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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information is provided to aid you in your analysis of the financial aspects of the Transactions (as defined below). This information should be read together with XPDI’s and Core Scientific’s financial statements and related notes, the sections titled “XPDI’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Core Scientific’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the other financial information, in each case, contained elsewhere in this proxy statement/prospectus. Capitalized terms used but not defined herein have the respective meanings given to them in this proxy statement/prospectus.

The following unaudited pro forma condensed combined financial information presents the combination of the historical financial information of XPDI and Core Scientific, adjusted to give effect to the merger, other events contemplated by the merger agreement and certain recent transactions completed by Core Scientific (collectively, the “Transactions”).

The Transactions include:

 

•

The merger, which includes the merger of XPDI and the Merger Sub with Core Scientific;

 

•

Core Scientific’s acquisition of Blockcap (described below), including any elimination of the effect of transactions between Core Scientific and Blockcap, as required, is included in the Core Scientific historical financial statements as of and for the nine months ended September 30, 2021. The pro forma impact to the Statement of Operations had the acquisition taken place on January 1, 2020 is included as an adjustment for the nine months ended September 30, 2021 and the twelve months ended December 31, 2020.

 

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The issuance by Core Scientific of secured convertible notes in April, 2021, net of the repayment of the existing Core Scientific loan (the “Silverpeak loan”) and the issuance in August and September, 2021 of unsecured convertible notes is included in the Core Scientific historical financial statements as of and for the nine months ended September 30, 2021. The pro forma impact to interest expense for the nine months ended September 30, 2021 and the twelve months ended December 31, 2020 is included as an adjustment. Also included as pro forma adjustments is the impact of additional issuance of unsecured convertible notes during October and November of 2021.

The unaudited pro forma condensed combined balance sheet as of September 30, 2021 combines the historical condensed consolidated balance sheet of XPDI as of September 30, 2021, the historical balance sheet of Core Scientific as of September 30, 2021, on a pro forma basis as if the Transactions had been consummated on September 30, 2021. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2020 and the nine months ended September 30, 2021 combine the historical statements of operations of XPDI for the period from December 29, 2020 (inception) through December 31, 2020 and the nine months ended September 30, 2021, respectively, the historical statements of operations of Core Scientific for the year ended December 31, 2020 and the nine months ended September 30, 2021, respectively, and the historical statements of operations of Blockcap for the period from February 19, 2020 (inception) through December 31, 2020 and period from January 1, 2021 through July 30, 2021 (the date of acquisition), respectively, on a pro forma basis as if the Transactions had been consummated on January 1, 2020, the beginning of the earliest period presented.

The unaudited pro forma condensed combined financial information and accompanying notes have been derived from and should be read in conjunction with:

 

•

the historical unaudited condensed consolidated financial statements of XPDI as of and for the nine months ended September 30, 2021 and the related notes, which are included elsewhere in this proxy statement/prospectus;

 

•

the historical audited financial statements of XPDI as of and for the period from December 29, 2020 (inception) through December 31, 2020 and the related notes, which are included elsewhere in this proxy statement/prospectus;

 

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the historical unaudited financial statements of Core Scientific as of and for the nine months ended September 30, 2021 and the related notes, which are included elsewhere in this proxy statement/prospectus;

 

•

the historical audited financial statements of Core Scientific as of and for the year ended December 31, 2020 and the related notes, which are included elsewhere in this proxy statement/prospectus;

 

•

the historical unaudited financial statements of Blockcap for the period from January 1, 2021 through the acquisition date of July 30, 2021;

 

•

the historical audited financial statements of Blockcap as of and for the year ended December 31, 2020 and the related notes, which are included elsewhere in this proxy statement/prospectus;

 

•

the historical audited financial statements of RME Black 88, LLC (“RME 88”), RME Black 100 LLC (“RME 100”), RME Black 200 (“RME 200”) and BEP 888 LLC (“BEP 888”) as of and for the periods from inception through December 31, 2020 and the related notes, which are included elsewhere in this proxy statement/prospectus; and

 

•

other information relating to XPDI and Core Scientific contained in this proxy statement/prospectus, including the merger agreement and the description of certain terms thereof set forth in the section entitled “The Merger Agreement.”

Description of the Merger

On July 20, 2021, XPDI, the Merger Sub and Core Scientific entered into the merger agreement pursuant to which Merger Sub has merged with and into Core Scientific, with Core Scientific surviving the First Merger as a wholly owned subsidiary of XPDI, and promptly following the First Merger, Core Scientific merged with and into XPDI, with XPDI surviving the Second Merger. Upon the consummation of the merger, the name of the surviving entity is “Core Scientific, Inc.”

Immediately prior to the Effective Time, each share of Core Scientific preferred stock issued and outstanding automatically converted into a number of shares of Core Scientific common stock in accordance with the Certificates of Designation for Core Scientific’s Series A Preferred Stock and Series B Preferred Stock, in each case, upon receipt of the requisite vote of holders with respect to each respective class of preferred stock as set forth in each such Certificate of Designation.

