What changed in this filing

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Item 1. Financial Statements

2023-05-15 compared with 2022-11-22 · 396 added, 1097 removed, 376 unchanged (80% of the section changed)

1 unchanged sentence

Core Scientific, Inc.

(Debtor-in-Possession)

Consolidated Balance Sheets

(in thousands, except par value)

September 30,

2023 December 31,

5 unchanged sentences

Accounts receivable from related parties 2 23

Deposits for equipment 97,678 358,791

Digital assets — 724

2 unchanged sentences

Property, plant and equipment, net 628,037 691,134

Goodwill — 1,055,760

Operating lease right-of-use assets 20,235 20,430

Intangible assets, net 2,165 1,704

1 unchanged sentence

Total Assets $ 760,019 $ 807,686

Liabilities, Redeemable Preferred Stock and Stockholders’ Equity

Liabilities, Contingently Redeemable Preferred Stock and Stockholders’ Deficit

Current Liabilities:

Accounts payable $ 50,352 $ 53,641

Accrued expenses and other 102,213 67,862

Accrued expenses and other current liabilities 58,596 17,952

Deferred revenue 68,338 77,689

Deferred revenue from related parties 1,218 496

Derivative warrant liabilities 5,287 —

Finance lease liabilities, current portion 73,045 28,452

Notes payable, current portion (includes $ 682,831 and $ — at fair value)

977,600 75,996

Operating lease liabilities, current portion 597 769

Notes payable, current portion 35,645 36,242

Total Current Liabilities 214,746 186,789

Finance lease liabilities, net of current portion — 62,145

Notes payable, net of current portion (includes $ — and $ 557,007 at fair value)

Operating lease liabilities, net of current portion 1,055 720

Other noncurrent liabilities 2,211 2,210

Total liabilities not subject to compromise 218,012 189,719

Liabilities subject to compromise 950,765 1,027,313

Total Liabilities 1,168,777 1,217,032

Contingently redeemable convertible preferred stock;

Contingently redeemable preferred stock;

$ 0.0001 par value;

2,000,000 shares authorized;

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

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

— and — shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively;

$ — and $ — total liquidation preference at March 31, 2023 and December 31, 2022, respectively

Commitments and contingencies (Note 8)

Stockholders’ Equity:

Stockholders’ Deficit:

Common stock;

$ 0.0001 par value;

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

364,710 and 271,576 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

10,000,000 shares authorized at both March 31, 2023 and December 31, 2022;

377,841 and 375,225 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 1,776,641 1,764,368

Accumulated deficit ( 2,185,435 ) ( 2,173,750 )

Accumulated other comprehensive income (loss) 72,612 ( 10,966 )

Total Stockholders’ Equity 73,027 1,341,210

Total Liabilities, Redeemable Preferred Stock and Stockholders’ Equity $ 1,404,001 $ 2,438,864

Total Stockholders’ Deficit ( 408,758 ) ( 409,346 )

Total Liabilities, Contingently Redeemable Preferred Stock and Stockholders’ Deficit $ 760,019 $ 807,686

See accompanying notes to unaudited consolidated financial statements.

Core Scientific, Inc.

(Debtor-in-Possession)

Consolidated Statements of Operations

(in thousands, except per share amounts)

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Hosting revenue from customers $ 18,909 $ 27,338

Hosting revenue from related parties

9,185 2,903 22,659 13,906

Equipment sales to customers

7,468 23,879 11,391 84,378

Equipment sales to related parties

29,693 11,654 67,269 29,057

Digital asset mining revenue

8 unchanged sentences

100,171 122,516

Gross (loss) profit

20,484 70,003

Loss on legal settlement

— ( 2,603 ) — ( 2,603 )

Gain from sales of digital assets

11,036 391 25,007 405

Impairment of digital assets ( 1,056 ) ( 53,985 )

Impairment of goodwill and other intangibles ( 268,512 ) — ( 1,059,265 ) —

Impairment of property, plant and equipment ( 59,259 ) — ( 59,259 ) —

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

Operating expenses:

Research and development

6,192 1,586 24,305 4,231

Sales and marketing

39 932 11,675 2,186

General and administrative

2 unchanged sentences

24,187 44,898

Operating (loss) income

Operating loss

( 3,695 ) ( 26,717 )

Non-operating expenses, net:

Loss on debt extinguishment

Gain on debt extinguishment

Interest expense, net

25,942 13,569 74,734 26,550

Fair value adjustment on convertible notes — 386,037

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

Other non-operating expenses (income), net

Reorganization items, net 31,559 —

Other non-operating (income), net

( 3,069 ) ( 357 )

3 unchanged sentences

( 11,581 ) ( 423,798 )

Income tax expense (benefit)

10,642 ( 815 ) 4,398 ( 697 )

Income tax expense

$ ( 11,685 ) $ ( 466,204 )

7 unchanged sentences

Core Scientific, Inc.

(Debtor-in-Possession)

Consolidated Statements of Comprehensive Loss

(in thousands, except per share amounts)

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

$ ( 434,792 ) $ ( 16,629 ) $ ( 1,711,471 ) $ ( 13,194 )

Other comprehensive income (loss), net of income taxes:

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 $ —

47,832 ( 8,552 ) 83,578 ( 8,552 )

Total other comprehensive income (loss), net of income taxes

(in thousands)

Three Months Ended March 31,

$ ( 11,685 ) $ ( 466,204 )

Other comprehensive income, net of income taxes:

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 $ — , respectively

Total other comprehensive income, net of income taxes

Comprehensive loss

2 unchanged sentences

Core Scientific, Inc.

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

(Debtor-in-Possession)

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

For the Three Months Ended March 31, 2023

(in thousands)

Contingently Redeemable

Convertible Preferred

Stock Common Stock Additional

Common Stock Additional

Paid-In Capital Accumulated

Deficit Accumulated Other Comprehensive Income Total

Deficit Total

Stockholders’

Shares Amount Shares Amount

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

Net loss — — — — — ( 434,792 ) — ( 434,792 )

Other comprehensive income — — — — — — 47,832 47,832

Stock-based compensation — — — — 29,884 — — 29,884

Issuance of common stock - restricted stock and restricted stock units, net of shares withheld for tax withholding obligations — — 4,897 — ( 2,349 ) — — ( 2,349 )

Restricted stock awards cancelled upon forfeiture — — ( 2,268 ) — — — — —

Issuances of common stock - equity line of credit — — 7,315 1 13,039 — — 13,040

Issuances of common stock - financing transaction fees — — 1,285 — 2,960 — — 2,960

Balance at September 30, 2022 — — 364,710 36 1,739,282 ( 1,738,903 ) 72,612 73,027

Shares Amount

Balance at December 31, 2022 375,225 $ 36 $ 1,764,368 $ ( 2,173,750 ) $ ( 409,346 )

Net loss — — — ( 11,685 ) ( 11,685 )

Other comprehensive income — — — — — — 83,578 83,578

Stock-based compensation — — 12,273 — 12,273

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 — — 39,099 4 ( 31,630 ) — — ( 31,626 )

Restricted stock awards cancelled upon forfeiture — — ( 2,268 ) — — — — —

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

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

Issuances of common stock - equity line of credit — — 7,315 1 13,039 — — 13,040

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

Issuances of common stock - financing transaction fees — — 1,285 — 2,960 — — 2,960

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 September 30, 2022 — — 364,710 36 1,739,282 ( 1,738,903 ) 72,612 73,027

Restricted stock awards issued, net of shares withheld for tax withholding obligations 2,616 — — — —

Balance at March 31, 2023 377,841 $ 36 $ 1,776,641 $ ( 2,185,435 ) $ ( 408,758 )

See accompanying notes to unaudited consolidated financial statements.

Core Scientific, Inc.

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

(Debtor-in-Possession)

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

For the Three Months Ended March 31, 2022

(in thousands)

6 unchanged sentences

Shares Amount Shares Amount

Balance at June 30, 2021 10,826 44,476 157,826 16 167,172 ( 71,309 ) — 95,879

Net loss — — — — — ( 16,629 ) — ( 16,629 )

Other comprehensive loss — — — — — — ( 8,552 ) ( 8,552 )

Stock-based compensation — — ( 40 ) — 28,288 — — 28,288

Issuances of common stock - business combination — — 115,508 1 1,189,906 — — 1,189,907

Balance at September 30, 2021

10,826 44,476 273,334 17 1,385,366 ( 87,938 ) ( 8,552 ) 1,288,893

Balance at December 31, 2021

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

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 loss — — — — — ( 13,194 ) — ( 13,194 )

Other comprehensive loss — — — — — — ( 8,552 ) ( 8,552 )

— — — — — ( 466,204 ) — ( 466,204 )

Other comprehensive income, net of $ — income taxes

— — — — — — 27,164 27,164

Stock-based compensation — — — — 20,573 — — 20,573

Issuances of common stock - business combination — — 115,508 1 1,189,906 — — 1,189,907

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

Balance at September 30, 2021

Restricted stock awards issued, net of shares withheld for tax withholding obligations — — 6,803 1 ( 1 ) — — —

Cashless exercise of warrants — — 3,001 — — — — —

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

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 March 31, 2022

— $ — 324,564 $ 32 $ 1,604,116 $ ( 493,636 ) $ 16,198 $ 1,126,710

1 unchanged sentence

Core Scientific, Inc.

(Debtor-in-Possession)

Consolidated Statements of Cash Flows

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from Operating Activities:

6 unchanged sentences

Deferred income taxes — 33,974

Loss on legal settlement

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

Loss on debt extinguishment

Gain on debt extinguishment

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

Fair value adjustment on convertible notes — 393,888

Fair value adjustment on other liabilities 9,498 —

Equity line of credit expenses 1,431 —

Amortization of debt discount and debt issuance costs — 1,027

Losses on exchange or disposal of property, plant and equipment

Impairment of digital assets 1,056 53,985

Impairment of goodwill, other intangibles and property, plant and equipment 1,118,524 —

Provision for doubtful accounts 5,943 —

Changes in working capital components:

12 unchanged sentences

Purchases of property, plant and equipment ( 1,539 ) ( 133,223 )

Cash acquired in acquisition — 704

Deposits for self-mining equipment — ( 135,873 )

Proceeds from sale of intangibles 10,850 —

Other ( 330 ) —

1 unchanged sentence

Cash flows from Financing Activities:

Proceeds from issuance of common stock, net of transaction costs 210,534 496

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

Proceeds from debt, net of issuance costs — 82,152

Repurchase of common shares to pay employee withholding taxes ( 31,627 ) —

Principal repayments of finance leases ( 1,021 ) ( 10,256 )

Principal payments on debt — ( 15,441 )

Net cash provided by financing activities 268,066 433,284

Net (decrease) increase in cash, cash equivalents and restricted cash ( 94,034 ) 151,286

Net cash (used in) provided by financing activities ( 1,021 ) 251,465

Net increase (decrease) in cash, cash equivalents and restricted cash 17,052 ( 21,246 )

Cash, cash equivalents and restricted cash—beginning of period 52,240 131,678

Cash, cash equivalents and restricted cash—end of period $ 69,292 $ 110,432

Supplemental disclosure of other cash flow information:

Cash paid for interest 317 20,847

Income tax payments ( 300 ) —

Supplemental disclosure of noncash investing and financing activities:

Accrued capital expenditures 45,721 22,510

Decrease in equipment related to debt extinguishment 17,849 —

Decrease in notes payable in exchange for equipment ( 38,610 ) —

See accompanying notes to unaudited consolidated financial statements.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

(Debtor-in-Possession)

Notes to Unaudited Consolidated Financial Statements

2 unchanged sentences

was incorporated on December 13, 2017, in the State of Delaware and changed its name to Core Scientific, Inc.

(“Legacy Core Scientific”) pursuant to an amendment to its Certificate of Incorporation dated June 12, 2018.

On August 17, 2020 Legacy Core Scientific engaged in a holdco restructuring to facilitate a borrowing arrangement by Legacy Core Scientific pursuant to which Legacy Core Scientific was merged with and into a wholly owned subsidiary of Core Scientific Holding Co.

(“Old Core”) pursuant to an amendment to its Certificate of Incorporation dated June 12, 2018.

On August 17, 2020, Old Core engaged in a holdco restructuring to facilitate a borrowing arrangement by Old Core pursuant to which Old Core was merged with and into a wholly owned subsidiary of Core Scientific Holding Co.

and became a wholly owned subsidiary of Core Scientific Holding Co.

and the stockholders of Legacy Core Scientific became the stockholders of Core Scientific Holding Co.

Following the approval at the special meeting of the stockholders of XPDI held on January 19, 2022, on January 19, 2022, Core Scientific Holding Co.

merged with Power & Digital Infrastructure Acquisition Corp., a Delaware corporation (“XPDI”), and XPDI Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of XPDI (“Merger Sub”), consummated the transactions contemplated under the merger agreement.

and the stockholders of Old Core became the stockholders of Core Scientific Holding Co.

In July 2021, Core Scientific Holding Co.

completed the acquisition of Blockcap, Inc.

(“Blockcap”), one of Old Core’s largest hosting customers.

Prior to its acquisition, Blockcap had retained Core Scientific Holding Co to host in the data centers operated by Core Scientific Holding Co Blockcap’s industrial scale digital asset mining operations.

On January 19, 2022, following the approval at the special meeting of the stockholders of Power & Digital Infrastructure Acquisition Corp., a Delaware corporation (“XPDI”), Core Scientific Holding Co.

merged with XPDI, and XPDI Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of XPDI (“Merger Sub”), consummated the transactions contemplated under the merger agreement.

In connection with the closing of the merger, XPDI changed its name from Power & Digital Infrastructure Acquisition Corp.

1 unchanged sentence

(“Core Scientific” or the “Company”).

