective interest rate of 12.5 %.

The loans are secured by a first priority security interest in certain of the assets financed by the loans.

Mass Mutual Barings Loans —In March 2022, the Company entered into a $ 100.0 million equipment loan and security agreement with Barings BDC, Inc., Barings Capital Investment Corporation and Barings Private Credit Corp.

(“Mass Mutual Barings”) to finance the Company’s purchase of blockchain computing equipment.

The Company borrowed the first tranche of $ 30.0 million in March 2022 and borrowed the second tranche of $ 39.6 million in April 2022.

On June 30, 2022 the remaining $ 30.4 million funding commitment expired unused.

The loans under the agreement have a term of 36 months from issuance.

Interest expense on the loans have been recognized based on an effective interest rate of 9.8 %.

The loans are secured by certain blockchain computing equipment.

Riley Bridge Notes —In April 2022, the Company entered into a $ 60.0 million bridge promissory note with B.

Riley Commercial Capital, LLC and a $ 15.0 million bridge promissory note with an affiliate of B.

Riley Commercial Capital, LLC (the “Bridge Notes”) maturing in December 2022.

Interest expense on the Bridge Notes has been recognized based on an effective interest rate of 7.0 %.

In August 2022, the Company amended the Bridge Notes to, among other things, extend the maturity date to June 2023.

See Note 17 for further information.

Liberty Loan —In April 2022, the Company entered into an $ 11.0 million equipment finance agreement with Liberty Commercial Finance LLC (“Liberty”) to finance the Company’s purchase of blockchain computing equipment.

The Company borrowed $ 11.0 million in April 2022.

The loan has a term of 24 months from issuance.

Interest expense on the loan has been recognized based on an effective interest rate of 10.6 %.

The loans are secured by a first priority security interest in the equipment purchased.

In addition, the Company also issued $ 23.0 million from issuance through June 30, 2022 as payment-in-kind interest on convertible notes outstanding at the end of the period.

The Convertible Notes have a maturity date of April 2025 and bear interest at a rate of 10 % per annum, of which 4 % is payable in cash and 6 % is payable in kind.

The proceeds from the Convertible Notes were used, in part, to repay $ 30.0 million of senior secured loans to Silverpeak Credit Partners LP.

During the three and six months ended June 30, 2022, $ 1.6 million of Convertible Notes were exercised resulting in 0.2 million shares issued to the holders of the Convertible Notes that were exercised.

As discussed in Note 8, the Company has elected to measure its Convertible Notes at fair value and accordingly recognized $ 13.1 million of debt issuance costs as incurred at the time of issuance within interest expense, net in the Company’s Consolidated Statements of Operations and Comprehensive (loss) income.

The Convertible Notes had a fair value of $ 726.6 million compared to a principal amount of $ 536.3 million at June 30, 2022.

The Company presents changes in fair value of the Convertible Notes during the

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

The Company primarily generates revenue from hosting services, sales of computer equipment and digital asset mining income.

period as follows:

and (3) other fair value changes are presented within non-operating expenses, net on the Consolidated Statements of Operations.

Since the transaction was an orderly transaction, the Company deemed that the fair value equaled the transaction price at initial recognition.

The following summarizes the fair value adjustments and debt issuance costs recognized on the convertible notes (in thousands):

Financial statement line item Three Months Ended

June 30, 2022 Six Months Ended

June 30, 2022

Cash interest payments Interest expense, net $ 5,355 $ 10,582

Payment-in-kind (PIK) interest Interest expense, net 8,032 15,883

Instrument-specific credit risk Other comprehensive income, net of income taxes ( 8,582 ) ( 35,746 )

Other fair value adjustments Fair value adjustment on convertible notes ( 195,061 ) 190,976

Total fair value adjustments $ ( 190,256 ) $ 181,695

Financial statement line item Three and Six Months Ended

June 30, 2021

Cash interest payments Interest expense, net $ 1,720

Payment-in-kind (PIK) interest Interest expense, net 2,580

Instrument-specific credit risk Other comprehensive income, net of income taxes —

Other fair value adjustments Fair value adjustment on convertible notes —

Total fair value adjustments $ 4,300

Debt issuance costs Interest expense, net $ 5,581

The principal amount of the Convertible Notes as of June 30, 2022 reflects the proceeds received plus any PIK interest added to the principal balance of the notes.

At maturity, any Secured Convertible Notes not converted will be owed two times the original face value plus accrued interest;

any other Convertible Notes (other than the Secured Convertible Notes) not converted will be owed the original face value plus accrued interest.

All of the Convertible Notes, totaling $ 536.3 million as of June 30, 2022, are scheduled to mature on April 19th, 2025, which includes $ 227.5 million for the face value of the Secured Convertible Notes which have payoff at maturity of two times the face value of the note plus accrued interest.

The total amount that would be owed on the Secured Convertible Notes outstanding as of June 30, 2022 if held to maturity was $ 455.1 million.

The total amount that would be owed on the Convertible Notes if prepaid as of June 30, 2022 was $ 777.2 million.

See Note 8 for further information on fair value measurement of the Convertible Notes.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

The Company primarily generates revenue from hosting services, sales of computer equipment and digital asset mining revenue.

The Company generally recognizes revenue when the promised service is performed, or control of the promised equipment is transferred to customers.

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The Company records contract liabilities in deferred revenue on the 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 deferred revenue balance as of March 31, 2022 and December 31, 2021 was $ 153.7 million and $ 136.4 million, respectively, all from advance payments received during the periods then ended.

In the three months ended March 31, 2022, the Company recognized $ 36.8 million of revenue that was included in the deferred revenue balance as of the beginning of the year, primarily due to the deployment of customer equipment for which advanced payment had been received from customers prior to January 1, 2021.

In the three months ended March 31, 2021, the Company recognized $ 32.3 million of revenue that was included in the deferred revenue balance as of the beginning of the year, primarily due to the performance of hosting services for which advance payments had been received from customers prior to January 1, 2020.

Advanced payments for hosting services are typically recognized in the following month and advanced payments for equipment sales are generally recognized within one year.

The Company’s deferred revenue balance as of June 30, 2022 and December 31, 2021 was $ 108.8 million and $ 136.4 million, respectively, all from advance payments received during the periods then ended.

For the three and six months ended June 30, 2022, the Company recognized $ 3.9 million and $ 40.7 million of revenue, respectively, that was included in the deferred revenue balance as of the beginning of the year, primarily due to the deployment of customer equipment for which advanced payment had been received from customers prior to January 1, 2022.

For the three and six months ended June 30, 2021, the Company recognized $ 8.9 million and $ 35.8 million of revenue, respectively, that was included in the deferred revenue balance as of the beginning of the year, primarily due to deployment of customer equipment for which advance payments had been received from customers prior to January 1, 2021.

Advanced payments received for hosting services are typically recognized as revenue within six months and advanced payments received for equipment sales are generally recognized as revenue within one year.

Performance Obligations

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The Company has performance obligations associated with commitments in customer hosting contracts for future services and commitments to acquire and deploy customer equipment that have not yet been recognized in the financial statements.

For contracts with original terms that exceed one year (typically ranging from 18 to 48 months), those commitments not yet recognized as of March 31, 2022 and 2021 were $ 989.4 million and $ 333.4 million, respectively.

For contracts with original terms that exceed one year (typically ranging from 18 to 48 months), those commitments not yet recognized as of June 30, 2022 and 2021 were $ 900.8 million and $ 427.5 million, respectively.

Core Scientific, Inc.

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Recurring fair value measurements

The Public Warrants and the Private Placement Warrants are recognized as derivative liabilities in accordance with ASC 815.

The Public Warrants and the Private Placement Warrants are recognized as derivative liabilities in accordance with ASC 815, Derivatives and Hedging .

Accordingly, the Company recognizes the warrant instruments as liabilities at fair value and adjusts the instruments to fair value at each reporting period.

The liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s consolidated statements of operations.

The liabilities are subject to remeasurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s Consolidated Statements of Operations.

The initial and subsequent fair value estimates of the Public Warrants and Private Placement Warrants are based on the listed price in an active market for such warrants.

The Company has elected to measure its Secured Convertible Notes at fair value on a recurring basis because the Company believes it better reflects the underlying economics of the convertible notes, which contain multiple embedded derivative features.

The Company has elected to measure its Convertible Notes at fair value on a recurring basis because the Company believes it better reflects the underlying economics of the Convertible Notes, which contain multiple embedded derivative features.

The fair value of the Company’s convertible notes payable is determined using a market approach based on observable market prices for similar securities when available.

When observable market data is not available, the Company uses an as-converted value plus risk put option model that includes certain unobservable inputs that may be significant to the fair value measurement such as probability of a financing event occurring (e.g., a SPAC merger or qualified financing), expected term, volatility and the negotiation discount.

The fair value of the Secured Convertible Notes considers the minimum payoff at maturity of two times the face value of the note plus accrued interest, as well as the opportunity for appreciation if the value of the Company's stock increases 60 % or more relative to the pricing at the financing event (since the conversion price is set at 80 % of the stock price at the financing event, a stock price appreciation of 60 % would match the minimum payoff of two times the face value plus accrued interest).

The fair value of the other Convertible Notes considers the minimum payoff at maturity of one times the face value of the note plus accrued interest, as well as the opportunity for appreciation if the value of the Company's stock falls no more than 20 % relative to the pricing at the financing event (since the conversion price is set at 80 % of the stock price at the financing event, a stock price decline of 20 % would match the minimum payoff of one times the face value plus accrued interest).

Prior to the three months ended June 30, 2022, when observable market data was not available, the Company used an as-converted value plus risk put option model that included certain unobservable inputs that were significant to the fair value measurement such as probability of a financing event occurring (e.g., a SPAC merger or qualified financing), expected term, volatility and the negotiation discount.

The fair value of the Secured Convertible Notes considered the minimum payoff at maturity of two times the face value of the note plus accrued interest, as well as the opportunity for appreciation if the value of the Company's stock increased 60 % or more relative to the pricing at the financing event (since the conversion price is set at 80 % of the stock price at the financing event, a stock price appreciation of 60 % would match the minimum payoff of two times the face value plus accrued interest).

The fair value of the other Convertible Notes considered the minimum payoff at maturity of one times the face value of the note plus accrued interest, as well as the opportunity for appreciation if the value of the Company's stock were to fall no more than 20 % relative to the pricing at the financing event (since the conversion price is set at 80 % of the stock price at the financing event, a stock price decline of 20 % would match the minimum payoff of one times the face value plus accrued interest).

The following presents the levels of the fair value hierarchy for the Company's convertible notes by issuance date measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 (in thousands):

Due to the occurrence of the SPAC merger and the subsequent significant decline in the Company’s stock price below the conversion price, the fair value of the Company’s convertible notes for the three months ended June 30, 2022 was determined using a discounted cash flow model that considers the principal and interest payments, including the minimum payoff at maturity of two times the face value of the note plus accrued interest for the Secured Convertible Notes and the value of the call option that includes certain unobservable inputs that may be significant to the fair value measurement such as expected term and volatility of the call option.

The following presents the levels of the fair value hierarchy for the Company's derivative warrant liabilities and the Convertible Notes by issuance date measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021 (in thousands):

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

March 31, 2022

June 30, 2022

Fair value hierarchy

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2 Other Convertible Notes (other than the Secured Convertible notes) which considers the minimum payoff at maturity of one times the face value of the note plus accrued interest.

3 Represents PIK interest accrued as of March 31, 2022 which will be recorded as additional principal for each respective convertible note on April 1, 2022.

3 Represents PIK interest accrued as of June 30, 2022 which will be recorded as additional principal for each respective convertible note on July 1, 2022.

4 Represents PIK interest accrued as of December 31, 2021 which will be recorded as additional principal for each respective convertible note on January 1, 2022.

Level 3 Recurring Fair Value Measurements

The following presents a rollforward of the activity for the Company's convertible notes measured at fair value on a recurring basis as of March 31, 2022 (in thousands):

The following presents a rollforward of the activity for the Convertible Notes measured at fair value on a recurring basis using level 3 inputs as of June 30, 2022 (in thousands):

Convertible Notes

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Issuances (including PIK principal recorded) 7,896

Settlements (including interest payments and PIK principal recorded) ( 13,123 )

Settlements (including interest payments, PIK principal recorded and conversions) ( 13,123 )

Unrealized losses 371,951

Balance at March 31, 2022 923,731

Securities are transferred from Level 2 to Level 3 when observable market prices for similar securities are no longer available and unobservable inputs becomes significant to the fair value measurement.

Issuances (including PIK principal recorded) 7,851

Settlements (including interest payments, PIK principal recorded and conversions) ( 14,772 )

Unrealized gains ( 190,256 )

Balance at June 30, 2022 $ 726,554

Securities are transferred from level 2 to level 3 when observable market prices for similar securities are no longer available and unobservable inputs become significant to the fair value measurement.

All transfers into and out of level 3 are assumed to occur at the beginning of the quarterly reporting period in which they occur.

As of March 31, 2022, Level 3 financial instruments included all the Convertible Notes as the effect of unobservable inputs became significant to the fair value measurement due to the time lapse between the issuance of the notes and the reporting date.

The following presents significant Level 3 unobservable inputs used to measure fair value of certain convertible notes March 31, 2022 (dollars in thousands):

As of June 30, 2022, level 3 financial instruments included all the Convertible Notes as the effect of unobservable inputs are significant to the fair value measurement.

There were no transfers of securities into or out of level 3 for the three and six months ended June 30, 2022 and 2021.

The following presents significant Level 3 unobservable inputs used to measure the fair value of certain convertible notes as of June 30, 2022 (dollars in thousands):

Fair value Unobservable Input Low High Weighted Average 1

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1 Weighted average based on the fair value of convertible notes.

Expected term is an input into the risk put option model that measures the length of time the instrument is expected to be outstanding before it is exercised or terminated.

Expected term is an input into the call option model that measures the length of time the instrument is expected to be outstanding before it is exercised or terminated.

An increase in expected term, in isolation, would generally result in an increase in the fair value measurement of the convertible notes.

Volatility is an input into the risk put option model that measures the variability in possible returns for the convertible notes based on how much the price of underlying shares change in value over time.

Volatility is an input into the call option model that measures the variability in possible returns for the convertible notes based on how much the price of underlying shares change in value over time.

An increase in volatility, in isolation, would generally result in an increase in the fair value measurement of the convertible notes.

The increase or decrease in the fair value of the convertible notes resulting from changes to the expected term or volatility assumptions are not interrelated.

The Company presents separately in other comprehensive income (loss) the portion of the total change in the fair value of the convertible notes that resulted from a change in the instrument-specific credit risk on the convertible notes.

The amount of change in the fair value attributable to instrument-specific credit risk is determined by comparing the amount of the total change in fair value to the amount of change in fair value that would have occurred if the Company’s credit risk had not changed during the period as reflected in the discount rates applied to the debt and risk put option.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

Nonrecurring fair value measurements

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Refer to the discussion of digital assets below for more information regarding fair value considerations when measuring the impairment of digital assets held.

Property, plant and equipment

On March 10, 2022, the Company entered into an agreement to sell mining equipment on order with a 3rd party supplier to a hosting customer in exchange for the Company receiving ownership of the customer’s mining equipment that had been hosted by the Company on its premises (the “Installed Miners”).

The primary purpose of the exchange was to allow for the mutual termination of the hosting agreements in a manner that avoids the logistical costs and loss of revenue from downtime associated with relocating and installing the mining equipment.

The exchange began during the three months ended June 30, 2022 and was completed in July 2022 as ordered mining equipment was received and exchanged for the Installed Miners.

The agreement also includes the termination of the hosting agreement between the Company and the customer as ownership of the Installed Miners is transferred to the Company.

The Company recognized losses of $ 13.1 million on the exchanges during the three and six months ended June 30, 2022, which are presented within Losses on exchange or disposal of property, plant and equipment on the Consolidated Statements of Operations.

The amount of the losses was measured as the difference between the fair value of the installed miners and the carrying value of the deposits for mining equipment to be exchanged.

The fair value of the installed miners is classified as a Level 2 fair value measurement and was determined as of contract inception (March 10, 2022) using a cost approach.

The replacement cost of the installed miners was estimated through a review of vendor equipment pricing of similar equipment.

Physical deterioration was also considered and estimated based on an age/life analysis indicative of a market participant’s anticipated economic useful life for the assets.

Goodwill and other intangibles

On June 30, 2022, we evaluated our Mining reporting unit for impairment and recorded an impairment of goodwill and other intangibles of $ 790.8 million to adjust the carrying value of the reporting unit to the estimated fair value.

Refer to Note 4 for additional information regarding the inputs and methodology used to estimate the fair value.

Digital Assets

The Company classifies digital assets primarily as level 1.

The Company’s digital assets are accounted for as intangible assets with indefinite useful lives.

The Company initially recognizes digital assets that are received as digital asset mining income based on the fair value of the digital assets.

The Company initially recognizes digital assets that are received as digital asset mining revenue based on the fair value of the digital assets.

Digital assets that are purchased in an exchange of one digital asset for another digital asset are recognized at the fair value of the asset surrendered or at the fair value of the asset received if more readily apparent.

Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the digital asset at the time its fair value is being measured, which is measured on a daily basis.

