Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

August 4, 2023

000183934112/312023Q2NoJune 30, 2023Core Scientific, 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Table of Contents
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, 2023
OR
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 CORZQ OTC Markets
Warrants, exercisable for shares of common stock CRZWQ OTC Markets
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 every Interactive Data File required to be submitted 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 such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Emerging growth company
Non-accelerated filer
Smaller reporting 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.


Table of Contents
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No
As of July 31, 2023, 382,610,007 shares of Common Stock, par value $0.0001, were outstanding.




Table of Contents
TABLE OF CONTENTS
Page
3

Table of Contents
Part I - Financial Information
Item 1. Financial Statements
4


Core Scientific, Inc.
(Debtor-in-Possession)
Consolidated Balance Sheets
(in thousands, except par value)

June 30,
2023
December 31,
2022
Assets (Unaudited)
Current Assets:
Cash and cash equivalents $ 57,593  $ 15,884 
Restricted cash 19,167  36,356 
Accounts receivable, net of allowance of $8,724 and $8,724, respectively
1,259  234 
Accounts receivable from related parties   23 
Digital assets 321  724 
Prepaid expenses and other current assets 32,857  31,881 
Total Current Assets 111,197  85,102 
Property, plant and equipment, net 607,890  691,134 
Operating lease right-of-use assets 19,961  20,430 
Intangible assets, net 2,517  1,704 
Other noncurrent assets 9,297  9,316 
Total Assets $ 750,862  $ 807,686 
Liabilities and Stockholders’ Deficit
Current Liabilities:
Accounts payable $ 53,976  $ 53,641 
Accrued expenses and other current liabilities 41,266  17,952 
Deferred revenue 62,607  77,689 
Deferred revenue from related parties 1,403  496 
Operating lease liabilities, current portion 423  769 
Notes payable, current portion 27,698  36,242 
Total Current Liabilities 187,373  186,789 
Operating lease liabilities, net of current portion 1,030  720 
Notes payable, net of current portion 45   
Other noncurrent liabilities 2,210  2,210 
Total liabilities not subject to compromise 190,658  189,719 
Liabilities subject to compromise 952,645  1,027,313 
Total Liabilities 1,143,303  1,217,032 
Commitments and contingencies (Note 8)
Stockholders’ Deficit:
Common stock; $0.0001 par value; 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
36  36 
Additional paid-in capital 1,790,921  1,764,368 
Accumulated deficit (2,183,398) (2,173,750)
Total Stockholders’ Deficit (392,441) (409,346)
Total Liabilities and Stockholders’ Deficit $ 750,862  $ 807,686 
See accompanying notes to unaudited consolidated financial statements.
5


Core Scientific, Inc.
(Debtor-in-Possession)
Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
Revenue:
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
97,082  109,842  195,108  242,842 
Total revenue
126,912  163,972  247,567  356,491 
Cost of revenue:
Cost of hosting services 23,107  43,644  39,305  74,875 
Cost of equipment sales   13,541    36,076 
Cost of digital asset mining 66,846  94,070  139,522  162,820 
Total cost of revenue
89,953  151,255  178,827  273,771 
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
24,396  90,874  46,160  131,034 
Total operating expenses
27,120  115,885  51,307  160,783 
Operating income (loss)
9,384  (1,045,383) 16,986  (1,072,100)
Non-operating expenses (income), net:
Gain on debt extinguishment
    (20,761)  
Interest (income) expense, net
(36) 27,116  121  48,792 
Fair value adjustment on convertible notes   (195,061)   190,976 
Fair value adjustment on derivative warrant liabilities   (22,189)   (32,464)
Reorganization items, net 18,370    49,929   
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 
Loss before income taxes
(9,131) (859,125) (9,415) (1,282,923)
Income tax expense (benefit)
129  (48,650) 233  (6,244)
Net loss
$ (9,260) $ (810,475) $ (9,648) $ (1,276,679)
Net loss per share (Note 11):
Basic
$ (0.02) $ (2.49) $ (0.03) $ (4.04)
Diluted
$ (0.02) $ (2.49) $ (0.03) $ (4.04)
Weighted average shares outstanding:
Basic
375,779  324,967  375,875  316,269 
Diluted
375,779  324,967  375,875  316,269 

See accompanying notes to unaudited consolidated financial statements.
6


Core Scientific, Inc.
(Debtor-in-Possession)
Consolidated Statements of Comprehensive (Loss)
(in thousands)
(Unaudited)
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
  8,582    35,746 
Comprehensive loss $ (9,260) $ (801,893) $ (9,648) $ (1,240,933)
See accompanying notes to unaudited consolidated financial statements.


7


Core Scientific, Inc.
(Debtor-in-Possession)
Consolidated Statements of Changes in Stockholders’ Deficit
For the Three and Six Months Ended June 30, 2023
(in thousands)
(Unaudited)
Common Stock Additional
Paid-In Capital
Accumulated
Deficit
Total
Stockholders’
Deficit
Shares Amount
Balance at April 1, 2023 377,841  $ 36  $ 1,776,641  $ (2,174,138) $ (397,461)
Net loss —  —  —  (9,260) (9,260)
Stock-based compensation —  —  14,280  —  14,280 
Restricted stock awards issued, net of shares withheld for tax withholding obligations 1,250      —   
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.
8


Core Scientific, Inc.
(Debtor-in-Possession)
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)
(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 April 1, 2022
  $   324,564  $ 32  $ 1,604,116  $ (493,636) $ 16,198  $ 1,126,710 
Net loss
—  —  —  —  —  (810,475) —  (810,475)
Other comprehensive income, net of $ income taxes
—  —  —  —  —  —  8,582  8,582 
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 
Net loss
—  —  —  —  —  (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  —  —  —  —   
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.
9


Core Scientific, Inc.
(Debtor-in-Possession)
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Six Months Ended June 30,
2023 2022
Cash flows from Operating Activities:
Net loss
$ (9,648) $ (1,276,679)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 40,567  91,974 
Amortization of operating lease right-of-use assets 469  107 
Stock-based compensation 26,553  136,795 
Digital asset mining revenue (195,108) (242,842)
Deferred income taxes   (8,527)
Gain on sale of intangible assets   (5,904)
Gain on debt extinguishment
(20,761)  
Fair value adjustment on derivative warrant liabilities   (32,464)
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 
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)
Accounts receivable from related parties 23  (377)
Digital assets 195,322  246,249 
Deposits for equipment for sales to customers   36,953 
Prepaid expenses and other current assets (976) (24,246)
Accounts payable 23,282  4,186 
Accrued expenses and other (6,499) 33,297 
Deferred revenue (14,175) 8,421 
Deferred revenue from related parties   (36,022)
Other noncurrent assets and liabilities, net (409) (2,436)
Net cash provided by operating activities 37,977  141,273 
Cash flows from Investing Activities:
Purchases of property, plant and equipment (1,774) (238,537)
Deposits for self-mining equipment   (217,677)
Proceeds from the sale of intangibles   10,850 
Investments in internally developed software (714)  
Other   (276)
Net cash used in investing activities (2,488) (445,640)
Cash flows from Financing Activities:
Proceeds from issuance of common stock upon Merger with XPDI, net of transaction costs   198,857 
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)
Principal payments on debt (8,709) (49,490)
Net cash (used in) provided by financing activities (10,969) 313,169 
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 
Cash, cash equivalents and restricted cash—end of period $ 76,760  $ 140,480 
10


Supplemental disclosure of other cash flow information:
Cash paid for interest 742  45,330 
Income tax (refunds) payments (336) 6,538 
Supplemental disclosure of noncash investing and financing activities:
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.
11


Core Scientific, Inc.
(Debtor-in-Possession)
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. (“Old Core”) pursuant to an amendment to its Certificate of Incorporation dated June 12, 2018. On August 17, 2020, Old Core engaged in a holdco restructuring to facilitate a borrowing arrangement by Old Core pursuant to which Old Core was merged with and into a wholly owned subsidiary of Core Scientific Holding Co. and became a wholly owned subsidiary of Core Scientific Holding Co. and the stockholders of Old Core became the stockholders of Core Scientific Holding Co. In July 2021, Core Scientific Holding Co. completed the acquisition of Blockcap, Inc. (“Blockcap”), one of Old Core’s largest hosting customers. Prior to its acquisition, Blockcap had retained Core Scientific Holding Co. to host in the data centers operated by Core Scientific Holding Co Blockcap’s industrial scale digital asset mining operations. On January 19, 2022, following the approval at the special meeting of the stockholders of Power & Digital Infrastructure Acquisition Corp., a Delaware corporation (“XPDI”), Core Scientific Holding Co. merged with XPDI, and XPDI Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of XPDI (“Merger Sub”), consummated the transactions contemplated under the merger agreement. In connection with the closing of the merger, XPDI changed its name from Power & Digital Infrastructure Acquisition Corp. to Core Scientific, Inc. (“Core Scientific” or the “Company”).
Core Scientific is a best-in-class, large-scale operator of dedicated, purpose-built facilities for digital asset mining and a premier provider of blockchain infrastructure, software solutions and services. We mine digital assets for our own account and provide colocation hosting services for other large-scale miners at our eight operational data centers in Georgia (2), Kentucky (1), North Carolina (2), North Dakota (1) and Texas (2). We began digital asset mining in 2018 and in 2020 became one of the largest North American providers of colocation hosting services for third-party mining customers, at which time we derived almost all our revenue from third-party colocation hosting fees and the resale of digital asset mining machines. Currently, we derive the majority of our revenue from self-mining bitcoin. We are one of the largest blockchain infrastructure, digital asset mining and colocation hosting provider companies in North America. 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. We provide deployment, monitoring, troubleshooting, optimization and maintenance of our customers’ digital asset mining equipment and provide necessary electrical power and repair and other infrastructure services necessary to operate, maintain and efficiently mine digital assets.

We operate in two segments: “Mining” consisting of digital asset mining for our own account, and “Hosting” consisting of our blockchain infrastructure and third-party hosting business. During 2022, our “Hosting” segment also included sales of mining equipment to customers and was referred to as “Hosting and Equipment Sales”.

Our business strategy is to grow our revenue and profitability by increasing the capacity and efficiency of our self-mining fleet and by enhancing our third-party colocation business. We intend to strategically develop the infrastructure necessary to support business growth and profitability and take advantage of adjacent opportunities that leverage our mining expertise and capabilities.
Chapter 11 Filing
On December 21, 2022, the Company and certain of its affiliates (collectively, the “Debtors”) filed voluntary petitions (the “Chapter 11 Cases”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”) seeking relief under Chapter 11 of the United States Code (the “Bankruptcy Code”). The Chapter 11 Cases are jointly administered under Case No. 22-90341. The Debtors continue to operate their business and manage their properties as “debtors-in-possession” (“DIP”) under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Debtors have filed various “first day” motions with the Bankruptcy Court requesting customary relief, which were generally approved by the Bankruptcy Court on December 22, 2022, that have enabled the Company to operate in the ordinary course while under Chapter 11 protection. For detailed discussion about the Chapter 11 Cases, refer to Note 3 — Chapter 11 Filing and Other Related Matters.
2. 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.
12


Core Scientific, Inc.
(Debtor-in-Possession)
Notes to Unaudited Consolidated Financial Statements
Basis of Presentation
Our consolidated balance sheet as of December 31, 2022, which was derived from our audited consolidated financial statements, and our unaudited interim consolidated financial statements provided herein have been prepared in accordance with the instructions for Form 10-Q. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). However, in our opinion, the disclosures made therein are adequate to make the information presented not misleading. We believe the unaudited interim financial statements furnished reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. 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 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 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. As a result of risks and uncertainties related to (i) the Company’s ability to successfully consummate the Plan and emerge from the Chapter 11 Cases, and (ii) the effects of disruption from the Chapter 11 Cases making it more difficult to maintain business, financing and operational relationships, together with the Company’s recurring losses from operations and accumulated deficit, substantial doubt exists regarding our ability to continue as a going concern. For detailed discussion about the Chapter 11 Cases and the Plan, refer to Note 3 — Chapter 11 Filing and Other Related Matters.
Debtor-in Possession
In general, as debtors-in-possession under the Bankruptcy Code, we are authorized to continue to operate as an ongoing business but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. Pursuant to certain motions and applications intended to limit the disruption of the bankruptcy proceedings on our operations (the First Day Motions (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
13