The Company, headquartered in Austin, Texas, is an infrastructure, technology and services company that conducts, or plans to conduct, the following business activities:

• Owning and operating computer equipment used to process transactions conducted on one or more blockchain networks in exchange for digital currency assets and transaction processing fees awarded in digital currency assets, commonly referred to as mining;

• Owning and operating datacenter facilities in the U.S.

to provide colocation and hosting services for distributed ledger technology, also commonly known as blockchain;

• Developing blockchain-based platforms and applications, including infrastructure management, security technologies, mining optimization, and recordkeeping;

Merger Agreement

In 2021, XPDI entered into that certain Agreement and Plan of Reorganization and Merger, dated as of July 20, 2021, as amended on October 1, 2021, and as further amended on December 29, 2021, by and among Core Scientific Holding Co., XPDI Merger Sub and XPDI (the “Merger Agreement”).

XPDI’s stockholders approved the transactions (collectively, the “Merger”) contemplated by the Merger Agreement at a special meeting of stockholders held on January 19, 2022 (the “Special Meeting”).

Pursuant to the terms of (a) the Merger Agreement and (b) that certain Agreement and Plan of Merger, dated as of October 1, 2021, as amended on January 14, 2022, by and among XPDI, Core Scientific Holding Co., XPDI Merger Sub 3, LLC, a Delaware limited liability company and wholly owned subsidiary of XPDI (“Merger Sub 3”), and Blockcap, Inc., a Nevada corporation and wholly owned subsidiary of Core Scientific (“Blockcap”), the Merger was effected by (i) the merger of Merger Sub with and into Core Scientific (the “First Merger”), which occurred on January 19, 2022 (the “Closing Date”), with Core Scientific surviving the First Merger as a wholly owned subsidiary of XPDI, (ii) the merger of Core Scientific with and into XPDI (the “Second Merger”), which occurred on January 20, 2022, with XPDI surviving the Second Merger, and (iii) following the closing of the Second Merger on January 20, 2022, the merger of Blockcap with and into Merger Sub 3 (the “Third Merger”), with Merger Sub 3 surviving the Third Merger as a wholly owned subsidiary of XPDI under the name “Core Scientific Acquired Mining LLC.” Immediately prior to the effective time of the First Merger (such effective time of the First Merger, the “Effective Time”), XPDI filed a Second Amended and Restated Certificate of Incorporation (the “Post-Combination Charter”) with the Secretary of State of the State of Delaware pursuant to which XPDI changed its name from “Power & Digital Infrastructure Acquisition Corp.” to “Core Scientific, Inc.” (hereinafter referred to as the “Company” or “New Core”) and redesignated its Class A common stock, par value $ 0.0001 per share (“XPDI Class A Common Stock”), and Class B common stock, par value $ 0.0001 per share (“XPDI Class B Common Stock”), as common stock, par value $ 0.0001 , of the Company (“New Core Common Stock”).

The Exchange Ratio (as defined in the Merger Agreement) was 1.6001528688 of a share of New Core Common Stock per fully-diluted share of Core Scientific Common Stock.

In connection with the Special Meeting and the Merger, holders of 12.3 million of the 34.5 million then-outstanding shares of Class A common stock of XPDI exercised their right to redeem their shares for cash at a redemption price of approximately $ 10.00 per share, for an aggregate redemption amount of $ 123.5 million.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

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 Merger, 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.

A reverse recapitalization does not result in a new basis of accounting.

Accordingly, the reverse recapitalization was treated as the equivalent of Core Scientific Holding Co.

issuing stock for the net assets of XPDI, accompanied by a recapitalization.

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 recognized in the nine months ended September 30, 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.

Transaction costs of $ 16.6 million have been allocated to equity-classified instruments and recognized as an adjustment to additional paid-in capital within total stockholders’ equity.

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 a charge within general and administrative expenses in the nine months ended September 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.

In addition, immediately prior to the Effective Time, each share of XPDI Class B Common Stock automatically converted into one share of New Core Common Stock.

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 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.

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

XPDI’s 8.6 million public warrants issued in its initial public offering (the “Public Warrants”) and 6.3 million warrants issued in connection with private placement at the time of XPDI’s initial public offering (the “Private Placement Warrants”) became warrants for New Core Common Stock.

All share-based compensation awards were converted into comparable equity awards that are settled or exercisable for shares of New Core Common Stock.

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 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;

provided, however, that with respect to outstanding convertible promissory notes for which Core Scientific received a duly executed exercise of conversion in accordance with such convertible promissory note, exercising the right of such holder to convert such convertible promissory note subject to and conditioned upon the occurrence of the Effective Time, the outstanding principal amount and accrued interest as of the Effective Time with respect to such convertible promissory note was converted into shares of New Core Common Stock, equal to the product (rounded down to the nearest whole number) of (i) the number of shares of Core Scientific Common Stock issuable upon the conversion of such convertible promissory note in accordance with such convertible promissory note immediately prior to the Effective Time and (ii) the Exchange Ratio.

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

We mine digital assets for our own account and provide colocation hosting services for other large-scale miners at our eight operational data centers in Georgia ( 2 ), Kentucky ( 1 ), North Carolina ( 2 ), North Dakota ( 1 ) and Texas ( 2 ).

We began digital asset mining in 2018 and in 2020 became one of the largest North American providers of colocation hosting services for third-party mining customers, at which time we derived almost all our revenue from third-party colocation hosting fees and the resale of digital asset mining machines.

Currently, we derive the majority of our revenue from self-mining bitcoin.

We are one of the largest blockchain infrastructure, digital asset mining and colocation hosting provider companies in North America, with an average hourly operating power demand of approximately 581 MW and 636 MW for the three months ending March 31, 2023 and December 31, 2022, respectively.

As of March 31, 2023, we had approximately 1,500 MW of contracted power capacity at our sites, including 500 MW of power allocated to the Muskogee data center, which remains substantially undeveloped.

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 customers’ digital asset mining equipment and provide necessary electrical power and repair and other infrastructure services necessary to operate, maintain and efficiently mine digital assets.

We operate in two segments:

“Mining” consisting of digital asset mining for our own account, and “Hosting” consisting of our blockchain infrastructure and third-party hosting business.

During 2022, our “Hosting” segment also included sales of mining equipment to customers and was referred to as “Hosting and Equipment Sales”.

Our business strategy is to grow our revenue and profitability by increasing the capacity and efficiency of our self-mining fleet and by enhancing our third-party colocation business.

We intend to strategically develop the infrastructure necessary to support business growth and profitability and take advantage of adjacent opportunities that leverage our mining expertise and capabilities.

Chapter 11 Filing

On December 21, 2022, the Company and certain of its affiliates (collectively, the “Debtors”) filed voluntary petitions (the “Chapter 11 Cases”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”) seeking relief under Chapter 11 of the United States Code (the “Bankruptcy Code”).

The Chapter 11 Cases are jointly administered under Case No.

The Debtors continue to operate their business and manage their properties as “debtors-in-possession” (“DIP”) under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

The Debtors have filed various “first day” motions with the Bankruptcy Court requesting customary relief, which were generally approved by the Bankruptcy Court on December 22, 2022, that have enabled the Company to operate in the ordinary course while under Chapter 11 protection.

For detailed discussion about the Chapter 11 Cases, refer to Note 3 — Chapter 11 Filing and Other Related Matters.

Core Scientific, Inc.

(Debtor-in-Possession)

Notes to Unaudited Consolidated Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the consolidated financial statements.

Refer to the significant accounting policies described in Note 2 — Summary of Significant Accounting Policies to the consolidated financial statements and accompanying notes in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2022.

Basis of Presentation

We have prepared the accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting.

These consolidated financial statements are unaudited and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of our consolidated cash flows, operating results, and balance sheets for the periods presented.

Operating results for the periods presented are not necessarily indicative of the results that may be expected for 2022.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included as an exhibit to the amendment to the Current Report on Form 8-K/A, which was filed with the SEC on March 31, 2022.

Our consolidated balance sheet as of December 31, 2022, which was derived from our audited consolidated financial statements, and our unaudited interim consolidated financial statements provided herein have been prepared in accordance with the instructions for Form 10-Q.

Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to rules and regulations of the U.S.

Securities and Exchange Commission ("SEC").

However, in our opinion, the disclosures made therein are adequate to make the information presented not misleading.

We believe the unaudited interim financial statements furnished reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.

Further, we believe these consolidated financial statements include all normal recurring adjustments necessary to fairly present the results for the interim periods.

The consolidated results of operations and cash flows for the three months ended March 31, 2023, are not necessarily indicative of the consolidated results of operations and cash flows that might be expected for the entire year.

These consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Going Concern

The consolidated financial statements have been prepared on a going concern basis.

For the three months ended September 30, 2022, the Company generated a net loss of $ 434.8 million and used cash in operating activities of $ 52.1 million.

The Company had unrestricted cash and cash equivalents of $ 29.5 million as of September 30, 2022 compared to $ 128.5 million as of June 30, 2022.

The decrease in cash and cash equivalents for the three months ended September 30, 2022 primarily reflected $ 52.1 million of cash used in operating activities (including $ 15.5 million of interest payments on debt), $ 5.7 million of cash used in investing activities (including $ 5.2 million of purchases of property, plant and equipment) and $ 45.1 million of cash used in financing activities (including $ 49.5 million of principal payments on debt).

The Company has historically generated cash primarily from the issuance of common stock and debt, through sales of digital currency assets received as digital asset mining revenue and from operations through contracts with customers.

During the three months ended September 30, 2022, the average price of bitcoin declined to $ 21,324 compared to $ 32,502 for the three months ended June 30, 2022, which reduced digital asset mining revenue to $ 80.5 million for the three months ended September 30, 2022 as compared to $ 109.8 million for the three months ended June 30, 2022.

At the same time the Company’s power costs in its Mining Segment increased to $ 47.1 million for the three months ended September 30, 2022 as compared to $ 32.2 million for the three months ended June 30, 2022, reflecting increases in both power usage and power rates.

These factors contributed to the Company’s gross loss of $ 27.1 million for the three months ended September 30, 2022 as compared to a gross profit of $ 12.7 million for the three months ended June 30, 2022.

Additionally, during the nine months ended September 30, 2022 the Company had $ 217.7 million of deposits paid for blockchain computing equipment and $ 243.8 million paid for purchases of property, plant and equipment used towards construction projects which has contributed to the Company’s significant indebtedness, including notes payable with a carrying value of $ 977.6 million as of September 30, 2022 and finance lease liabilities with a carrying value of $ 73.0 million as of September 30, 2022.

In addition, as discussed in Note 10, in July 2022, one of the Company’s largest customers filed for voluntary relief under chapter 11 of the United States Bankruptcy Code.

As a result of these and other factors, the Company will require additional liquidity to continue its operations through November 2023.

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.

The Company anticipates that existing cash resources will be depleted by the end of 2022 or sooner.

Given the uncertainty regarding the Company’s financial condition, substantial doubt exists about the Company’s ability to continue as a going concern through November 2023.

Management has been actively taking steps to decrease operating costs, eliminate and delay construction expenses, reduce and delay capital expenditures and increase hosting revenues.

In addition, in October 2022 the Company determined not to make certain payments with respect to several of its debt facilities, equipment financing facilities and leases and other financings, including its two bridge promissory notes.

As a result, the creditors under these debt facilities may exercise remedies following any applicable grace periods, including electing to accelerate the principal amount of such debt, suing the Company for nonpayment, increasing interest rates to default rates, or taking action with respect to collateral, where applicable.

The Company does not believe that it was in default under any of its debt agreements as of September 30, 2022.

For the three months ended March 31, 2023, the Company generated net loss of $ 11.7 million.

The Company had unrestricted cash and cash equivalents of $ 47.5 million as of March 31, 2023, compared to $ 15.9 million as of December 31, 2022.

The increase in cash and cash equivalents for the three months ended March 31, 2023, primarily reflected $ 19.9 million of cash provided by operating activities (including $ 117.1 million of cash provided by changes in working capital), partially offset by $ 1.9 million of cash used in investing activities (including $ 1.5 million of purchases of property, plant and equipment), and by $ 1.0 million of cash used in financing activities.

The Company has historically generated cash primarily from the issuance of common stock and debt, through sales of digital assets received as digital asset mining revenue and from operations through contracts with customers.

During the three months ended March 31, 2023, the average price of bitcoin declined to $ 22,877 compared to $ 41,299 for the three months ended March 31, 2022.

At the same time the Company’s power costs in its Mining segment increased $ 29.4 million compared to the three months ended March 31, 2022, reflecting increases in both power usage and power rates.

These factors contributed to the Company’s gross profit of $ 20.5 million for the three months ended March 31, 2023, as compared to a gross profit of $ 70.0 million for the three months ended March 31, 2022.

In addition, as discussed in Note 8 — Commitments and Contingencies, in July 2022, one of the Company’s largest customers filed for voluntary relief under chapter 11 of the Bankruptcy Code.

Our ability to continue as a going concern is contingent upon, among other things, our ability to, subject to the Bankruptcy Court’s approval, implement a Chapter 11 plan of reorganization (the “Plan”), successfully emerge from the Chapter 11 Cases and generate sufficient liquidity from the restructuring to meet our obligations and operating needs.

As a result of risks and uncertainties related to (i) the Company’s ability to successfully consummate the Plan and emerge from the Chapter 11 Cases, and (ii) the effects of disruption from the Chapter 11 Cases making it more difficult to maintain business, financing and operational relationships, together with the Company’s recurring losses from operations and accumulated deficit, substantial doubt exists regarding our ability to continue as a going concern.

For detailed discussion about the Chapter 11 Cases and the Plan, refer to Note 3 — Chapter 11 Filing and Other Related Matters.

Debtor-in Possession

In general, as debtors-in-possession under the Bankruptcy Code, we are authorized to continue to operate as an ongoing business but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court.

Pursuant to certain motions and applications intended to limit the disruption of the bankruptcy proceedings on our operations (the First Day Motions) and other motions filed with the Bankruptcy Court, the Bankruptcy Court has authorized us to conduct our business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders, authorizing us to obtain DIP financing, pay employee wages and benefits, settle certain de minimis disputes and pay vendors and

Core Scientific, Inc.