To the extent that an impairment loss is recognized, the loss establishes the new cost basis of the digital asset.

In the three months ended March 31, 2022 and 2021, the Company recognized impairments of digital assets of $ 54.0 million and a nominal amount, respectively.

For the three months ended March 31, 2022 and 2021, the Company recognized net gains of $ 2.2 million and a nominal amount, respectively, on sales of digital assets.

Digital assets are available for use, if needed, for current operations and are classified as current assets on the Consolidated Balance Sheets, the details of which are presented below.

During the three and six months ended June 30, 2022, the Company recognized impairment of digital assets of $ 150.2 million and $ 204.2 million, respectively.

During the three and six months ended June 30, 2021, the Company did not have any impairment of digital assets.

For the three and six months ended June 30, 2022, the Company recognized net gains of $ 11.8 million and $ 14.0 million, respectively, from sales of digital assets.

For the three and six months ended June 30, 2021, the Company recognized nominal losses and gains, respectively, from sales of digital assets.

Digital assets are available for use, if needed, for current operations and are classified as current assets on the Consolidated Balance Sheets, the details of which are presented below (in thousands).

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

2022 December 31

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The Company does not have any off-balance sheet holdings of digital assets.

No non-financial assets were classified as Level 3 as of March 31, 2022 or December 31, 2021.

No non-financial assets were classified as level 3 as of June 30, 2022 or December 31, 2021.

Fair value of financial instruments

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We classified the other notes payable as Level 3 financial instruments due to the considerable judgment required to develop assumptions of the Company’s standalone credit risk and the significance of those assumptions to the fair value measurement.

The estimated fair value of the Company’s other notes payable, including both the current and noncurrent portion, was $ 238.6 million at March 31, 2022 and $ 184.7 million at December 31, 2021.

The carrying values of the notes payable, including both the current and noncurrent portion, was $ 238.9 million and $ 171.2 million at March 31, 2022 and December 31, 2021, respectively.

The estimated fair value of the Company’s other notes payable, including both the current and noncurrent portion, was $ 350.3 million at June 30, 2022 and $ 184.7 million at December 31, 2021.

The carrying values of the notes payable, including both the current and noncurrent portion, was $ 343.4 million and $ 171.2 million at June 30, 2022 and December 31, 2021, respectively.

Core Scientific, Inc.

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Differences between rent expense and rent paid are recognized as adjustments to operating lease right-of-use assets on the unaudited Consolidated Balance Sheets.

For certain leases the Company receives lease incentives, such as tenant improvement allowances, and records those as adjustments to operating lease right-of-use assets and operating leases liabilities on the unaudited condensed consolidated balance sheets and amortizes the lease incentives on a straight-line basis over the lease term as an adjustment to rent expense.

The components of operating and finance lease are presented on the Company’s Consolidated Balance Sheets follows (in thousands):

Financial statement line item March 31, 2022

For certain leases the Company receives lease incentives, such as tenant improvement allowances, and records those as adjustments to operating lease right-of-use assets and operating lease liabilities on the unaudited Consolidated Balance Sheets and amortizes the lease incentives on a straight-line basis over the lease term as an adjustment to rent expense.

The components of operating and finance leases are presented on the Company’s Consolidated Balance Sheets as follows (in thousands):

Financial statement line item June 30, 2022

Operating lease right-of-use assets Other noncurrent assets $ 6,401

Financing lease right-of-use assets Property, plant and equipment, net $ 178,819

Finance lease right-of-use assets Property, plant and equipment, net $ 97,655

Operating lease liabilities,

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The components of lease expense were as follows (in thousands):

Financial statement line item Three Months Ended March 31, 2022

Financial statement line item Three Months Ended June 30, 2022 Six Months Ended June 30, 2022

Operating lease expense General and administrative expenses $ 154 $ 309

Short-term lease expense General and administrative expenses 287 477

Financing lease expense:

Finance lease expense:

Amortization of right-of-use assets Cost of revenue 8,699 18,523

Interest on lease liabilities Interest expense, net 2,248 4,339

Total financing lease expense 11,926

Total finance lease expense 10,947 22,862

Total lease expense $ 11,388 $ 23,648

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Information relating to the lease term and discount rate is as follows:

March 31, 2022

June 30, 2022

Weighted Average Remaining Lease Term (Years)

Operating leases 21.5

Financing leases 2.6

Finance leases 2.5

Weighted Average Discount Rate

Operating leases 6.4 %

Financing leases 10.2 %

The following table summarizes the Company’s supplemental cash flow information:

Three Months Ended March 31,

Finance leases 11.0 %

The following table summarizes the Company’s supplemental cash flow information (in thousands):

Three Months Ended June 30, 2022 Six Months Ended June 30, 2022

Lease Payments

Operating lease payments $ 101 $ 202

Financing lease payments $ 12,357

Finance lease payments $ 15,169 $ 27,526

Supplemental Noncash Information

Operating lease right-of-use assets obtained in exchange for lease obligations $ — $ —

Financing lease right-of-use assets obtained in exchange for lease obligations $ 10,557

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 March 31, 2022, and thereafter (in thousands):

Operating leases Financing leases

Finance lease right-of-use assets obtained in exchange for lease obligations $ — $ 10,557

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 June 30, 2022, and thereafter (in thousands):

Operating leases Finance leases

Remaining 2022 $ 69 $ 18,131

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Notes to Unaudited Consolidated Financial Statements

In addition to the above, in December 2021, the Company entered into an agreement to lease office space for its new corporate headquarters that the Company anticipates will commence in the second half of 2022.

In addition to the above, in December 2021, the Company entered into an agreement to lease office space for its new corporate headquarters that commenced in July of 2022.

The lease includes base rent of approximately $ 14.0 million to be paid over a period of 130 months.

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In December 2021, the Company entered into finance lease agreements with MassMutual Asset Finance LLC totaling $ 50.0 million for the purchase of bitcoin mining equipment, with a weighted average term of 3.2 years.

The leases bears interest at a rate per annum of 10 % and the Company is required to make monthly payments of principal and interest.

The leases bear interest at a rate per annum of 10 % and the Company is required to make monthly payments of principal and interest.

Interest expense on the leases has been recognized based on an effective interest rate of 10 %.

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Unless otherwise indicated, the Company is unable to estimate reasonably possible losses in excess of any amounts accrued.

As of March 31, 2022 and December 31, 2021, there were no material loss contingency accruals.

As of June 30, 2022 and December 31, 2021, there were no material loss contingency accruals.

Leases —See Note 9 for further information.

Purchase obligations— As of March 31, 2022, the Company had outstanding agreements to purchase blockchain mining equipment totaling approximately $ 391.0 million of which approximately $ 256.2 million was paid as deposits for blockchain mining equipment scheduled to be delivered in 2022.

As of the date that the financial statements were available to be issued, the aggregate amount of the Company’s purchase obligations totaled approximately $ 134.8 million, substantially all of which are expected to be settled within one year of the date that the financial statements were available to be issued.

Purchase obligations— As of June 30, 2022, the Company had outstanding agreements to purchase blockchain mining equipment totaling approximately $ 192.4 million of which approximately $ 130.8 million was paid as deposits for blockchain mining equipment scheduled to be delivered in 2022.

As of June 30, 2022, the aggregate amount of the Company’s purchase obligations totaled approximately $ 61.6 million, substantially all of which are expected to be settled within one year.

Core Scientific, Inc.

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CONTINGENTLY REDEEMABLE CONVERTIBLE PREFERRED STOCK

The Company is authorized to issue 2.00 billion shares of preferred stock, $ 0.0001 as of March 31, 2022.

The Company is authorized to issue 2.00 billion shares of preferred stock, $ 0.0001 as of June 30, 2022.

Prior to the Merger with XPDI, the Company was authorized to issue 50.0 million, shares of preferred stock, $ 0.0001 par value.

As of December 31, 2021, 10.8 million shares of preferred stock were issued and outstanding.

Upon the closing of the merger with XPDI on January 19, 2022, each share of Series A and Series B Preferred Stock automatically converted into one share of Core Scientific common stock and each outstanding share of common stock issued as a result of the conversion of Series A and Series B Preferred Stock in connection with the Business Combination was cancelled and extinguished and converted into the right to receive a number of shares of New Core Common Stock equal to the Exchange Ratio of 1.6001528688 .

All of the Company’s shares of Contingently Redeemable Convertible Preferred Stock were converted into 10.8 million shares of the Company’s common stock during the three months ended March 31, 2022.

Upon the closing of the merger with XPDI on January 19, 2022, each share of Series A and Series B Preferred Stock automatically converted into one share of Core Scientific common stock and each outstanding share of common stock issued as a result of the conversion of Series A and Series B Preferred Stock in connection with the Merger was cancelled and extinguished and converted into the right to receive a number of shares of New Core Common Stock equal to the Exchange Ratio of 1.6001528688 .

All of the Company’s shares of contingently redeemable convertible preferred stock were converted into 10.8 million shares of the Company’s common stock during the six months ended June 30, 2022.

Core Scientific, Inc.

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STOCKHOLDERS' EQUITY

Authorized Capital— As of March 31, 2022, the Company was authorized to issue 10.00 billion shares of common stock, $ 0.0001 par value.

Authorized Capital— As of June 30, 2022, the Company was authorized to issue 10.00 billion shares of common stock, $ 0.0001 par value.

The holders of the Company’s common stock are entitled to one vote per share.

In January 2021, in connection with the stockholder loan described in Note 6, the Company issued a warrant to the stockholder to purchase up to 0.2 million shares of common stock at an exercise price of $ 4.21 per share.

The warrant is set to expire in January 2023 and is exercisable and unexercised as of March 31, 2022.

The warrant is set to expire in January 2023 and is exercisable and unexercised as of June 30, 2022.

As a result of the Business Combination, all of XPDI’s Class A Common Stock and Class B Common Stock automatically converted into 30.8 million shares of New Core Common Stock on a one -for-one basis.

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In March 2020, the Company issued warrants to the Company’s president and chief executive officer and a member of the board of directors to purchase up to 6.4 million shares of the Company’s common stock at an exercise price of $ 0.84 per share (as amended).

In March 2022, 3.2 million of the warrants were exercised in a cashless exercise resulting in 2.9 million net shares issued to the warrant holder.

In March 2022, a warrant holder exercised their warrant to purchase 3.2 million shares in a cashless exercise resulting in 2.9 million net shares issued to the warrant holder after withholding 0.3 million shares for the exercise price.

In March 2020, the Company issued warrants to service providers in exchange for services provided related to the issuance of Series A Convertible Preferred Stock.

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In February 2022, 0.2 million of the warrants were exercised in a cashless exercise resulting in 0.1 million net shares issued to the warrant holders.

Convertible Note Exercises

As discussed in Note 6, the Company issued $ 514.8 million of Convertible Notes in 2021 along with issuing an additional $ 23.0 million from issuance through June 30, 2022 as payment-in-kind interest on convertible notes outstanding.

The Convertible Notes became convertible into common shares at the option of the holder at a conversion price equal to $ 8.00 per share upon the closing of the Merger Agreement with XPDI in January 2022.

SPAC Vesting Shares

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The SPAC Vesting Shares are accounted for as an equity contract, and meet the criteria for equity classification.

The Company has recorded the SPAC Vesting Shares within additional paid-in capital on the Consolidated Balance Sheet as of March 31, 2022.

The Company has recorded the SPAC Vesting Shares within additional paid-in capital on the Consolidated Balance Sheet as of June 30, 2022.

Vendor Settlement

In March 2022, the Company issued 1.6 million shares of the Company’s common stock related to a vendor liability that had been assumed by the Company in July 2021 as part of the Blockcap acquisition.

Equity Incentive Plans

The Company has outstanding awards under the 2018 Omnibus Incentive Plan (the “2018 Plan”), which has a 10 -year life for granting up to 132.0 million shares of common stock for awards.

Awards granted under the 2018 Plan may be incentive stock options (must meet all statutory requirements), non-qualified stock options, stock appreciation rights, restricted stock and stock units, performance awards and other cash-based or stock-based awards.

Awards granted under the 2018 Plan are subject to a minimum vesting period of at least one year commencing from the date of grant.

Additionally, options granted under the plan must expire within ten years of the grant date and must be granted with exercise prices of no less than the fair value of the common stock on the grant date, as determined by the Company’s Board of Directors.

In addition, the vendor liability includes requires settlement in cash based on the difference between the weighted average of the closing price of the Company’s common stock for each day there was a closing price during the thirty consecutive days immediately prior to the expiration of the lockup period (defined in the agreement as 180 days from the date from the closing of the XPDI merger) and the $ 21.3 million contractual amount of the liability.

During the three and six months ended June 30, 2022 we recorded $ 9.8 million and $ 9.4 million within other non-operating expenses,

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

net on the Consolidated Statements of Operations related to changes in the fair value of the vendor liability.

As of June 30, 2022, the fair value of the liability of $ 18.1 million was recorded within Accrued expenses and other on the Consolidated Balance Sheets.

Equity Incentive Plans

The Company has outstanding awards under the 2018 Omnibus Incentive Plan (the “2018 Plan”).

No new awards can be made under the 2018 Plan subsequent to the XPDI Merger, as described below.

Awards that were granted under the 2018 Plan included incentive stock options (must meet all statutory requirements), non-qualified stock options and restricted stock units.

Awards granted under the 2018 Plan were subject to a minimum vesting period of at least one year commencing from the date of grant.

Additionally, options granted under the plan must expire within ten years of the grant date and were required to be granted with exercise prices of no less than the fair value of the common stock on the grant date, as determined by the Company’s board of directors.

In July 2021, the Company acquired Blockcap.

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Amended and Restated 2018 Equity Incentive Plan (the “RADAR Plan”) provides for the grant of stock options, restricted stock awards, and other awards to eligible employees, non-employee directors and consultants.

On June 4, 2021, prior to its acquisition by the Company, Blockcap entered into an agreement and plan of merger with RADAR for all the issued and outstanding equity interests of RADAR, which merger closed on July 1, 2021 (the “Blockcap/RADAR Merger”) The RADAR Plan was assumed by us upon the closing of the Blockcap/RADAR Merger and the Blockcap acquisition.

As of March 31, 2021, there were 14.0 million shares of common stock subject to outstanding awards under the Legacy Blockcap Plan and the RADAR Plan (the “Blockcap Plans.”) No new awards may be made under the Blockcap Plans subsequent to the closing of the Blockcap acquisition.

The RADAR Plan was assumed by us upon the closing of the Blockcap/RADAR Merger and the Blockcap acquisition.

No new awards may be made under the Legacy Blockcap Plan and the RADAR Plan (the “Blockcap Plans”) subsequent to the closing of the Blockcap acquisition.

At the Special Meeting in connection with the XPDI Merger, the stockholders of XPDI approved the Core Scientific, Inc.

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Following the consummation of the Merger, the Company expects that its board of directors will make grants of awards under the Incentive Plan to eligible participants.

The maximum number of shares of the Company’s common stock that may be issued under the 2021 Plan is 45.0 million shares.

As of March 31, 2022, the Company had reserved shares of common stock for future issuances under the 2018 Plan and 2021 Plan as follows (in thousands):

Blockcap Plans 2018 Plan 2021 Plan

Options outstanding

7,332 24,610 —

Unvested restricted stock and restricted stock units outstanding

4,830 92,070 —

Vested restricted stock and restricted stock units outstanding 1,827 1,363 —

Available for future stock option and restricted stock units and grants

— 13,970 45,000

Total outstanding and reserved for future issuance

13,989 132,013 45,000

The maximum number of shares of the Company’s common stock that may be issued under the 2021 Plan is 45.0 million shares, of which 43.0 million was available for issuance as of June 30, 2022.

Stock-Based Compensation

Stock-based compensation expense relates primarily to expense for restricted stock awards (“RSAs”), restricted stock units (“RSUs”), and stock options.

As of March 31, 2022, we had unvested or unexercised stock-based awards outstanding representing approximately 128.8 million shares of our common stock, consisting of approximately 96.9 million RSAs and RSUs and options to purchase approximately 31.9 million shares of our common stock with a weighted average exercise price of $ 8.76 and weighted average remaining life of 8.6 years.

During the three months ended March 31, 2022, the Company granted 11.9 million restricted stock units to various employees and directors with a weighted-average grant-date fair value of $ 9.54 per share.

In addition, in March 2022, the Company approved 1.4 million RSUs to be granted to various employees of the Company.

Stock-based compensation expense for the three months ended March 31, 2022 and 2021 is included in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income as follows:

As of June 30, 2022, we had unvested or unexercised stock-based awards outstanding representing approximately 82.7 million shares of our common stock, consisting of approximately 52.1 million RSAs and RSUs and options to purchase approximately 30.6 million shares of our common stock with a weighted average exercise price of $ 9.02 and weighted average expense amortization period of 3.4 years.

On June 8, 2022, the compensation committee (the “Compensation Committee”) of the board of directors (the “Board”) of the Company approved an amendment to the Company’s award agreement for the RSUs outstanding under the 2018 Plan, to provide for the waiver and elimination of the requirement that the Company undergo a “change in control” or a “public offering” for full vesting of the previously outstanding time-vested award (the “RSU Amendment”).

