What changed in this filing

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Item 1. Financial Statements

2023-08-04 compared with 2023-05-15 · 333 added, 181 removed, 591 unchanged (47% of the section changed)

19 unchanged sentences

Total Assets $ 750,862 $ 807,686

Liabilities, Contingently Redeemable Preferred Stock and Stockholders’ Deficit

Liabilities and Stockholders’ Deficit

Current Liabilities:

7 unchanged sentences

Operating lease liabilities, net of current portion 1,030 720

Notes payable, net of current portion 45 —

Other noncurrent liabilities 2,210 2,210

2 unchanged sentences

Total Liabilities 1,143,303 1,217,032

Contingently redeemable preferred stock;

$ 0.0001 par value;

2,000,000 shares authorized;

— 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)

2 unchanged sentences

$ 0.0001 par value;

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

10,000,000 shares authorized at both June 30, 2023 and December 31, 2022;

379,091 and 375,225 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

Additional paid-in capital 1,790,921 1,764,368

1 unchanged sentence

Total Stockholders’ Deficit ( 392,441 ) ( 409,346 )

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

Total Liabilities and Stockholders’ Deficit $ 750,862 $ 807,686

See accompanying notes to unaudited consolidated financial statements.

3 unchanged sentences

(in thousands, except per share amounts)

Three Months Ended March 31,

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

2023 2022 2023 2022

Hosting revenue from customers $ 26,316 $ 31,338 $ 45,225 $ 58,676

Hosting revenue from related parties

3,514 7,598 7,234 13,474

Equipment sales to customers

— 3,507 — 3,923

Equipment sales to related parties

— 11,687 — 37,576

Digital asset mining revenue

9 unchanged sentences

36,959 12,717 68,740 82,720

Loss on legal settlement

( 85 ) — ( 85 ) —

Gain from sales of digital assets

931 11,808 1,995 13,971

Impairment of digital assets ( 1,127 ) ( 150,213 ) ( 2,183 ) ( 204,198 )

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

Losses on exchange or disposal of property, plant and equipment ( 174 ) ( 13,057 ) ( 174 ) ( 13,057 )

Operating expenses:

Research and development

1,640 14,773 3,055 18,113

Sales and marketing

1,084 10,238 2,092 11,636

General and administrative

2 unchanged sentences

27,120 115,885 51,307 160,783

Operating loss

Operating income (loss)

9,384 ( 1,045,383 ) 16,986 ( 1,072,100 )

Non-operating expenses, net:

Non-operating expenses (income), net:

Gain on debt extinguishment

Interest expense, net

— — ( 20,761 ) —

Interest (income) expense, net

( 36 ) 27,116 121 48,792

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

1 unchanged sentence

Reorganization items, net 18,370 — 49,929 —

Other non-operating (income), net

Other non-operating expenses (income), net

181 3,876 ( 2,888 ) 3,519

Total non-operating expenses, net

Total non-operating expenses (income), net

18,515 ( 186,258 ) 26,401 210,823

1 unchanged sentence

( 9,131 ) ( 859,125 ) ( 9,415 ) ( 1,282,923 )

Income tax expense

Income tax expense (benefit)

129 ( 48,650 ) 233 ( 6,244 )

$ ( 9,260 ) $ ( 810,475 ) $ ( 9,648 ) $ ( 1,276,679 )

Net loss per share (Note 11):

9 unchanged sentences

(in thousands)

Three Months Ended March 31,

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

2023 2022 2023 2022

Net loss $ ( 9,260 ) $ ( 810,475 ) $ ( 9,648 ) $ ( 1,276,679 )

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

— 8,582 — 35,746

Total other comprehensive income, net of income taxes

Comprehensive loss

— 8,582 — 35,746

Comprehensive loss $ ( 9,260 ) $ ( 801,893 ) $ ( 9,648 ) $ ( 1,240,933 )

See accompanying notes to unaudited consolidated financial statements.