(Debtor-in-Possession)

Notes to Unaudited Consolidated Financial Statements

In light of the foregoing, the Company is in the process of exploring a number of potential strategic alternatives with respect to the Company’s capital structure, including hiring strategic advisers, raising additional capital or restructuring its existing capital structure.

Specifically, the Company has engaged Weil, Gotshal & Manges LLP, as legal advisers, and PJT Partners LP, as financial advisers, to assist the Company in analyzing and evaluating potential strategic alternatives and initiatives to improve liquidity.

The Company and its advisers have begun to engage in discussions with certain of its creditors regarding these initiatives.

The Company expects these activities will continue and intensify.

Among possible alternatives, the Company may explore liability management transactions, including exchanging its existing debt for equity or additional debt, which transactions may be dilutive to holders of the Company’s common stock.

These discussions may not result in any agreement on commercially acceptable terms or at all.

Furthermore, the Company may seek alternative sources of equity or debt financing, evaluate potential asset sales, and potentially could seek relief under the applicable bankruptcy or insolvency laws.

The consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern.

suppliers in the ordinary course for all goods and services.

For detailed discussion about the Chapter 11 Cases, refer to Note 3 — Chapter 11 Filing and Other Related Matters.

Use of Estimates

The consolidated assets, liabilities and results of operations prior to the reverse recapitalization are those of Core Scientific Holding Co.

The outstanding shares and corresponding capital amounts, and losses per share, prior to the reverse recapitalization, have been retroactively adjusted in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations .

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period.

Some of the more significant estimates include assumptions used to estimate its ability to continue as a going concern, the valuation of the Company’s common shares and the determination of the grant date fair value of stock-based compensation awards for periods prior to the Merger, the valuation of goodwill, intangibles and property, plant and equipment, the fair value of convertible debt, acquisition purchase price accounting, and income taxes.

The preparation of the Company’s unaudited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period.

Some of the more significant estimates include assumptions used to estimate its ability to continue as a going concern, the valuation of goodwill, intangibles and property, plant and equipment, the fair value of convertible debt, and income taxes.

These estimates are based on information available as of the date of the financial statements;

2 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 September 30, 2022 and December 31, 2021, cash equivalents included $ 2.1 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):

September 30, 2022 December 31, 2021

Cash and cash equivalents

$ 29,546 $ 117,871

Restricted cash

Total cash, cash equivalents and restricted cash

$ 37,644 $ 131,678

Property, Plant and Equipment, Net

Property, plant and equipment includes land, buildings and improvements for datacenter facilities and leasehold improvements for the Company’s corporate headquarters.

Property and equipment consists of computer, mining, network, electrical and other equipment, including right-of-use assets under finance leases.

Property, plant and equipment, net is stated at cost less accumulated depreciation and amortization.

Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets.

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

Property, plant and equipment, net included construction in progress of $ 161.5 million and $ 42.6 million as of September 30, 2022 and December 31, 2021, respectively.

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

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

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.

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.

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.

Long-Lived Asset Impairments

The Company tests long-lived asset groups for recoverability whenever events or changes in circumstances have occurred that may affect the recoverability or the estimated useful lives of long-lived assets.

Long-lived assets include property, plant and equipment and intangible assets subject to amortization.

A long-lived asset 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 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 asset.

This evaluation is performed at the lowest level for which separately identifiable cash flows exist, which for the Company is the hosting and mining gross margins it earns at each of its data center facility sites.

Long-lived assets to be disposed of are reported at the lower of the carrying amount or estimated fair value less costs to sell.

During the three months ended September 30, 2022, the Company’s operating performance and liquidity continued to be severely impacted by the prolonged decrease in the price of bitcoin, the increase in electricity costs, the increase in the global bitcoin network hash rate and an increase in additional operating costs related to these factors.

Additionally, primary and secondary market prices for ASIC miners of the type used by the Company in its business operations have decreased significantly from previous levels, including those acquired earlier in 2022.

Accordingly, the Company evaluated whether the estimated future undiscounted cash flows from the operation of its data center facilities would recover the carrying value of the property, plant and equipment located at the sites and used in site operations, including the Company’s deployed mining equipment.

Based on this evaluation, the Company determined that the carrying value of the property, plant and equipment at the Cedarvale, TX facility site may no longer be fully recoverable by the cash flows of the site.

The Company measured the amount of impairment at the Cedarvale, TX facility site as the difference between the carrying amount of the site asset group of $ 119.8 million and the estimated fair value of the site asset group of $ 60.5 million, resulting in an impairment of the facility site’s property, plant and equipment of $ 59.3 million for both the three and nine months ended September 30, 2022.

The Company’s analysis involved the use of a combination and corroboration of cost and market approaches.

The cost approach has been used to estimate the fair value of buildings, improvements, electrical equipment and other tangible assets used in combination with other assets.

Significant assumptions used in the cost approach include reproduction and replacement costs, useful service live, and orderly liquidation values.

The cost approach utilizes useful service life and other estimates developed by the Company to determine fair value, which are unobservable Level 3 inputs.

The market approach has been used to estimate the fair value of the Company’s ASIC miners, network equipment, and real estate, and to corroborate certain estimates using the cost approach.

Valuations using the market approach are derived from manufacturer and secondary market pricing sources and, when available, comparable secondary market transactions.

Significant judgment in using the market approach includes the selection of comparable assets based on ASIC model efficiency and hash rate, a selection of and modifications to transactions according to comparable use, size, geography and other traits, and the use of broker indications of relative market price metrics.

The market approach utilizes comparable use, relative efficiency and other estimates developed by the Company to determine fair value, which are unobservable Level 3 inputs.

Unobservable Level 3 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.

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

Continued elevated power costs, continued increases in the bitcoin network hash rate and a continuing depression or further decrease of bitcoin’s value in the market could result in further impairment of the Company’s property, plant and equipment.

Subsequent to September 30, 2022, the Company relocated its approximately 7,600 self-miners from Cedarvale, TX to other of the Company’s data center facilities.

There were no hosting customer miners at Cedarvale, TX as of September 30, 2022.

As of March 31, 2023 and December 31, 2022, cash equivalents included $ 37.3 million and $ 10.2 million, respectively, of highly liquid money market funds which are classified as Level 1 within the fair value hierarchy.

Restricted cash consists of cash held in escrow under the Original DIP Credit Agreement and in escrow to pay for construction and development activities.

As of March 31, 2023 and December 31, 2022, restricted cash of $ 21.8 million and $ 36.4 million, respectively,consisted of cash held in escrow under the Original DIP Credit Agreement.

Accounts Receivable and Allowance for Doubtful Accounts

The Company’s accounts receivable balance consists of amounts due from its hosting customers.

The Company records accounts receivable at the invoiced amount less an allowance for any potentially uncollectable accounts under the current expected credit loss (“CECL”) impairment model and presents the net amount of the financial instrument expected to be collected.

The CECL impairment model requires an estimate of expected credit losses, measured over the contractual life of an instrument, which considers forecasts of future economic conditions in addition to information about past events and current conditions.

Based on this model, the Company considers many factors, including the age of the balance, collection history, and current economic trends.

Bad debts are written off after all collection efforts have ceased.

Allowances for credit losses are recorded as a direct reduction from an asset’s amortized cost basis.

Credit losses and recoveries are recorded in selling, general and administrative expenses in the consolidated statements of operations.

Recoveries of financial assets previously written off are recorded when received.

For the three months ended March 31, 2023 and 2022, the Company did not record any credit losses or recoveries.

Based on the Company’s current and historical collection experience, the Company recorded an allowance for doubtful accounts of $ 8.7 million as of March 31, 2023 and December 31, 2022.

Performance Obligations

The Company’s performance obligations relate to hosting services, which are described below.

The Company has performance obligations associated with commitments in customer hosting contracts for future services 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, 2023 and December 31, 2022, were $ 135.4 million and $ 159.6 million, respectively.

Deferred Revenue

The Company records contract liabilities in Deferred revenue on the Company’s 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 current and non-current deferred revenue balance as of March 31, 2023 and December 31, 2022, was $ 71.8 million and $ 80.4 million, respectively, all from advance payments received during the periods then ended.

Core Scientific, Inc.

(Debtor-in-Possession)

Notes to Unaudited Consolidated Financial Statements

Derivative Warrant Liabilities

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.

The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.

The classification of derivative instruments, including whether such instruments should be classified as liabilities or as equity, is re-assessed at the end of each reporting period.

The Public Warrants and the Private Placement Warrants are recognized as derivative liabilities.

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 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.

In the three months ended March 31, 2023, the Company recognized $ 11.6 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, 2022.

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 performance of hosting services for which advance payments had been received from customers prior to January 1, 2021.

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

Recently Adopted Accounting Standards

Simplifying Income Taxes

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.

The amendments also simplify the accounting for income taxes with regard to franchise tax, the evaluation of step up in the tax basis goodwill in certain business combinations, allocating current and deferred tax expense to legal entities that are not subject to tax and enacted change in tax laws or rates.

The standard was applied on a prospective basis beginning January 1, 2022 and the adoption of this standard did not have a material effect on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU No.

2016-02, Leases-(Topic 842) .

Under this new guidance, lessees are required to recognize for all leases (with the exception of short-term leases):

1) a lease liability equal to the lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and 2) a right-of-use asset which will represent the lessee’s right to use, or control the use of, a specified asset for the lease term (“ROU asset”).

The Company adopted Topic 842 effective for the Company’s annual and interim reporting periods beginning January 1, 2022.

The adoption of Topic 842 required the Company to recognize non-current assets and liabilities for right-of-use assets and operating lease liabilities on its Consolidated Balance Sheet, but it did not have a material effect on the Company’s results of operations or cash flows.

Topic 842 also requires additional footnote disclosures to the Company’s consolidated financial statements.

A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application.

The Company adopted the new standard on January 1, 2022 and used the effective date as the date of initial application.

Consequently, financial information has not been updated, and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2022.

The new standard provides a number of optional practical expedients in transition.

The Company has elected the ‘package of practical expedients’, which permits the Company not to reassess prior conclusions about lease identification, lease classification and initial direct costs under the new standard.

The Company has not elected the use-of-hindsight or the practical expedient pertaining to land easements;

the latter not being applicable to the Company.

The new standard also provides practical expedients for the Company’s ongoing accounting.

The Company has elected the short-term lease recognition exemption for all leases that qualify.

This means, for those leases that qualify, the Company does not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition.

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.

Measurement of Credit Losses

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Measurement of Credit Losses on Financial Instruments , which will require an entity to measure credit losses for certain financial instruments and financial assets, including trade receivables.

Under this update, on initial recognition and at each reporting period, an entity will be required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument.

The Company adopted this new guidance on January 1, 2023, and the adoption did not have a material impact on the Company’s unaudited consolidated financial statements.

Accounting Standards Not Yet Adopted

There are no other new accounting pronouncements that are expected to have a significant impact on the Company’s unaudited consolidated financial statements .

CHAPTER 11 FILING AND OTHER RELATED MATTERS

On December 21, 2022 (the “Petition Date”), the “Company and certain of its affiliates (collectively, the “Debtors”) filed voluntary petitions (the “Chapter 11 Cases”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”) seeking relief under Chapter 11 of the United States Code (the “Bankruptcy Code”).

The Chapter 11 Cases are jointly administered under Case No.

The Debtors filed various “first day” motions with the Bankruptcy Court requesting customary relief, which were generally approved by the Bankruptcy Court on December 22, 2022, that have enabled the Company to operate in the ordinary course while under Chapter 11 protection.

Original DIP Credit Agreement and Restructuring Support Agreement

In connection with the Chapter 11 Cases, the Debtors entered into a Senior Secured Super-Priority Debtor-in-Possession Loan and Security Agreement, dated as of December 22, 2022 (the “Original DIP Credit Agreement”), with Wilmington Savings Fund Society, FSB, as administrative agent, and the lenders from time to time party thereto (collectively, the “Original DIP Lenders”).

The Original DIP Lenders are also holders or affiliates, partners or investors of holders under the Company’s notes sold pursuant to (i) the Secured Convertible Note Purchase Agreement, dated as of April 19, 2021 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time), by and among Core Scientific, Inc.

(as successor of Core Scientific Holding Co.), the guarantors party thereto from time to time, U.S.

Bank National Association, as note agent and collateral agent, and the purchasers of the notes issued thereunder (the “Secured Convertible Notes”), and (ii) the Convertible Note Purchase Agreement, dated as of August 20, 2021, (as amended, restated, amended and restated, supplemented or otherwise modified from time to time), by and among Core Scientific, Inc.

(as successor of Core Scientific Holding Co.), the guarantors party thereto from time to time, U.S.

Bank National Association, as note agent and collateral agent, and the purchasers of the notes issued thereunder (the “Other Convertible Notes,” and together with the Secured Convertible Notes, the “Convertible Notes”).

Also in connection with the filing of the Chapter 11 Cases, the Company entered into a restructuring support agreement (together with all exhibits and schedules thereto, the “Restructuring Support Agreement”) with the ad hoc group of noteholders,

Core Scientific, Inc.

(Debtor-in-Possession)

Notes to Unaudited Consolidated Financial Statements

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

January 1, 2022

Beginning Balance Cumulative Effect Adjustment Beginning Balance, As Adjusted

Prepaid expenses and other current assets $ 30,111 $ ( 453 ) $ 29,658

Other noncurrent assets $ 21,045 $ 1,814 $ 22,859

Accrued expenses and other $ 67,862 $ 188 $ 68,050

Other noncurrent liabilities $ 18,531 $ 1,173 $ 19,704

The most significant judgments and impacts upon adoption of the standard include the following:

• We recognized right-of-use assets and operating lease liabilities for operating leases that have not previously been recorded.

The lease liability for operating leases is based on the net present value of future minimum lease payments.

The right-of-use asset for operating leases is based on the lease liability adjusted for the reclassification of certain balance sheet amounts such as prepaid rent.

Deferred and prepaid rent are no longer presented separately but are included in the balance of operating lease right-of-use assets.