At the Effective Time, each share of Core Scientific common stock (including, for the avoidance of doubt, common stock issued as a result of the conversion of Core Scientific preferred stock in connection with the merger and any shares of Core Scientific common stock that were issued as a result of any deemed exercise of an option to purchase Core Scientific common stock held by a former employee or service provider of Core Scientific, except as set forth in the merger agreement) that was issued and outstanding immediately prior to the Effective Time (other than shares held in treasury and dissenting shares) was cancelled and extinguished and collectively converted into the right to receive the applicable portion of the merger consideration, in accordance with the Allocation Schedule, consisting of a number of shares of Class A Common Stock equal to the Exchange Ratio. Each share of Core Scientific common stock held in treasury immediately prior to the Effective Time was cancelled and extinguished, and no consideration was paid or is payable with respect thereto. Each issued and outstanding share of common stock of Merger Sub was converted into and became one share of common stock of the surviving corporation of the First Merger. By virtue of the Second Merger, each share of common stock of the surviving corporation of the First Merger was converted into and became one common membership unit of the surviving entity of the Second Merger.

At the Effective Time, each warrant to purchase Core Scientific common stock held by a former employee or service provider that was issued, outstanding and unexercised immediately prior to the Effective Time was deemed to have been exercised, on a net exercise basis with respect to the applicable exercise price and any required withholding or employment taxes thereon, immediately prior to the Closing and was settled in the applicable

 

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number of shares of Core Scientific common stock, rounded down to the nearest whole share. At the Effective Time, each warrant to purchase Core Scientific common stock that was issued, outstanding and unexercised immediately prior to the Effective Time (except as described above) was assumed by XPDI and converted into a warrant to purchase shares of Class A Common Stock on the same terms and conditions as were applicable to the warrants to purchase Core Scientific common stock immediately prior to the Effective Time, equal to the product (rounded down to the nearest whole number) of (i) the number of shares of Core Scientific common stock subject to such warrant immediately prior to the Effective Time and (ii) the Exchange Ratio, at an exercise price per share (rounded up to the nearest whole cent) equal to the quotient of (x) the exercise price per share applicable to such warrant immediately prior to the Effective Time divided by (y) the Exchange Ratio.

At the Effective Time, each of Core Scientific’s RSUs were assumed by XPDI and converted into a restricted stock unit to be settled in shares of Class A Common Stock on the same terms and conditions as were applicable to such RSU immediately prior to the Effective Time, including applicable vesting conditions, equal to the product (rounded down to the nearest whole number) of (i) the number of shares of Core Scientific common stock underlying such RSU immediately prior to the Effective Time and (ii) the Exchange Ratio.

At the Effective Time, each option to purchase Core Scientific common stock held by a former employee or service provider of Core Scientific that was vested and outstanding immediately prior to the Effective Time, except as set forth in the merger agreement, was deemed to have been exercised, on a net exercise basis with respect to the applicable exercise price and any required withholding or employment taxes thereon, immediately prior to the Closing and settled in the applicable number of shares of Class A Common Stock, rounded down to the nearest whole share. At the Effective Time, each option to purchase Core Scientific common stock held by a former employee or service provider of Core Scientific that was unvested and outstanding immediately prior to the Effective Time, except as set forth in the merger agreement, was automatically cancelled at the Closing without the payment of consideration. From and after the Closing, except as set forth in the merger agreement and except with respect to the holder’s right to receive Class A Common Stock, if any, each Core Scientific option held by a former employee or service provider of Core Scientific was cancelled and ceased to be outstanding and the holder ceased to have any rights with respect thereto. At the Effective Time, except as set forth in the merger agreement, each other option to purchase Core Scientific common stock issued and outstanding immediately prior to the Effective Time not held by a former employee or service provider of Core Scientific was assumed by XPDI and converted into an option to purchase shares of Class A Common Stock on the same terms and conditions as were applicable to such option immediately prior to the Effective Time, including applicable vesting conditions (an “Exchanged Option”), equal to the product (rounded down to the nearest whole number) of (i) the number of shares of Class A Common Stock subject to such option immediately prior to the Effective Time and (ii) the Exchange Ratio, at an exercise price per share (rounded up to the nearest whole cent) equal to (x) the exercise price per share of such option immediately prior to the Effective Time divided by (y) the Exchange Ratio; provided, however, that the exercise price and the number of shares of Class A Common Stock purchasable pursuant to such option shall be determined in a manner consistent with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) (to the extent applicable to such option); provided further, that in the case of any such option to which Section 422 of the Code applies, the exercise price and the number of shares of Class A Common Stock purchasable pursuant to such option was determined in accordance with the foregoing, and the requirements of Section 424(a) of the Code. At the Effective Time, each option to purchase Core Scientific common stock issued and outstanding immediately prior to the Effective Time held by certain specified Core Scientific optionholders that is vested and outstanding immediately prior to the Effective Time was deemed to have been exercised, on a net exercise basis with respect to the applicable exercise price and any required withholding or employment taxes thereon, immediately prior to the Closing and settled in cash.