Although the mergers that the Company underwent did not satisfy the event-based vesting requirement, they significantly reduced the possibility of the requirement being met as contemplated under the 2018 Plan.

The RSU Amendment was authorized and approved by the Board and the Compensation Committee as necessary, desirable, and in the best interest of the Company and its stockholders.

As a result of the RSU Amendment, all outstanding RSUs under the 2018 Plan are subject only to time-based vesting, of which RSUs covering approximately 42 million shares of Common Stock were net settled, with approximately 15 million shares of Common Stock to be canceled and forfeited to satisfy tax withholding obligations.

During the three and six months ended June 30, 2022, the Company granted 2.1 million and 14.0 million restricted stock units, respectively, to various employees and directors with a weighted-average grant date fair value (reflecting the RSU Amendment described above) of $ 5.45 and $ 2.78 per share, respectively.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

Three Months Ended March 31,

Stock-based compensation expense for the three and six months ended June 30, 2022 and 2021 is included in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Cost of revenue $ 16,882 $ — $ 18,921 $ —

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Total stock-based compensation expense $ 110,998 $ 2,136 $ 136,795 $ 2,724

As of March 31, 2022, total unrecognized stock-based compensation expense related to unvested stock options was approximately $ 141.8 million, which is expected to be recognized over a weighted-average time period of 3.7 years.

As of March 31, 2022, the Company had approximately $ 768.7 million of unrecognized stock-based compensation expense related to RSAs and RSUs, of which $ 34.4 million is expected to be recognized over a weighted-average time period of 3.3 years and $ 734.3 million is related to RSUs for which some or all of the requisite service had been provided under the service condition but had performance conditions that had not yet been achieved.

For RSUs subject to both the service and performance conditions, the unrecognized compensation expense will be recognized as expense when it is probable that the performance conditions will be achieved.

The performance conditions for the RSUs are satisfied upon the earlier of a change in control or an initial public offering.

The closing of the Merger Agreement with XPDI in January 2022 did not meet the definition of a change in control or an initial public offering.

The performance condition can be met in future years only with respect to a change in control or waiver of the condition by the Company’s board of directors.

If the performance conditions become probable of being achieved before the end of the requisite service period, the unrecognized compensation expense for which requisite service has not been provided will be recognized as expense prospectively on an accelerated attribution basis over the remaining requisite service period.

As of June 30, 2022, total unrecognized stock-based compensation expense related to unvested stock options was approximately $ 131.4 million, which is expected to be recognized over a weighted average time period of 3.4 years.

As of June 30, 2022, the Company had approximately $ 136.8 million of unrecognized stock-based compensation expense related to RSAs and RSUs, which is expected to be recognized over a weighted average time period of 3.0 years.

Core Scientific, Inc.

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Valuation allowances are recorded as appropriate to reduce deferred tax assets to the amount considered likely to be realized.

The income tax expense and effective income tax rate for the three months ended March 31, 2022 and 2021 were as follows:

Three Months Ended March 31,

The income tax (benefit) expense and effective income tax rate for the three and six months ended June 30, 2022 and 2021 were as follows:

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(in thousands, except percentages)

Income tax expense $ 42,406 $ —

Income tax (benefit) expense $ ( 48,650 ) $ 118 $ ( 6,244 ) $ 118

Effective income tax rate

5.7 % ( 3.6 ) % 0.5 % 3.3 %

For the three months ended March 31, 2022, discrete tax expense of $ 7.3 million is included in the $ 42.4 million of income tax expense.

The Company's estimated annual effective income tax rate without discrete items was ( 8.3 )%, compared to the US federal statutory rate of 21.0% due to the fair value adjustment on debt instruments ( 15.8 )%, change in valuation allowance ( 9.9 )%, non-deductible interest ( 2.2 )%, non-deductible employee costs ( 1.5 )% and other 0.1 %.

No discrete tax expense was included in income tax expense for the three months ended March 31, 2021.

The Company’s estimated annual effective income tax rate without discrete items was 0 %, compared to the US federal statutory rate of 21.0% due to the change in valuation allowance of ( 24.1 )% and other 3.1 %.

For the three months ended June 30, 2022, discrete tax expense of $ 0.4 million is included in the $ 48.7 million of income tax benefit.

The Company's estimated annual effective income tax rate without discrete items was 1.1 %, compared to the US federal statutory rate of 21.0% due to the fair value adjustment on debt instruments ( 2.6 )%, change in valuation allowance ( 5.5 )%, goodwill impairment of ( 11.6 )%, non-deductible interest ( 0.8 )%, and other 0.8 %.

For the six months ended June 30, 2022, discrete tax expense of $ 7.7 million is included in the $ 6.2 million of income tax benefit.

For the three months ended June 30, 2021, no discrete tax expense was included in the $ 0.1 million of income tax expense.

The Company’s estimated annual effective income tax rate without discrete items was 2.6 %, compared to the US federal statutory rate of 21.0% due to the change in valuation allowance of ( 30.5 )%, non deductible interest of 7.0 %, and other 5.1 %.

For the six months ended June 30, 2021, no discrete tax expense was included in the $ 0.1 million of income tax expense.

Core Scientific, Inc.

5 unchanged sentences

the potentially dilutive effect of options or warrants are computed using the treasury stock method.

Securities that are potentially an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from diluted EPS calculation.

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.

8 unchanged sentences

As a result of the Merger, the Company has retrospectively adjusted the weighted average number of shares of common stock outstanding prior to January 19, 2022 by multiplying them by the exchange ratio of 1.6001528688 used to determine the number of shares of Class A common stock into which they converted.

Three Months Ended March 31,

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share (in thousands, except per share amounts):

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Net (loss) income $ ( 810,475 ) $ ( 3,414 ) $ ( 1,276,679 ) $ 3,435

6 unchanged sentences

$ ( 2.49 ) $ ( 0.02 ) $ ( 4.04 ) $ 0.02

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

Pote ntially dilutive securities includes securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive and contingently issuable shares for which all necessary conditions for issuance had not been satisfied by the end of the period.

Potentially dilutive securities are as follows (in common stock equivalent shares):

Potentially dilutive securities are as follows (in common stock equivalent shares, in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Stock options

30,588 4,368 30,588 —

Preferred stock

18,311 6,808 18,311 —

Restricted stock and restricted stock units

13 unchanged sentences

In exchange for these services, the Company receives digital assets.

The primary financial measures used by the CODM to evaluate performance and allocate resources are revenue and gross profit.

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;

2 unchanged sentences

The Company excludes certain operating expenses and other expense from the allocations to operating segments.

The following table presents revenue and gross profit by reportable segment for the periods presented (in thousands):

Three Months Ended March 31,

The following table presents revenue and gross (loss) profit by reportable segment for the periods presented (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Equipment Sales and Hosting Segment

6 unchanged sentences

Total cost of revenue $ 57,185 $ 48,650 $ 110,951 $ 86,710

Gross (loss) profit

$ ( 3,055 ) $ 15,888 $ 2,698 $ 22,446

1 unchanged sentence

Digital asset mining income $ 109,842 $ 10,765 $ 242,842 $ 20,393

$ 133,000 $ 9,628

Total revenue

1 unchanged sentence

Cost of revenue:

Cost of digital asset mining $ 94,070 $ 2,115 $ 162,820 $ 3,768

Total cost of revenue 94,070 2,115 162,820 3,768

$ 15,772 $ 8,650 $ 80,022 $ 16,625

5 unchanged sentences

$ 12,717 $ 24,538 $ 82,720 $ 39,071

For the three months ended March 31, 2022 and 2021, cost of revenue included depreciation expense of $ 2.2 million and $ 1.8 million, respectively, for the Equipment Sales and Hosting segment.

For the three months ended March 31, 2022 and 2021, cost of revenue included depreciation expense of $ 39.4 million and $ 0.8 million , respectively for the Mining segment.

For the three months ended June 30, 2022 and 2021, cost of revenue included depreciati on expense of $ 2.6 million and $ 1.9 million, respectively, for the Equipment Sales and Hosting segment.

For the three months ended June 30, 2022 and 2021, cost of revenue included depreciation e xpense of $ 46.5 million and $ 0.9 million, respectively for the Mining segment.

For the six months ended June 30, 2022 and 2021, cost of revenue included deprecia tion expense of $ 4.8 million and $ 3.7 million, respectively, for the Equipment Sales and Hosting segment.

For the six months ended June 30, 2022 and 2021, cost of revenue included depreciation expense of $ 85.9 million and $ 1.6 million, respectively for the Mining segment.

Core Scientific, Inc.

4 unchanged sentences

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 March 31, 2022 and December 31, 2021, all of the Company’s fixed assets were located in the United States.

For the three months ended March 31, 2022 and 2021, all of the Company’s revenue was generated in the United States.

For the three months ended March 31, 2022 and 2021, the concentration of customers comprising 10% or more of the Company’s total revenue, Equipment Sales and Hosting segment revenue was as follows:

Three Months Ended March 31, Three Months Ended March 31,

2022 2021 2022 2021

As of June 30, 2022 and December 31, 2021, all of the Company’s fixed assets were located in the United States.

For the three and six months ended June 30, 2022 and 2021, all of the Company’s revenue was generated in the United States.

For the three and six months ended June 30, 2022, 67 % and 68 %, respectively, of the Company’s total revenue was generated from digital asset mining of bitcoin, which is subject to extreme price volatility.

As of June 30, 2022 and December 31, 2021, substantially all of our digital assets were held by two third-party digital asset services.

For the three and six months ended June 30, 2022, no customer accounted for 10% or more of the Company’s total revenue.

For the three and six months ended June 30, 2021, the concentration of customers comprising 10% or more of the Company’s total revenue and Equipment Sales and Hosting segment revenue was as follows:

Three Months Ended June 30, Three Months Ended June 30,

Percent of total revenue:

Percent of Equipment Sales and Hosting segment:

A 12 % N/A 39 % N/A

N/A 42 % N/A 51 %

Blockcap N/A 21 % N/A 25 %

A reconciliation of the reportable segment gross profit to (loss) income before income taxes included in the Company’s consolidated statements of operations and comprehensive (loss) income for the three months ended March 31, 2022 and 2021 is as follows (in thousands):

Three Months Ended March 31,

Percent of Equipment Sales and Hosting segment revenue:

Six Months Ended June 30, Six Months Ended June 30,

Percent of total revenue:

Percent of Equipment Sales and Hosting segment revenue:

Blockcap 19 % 23 %

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

A reconciliation of the reportable segment gross profit (loss) to income (loss) before income taxes included in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income for the three and six months ended June 30, 2022 and 2021 is as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Reportable segment gross profit

$ 12,717 $ 24,538 $ 82,720 $ 39,071

Gain from sales of digital assets

Gain (loss) from sales of digital assets

11,808 ( 16 ) 13,971 14

Impairment of digital assets ( 150,213 ) — ( 204,198 ) —

Operating expense:

Impairment of goodwill and other intangibles ( 790,753 ) — ( 790,753 ) —

Losses on exchange or disposal of property, plant and equipment ( 13,057 ) ( 17 ) ( 13,057 ) ( 17 )

Operating expenses:

Research and development

14,773 1,437 18,113 2,645

Sales and marketing

10,238 720 11,636 1,254

General and administrative

Total operating expense

90,874 6,822 131,034 10,617

Total operating expenses

115,885 8,979 160,783 14,516

Operating (loss) income

( 1,045,383 ) 15,526 ( 1,072,100 ) 24,552

Non-operating expense, net:

Loss on debt extinguishment and other

Non-operating (income) expenses, net:

Loss on debt extinguishment

— 7,974 — 8,016

Interest expense, net

Other non-operating (income), net

Fair value adjustments on convertible notes 386,037 —

Fair value adjustments on derivative warrant liabilities ( 10,275 ) —

Other non-operating (income), net

Total non-operating expense, net

27,116 10,846 48,792 12,981

Fair value adjustment on convertible notes ( 195,061 ) — 190,976 —

Fair value adjustment on derivative warrant liabilities ( 22,189 ) — ( 32,464 ) —

Other non-operating expenses, net

3,876 2 3,519 2

Total non-operating (income) expenses, net

( 186,258 ) 18,822 210,823 20,999

(Loss) income before income taxes

( 859,125 ) ( 3,296 ) ( 1,282,923 ) 3,553

Income tax expense

Income tax (benefit) expense

( 48,650 ) 118 ( 6,244 ) 118

Net (loss) income

5 unchanged sentences

The Company has agreements to provide hosting services to various entities that are managed and invested in by individuals that are directors and executives of the Company.

For the three months ended March 31, 2022 and 2021, the Company recognized hosting revenue from the contracts with these entities of $ 5.9 million and $ 4.3 million , respectively.

In addition, for the three months ended March 31, 2022 and 2021, the company recognized equipment sales revenue of $ 25.9 million and $ 7.9 million from these same various entities.

As of both March 31, 2022 and December 31, 2021, the Company had accounts receivable of $ 0.3 million from these entities.

For the three and six months ended June 30, 2022, the Company recognized hosting revenue from the contracts with these entities of $ 7.6 million and $ 13.5 million , respectively.

For the three and six months ended June 30, 2021 , the Company recognized hosting revenue from the contracts with these entities of $ 6.7 million and $ 11.0 million , respectively.

In addition, for the three and six months ended June 30, 2022 , the company recognized equipment sales revenue of $ 11.7 million and $ 37.6 million, respectively, from these entities.

For the three and six months ended June 30, 2021 , the company recognized equipment sales revenue of $ 9.5 million and $ 17.4 million, respectively, from these same various entities.

As of June 30, 2022 an d December 31, 2021, the Company had accounts receivable of $ 0.7 million and $ 0.3 million, respectively, fro m these entities.

The Company reimburses certain officers and directors of the Company for use of a personal aircraft for flights taken on Company business.

F or the three months ended March 31, 2022, the Company incurred reimbursements of $ 0.5 million.

The Company did not incur any reimburseme nts for the three months ended March 31, 2021.

As of March 31, 2022, $ 0.3 million was payable.

F or the three and six months ended June 30, 2022, the Company incurred reimbursements of $ 0.8 million and $ 1.2 million, respectively.

The Company incurred reimbursements of $ 0.2 million f or both the three and six months ended June 30, 2021.

As of June 30, 2022, $ 0.2 million was payable.

A nominal amount was payable at December 31, 2021.

2 unchanged sentences

SUBSEQUENT EVENTS

Financing Transactions

In April 2022, the Company borrowed an additional $ 0.7 million from Bremer to finance the construction of our North Dakota facility.

In April 2022, the Company borrowed a second tranche from Mass Mutual Barings of $ 39.6 million to purchase blockchain equipment.

In April 2022, the Company borrowed from $ 75.0 million on a bridge loan from B.

Riley Financial, Inc.

maturing in December 2022.

The loan bears interest at a rate of 7.0 %.

In April 2022, the Company borrowed $ 11.0 million from Liberty Commercial Finance for the purchase of blockchain equipment.

The loan bears interest at 10.6 % with a term of 24 months.

In May 2022, the Company added $ 0.8 million to their existing lease agreements for the purchase of equipment.

The loan bears interest at 7.7 % with a term of 36 months.

Financing Transactions - Committed Equity Financing

In July 2022, the Company entered into a common stock purchase agreement (the “Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with B.

Riley Principal Capital II, LLC (“B.

Pursuant to the Purchase Agreement, subject to the satisfaction of the conditions set forth in the Purchase Agreement, the Company will have the right to sell to B.

Riley, up to $ 100.0 million of shares of the Company’s common stock, par value $ 0.0001 per share (the “Common Stock”), subject to certain limitations and conditions set forth in the Purchase Agreement, from time to time during the term of the Purchase Agreement.

Sales of Common Stock pursuant to the Purchase Agreement, and the timing of any sales, are solely at the Company’s option, and the Company is under no obligation to sell any securities to B.

Riley under the Purchase Agreement.

The per share purchase price that B.

Riley is required to pay for shares of the Company’s Common Stock in a Purchase effected by the Company pursuant to the Purchase Agreement, if any, will be determined by reference to the volume weighted average price (“VWAP”) of the Common Stock, calculated in accordance with the Purchase Agreement, for the period (the “Purchase Valuation Period”) beginning at the official open (or “commencement”) of the regular trading session on Nasdaq on the applicable Purchase Date for such Purchase, and ending at the earliest to occur of (i) 3:59 p.m., New York City time, on such Purchase Date or such earlier time publicly announced by the trading market as the official close of the regular trading session on such Purchase Date, (ii) such time that the total aggregate number (or volume) of shares of Common Stock traded on Nasdaq during such Purchase Valuation Period (calculated in accordance with the Purchase Agreement) reaches the applicable share volume maximum amount for such Purchase (the “Purchase Share Volume Maximum”), calculated by dividing (a) the applicable Purchase Share Amount for such Purchase, by (b) 0.20 , and (iii) such time that the trading price of a share of Common Stock on Nasdaq during such Purchase Valuation Period (calculated in accordance with the Purchase Agreement) falls below the applicable minimum price threshold for such Purchase specified by the Company in the Purchase Notice for such Purchase, or if the Company does not specify a minimum price threshold in such Purchase Notice, a price equal to 75.0 % of the closing sale price of the Common Stock on the trading day immediately prior to the applicable Purchase Date for such Purchase (the “Minimum Price Threshold”), less a fixed 3.0 % discount to the VWAP for such Purchase Valuation Period.