• In determining the discount rate used to measure the right-of-use asset and lease liability, rates implicit in the leases were not readily available and therefore we used an estimate of our incremental borrowing rate.

Our incremental borrowing rate was based on an estimated secured rate with reference to recent borrowings of similar collateral and tenure.

• Certain line items in the Consolidated Balance Sheets have been renamed to align with the new terminology presented in the new lease standard;

“Capital lease obligations, current portion” and “Capital lease obligations, net of current portion” are now presented as “Finance lease liabilities, current portion” and “Finance lease liabilities, net of current portion” on the Consolidated Balance Sheets, respectively.

• 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 other and the noncurrent portion of operating lease liabilities of $ 1.2 million were recorded within Other noncurrent liabilities on the Consolidated Balance Sheets.

Accounting Standards not yet adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Measurement of Credit Losses on Financial Instruments , which will require an entity to measure credit losses for certain financial instruments and financial assets, including trade receivables.

This update will be effective for the Company with the annual reporting period beginning January 1, 2023, including interim periods within that reporting period.

Should the company lose its status as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and its status as a “smaller reporting company” as defined in the Securities Exchange Act of 1934, as amended, prior to this adoption date, the standard would be applicable in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

Early adoption is permitted.

The Company is currently evaluating the impacts the adoption of this standard will have on the consolidated financial statements.

There are no other new accounting pronouncements that are expected to have a significant impact on the Company’s consolidated financial statements .

representing more than 70 % of the holders of the Convertible Notes (the “Ad Hoc Noteholder Group”) pursuant to which the Ad Hoc Noteholder Group agreed to provide commitments for a debtor-in-possession facility (the “Original DIP Facility”) of more than $ 57 million and agreed to support the syndication of up to an additional $ 18 million in new money DIP (defined below) facility loans to all holders of Convertible Notes.

The Company terminated the Restructuring Support Agreement pursuant to a “fiduciary out” which permitted the Company to pursue better alternatives.

Replacement DIP Credit Agreement

On February 2, 2023, the Bankruptcy Court entered an interim order (the “Replacement Interim DIP Order”) authorizing, among other things, the Debtors to obtain senior secured non-priming super-priority replacement post-petition financing (the “Replacement DIP Facility”).

On February 27, 2023, the Debtors entered into a Senior Secured Super-Priority Replacement Debtor-in-Possession Loan and Security Agreement governing the Replacement DIP Facility (the “Replacement DIP Credit Agreement”), with Riley Commercial Capital, LLC, as administrative agent (the “Administrative Agent”), and the lenders from time to time party thereto (collectively, the “Replacement DIP Lender”).

Proceeds of the Replacement DIP Facility were used to, among other things, repay amounts outstanding under the Original DIP Facility, including payment of all fees and expenses required to be paid under the terms of the Original DIP Facility.

These funds, along with ongoing cash generated from operations, were anticipated to provide the necessary financing to effectuate the planned restructuring, facilitate the emergence from Chapter 11, and cover the fees and expenses of legal and financial advisors.

The Replacement DIP Facility, among other things, provides for a non-amortizing super-priority senior secured term loan facility in an aggregate principal amount not to exceed $ 70 million.

Under the Replacement DIP Facility, (i) $ 35 million was made available following Bankruptcy Court approval of the Interim DIP Order and (ii) $ 35 million was made available following Bankruptcy Court approval of the Final DIP Order.

Loans under the Replacement DIP Facility will bear interest at a rate of 10 %, which will be payable in kind in arrears on the first day of each calendar month.

The Administrative Agent received an upfront payment equal to 3.5 % of the aggregate commitments under the Replacement DIP Facility on February 3, 2023, payable in kind, and the Replacement DIP Lender will receive an exit premium equal to 5 % of the amount of the loans being repaid, reduced or satisfied, payable in cash.

The Replacement DIP Credit Agreement includes representations and warranties, covenants applicable to the Debtors, and events of default.

If an event of default under the Replacement DIP Credit Agreement occurs, the Administrative Agent may, among other things, permanently reduce any remaining commitments and declare the outstanding obligations under the Replacement DIP Credit Agreement to be immediately due and payable.

The maturity date of the Replacement DIP Credit Agreement is December 22, 2023, which can be extended, under certain conditions, by an additional three months to March 22, 2024.

The Replacement DIP Credit Agreement will also terminate on the date that is the earliest of the following (i) the effective date of the Plan with respect to the Borrowers (the “Plan”) (as defined in the Replacement DIP Credit Agreement) or any other Debtor;

(ii) the consummation of any sale or other disposition of all or substantially all of the assets of the Debtors pursuant to section 363 of the Bankruptcy Code;

(iii) the date of the acceleration of the Loans and the termination of the Commitments (whether automatically, or upon any Event of Default or as otherwise provided in the Replacement DIP Credit Agreement);

and (iv) conversion of the Chapter 11 Cases into cases under chapter 7 of the Bankruptcy Code.

On March 1, 2023, the Bankruptcy Court entered an order approving the Replacement DIP Facility on a final basis and the terms under which the Debtors are authorized to use the cash collateral of the holders of their convertible notes (the “Final DIP Order”).

NYDIG Settlement

On February 26, 2023, the Bankruptcy Court entered an order (the “NYDIG Order”), whereby the Debtors and NYDIG agree that the Debtors would transfer the miners serving as collateral under the NYDIG Loan back to NYDIG over a period of several months in exchange for the full extinguishment of the NYDIG Loan.

The final shipment of miners serving as collateral under the NYDIG loan occurred during the quarter ended March 31, 2023, after which the NYDIG Loan was extinguished in full and the Company recorded a $ 20.8 million gain on extinguishment of debt in the Company’s Consolidated Statements of Operations.

Priority Power Settlement

On March 20, 2023, the Bankruptcy Court entered an order (the “Priority Power Order”), whereby the Debtors and Priority Power agree that the Debtors would transfer equipment to Priority Power and assume an Energy Management and Consulting Services Agreement and other new agreements.

Priority Power was determined to have a single aggregate allowed claim of $20.8 million,

Core Scientific, Inc.

(Debtor-in-Possession)

Notes to Unaudited Consolidated Financial Statements

ACQUISITIONS, DISPOSITIONS AND RESTRUCTURING

Blockcap Acquisition

On July 30, 2021, the Company acquired 100 % of the equity interest in Blockcap, one of its largest hosting customers.

Blockcap is a blockchain technology company with 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.

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 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.

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.

The acquisition has been accounted for as a business combination using the acquisition method of accounting, whereby the net assets acquired and the liabilities assumed were recorded at fair value.

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 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).

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 September 30, 2022 based on information arising after the initial preliminary valuation.

which was secured by a perfected mechanic’s lien.

The claim was deemed paid and fully satisfied by transfer of specific equipment from the Debtors to Priority Power on the date of the Priority Power Order, thereby releasing all Priority Power liens.

The satisfaction of the obligation and transfer of the equipment is a noncash transaction which did not result in any gain or loss at March 31, 2023.

Reorganization items, net and Liabilities Subject to Compromise

Effective on December 21, 2022, we began to apply the provisions of ASC 852, Reorganizations (“ASC 852”), which is applicable to companies under bankruptcy protection, and requires amendments to the presentation of certain financial statement line items.

ASC 852 requires that the financial statements for periods including and after the filing of the Chapter 11 Cases distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business.

Expenses (including professional fees), realized gains and losses, and provisions for losses that can be directly associated with the reorganization must be reported separately as Reorganization items, net in the Consolidated Statements of Operations beginning December 21, 2022, the date of filing of the Chapter 11 Cases.

Liabilities that may be affected by the Plan must be classified as liabilities subject to compromise at the amounts expected to be allowed by the Bankruptcy Court, even if they may be settled for lesser amounts as a result of the Plan or negotiations with creditors.

The amounts currently classified as liabilities subject to compromise may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, determinations of secured status of certain claims, the values of any collateral securing such claims, or other events.

Any resulting changes in classification will be reflected in subsequent financial statements.

If there is uncertainty about whether a secured claim is undersecured, or will be impaired under the Plan, the entire amount of the claim is included with prepetition claims in liabilities subject to compromise.

As a result of the filing of the Chapter 11 Cases on December 21, 2022, the classification of pre-petition indebtedness is generally subject to compromise pursuant to the Plan.

Generally, actions to enforce or otherwise effect payment of pre-bankruptcy filing liabilities are stayed.

Although payment of pre-petition claims generally is not permitted, the Bankruptcy Court granted the Debtors authority to pay certain pre-petition claims in designated categories and subject to certain terms and conditions.

This relief generally was designed to preserve the value of the Debtors’ businesses and assets.

Among other things, the Bankruptcy Court authorized the Debtors’ to pay certain pre-petition claims relating to employee wages and benefits, taxes and critical vendors.

The Debtors are paying and intend to pay undisputed post-petition liabilities in the ordinary course of business.

In addition, the Debtors may reject certain pre-petition executory contracts and unexpired leases with respect to their operations with the approval of the Bankruptcy Court.

Any damages resulting from the rejection of executory contracts and unexpired leases are treated as general unsecured claims.

Reorganization items, net incurred as a result of the Chapter 11 Cases presented separately in the accompanying Consolidated Statements of Operations were as follows (in thousands):

Three Months Ended March 31,

Professional fees and other bankruptcy related costs $ 20,107

Debtor-in-possession financing costs 11,452

Reorganization items, net $ 31,559

The Company has incurred and continues to incur significant costs associated with the reorganization, primarily debtor-in-possession financing costs and legal and professional fees, which were classified as Reorganization items, net subsequent to our petition.

The accompanying Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 includes amounts classified as Liabilities subject to compromise, which represent liabilities the Company anticipates will be allowed as claims in the Chapter 11 Cases.

These amounts represent the Company's current estimate of known or potential obligations to be resolved in connection with the Chapter 11 Cases and may differ from actual future settlement amounts paid.

Differences between liabilities estimated and claims filed, or to be filed, will be investigated and resolved in connection with the claims resolution process.

Core Scientific, Inc.

(Debtor-in-Possession)

Notes to Unaudited Consolidated Financial Statements

Purchase Price Allocation

Consideration:

(in thousands)

113.9 million common shares valued at $ 10.11 per share 1,2

Fair value of replaced Blockcap share-based payments attributable to pre-combination service 3

Settlement of Blockcap debt 4

Settlement of preexisting contracts 5

Total Consideration $ 1,138,838

Fair value of assets acquired, and liabilities assumed:

Cash and cash equivalents $ 704

Digital assets-Bitcoin 73,304

Digital assets-Ethereum 365

Digital assets-Bitcoin cash 8

Digital assets-Siacoin 554

Digital assets-Other 3,329

Other current assets 633

Intangible assets, net 2,925

Property, plant and equipment, net 98,965

Other noncurrent assets 1,293

Total assets acquired $ 182,080

Liabilities subject to compromise consisted of the following (in thousands):

March 31, 2023 December 31, 2022

Accounts payable $ 29,757 $ 20,908

Accrued expenses and other 22,647

Deferred revenue 414

Other current liabilities 19,138 64,493

Deferred tax liability 9,003

Total liabilities assumed $ 39,760

Total identifiable net assets $ 142,320

Goodwill on acquisition $ 996,518

1 113.9 million common shares represent the equivalent Core Scientific common shares issued to Blockcap shareholders as consideration for the purchase.

2 The price per share of our common shares was estimated to be $ 10.11 .

As the Core Scientific common shares were not listed on a public marketplace, the calculation of the fair value of the common shares was subject to a greater degree of estimation.

Given the absence of a public market, an estimate of the fair value of the common shares was required at the time of the Blockcap acquisition.

Objective and subjective factors were considered in determining the estimated fair value and because there was no active trading of the Core Scientific equity shares on an established securities market, an independent valuation specialist was engaged.

The valuation was determined by weighting the outcomes of scenarios estimating share value based on both public company valuations and private company valuations.

Both a market approach and common stock equivalency model were used to determine a range of outcomes, which were weighted based on probability to determine the result.

3 Reflects the estimated fair value of replaced Blockcap share-based payments allocated to purchase price based on the proportion of service related to the pre-combination period

4 Reflects the fair value of loans issued by the Company in July 2021 that were effectively used to settle debt that had previously been held by Blockcap.

Refer to Note 6 for further discussion of the debt issuance.

5 Blockcap had preexisting hosting and equipment contracts with the Company that were effectively settled by the Company’s acquisition of Blockcap.

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

Goodwill with an assigned value of $ 1.00 billion represents the excess of the consideration transferred over the estimated fair values of assets acquired and liabilities assumed in the Blockcap acquisition.

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 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 digital asset 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 of developed technology intangibles and $ 0.1 million of customer relationships with a weighted average useful life of 3 years.

Restructuring Activities

During the second quarter of 2022 market conditions led management to evaluate its operations and refocus its efforts and resources on the core activities of its hosting and mining segments.

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 completed the restructuring plan in October 2022 and all expected costs of the restructuring plan have been recognized as of September 30, 2022.

At June 30, 2022 Core had accrued and expensed estimated cash restructuring charges of $ 1.4 million relating to this restructuring plan.

Cash severance and related payments under the Company’s ongoing severance policy of $ 0.9 million were paid as compensation for the three months ended September 30, 2022.

At September 30, 2022 the remaining estimated cash restructuring charges were reduced by $ 0.1 million for an ending balance of $ 0.4 million to be paid in October 2022.

In addition to the cash restructuring charges, $ 1.0 million of stock based compensation was paid in severance during the three months ended September 30, 2022.

Total cash and stock based restructuring charges of $ 0.9 million and $ 2.3 million were recognized in general and administrative expenses for the three and nine months ended September 30, 2022, respectively.

As a result of exiting Blockchain Technologies during the second quarter of 2022, $ 2.0 million of intangible assets will cease to be used.

Additionally, in the third quarter of 2022, the Company determined that $ 2.5 million of software intangible assets that were previously acquired from Stax Digital LLC would no longer be used as a result of current and planned software upgrades.