At the Effective Time, each secured convertible promissory note issued by Core Scientific that was outstanding immediately prior to the Effective Time was assumed by XPDI and remains outstanding (and Core Scientific or its successor by merger remains an obligor with respect to such notes) and is convertible into Class A Common Stock (rather than equity securities of Core Scientific) in accordance with the terms of such convertible promissory

 

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note; provided, however, that with respect to any 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 Class A 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.

Prior to the Effective Time, XPDI appointed a commercial bank or trust company (the “Exchange Agent”) for the purpose of distributing the merger consideration payable to each holder of Core Scientific common stock. At the Effective Time, XPDI deposited evidence of shares of Class A Common Stock in book-entry form (or certificates representing shares of Class A Common Stock, at XPDI’s election) representing the aggregate merger consideration payable pursuant to the merger agreement (such equity deposited with the Exchange Agent referred to herein as the “Exchange Fund”). At the Effective Time, XPDI delivered irrevocable instructions to the Exchange Agent to deliver the merger consideration out of the Exchange Fund in accordance with the merger agreement. See “The Merger—Merger Consideration; Conversion of Shares; Exchange Procedures” in this proxy statement/prospectus.

Accounting for the Merger

The merger between XPDI and Core Scientific will be accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, XPDI will be treated as the “acquired” company for financial reporting purposes and the merger will be treated as the equivalent of Core Scientific issuing stock for the net assets of XPDI, accompanied by a recapitalization. The net assets of XPDI will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Transactions will be those of Core Scientific. See “Accounting Treatment.”

Description of Blockcap Acquisition

On July 30, 2021, Core Scientific acquired Blockcap, one of its largest hosting customers. Consideration consisted of the issuance of approximately 72 million shares of Core Scientific common stock, approximately 4 million shares of Core Scientific restricted stock and approximately 5 million options to purchase shares of Core Scientific common stock. The acquisition is expected to be 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. Core Scientific is still in the process of completing its initial accounting for the business combination, including determining the fair value of consideration transferred, assets acquired and liabilities assumed and the allocation of the purchase price to goodwill. Core Scientific and Blockcap had preexisting relationships which were settled on the acquisition date. Using the estimated purchase price for the transaction, Core Scientific has allocated the purchase price to identifiable assets and liabilities based upon preliminary fair value estimates. The difference between the aggregate consideration relative to the fair value of net assets is recorded as goodwill. Refer to Note 3 for further discussion.

On December 1, 2020, Blockcap entered into assignment and assumption agreements with RME 88, RME 100, RME 200, BEP 888 and BEP 999 LLC (“BEP 999”) (collectively the “LLCs”). An assessment was made of the respective net assets of the LLCs, the operating history of the LLCs, the subsequent voting rights retained by the various LLC investors, the composition of the new board of directors, and the composition of the new executive management was completed immediately following the completion of the business combinations. Based on the results of the assessment of the above factors, it was determined that RME 88 was the accounting acquirer. As a result, Blockcap’s financial statements present the results of RME 88 from the date of its inception, February 19, 2019, to the date of the transactions with Blockcap and the other LLCs. The assignment and assumption agreements

 

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with RME 100, RME 200 and BEP 888 were recorded as business combinations and the assignment and assumption agreement with BEP 999 was recorded as a share-based equity-settled asset acquisition. Pro forma adjustments have been made to the Blockcap historical results for the year ending December 31, 2020 to reflect results as if the acquisitions had been in place for the full year. The acquisition of BEP 999 was not considered material for purposes of the combined pro forma financial statements and therefore, pro forma adjustments were not made to reflect such acquisition.

On July 1, 2021, prior to Core Scientific’s acquisition of Blockcap, Blockcap purchased Radar Relay, Inc. (“RADAR”), an early stage company focused on technology enhancement and development in the digital asset industry. The acquisition was 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. Using the estimated purchase price for the transaction, Blockcap has allocated the purchase price to identifiable assets and liabilities based upon preliminary fair value estimates. The difference between the aggregate consideration relative to the fair value of net assets is recorded as goodwill. Refer to Note 3 for further discussion.

Description of the Issuance of Convertible Notes

In April 2021, Core Scientific entered into a Secured Convertible Note Purchase Agreement and issued $215 million of senior secured convertible notes to new and existing lenders. The convertible notes have a maturity date of April 2025 and bear interest of 10% per annum, of which 4% is payable in cash and 6% is payable in kind. The convertible notes are convertible into common or preferred shares at the option of the holder upon the occurrence of a) an initial public offering or SPAC merger, b) a private placement of equity securities with gross proceeds to the Company of at least $50 million or c) a change in control. The conversion price is equal to a) 65-80% of the price paid for equity securities in an initial public offering, depending on the timing of the initial public offering or b) 65-80% of the fair value per share paid in a change in control or SPAC merger, depending on the timing of the change in control or SPAC merger. At maturity, the Secured Convertible Notes not converted will be owed two times the face value of the note plus accrued interest. The proceeds from the convertible notes were used, in part, to repay the 15% per annum Silverpeak loan of which $21 million was issued in May 2020 and an additional $9 million was issued in February 2021.