1 unchanged sentence

(Debtor-in-Possession)

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

For the Three Months Ended March 31, 2023

Consolidated Statements of Changes in Stockholders’ Deficit

For the Three and Six Months Ended June 30, 2023

(in thousands)

4 unchanged sentences

Shares Amount

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

Balance at April 1, 2023 377,841 $ 36 $ 1,776,641 $ ( 2,174,138 ) $ ( 397,461 )

Net loss — — — ( 9,260 ) ( 9,260 )

1 unchanged sentence

Restricted stock awards issued, net of shares withheld for tax withholding obligations 1,250 — — — —

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

Balance at June 30, 2023 379,091 $ 36 $ 1,790,921 $ ( 2,183,398 ) $ ( 392,441 )

Balance at January 1, 2023 375,225 $ 36 $ 1,764,368 $ ( 2,173,750 ) $ ( 409,346 )

Net loss — — — ( 9,648 ) ( 9,648 )

Stock-based compensation — — 26,553 — 26,553

Restricted stock awards issued, net of shares withheld for tax withholding obligations 3,866 — — — —

Balance at June 30, 2023 379,091 $ 36 $ 1,790,921 $ ( 2,183,398 ) $ ( 392,441 )

See accompanying notes to unaudited consolidated financial statements.

1 unchanged sentence

(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

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

For the Three and Six Months Ended June 30, 2022

(in thousands)

6 unchanged sentences

Shares Amount Shares Amount

Balance at December 31, 2021

Balance at April 1, 2022

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

3 unchanged sentences

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

Exercise of stock options — — 1,321 — 3,846 — — 3,846

Restricted stock awards issued, net of shares withheld for tax withholding obligations — — 27,399 3 ( 29,280 ) — — ( 29,277 )

Exercise of convertible notes — — 197 1,574 — — 1,574

Balance at June 30, 2022

— $ — 353,481 $ 35 $ 1,695,748 $ ( 1,304,111 ) $ 24,780 $ 416,452

Balance at January 1, 2022

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

— — — — — ( 1,276,679 ) — ( 1,276,679 )

Other comprehensive income, net of $ — income taxes

— — — — — — 35,746 35,746

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

Exercise of stock options — — 1,321 — 3,846 — — 3,846

Restricted stock awards issued, net of shares withheld for tax withholding obligations — — 34,202 4 ( 29,281 ) — — ( 29,277 )

Exercise of convertible notes — — 197 — 1,574 — — 1,574

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

3 unchanged sentences

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

Balance at March 31, 2022

Balance at June 30, 2022

— $ — 353,481 $ 35 $ 1,695,748 $ ( 1,304,111 ) $ 24,780 $ 416,452

4 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from Operating Activities:

6 unchanged sentences

Deferred income taxes — ( 8,527 )

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

Gain on debt extinguishment

1 unchanged sentence

Fair value adjustment on convertible notes — 206,859

Fair value adjustment on other liabilities — 9,430

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

Losses on exchange or disposal of property, plant and equipment 174 13,057

Impairment of digital assets 2,183 204,198

Changes in working capital components:

Impairment of goodwill, other intangibles and property, plant and equipment — 790,753

Gain on sale of digital assets ( 1,995 ) ( 13,971 )

Changes in operating assets and liabilities:

Accounts receivable, net ( 1,025 ) ( 1,458 )

8 unchanged sentences

Other noncurrent assets and liabilities, net ( 409 ) ( 2,436 )

Net cash provided by (used in) operating activities 19,942 ( 3,615 )

Net cash provided by operating activities 37,977 141,273

Cash flows from Investing Activities:

1 unchanged sentence

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

Proceeds from the sale of intangibles — 10,850

Investments in internally developed software ( 714 ) —

Other — ( 276 )

3 unchanged sentences

Proceeds from debt, net of issuance costs — 216,257

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

Principal repayments of finance leases ( 2,260 ) ( 23,177 )

1 unchanged sentence

Net cash (used in) provided by financing activities ( 10,969 ) 313,169

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

Net increase in cash, cash equivalents and restricted cash 24,520 8,802

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

2 unchanged sentences

Cash paid for interest 742 45,330

Income tax payments ( 300 ) —

Income tax (refunds) payments ( 336 ) 6,538

Supplemental disclosure of noncash investing and financing activities:

Accrued capital expenditures 45,721 22,510

Change in accrued capital expenditures ( 26,330 ) 33,990

Decrease in equipment related to debt extinguishment 17,849 —

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

Payment-in-kind interest — 15,871

Cashless exercise of warrants — 3,001

See accompanying notes to unaudited consolidated financial statements.