The net proceeds to the Company from sales that the Company elects to make to B.

Riley under the Purchase Agreement, if any, will depend on the frequency and prices at which the Company sells shares of the Company’s Common Stock to B.

The Company expects that any proceeds received by the Company from such sales to B.

Riley will be used for general corporate purposes.

There are no restrictions on future financings, rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement or Registration Rights Agreement, other than a prohibition (with certain limited exceptions) on entering into specified “Variable Rate Transactions” (as such term is defined in the Purchase Agreement) during the term of the Purchase Agreement.

Such transactions include, among others, the issuance of convertible securities with a conversion or exercise price that is based upon or varies with the trading price of the Company’s Common Stock after the date of issuance, or the Company’s effecting or entering into an agreement to effect an “equity line of credit” or other substantially similar continuous offering with a third party, in which the Company may offer, issue or sell Common Stock or any securities exercisable, exchangeable or convertible into Common Stock at a future determined price.

Under the applicable Nasdaq rules, in no event may the Company issue to B.

Riley under the Purchase Agreement more than 70.3 million shares of Common Stock, which number of shares is equal to approximately 19.99 % of the shares of the Common Stock outstanding immediately prior to the execution of the Purchase Agreement (the “Exchange Cap”), unless (i) the Company obtains stockholder approval to issue shares of Common Stock in excess of the Exchange Cap in accordance with applicable Nasdaq rules, or (ii) the average price per share paid by B.

Riley for all of the shares of Common Stock that the Company directs B.

Riley to purchase from the Company pursuant to the Purchase Agreement, if any, equals or exceeds $ 1.75 per share (representing the lower of the official closing price of the Company’s Common Stock on Nasdaq on the trading day immediately preceding the date of the Purchase Agreement and the average official closing price of the Company’s Common Stock on Nasdaq for the five consecutive trading days ending on the trading day immediately preceding the date of the Purchase Agreement, as adjusted pursuant to applicable Nasdaq rules).

Moreover, the Company may not issue or sell any shares of Common Stock to B.

Riley under the Purchase Agreement which, when aggregated with all other shares of Common Stock then beneficially owned by B.

Riley and its affiliates (as calculated pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 13d-3 thereunder), would result in B.

Riley beneficially owning more than 4.99 % of the outstanding shares of Common Stock.

The Purchase Agreement will automatically terminate on the earliest to occur of (i) the first day of the month next following the 24 -month anniversary of the Commencement Date (as such term is defined in the Purchase Agreement), (ii) the date on which B.

Riley shall have purchased from the Company under the Purchase Agreement shares of Common Stock for an aggregate gross purchase price of $ 100.0 million, (iii) the date on which the Common Stock shall have failed to be listed or quoted on Nasdaq or another U.S.

national securities exchange identified as an “eligible market” in the Purchase Agreement, (iv) the 30 th trading day after

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

the date on which the Company commences a voluntary proceeding or any third party commences a bankruptcy proceeding against the Company that is not discharged or dismissed prior to such trading day, and (v) the date on which a bankruptcy custodian is appointed for all or substantially all of the Company’s property or the Company makes a general assignment for the benefit of creditors.

The Company has the right to terminate the Purchase Agreement at any time after Commencement, at no cost or penalty, upon five ( 5 ) trading days’ prior written notice to B.

Riley has the right to terminate the Purchase Agreement upon five ( 5 ) trading days’ prior written notice to the Company upon the occurrence of certain events set forth in the Purchase Agreement.

The Company and B.

Riley may also agree to terminate the Purchase Agreement by mutual written consent, provided that no termination of the Purchase Agreement will be effective until the fifth trading day immediately following the settlement date related to any pending purchase that has not been fully settled in accordance with the Purchase Agreement.

Neither the Company nor B.

Riley may assign or transfer their respective rights and obligations under the Purchase Agreement or the Registration Rights Agreement.

As consideration for B.

Riley’s commitment to purchase shares of Common Stock at the Company’s direction upon the terms and subject to the conditions set forth in the Purchase Agreement, upon execution of the Purchase Agreement, the Company issued 0.6 million shares to B.

In addition, the Company reimbursed $ 0.1 million of reasonable legal fees and disbursements of B.

Riley’s legal counsel in connection with the transactions contemplated by the Purchase Agreement and the Registration Rights Agreement.

Financing Transactions - Amended Bridge Notes

In August 2022, we entered into two amended and restated bridge promissory notes, one in an aggregate principal amount of $ 60.0 million with B.

Riley Commercial Capital, LLC (“B.

Riley Commercial Capital”) and one in an aggregate principal amount of $ 15.0 million with an affiliate of B.

Riley Commercial Capital (the “Amended Bridge Notes”).

The Amended Bridge Notes amend the original notes having identical principal amounts to extend the maturity date from December 7, 2022 to June 1, 2023.

The Amended Bridge Notes bear interest at a rate of 7 % per annum.

Under the terms of the modified agreement, $ 37.5 million of principal payments previously due in the second half of 2022 are now due in the first half of 2023.

The Amended Bridge Notes require the proceeds of (i) any equity issuances (other than issuances consummated for purposes of making tax payments in connection with the vesting of restricted stock and restricted stock units and equity line of credit under the Purchase Agreement (“ELOC”) sales), (ii) any secured debt incurred on or after April 7, 2022 (other than purchase money debt) in excess of $ 500 million and (iii) any ELOC sales in an amount equal to 25 % of the net cash proceeds received from any such ELOC sale, in each case, to be applied by us to repay the outstanding principal amount of the Amended Bridge Notes.

The Amended Bridge Notes are unsecured and not guaranteed by any of our subsidiaries.

We are subject to a quarterly financial reporting covenant and negative covenants restricting our ability to (i) merge or consolidate with any other person (subject to customary exceptions), (ii) make cash dividends or distributions with any material portion of the proceeds of the Amended Bridge Notes or any other debt, (iii) dispose of all or substantially all of the assets of Core Scientific, (iv) prepay contractually subordinated debt, (v) transact with affiliates (subject to customary exceptions) and (vi) modify or enter into any material contracts in a manner that would restrict us from making payments to the noteholders under the Amended Bridge Notes or require the net cash proceeds from an equity raise to be paid to any entity other than the noteholders under the Amended Bridge Notes.

Upon the occurrence of certain events of default, our obligations under the Amended Bridge Notes may be accelerated.

Such events of default include payment defaults under the Bridge Notes, covenant defaults and other customary defaults.

On August 1, 2022, the Company issued a total of 0.4 million shares of Common Stock to B.

Riley Securities, Inc., an affiliate of B.

Riley Commercial Capital, in satisfaction of an advisory fee for providing advisory services to the Company in connection with entering into the Amended Bridge Notes.

Customer Bankruptcy

In July 2022, Celsius Networks, the parent company of Celsius Mining LLC (“Celsius”), filed for voluntary relief under Chapter 11 of the Bankruptcy Code.

Celsius is one of our two largest customers.

As of June 30, 2022, we had $ 0.9 million due from Celsius that is presented within accounts receivable, net, of which $ 0.8 million was outstanding in July 2022 at the time of bankruptcy petition.

Celsius may take actions in its Chapter 11 proceeding to terminate or renegotiate its agreements with us and/or seek to reduce our claims for services and damages to which we may be entitled.

Our recovery on our claims will be subject to factors outside of our control.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless the context otherwise requires, all references in this section to “we,” “us,” “our,” the “Company” or “Core Scientific” refer to Core Scientific Holding Co.

and its subsidiaries prior to the consummation of the Business Combination (as defined below) and Core Scientific, Inc.

(f/k/a Power & Digital Infrastructure Acquisition Corp.) and its subsidiaries after the consummation of the Business Combination.

References to “XPDI” refer to the predecessor registrant prior to the consummation of the Business Combination.

The following discussion and analysis provides information which we believe is relevant to an assessment and understanding of our results of operations and financial condition.

This discussion and analysis should be read together with the unaudited consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q.

In addition to historical financial information, this discussion and analysis contains forward-looking statements based upon current expectations that involve risks, uncertainties and assumptions.

See the sections entitled “─Forward-Looking Statements” and Part II, Item 1A.

“Risk Factors” elsewhere in this Report.

Actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Item 1A.

“Risk Factors.”

Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” for purposes of the federal securities laws.

Our forward-looking statements include, but are not limited to, statements regarding our and our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future.

In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements.

The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

Forward-looking statements in this Quarterly Report on Form 10-Q may include, for example, statements about our ability to:

• meet future liquidity requirements and comply with restrictive covenants related to indebtedness;

• eff ectively respond to general economic and business conditions, including the price of bitcoin;

• maintain the listing on, or to prevent the delisting of our securities from, Nasdaq or another national securities exchange;

• obtain additional capital, whether equity or debt;

• enhance future operating and financial results;

• s uccessfully execute expansion pla ns;

• attract and retain employees, officers or directors;

• anticipate rapid changes in laws, regulations and technology;

• execute its business strategy, including enhancement of the profitability of services provided;

• realize the benefits expected from the acquisition of Blockcap, including any related synergies;

• anticipate the uncertainties inherent in the development of new business strategies;

• anticipate the impact of the COVID-19 pandemic, including variant strains of COVID-19, and its effect on business and financial conditions;

• manage risks associated with operational changes in response to the COVID-19 pandemic, including the emergence of variant strains of COVID-19;

• increase brand awareness;

• upgrade and maintain effective business controls and information technology systems;

• acquire and protect intellectual property;

• comply with laws and regulations applicable to its business, including tax laws and laws and regulations related to data privacy and the protection of the environment;

• stay abreast of modified or new laws and regulations applicable to its business or withstand the impact of any new laws and regulations related to its industry;

• anticipate the impact of, and response to, new accounting standards;

• anticipate the significance and timing of contractual obligations;

• maintain key strategic relationships with partners and distributors;

• respond to uncertainties associated with product and service development and market acceptance;

• anticipate the impact of changes in U.S.

federal income tax laws, including the impact on deferred tax assets;

• successfully defend litigation.

These forward-looking statements are based on information available as of the date of this Quarterly Report on Form 10-Q and the documents we reference in this Quarterly Report on Form 10-Q, and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties.

Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

You should read this Quarterly Report on Form 10-Q with the understanding that our actual future results may be materially different from what we expect.

We qualify all of our forward-looking statements by these cautionary statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject.

These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and such statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.

These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

Core Scientific is a best-in-class large-scale operator of dedicated, purpose-built facilities for digital asset mining colocation services and a premier provider of blockchain infrastructure, software solutions and services.

We mine digital assets for our own account and provide hosting colocation services for other large-scale miners.

We are one of the largest blockchain infrastructure, hosting provider and digital asset mining companies in North America, with approximately 457MW of power as of December 31, 2021 and 606MW as of June 30, 2022.

We mine Bitcoin, Ethereum and other digital assets for third-party hosting customers and for our own account at our six fully operational data centers in North Carolina (2), Georgia (2), North Dakota (1) and Kentucky (1).

In addition, in October 2021, we announced the entry of an agreement with the City of Denton, Texas and an affiliate of Tenaska Energy, Inc.

to develop our seventh facility, a blockchain data center in Denton, Texas, which became operational in February 2022 with an initial operating capacity approaching 22 MW and is expected to have 300MW of power when completed.

In February 2022, the Muskogee City-County Port Authority announced an agreement with us to develop a 500MW data center at the Port of Muskogee John T.

Griffin Industrial Park.

In July 2021 we completed the acquisition of Blockcap, Inc.

(“Blockcap”), one of our largest hosting customers.

Prior to its acquisition, Blockcap had retained the Company to host in the Company’s data centers Blockcap’s industrial scale digital asset mining operations.

Blockcap’s primary historical business was the mining of digital asset coins and tokens, primarily Bitcoin and, to a lesser extent, Siacoin and Ethereum.

At the time of its acquisition, Blockcap claimed to be the largest independent cryptocurrency mining operator in North America.

In addition to mining, holding and exchanging digital assets.

The acquisition of Blockcap significantly expanded our self-mining operations and increased the number of miners we own.

Our hosting colocation business provides a full suite of services to digital asset mining customers.

We provide deployment, monitoring, troubleshooting, optimization and maintenance of our customer’s digital asset mining equipment and provide necessary electrical power and repair and other infrastructure services necessary to operate, maintain and efficiently mine digital assets.

Historically, we operated in two segments:

“mining” consisting of digital asset mining for our own account, and “hosting, Artificial Intelligence and other” consisting of our blockchain infrastructure and third-party hosting business, and our AI software-as-a-service offerings and platforms.

Today, our mining and hosting operations comprises all or substantially all of our business activities.

Our business strategy is to continue to grow our self-mining operations by significantly increasing the number of miners dedicated to producing digital assets for our own account, and to continue to develop and grow the infrastructure and facilities necessary to house our growing digital asset mining business and support our robust third-party hosting colocation business.

Moving forward, we intend to adopt an investment policy pursuant to which an investment committee comprised of corporate officers use common risk management techniques to manage our assets in light of specified liquidity criteria.

Liquidity will be maintained through management of a portfolio of money market instruments, obligations of the U.S.

government, bank deposits, commercial paper, and certain digital asset currencies and digital asset instruments, each of which must satisfy certain risk criteria.

The investment committee will retain the discretion to manage these approved investment instruments, including digital asset currencies and instruments, in accordance with the investment policy, which may involve opportunistic sales or conversions of digital asset currencies and instruments in light of market and other conditions.

We may also explore adjacent lines of businesses that leverage our mining expertise and bitcoin assets.

Our total revenue was $164.0 million and $75.3 million for the three months ended June 30, 2022 and 2021, respectively.

We had an operating loss of $1.05 billion and operating income of $15.5 million for the three months ended June 30, 2022 and 2021, respectively.

We had a net loss of $810.5 million and a net loss of $3.4 million for the three months ended June 30, 2022 and 2021, respectively.

Our Adjusted EBITDA was $59.1 million and $20.8 million for the three months ended June 30, 2022 and 2021, respectively.

Adjusted EBITDA is a non-GAAP financial measure.

See “ Key Business Metrics and Non-GAAP Financial Measure ” below for our definition of, and additional information related to Adjusted EBITDA.

Our total revenue was $356.5 million and $129.5 million for the six months ended June 30, 2022 and 2021, respectively.

We had an operating loss of $1.07 billion and operating income of $24.6 million for the six months ended June 30, 2022 and 2021, respectively.

We had a net loss of $1.28 billion and net income of $3.4 million for the six months ended June 30, 2022 and 2021, respectively.

Our Adjusted EBITDA was $152.2 million and $33.3 million for the six months ended June 30, 2022 and 2021, respectively.

Recent Developments

Impairment Charges

During the three months ended June 30, 2022 , falling digital asset prices, significantly higher energy prices, inflation and supply chain disruptions increased our electricity costs, delayed facility development and miner deployments and reduced our profitability.

The costs of constructing, developing, operating and maintaining hosting facilities and growing our hosting operations also increased significantly, which have made it difficult for us to expand our business and reduced our operating profitability.

Inflation and capital constraints have forced us and many companies like us to sell digital assets for cash that has contributed to large scale selling of digital assets and a decrease in the price of digital assets, including bitcoin.

On June 30, 2022 we identified a triggering event related to our assets and recorded a goodwill and other intangibles impairment charge of $790.8 million .

The falling prices of digital assets also resulted in an $150.2 million impairment of digital assets being recorded in the three months ended June 30, 2022.

In addition, the decline in our stock price resulting from the above identified market conditions required recording of a decrease in the fair value of our convertible notes and derivative warrant liabilities, resulting in a corresponding gain for the three months ended June 30, 2022 of $195.1 million and $22.2 million on the convertible notes and derivative warrant liabilities, respectively.

RSU Amendment

During the three months ended June 30, 2022 , we amended our outstanding restricted stock units (“RSUs”) to provide for the waiver and elimination of the additional vesting requirement that Core Scientific undergo a “change in control” or a “public offering” for full vesting of outstanding time-vested awards (the “RSU Amendment”).

As a result of the RSU Amendment, outstanding RSUs that were time-vested were net settled and outstanding RSUs not vested are subject only to time-based vesting.

Share-based compensation expense increased $108.9 million for the three months ended June 30, 2022 , as compared to the three months ended June 30, 2021, primarily as a result of the RSU Amendment.

Colocation Agreement

In July 2022, we announced that we had entered into a colocation agreement to increase our hosting business by 75MW that is expected to generate approximately $50.0 million in annual revenue when the ASIC servers are fully deployed.

Server deployments will begin during the fourth quarter of this year, with full deployment to be completed during 2023.

With the addition of these units, the Company expects to be operating more than 300,000 ASIC servers (combined self-mining and colocation) in its data centers before year end.

Riley Purchase Agreement

In July 2022, we entered into a common stock purchase agreement (the “Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with B.

Riley Principal Capital II, LLC (“B.

Pursuant to the Purchase Agreement, subject to the satisfaction of the conditions set forth in the Purchase Agreement, we will have the right to sell to B.

