August 22, 2022 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the quarterly period ended June 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from to

Commission file number 001-40046

Core Scientific, Inc.

(Exact name of registrant as specified in its charter)

Delaware

86-1243837

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

210 Barton Springs Road

Suite 300

Austin, Texas

(Address of Principal Executive Offices)

78704

(Zip Code)

(512) 402-5233

Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.0001 per share	CORZ	The Nasdaq Global Select Market
Warrants, exercisable for shares of common stock	CORZW	The Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒


Common Stock, par value $0.0001 per share						Shares Outstanding as of August 12, 2022
						357,294,622

Table of Contents

TABLE OF CONTENTS


		Page
Part I. Financial Information
Item 1.	Financial Statements	3
	Consolidated Balance Sheets	4
	Consolidated Statements of Operations	5
	Consolidated Statements of Comprehensive (Loss) Income	6
	Consolidated Statements of Changes in Contingently Redeemable Convertible Preferred Stock and Stockholders’ Equity	7
	Consolidated Statements of Cash Flows	9
	Notes to the Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	49
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	79
Item 4.	Controls and Procedures	80

Part II. Other Information
Item 1.	Legal Proceedings	81
Item 1A.	Risk Factors	82
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	125
Item 3.	Defaults Upon Senior Securities	125
Item 4.	Mine Safety Disclosures	125
Item 5.	Other Information	125
Item 6.	Exhibits	126
Signatures		127

Table of Contents

Part I - Financial Information

Item 1. Financial Statements

Table of Contents

Core Scientific, Inc.

Consolidated Balance Sheets

(in thousands, except par value)


	June 30, 2022		December 31, 2021
Assets	(Unaudited)
Current Assets:
Cash and cash equivalents	$	128,542	$	117,871
Restricted cash	11,938		13,807
Accounts receivable, net	2,840		1,382
Accounts receivable from related parties	677		300
Deposits for equipment	165,662		358,791
Digital assets	40,664		234,298
Prepaid expenses and other current assets	161,234		30,111
Total Current Assets	511,557		756,560
Property, plant and equipment, net	1,049,070		597,304

Goodwill	266,038		1,055,760
Intangible assets, net	3,590		8,195
Other noncurrent assets	14,903		21,045
Total Assets	$	1,845,158	$	2,438,864
Liabilities, Redeemable Preferred Stock and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	31,252	$	11,617
Accrued expenses and other	124,488		67,862
Deferred revenue	71,837		63,417
Deferred revenue from related parties	36,923		72,945
Derivative warrant liabilities	5,808		—

Finance lease liabilities, current portion	28,570		28,452
Notes payable, current portion	217,674		75,996
Total Current Liabilities	516,552		320,289

Finance lease liabilities, net of current portion	48,701		62,145
Notes payable, net of current portion (includes $726,554 and $557,007 at fair value)	852,323		652,213
Other noncurrent liabilities	11,130		18,531
Total Liabilities	1,428,706		1,053,178
Contingently redeemable convertible preferred stock; $0.0001 par value; 2,000,000 shares authorized; — and 10,826 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively; $— and $45,164 total liquidation preference at June 30, 2022 and December 31, 2021, respectively	—		44,476
Commitments and contingencies (Note 10)
Stockholders’ Equity:
Common stock; $0.0001 par value; 10,000,000 shares authorized at both June 30, 2022 and December 31, 2021; 353,481 and 271,576 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively	35		27
Additional paid-in capital	1,695,748		1,379,581
Accumulated deficit	(1,304,111)		(27,432)
Accumulated other comprehensive income (loss)	24,780		(10,966)
Total Stockholders’ Equity	416,452		1,341,210
Total Liabilities, Redeemable Preferred Stock and Stockholders’ Equity	$	1,845,158	$	2,438,864

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

Core Scientific, Inc.

Consolidated Statements of Operations

(in thousands, except per share amounts)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenue:
Hosting revenue from customers	$	31,338	$	11,895	$	58,676	$	20,251
Hosting revenue from related parties	7,598		6,667		13,474		11,003
Equipment sales to customers	3,507		36,457		3,923		60,499
Equipment sales to related parties	11,687		9,519		37,576		17,403
Digital asset mining revenue	109,842		10,765		242,842		20,393
Total revenue	163,972		75,303		356,491		129,549
Cost of revenue:
Cost of hosting services	43,644		17,550		74,875		29,379
Cost of equipment sales	13,541		31,100		36,076		57,331
Cost of digital asset mining	94,070		2,115		162,820		3,768
Total cost of revenue	151,255		50,765		273,771		90,478
Gross profit	12,717		24,538		82,720		39,071