12 unchanged sentences

(“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.

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.

7 unchanged sentences

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.

We are one of the largest blockchain infrastructure, digital asset mining and colocation hosting provider companies in North America.

As of June 30, 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.

11 unchanged sentences

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Core Scientific, Inc.

1 unchanged sentence

Notes to Unaudited Consolidated Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

4 unchanged sentences

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.

All of these adjustments are of a normal recurring nature.

The interim consolidated results of operations and cash flows are not necessarily indicative of the consolidated results of operations and cash flows that might be expected for the entire year.

These 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.

Revision of Previously Issued Financial Statements

See Note 14 — Revision of Previously Issued Financial Statements.

Going Concern

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

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.

For the six months ended June 30, 2023, the Company generated a net loss of $ 9.6 million.

The Company had unrestricted cash and cash equivalents of $ 57.6 million as of June 30, 2023, compared to $ 15.9 million as of December 31, 2022.

The increase in cash and cash equivalents for the six months ended June 30, 2023, primarily reflected $ 38.0 million of cash provided by operating activities (including $ 195.5 million of cash provided by changes in operating assets and liabilities), partially offset by $ 2.5 million of cash used in investing activities (including $ 1.8 million of purchases of property, plant and equipment), and by $ 11.0 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.

During the six months ended June 30, 2023, the average price of bitcoin was $ 25,470 compared to $ 36,876 for the six months ended June 30, 2022.

This contributed to a decrease in the Company’s mining segment revenue to $ 195.1 million for the six months ended June 30, 2023, as compared to $ 242.8 million for the six months ended June 30, 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.

This, along with a reduction in the number of hosted miners, contributed to a decrease in the Company’s hosting segment revenue to $ 52.5 million for the six months ended June 30, 2023, as compared to $ 113.6 million for the six months ended June 30, 2022.

These revenue declines were partially offset by a reduction in costs of revenue to $ 178.8 million for the six months ended June 30, 2023, as compared to $ 273.8 million for the six months ended June 30, 2022.

These factors contributed to a decrease in the Company’s gross profit to $ 68.7 million for the six months ended June 30, 2023, as compared to $ 82.7 million for the six months ended June 30, 2022.

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.

3 unchanged sentences

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

Pursuant to certain motions and applications intended to limit the disruption of the bankruptcy proceedings on our operations (the First Day Motions (as defined below)) 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

Core Scientific, Inc.

1 unchanged sentence

Notes to Unaudited Consolidated Financial Statements

suppliers in the ordinary course for all goods and services.

and 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.

6 unchanged sentences

Cash and cash equivalents include all cash balances and highly liquid investments with original maturities of three months or less from the date of acquisition.

As of March 31, 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.

As of June 30, 2023 and December 31, 2022, cash equivalents included $ 43.3 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 (as defined below) and in escrow to pay for construction and development activities.

As of June 30, 2023 and December 31, 2022, restricted cash of $ 19.2 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 Company records accounts receivable at the invoiced amount less an allowance for any potentially uncollectible 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.

4 unchanged sentences

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.

For the six months ended June 30, 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 June 30, 2023 and December 31, 2022.

Performance Obligations

1 unchanged sentence

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.

For contracts with original terms that exceed one year (typically ranging from 18 to 48 months), those commitments not yet recognized as of June 30, 2023 and December 31, 2022, were $ 116.9 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.

The Company records contract liabilities in Deferred revenue and Other non-current liabilities 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 June 30, 2023 and December 31, 2022, was $ 66.2 million and $ 80.4 million, respectively, all from advance payments received during the periods then ended.

In the three and six months ended June 30, 2023, the Company recognized $ 14.3 million and $ 25.9 million of revenue, respectively, that was included in the deferred revenue balance as of the beginning of the year.

Core Scientific, Inc.

1 unchanged sentence

Notes to Unaudited Consolidated Financial Statements

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.

In the three and six months ended June 30, 2022, the Company recognized $ 3.9 million and $ 40.7 million of revenue, respectively, that was included in the deferred revenue balance as of the beginning of the year.

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

7 unchanged sentences

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”).