In August through November of 2021, an additional $300 million of senior unsecured convertible notes were issued under substantially the same terms and conditions as the original $215 million of secured convertible notes issued in April 2021, except that such notes are unsecured until the occurrence of a) an initial public offering or SPAC merger, b) a private placement of equity securities with gross proceeds to the Company of at least $50 million or c) a change in control, at which time they become secured on a pari passu basis with the Secured Convertible Notes.

Core Scientific has reflected the issuance of the April convertible note, the repayment of the Silverpeak loan and the issuance of the senior unsecured convertible notes in its historical financial statements as of and for the nine months ended September 30, 2021. The impact is only partially reflected for the entire pro forma period in the historical statements. An adjustment has been made to the pro forma statements of operations for the twelve and nine month periods ending December 31, 2020 and September 30, 2021 respectively, to reflect the impact for the full pro forma period.

Refer to Note 3 and Note 6 for further discussion.

Basis of Pro Forma Presentation

The unaudited pro forma condensed combined financial information has been presented for illustrative purposes only and is not necessarily indicative of the operating results and financial position that would have been achieved had the Transactions occurred on the dates indicated, and does not reflect adjustments for any anticipated synergies, operating efficiencies, tax savings or cost savings. Any cash proceeds remaining after the consummation of the Transactions and the other related events contemplated by the merger agreement are expected to be used for general corporate purposes. The unaudited pro forma condensed combined financial information does not purport to project the future operating results or financial position of XPDI following the completion of the Transactions.

 

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The unaudited pro forma adjustments are based on information currently available, and assumptions and estimates underlying the unaudited pro forma adjustments are described in the accompanying notes. Actual results may differ materially from the assumptions used to present the accompanying unaudited pro forma condensed combined financial information.

The following summarizes the unaudited pro forma New Core common stock issued and outstanding immediately after the Transactions:

 

		Share Ownership in New Core
amounts in thousands		Shares				% of     Total
Core Scientific shareholders (1)			301,292				90.7	%
XPDI:
XPDI Class A shares (4)			22,153				6.7	%
XPDI Class B shares converted to Class A (2)			8,625				2.6	%
XPDI shareholders			30,778				9.3	%
Closing Shares (3)			332,070				100.0	%

 

(1)	Includes equivalent Core Scientific common shares exchanged for New Core shares using the exchange rate of 1.6001528688 consisting of:

a.

Core Scientific common shares of 158,212

b.

Core Scientific common shares from convertible Series A and B preferred stock of 10,826

c.

Core Scientific vested warrants and options of 10,556

d.

Blockcap equivalent Core Scientific common shares of 115,508

e.

Blockcap equivalent Core Scientific common shares from vested RSUs of 1,956

f.

Blockcap equivalent Core Scientific vested options of 4,234

(2)

Includes 1,725 Class B common shares that will be converted to Class A unvested shares and will vest upon the date on which the volume-weighted average price of the Class A Common Stock 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. The unvested shares will be excluded from pro forma earnings per share calculations because the stock price threshold contingency has not yet been met.

(3)

Excludes Core Scientific and Blockcap equivalent Core Scientific common shares from unvested RSUs of 97,409 and 4,855, respectively, and 21,103 and 3,111 from unvested options, respectively, using the exchange rate of 1.6001528688 and all other potentially dilutive securities including Core Scientific options, warrants, restricted stock units and convertible notes as well as XPDI warrants. See Note 5—Earnings per Share.

(4)	Includes the impact of the redemption by XPDI shareholders of 12,347 shares of Class A common stock subject to redemption.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 2021

 