Riley, up to $100.0 million of shares of our common stock, par value $0.0001 per share, subject to certain limitations and conditions set forth in the Purchase Agreement, from time to time during the term of the Purchase Agreement.

Sales of common stock pursuant to the Purchase Agreement, and the timing of any sales, are solely at our option, and we are under no obligation to sell any securities to B.

Riley under the Purchase Agreement.

The net proceeds to us from sales that we elect to make to B.

Riley under the Purchase Agreement, if any, will depend on the frequency and prices at which we sell shares of our Common Stock to B.

We expect that any proceeds received by us from such sales to B.

Riley will be used for general corporate purposes.

As consideration for B.

Riley’s commitment to purchase shares of Common Stock at our direction upon the terms and subject to the conditions set forth in the Purchase Agreement, upon execution of the Purchase Agreement, we issued 0.6 million shares to B.

In addition, we reimbursed $0.1 million of reasonable legal fees and disbursements of B.

Riley’s legal counsel in connection with the transactions contemplated by the Purchase Agreement and the Registration Rights Agreement.

Amended Bridge Notes

On August 1, 2022, we entered into two amended and restated bridge promissory notes, one in an aggregate principal amount of $60 million with B.

Riley Commercial Capital, LLC (“B.

Riley Commercial Capital”) and one in an aggregate principal amount of $15 million with an affiliate of B.

Riley Commercial Capital (the “Amended Bridge Notes”).

The Amended Bridge Notes amend the original notes having identical principal amounts to extend the maturity date from December 7, 2022 to June 1, 2023.

The Amended Bridge Notes bear interest at a rate of 7% per annum and amortize collectively as follows:

Payment Dates Payment Amount

August 1, 2022 $ 18,000,000

September 1, 2022 $ 4,875,000

October 1, 2022 $ 4,875,000

November 1, 2022 $ 4,875,000

December 1, 2022 $ 4,875,000

January 1, 2023 $ 6,250,000

February 1, 2023 $ 6,250,000

March 1, 2023 $ 6,250,000

April 1, 2023 $ 6,250,000

May 1, 2023 $ 6,250,000

The net proceeds of the notes were used by us for working capital and general corporate purposes.

The Amended Bridge Notes require the proceeds of (i) any equity issuances (other than issuances consummated for purposes of making tax payments in connection with the vesting of restricted stock and restricted stock units and equity line of credit under the Purchase Agreement (“ELOC”) sales), (ii) any secured debt incurred on or after April 7, 2022 (other than purchase money debt) in excess of $500 million and (iii) any ELOC sales in an amount equal to 25% of the net cash proceeds received from any such ELOC sale, in each case, to be applied by us to repay the outstanding principal amount of the Amended Bridge Notes.

Celsius Bankruptcy

In July 2022, Celsius Networks, the parent company of Celsius Mining LLC (“Celsius”), filed for voluntary relief under Chapter 11 of the Bankruptcy Code.

Celsius is one of our two largest customers.

As of June 30, 2022, we had $0.9 million due from Celsius that is presented within accounts receivable, net, of which $0.8 million was outstanding in July 2022 at the time of bankruptcy petition.

Celsius may take actions in its Chapter 11 proceeding to terminate or renegotiate its agreements with us and/or seek to reduce our claims for services and damages to which we may be entitled.

Our recovery on our claims will be subject to factors outside of our control.

Our Business Model

We have two operating segments:

“Equipment Sales and Hosting” which consists primarily of our blockchain infrastructure and third-party hosting business and equipment sales to customers, and “Mining” consisting of digital asset mining for our own account.

The blockchain hosting business generates revenue through the sale of consumption-based contracts for our hosting services which are recurring in nature.

Equipment sales revenue is derived from our ability to leverage our partnerships with leading equipment manufacturers to secure equipment in advance, which is then sold to our customers when they are unable to obtain them otherwise.

The digital asset mining operation segment generates revenue from operating owned computer equipment as part of a pool of users that process transactions conducted on one or more blockchain networks.

In exchange for these services, we receive digital assets.

Mining Equipment

We own and host specialized computers (“miners”) configured for the purpose of validating transactions on multiple digital asset network blockchains (referred to as, “mining”), predominantly the Bitcoin network.

Substantially all of the miners we own and host were manufactured by Bitmain and incorporate application-specific integrated circuit (“ASIC”) chips specialized to solve blocks on the bitcoin blockchains using the 256-bit secure hashing algorithm (“SHA-256”) in return for bitcoin digital asset rewards.

We have entered into and facilitated agreements with vendors to supply mining equipment for our and our users’ digital asset mining operations.

We prepay a significant portion of the purchase price for these new miners as partially refundable deposits, with delivery scheduled to occur in monthly installments through December 2022, and the remainder of the purchase price for these new miners is payable in installments, with payment due in advance of the scheduled delivery dates set forth in the applicable purchase agreement.

As of June 30, 2022, we had deployed approximately 182,000 bitcoin miners, which number consists of approximately 103,000 self-miners and approximately 79,000 hosted miners, which represented 10.3 exahash per second (“EH/s”) and 7.6 EH/s for self-miners and hosted miners, respectively.

In addition, as of June 30, 2022, we had 74,000 and 50,000 additional self-miners and hosted miners, respectively, expected to be deployed in 2022 and thereafter, which are expected to increase our hash rate and our customers’ and related parties’ hash rate by approximately 7.5 EH/s and 5.0 EH/s respectively.

As of June 30, 2022, the remaining contractual purchase obligations on the bitcoin miners on order is approximately $61.6 million, substantially all of which are expected to be settled within one year.

We expect a significant portion of our commitments for bitcoin miners as of June 30, 2022 to be reduced through price reductions and coupons.

We allocate in advance our mining equipment orders between our self-mining operations and our hosting operations conducted on behalf of customers based on our estimates of where such equipment can most profitably and efficiently be used and in accordance with contractual arrangements with our customers.

The first table below summarizes the total number of self- and hosted miners in operation as of June 30, 2022.

The second table below summarizes the total number of self- and hosted miners for delivery and dep loyment in 2022 and Q1 of 2023, (Miners in thousands).

Bitcoin Miners in Operation as of June 30, 2022

Mining Equipment Hash rate (EH/s) Number of Miners

Self-miners 10.3 103.0

Hosted miners 7.6 79.0

Total mining equipment 17.9 182.0

Bitcoin Miners Ordered or Transferred In 2022 and Thereafter

Mining Equipment Hash rate to be deployed (EH/s) Number of Miners

Self-miners 7.5 74.0

Hosted miners 5.0 50.0

Total mining equipment 12.5 124.0

Total in operation and to be deployed 30.4 306.0

Summary of Digital Asset Activity

Activity related to our digital asset balances for the six months ended June 30, 2022 and 2021 were as follows (in thousands):

June 30, 2022 June 30, 2021

Digital assets, beginning of period $ 234,298 $ 63

Digital asset mining revenue

242,842 20,393

Proceeds from sales of digital assets and other (246,249) (20,220)

Gain from sales of digital assets 13,971 14

Impairment of digital assets (204,198) —

Digital assets, end of period $ 40,664 $ 250

Impact of COVID-19

In March 2020, the World Health Organization declared the global outbreak of COVID-19 to be a pandemic.

We continue to closely monitor the impact of COVID-19.

COVID-19 has had and continues to have an adverse impact on our business and operations, particularly as a result of preventive and precautionary measures that we, other businesses, and governments are taking.

Refer to “Item 1A.

Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q for more information.

On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property.

It also allocated funds for the U.S.

Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity

to small businesses harmed by COVID-19.

In April 2020, Legacy Core Scientific received a loan of $2.2 million from the PPP through the SBA.

The loan was unsecured and bore interest at a rate per annum of 1% and monthly payments of principal were to begin in July 2021.

The loan was due in full in April 2022, however in July 2021, Legacy Core Scientific repaid the loan in full.

We are unable to predict the full impact that the COVID-19 pandemic, including variant strains of COVID-19, will have on our future results of operations, liquidity and financial condition due to numerous uncertainties, including the duration of the pandemic and the actions that may be taken by government authorities across the United States.

However, COVID-19, including variant strains of COVID-19, is not expected to result in any significant changes in costs going forward.

We will continue to monitor the performance of our business and assess the impacts of COVID-19 and the emergence of new variant strains of COVID-19, including potential constraints on the supply of new miners.

The Merger and Public Company Costs

On July 20, 2021, we entered into the merger agreement with XPDI and the Merger Sub.

XPDI’s stockholders approved the transactions contemplated by the merger agreement (collectively, the “Business Combination”) at a special meeting of stockholders held on January 19, 2022 (the “Special Meeting”).

Pursuant to the merger agreement, and subject to the terms and conditions set forth therein, XPDI acquired Legacy Core Scientific through a series of transactions, including (x) Merger Sub merging with and into Legacy Core Scientific (the “First Merger”), with Legacy Core Scientific surviving the First Merger as a wholly owned subsidiary of XPDI, and (y) following the closing of the First Merger, Legacy Core Scientific merging with and into XPDI (the “Second Merger”), with XPDI surviving the Second Merger.

In connection with the closing of the Business Combination, we changed our name from Power & Digital Infrastructure Acquisition Corp.

to Core Scientific, Inc.

As a result of the merger, among other things, each outstanding share of Legacy Core Scientific common stock was cancelled in exchange for the right to receive 1.6001528688 of a share of our common stock.

The Transaction provided gross proceeds of approximately $221.6 million from the XPDI trust account, resulting in approximately $195.0 million in net cash proceeds to Core Scientific, after the payment of transaction expenses.

As a result of the Transaction, former Core Scientific stockholders own 90.7%, former XPDI public stockholders own 6.7% and XPDI’s sponsor owns 2.6% of the issued and outstanding shares of common stock, respectively, of the Company, excluding the impact of unvested restricted stock units and options.

The proceeds from the Transaction were used to fund mining equipment purchases and infrastructure build-out as the Company expands its leadership position.

The merger is accounted for as a reverse recapitalization and XPDI is treated as the “acquired” company for financial reporting purposes.

Legacy Core Scientific has been deemed the predecessor and Core, the post-combination company, is the successor Securities and Exchange Commission (“SEC”) registrant, meaning that Legacy Core Scientific’s financial statements for periods prior to the consummation of the merger are disclosed in Core’s periodic reports.

As a consequence of the merger, we and XPDI collectively incurred an aggregate of $39.0 million in professional fees associated with legal services, M&A advisor fees, financial advice, due diligence, and other deal-related costs.

These transaction costs will be allocated to all instruments assumed or issued in the merger on a relative fair value basis as of the date of the merger.

Transaction costs allocated to equity-classified instruments were recognized as an adjustment to additional paid-in capital within total stockholders’ equity while transaction costs allocated to liability-classified instruments that are subsequently measured at fair value through earnings were expensed in the first quarter of 2022.

Core Scientific is registered with the SEC and listed on Nasdaq as of January 19, 2022, which requires us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices.

We expect to incur additional annual expenses as a public company for, among other things, internal controls compliance and public company reporting obligations, directors’ and officers’ liability insurance, director fees and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees.

Key Business Metrics and Non-GAAP Financial Measure

In addition to our financial results, we use the following business metrics and non-GAAP financial measures to evaluate our business, measure our performance, identify trends affecting our business, and make strategic decisions.

For a definition of these key business metrics, see the sections titled “─Self-Mining Hash Rate” and “─Adjusted EBITDA” below.

Self-Mining Hash rate (Exahash per second)

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Adjusted EBITDA (in millions) $ 59.1 $ 20.8 $ 152.2 $ 33.3

We operate mining hardware that performs computational operations in support of the blockchain measured in “hash rate” or “hashes per second.” A “hash” is the computation run by mining hardware in support of the blockchain;

therefore, a miner’s “hash rate” refers to the rate at which the hardware is capable of performing such computations.

Our hash rate represents the hash rate of our miners as a proportion of the total Bitcoin network hash rate and drives the number of digital asset rewards that will be earned by our fleet.

We calculate and report our hash rate in exahash per second (“EH/s”).

One exahash equals one quintillion hashes per second.

We measure the hash rate produced by our mining fleet through our management software, Minder TM , which consolidates the reported hash rate from each miner.

The method by which we measure our hash rate may differ from how other operators present a such measure.

Our self-mining hash rate was 10.30 EH/s and 0.45 EH/s as of June 30, 2022 and 2021, respectively, representing a 2,189% increase year over year.

Our self-mining hash rate, inclusive of Blockcap (“combined self-mining”), as of June 30, 2022 and 2021, was 10.30 EH/s and 1.99 EH/s, respectively.

Our combined self-mining and customer and related party hosting hash rate grew 237%, to 17.90 EH/s as of June 30, 2022 from 5.31 EH/s as of June 30, 2021.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure defined as our net income or (loss), adjusted to eliminate the effect of (i) interest income, interest expense, and other income (expense), net;

(ii) provision for income taxes;

(iii) depreciation and amortization;

(iv) stock-based compensation expense;

(v) gain on sale of intangible assets;

(vi) restructuring charges;

and (vii) certain additional non-cash or non-recurring items, that do not reflect our ongoing business operations.

For additional information, including the reconciliation of net income (loss) to Adjusted EBITDA, please refer to the table below.

We believe Adjusted EBITDA is an important measure because it allows management, investors, and our board of directors to evaluate and compare our operating results, including our return on capital and operating efficiencies, from period-to-period by making the adjustments described above.

In addition, it provides useful information to investors and others in understanding and evaluating our results of operations, as well as provides a useful measure for period-to-period comparisons of our business, as it removes the effect of net interest expense, taxes, certain non-cash items, variable charges, and timing differences.

Moreover, we have included Adjusted EBITDA in this Quarterly Report on Form 10-Q because it is a key measurement used by our management internally to make operating decisions, including those related to operating expenses, evaluate performance, and perform strategic and financial planning.

The above items are excluded from our Adjusted EBITDA measure because these items are non-cash in nature, or because the amount and timing of these items is unpredictable, not driven by core results of operations and renders comparisons with prior periods and competitors less meaningful.

However, you should be aware that when evaluating Adjusted EBITDA, we may incur future expenses similar to those excluded when calculating this measure.

Our presentation of this measure should not be construed as an inference that its future results will be unaffected by unusual or non-recurring items.

Further, this non-GAAP financial measure should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).

We compensate for these limitations by relying primarily on GAAP results and using Adjusted EBITDA on a supplemental basis.

Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies because not all companies calculate this measure in the` same fashion.

You should review the reconciliation of net (loss) income to Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.

The following table presents a reconciliation of net (loss) income to Adjusted EBITDA for the three and six months ended June 30, 2022 and 2021 (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Adjusted EBITDA

Net (loss) income

$ (810,475) $ (3,414) $ (1,276,679) $ 3,435

Interest expense, net 27,116 10,846 48,792 12,981

Income tax (benefit) expense (48,650) 118 (6,244) 118

Depreciation and amortization 49,835 3,075 91,974 5,991

Loss on debt extinguishment — 7,974 — 8,016

Stock-based compensation expense 110,998 2,136 136,795 2,724

Fair value adjustment on derivative warrant liabilities (22,189) — (32,464) —

Fair value adjustment on convertible notes (195,061) — 190,976 —

(Gain) loss from sales of digital assets (11,808) 16 (13,971) (14)

Impairment of digital assets 150,213 — 204,198 —

Impairment of goodwill and other intangibles 790,753 — 790,753 —

Losses on exchange or disposal of property, plant and equipment 13,057 17 13,057 17

Gain on sale of intangible assets (5,904) — (5,904) —

Restructuring charges 1,445 — 1,445 —

Fair value adjustment on acquired vendor liability 9,789 — 9,430 —

Other non-cash or non-recurring items (8) — (6) —

Adjusted EBITDA

$ 59,111 $ 20,768 $ 152,152 $ 33,268

Components of Results of Operations

Our revenue consists primarily of returns from our hosting operations, including the sales of mining equipment to be hosted in our data centers and proceeds related to digital currency transaction processing (digital asset mining revenue) fees.

• Hosting revenue from customers and related parties.

Hosting revenue from customers and related parties is based on consumption-based contracts with our customers and related parties.

Most contracts are renewable, and our customers are generally billed on a fixed and recurring basis each month for the duration of their contracts, which vary from one to three years in length.

• Equipment sales to customers and related parties.

Revenue from equipment sales to customers and related parties is derived from our ability to leverage our partnerships with leading equipment manufacturers to secure equipment in advance, which is then sold to our customers and related parties.

Our equipment sales are typically in connection with a hosting contract.

• Digital asset mining revenue.

We operate a digital asset mining operation using specialized computers equipped with application-specific integrated circuit (ASIC) chips (known as “miners”) to solve complex cryptographic algorithms in support of the Bitcoin blockchain (in a process known as “solving a block”) in exchange for digital asset rewards (primarily bitcoin).

The Company participates in “mining pools” organized by “mining pool operators” in which we share our mining power (known as “hash rate”) with the hash rate generated by other miners participating in the pool to earn digital asset rewards.

The mining pool operator provides a service that coordinates the computing power of the independent mining enterprises participating in the mining pool.

Fees are paid to the mining pool operator to cover the costs of maintaining the pool.