Consequently, the Company recorded an impairment of other intangible assets of $ 2.5 million and $ 4.5 million for three and nine months ended September 30, 2022, respectively, which is presented within impairment of goodwill and other intangibles on the Company’s Consolidated Statements of Operations.

Goodwill associated with these activities was included in the goodwill impairment charge of $ 266.0 million and $ 1.05 billion for three and nine months ended September 30, 2022, respectively, of which $ 207.8 million and $ 996.5 million was related to the Mining reporting unit for the three and nine months ended September 30, 2022, respectively, and $ 58.2 million was related to the Equipment Sales and Hosting reporting unit for both the three and nine months ended September 30, 2022.

Sale of Intangible Assets

In March 2022, the Company reclassified $ 2.2 million of intangible assets that were previously acquired from Atrio Inc.

and RStor, Inc.

to be 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.

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 ( 58,241 ) ( 996,519 ) ( 1,054,760 )

Balance as of September 30, 2022 $ — $ — $ —

As of September 30, 2022, after impairment, the Company had no remaining goodwill.

At December 31, 2021, the carrying amount of goodwill was $ 1.06 billion.

For the nine months ended September 30, 2022 there was a measurement period adjustment reducing goodwill by $ 1.0 million and accumulated impairment losses of $ 1.05 billion.

There were no goodwill adjustments or impairment losses for the nine months ended September 30, 2021.

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 amount 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 goodwill impairment triggering events as of June 30, 2022 and additional triggering events as of September 30, 2022.

These events included declines in the market price of bitcoin, the market price of the Company’s stock and the Company’s market capitalization.

As a result, the Company performed the quantitative test to compare the fair value to the carrying amount for each reporting unit at June 30, 2022.

Sustained and further deterioration in market prices and in the Company’s financial position resulted in additional quantitative testing at September 30, 2022.

The Company concluded that the carrying value of the Mining reporting unit exceeded its fair value and, as such, recorded a $ 788.7 million and a $ 207.8 million impairment of goodwill in its Mining reporting unit for the three months ended June 30, 2022 and September 30, 2022, respectively.

At June 30, 2022, the Company concluded that 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 at June 30, 2022.

At September 30, 2022, the Company concluded the carrying amount of the Equipment Sales and Hosting reporting unit exceeded its fair value and, as such, recorded a $ 58.2 million impairment of goodwill in its Equipment Sales and Hosting reporting unit for the three and nine months ended September 30, 2022.

These impairments are presented within impairment of goodwill and other intangibles on the Company’s Consolidated Statements of Operations.

The Company’s analysis as of September 30, 2022 involved the use of a market approach.

Valuations using the market approach are derived from metrics of market transactions.

Significant judgments and assumptions used in the market approach includes the selection of comparable businesses based on the characteristics of each reporting unit, the consideration and application of relevant relative metrics and a reconciliation to the Company’s market capitalization to the fair value measured.

Sustained depressed bitcoin market value, increased power costs, decreased liquidity, and increased cost of financing, along with other factors have contributed to significant and sustained deterioration in the Company’s market capitalization.

The Company concluded that the fair value of its reporting units would no longer support the remaining acquired goodwill carrying values.

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

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

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

DERIVATIVE WARRANT LIABILITIES

As of September 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.

The Public Warrants and Private Placement Warrants expire January 19, 2027, which is five years after the Closing Date.

Redemption of Public Warrants when the price per share of common stock equals or exceeds $ 18.00

Once the warrants become exercisable, the Company may redeem the outstanding Public Warrants:

• in whole and not in part;

• at a price of $ 0.01 per warrant;

• upon a minimum of 30 days’ prior written notice of redemption to each warrant holder;

• if, and only if, the last reported sale price of common stock for any 20 trading days within a 30 -trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders equals or exceeds $ 18.00 per share (as adjusted).

The Company will not redeem the warrants as described above unless a registration statement under the Securities Act covering the issuance of the shares of common stock issuable upon exercise of the warrants is then effective and a current prospectus relating to those shares of common stock is available throughout the 30 -day redemption period.

If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.

Redemption of Public Warrants when the price per share of common stock equals or exceeds $ 10.00

Once the warrants become exercisable, the Company may redeem the outstanding Public Warrants:

• in whole and not in part;

• 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 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.

• The “fair market value” of common stock shall mean the volume-weighted average price of common stock during the 10 trading days immediately following the date on which the notice of redemption is sent to the holders of warrants.

In no event will the warrants be exercisable in connection with this redemption feature for more than 0.361 shares of Class A common stock per warrant (subject to adjustment).

Redemption of Private Placement Warrants

The terms of redemption of Private Placement Warrants are identical in all respects to those for the Public Warrants except that, so long as they are held by the Sponsor, Anchor Investors or their permitted transferees they will not be redeemable, except as described above in Redemption of Public Warrants when the price per share of common stock equals or exceeds $ 10.00 .

If the Private Placement Warrants are held by someone other than the Sponsor, the Anchor Investors or their respective permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

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.

Classification

Both the Public Warrants and Private Placement Warrants are classified as a liabi lity 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 September 30, 2022, the liability balance was $ 5.3 million .

For the three months ended September 30, 2022, the Company recorded a mark to market gain of $ 0.3 million and $ 0.2 million within the Consolidated Statement of Operations for the Public Warrants and Private Placement Warrants, respectively.

For the nine months ended September 30, 2022, the Company recorded a mark to market gain of $ 19.1 million and $ 13.9 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.

Accounts payable, and other current liabilities $ 48,895 $ 85,401

Operating lease liability $ 13,475 $ 13,868

Financing lease liability 69,775 70,796

Debt subject to compromise 806,085 844,695

Accrued interest on liabilities subject to compromise 12,535 12,553

Leases, debt and accrued interest 901,870 941,912

Liabilities subject to compromise $ 950,765 $ 1,027,313

Determination of the value at which liabilities will ultimately be settled cannot be made until the Plan becomes effective and the Company emerges from bankruptcy.

The Company will continue to evaluate and adjust the amount and classification of its pre-petition liabilities.

Such adjustments may be material.

Any additional liabilities that are subject to compromise will be recognized accordingly, and the aggregate amount of Liabilities subject to compromise may change.

DIGITAL ASSETS

Activity related to our digital asset balances for the three months ended March 31, 2023 and 2022 was as follows (in thousands):

March 31, 2023 March 31, 2022

Digital assets, beginning of period $ 724 $ 234,298

Digital asset mining revenue

98,026 133,000

Proceeds from sales of digital assets ( 98,384 ) —

Gain from sales of digital assets 1,064 2,163

Impairment of digital assets ( 1,056 ) ( 53,985 )

Other ( 374 ) 847

Digital assets, end of period $ — $ 316,323

Digital assets are available to be sold as a source of funds, if needed, for current operations and are classified as current assets on the Company’s Consolidated Balance Sheets.

The Company had total digital assets of nil and $ 0.7 million, at March 31, 2023 and December 31, 2022, respectively.

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

NOTES PAYABLE

The commencement of the Chapter 11 Cases constituted an event of default under certain of the Company's debt agreements.

Accordingly, all debt not reclassified as liabilities subject to compromise with original long-term stated maturities was classified as current on the Company’s Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022.

However, any efforts to enforce payment obligations under the debt instruments are automatically stayed as a result of the Chapter 11 Cases and the creditors' rights in respect of the debt instruments are subject to the applicable provisions of the Bankruptcy Code.

See Note 3 — Chapter 11 Filing and Other Related Matters for further information.

Core Scientific, Inc.

(Debtor-in-Possession)

Notes to Unaudited Consolidated Financial Statements

NOTES PAYABLE

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

2022 December 31

Notes payable as of March 31, 2023 and December 31, 2022, consist of the following (in thousands):

Interest Rates Maturities March 31, 2023 December 31, 2022

Kentucky note 5.0 % 2023 $ 529 $ 529

Genesis loan — 552

NYDIG loan 11.0 % - 15.0 %

Various — 38,573

Stockholder loan 10.0 % 2023 10,000 10,000

2 unchanged sentences

Blockfi loan 9.7 % - 13.1 %

2023 53,913 53,913

Anchor Labs loan 12.5 % 2024 25,159 25,159

6 unchanged sentences

10.0 % 2025 322,396 322,396

Original DIP Credit Agreement 3

10.0 % 2023 — 35,547

Replacement DIP Credit Agreement 4

10.0 % 2023 35,000 —

Other 2,873 2,960

Total 842,699 696,486

Notes payable, prior to reclassification to Liabilities subject to compromise 841,730 880,937

Notes payable in Liabilities subject to compromise 5

806,085 844,695

Unamortized discount and debt issuance costs — ( 36,456 )

1 unchanged sentence

Total notes payable, net $ 35,645 $ 36,242

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 $ 461.9 million on September 30, 2022.

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

2 Other Convertible Notes which considers the minimum payoff at maturity of one times the face value of the note plus accrued interest.

Balance Sheet Classification

In October 2022 the Company determined not to make certain payments with respect to several of its debt facilities, equipment financing facilities and leases and other financings, including its two bridge promissory notes.

The Company does not believe that it was in default under any of its debt agreements as of September 30, 2022.

In the event of a default, the Company may become subject to certain additional provisions in its debt agreements such as higher default interest rates.

As a result of these factors, the Company has determined that it is probable that its notes payable will become due within one year and has therefore classified all of its notes payable as current liabilities as of September 30, 2022.

Kentucky Note — In December 2018, the Company entered into a five -year secured promissory note agreement for $ 2.4 million in connection with the acquisition of property in Kentucky for datacenter development (“Kentucky note”).

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

The loan is secured by the underlying property purchased.

Genesis Loan —In July 2020, the Company entered into a credit facility with Genesis Global Capital, LLC that provides capacity of up to $ 13.0 million to finance the Company’s acquisition of blockchain computing equipment (“Genesis loan”).

The Company borrowed $ 5.3 million in three installments and the borrowing capacity of the facility was reduced via an amendment in September 2020 to equal the actual amounts borrowed.

The loans under the credit facility are secured by the blockchain computing equipment and the Company is required to comply with an approved mining strategy and other restrictions on use of the collateral.

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 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.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

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 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 %.

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.

Interest expense on the loans issued in July 2021 has been recognized based on an effective interest rate of 16 %.

In November 2021, the Company received blockchain computing equipment from NYDIG in exchange for $ 33.4 million of additional loans under the master equipment finance agreement with NYDIG that bear an interest rate of 11 % and have a term of 24 months from issuance.

Interest expense on the loans issued in November 2021 has been recognized based on an effective interest rate of 11 %.

Stockholder Loan —In January 2021, the Company borrowed $ 10.0 million from a stockholder for the purchase of blockchain computing equipment.

The loan bears interest at 10 % per annum over a two-year term.

The loan was issued with a warrant to purchase 0.2 million shares of common stock at an exercise price of $ 4.21 per share.

The warrant has a two-year term.

The Company allocated proceeds of $ 9.5 million to the notes and $ 0.5 million to the warrants on a relative fair value basis.

Interest expense on the loan has been recognized based on an effective interest rate of 20 %.

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

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.

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 November and December 2021, the Company borrowed $ 14.0 million and $ 5.0 million, respectively.

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

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.

The Company borrowed $ 15.2 million in October through December 2021.

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.

Interest expense on the loans has been recognized based on an effective interest rate of 5.6 %.

The loans require the Company to maintain the following financial covenants:

(1) a minimum debt service coverage ratio (defined in the agreement as EBITDA divided by scheduled principal and interest payments) of not less than 1.2 :1, measured annually beginning December 31, 2022;

and (2) a fixed charge coverage ratio (defined in the agreement as EBITDA minus net distributions divided by scheduled principal and interest payments) of 1 :1, measured annually beginning December 31, 2022.

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

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

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.

If the Company discontinues operation in the jurisdiction within the next five years , it is obligated to repay the incentive back to the Bank of North Dakota.

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 nine months ended September 30, 2022 and 2021, there was no interest buydown.

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.

Interest expense on the loans issued in December 2021 has been recognized based on an effective interest rate of 10.1 %.

The second agreement consists of $ 100.0 million and bears interest at 13.1 % with a term of 24 months from issuance.

The Company borrowed the first tranche totaling $ 60.0 million across the two loans in December 2021 and borrowed the second tranche of $ 20.0 million in January 2022.

The remaining $ 30.0 million expired unused in March 2022.

Interest expense on the loans issued in December 2021 has been recognized based on an effective interest rate of 13.1 %.

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

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 %.

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.

In August 2022, the Company amended the Mass Mutual Barings loans to defer principal payments for a period of six months beginning with payments due in August 2022.

The amendments result in no change to the term of the loans and the remaining principal will amortize over the remaining life of the loans beginning in February 2023.

The amendments also require an additional amount of blockchain computing equipment to be provided as collateral.

Interest expense on the amended loans has been recognized based on an effective interest rate of 13.0 %.

In August 2022, the Company issued 0.3 million shares of Common Stock to Mass Mutual Barings as an amendment fee.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

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 (the “Amended Bridge Notes”).

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 Equity Line of Credit discussed in Note 12 (“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.

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.

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.

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 by a lien on the same collateral securing 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 $ 31.0 million from issuance through September 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.

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.

During the nine months ended September 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.