		As of September 30, 2021																As of September 30, 2021
in thousands		Core Scientific Pro Forma (Note 2)				XPDI (Historical)				Merger Adjustments								Pro Forma Combined
Assets
Current Assets:
Cash and cash equivalents		$	240,427			$	1,599			$	(39,000	)			A			$	424,582
											221,556				B				—
Restricted cash			12,101				—				—								12,101
Accounts receivable, net of allowance of $620			602				—				—								602
Accounts receivable from related parties			261				—				—								261
Deposits for equipment			469,890				—				—								469,890
Digital currency assets			116,233				—				—								116,233
Other current assets			9,978				447				—								10,425
Total current assets			849,492				2,046				182,556								1,034,094
Property, plant and equipment, net			219,795				—				—								219,795
Goodwill			1,106,968				—				—								1,106,968
Intangible assets, net			8,709				—				—								8,709
Investments held in Trust Account			—				345,027				(345,027	)			B				—
Other noncurrent assets			14,110				—				—								14,110
Total assets		$	2,199,074			$	347,073			$	(162,471	)						$	2,383,676
Liabilities, Redeemable Preferred Stock, Commitments and Contingencies and Stockholders’ Equity
Current Liabilities:
Accounts payable		$	28,796			$	721			$	—							$	29,517
Accrued expenses and other			35,074				3,226				—								38,300
Deferred revenue			206,139				—				—								206,139
Capital lease obligations, current portion			2,525				—				—								2,525
Notes payable, current portion			25,202				—				—								25,202
Other current liabilities			—				148				—								148
Total current liabilities			297,736				4,095				—								301,831
Capital lease obligations, net of current portion			1,524				—				—								1,524
Notes payable, net of current portion			566,930				—				—								566,930
Derivative warrant liabilities			—				36,932				—								36,932
Deferred underwriting commissions			—				12,075				(12,075	)			A				—
Other noncurrent liabilities			1,994				—				—								1,994
Total liabilities			868,184				53,102				(12,075	)							909,211
Contingently redeemable preferred stock			44,476				—				(44,476	)			D				—
Commitments and Contingencies:
Class A common stock subject to redemption			—				345,000				(345,000	)			E				—
Stockholders’ Equity:
Common stock; $0.00001 par value			2				—				1				F				3
Class B common stock, $0.0001 par value			—				1				(1	)			F				—
Additional Paid in Capital			1,385,381				—				(51,030	)			F				1,576,243
			—				—				(24,113	)			A
			—				—				44,476				D
			—				—				345,000				E
			—				—				(123,471	)			C				—
Accumulated (deficit) / Earnings			(90,417	)			(51,030	)			51,030				F				(93,229	)
											(1,000	)			A
											(1,812	)			A
Accumulated other comprehensive loss			(8,552	)			—				—								(8,552	)
Total Stockholders’ Equity			1,286,414				(51,029	)			239,080								1,474,465
Total Liabilities, Redeemable Preferred Stock, Commitments and Contingencies and Stockholders’ Equity		$	2,199,074			$	347,073			$	(162,471	)						$	2,383,676

See accompanying notes to the unaudited pro forma combined financial statements

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021

 

		September 30, 2021																September 30, 2021
in thousands		Core Scientific Pro Forma (Note 2)				XPDI (Historical)				Merger Adjustments								Pro Forma Combined
Hosting revenue from customers		$	39,914			$	—			$	—							$	39,914
Equipment sales to customers			95,741				—				—								95,741
Digital asset mining income			149,541				—				—								149,541
Total revenue			285,196				—				—								285,196
Costs of revenue			136,002				—				—								136,002
Gross profit			149,194				—				—								149,194
(Loss) gain on legal settlements			(2,603	)			—				—								(2,603	)
Gain (loss) from sales of digital currency assets			550				—				—								550
Impairment of digital currency assets			(30,024	)			—				—								(30,024	)
Operating expenses:
Research and development			4,231				—				—								4,231
Sales and marketing			2,186				—				—								2,186
General and administrative			75,749				4,078				—								79,827
General and administrative-related party			—				160				—								160
Franchise tax expenses			—				148				—								148
Total operating expenses			82,166				4,386				—								86,552
Operating income			34,951				(4,386	)			—								30,565
Other (expense) income:
(Loss) gain from sales of digital currency assets			(1,472	)			—				—								(1,472	)
(Loss) on debt from extinguishment			(8,016	)			—				—								(8,016	)
Change in fair value of derivative warrant liabilities			—				(13,904	)			—								(13,904	)
Offering costs associated with derivative warrant liabilities			—				(1,055	)			—								(1,055	)
Income from investments held in Trust Account			—				27				(27	)			e				—
Other income (expense)			(8,661	)			—				—								(8,661	)
Interest expense, net			(65,767	)			—				—								(65,767	)
Total other (expense) income			(83,916	)			(14,932	)			(27	)							(98,875	)
Income (loss) before income taxes			(48,965	)			(19,318	)			(27	)							(68,310	)
Income tax provision (benefit)			5,777				—				—								5,777
Net income (loss) and other comprehensive income (loss)		$	(54,742	)		$	(19,318	)		$	(27	)						$	(74,087	)
Net income (loss) attributable to common stockholders		$	(54,742	)		$	(19,318	)		$	(27	)						$	(74,087	)
Net income (loss) per share
Common stock – Basic and Diluted		$	(0.32	)		$	(0.51	)							a			$	(0.24	)
Weighted average shares outstanding:
Basic and Diluted common stock			171,059				37,644								b				313,599

See accompanying notes to the unaudited pro forma combined financial statements

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2020

 

		December 31, 2020																December 31, 2020
in thousands		Core Scientific Pro Forma (Note 2)				XPDI (Historical)				Merger Adjustments								Pro Forma Combined
Hosting revenue from customers		$	39,470			$	—			$	—							$	39,470
Equipment sales to customers			11,842				—				—								11,842
Digital asset mining income			19,636				—				—								19,636
Total revenue			70,948				—				—								70,948
Costs of revenue			54,237				—				—								54,237
Gross profit			16,711				—				—								16,711
Gain on legal settlements			5,814				—				—								5,814
Gain on sale of digital assets			353				—				—								353
Operating expenses:
Research and development			5,271				—				—								5,271
Sales and marketing			1,771				—				—								1,771
General and administrative			39,190				10				2,812				c				42,012
Total operating expenses			46,232				10				2,812								49,054
Operating income			(23,354	)			(10	)			(2,812	)							(26,176	)
Other (expense) income:
(Loss) on debt from extinguishment			(1,333	)			—				—								(1,333	)
Other income (expense)			(10,113	)			—				—								(10,113	)
Interest expense, net			(56,988	)			—				—								(56,988	)
Total other (expense) income			(68,434	)			—				—								(68,434	)
Income (loss) before income taxes			(91,788	)			(10	)			(2,812	)							(94,610	)
Income tax provision (benefit)			(134	)			—				—								(134	)
Net income (loss) and other comprehensive income (loss)		$	(91,653	)		$	(10	)		$	(2,812	)						$	(94,475	)
Deemed divided from common to preferred exchange			(10,478	)			—				10,478				d				—
Net income (loss) attributable to common stockholders		$	(102,131	)		$	(10	)		$	7,666							$	(94,475	)
Net income (loss) per share
Common stock – Basic and Diluted		$	(0.60	)		$	—								a			$	(0.30	)
Weighted average shares outstanding:
Common stock – Basic and Diluted			171,059				7,500								b				313,599

See accompanying notes to the unaudited pro forma combined financial statements

 

11

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

1. Basis of Presentation

The unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X, as amended. The adjustments in the unaudited pro forma condensed combined financial information have been identified and presented to provide relevant information necessary for an illustrative understanding of New Core upon consummation of the Transactions. Assumptions and estimates underlying the unaudited pro forma adjustments set forth in the unaudited pro forma condensed combined financial information are described in the accompanying notes.

The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Transactions and has been prepared for informational purposes only.

The merger between XPDI and Core Scientific will be accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, XPDI will be treated as the “acquired” company for financial reporting purposes. Accordingly, the merger will be treated as the equivalent of Core Scientific issuing stock for the net assets of XPDI, accompanied by a recapitalization. The net assets of XPDI will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Transactions will be those of Core Scientific. See “Accounting Treatment.” The pro forma adjustments related to the merger are described in Note 3.

The acquisition of Blockcap by Core Scientific, as further summarized in Note 2, was accounted for as a business combination using the acquisition method of accounting in accordance with ASC 805, Business Combinations, with Core Scientific determined to be the accounting acquirer. Accordingly, the acquired assets and assumed liabilities of Blockcap have been adjusted to fair value, where appropriate. The difference between the aggregate consideration relative to the fair value of the identifiable net assets is recorded as goodwill. In addition, pro forma adjustments related to Core Scientific’s issuance of convertible notes and the repayment of the Silverpeak loan are reflected in Note 2.

Management has made significant estimates and assumptions in its determination of the pro forma adjustments. As the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the information presented.

The unaudited pro forma condensed combined financial information does not give effect to:

 

•

any anticipated synergies, operating efficiencies, tax savings, cost savings or increased costs of a public company that may be associated with the Transactions, or

 

•

the potential purchases of mining and hosting equipment.

The pro forma adjustments reflecting the consummation of the Transactions are based on certain currently available information and certain assumptions and methodologies that XPDI believes are reasonable under the circumstances. The unaudited condensed combined pro forma adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is evaluated. Therefore, it is likely that the actual adjustments will differ from the pro forma adjustments and it is possible the difference may be material. XPDI believes that its assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Transactions based on information available to management at this time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed combined financial information.

The unaudited pro forma condensed combined financial information is not necessarily indicative of what the actual results of operations and financial position would have been had the Transactions taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of New Core. The unaudited pro forma condensed combined financial information should be read in conjunction with the historical financial statements and notes thereto of XPDI, Core Scientific and Blockcap.

 

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2. Historical Core Scientific, Blockcap Acquisition and Convertible Note Issuance

The following unaudited pro forma adjustments reflect the impact of Transactions completed by Core Scientific prior to the anticipated merger, including (all share amounts are in thousands):

 

•

The pro forma interest expense impact of the April 2021 Core Scientific issuance of $215 million of convertible notes, net of $5.6 million origination fees and the subsequent repayment of the $30 million Silverpeak loan net of prepayment penalties, the interest expense impact of the August and September Convertible Notes issuance of $205 million and the pro forma impact of the subsequent issuance in October and November 2021 of $95 million of additional Convertible Notes. It is not anticipated that the holders of the convertible notes will exercise their conversion rights as a result of the merger; and

 

•

The acquisition of Blockcap by Core Scientific on July 30, 2021, including any elimination of the effect of transactions between Core Scientific and Blockcap, as required, is included in the Core Scientific historical financial statements as of and for the nine months ended September 30, 2021. The pro forma impact to the Statement of Operations had the acquisition taken place on January 1, 2020 is included as an adjustment for the period from January 1, 2021 through July 30, 2021 and the twelve months ended December 31, 2020. Consideration paid consisted of 72,186 Core Scientific common shares, 657 common shares from vested options settlement, 4,256 Core Scientific Restricted Stock Units and 2,393 Core Scientific Options. The portion of the fair value of the replaced Blockcap share based payments attributable to pre-combination service as well as the impact of the effective settlement of preexisting hosting and equipment contracts between Core Scientific and Blockcap has been included in the aggregate purchase price of $1,129.4 million.

The purchase price allocation is as follows:

PPA Allocation

 

Consideration (in thousands):
72,186 common shares valued at $16.18 per share (1) (2)			1,167,965
Fair value of replaced Blockcap share-based payments attributable to pre-combination service (3)			21,941
Settlement of pre-existing contracts (4)			(60,522	)
Total Consideration:		$	1,129,384
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 asset-Other			3,329
Other current assets			633
Intangible assets, net			2,925
Property, plant and equipment, net			27,089
Other noncurrent assets			1,293
Total assets acquired		$	110,204
Accounts payable			492
Accrued expenses and other			22,647
Other current liabilities			6,408
Total liabilities assumed		$	29,547
Total identifiable net assets		$	80,657
Goodwill on acquisition		$	1,048,727

 

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(1)	72,186 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 $16.18. 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 is 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. The fair value of the stock-based awards was determined utilizing the Black-Scholes pricing model.

(4)	Blockcap had preexisting hosting and equipment with Core Scientific that were effectively settled by Core Scientific’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.

This preliminary purchase price allocation has been used to prepare the unaudited pro forma adjustments. The final purchase price allocation will be determined when detailed valuations and necessary calculations have been completed. The final purchase price allocation could differ materially from the preliminary purchase price allocation and may include changes in value of consideration transferred (including the fair value of common shares on the acquisition date and the allocation of share-based compensation replacement awards to purchase consideration), changes in allocations to intangible assets such as developed technology, trade names and goodwill and other changes to assets and liabilities.

The goodwill of approximately $1,047.8 million arising from the Blockcap acquisition preliminary purchase price allocation represents the excess of the purchase price over the aggregate fair value of the net identifiable assets acquired and liabilities assumed, including identifiable intangible assets. The goodwill is not deductible for U.S. federal income tax purposes. Management believes the acquisition of Blockcap strengthens its presence in the data mining market due to the scale of its operations. These factors are the basis for the excess purchase price paid over the value of the assets acquired and liabilities assumed, resulting in goodwill.

 

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UNAUDITED PRO FORMA CORE SCIENTIFIC CONDENSED COMBINED BALANCE SHEET

 

		As of September 30, 2021
in thousands		Core Scientific (Historical) (A)				Convertible Note adjustments								Core Scientific Pro Forma Combined
Assets
Current Assets:
Cash and cash equivalents		$	147,906			$	92,521				B			$	240,427
Restricted cash			12,101				—								12,101
Accounts receivable, net of allowance of $620			602				—								602
Accounts receivable from related parties			261				—								261
Deposits for equipment			469,890				—								469,890
Digital currency assets			116,233				—								116,233
Other current assets			9,978				—								9,978
Total current assets			756,971				92,521								849,492
Property, plant and equipment, net			219,795				—								219,795
Goodwill			1,106,968				—								1,106,968
Intangible assets, net			8,709				—								8,709
Other noncurrent assets			14,110				—								14,110
Total assets		$	2,106,553			$	92,521							$	2,199,074
Current Liabilities:
Accounts payable		$	28,796				—							$	28,796
Accrued expenses and other			35,074				—								35,074
Deferred revenue			206,139				—								206,139
Capital lease obligations, current portion			2,525				—								2,525
Notes payable, current portion			25,202				—								25,202
Total current liabilities			297,736				—								297,736
Capital lease obligations, net of current portion			1,524												1,524
Notes payable, net of current portion			471,930				95,000				B				566,930
Other noncurrent liabilities			1,994				—								1,994
Total liabilities			773,184				95,000								868,184
Contingently redeemable preferred stock			44,476				—								44,476
Stockholders’ Equity:
Common stock; $0.00001 par value			2				—								2
Additional Paid in Capital			1,385,381				—								1,385,381
Accumulated (deficit) / Earnings			(87,938	)			(2,479	)			B				(90,417	)
Accumulated other comprehensive loss			(8,552	)			—								(8,552	)
Total Stockholders’ Equity			1,288,893				(2,479	)							1,286,414
Total Liabilities, Redeemable Preferred Stock, and Stockholders’ Equity		$	2,106,553			$	92,521							$	2,199,074

 

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UNAUDITED PRO FORMA CONDENSED COMBINED CORE SCIENTIFIC

STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021

 

																		Transaction Accounting Adjustments
in thousands		Core Scientific (Historical) September 30, 2021				Blockcap (Historical) for the period January 1, 2021 through July 30, 2021				Elimination Adjustments								Blockcap Acquisition								Convertible Note								Core Scientific Pro Forma Combined
Hosting revenue from customers		$	51,742			$	—			$	(11,828	)			e1			$	—								—							$	39,914
Equipment sales to customers			113,435				—				(17,694	)			e2				—								—								95,741
Digital asset mining income			77,511				72,030				—								—								—								149,541
Total revenue			242,688				72,030				(29,522	)							—								—								285,196
Costs of revenue			145,193				17,903				(11,828	)			e1				(868	)			a				—								136,002
			—				—				(14,398	)			e2				—								—
Gross profit			97,495				54,127				(3,296	)							868								—								149,194
(Loss) / gain on legal settlements			(2,603	)			—				—								—								—								(2,603	)
Gain on sale of digital assets			405				145				—								—								—								550
Impairment of digital currency asset			(12,552	)			(17,472	)			—								—								—								(30,024	)
Operating expenses:
Research and development			4,231				—				—								—								—								4,231
Sales and marketing			2,186				—				—								—								—								2,186
General and administrative			46,992				47,997				—								(19,240	)			c				—								75,749
Total operating expenses			53,409				47,997				—								(19,240	)							—								82,166
Operating income (loss)			29,336				(11,197	)			(3,296	)							20,108																34,951
Other (expense) income:
(Loss) on sale of assets			—				(1,472	)			—								—								—								(1,472	)
(Loss) on debt from extinguishment			(8,016	)			—				—								—								—								(8,016	)
Other income (expense)			(8,661	)			—				—								—								—								(8,661	)
Interest (expense), net			(26,550	)			(1,717	)			—								—								(37,500	)			d				(65,767	)
Total other (expense) income			(43,227	)			(3,189	)			—								—								(37,500	)							(83,916	)
Income (loss) before income taxes			(13,891	)			(14,386	)			(3,296	)							20,108								(37,500	)							(48,965	)
Income tax provision (benefit)			(697	)			6,474				—								—								—								5,777
Net income (loss) and other comprehensive income (loss)		$	(13,194	)		$	(20,860	)		$	(3,296	)						$	20,108							$	(37,500	)						$	(54,742	)
Net income (loss) attributable to common stockholders		$	(13,194	)		$	(20,860	)		$	(3,296	)						$	20,108							$	(37,500	)						$	(54,742	)

 

16

UNAUDITED PRO FORMA CONDENSED COMBINED CORE SCIENTIFIC

STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2020

 

		December 31, 2020																Transaction Accounting Adjustments
in thousands		Core Scientific (Historical)				Blockcap Pro Forma (Adjustment f)				Elimination Adjustments								Blockcap Acquisition								Convertible Note								Core Scientific Pro Forma Combined
Hosting revenue from customers		$	41,598			$	—			$	(2,128	)			e1			$	—								—							$	39,470
Equipment sales to customers			12,595				—				(753	)			e2				—								—								11,842
Digital asset mining income			6,127				13,509				—								—								—								19,636
Total revenue			60,320				13,509				(2,881	)							—								—								70,948
Costs of revenue			50,928				7,655				(2,128	)			e1				(1,488	)			a				—								54,237
			—				—				(730	)			e2				—								—								—
Gross profit			9,392				5,854				(23	)							1,488								—								16,711
Gain on legal settlements			5,814				—				—								—								—								5,814
Gain on sale of digital assets			65				288				—								—								—								353
Operating expenses:
Research and development			5,271				—				—								—								—								5,271
Sales and marketing			1,771				—				—								—								—								1,771
General and administrative			14,556				7,073				—								17,561				b				—								39,190
Total operating expenses			21,598				7,073				—								17,561								—								46,232
Operating income			(6,327	)			(931	)			(23	)							(16,073	)							—								(23,354	)
Other (expense) income:
(Loss) on debt from extinguishment			(1,333	)			—				—								—								—								(1,333	)
Other income (expense)			(110	)			(10,003	)			—								—								—								(10,113	)
Interest (expense), net			(4,436	)			(1,198	)			—								—								(2,479	)			e				(56,988	)
			—				—				—								—								(48,875	)			d				—
Total other (expense) income			(5,879	)			(11,201	)			—								—								(51,354	)							(68,434	)
Income (loss) before income taxes			(12,206	)			(12,132	)			(23	)							(16,073	)							(51,354	)							(91,788	)
Income tax provision (benefit)			—				(134	)			—								—								—								(134	)
Net income (loss) and other comprehensive income (loss)		$	(12,206	)		$	(11,998	)		$	(23	)						$	(16,073	)						$	(51,354	)						$	(91,653	)
Deemed divided from common to preferred exchange			(10,478	)			—				—								—								—								(10,478	)
Net income (loss) attributable to common stockholders		$	(22,684	)		$	(11,998	)		$	(23	)						$	(16,073	)						$	(51,354	)						$	(102,131	)

 

17