The pool uses software that coordinates the pool members’ mining power, identifies new block rewards, records how much hash rate each participant contributes to the pool, and assigns digital asset rewards earned by the pool among its participants in proportion to the hash rate each participant contributed to the pool in connection with solving a block.

Revenue from digital asset mining are impacted by volatility in bitcoin prices, as well as increases in the Bitcoin blockchain’s network hash rate resulting from the growth in the overall quantity and quality of miners working to solve blocks on the Bitcoin blockchain and the difficulty index associated with the secure hashing algorithm employed in solving the blocks.

The diagram below provides a simple illustration of the calculation of our annual digital asset mining revenue.

1 Amount represents the average number of blocks mined per year, e.g., blocks are mined on average every 10 minutes, or 144 per day, 52,560 per year

Cost of revenue

The Company’s cost of hosting services and cost of digital asset mining primarily consist of electricity costs, salaries, stock-based compensation, depreciation of property, plant and equipment used to perform hosting services and mining operations and other related costs.

Cost of equipment sales includes costs of mining computer equipment sold to customers.

Gain (loss) from sales of digital assets

Gain (loss) from sales of digital assets consists of gain (loss) on sales of digital assets and impairment charges for digital assets at the lower of cost or fair value.

Impairment of digital assets

We initially recognize digital assets that are received as digital asset mining revenue based on the fair value of the digital assets.

Digital assets that are purchased in an exchange of one digital asset for another digital asset are recognized at the fair value of the asset received.

These assets are adjusted to fair value only when an impairment is recognized, or the underlying asset is held for sale.

To the extent that an impairment loss is recognized, the loss establishes the new costs basis of the digital asset.

Impairment losses are recognized in the period in which the impairment is identified.

The impaired digital assets are written down to their fair value at the time of impairment and this new cost basis will not be adjusted upward for any subsequent increase in fair value.

See Note 2 under “Digital Assets” in our audited consolidated financial statements for the year ended December 31, 2021 on Form 8-K/A, which was filed with the SEC on March 31, 2022, for further information.

Impairment of goodwill and other intangibles

The quantitative test compares the fair value of the reporting unit with the reporting unit’s carrying amount.

The Company’s reporting units are the same as its reportable and operating segments.

The Company tests intangible assets subject to amortization whenever events or changes in circumstances have occurred that may affect the recoverability or the estimated useful lives of the intangible assets.

Intangible assets may be impaired when the estimated future undiscounted cash flows are less than the carrying amount of the asset.

If that comparison indicates that the intangible asset’s carrying value may not be recoverable, the impairment is measured based on the difference between the carrying amount and the estimated fair value of the intangible asset.

This evaluation is performed at the lowest level for which separately identifiable cash flows exist.

Intangible assets to be disposed of are reported at the lower of the carrying amount or estimated fair value less costs to sell.

Losses on exchange or disposal of property, plant and equipment

Losses on exchange or disposal of property, plant and equipment is measured as the differences between the carrying value of the property, plant and equipment exchanged or disposed of and fair value of the consideration received upon exchange or disposal.

The fair value of noncash consideration received in an exchange of property, plant and equipment is determined as of contract inception.

Operating expenses

Operating expenses consist of research and development, sales and marketing, and general and administrative expenses.

Each is outlined in more detail below.

• Research and development.

We invest in research and development to build capabilities to extend our blockchain platform management and software solutions, in order to manage our mining fleet more efficiently, expand within existing accounts, and to gain new customers by offering differentiated blockchain hosting services.

Research and development costs include compensation and benefits, stock-based compensation, other personnel related costs and professional fees.

• Sales and marketing.

Sales and marketing expenses consist of marketing expenses, trade shows and events, professional fees, compensation and benefits, stock-based compensation and other personnel related costs.

• General and administrative.

General and administrative expenses include compensation and benefits expenses for employees, who are not part of the research and development and sales and marketing organization, professional fees, and other personnel related expenses.

Also included is stock-based compensation, insurance, amortization of intangibles, gain (loss) on disposals of property, plant and equipment, asset impairments, franchise taxes, and bank fees.

Non-operating (income) expenses, net

Non-operating (income) expenses, net includes loss on debt extinguishment, interest expense, net, fair value adjustment on convertible notes, fair value adjustment on derivative warrant liabilities and other non-operating expenses, net.

Income tax (benefit) expense

Income tax (benefit) expense consists of U.S.

federal, state and local income taxes, if any.

For the three and six months ended June 30, 2022, our income tax benefit was $48.7 million and $6.2 million, respectively.

For the three and six months ended June 30, 2021, our income tax expense was $0.1 million and $0.1 million, respectively.

We evaluate our ability to recognize our deferred tax assets quarterly by considering all positive and negative evidence available as proscribed by the Financial Accounting Standards Board (“FASB”) under its general principles of Accounting Standards Codification (“ASC”) 740, Income Taxes .

Results of Operations for the Three Months Ended June 30, 2022 and 2021

The following table sets forth our selected Consolidated Statements of Operations for each of the periods indicated.

Three Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Hosting revenue from customers $ 31,338 $ 11,895 $ 19,443 163 %

Hosting revenue from related parties 7,598 6,667 931 14 %

Equipment sales to customers 3,507 36,457 (32,950) (90) %

Equipment sales to related parties 11,687 9,519 2,168 23 %

Digital asset mining revenue 109,842 10,765 99,077 920 %

Total revenue 163,972 75,303 88,669 118 %

Cost of revenue:

Cost of hosting services 43,644 17,550 26,094 149 %

Cost of equipment sales 13,541 31,100 (17,559) (56) %

Cost of digital asset mining 94,070 2,115 91,955 NM

Total cost of revenue 151,255 50,765 100,490 198 %

Gross profit 12,717 24,538 (11,821) (48) %

Gain (loss) from sales of digital assets 11,808 (16) 11,824 NM

Impairment of digital assets (150,213) — (150,213) NM

Impairment of goodwill and other intangibles (790,753) — (790,753) NM

Losses on exchange or disposal of property, plant and equipment (13,057) (17) (13,040) NM

Operating expenses:

Research and development 14,773 1,437 13,336 928 %

Sales and marketing 10,238 720 9,518 NM

General and administrative 90,874 6,822 84,052 NM

Total operating expenses 115,885 8,979 106,906 NM

Operating (loss) income (1,045,383) 15,526 (1,060,909) NM

Non-operating (income) expenses, net:

Loss on debt extinguishment — 7,974 (7,974) (100) %

Interest expense, net 27,116 10,846 16,270 150 %

Fair value adjustment on convertible notes (195,061) — (195,061) NM

Fair value adjustment on derivative warrant liabilities (22,189) — (22,189) NM

Other non-operating expenses, net 3,876 2 3,874 NM

Total non-operating (income) expenses, net (186,258) 18,822 (205,080) NM

Loss before income taxes (859,125) (3,296) (855,829) NM

Income tax (benefit) expense (48,650) 118 (48,768) NM

Net loss $ (810,475) $ (3,414) $ (807,061) NM

NM - Not Meaningful

Three Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Hosting revenue from customers $ 31,338 $ 11,895 $ 19,443 163 %

Hosting revenue from related parties 7,598 6,667 931 14 %

Equipment sales to customers 3,507 36,457 (32,950) (90) %

Equipment sales to related parties 11,687 9,519 2,168 23 %

Digital asset mining revenue 109,842 10,765 99,077 920 %

Total revenue $ 163,972 $ 75,303 $ 88,669 118 %

Percentage of total revenue:

Hosting revenue from customers

Hosting revenue from related parties

Equipment sales to customers

Equipment sales to related parties

Digital asset mining revenue

Total revenue

Total revenue increased by $88.7 million to $164.0 million for the three months ended June 30, 2022 from $75.3 million for the three months ended June 30, 2021 as a result of the factors described below.

Total hosting revenue from customers increased by $19.4 million or 163%, to $31.3 million for the three months ended June 30, 2022 from $11.9 million for the three months ended June 30, 2021.

The increase in hosting revenue from customers was driven primarily by the onboarding of new clients for the three months ended June 30, 2022.

Total hosting revenue from related parties increased by $0.9 million or 14%, to $7.6 million for the three months ended June 30, 2022 from $6.7 million for the three months ended June 30, 2021.

The increase in related party hosting contracts was primarily driven by the onboarding of new related party hosting contracts for miners deployed during the three months ended June 30, 2022.

Equipment sales to customers decreased by $33.0 million to $3.5 million for the three months ended June 30, 2022 from $36.5 million for the three months ended June 30, 2021.

The decrease in equipment sales to customers was primarily driven by more of our hosting customers purchasing mining equipment directly from manufacturers for deployments in our data centers during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Equipment sales to related parties increased by $2.2 million or 23%, to $11.7 million for the three months ended June 30, 2022 from $9.5 million for the three months ended June 30, 2021.

The increase in equipment sales to related parties was primarily driven by the timing of deployments of mining equipment during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Digital asset mining revenue increased by $99.1 million to $109.8 million for the three months ended June 30, 2022 from $10.8 million for the three months ended June 30, 2021.

The increase in mining revenue was driven primarily by an increase in our self-mining hash rate, partially offset by the decrease in the price of bitcoin.

Our self-mining hash rate increased to 10.30 EH/s for the three months ended June 30, 2022 from 0.45 EH/s for the three months ended June 30, 2021.

The total number of bitcoins awarded for the three months ended June 30, 2022 was 3,365 compared to 180 for the three months ended June 30, 2021.

The average price of bitcoin for the three months ended June 30, 2022 was $32,502 as compared to $46,498 for the three months ended June 30, 2021, a decrease of 30%.

Cost of revenue

Three Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Cost of revenue

$ 151,255 $ 50,765 $ 100,490 198 %

12,717 24,538 (11,821) (48) %

Cost of revenue increased by $100.5 million or 198%, to $151.3 million for the three months ended June 30, 2022 from $50.8 million for the three months ended June 30, 2021.

The increase in cost of revenue was primarily attributable to higher power consumption costs of $45.9 million driven by an increase in the number of self-mining and hosted miners operating in our fleet and an increase in power rates, increased depreciation expense of $46.3 million driven by an increase in the number of self-mining units deployed, higher personnel and facilities operating costs driven by the opening and expansion of our data centers of $25.8 million, which includes increased payroll and benefit costs for personnel of $3.6 million and increased stock-based compensation of $16.9 million, primarily reflecting the RSU Amendment described above, partially offset by lower equipment sales costs of $17.6 million.

As a percentage of total revenue, cost of revenue totaled 92% and 67% for the three months ended June 30, 2022 and 2021, respectively.

The increase in cost of revenue as a percentage of total revenue for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 is primarily the result of higher depreciation expense as a percentage of total revenue, higher power consumption costs as a percentage of total revenue and higher stock-based compensation as a percentage of total revenue.

Gain (loss) from sales of digital assets

Three Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Gain (loss) from sales of digital assets $ 11,808 $ (16) $ 11,824 NM

Percentage of total revenue

Gain from sales of digital assets increased by $11.8 million for the three months ended June 30, 2022 from a nominal loss for the three months ended June 30, 2021.

Gains are recorded when realized upon sale(s).

In determining the gain to be recognized upon sale, we calculate the difference between the sales price and carrying value of the digital assets sold immediately prior to sale.

For the three months ended June 30, 2022, the carrying value of our digital assets sold was $235.3 million and the sales price was $247.1 million.

Current and future proceeds from sales of digital assets are primarily used for payments for ASIC servers, capital investments in additional data center capacity and scheduled repayment of debt.

Impairment of digital assets

Three Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Impairment of digital assets $ (150,213) $ — $ (150,213) NM

Percentage of total revenue

Impairment of digital assets increased by $150.2 million for the three months ended June 30, 2022.

Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the digital currency asset at the time its fair value is being measured, which is on a daily basis.

We perform an analysis each quarter to identify whether events or changes in circumstances, principally decreases in the quoted prices on active exchanges, indicate that it is more likely than not that our digital assets are impaired.

In determining if an impairment has occurred, we consider the market price of one unit of digital asset quoted on

the active exchange since acquiring the digital asset, which is measured once a day at 00:00 Coordinated Universal Time (“UTC”).

If the then current carrying value of a digital asset exceeds the fair value so determined, an impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying value and the price determined.

The carrying value of our digital assets amounted to $40.7 million and $234.3 million as of June 30, 2022 and December 31, 2021, respectively.

Impairment of goodwill and other intangibles

Three Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Impairment of goodwill and other intangibles $ (790,753) $ — $ (790,753) NM

Percentage of total revenue

Impairment of goodwill and other intangibles increased by $790.8 million for the three months ended June 30, 2022.

The Company concluded the carrying amount of the Mining reporting unit exceeded its fair value and, as such, recorded an $788.7 million impairment of goodwill in its Mining reporting unit.

See Note 4─Goodwill to our unaudited consolidated financial statements for further information.

Losses on exchange or disposal of property, plant and equipment

Three Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Losses on exchange or disposal of property, plant and equipment $ (13,057) $ (17) $ (13,040) NM

Percentage of total revenue

Losses on exchange or disposal of property, plant and equipment increased by $13.0 million to $13.1 million for the three months ended June 30, 2022 from a nominal loss for the three months ended June 30, 2021.

The increase was due to a noncash exchange of mining equipment.

See nonrecurring fair value measurements in Note 8─Fair Value Measurements in our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information.

Operating Expenses

Research and development

Three Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Research and development

$ 14,773 $ 1,437 $ 13,336 928 %

Percentage of total revenue

Research and development expenses increased by $13.3 million or 928%, to $14.8 million for the three months ended June 30, 2022 from $1.4 million for the three months ended June 30, 2021.

The increase was primarily driven by higher stock-based compensation of $13.2 million, primarily reflecting the RSU Amendment described above.

Sales and marketing

Three Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Sales and marketing

$ 10,238 $ 720 $ 9,518 NM

Percentage of total revenue

Sales and marketing expenses increased by $9.5 million to $10.2 million for the three months ended June 30, 2022 from $0.7 million for the three months ended June 30, 2021.

The increase was primarily driven by higher stock-based compensation of $9.1 million, primarily reflecting the RSU Amendment described above.

General and administrative

Three Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

General and administrative

$ 90,874 $ 6,822 $ 84,052 NM

Percentage of total revenue

General and administrative expenses increased by $84.1 million to $90.9 million for the three months ended June 30, 2022 from $6.8 million for the three months ended June 30, 2021.

The increase of $84.1 million was primarily driven by $69.7 million higher stock-based compensation, primarily reflecting the RSU Amendment described above, $4.6 million of higher professional fees, primarily related to investments made to support public company readiness and $3.1 million of higher payroll and benefit costs for personnel.

Non-operating (income) expenses, net

Three Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

Non-operating (income) expenses, net:

(in thousands, except percentages)

Loss on debt extinguishment $ — $ 7,974 $ (7,974) (100) %

Interest expense, net 27,116 10,846 16,270 150 %

Fair value adjustment on convertible notes (195,061) — (195,061) NM

Fair value adjustment on derivative warrant liabilities (22,189) — (22,189) NM

Other non-operating expenses, net 3,876 2 3,874 NM

Total non-operating (income) expenses, net $ (186,258) $ 18,822 $ (205,080) NM

Total non-operating (income) expenses, net decreased by $205.1 million, to non-operating income, net of $186.3 million for the three months ended June 30, 2022 from non-operating expenses, net of $18.8 million for the three months ended June 30, 2021.

The decrease in non-operating (income) expenses, net of $205.1 million was primarily driven by a decrease in the fair value of the convertible notes (excluding interest expense and changes in instrument-specific credit risk) and corresponding gain of $195.1 million and a decrease in the fair value of the derivative warrant liabilities and corresponding gain of $22.2 million, partially offset by higher interest expense, net of $16.3 million and other non-operating expenses, net of $3.9 million, which included a $9.8 million expense related to a vendor liability that had been assumed by the Company in July 2021 as part of the Blockcap acquisition (see Note 12─Stockholders’Equity) partially offset by a $5.9 million gain on sale of intangible assets (see Note 3─Acquisitions, Dispositions and Restructuring).

The decrease in the fair value of the convertible notes and derivative warrant liabilities was primarily driven by the decrease in the market price of our common stock during the three months ended June 30, 2022.

See Note 8─Fair Value

Measurements in our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information.

Income tax (benefit) expense

Three Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Income tax (benefit) expense $ (48,650) $ 118 $ (48,768) NM

Percentage of total revenue

Income tax (benefit) expense consists of U.S.

federal, state and local income taxes.

For the three months ended June 30, 2022, our income tax benefit was $48.7 million.

For the three months ended June 30, 2021, our income tax expense was $0.1 million.

We evaluate our ability to recognize our deferred tax assets quarterly by considering all positive and negative evidence available as proscribed by the FASB under its general principles of ASC 740, Income Taxes .