On December 21, 2022 (the “Petition Date”), the Debtors filed the Chapter 11 Cases in the Bankruptcy Court seeking relief under Chapter 11 of the Bankruptcy Code.

The Chapter 11 Cases are jointly administered under Case No.

8 unchanged sentences

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, 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.

Core Scientific, Inc.

1 unchanged sentence

Notes to Unaudited 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”).

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.

12 unchanged sentences

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”).

On July 4, 2023, the Debtors, the Administrative Agents and the Replacement DIP Lender entered into the First Amendment to the Replacement DIP Credit Credit Agreement (the “First Amendment”).

For detailed discussion about the First Amendment, refer to Note 15 — Subsequent Events.

NYDIG Settlement

3 unchanged sentences

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,

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

Core Scientific, Inc.

1 unchanged sentence

Notes to Unaudited Consolidated Financial Statements

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.

of the obligation and transfer of the equipment is a noncash transaction which occurred during the quarter ended March 31, 2023, and did not result in any gain or loss as of June 30, 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.

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

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

13 unchanged sentences

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,

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

Professional fees and other bankruptcy related costs $ 17,665 $ 37,772

2 unchanged sentences

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.

The accompanying Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 include 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.

4 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Accounts payable $ 33,373 $ 20,908

Other current liabilities 19,138 64,493

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

Accrued expenses and other current liabilities 18,880 64,493

Accounts payable, and accrued expenses and other current liabilities $ 52,253 $ 85,401

Operating lease liability $ 13,475 $ 13,868

9 unchanged sentences

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

Activity related to our digital asset balances for the six months ended June 30, 2023 and 2022 was as follows (in thousands):

June 30, 2023 June 30, 2022

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

Digital asset mining revenue

Digital asset mining revenue, net of receivables *

194,917 242,842

Mining proceeds from shared hosting 4,610 —

Proceeds from sales of digital assets ( 199,646 ) ( 246,249 )

1 unchanged sentence

Impairment of digital assets ( 2,183 ) ( 204,198 )

Other ( 374 ) 847

Payment of board fee ( 89 ) —

Digital assets, end of period $ 321 $ 40,664

* As of June 30, 2023, there was $ 1.0 million of digital asset receivable included in prepaid expenses and other current assets on the consolidated balance sheets.

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 had total digital assets of $ 0.3 million and $ 0.7 million, at June 30, 2023 and December 31, 2022, respectively.

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

1 unchanged sentence

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.

3 unchanged sentences

Notes to Unaudited Consolidated Financial Statements

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

Notes payable as of June 30, 2023 and December 31, 2022, consist of the following (in thousands):

Interest Rates Maturities June 30, 2023 December 31, 2022

Kentucky note 5.0 % 2023 $ 572 $ 529

24 unchanged sentences

Fair value adjustment on convertible notes 7

— ( 808,148 )

Total notes payable, net $ 27,743 $ 36,242

3 unchanged sentences

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.

5 In connection with the Company's Chapter 11 Cases, $ 805.9 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 June 30, 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.

As of June 30, 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 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.

The principal amount of the Convertible Notes as of June 30, 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.

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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.

All of the Convertible Notes, totaling $ 560.0 million as of June 30, 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 June 30, 2023, if held to maturity was $ 475.2 million.

Core Scientific, Inc.

13 unchanged sentences

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

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

As of June 30, 2023 and December 31, 2022, there were no Level 3 financial instruments.

Nonrecurring fair value measurements

2 unchanged sentences

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.

No non-financial assets were classified as Level 3 as of June 30, 2023, or December 31, 2022.

Fair value of financial instruments

The Company’s financial instruments include cash and cash equivalents, restricted cash, accounts receivable, net, accounts payable, notes payable and certain accrued expenses and other liabilities.

The Company’s financial instruments include cash and cash equivalents, restricted cash, accounts receivable, net, accounts payable, notes payable and certain accrued expenses and other current liabilities.

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 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.

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

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 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.

Core Scientific, Inc.

1 unchanged sentence

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.

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

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

Financial statement line item June 30, 2023 December 31, 2022

Operating lease right-of-use assets Operating lease right-of-use assets $ 19,961 $ 20,430

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

Finance lease right-of-use assets *

Property, plant and equipment, net $ 32,675 $ 39,803

Operating lease liabilities,

5 unchanged sentences

Operating and finance lease liabilities subject to compromise Liabilities subject to compromise $ 82,023 $ 84,664

* December 31, 2022 revised to reflect the impact of the 2022 impairments of property, plant and equipment.

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

Three Months Ended March 31,

Three Months Ended June 30,

Financial statement line item 2023 2022

6 unchanged sentences

Total lease expense $ 4,411 $ 11,388

Six Months Ended June 30,

Financial statement line item 2023 2022

Operating lease expense General and administrative expenses $ 598 $ 309

Short-term lease expense General and administrative expenses 362 477

Finance lease expense:

Amortization of right-of-use assets Cost of revenue 7,128 18,523

Interest on lease liabilities Interest expense, net 742 4,339

Total finance lease expense 7,870 22,862

Total lease expense $ 8,830 $ 23,648

In determining the discount rate used to measure the right-of-use asset and lease liability, we use rates implicit in the lease, or if not readily available, we use our incremental borrowing rate.

1 unchanged sentence

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.

(Debtor-in-Possession)

Notes to Unaudited Consolidated Financial Statements

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

March 31, 2023 March 31, 2022

June 30, 2023 June 30, 2022

Weighted Average Remaining Lease Term (Years)

4 unchanged sentences

Finance leases 12.8 % 11.0 %

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 March 31,

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

Three Months Ended June 30,

Lease Payments

3 unchanged sentences

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

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):

Six Months Ended June 30,

Lease Payments

Operating lease payments $ 598 $ 202

Finance lease payments $ 2,248 $ 27,526

Supplemental Noncash Information

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

The Company’s minimum payments under noncancelable operating and finance leases having initial terms and bargain renewal periods in excess of one year are as follows at June 30, 2023, and thereafter (in thousands):

Operating leases Finance leases

2 unchanged sentences

2025 1,866 1,862

2026 1,924 32

Thereafter 12,037 —

3 unchanged sentences

Total $ 1,453 $ —

Core Scientific, Inc.

(Debtor-in-Possession)

Notes to Unaudited Consolidated Financial Statements

Balance Sheet Classification

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.

As a result, the creditors under these debt facilities may exercise remedies following any applicable grace periods (which have passed) 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.

Remedies available under these debt facilities are stayed while the Company is under Chapter 11 protections.

The Company has classified all of its finance lease liabilities as Liabilities subject to compromise as of June 30, 2023 and December 31, 2022.

COMMITMENTS AND CONTINGENCIES

6 unchanged sentences

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.

Notwithstanding the general 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.

2 unchanged sentences

The Company strongly disagrees with the allegations made in the Celsius motion and the interpretation of the Celsius Agreement espoused therein and is vigorously defending its interests, including seeking resolution from the bankruptcy court and payment of any outstanding amounts owed under the Celsius Agreement (subject to applicable bankruptcy law in the Celsius Chapter 11 case).

The parties have agreed to stay the proceedings, including the evidentiary hearing scheduled for November 18, 2022.

There can be no guarantee that the bankruptcy court will rule in the Company’s favor in a timely manner or that Celsius will honor the terms of the Celsius Agreement.

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

The parties agreed to stay the proceedings indefinitely and on December 8, 2022, the Company terminated the Celsius Agreement.

The Bankruptcy Court approved the Company’s motion to reject the Celsius Agreement on January 4, 2023.

Celsius has filed a proof of claim for damages for breach of the Celsius Agreement.

An adverse ruling by the bankruptcy court with respect to Celsius’ allegations would have a material effect on the Company’s business, financial condition, results of operations and cash flows.

As of June 30, 2023, the Company had accrued $ 8.7 million as an allowance against amounts due from Celsius.

In November 2022, Sphere 3D Corp.

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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 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 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.

1 unchanged sentence

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,

that this impacted the Company's profitability and ability to continue as a going concern.

On May 5, 2023, plaintiff filed an amended complaint removing the Company as a defendant and asserting that certain officers, directors and former officers and directors of the Company violated the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended, as a result of allegedly false and misleading statements regarding the business of the Company.