Gain (loss) from sales of digital assets	11,808		(16)		13,971		14
Impairment of digital assets	(150,213)		—		(204,198)		—
Impairment of goodwill and other intangibles	(790,753)		—		(790,753)		—
Losses on exchange or disposal of property, plant and equipment	(13,057)		(17)		(13,057)		(17)
Operating expenses:
Research and development	14,773		1,437		18,113		2,645
Sales and marketing	10,238		720		11,636		1,254
General and administrative	90,874		6,822		131,034		10,617
Total operating expenses	115,885		8,979		160,783		14,516
Operating (loss) income	(1,045,383)		15,526		(1,072,100)		24,552
Non-operating (income) expenses, net:
Loss on debt extinguishment	—		7,974		—		8,016
Interest expense, net	27,116		10,846		48,792		12,981
Fair value adjustment on convertible notes	(195,061)		—		190,976		—
Fair value adjustment on derivative warrant liabilities	(22,189)		—		(32,464)		—
Other non-operating expenses, net	3,876		2		3,519		2
Total non-operating (income) expenses, net	(186,258)		18,822		210,823		20,999
(Loss) income before income taxes	(859,125)		(3,296)		(1,282,923)		3,553
Income tax (benefit) expense	(48,650)		118		(6,244)		118
Net (loss) income	$	(810,475)	$	(3,414)	$	(1,276,679)	$	3,435


Net (loss) income per share (Note 14):
Basic	$	(2.49)	$	(0.02)	$	(4.04)	$	0.02
Diluted	$	(2.49)	$	(0.02)	$	(4.04)	$	0.02
Weighted average shares outstanding:
Basic	324,967		158,890		316,269		158,338
Diluted	324,967		158,890		316,269		177,342

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

Core Scientific, Inc.

Consolidated Statements of Comprehensive (Loss) Income

(in thousands, except per share amounts)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net (loss) income	$	(810,475)	$	(3,414)	$	(1,276,679)	$	3,435
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 $—	8,582		—		35,746		—
Total other comprehensive income, net of income taxes	8,582		—		35,746		—
Comprehensive (loss) income	$	(801,893)	$	(3,414)	$	(1,240,933)	$	3,435

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

Core Scientific, Inc.

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

(in thousands)

(Unaudited)


	Contingently Redeemable Convertible Preferred Stock		Common Stock		Additional Paid-In Capital	Accumulated Deficit	Accumulated Other Comprehensive Income	Total Stockholders’ Equity
	Shares	Amount	Shares	Amount
Balance at March 31, 2022	—	—	324,564	32	1,604,116	(493,636)	16,198	1,126,710


Net loss	—	—	—	—	—	(810,475)	—	(810,475)
Other comprehensive income	—	—	—	—	—	—	8,582	8,582
Stock-based compensation	—	—	—	—	115,492	—	—	115,492

Issuance of common stock - employee stock options	—	—	1,321	—	3,846	—	—	3,846
Issuance of common stock - restricted stock and restricted stock units, net of shares withheld for tax withholding obligations	—	—	27,399	3	(29,280)	—	—	(29,277)
Issuance of common stock - exercise of convertible notes	—	—	197	—	1,574	—	—	1,574












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




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


Net loss	—	—	—	—	—	(1,276,679)	—	(1,276,679)
Other comprehensive income	—	—	—	—	—	—	35,746	35,746
Stock-based compensation	—	—	—	—	136,065	—	—	136,065

Issuance of common stock - employee stock options	—	—	1,321	—	3,846	—	—	3,846
Issuance of common stock - restricted stock and restricted stock units, net of shares withheld for tax withholding obligations	—	—	34,202	4	(29,281)	—	—	(29,277)
Issuance of common stock - exercise of convertible notes	—	—	197	—	1,574	—	—	1,574
Issuance of common stock - exercise of warrants	—	—	3,001	—	—	—	—	—
Conversion of contingently redeemable preferred stock to common stock	(10,826)	(44,476)	10,826	1	44,475	—	—	44,476
Issuances of common stock - Merger with XPDI	—	—	30,778	3	163,456	—	—	163,459
Issuances of common stock - vendor settlement	—	—	1,580	—	12,674	—	—	12,674







Costs attributable to issuance of common stock and equity instruments - Merger with XPDI	—	—	—	—	(16,642)	—	—	(16,642)
Balance at June 30, 2022	—	—	353,481	35	1,695,748	(1,304,111)	24,780	416,452

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

Core Scientific, Inc.

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

(in thousands)

(Unaudited)


	Contingently Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
















Balance at March 31, 2021	10,826	44,476		157,786	16		165,036		(67,895)		—		97,157
Net loss	—	—		—	—		—		(3,414)		—		(3,414)
Stock-based compensation	—	—		—	—		2,136		—		—		2,136
Issuances of common stock- warrants and options	—	—		40	—		—		—		—		—
Balance at June 30, 2021	10,826	44,476		157,826	16		167,172		(71,309)		—		95,879

Balance at December 31, 2020	6,766	$	44,476	98,607	$	1	$	163,967	$	(74,744)	$	—	$	89,224
Retroactive application of the recapitalization	4,060	—		59,179	15		(15)		—		—		—
Balance at December 31, 2020, as adjusted	10,826	44,476		157,786	16		163,952		(74,744)		—		89,224
Net income	—	—		—	—		—		3,435		—		3,435
Stock-based compensation	—	—		—	—		2,724		—		—		2,724






Issuances of common stock- warrants and options	—	—		40	—		496		—		—		496
Balance at June 30, 2021	10,826	44,476		157,826	16		167,172		(71,309)		—		95,879

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

Core Scientific, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Six Months Ended June 30,
	2022		2021
Cash flows from Operating Activities:
Net (loss) income	$	(1,276,679)	$	3,435
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization	91,974		5,991
Amortization of operating lease right-of-use assets	107		—
Stock-based compensation	136,795		2,724
Digital asset mining revenue	(242,842)		(20,393)
Deferred income taxes	(8,527)		—

Gain on sale of intangible assets	(5,904)		—
Loss on debt extinguishment	—		8,016
Fair value adjustment on derivative warrant liabilities	(32,464)		—
Fair value adjustment on convertible notes	206,859		2,580
Fair value adjustment on other liabilities	9,430		—
Amortization of debt discount and debt issuance costs	3,920		742
Losses on exchange or disposal of property, plant and equipment	13,057		17

Impairment of digital assets	204,198		—
Impairment of goodwill and other intangibles	790,753		—

Changes in working capital components:
Accounts receivable, net	(1,458)		(6,800)
Accounts receivable from related parties	(377)		(16,061)
Digital assets	232,278		20,207
Deposits for equipment for sales to customers	36,953		(260,568)
Prepaid expenses and other current assets	(24,246)		17,079
Accounts payable	4,186		3,893
Accrued expenses and other	33,297		3,267
Deferred revenue	8,421		18,977
Deferred revenue from related parties	(36,022)		116,908
Other noncurrent assets and liabilities, net	(2,436)		(21,345)
Net cash provided by (used in) operating activities	141,273		(121,331)
Cash flows from Investing Activities:
Purchases of property, plant and equipment	(238,537)		(39,075)

Deposits for self-mining equipment	(217,677)		—
Proceeds from sale of intangibles	10,850		—
Other	(276)		(142)
Net cash used in investing activities	(445,640)		(39,217)
Cash flows from Financing Activities:
Proceeds from issuance of common stock, net of transaction costs	198,857		496
Proceeds from debt, net of issuance costs	216,257		245,372
Repurchase of common shares to pay employee withholding taxes	(29,278)		—
Principal repayments of finance leases	(23,177)		—
Principal payments on debt	(49,490)		(35,670)

Net cash provided by financing activities	313,169		210,198
Net increase in cash, cash equivalents and restricted cash	8,802		49,650
Cash, cash equivalents and restricted cash—beginning of period	131,678		8,721
Cash, cash equivalents and restricted cash—end of period	$	140,480	$	58,371

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

MineCo Holdings, Inc. was incorporated on December 13, 2017 in the State of Delaware and changed its name to Core Scientific, Inc. (“Legacy Core Scientific”) pursuant to an amendment to its Certificate of Incorporation dated June 12, 2018. On August 17, 2020 Legacy Core Scientific engaged in a holdco restructuring to facilitate a borrowing arrangement by Legacy Core Scientific pursuant to which Legacy Core Scientific was merged with and into a wholly owned subsidiary of Core Scientific Holding Co. and became a wholly owned subsidiary of Core Scientific Holding Co. and the stockholders of Legacy Core Scientific became the shareholders of Core Scientific Holding Co. On January 19, 2022, Core Scientific Holding Co. merged with Power & Digital Infrastructure Acquisition Corp., a Delaware corporation (“XPDI”), and XPDI Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of XPDI (“Merger Sub”), consummated the transactions contemplated under the merger agreement, following the approval at the special meeting of the stockholders of XPDI held on January 19, 2022. In connection with the closing of the merger, XPDI changed its name from Power & Digital Infrastructure Acquisition Corp. to Core Scientific, Inc. (“Core Scientific” or the “Company”). The Company, headquartered in Austin, Texas, is an infrastructure, technology and services company that conducts, or plans to conduct, the following business activities:

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

•Owning and operating datacenter facilities in the U.S. to provide colocation and hosting services for distributed ledger technology, also commonly known as blockchain;

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

Merger Agreement

In 2021, XPDI entered into a certain Agreement and Plan of Reorganization and Merger, dated as of July 20, 2021, as amended on October 1, 2021, and as further amended on December 29, 2021, by and among Core Scientific Holding Co., XPDI Merger Sub and XPDI (the “Merger Agreement”). XPDI’s stockholders approved the transactions (collectively, the “Merger”) contemplated by the Merger Agreement at a special meeting of stockholders held on January 19, 2022 (the “Special Meeting”).

Pursuant to the terms of (a) the Merger Agreement and (b) that certain Agreement and Plan of Merger, dated as of October 1, 2021, as amended on January 14, 2022, by and among XPDI, Core Scientific Holding Co., XPDI Merger Sub 3, LLC, a Delaware limited liability company and wholly owned subsidiary of XPDI (“Merger Sub 3”), and Blockcap, Inc., a Nevada corporation and wholly owned subsidiary of Core Scientific (“Blockcap”), the Merger was effected by (i) the merger of Merger Sub with and into Core Scientific (the “First Merger”), which occurred on January 19, 2022 (the “Closing Date”), with Core Scientific surviving the First Merger as a wholly owned subsidiary of XPDI, (ii) the merger of Core Scientific with and into XPDI (the “Second Merger”), which occurred on January 20, 2022, with XPDI surviving the Second Merger, and (iii) following the closing of the Second Merger on January 20, 2022, the merger of Blockcap with and into Merger Sub 3 (the “Third Merger”), with Merger Sub 3 surviving the Third Merger as a wholly owned subsidiary of XPDI under the name “Core Scientific Acquired Mining LLC.” Immediately prior to the effective time of the First Merger (such effective time of the First Merger, the “Effective Time”), XPDI filed a Second Amended and Restated Certificate of Incorporation (the “Post-Combination Charter”) with the Secretary of State of the State of Delaware pursuant to which XPDI changed its name from “Power & Digital Infrastructure Acquisition Corp.” to “Core Scientific, Inc.” (hereinafter referred to as the “Company” or “New Core”) and redesignated its Class A common stock, par value $0.0001 per share (“XPDI Class A Common Stock”), and Class B common stock, par value $0.0001 per share (“XPDI Class B Common Stock”), as common stock, par value $0.0001, of the Company (“New Core Common Stock”). The Exchange Ratio (as defined in the Merger Agreement) was 1.6001528688 of a share of New Core Common Stock per fully-diluted share of Core Scientific Common Stock.

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

Table of Contents

Core Scientific, Inc.

Notes to Unaudited Consolidated Financial Statements

The Merger provided gross proceeds of approximately $221.6 million from the XPDI trust account, resulting in approximately $195.0 million in net cash proceeds to Core Scientific, after the payment of transaction expenses, which is presented within Proceeds from issuance of common stock, net of transaction costs on the consolidated statements of cash flows. Following the Transaction, former Core Scientific stockholders owned 90.7%, former XPDI public stockholders owned 6.7% and XPDI’s sponsor owned 2.6% of the issued and outstanding shares of common stock, respectively, of the Company, excluding the impact of unvested restricted stock units and options. The proceeds from the Merger were used to fund mining equipment purchases and infrastructure build-out.

The Merger is accounted for as a reverse recapitalization with the Company being the accounting acquirer. A reverse recapitalization does not result in a new basis of accounting. Accordingly, the reverse recapitalization was treated as the equivalent of Core Scientific Holding Co. issuing stock for the net assets of XPDI, accompanied by a recapitalization. The net assets of XPDI are stated at historical costs, with no goodwill or other intangible assets recorded. The Company identified $18.6 million of direct and incremental transaction costs, which consist of legal, accounting, and other professional services directly related to the Merger, of which $10.7 million were recorded in other noncurrent assets on the consolidated balance sheets as of December 31, 2021 and the remaining $7.9 million were recognized in the six months ended June 30, 2022. These transaction costs have been allocated to all instruments assumed or issued in the merger on a relative fair value basis as of the date of the merger. Transaction costs of $16.6 million have been allocated to equity-classified instruments and recognized as an adjustment to additional paid-in capital within total stockholders’ equity. The cash outflows related to these costs have been netted against the proceeds from the issuance of common stock upon the Merger with XPDI within financing activities on the Company’s consolidated statement of cash flows. Transaction costs of $2.0 million have been allocated to liability-classified instruments that are measured at fair value through earnings and have been recognized as a charge within general and administrative expenses in the six months ended June 30, 2022.

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

In addition, immediately prior to the Effective Time, each share of XPDI Class B Common Stock automatically converted into one share of New Core Common Stock. 1.7 million shares (“SPAC Vesting Shares”) are subject to vesting conditions, and will vest i) upon the date on which New Core Common Stock’s volume-weighted average price is greater than $12.50 per share for any

Form: 10-Q

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