Segment Total Revenue and Gross (Loss) Profit

The following table presents total revenue and gross (loss) profit by reportable segment for the periods presented:

Three Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

Equipment Sales and Hosting Segment (in thousands, except percentages)

Hosting revenue $ 38,936 $ 18,562 $ 20,374 110 %

Equipment sales 15,194 45,976 (30,782) (67) %

Total revenue 54,130 64,538 (10,408) (16) %

Cost of revenue:

Cost of hosting services 43,644 17,550 26,094 149 %

Cost of equipment sales 13,541 31,100 (17,559) (56) %

Total cost of revenue $ 57,185 $ 48,650 $ 8,535 18 %

Gross (loss) profit $ (3,055) $ 15,888 $ (18,943) NM

Hosting Margin (6) % 25 %

Mining Segment

Digital asset mining revenue $ 109,842 $ 10,765 $ 99,077 920 %

Total revenue 109,842 10,765 99,077 920 %

Cost of revenue 94,070 2,115 91,955 NM

Gross profit $ 15,772 $ 8,650 $ 7,122 82 %

Mining Margin 14 % 80 %

Consolidated total revenue $ 163,972 $ 75,303 $ 88,669 118 %

Consolidated cost of revenue $ 151,255 $ 50,765 $ 100,490 198 %

Consolidated gross profit $ 12,717 $ 24,538 $ (11,821) (48) %

For the three months ended June 30, 2022, cost of revenue included depreciation expense of $2.6 million for the Equipment Sales and Hosting segment and $46.5 million for the Mining segment.

For the three months ended June 30, 2021, cost of revenue included depreciation expense of $1.9 million for the Equipment Sales and Hosting segment and $0.9 million for the Mining segment.

For the three months ended June 30, 2022 and 2021, the top three customers accounted for approximately 46% and 77%, respectively, of the Equipment Sales and Hosting segment total revenue.

For the three months ended June 30, 2022, gross profit in the Equipment Sales and Hosting Segment decreased $18.9 million compared to the three months ended June 30, 2021 reflecting gross (loss) profit for the Equipment Sales and Hosting Segment as a percentage of the segment’s total revenue (the “Hosting Margin”) of (6)% for the three months ended June 30, 2022 compared to a Hosting Margin of 25% for the three months ended June 30, 2021.

The decrease in the Hosting Margin for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily due to lower margins on equipment sales and an increase in stock-based compensation expense, which primarily reflected the RSU Amendment described above.

For the three months ended June 30, 2022, gross profit in the Mining Segment increased $7.1 million compared to the three months ended June 30, 2021 primarily due to an increase in our self-mining hash rate, which was 10.30 EH/s at June 30, 2022 compared to 0.45 EH/s at June 30, 2021, partially offset by lower gross profit (loss) for the Mining Segment as a percentage of the segment’s total revenue (the “Mining Margin”) of 14% for the three months ended June 30, 2022 compared to 80% for the three months ended June 30, 2021.

The decrease in the Mining Margin for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily due to an increase in power rates, an increase in depreciation as a percentage of segment revenues, which reflected higher costs of self-mining units more recently deployed, an increase in stock-based compensation expense as a percentage of revenues, which primarily reflected the RSU Amendment described above, and a 30% decrease in average price per bitcoin mined.

A reconciliation of the reportable segment gross (loss) profit to loss before income taxes included in our Consolidated Statements of Operations for the three months ended June 30, 2022 and 2021, is as follows:

Three Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Reportable segment gross profit $ 12,717 $ 24,538 $ (11,821) (48) %

Gain (loss) from sales of digital assets 11,808 (16) 11,824 NM

Impairment of digital assets (150,213) — (150,213) NM

Impairment of goodwill and other intangibles (790,753) — (790,753) NM

Losses on exchange or disposal of property, plant and equipment (13,057) (17) (13,040) NM

Operating expenses:

Research and development 14,773 1,437 13,336 928 %

Sales and marketing 10,238 720 9,518 NM

General and administrative 90,874 6,822 84,052 NM

Total operating expenses 115,885 8,979 106,906 NM

Operating (loss) income (1,045,383) 15,526 (1,060,909) NM

Non-operating (income) expenses, net:

Loss on debt extinguishment — 7,974 (7,974) (100) %

Interest expense, net 27,116 10,846 16,270 150 %

Fair value adjustment on derivative warrant liabilities (22,189) — (22,189) NM

Fair value adjustment on convertible notes (195,061) — (195,061) NM

Other non-operating expenses, net 3,876 2 3,874 NM

Total non-operating (income) expenses, net (186,258) 18,822 (205,080) NM

Loss before income taxes $ (859,125) $ (3,296) $ (855,829) NM

Results of Operations for the Six Months Ended June 30, 2022 and 2021

The following table sets forth our selected Consolidated Statements of Operations for each of the periods indicated.

Six Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Hosting revenue from customers $ 58,676 $ 20,251 $ 38,425 190 %

Hosting revenue from related parties 13,474 11,003 2,471 22 %

Equipment sales to customers 3,923 60,499 (56,576) (94) %

Equipment sales to related parties 37,576 17,403 20,173 116 %

Digital asset mining revenue 242,842 20,393 222,449 NM

Total revenue 356,491 129,549 226,942 175 %

Cost of revenue:

Cost of hosting services 74,875 29,379 45,496 155 %

Cost of equipment sales 36,076 57,331 (21,255) (37) %

Cost of digital asset mining 162,820 3,768 159,052 NM

Total cost of revenue 273,771 90,478 183,293 203 %

Gross profit 82,720 39,071 43,649 112 %

Gain from sales of digital assets 13,971 14 13,957 NM

Impairment of digital assets (204,198) — (204,198) NM

Impairment of goodwill and other intangibles (790,753) — (790,753) NM

Losses on exchange or disposal of property, plant and equipment (13,057) (17) (13,040) NM

Operating expenses:

Research and development 18,113 2,645 15,468 585 %

Sales and marketing 11,636 1,254 10,382 828 %

General and administrative 131,034 10,617 120,417 NM

Total operating expenses 160,783 14,516 146,267 NM

Operating (loss) income (1,072,100) 24,552 (1,096,652) NM

Non-operating expenses, net:

Loss on debt extinguishment — 8,016 (8,016) (100) %

Interest expense, net 48,792 12,981 35,811 276 %

Fair value adjustment on convertible notes 190,976 — 190,976 NM

Fair value adjustment on derivative warrant liabilities (32,464) — (32,464) NM

Other non-operating expenses, net 3,519 2 3,517 NM

Total non-operating expenses, net 210,823 20,999 189,824 904 %

(Loss) income before income taxes (1,282,923) 3,553 (1,286,476) NM

Income tax (benefit) expense (6,244) 118 (6,362) NM

Net (loss) income $ (1,276,679) $ 3,435 $ (1,280,114) NM

NM - Not Meaningful

Six Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Hosting revenue from customers $ 58,676 $ 20,251 $ 38,425 190 %

Hosting revenue from related parties 13,474 11,003 2,471 22 %

Equipment sales to customers 3,923 60,499 (56,576) (94) %

Equipment sales to related parties 37,576 17,403 20,173 116 %

Digital asset mining revenue 242,842 20,393 222,449 NM

Total revenue $ 356,491 $ 129,549 $ 226,942 175 %

Percentage of total revenue:

Hosting revenue from customers

Hosting revenue from related parties

Equipment sales to customers

Equipment sales to related parties

Digital asset mining revenue

Total revenue

Total revenue increased by $226.9 million to $356.5 million for the six months ended June 30, 2022 from $129.5 million for the six months ended June 30, 2021 as a result of the factors described below.

Total hosting revenue from customers increased by $38.4 million or 190%, to $58.7 million for the six months ended June 30, 2022 from $20.3 million for the six months ended June 30, 2021.

The increase in hosting revenue from customers was primarily driven by the onboarding of new clients for the six months ended June 30, 2022.

Total hosting revenue from related parties increased by $2.5 million or 22%, to $13.5 million for the six months ended June 30, 2022 from $11.0 million for the six months ended June 30, 2021.

The increase in related party hosting contracts was primarily driven by the onboarding of new related party hosting contracts for miners deployed during the six months ended June 30, 2022.

Equipment sales to customers decreased by $56.6 million to $3.9 million for the six months ended June 30, 2022 from $60.5 million for the six months ended June 30, 2021.

The decrease in equipment sales to customers was primarily driven by more of our hosting customers purchasing mining equipment directly from manufacturers for deployments in our data centers during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

Equipment sales to related parties increased by $20.2 million or 116%, to $37.6 million for the six months ended June 30, 2022 from $17.4 million for the six months ended June 30, 2021.

The increase in equipment sales to related parties was primarily driven by the timing of deployments of mining equipment during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

Digital asset mining revenue increased by $222.4 million to $242.8 million for the six months ended June 30, 2022 from $20.4 million for the six months ended June 30, 2021.

The year over year increase in mining revenue was driven primarily by an increase in our self-mining hash rate.

Our self-mining hash rate increased by 2,189%, to 10.3 EH/s for the six months ended June 30, 2022 from 0.45 EH/s for the six months ended June 30, 2021.

The total number of bitcoins awarded for the six months ended June 30, 2022 was 6,567 compared to 386 for the six months ended June 30, 2021.

The average price of bitcoin for the six months ended June 30, 2022 was $36,876 as compared to $45,914 for the six months ended June 30, 2021, a decrease of 20%.

Cost of revenue

Six Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Cost of revenue

$ 273,771 $ 90,478 $ 183,293 203 %

82,720 39,071 43,649 112 %

Cost of revenue increased by $183.3 million or 203%, to $273.8 million for the six months ended June 30, 2022 from $90.5 million for the six months ended June 30, 2021.

The increase in cost of revenue was primarily attributable to increased depreciation expense of $85.3 million driven by an increase in the number of self-mining units deployed, higher power consumption costs of $83.5 million driven by an increase in the number of self-mining and hosted miners operating in our fleet and an increase in power rates, higher personnel and facilities operating costs driven by the opening and expansion of our data centers of $35.7 million, which includes increased payroll and benefit costs for personnel of $6.7 million and increased stock-based compensation of $18.9 million, primarily reflecting the RSU Amendment described above, partially offset by lower equipment sales costs of $21.3 million.

As a percentage of total revenue, cost of revenue totaled 77% and 70% for the six months ended June 30, 2022 and 2021, respectively.

The increase in cost of revenue as a percentage of total revenue for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 is primarily the result of higher depreciation expense as a percentage of total revenue, higher power consumption costs as a percentage of total revenue and higher stock-based compensation as a percentage of total revenue.

Gain from sales of digital assets

Six Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Gain from sales of digital assets $ 13,971 $ 14 $ 13,957 NM

Percentage of total revenue

Gain from sales of digital assets increased by $14.0 million to $14.0 million for the six months ended June 30, 2022 from a nominal gain for the six months ended June 30, 2021.

Gains are recorded when realized upon sale(s).

In determining the gain to be recognized upon sale, we calculate the difference between the sales price and carrying value of the digital assets sold immediately prior to sale.

For the six months ended June 30, 2022, the carrying value of our digital assets sold was $232.3 million and the sales price was $246.2 million.

Impairment of digital assets

Six Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Impairment of digital assets $ (204,198) $ — $ (204,198) NM

Percentage of total revenue

Impairment of digital assets increased by $204.2 million for the six months ended June 30, 2022.

In determining if an impairment has occurred, we consider the market price of one unit of digital asset quoted on the active exchange since acquiring the digital asset, which is measured once a day at 00:00 Coordinated Universal Time (“UTC”).

the then current carrying value of a digital asset exceeds the fair value so determined, an impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying value and the price determined.

The carrying value of our digital assets amounted to $40.7 million and $234.3 million as of June 30, 2022 and December 31, 2021, respectively.

Impairment of goodwill and other intangibles

Six Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Impairment of goodwill and other intangibles $ (790,753) $ — $ (790,753) NM

Percentage of total revenue

Impairment of goodwill and other intangibles increased by $790.8 million for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

The Company concluded the carrying amount of the Mining reporting unit exceeded its fair value and, as such, recorded an $788.7 million impairment of goodwill in its Mining reporting unit.

See Note 4─Goodwill to our unaudited consolidated financial statements for further information.

Losses on exchange or disposal of property, plant and equipment

Three Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Losses on exchange or disposal of property, plant and equipment $ (13,057) $ (17) $ (13,040) NM

Percentage of total revenue

Losses on exchange or disposal of property, plant and equipment increased by $13.0 million to $13.1 million for the six months ended June 30, 2022 from a nominal loss for the six months ended June 30, 2021.

The increase was due to a noncash exchange of mining equipment.

See nonrecurring fair value measurements in Note 8 for more information.

Operating Expenses

Research and development

Six Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Research and development

$ 18,113 $ 2,645 $ 15,468 585 %

Percentage of total revenue

Research and development expenses increased by $15.5 million or 585%, to $18.1 million for the six months ended June 30, 2022 from $2.6 million for the six months ended June 30, 2021.

The increase was primarily driven by higher stock-based compensation of $15.1 million, primarily reflecting the RSU Amendment described above, higher personnel and related expenses of $0.1 million and an increase in professional fees of $0.1 million.

Sales and marketing

Six Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Sales and marketing

$ 11,636 $ 1,254 $ 10,382 828 %

Percentage of total revenue

Sales and marketing expenses increased by $10.4 million or 828%, to $11.6 million for the six months ended June 30, 2022 from $1.3 million for the six months ended June 30, 2021.

The increase was primarily driven by higher stock-based compensation of $9.6 million, primarily reflecting the RSU Amendment described above.

General and administrative

Six Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

General and administrative

$ 131,034 $ 10,617 $ 120,417 NM

Percentage of total revenue

General and administrative expenses increased by $120.4 million to $131.0 million for the six months ended June 30, 2022 from $10.6 million for the six months ended June 30, 2021.

The increase of $120.4 million was primarily driven by $90.5 million higher stock-based compensation driven by the impact of the Blockcap acquisition and the RSU Amendment described above, $12.4 million of higher professional fees, primarily related to investments made to support public company readiness and $5.6 million of higher payroll and benefit costs for personnel.

Non-operating expenses, net

Six Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

Non-operating expenses, net:

(in thousands, except percentages)

Loss on debt extinguishment $ — $ 8,016 $ (8,016) (100) %

Interest expense, net 48,792 12,981 35,811 276 %

Fair value adjustment on convertible notes 190,976 — 190,976 NM

Fair value adjustment on derivative warrant liabilities (32,464) — (32,464) NM

Other non-operating expenses, net 3,519 2 3,517 NM

Total non-operating expenses, net $ 210,823 $ 20,999 $ 189,824 904 %

Total non-operating expenses, net increased by $189.8 million, to $210.8 million for the six months ended June 30, 2022 from $21.0 million for the six months ended June 30, 2021.

The increase in non-operating expenses, net of $189.8 million was primarily driven by an increase in the fair value of the convertible notes (excluding interest expense and changes in instrument-specific credit risk) and corresponding loss of $191.0 million and higher interest expense, net of $35.8 million, partially offset by a decrease in the fair value of the derivative warrant liabilities and corresponding gain of $32.5 million.

The increase in the fair value of the convertible notes was primarily driven by the elimination of the negotiation discount described below, partially offset by a decrease in the market value of our common stock during the six months ended June 30, 2022.

See Note 8─Fair Value Measurements in our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information.

As discussed in Note 8, the fair value of our convertible notes as of December 31, 2021 included the effect of a negotiation discount, which is a calibration adjustment that reflects the illiquidity of the instruments and Core Scientific's negotiating position.

Since the transaction was an orderly transaction, we deemed that the fair value equaled the transaction price at initial recognition.

However, the closing of the merger of XPDI (which represents the occurrence of a qualified financing event as defined by the terms of the notes) in January 2022 resulted in the elimination of the negotiation discount along with other changes in fair value, which resulted in a significant increase in the fair value of the convertible notes (excluding interest expense and changes in instrument-specific credit risk) of $191.0 million for the six months ended June 30, 2022.

Income tax (benefit) expense

Six Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Income tax (benefit) expense $ (6,244) $ 118 $ (6,362) NM

Percentage of total revenue

Income tax (benefit) expense consists of U.S.

federal, state and local income taxes.

For the six months ended June 30, 2022, our income tax benefit was $6.2 million.

For the six months ended June 30, 2021, our income tax expense was $0.1 million.

Segment Total Revenue and Gross Profit

The following table presents total revenue and gross profit by reportable segment for the periods presented:

Six Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

Equipment Sales and Hosting Segment (in thousands, except percentages)

Hosting revenue $ 72,150 $ 31,254 $ 40,896 131 %

Equipment sales 41,499 77,902 (36,403) (47) %

Total revenue 113,649 109,156 4,493 4 %

Cost of revenue:

Cost of hosting services 74,875 29,379 45,496 155 %

Cost of equipment sales 36,076 57,331 (21,255) (37) %

Total cost of revenue $ 110,951 $ 86,710 $ 24,241 28 %

Gross profit $ 2,698 $ 22,446 $ (19,748) (88) %

Hosting Margin 2 % 21 %

Mining Segment

Digital asset mining revenue $ 242,842 $ 20,393 $ 222,449 1,091 %

Total revenue 242,842 20,393 222,449 1,091 %

Cost of revenue 162,820 3,768 159,052 NM

Gross profit $ 80,022 $ 16,625 $ 63,397 381 %

Mining Margin 33 % 82 %

Consolidated total revenue $ 356,491 $ 129,549 $ 226,942 175 %

Consolidated cost of revenue $ 273,771 $ 90,478 $ 183,293 203 %

Consolidated gross profit $ 82,720 $ 39,071 $ 43,649 112 %

For the six months ended June 30, 2022, cost of revenue included depreciation expense of $4.8 million for the Equipment Sales and Hosting segment and $85.9 million for the Mining segment.