As of June 30, 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 June 30, 2023, we had unvested or unexercised stock-based awards outstanding representing approximately 62.0 million shares of our common stock, consisting of approximately 39.9 million RSAs and RSUs with a weighted average per share fair value of $ 2.84 , and options to purchase approximately 22.0 million shares of our common stock with a weighted average exercise price of $ 8.81 .

During the three and six months ended June 30, 2023, the Company did not grant any stock options, RSUs or RSAs.

During the three and six months ended June 30, 2023, 0.7 million and 1.9 million stock options were cancelled, respectively, and 0.5 million and 5.3 million RSAs and RSUs were forfeited, respectively.

Stock-based compensation expense for the three and six months ended June 30, 2023 and 2022, is included in the Company’s Consolidated Statements of Operations as follows (in thousands):

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

2023 2022 2023 2022

Cost of revenue $ 1,507 $ 16,882 $ 2,104 $ 18,921

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Total stock-based compensation expense $ 14,280 $ 110,998 $ 26,553 $ 136,795

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.

As of June 30, 2023, total unrecognized stock-based compensation expense related to unvested stock options was approximately $ 69.4 million, which is expected to be recognized over a weighted average time period of 2.6 years.

As of June 30, 2023, the Company had approximately $ 56.8 million of unrecognized stock-based compensation expense related to RSAs and RSUs, which is expected to be recognized over a weighted average time period of 2.5 years, and an additional $ 15.8 million of unrecognized stock-based compensation expense related to RSUs for which some or all of the requisite service had been provided under the service conditions but had performance conditions that had not yet been achieved.

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.

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

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

Three Months Ended March 31,

Core Scientific, Inc.

(Debtor-in-Possession)

Notes to Unaudited Consolidated Financial Statements

The income tax expense and effective income tax rate for the three and six months ended June 30, 2023 and 2022 were as follows:

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

2023 2022 2023 2022

(in thousands, except percentages)

2 unchanged sentences

( 1.4 ) % 5.7 % ( 2.5 ) % 0.5 %

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

For the three and six months ended June 30, 2023, the Company recorded $ 0.1 million and $ 0.2 million, respectively of income tax expense.

The Company's estimated annual effective income tax rate is ( 2.5 )%, compared to the U.S.

1 unchanged sentence

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.

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

The Company’s estimated annual effective income tax rate without discrete items was 1.1 %, compared to the 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

federal statutory rate of 21.0% due to the fair value adjustment on debt instruments ( 2.6 )%, change in valuation allowance ( 5.5 )%, goodwill impairment ( 11.6 )%, non-deductible interest ( 0.8 )%, and other items 0.8 %.

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

NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS

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 March 31,

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

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

Net loss per share - basic and diluted

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

2023 2022 2023 2022

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.

Net loss $ ( 9,260 ) $ ( 810,475 ) $ ( 9,648 ) $ ( 1,276,679 )

Weighted average shares outstanding - basic 375,779 324,967 375,875 316,269

Dilutive share-based compensation awards — — — —

Weighted average shares outstanding - diluted 375,779 324,967 375,875 316,269

Net income (loss) per share - basic ( 0.02 ) $ ( 2.49 ) $ ( 0.03 ) $ ( 4.04 )

Net income (loss) per share - diluted ( 0.02 ) $ ( 2.49 ) $ ( 0.03 ) $ ( 4.04 )

Pote ntially dilutive securities include securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive and contingently issuable shares and warrants 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 March 31,

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

2023 2022 2023 2022

Stock options

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148,567 170,814 148,567 170,814

Core Scientific, Inc.

(Debtor-in-Possession)

Notes to Unaudited Consolidated Financial Statements

SEGMENT REPORTING

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

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,

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

2023 2022 2023 2022

Hosting Segment

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Total cost of revenue 23,107 57,185 39,305 110,951

Gross profit (loss)

$ 6,723 $ ( 3,055 ) $ 13,154 $ 2,698

13 unchanged sentences

$ 36,959 $ 12,717 $ 68,740 $ 82,720

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.

For the three months ended June 30, 2023 and 2022, cost of revenue included d epreciation expense of $ 1.5 million and $ 2.6 million, respectively for the Hosting segment.

For the three months ended June 30, 2023 and 2022, cost of revenue included depreciation expense of $ 18.8 million and $ 46.5 million, respectively for the Mining segment.