The Convertible Notes had a fair value of $ 682.8 million compared to a principal amount of $ 544.3 million at September 30, 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 (loss) on the Consolidated Statements of Comprehensive Loss;

and (3) other fair value changes are presented within Non-operating expenses, 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) for the nine months ended September 30, 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

September 30, 2022 Nine Months Ended

September 30, 2022

Cash interest payments Interest expense, net $ 5,488 $ 16,070

Payment-in-kind (PIK) interest Interest expense, net 8,232 24,115

Instrument-specific credit risk Other comprehensive income, net of income taxes ( 47,832 ) ( 83,578 )

Other fair value adjustments Fair value adjustment on convertible notes ( 4,123 ) 186,853

Total fair value adjustments $ ( 38,235 ) $ 143,460

Financial statement line item Three Months Ended

September 30, 2021 Nine Months Ended

September 30, 2021

Cash interest payments Interest expense, net $ 3,130 $ 4,850

Payment-in-kind (PIK) interest Interest expense, net 4,694 7,274

Instrument-specific credit risk Other comprehensive loss, net of income taxes 8,552 8,552

Other fair value adjustments Fair value adjustment on convertible notes 8,663 8,663

Total fair value adjustments $ 25,039 $ 29,339

Debt issuance costs Interest expense, net $ 5,083 $ 10,664

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

1 Secured Convertible Notes includes principal balance at issuance and PIK interest.

2 Other Convertible Notes includes principal balance at issuance and PIK interest.

3 Original DIP Credit Agreement, see Note 3 - Chapter 11 Filing and Other Related Matters for further information.

4 Replacement DIP Credit Agreement, see Note 3 - Chapter 11 Filing and Other Related Matters for further information.

5 In connection with the Company's Chapter 11 Cases, $ 806.1 million and $ 844.7 million of outstanding notes payable have been reclassified to Liabilities subject to compromise in the Company's Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022, respectively, at their expected allowed amount.

Up to the Petition Date, the Company continued to accrue interest expense in relation to these reclassified debt instruments.

As of March 31, 2023 and December 31, 2022, $ 12.5 million and $ 12.6 million, respectively, of accrued interest was classified as Liabilities subject to compromise.

As discussed in Note 3 — Chapter 11 Filing and Other Related Matters, under the NYDIG Order, the final shipment of miners that served as collateral under the NYDIG loan occurred during the three months ended March 31, 2023, after which the NYDIG Loan was extinguished in full and the Company recorded a $ 20.8 million Gain on extinguishment of debt in the Company’s Consolidated Statements of Operations.

The principal amount of the Convertible Notes as of March 31, 2023, 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 $ 544.3 million as of September 30, 2022, are scheduled to mature on April 19, 2025, which includes $ 230.9 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 September 30, 2022 if held to maturity was $ 461.9 million.

The total amount that would be owed on the Convertible Notes if prepaid as of September 30, 2022 was $ 789.0 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 activities.

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

Revenue excludes any amounts collected on behalf of third parties, including sales and indirect taxes.

Deferred Revenue

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 September 30, 2022 and December 31, 2021 was $ 87.2 million and $ 136.4 million, respectively, all from advance payments received during the periods then ended.

For the three and nine months ended September 30, 2022, the Company recognized $ 30.9 million and $ 79.6 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 equipment for related parties for which advanced payments had been received prior to January 1, 2022.

For the three and nine months ended September 30, 2021, the Company recognized $ 5.2 million and $ 44.2 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 after miner deployment.

Advanced payments received for equipment sales are generally recognized as revenue within one year.

Performance Obligations

The Company’s performance obligations primarily relate to hosting services and equipment sales.

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 September 30, 2022 and 2021 were $ 440.7 million and $ 718.8 million, respectively.

any Other 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 Convertible Notes at the minimum payoff of two times the outstanding principal amount plus accrued interest.

All of the Convertible Notes, totaling $ 560.0 million as of March 31, 2023, are scheduled to mature on April 19, 2025, which includes $ 237.6 million for the principal amount of the Secured Convertible Notes which have payoff at maturity of two times the principal amount of the note plus accrued interest.

The total amount that would be owed on the Secured Convertible Notes outstanding as of March 31, 2023, if held to maturity was $ 475.2 million.

Core Scientific, Inc.

(Debtor-in-Possession)

Notes to Unaudited Consolidated Financial Statements

8 unchanged sentences

The Company uses observable market data when determining fair value whenever possible and relies on unobservable inputs only when observable market data is not available.

Recurring fair value measurements

The 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 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 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.

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).

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.

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 beginning with 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 September 30, 2022 and December 31, 2021 (in thousands):

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

September 30, 2022

Fair value hierarchy

Principal Level 1 Level 2 Level 3 Fair value

Derivative warrant liabilities:

Public Warrants $ — $ 3,062 $ — $ — $ 3,062

Private Placement Warrants — — 2,225 — 2,225

Total derivative warrant liabilities — 3,062 2,225 — 5,287

Convertible notes:

April 19, 2021 1

$ 95,595 $ — $ — $ 162,797 $ 162,797

April 21, 2021 1

5,370 — — 9,146 9,146

April 23, 2021 1

48,334 — — 82,313 82,313

April 26, 2021 1

81,632 — — 139,017 139,017

August 20, 2021 2

52,902 — — 46,306 46,306

September 10, 2021 2

15,792 — — 14,248 14,248

September 23, 2021 2

78,989 — — 71,269 71,269

September 24, 2021 2

62,749 — — 56,616 56,616

September 27, 2021 2

2,064 — — 1,863 1,863

October 1, 2021 2

90,615 — — 81,758 81,758

November 10, 2021 2

10,270 — — 9,266 9,266

Accrued PIK interest 1,2,3

— — — 8,232 8,232

Total convertible notes 544,312 — — 682,831 682,831

Total liabilities measured at fair value on a recurring basis $ 544,312 $ 3,062 $ 2,225 $ 682,831 $ 688,118

December 31, 2021

Fair value hierarchy

Principal Level 1 Level 2 Level 3 Fair value

Convertible notes:

April 19, 2021 1

$ 91,430 $ — $ — $ 101,078 $ 101,078

April 21, 2021 1

5,137 — — 5,674 5,674

April 23, 2021 1

46,229 — — 51,062 51,062

April 26, 2021 1

78,075 — — 86,165 86,165

August 20, 2021 2

50,597 — — 50,941 50,941

September 10, 2021 2

16,110 — — 16,472 16,472

September 23, 2021 2

76,051 — — 77,559 77,559

September 24, 2021 2

60,016 — — 61,179 61,179

September 27, 2021 2

1,974 — — 2,012 2,012

October 1, 2021 2

86,655 — — 87,150 87,150

November 10, 2021 2

9,823 — — 9,819 9,819

Accrued PIK interest 1,2,4

— — — 7,896 7,896

Total convertible notes $ 522,097 $ — $ — $ 557,007 $ 557,007

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

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.

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 September 30, 2022 which will be recorded as additional principal for each respective convertible note on October 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 Convertible Notes measured at fair value on a recurring basis using level 3 inputs as of September 30, 2022 (in thousands):

Convertible Notes

Balance at December 31, 2021 $ 557,007

Issuances (including PIK principal recorded) 7,896

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

Unrealized losses 371,951

Balance at March 31, 2022 923,731

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

Issuances (including PIK principal recorded) 8,031

Settlements (including interest payments, PIK principal recorded and conversions) ( 13,519 )

Unrealized gains ( 38,235 )

Balance at September 30, 2022 $ 682,831

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 September 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 nine months ended September 30, 2022 and 2021.

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

Fair value Unobservable Input Low High Weighted Average 1

Convertible Notes $ 682,831 Expected term (years) 2.55 2.55 2.55

Volatility 69.5 % 69.5 % 69.5 %

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

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.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

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.

As of March 31, 2023 and December 31, 2022, there were no Level 3 financial instruments.

Nonrecurring fair value measurements

The Company’s non-financial assets, including digital assets, property, plant and equipment, goodwill and intangible assets are measured at estimated fair value on a nonrecurring basis.

The Company’s non-financial assets, including digital assets, property, plant and equipment, and intangible assets are measured at estimated fair value on a nonrecurring basis.

These assets are adjusted to fair value only when an impairment is recognized, or the underlying asset is held for sale.

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

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 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 once a day at 00:00 Coordinated Universal Time (“UTC”).

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

During the three and nine months ended September 30, 2022, the Company recognized impairment of digital assets of $ 8.0 million and $ 212.2 million, respectively.

During both the three and nine months ended September 30, 2021, the Company recognized impairment of digital assets of $ 12.6 million.

For the three and nine months ended September 30, 2022, the Company recognized net gains of $ 11.0 million and $ 25.0 million, respectively, from sales of digital assets.

For both the three and nine months ended September 30, 2021, the Company recognized net gains of $ 0.4 million 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).

2022 December 31

Bitcoin (BTC) $ 19,619 $ 224,843

Ethereum (ETH) 22 4,665

Polygon (MATIC) — 1,085

Siacoin (SC) — 803

Dai (DAI) — 1,353

Other 22 1,549

Total digital assets $ 19,663 $ 234,298

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

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.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

The Company recognized losses of $ 13.1 million on the exchanges during the nine months ended September 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.

Refer to the discussion of long-lived asset impairments in Note 2 for additional information regarding the inputs and methodology used to estimate the fair value.

Goodwill and other intangible assets

On June 30, 2022 and September 30, 2022, the Company evaluated its reporting units for impairment and recorded an impairment of goodwill and other intangible assets of $ 266.0 million and $ 1.05 billion for three and nine months ended September 30, 2022, respectively, of which $ 207.8 million and $ 996.5 million was related to the Mining reporting unit for the three and nine months ended September 30, 2022, respectively, and $ 58.2 million was related to the Equipment Sales and Hosting reporting unit for both the three and nine months ended September 30, 2022.

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

Refer to Note 2 — Summary of Significant Accounting Policies, for more information regarding fair value considerations when measuring impairment.

The estimated fair value of the Company’s digital assets as of March 31, 2023 and December 31, 2022, was nil and $ 0.7 million, respectively.

No non-financial assets were classified as Level 3 as of March 31, 2023, or December 31, 2022.

Fair value of financial instruments

1 unchanged sentence

The carrying amount of these financial instruments, other than notes payable discussed below, approximates fair value due to the short-term nature of these instruments.

The fair value of the Company’s notes payable (excluding the Convertible Notes carried at fair value described above), which are carried at amortized cost, was determined based on a discounted cash flow approach using market interest rates of instruments with similar terms and maturities and an estimate for our standalone credit risk.

The fair value of the Company’s notes payable (excluding the Convertible Notes carried at fair value described above and the expected allowed amount transferred to Liabilities subject to compromise), which are carried at amortized cost, was determined based on a discounted cash flow approach using market interest rates of instruments with similar terms and maturities and an estimate for our standalone credit risk.

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 $ 293.7 million at September 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 $ 294.8 million and $ 171.2 million at September 30, 2022 and December 31, 2021, respectively.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

At March 31, 2023, the estimated fair value of the Company’s other notes payable was $ 35.6 million and equaled the carrying value of the Company’s other notes payable.

At December 31, 2022, the estimated fair value and carrying value of the Company’s notes payable was $ 36.2 million.

The Company has entered into non-cancellable operating and finance leases for office, data facilities, computer and networking equipment, electrical infrastructure and office equipment, with original lease periods expiring through 2033.

2 unchanged sentences

The Company recognizes rent expense on a straight-line basis over the lease period.

In addition to minimum rent, certain leases require payment of real estate taxes, insurance, common area maintenance charges, and other executory costs.

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 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.

In addition to minimum rent, certain leases require payment of real estate taxes, insurance, common area

Core Scientific, Inc.

(Debtor-in-Possession)

Notes to Unaudited Consolidated Financial Statements

maintenance charges, and other executory costs.

Differences between rent expense and rent paid are recognized as adjustments to operating lease right-of-use assets on the Company’s 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 lease liabilities on the Company’s 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 September 30, 2022

Operating lease right-of-use assets Other noncurrent assets $ 20,926

Financial statement line item March 31, 2023 December 31, 2022

Operating lease right-of-use assets Operating lease right-of-use assets $ 20,235 $ 20,430

Finance lease right-of-use assets Property, plant and equipment, net $ 82,039 $ 84,092

Operating lease liabilities,

current portion Accrued expenses and other $ 849

current portion Operating lease liabilities,

current portion 597 $ 769

Operating lease liabilities, net

of current portion Other noncurrent liabilities $ 14,594

Finance lease liabilities, current portion Finance lease liabilities, current portion $ 73,045

Finance lease liabilities, net of

current portion Finance lease liabilities, net of current portion $ —

of current portion Operating lease liabilities, net

of current portion 1,055 $ 720

Operating and finance lease liabilities subject to compromise Liabilities subject to compromise $ 83,250 $ 84,664

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

Financial statement line item Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022

Three Months Ended March 31,

Financial statement line item 2023 2022

Operating lease expense General and administrative expenses $ 390 $ 154

8 unchanged sentences

Determining our incremental borrowing rate, especially if there are insufficient observable borrowings near the time of lease commencement, may require significant judgment.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

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

September 30, 2022

March 31, 2023 March 31, 2022

Weighted Average Remaining Lease Term (Years)

4 unchanged sentences

Finance leases 12.4 % 10.2 %

Core Scientific, Inc.

(Debtor-in-Possession)

Notes to Unaudited Consolidated Financial Statements

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

Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022

Three Months Ended March 31,

Lease Payments

2 unchanged sentences

Supplemental Noncash Information

Operating lease right-of-use assets obtained in exchange for lease obligations 1

$ 14,195 $ 21,574

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

Increase in finance lease right-of-use assets as a result of lease modification $ 693 $ 693

1 Includes operating lease right-of-use assets of $ 6.7 million that were recorded upon adoption of Topic 842 on January 1, 2022.

Refer to Note 2 for further information.

The Company’s minimum payments under noncancelable operating and finance leases having initial terms and bargain renewal periods in excess of one year are as follows at September 30, 2022, and thereafter (in thousands):

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, 2023, and thereafter (in thousands):

Operating leases Finance leases

6 unchanged sentences

imputed interest 6,577 8,330

Liabilities subject to compromise 13,475 69,775

Total $ 1,652 $ —

Operating leases

In September 2021, the Company entered into operating lease agreements with Minnkota Power Cooperative to develop a hosting facility in Grand Forks, North Dakota as well as enter into a power supply purchase agreement to purchase 100 megawatts of power supply once construction of the hosting facility is complete.

As a result of the agreements being entered into contemporaneously and in contemplation of one another, the agreements are considered to be a single unit of account and consideration has been allocated between lease and non-lease components based on relative standalone selling price with approximately $ 5.3 million allocated to the lease components and $ 2.6 million allocated to the non-lease components.

Substantially all of the payments for the intended leases would be for a five-year to thirty-year term (comprising an initial five-year term with five five-year bargain renewal options to renew) with purchase options exercisable at any time for approximately $ 5.6 million less any rent paid to date and subject to certain other adjustments.

Core Scientific, Inc.

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 commenced in July of 2022.

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

Finance leases

In December 2021, the Company entered into finance lease agreements with Liberty Commercial Finance LLC totaling $ 40.9 million for the purchase of bitcoin mining equipment, with a weighted average term of 3.2 years.

The leases bear interest at a weighted average rate per annum of 12.6 % and the Company is required to make monthly payments of principal and interest.

Interest expense on the lease has been recognized based on a weighted average effective interest rate of 12.6 %.

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 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 %.

In August 2022, the Company amended the finance lease agreements with MassMutual Asset Finance LLC to defer lease payments for a period of six months beginning with payments due in August 2022.

The amendments result in no change to the term of the finance leases and the remaining principal will amortize over the remaining life of the leases beginning in February 2023.

The amendments also requires an additional amount blockchain computing equipment to be provided as collateral.

The leases under the amended agreements bear interest at a rate of 13.0 % per annum.

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

As a result of the lease modification, the lease liabilities decreased by $ 7.7 million with a corresponding decrease to finance lease right-of assets of $ 7.7 million.

Balance Sheet Classification

As discussed in Note 6, in October 2022 the Company determined not to make certain payments with respect to several of its debt facilities, equipment financing facilities and leases and other financings, including its two bridge promissory notes.

The Company does not believe it was in default under any of its finance lease agreements as of September 30, 2022.

In the event of a default, the Company may become subject to certain additional provisions in its finance lease agreements such as higher default interest rates.

As a result of these factors, the Company has determined that it is probable that its finance lease liabilities will become due within one year and has therefore classified all of its finance lease liabilities as current liabilities as of September 30, 2022.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

As discussed in 5 — Notes Payable, in October 2022, the Company determined not to make certain payments with respect to several of its debt facilities, equipment financing facilities and leases and other financings, including its two bridge promissory notes.

As a result, the creditors under these debt facilities may exercise remedies following any applicable grace periods and pursuant to any confirmed plan of reorganization, including electing to accelerate the principal amount of such debt, suing the Company for nonpayment, increasing interest rates to default rates, or taking action with respect to collateral, where applicable.

The Company has classified all of its finance lease liabilities as Liabilities subject to compromise as of March 31, 2023 and December 31, 2022.

COMMITMENTS AND CONTINGENCIES

4 unchanged sentences

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

Effect of Automatic Stay

Subject to certain exceptions under the Bankruptcy Code, the filing of the Company Parties’ Chapter 11 Cases automatically stayed the continuation of most legal proceedings or the filing of other actions against or on behalf of the Debtors or their property to recover on, collect or secure a claim arising prior to the Petition Date or to exercise control over property of the Debtors’ bankruptcy estates, unless and until the Bankruptcy Court modifies or lifts the automatic stay as to any such claim.

Notwithstanding the general

Core Scientific, Inc.

(Debtor-in-Possession)

Notes to Unaudited Consolidated Financial Statements

application of the automatic stay described above, governmental authorities may determine to continue actions brought under their police and regulatory powers.

In July 2022, one of the Company’s largest customers, Celsius Mining LLC (“Celsius”), along with its parent company and certain affiliates, filed for voluntary relief under Chapter 11 of the United States Bankruptcy Code in the Bankruptcy Court for the Southern District of New York.

5 unchanged sentences

An adverse ruling by the bankruptcy court that provides Celsius the benefits of the Company’s hosting services without Celsius fully paying the costs of such services would have a material effect on the Company’s business, financial condition, results of operations and cash flows.

As of September 30, 2022, the Company had accrued $ 5.2 million as an allowance against amounts due from Celsius.

As of March 31, 2023, the Company had accrued $ 8.7 million as an allowance against amounts due from Celsius.

In November 2022, Sphere 3D Corp.

filed a demand for arbitration with JAMS alleging the existence and breach of a contract for hosting services.

The arbitration demand alleges that the Company has failed to provide contracted for services and to return approximately $ 35 million in prepayments made by Sphere 3D for such services.

The arbitration demand alleges that the Company has failed to provide contracted for services and to return prepayments allegedly made by Sphere 3D for such services.

The Company denies the allegations contained in Sphere 3D’s arbitration demand and intends to vigorously defend its interests.

The arbitration demand was stayed by the filing of the Company Parties’ Chapter 11 Cases.

Refer to the discussion contained within this footnote under the subtitle “Effect of Automatic Stay.”

In November 2022, McCarthy Building Companies, Inc.

filed a complaint against the Company in the United States District Court for the Eastern District of Texas, alleging breach of contract for failing to pay when due certain payments allegedly owing under a contract for construction entered into between the parties.

In November 2022, plaintiff Mei Peng filed a putative class action in the United States District Court, Western District of Texas, Austin Division, asserting that the Company violated the Securities Exchange Act by failing to disclose to investors, among other things, that the Company was vulnerable to litigation, that certain clients had breached their agreements, and that this impacted the Company's profitability and ability to continue as a going concern.

The case has been stayed as a result of the Company’s filing of a petition for relief under chapter 11 of the United States Bankruptcy Code.

In November 2022, plaintiff Mei Peng filed a putative class action in the United States District Court, Western District of Texas, Austin Division, asserting that the Company violated the Securities Exchange Act of 1934, as amended, by failing to disclose to investors, among other things, that the Company was vulnerable to litigation, that certain clients had breached their agreements, and that this impacted the Company's profitability and ability to continue as a going concern.

The Company denies the allegations contained in the complaint and intends to vigorously defend its interests.

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

Leases —See Note 9 for further information.

Purchase obligations— As of September 30, 2022, the Company had outstanding agreements to purchase blockchain mining equipment totaling approximately $ 49.9 million before considering variable price adjustments, substantially all of which are expected to be settled within one year .

Loss on legal settlement— The Company recognized a loss of $ 2.6 million during the three and nine months ended September 30, 2021 related to a settlement with a former customer.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

CONTINGENTLY REDEEMABLE CONVERTIBLE PREFERRED STOCK

The Company is authorized to issue 2.00 billion shares of preferred stock, $ 0.0001 as of September 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 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 nine months ended September 30, 2022.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

STOCKHOLDERS' EQUITY

Authorized Capital— As of September 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 September 30, 2022.

As a result of the Merger, 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.

Following the Merger with XPDI, each share of common stock or warrant was converted to shares of New Core Common Stock or a warrant to purchase shares of New Core Common Stock based on an exchange ratio of 1.6001528688 .

Equity Line of Credit

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

Pursuant to the Equity Line of Credit, subject to the satisfaction of the conditions set forth in the Equity Line of Credit, 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 Equity Line of Credit, from time to time during the term of the Equity Line of Credit.

Sales of Common Stock pursuant to the Equity Line of Credit, 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 Equity Line of Credit.

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 Equity Line of Credit, if any, will be determined by reference to the volume weighted average price (“VWAP”) of the Common Stock, calculated in accordance with the Equity Line of Credit, 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 (as defined in the Equity Line of Credit) 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 Equity Line of Credit) 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 Equity Line of Credit) 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 Equity Line of Credit, 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 Equity Line of Credit 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 Equity Line of Credit) during the term of the Equity Line of Credit.

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 Equity Line of Credit 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 Equity Line of Credit (the “Exchange Cap”), unless (i) the Company obtains

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

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 Equity Line of Credit, 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 Equity Line of Credit 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 Equity Line of Credit, 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 Equity Line of Credit 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 Equity Line of Credit 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 Equity Line of Credit), (ii) the date on which B.

Riley shall have purchased from the Company under the Equity Line of Credit 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 Equity Line of Credit, (iv) the 30 th trading day after 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 Equity Line of Credit 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 Equity Line of Credit upon five ( 5 ) trading days’ prior written notice to the Company upon the occurrence of certain events set forth in the Equity Line of Credit.

The Company and B.

Riley may also agree to terminate the Equity Line of Credit by mutual written consent, provided that no termination of the Equity Line of Credit 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 Equity Line of Credit.

Neither the Company nor B.

Riley may assign or transfer their respective rights and obligations under the Equity Line of Credit 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 Equity Line of Credit, upon execution of the Equity Line of Credit in July 2022, the Company issued 0.6 million shares to B.

Riley with a fair value of $ 1.1 million at issuance which was recorded within other non-operating expenses, net on the Company’s Consolidated Statements of Operations and presented as equity line of credit expenses on the Consolidated Statements of Cash Flows.

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 Equity Line of Credit and the Registration Rights Agreement.

During the three and nine months ended September 30, 2022 , the Company issued 7.3 million shares under the Equity Line of Credit for a total sales price to B.

Riley of $ 12.8 million, consisting of (a) cash proceeds received of $ 11.7 million and (b) $ 1.1 million of proceeds due from B.

Riley as of September 30, 2022 that was recorded within prepaid expenses and other current assets on the Consolidated Balance Sheets.

The total sales price of $ 12.8 million for issuances d uring the three and nine months ended September 30, 2022 is net of $ 0.3 million for the fixed 3.0 % discount to the VWAP described above which was recorded within other non-operating expenses, net on the Company’s Consolidated Statements of Operations and presented as equity line of credit expenses on the Consolidated Statements of Cash Flows .

As of September 30, 2022, 63.0 million shares of Common Stock were available to be issued under the Equity Line of Credit.

As discussed in Note 6, 25 % of the net cash proceeds received for shares issued under the Equity Line of Credit is required to be applied by the Company to repay the outstanding principal amount of the Amended Bridge Notes.

As of September 30, 2022, the Company owed $ 2.9 million on the Amended Bridge Notes related to proceeds received under the Equity Line of Credit.

Warrant Exercises

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, 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.

The warrants were for an aggregate of 0.2 million shares at an exercise price of $ 4.27 per share.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

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 $ 31.0 million from issuance through September 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.

During the nine months ended September 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.

SPAC Vesting Shares

1.7 million common shares are subject to vesting requirements, as described further in Note 1.

These contingently issuable shares do not require future service in order to vest and do not result in stock-based compensation expense.

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 September 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.

In addition, the vendor liability 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 nine months ended September 30, 2022 we recorded $ 0.1 million and $ 9.5 million, respectively, within Other non-operating expenses, net on the Consolidated Statements of Operations related to changes in the fair value of the vendor liability.

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

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.

Under the terms of the Blockcap merger agreement, (i) each stock option granted, whether vested or unvested, and each award of restricted stock under the Blockcap, Inc.

Equity Incentive Plan (the “Legacy Blockcap Plan”) was assumed by the Company.

In addition, the Radar Relay, Inc.

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.

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.

2021 Equity Incentive Plan (the “2021 Plan”).

Awards granted under the 2021 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 2021 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

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

Company’s board of directors.

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, of which 30.1 million was available for issuance as of September 30, 2022.

As of March 31, 2023 and December 31, 2022, there were no other material loss contingency accruals for legal matters.

Leases —See Note 7 — Leases for further information.

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 September 30, 2022, we had unvested or unexercised stock-based awards outstanding representing approximately 81.0 million shares of our common stock, consisting of approximately 54.0 million RSAs and RSUs and options to purchase approximately 27.0 million shares of our common stock with a weighted average exercise price of $ 8.9 and a weighted average expense amortization period of 3.3 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 in June 2022.

During the three and nine months ended September 30, 2022, the Company granted 13.1 million and 27.1 million RSUs, respectively, to various employees and directors with a weighted-average grant date fair value (reflecting the RSU Amendment described above) of $ 3.08 and $ 2.93 per share, respectively.

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

As of March 31, 2023, we had unvested or unexercised stock-based awards outstanding representing approximately 63.2 million shares of our common stock, consisting of approximately 40.4 million RSAs and RSUs and options to purchase approximately 22.7 million shares of our common stock with a weighted average exercise price of $ 8.68 and a weighted average expense amortization period of 2.8 years.

During the three months ended March 31, 2023, the Company did not grant any stock options, RSUs or RSAs.

During the three months ended March 31, 2023, 1.2 million stock options were cancelled and 4.8 million RSUs were forfeited.

Core Scientific, Inc.

(Debtor-in-Possession)

Notes to Unaudited Consolidated Financial Statements

Stock-based compensation expense for the three months ended March 31, 2023 and 2022, is included in the Company’s Consolidated Statements of Operations and Comprehensive Loss as follows (in thousands):

Three Months Ended March 31,

Cost of revenue $ 597 $ 2,039

2 unchanged sentences

General and administrative 10,729 21,418

20,897 28,288 114,122 31,012

Total stock-based compensation expense $ 12,273 $ 25,797

$ 29,753 $ 28,288 $ 166,548 $ 31,012

1 Includes $( 0.1 ) million and $ 0.6 million that was recorded as an adjustment to accrued expenses and other within total current liabilities during the three and nine months ended September 30, 2022, respectively.

2 Includes $ 1.0 million of stock-based compensation that were provided in severance as part of restructuring charges incurred during the three and nine months ended September 30, 2022.

As of September 30, 2022, total unrecognized stock-based compensation expense related to unvested stock options was approximately $ 97.8 million, which is expected to be recognized over a weighted average time period of 3.2 years.

As of September 30, 2022, the Company had approximately $ 126.2 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 3.3 years.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

As of March 31, 2023, total unrecognized stock-based compensation expense related to unvested stock options was approximately $ 76.2 million, which is expected to be recognized over a weighted average time period of 2.8 years.

As of March 31, 2023, the Company had approximately $ 63.1 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 2.8 years.

Current income tax expense represents the amount expected to be reported on the Company’s income tax returns, and deferred tax expense or benefit represents the change in net deferred tax assets and liabilities.