For the six months ended June 30, 2021, cost of revenue included depreciation expense of $3.7 million for the Equipment Sales and Hosting segment and $1.6 million for the Mining segment.

For the six months ended June 30, 2022 and 2021, the top three customers accounted for approximately 54% and 77%, respectively, of the Equipment Sales and Hosting segment total revenue.

For the six months ended June 30, 2022, gross profit in the Equipment Sales and Hosting Segment decreased $19.7 million compared to the six months ended June 30, 2021, reflecting a Hosting Margin of 2% for the six months ended June 30, 2022 compared to 21% for the six months ended June 30, 2021.

The decrease in Hosting Margin for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to lower margins on equipment sales and an increase in stock-based compensation expense, which primarily reflected the RSU Amendment.

For the six months ended June 30, 2022, gross profit in the Mining Segment increased $63.4 million compared to the six months ended June 30, 2021 primarily due to an increase in our self-mining hash rate, which was 10.30 EH/s at June 30, 2022 compared to 0.45 EH/s at June 30, 2021, partially offset by a lower Mining Margin of 33% for the six months ended June 30, 2022 compared to 82% for the six months ended June 30, 2021.

The decrease in the Mining Margin for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to an increase in power rates, an increase in depreciation as a percentage of segment revenues, which reflected higher costs of self-mining units more recently deployed, an increase in stock-based compensation expense as a percentage of revenues, which primarily reflected the RSU Amendment, and a 20% decrease in average price per bitcoin mined.

A reconciliation of the reportable segment gross profit to (loss) income before income taxes included in our consolidated statements of operations for the six months ended June 30, 2022 and 2021, is as follows:

Six Months Ended June 30, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Reportable segment gross profit $ 82,720 $ 39,071 $ 43,649 112 %

Gain from sales of digital assets 13,971 14 13,957 NM

Impairment of digital assets (204,198) — (204,198) NM

Impairment of goodwill and other intangibles (790,753) — (790,753) NM

Losses on exchange or disposal of property, plant and equipment (13,057) (17) (13,040) NM

Operating expenses:

Research and development 18,113 2,645 15,468 585 %

Sales and marketing 11,636 1,254 10,382 828 %

General and administrative 131,034 10,617 120,417 NM

Total operating expenses 160,783 14,516 146,267 NM

Operating (loss) income (1,072,100) 24,552 (1,096,652) NM

Non-operating expenses, net:

Loss on debt extinguishment — 8,016 (8,016) (100) %

Interest expense, net 48,792 12,981 35,811 276 %

Fair value adjustment on derivative warrant liabilities (32,464) — (32,464) NM

Fair value adjustment on convertible notes 190,976 — 190,976 NM

Other non-operating expenses, net 3,519 2 3,517 NM

Total non-operating expenses, net 210,823 20,999 189,824 904 %

(Loss) income before income taxes $ (1,282,923) $ 3,553 $ (1,286,476) NM

Liquidity and Capital Resources

Sources of liquidity

To date, we have financed our operations primarily through sales of equity securities, debt issuances, equipment financing arrangements and cash generated from operations, including sales of self-mined bitcoin and other digital assets.

We will continue to seek to fund our growth through private debt and equity capital markets, secured borrowing, equipment finance, digital asset-based financing and sales of digital assets to supplement cash flow from operations.

Recent declines in cash from operations resulting from declining digital asset prices, increasing power costs, and other factors, has required us to obtain additional debt and equity financing to fund the expansion of our operations.

However, the ability to raise funds through financing and capital market transactions is subject to many risks and uncertainties and current market conditions have reduced the availability of these capital and liquidity sources.

In the near term, we expect to continue to increase investing activities, subject to the availability of capital and financing, as we build out our facilities and grow our company.

Some of ou r vendor contracts for the purchase of mi ning equipment include variable pricing provisions that offset some of the variability of cash flow from operations associated with fluctuations in the price of bitcoin.

Completion of the special purpose acquisition company (“SPAC”) transaction provided gross proceeds of approximately $221.6 million from the XPDI trust account, resulting in approximately $195.0 million in net cash proceeds to Core Scientific, after the payment of transaction expenses.

The proceeds from the transaction will be used to fund mining equipment purchases and infrastructure build-out as we expand our leadership capacity.

Cash, cash equivalents, restricted cash, cash requirements and cash flows

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.

June 30, December 31, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Cash and cash equivalents $ 128,542 $ 117,871 $ 10,671 9 %

Restricted cash 11,938 13,807 (1,869) (14) %

Total cash, cash equivalents and restricted cash $ 140,480 $ 131,678 $ 8,802 7 %

As of June 30, 2022 and December 31, 2021, restricted cash of $11.9 million and $13.8 million, respectively, consisted of cash held in escrow to pay for construction and development activities.

The following table summarizes our cash, cash equivalents and restricted cash and cash flows for the periods indicated.

Six Months Ended June 30,

(in thousands)

Cash, cash equivalents and restricted cash – beg.

$ 131,678 $ 8,721

Net cash provided by (used in)

Operating activities

141,273 (121,331)

Investing activities

(445,640) (39,217)

Financing activities

313,169 210,198

Cash, cash equivalents and restricted cash - end of period

$ 140,480 $ 58,371

Our principal uses of cash in recent periods have been funding our operations and investing in capital expenditures.

Operating Activities

Changes in net cash from operating activities results primarily from cash received from hosting customers and equipment sales and payments for power fees and equipment purchases.

Other drivers of the changes in net cash from operating activities include

research and development costs, sales and marketing costs and general and administrative expenses (including personnel expenses and fees for professional services) and interest payments on debt.

Net cash provided by operating activities was $141.3 million for the six months ended June 30, 2022 compared to net cash used in operating activities of $121.3 million for the six months ended June 30, 2021.

The increase in net cash provided by operating activities for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to changes in working capital, which increased cash from operating activities by $375.0 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by a $297.5 million decrease in deposits for equipment sales to customers and a $212.1 million decrease in digital assets, partially offset by a $152.9 million decrease in deferred revenue from related parties.

Offsetting the increase in net cash provided due to changes in working capital was a decrease in net income, excluding non-cash adjustments, of $112.4 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by a $73.8 million decrease in cash inflows on gross profit, a $31.1 million increase in cash outflows from operating expenses and a $19.3 million increase in cash outflows for interest payments on debt, partially offset by cash proceeds from sales of digital assets in excess of their carrying value of $14.0 million.

Investing Activities

Our net cash used in investing activities consists of purchases of property, plant and equipment and acquisitions of intangible assets, net of proceeds from sales of property, plant and equipment.

Net cash used in investing activities for the six months ended June 30, 2022 and 2021 was $445.6 million and $39.2 million, respectively, driven primarily by $238.5 million and $39.1 million, respectively, used for the purchase of property, plant and equipment primarily related to the development of hosting facilities and the acquisition of equipment used for generating digital asset mining revenue.

For the six months ended June 30, 2022, $217.7 million was used for deposits for self-mining equipment.

Financing Activities

Net cash provided by financing activities consists of proceeds from stock issuances, issuances of debt, net of issuance costs and principal payments on debt, including notes payable and capital leases.

For the six months ended June 30, 2022, net cash provided by financing activities was $313.2 million, primarily related to $198.9 million of proceeds from the issuance of common stock and cash acquired upon the Merger with XPDI, net of issuance costs, $216.3 million from the issuance of debt, driven by equipment financing arrangements.

Offsetting this increase to net cash provided by financing activities for the six months ended June 30, 2022 was $49.5 million of principal payments on debt, $29.3 million for the repurchase of common shares to pay employee withholding taxes and $23.2 million of principal repayments of finance leases.

For the six months ended June 30, 2021, net cash provided by financing activities was $210.2 million, primarily related to $245.4 million from the issuance of debt, including $10.0 million received in January 2021 from a stockholder for the purchase of Bitcoin mining equipment, the issuance of a $9.0 million tranche of senior secured notes (net of issuance costs) in February 2021, the issuance of $215.0 million of convertible notes and $3.8 million and $13.4 million of additional loans under a master equipment finance agreement issued in March 2021 and May 2021, respectively.

Offsetting this increase to net cash provided by financing activities for the six months ended June 30, 2021 was $35.7 million of principal payments on debt.

Operating and capital expenditure requirements

We believe our existing cash and cash equivalents, together with cash provided by operations and funding from debt or equity issuances, will be sufficient to meet our needs for at least the next 12 months.

Our future capital requirements will depend on many factors including our revenue growth rate, the timing and extent of spending to support further sales and marketing and research and development efforts and the timing and extent of additional capital expenditures to invest in the expansion of existing facilities as well as new facilities.

In the future, we may enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights.

We may be required to seek additional equity or debt financing.

If additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all.

If we are unable to raise additional capital when desired, our business, results of operations and financial condition would be materially and adversely affected.

Commitments and Contractual Obligations

For a discussion of Commitments and Contractual Obligations, refer to Note 10─Commitments and Contingencies to our unaudited consolidated financial statements.

Financing activities

In January 2022, as a result of the closing of the merger with XPDI (the “Merger), we received approximately $195.0 million in net cash proceeds after the payment of transaction expenses along with $0.3 million of cash acquired from XPDI.

In January through March 2022, we borrowed an additional $4.8 million under our lending agreement with Bremer Bank, National Association for the purchase of blockchain mining equipment and improvements to data center and infrastructure.

The loans bear interest at 5.5% annually and are due at the earlier of the date of sale of the underlying mining equipment or 60 months from issuance.

In January 2022, we borrowed an additional $20.0 million under our two lending agreements with Blockfi Lending, LLC for the purchase of blockchain mining equipment.

The loans bear interest at 13.1% with a term of 24 months from issuance.

In February 2022, we drew down on the remaining $10.0 million of our master equipment finance facility agreement with Trinity Capital Inc.

(“Trinity”) to finance the acquisition of blockchain computing equipment.

The loan has a term of 36 months from issuance.

Interest expense on the loan has been recognized based on an effective interest rate of 11.0%.

In March 2022, we entered into a $20.0 million equipment loan and security agreement with Anchorage Lending CA, LLC.

(“Anchor Labs”) to finance the purchase of blockchain computing equipment.

The loan has a term of 24 months from issuance.

Interest expense on the loan has been recognized based on an effective interest rate of 12.5%.

In March 2022, we entered into a $100.0 million equipment loan and security agreement with Barings BDC, Inc., Barings Capital Investment Corporation and Barings Private Credit Corp.

(“Mass Mutual Barings”) to finance the purchase of blockchain computing equipment.

In March 2022, we borrowed the first tranche of $30.0 million.

The loan has a term of 36 months from issuance.

Interest expense on the loan has been recognized based on an effective interest rate of 9.8%.

In April 2022, we entered into a $60.0 million bridge promissory note with B.

Riley Commercial Capital, LLC and a $15.0 million bridge promissory note with an affiliate of B.

Riley Commercial Capital, LLC (the “Bridge Notes”) maturing in December 2022.

Interest expense on the loan has been recognized based on an effective interest rate of 7.0%.

In August 2022, we amended the Bridge Notes to, among other things, extend the maturity date to June 2023.

In April 2022, we entered into an $11.0 million equipment finance agreement with Liberty Commercial Finance LLC (“Liberty”) to finance the Company’s purchase of blockchain computing equipment.

We borrowed $11.0 million in April 2022.

The loan has a term of 24 months from issuance.

Interest expense on the loan has been recognized based on an effective interest rate of 10.6%.

The loans are secured by a first priority security interest in the equipment purchased.

Separation Agreement with Former Chief Financial Officer

On April 5, 2022, Core Scientific, Inc.

the Company issued a press release announcing that Michael Trzupek, Executive Vice President and Chief Financial Officer of the Company, notified the Board of Directors of the Company of his decision to resign from his position on April 4, 2022, effective immediately.

On April 4, 2022, Michael Trzupek, Executive Vice President and Chief Financial Officer of the Company, notified the board of directors of the Company of his decision to resign from his position, effective immediately.

On April 19, 2022, the Company and Mr.

1 unchanged sentence

Trzupek’s separation from the Company (the “Separation Agreement”), effective May 6, 2022 (the “Separation Date”).

As previously announced, Denise Sterling, the former Senior Vice President of Finance of the Company, assumed the role of Chief Financial Officer on April 5, 2022.

Denise Sterling, the former Senior Vice President of Finance of the Company, assumed the role of Chief Financial Officer on April 5, 2022.

Pursuant to the Separation Agreement, in exchange for certain releases of claims, Mr.

Trzupek’s agreement to transition his responsibilities and duties to other Company personnel, and certain additional covenants related to cooperation and competitive activity, the Company will provide cash severance benefits to Mr.

Trzupek of $ 75,000 , representing three months of base salary, to be paid in a single lump sum less any required taxes and other withholding amounts.

He will also be entitled to any accrued but unpaid compensation for the period prior to the Separation Date.

Trzupek of $75,000, representing three months of base salary, paid in a single lump sum less any required taxes and other withholding amounts.

He was also entitled to any accrued but unpaid compensation for the period prior to the Separation Date.

In addition, Mr.

Trzupek will be deemed to have time vested in 1,200,000 of his outstanding restricted stock units, which will remain subject to certain transaction vesting terms, as detailed in the award agreements assumed by Power & Digital Infrastructure Acquisition Corp (“XPDI”) pursuant to Section 3.01(a)(iv) of the Agreement and Plan of Merger by and among XPDI et al and the Company, dated as of July 20, 2021, and he will be entitled to receive an additional 200,000 time-vested restricted stock units.

The Separation Agreement contains mutual releases, subject to customary exceptions, and mutual covenants not to compete or disparage.

Trzupek was deemed to have time vested in 1,200,000 of his outstanding restricted stock units, which remain subject to certain transaction vesting terms, as detailed in the award agreements assumed by XPDI, and he is entitled to receive an additional 200,000 time-vested restricted stock units.

Related party transactions

We have agreements to provide hosting services to various entities that are managed and invested in by individuals who are directors and executives of Core Scientific.

For the three and six months ended June 30, 2022, we recognized hosting revenue from the contracts with these entities of $7.6 million and $13.5 million , respectively.

For the three and six months ended June 30, 2021 , we recognized hosting revenue from the contracts with these entities of $6.7 million and $11.0 million , respectively.

In addition, for the three and six months ended June 30, 2022 , we recognized equipment sales revenue of $11.7 million and $37.6 million, respectively, from these entities.

For the three and six months ended June 30, 2021 , we recognized equipment sales revenue of $9.5 million and $17.4 million, respectively, from these same various entities.

As of June 30, 2022 an d December 31, 2021, we had accounts receivable of $0.7 million and $0.3 million, respectively, fro m these entities.

Core Scientific reimburses certain of its officers and directors for use of a personal aircraft for flights taken on Company business.

F or the three and six months ended June 30, 2022, we incurred reimbursements of $0.8 million and $1.2 million, respectively.

We incurred reimbursements of $0.2 million f or each of the three and six months ended June 30, 2021.

As of June 30, 2022, $0.2 million was payable.

A nominal amount was payable at December 31, 2021.

Foreign Currency and Exchange Risk

The vast majority of our cash generated from revenue is denominated in U.S.

dollars, with a small amount denominated in foreign currencies.

Critical Accounting Policies and Estimates

Preparation of our unaudited consolidated financial statements in accordance with U.S.

GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities.

Other than the goodwill impairment charge discussed in Note 4─Goodwill to our unaudited consolidated financial statements, there have been no material changes to the critical accounting policies and estimates as previously disclosed in Part II, Item 8 of our Annual Report on Form 8-K/A for the year ended December 31, 2021.

Recent Accounting Pronouncements

For a discussion of new accounting standards relevant to our business, refer to Note 2─Summary of Significant Accounting Policies to our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Emerging Growth Company and a Smaller Reporting Company Status

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.

We may take advantage of certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm under Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and any golden parachute payments.

We may take advantage of these exemptions for up to five years or until we are no longer an emerging growth company, whichever is earlier.

In addition, the JOBS Act provides that an “emerging growth company” can delay adopting new or revised accounting standards until those standards apply to private companies.

We have elected to use the extended transition period under the JOBS Act.

Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.

We will remain an emerging growth company under the JOBS Act until the earliest of (a) February 12, 2026, the fifth anniversary of XPDI’s initial public offering, (b) the last date of our fiscal year in which we have a total annual gross revenue of at least $1.07 billion, (c) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding securities held by non-affiliates or (d) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years.

We are also a “smaller reporting company” as defined in the Securities Exchange Act of 1934, as amended.

We may continue to be a smaller reporting company even after we are no longer an emerging growth company.

We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) the market value of our voting and non-voting common stock held by non-affiliates is less than $250 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less than $100 million during the most recently completed

fiscal year and the market value of our voting and non-voting common stock held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter.

Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and have reduced disclosure obligations regarding executive compensation, and, similar to emerging growth companies, if we are a smaller reporting company that qualifies as a “non-accelerated filer” under the rules of the SEC, we would not be required to obtain an attestation report on internal control over financial reporting issued by our independent registered public accounting firm.

Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements