November 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 September 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 November 14, 2022
						374,527,988

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	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	51
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	87
Item 4.	Controls and Procedures	88

Part II. Other Information
Item 1.	Legal Proceedings	89
Item 1A.	Risk Factors	90
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	135
Item 3.	Defaults Upon Senior Securities	135
Item 4.	Mine Safety Disclosures	135
Item 5.	Other Information	135
Item 6.	Exhibits	136
Signatures		137

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)


	September 30, 2022		December 31, 2021
Assets	(Unaudited)
Current Assets:
Cash and cash equivalents	$	29,546	$	117,871
Restricted cash	8,098		13,807
Accounts receivable, net of allowance of $5,943 and $—, respectively	2,176		1,382
Accounts receivable from related parties	895		300
Deposits for equipment	97,678		358,791
Digital assets	19,663		234,298
Prepaid expenses and other current assets	55,515		30,111
Total Current Assets	213,571		756,560
Property, plant and equipment, net	1,156,369		597,304

Goodwill	—		1,055,760
Intangible assets, net	1,400		8,195
Other noncurrent assets	32,661		21,045
Total Assets	$	1,404,001	$	2,438,864
Liabilities, Redeemable Preferred Stock and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	43,613	$	11,617
Accrued expenses and other	102,213		67,862
Deferred revenue	80,268		63,417
Deferred revenue from related parties	6,981		72,945
Derivative warrant liabilities	5,287		—

Finance lease liabilities, current portion	73,045		28,452
Notes payable, current portion (includes $682,831 and $— at fair value)	977,600		75,996
Total Current Liabilities	1,289,007		320,289

Finance lease liabilities, net of current portion	—		62,145
Notes payable, net of current portion (includes $— and $557,007 at fair value)	—		652,213
Other noncurrent liabilities	41,967		18,531
Total Liabilities	1,330,974		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 September 30, 2022 and December 31, 2021, respectively; $— and $45,164 total liquidation preference at September 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 September 30, 2022 and December 31, 2021; 364,710 and 271,576 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	36		27
Additional paid-in capital	1,739,282		1,379,581
Accumulated deficit	(1,738,903)		(27,432)
Accumulated other comprehensive income (loss)	72,612		(10,966)
Total Stockholders’ Equity	73,027		1,341,210
Total Liabilities, Redeemable Preferred Stock and Stockholders’ Equity	$	1,404,001	$	2,438,864

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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue:
Hosting revenue from customers	$	35,731	$	17,585	$	94,407	$	37,836
Hosting revenue from related parties	9,185		2,903		22,659		13,906
Equipment sales to customers	7,468		23,879		11,391		84,378
Equipment sales to related parties	29,693		11,654		67,269		29,057
Digital asset mining revenue	80,495		57,118		323,337		77,511
Total revenue	162,572		113,139		519,063		242,688
Cost of revenue:
Cost of hosting services	44,975		19,577		119,850		48,956
Cost of equipment sales	27,917		24,997		63,993		82,328
Cost of digital asset mining	116,756		10,141		279,576		13,909
Total cost of revenue	189,648		54,715		463,419		145,193
Gross (loss) profit	(27,076)		58,424		55,644		97,495
Loss on legal settlement	—		(2,603)		—		(2,603)
Gain from sales of digital assets	11,036		391		25,007		405
Impairment of digital assets	(7,986)		(12,552)		(212,184)		(12,552)
Impairment of goodwill and other intangibles	(268,512)		—		(1,059,265)		—
Impairment of property, plant and equipment	(59,259)		—		(59,259)		—
Losses on exchange or disposal of property, plant and equipment	—		—		(13,057)		(17)
Operating expenses:
Research and development	6,192		1,586		24,305		4,231
Sales and marketing	39		932		11,675		2,186
General and administrative	43,346		36,358		174,380		46,975
Total operating expenses	49,577		38,876		210,360		53,392
Operating (loss) income	(401,374)		4,784		(1,473,474)		29,336
Non-operating expenses, net:
Loss on debt extinguishment	—		—		—		8,016
Interest expense, net	25,942		13,569		74,734		26,550
Fair value adjustment on convertible notes	(4,123)		8,663		186,853		8,663
Fair value adjustment on derivative warrant liabilities	(521)		—		(32,985)		—
Other non-operating expenses (income), net	1,478		(4)		4,997		(2)
Total non-operating expenses, net	22,776		22,228		233,599		43,227
Loss before income taxes	(424,150)		(17,444)		(1,707,073)		(13,891)
Income tax expense (benefit)	10,642		(815)		4,398		(697)
Net loss	$	(434,792)	$	(16,629)	$	(1,711,471)	$	(13,194)


Net loss per share (Note 14):
Basic	$	(1.23)	$	(0.07)	$	(5.38)	$	(0.07)
Diluted	$	(1.23)	$	(0.07)	$	(5.38)	$	(0.07)
Weighted average shares outstanding:
Basic	354,195		236,951		318,169		184,790
Diluted	354,195		236,951		318,169		184,790

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

Core Scientific, Inc.

Consolidated Statements of Comprehensive Loss

(in thousands, except per share amounts)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net loss	$	(434,792)	$	(16,629)	$	(1,711,471)	$	(13,194)
Other comprehensive income (loss), net of income taxes:
Change in fair value attributable to instrument-specific credit risk of convertible notes measured at fair value under the fair value option, net of tax effect of $—, $—, $— and $—	47,832		(8,552)		83,578		(8,552)
Total other comprehensive income (loss), net of income taxes	47,832		(8,552)		83,578		(8,552)
Comprehensive loss	$	(386,960)	$	(25,181)	$	(1,627,893)	$	(21,746)

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


Net loss	—	—	—	—	—	(434,792)	—	(434,792)
Other comprehensive income	—	—	—	—	—	—	47,832	47,832
Stock-based compensation	—	—	—	—	29,884	—	—	29,884


Issuance of common stock - restricted stock and restricted stock units, net of shares withheld for tax withholding obligations	—	—	4,897	—	(2,349)	—	—	(2,349)
Restricted stock awards cancelled upon forfeiture	—	—	(2,268)	—	—	—	—	—


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


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









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




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


Net loss	—	—	—	—	—	(1,711,471)	—	(1,711,471)
Other comprehensive income	—	—	—	—	—	—	83,578	83,578
Stock-based compensation	—	—	—	—	165,949	—	—	165,949

Issuance of common stock - employee stock options	—	—	1,321	—	3,846	—	—	3,846
Issuance of common stock - restricted stock and restricted stock units, net of shares withheld for tax withholding obligations	—	—	39,099	4	(31,630)	—	—	(31,626)
Restricted stock awards cancelled upon forfeiture	—	—	(2,268)	—	—	—	—	—
Issuance of common stock - exercise of convertible notes	—	—	197	—	1,574	—	—	1,574
Issuance of common stock - exercise of warrants	—	—	3,001	—	—	—	—	—
Issuances of common stock - equity line of credit	—	—	7,315	1	13,039	—	—	13,040
Conversion of contingently redeemable preferred stock to common stock	(10,826)	(44,476)	10,826	1	44,475	—	—	44,476
Issuances of common stock - Merger with XPDI	—	—	30,778	3	163,456	—	—	163,459
Issuances of common stock - financing transaction fees	—	—	1,285	—	2,960	—	—	2,960
Issuances of common stock - vendor settlement	—	—	1,580	—	12,674	—	—	12,674







Costs attributable to issuance of common stock and equity instruments - Merger with XPDI	—	—	—	—	(16,642)	—	—	(16,642)
Balance at September 30, 2022	—	—	364,710	36	1,739,282	(1,738,903)	72,612	73,027

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 Loss		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount

















Balance at June 30, 2021	10,826	44,476		157,826	16		167,172		(71,309)		—		95,879
Net loss	—	—		—	—		—		(16,629)		—		(16,629)
Other comprehensive loss	—	—		—	—		—		—		(8,552)		(8,552)
Stock-based compensation	—	—		(40)	—		28,288		—		—		28,288
Issuances of common stock - business combination	—	—		115,508	1		1,189,906		—		—		1,189,907

Balance at September 30, 2021	10,826	44,476		273,334	17		1,385,366		(87,938)		(8,552)		1,288,893

Balance at December 31, 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 loss	—	—		—	—		—		(13,194)		—		(13,194)
Other comprehensive loss	—	—		—	—		—		—		(8,552)		(8,552)
Stock-based compensation	—	—		—	—		31,012		—		—		31,012





Issuances of common stock - business combination	—	—		115,508	1		1,189,906		—		—		1,189,907
Issuances of common stock - warrants and options	—	—		40	—		496		—		—		496
Balance at September 30, 2021	10,826	44,476		273,334	17		1,385,366		(87,938)		(8,552)		1,288,893

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

Core Scientific, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Nine Months Ended September 30,
	2022		2021
Cash flows from Operating Activities:
Net loss	$	(1,711,471)	$	(13,194)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	156,544		12,886
Amortization of operating lease right-of-use assets	424		—
Stock-based compensation	166,548		31,012
Digital asset mining revenue	(323,337)		(77,511)
Deferred income taxes	3,434		3,604
Loss on legal settlement	—		2,603
Gain on sale of intangible assets	(5,904)		—
Loss on debt extinguishment	—		8,016
Fair value adjustment on derivative warrant liabilities	(32,985)		—
Fair value adjustment on convertible notes	210,968		15,937
Fair value adjustment on other liabilities	9,498		—
Equity line of credit expenses	1,431		—
Amortization of debt discount and debt issuance costs	6,172		1,024
Losses on exchange or disposal of property, plant and equipment	13,057		17

Impairment of digital assets	212,184		12,552
Impairment of goodwill, other intangibles and property, plant and equipment	1,118,524		—
Provision for doubtful accounts	5,943		—

Form: 10-Q

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