1 unchanged sentence

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

The income tax expense and effective income tax rate for the three months ended March 31, 2023 and 2022 were as follows:

Three Months Ended March 31,

(in thousands, except percentages)

Income tax expense (benefit) $ 10,642 $ ( 815 ) $ 4,398 $ ( 697 )

Income tax expense $ 104 $ 42,406

Effective income tax rate

( 0.9 ) % ( 10.0 ) %

For the three months ended September 30, 2022, discrete tax expense of $ 1.5 million is included in the $ 10.6 million of income tax expense.

The Company's estimated annual effective income tax rate without discrete items was 0.3 %, compared to the US federal statutory rate of 21.0% due to state income tax of 0.6 %, the fair value adjustment on debt instruments of ( 1.8 )%, change in valuation allowance of ( 6.4 )%, goodwill impairment of ( 12.2 )%, non-deductible interest of ( 0.6 )%, and other of ( 0.3 )%.

For the nine months ended September 30, 2022, discrete tax expense of $ 9.1 million is included in the $ 4.4 million of income tax expense.

For the three months ended September 30, 2021, no discrete tax expense was included in the $ 0.8 million of income tax benefit.

The Company’s estimated annual effective income tax rate without discrete items was 4.9 %, compared to the US federal statutory rate of 21.0% due to state income tax of 5.1 %, the change in valuation allowance of ( 31.6 )%, non deductible interest of 5.6 %, and fair value adjustments on debt instruments of 4.8 %.

For the nine months ended September 30, 2021, no discrete tax expense was included in the $ 0.7 million of income tax benefit.

For the three months ended March 31, 2023, the Company recorded $ 0.1 million of income tax expense.

The Company's estimated annual effective income tax rate is ( 0.9 )%, compared to the U.S.

federal statutory rate of 21.0% due to a change in the valuation allowance 43.8 %, state taxes ( 7.1 )%, non-deductible transaction costs ( 58.8 )% and other items 0.2 %.

The Company has a full valuation allowance on its net deferred tax asset as the evidence indicates that it is not more likely than not expected to realize such asset.

For the three months ended March 31, 2022, discrete tax expense of $ 7.3 million was 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 U.S.

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 items 0.1 %.

Core Scientific, Inc.

(Debtor-in-Possession)

Notes to Unaudited Consolidated Financial Statements

NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS

Basic EPS is measured as the income or loss available to common stockholders divided by the weighted average common shares outstanding for the period.

Diluted EPS presents the dilutive effect on a per-share basis from the potential conversion of convertible securities or the exercise of options and/or warrants;

the dilutive impacts of potentially convertible securities are calculated using the if-converted method;

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

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

On or after the closing of the Merger, dividend payments made to equity holders of the Company are also made ratably to holders of the Convertible Notes on an as-converted basis.

As a result, the Convertible Notes meet the definition of participating securities based on their respective rights to receive dividends and they are treated as a separate class of securities in computing basic EPS using the two-class method.

Under the two-class method, all earnings (distributed and undistributed) are allocated to common stock and participating securities.

However, undistributed losses are not allocated to the Convertible Notes under the two-class method because holders of the Convertible Notes do not have a contractual obligation to share in the losses of the Company.

Diluted EPS for the Convertible Notes is calculated under both the two-class and if-converted methods, and the more dilutive amount is reported.

Restricted stock awards assumed from Blockcap in July 2021 and the SPAC Vesting Shares issued as part of the XPDI Merger in January 2022 also have non-forfeitable rights to receive dividends, if declared, and meet the definition of participating securities.

Because these instruments do not have a contractual obligation to share in the losses of the Company, undistributed losses are not allocated to them.

As discussed in Note 1, the shares and corresponding capital amounts and earnings per share available for common stockholders prior to the Merger with XPDI have been retroactively restated as shares reflecting the exchange ratio established in the Merger.

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.

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 September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Net loss $ ( 11,685 ) $ ( 466,204 )

Weighted average shares outstanding - basic 354,195 236,951 318,169 184,790

Dilutive share-based compensation awards — — — —

Weighted average shares outstanding - diluted 354,195 236,951 318,169 184,790

Net loss per share - basic

$ ( 1.23 ) $ ( 0.07 ) $ ( 5.38 ) $ ( 0.07 )

Net loss per share - diluted

Weighted average shares outstanding - basic and diluted 375,419 307,475

Net loss per share - basic and diluted

$ ( 0.03 ) $ ( 1.52 )

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, in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Stock options

22,724 31,942

Preferred stock

14,892 18,284

18,311 6,808 18,311 6,808

Restricted stock and restricted stock units

4 unchanged sentences

149,776 215,100

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

SEGMENT REPORTING

The Company’s operating segments are aggregated into reportable segments only if they exhibit similar economic characteristics and have similar business activities.

The Company has two operating segments:

“Equipment Sales and Hosting” which consists primarily of its blockchain infrastructure and third-party hosting business and equipment sales to customers, and “Mining” consisting of digital asset mining for its own account.

“Hosting” which consists primarily of its blockchain infrastructure and third-party hosting business;

and “Mining” consisting of digital asset mining for its own account.

The blockchain hosting business generates revenue through the sale of consumption-based contracts for its hosting services which are recurring in nature.

Equipment sales revenue is derived from its ability to leverage its partnership with leading equipme nt manufacturers to secure equipment in advance, which is then sold to its 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.

During 2022, our “Hosting” segment also included sales of mining equipment to customers and was referred to as “Hosting and Equipment Sales”.

The Mining 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, the Company receives digital assets.

4 unchanged sentences

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Equipment Sales and Hosting Segment

Core Scientific, Inc.

(Debtor-in-Possession)

Notes to Unaudited Consolidated Financial Statements

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

Three Months Ended March 31,

Hosting Segment

Hosting revenue $ 22,629 $ 33,214

13 unchanged sentences

Total cost of revenue 81,345 68,750

Gross (loss) profit

$ 16,681 $ 64,250

3 unchanged sentences

$ 100,171 $ 122,516

Consolidated gross (loss) profit

Consolidated gross profit

$ 20,484 $ 70,003

For the three months ended September 30, 2022 and 2021, cost of revenue included depreciati on expense of $ 3.3 million and $ 1.5 million, respectively, for the Equipment Sales and Hosting segment.

For the three months ended September 30, 2022 and 2021, cost of revenue included depreciation e xpense of $ 61.1 million and $ 4.6 million, respectively for the Mining segment.

For the nine months ended September 30, 2022 and 2021, cost of revenue included deprecia tion expense of $ 8.2 million and $ 5.2 million, respectively, for the Equipment Sales and Hosting segment.

For the nine months ended September 30, 2022 and 2021, cost of revenue included depreciation expense of $ 146.8 million and $ 6.2 million, respectively for the Mining segment.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

For the three months ended March 31, 2023 and 2022, cost of revenue included de preciation expense of $ 0.2 million and $ 2.2 million, respectively for the Hosting segment.

For the three months ended March 31, 2023 and 2022, cost of revenue included depreciation expense of $ 19.9 million and $ 39.4 million , respectively for the Mining segment.

Concentrations of Revenue and Credit Risk

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

For the three and nine months ended September 30, 2022, 95 % and 99 %, respectively, of the Company’s revenue was generated in the United States.

For the three and nine months ended September 30, 2022, 50 % and 62 %, respectively, of the Company’s total revenue was generated from digital asset mining of bitcoin, which is subject to extreme price volatility.

As of September 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 nine months ended September 30, 2022, one hosting and equipment customer accounted for 10% or more of the Company’s total revenue.

For the three and nine months ended September 30, 2022 and 2021 , the concentration of hosting and equipment customers comprising 10% or more of the Company’s total revenue and Equipment Sales and Hosting segment revenue was as follows:

Three Months Ended September 30, Three Months Ended September 30,

2022 2021 2022 2021

Percent of total revenue:

Percent of Equipment Sales and Hosting segment revenue:

A (related party)

23 % 8 % 46 % 16 %

B N/A 24 % 19 % 48 %

N/A N/A N/A 11 %

Nine Months Ended September 30, Nine Months Ended September 30,

As of March 31, 2023 and December 31, 2022, all of the Company’s fixed assets were located in the United States.

For the three months ended March 31, 2023 and 2022, 100 % and 100 %, respectively, of the Company’s revenue was generated in the United States.

For the three months ended March 31, 2023 and 2022, 81 % and 62 %, respectively, of the Company’s total revenue was generated from digital asset mining of bitcoin, which is subject to extreme price volatility.

As of March 31, 2023 and December 31, 2022, substantially all of our digital assets were held by two third-party digital asset services.

Core Scientific, Inc.

(Debtor-in-Possession)

Notes to Unaudited Consolidated Financial Statements

For the three months ended March 31, 2023 and March 31, 2022, the concentration of customers comprising 10% or more of the Company’s total revenue are as follows:

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

2023 2022 2023 2022

Percent of total revenue:

Percent of Equipment Sales and Hosting segment revenue:

Percent of Hosting segment revenue:

A (related party)

N/A 12 % N/A 39 %

B N/A 23 % 20 % 34 %

N/A 14 % N/A 21 %

N/A 12 % N/A 18 %

1 Blockcap was a related party prior to July 30, 2021.

Subsequent to the Blockcap acquisition on July 30, 2021, Blockcap became a consolidated subsidiary.

Refer to Note 3 for further information on the Blockcap acquisition.

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Reportable segment gross (loss) profit

$ ( 27,076 ) $ 58,424 $ 55,644 $ 97,495

Loss on legal settlement

D N/A N/A N/A N/A

E N/A N/A N/A N/A

A reconciliation of the reportable segment gross profit to income (loss) before income taxes included in the Company’s Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2023 and 2022, is as follows (in thousands):

Three Months Ended March 31,

Reportable segment gross profit

$ 20,484 $ 70,003

Gain from sales of digital assets

11,036 391 25,007 405

Impairment of digital assets ( 1,056 ) ( 53,985 )

Impairment of goodwill and other intangibles ( 268,512 ) — ( 1,059,265 ) —

Impairment of property, plant and equipment ( 59,259 ) — ( 59,259 ) —

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

Operating expenses:

Research and development

6,192 1,586 24,305 4,231

Sales and marketing

39 932 11,675 2,186

General and administrative

2 unchanged sentences

24,187 44,898

Operating (loss) income

Operating loss

( 3,695 ) ( 26,717 )

Non-operating expenses, net:

Loss on debt extinguishment

Gain on debt extinguishment

Interest expense, net

25,942 13,569 74,734 26,550

Fair value adjustment on convertible notes — 386,037

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

Other non-operating expenses (income), net

Reorganization items, net 31,559 —

Other non-operating income, net

( 3,069 ) ( 357 )

3 unchanged sentences

$ ( 11,581 ) $ ( 423,798 )

Income tax expense (benefit)

10,642 ( 815 ) 4,398 ( 697 )

$ ( 434,792 ) $ ( 16,629 ) $ ( 1,711,471 ) $ ( 13,194 )

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

RELATED-PARTY TRANSACTIONS

1 unchanged sentence

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 and nine months ended September 30, 2022, the Company recognized hosting revenue from the contracts with these entities of $ 9.2 million and $ 22.7 million , respectively.

For the three and nine months ended September 30, 2021 , the Company recognized hosting revenue from the contracts with these entities of $ 2.9 million and $ 13.9 million , respectively.

In addition, for the three and nine months ended September 30, 2022 , the company recognized equipment sales revenue of $ 29.7 million and $ 67.3 million, respectively, from these entities.

For the three and nine months ended September 30, 2021 , the company recognized equipment sales revenue of $ 11.7 million and $ 29.1 million, respectively, from these same various entities.

As of September 30, 2022 an d December 31, 2021, the Company had accounts receivable of $ 0.9 million and $ 0.3 million, respectively, fro m these entities.

For the three months ended March 31, 2023 and 2022, the Company recognized hosting revenue from the contracts with these entities of $ 3.7 million and $ 5.9 million , respectively.

In addition, for the three months ended March 31, 2023 and 2022, there was equipment sales revenue recognized of nil and $ 25.9 million to these same various entities.

A nominal amount w as receivable from these entities as of March 31, 2023 and December 31, 2022.

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 and nine months ended September 30, 2022, the Company incurred reimbursements of $ 0.7 million and $ 1.8 million, respectively.

For the three and nine months ended September 30, 2021, t he Company incurred reimbursements of $ 0.4 million and $ 0.6 million, respectively.

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

A nominal amount was payable at December 31, 2021.

F or the three months ended March 31, 2023, the Company did not incur personal aircraft reimbursements.

Core Scientific, Inc.

(Debtor-in-Possession)

Notes to Unaudited Consolidated Financial Statements

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

As of March 31, 2023 and December 31, 2022, there was no reimbursements payable.

SUBSEQUENT EVENTS

Hosting contract terminations

Subsequent to September 30, 2022, the hosting contracts for three customers, (including two related-party customers) were terminated.

The previously-hosted ASIC servers are expected to be removed from the Company’s data center facilities and returned to the customers by the end of 2022.

For all three customers in the aggregate, the Company recorded total hosting revenue for the three and nine month ended September 30, 2022 of $ 7.3 million and $ 16.3 million, respectively, of which $ 5.1 million and $ 11.7 million, respectively, was hosting revenue from related parties.

Equity line of credit transactions

Subsequent to September 30, 2022 , the Company issued 6.0 million shares under the Equity Line of Credit for a total sales price to B.

Riley of $ 7.9 million .

In addition, the Company received $ 1.1 million of proceeds due from B.

Riley that had been recorded within prepaid expenses and other current assets on the Consolidated Balance Sheets as of September 30, 2022.

As of the date of this report, 56.9 million shares of Common Stock were available to be issued under the Equity Line of Credit.

On April 28, 2023, the Company announced that we have entered into agreements to host 17,935 bitcoin mining machines with three companies, including 6,914 units for Greenidge Generation Holdings, 10,000 units for Ault Alliance, and 1,021 units for LM Funding.

The Company will host the mining units at its facilities in Dalton, Georgia, Calvert City, Kentucky and Denton, Texas.

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