For the six months ended June 30, 2023 and 2022, cost of revenue included depreciation expense of $ 1.8 million and $ 4.8 million, respectively for the Hosting segment.

For the six months ended June 30, 2023 and 2022, cost of revenue included depreciation expense of $ 38.8 million and $ 85.9 million, respectively for the Mining segment.

Core Scientific, Inc.

(Debtor-in-Possession)

Notes to Unaudited Consolidated Financial Statements

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 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.

As of June 30, 2023 and December 31, 2022, all of the Company’s fixed assets were located in the United States.

For the three and six months ended June 30, 2023 and 2022, all of the Company’s revenue was generated in the United States.

For the three and six months ended June 30, 2023, 76 % and 79 %, respectively, of the Company’s total revenue was generated from digital asset mining of bitcoin, which is subject to extreme price volatility.

As of June 30, 2023, substantially all of our digital assets were held by one third-party digital asset service.

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

For the three and six months ended June 30, 2023 and June 30, 2022, the concentration of customers comprising 10% or more of the Company’s total revenue are as follows:

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

2023 2022 2023 2022

Percent of total revenue:

Percent of Hosting segment revenue:

D 11 % N/A 49 % N/A

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

2023 2022 2023 2022

Percent of total revenue:

Percent of Hosting segment revenue:

D 10 % N/A 49 % N/A

Core Scientific, Inc.

1 unchanged sentence

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,

A reconciliation of the reportable segment gross profit to loss before income taxes included in the Company’s Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022, is as follows (in thousands):

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

2023 2022 2023 2022

Percent of total revenue:

Percent of Hosting segment revenue:

A (related party)

N/A 12 % N/A 39 %

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

$ 36,959 $ 12,717 $ 68,740 $ 82,720

Loss on legal settlement

( 85 ) — ( 85 ) —

Gain from sales of digital assets

931 11,808 1,995 13,971

Impairment of digital assets ( 1,127 ) ( 150,213 ) ( 2,183 ) ( 204,198 )

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

Losses on exchange or disposal of property, plant and equipment ( 174 ) ( 13,057 ) ( 174 ) ( 13,057 )

Operating expenses:

Research and development

1,640 14,773 3,055 18,113

Sales and marketing

1,084 10,238 2,092 11,636

General and administrative

2 unchanged sentences

27,120 115,885 51,307 160,783

Operating loss

Operating income (loss)

9,384 ( 1,045,383 ) 16,986 ( 1,072,100 )

Non-operating expenses, net:

Non-operating expenses (income), net:

Gain on debt extinguishment

Interest expense, net

— — ( 20,761 ) —

Interest (income) expense, net

( 36 ) 27,116 121 48,792

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

1 unchanged sentence

Reorganization items, net 18,370 — 49,929 —

Other non-operating income, net

( 3,069 ) ( 357 )

Total non-operating expenses, net

Other non-operating expenses (income), net 181 3,876 ( 2,888 ) 3,519

Total non-operating expenses (income), net

18,515 ( 186,258 ) 26,401 210,823

4 unchanged sentences

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

For the three months ended March 31, 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.

For the three and six months ended June 30, 2023, the Company recognized hosting revenue from the contracts with these entities of $ 3.5 million and $ 7.2 million, r espectively.

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

In addition, for the three and six months ended June 30, 2023, there was no equipment sales revenue recognized to these same various entities.

For the three and six months ended June 30, 2022, there was equipment sales revenue recognized of $ 11.7 million and $ 37.6 million to these same various entities.

A nominal amount w as receivable from these entities as of June 30, 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 months ended March 31, 2023, the Company did not incur personal aircraft reimbursements.

F or the three and six months ended June 30, 2023, the Company did not incur personal aircraft reimbursements.

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

As of June 30, 2023 and December 31, 2022, there was no reimbursements payable.

REVISION OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

During the review of the Company’s consolidated financial statements for the three and six months ended June 30, 2023, the Company identified an error in in which cost of revenue from the three months ended June 30, 2023 was recorded during the three months ended March 31, 2023.

The error resulted in an overstatement in cost of revenue for the three months ended March 31, 2023.

Core Scientific, Inc.

1 unchanged sentence

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.

This error also resulted in an overstatement of accrued expenses and other current liabilities as of March 31, 2023.

Based on management’s evaluation of the SEC Staff’s Accounting Bulletins Nos.

99 (“SAB 99”) and 108 (“SAB 108”) and interpretations therewith, the Company concluded that the aforementioned errors were not material to the Company’s previously filed March 31, 2023 consolidated financial statements.

This is further supported by the fact that the error would not likely have materially impacted a reasonable investor’s opinion of the Company’s financial condition and results of operations.

The following table presents the effect of the revision on the Company’s Consolidated Balance Sheets (in thousands):

March 31, 2023

As Corrected As Filed Change

Liabilities and Stockholders’ Deficit

Current Liabilities:

Accrued expenses and other current liabilities $ 47,299 $ 58,596 $ ( 11,297 )

Total Current Liabilities 203,449 214,746 ( 11,297 )

Total Liabilities 1,157,480 1,168,777 ( 11,297 )

Stockholders’ Deficit:

Accumulated deficit ( 2,174,138 ) ( 2,185,435 ) 11,297

Total Stockholders’ Deficit $ ( 397,461 ) $ ( 408,758 ) $ 11,297

The following table presents the effect of the revision on the Company’s Consolidated Statement of Operations for the three months ended March 31, 2023 (in thousands):

Three Months Ended March 31, 2023

As Corrected As Filed Change

Cost of revenue:

Cost of hosting services $ 16,198 $ 18,826 $ ( 2,628 )

Cost of digital asset mining 72,676 81,345 ( 8,669 )

Total cost of revenue 88,874 100,171 ( 11,297 )

Gross profit 31,781 20,484 11,297

Operating income (loss) 7,602 ( 3,695 ) 11,297

Loss before income taxes

( 284 ) ( 11,581 ) 11,297

( 388 ) ( 11,685 ) 11,297

Net loss per share:

Basic $ — $ ( 0.03 ) $ 0.03

Diluted $ — $ ( 0.03 ) $ 0.03

Weighted average shares outstanding:

375,419 375,419 —

Core Scientific, Inc.

(Debtor-in-Possession)

Notes to Unaudited Consolidated Financial Statements

The following table presents the effect of the revision on the Company’s Consolidated Statements of Changes in Stockholders’ Deficit (in thousands):

Three Months Ended March 31, 2023

Accumulated Deficit Total Stockholders’ Deficit

As corrected - Net loss $ ( 388 ) $ ( 388 )

As filed - Net loss $ ( 11,685 ) $ ( 11,685 )

Change - Net loss $ 11,297 $ 11,297

As corrected - Balance at March 31, 2023 $ ( 2,174,138 ) $ ( 397,461 )

As filed - Balance at March 31, 2023 $ ( 2,185,435 ) $ ( 408,758 )

Change - Balance at March 31, 2023 $ 11,297 $ 11,297

The following table presents the effect of the revision on the Company’s Consolidated Statements of Cash Flow (in thousands):

Three Months Ended March 31, 2023

As Corrected As Filed Change

Cash flows from Operating Activities:

$ ( 388 ) $ ( 11,685 ) $ 11,297

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

Changes in operating assets and liabilities:

Accrued expenses and other ( 906 ) 10,391 ( 11,297 )

Net cash provided by (used in) operating activities $ 19,942 $ 19,942 $ —

Net increase (decrease) in cash, cash equivalents and restricted cash $ 17,052 $ 17,052 $ —

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

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

SUBSEQUENT EVENTS

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.

On July 4, 2023, the Debtors, the Administrative Agent and the Replacement DIP Lenders entered into a First Amendment to the Replacement DIP Credit Agreement (the “First Amendment”).

The First Amendment, among other things, provides (i) that the Debtors may make certain transfers or payments in connection with settlements of certain third-party claims as described in the First Amendment and (ii) for a reduction in the excess cash threshold amount to the sum of $ 40.0 million and an amount (which shall not be less than zero ) equal to $ 5.0 million less the amount of any payments on account of prepetition claims, liens or cure costs made by any Obligor after June 30, 2023.

This excess cash threshold amount reduction resulted in the Debtors making an additional $ 6.2 million mandatory prepayment under the Replacement DIP Credit Agreement on July 7, 2023.

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