Core Scientific, Inc.
(Debtor-in-Possession)
Notes to Unaudited Consolidated Financial Statements
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.
Use of Estimates
The preparation of the Company’s unaudited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Some of the more significant estimates include assumptions used to estimate its ability to continue as a going concern, the valuation of goodwill, intangibles and property, plant and equipment, the fair value of convertible debt, and income taxes. These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ from management’s estimates.
Cash, Cash Equivalents and Restricted Cash
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 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 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. Based on this model, the Company considers many factors, including the age of the balance, collection history, and current economic trends. Bad debts are written off after all collection efforts have ceased.
Allowances for credit losses are recorded as a direct reduction from an asset’s amortized cost basis. Credit losses and recoveries are recorded in selling, general and administrative expenses in the consolidated statements of operations. Recoveries of financial assets previously written off are recorded when received. For the 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    
The Company’s performance obligations relate to hosting services, which are described below. The Company has performance obligations associated with commitments in customer hosting contracts for future services that have not yet been recognized in the financial statements. For contracts with original terms that exceed one year (typically ranging from 18 to 48 months), those commitments not yet recognized as of 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 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.
14


Core Scientific, Inc.
(Debtor-in-Possession)
Notes to Unaudited Consolidated Financial Statements
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.
Recently Adopted Accounting Standards
Measurement of Credit Losses
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Measurement of Credit Losses on Financial Instruments, which will require an entity to measure credit losses for certain financial instruments and financial assets, including trade receivables. Under this update, on initial recognition and at each reporting period, an entity will be required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument. The Company adopted this new guidance on January 1, 2023, and the adoption did not have a material impact on the Company’s unaudited consolidated financial statements.
Accounting Standards Not Yet Adopted
There are no other new accounting pronouncements that are expected to have a significant impact on the Company’s unaudited consolidated financial statements.
3. CHAPTER 11 FILING AND OTHER RELATED MATTERS
Chapter 11
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. 22-90341. The Debtors continue to operate their business and manage their properties as “debtors-in-possession” (“DIP”) under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Debtors filed various “first day” motions with the Bankruptcy Court requesting customary relief, which were generally approved by the Bankruptcy Court on December 22, 2022, that have enabled the Company to operate in the ordinary course while under Chapter 11 protection.
Original DIP Credit Agreement and Restructuring Support Agreement
In connection with the Chapter 11 Cases, the Debtors entered into a Senior Secured Super-Priority Debtor-in-Possession Loan and Security Agreement, dated as of December 22, 2022 (the “Original DIP Credit Agreement”), with Wilmington Savings Fund Society, FSB, as administrative agent, and the lenders from time to time party thereto (collectively, the “Original DIP Lenders”). The Original DIP Lenders are also holders or affiliates, partners or investors of holders under the Company’s notes sold pursuant to (i) the Secured Convertible Note Purchase Agreement, dated as of April 19, 2021 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time), by and among Core Scientific, Inc. (as successor of Core Scientific Holding Co.), the guarantors party thereto from time to time, U.S. Bank National Association, as note agent and collateral agent, and the purchasers of the notes issued thereunder (the “Secured Convertible Notes”), and (ii) the Convertible Note Purchase Agreement, dated as of August 20, 2021, (as amended, restated, amended and restated, supplemented or otherwise modified from time to time), by and among Core Scientific, Inc. (as successor of Core Scientific Holding Co.), the guarantors party thereto from time to time, U.S. Bank National Association, as note agent and collateral agent, and the purchasers of the notes issued thereunder (the “Other Convertible Notes,” and together with the Secured Convertible Notes, the “Convertible Notes”).
Also in connection with the filing of the Chapter 11 Cases, the Company entered into a restructuring support agreement (together with all exhibits and schedules thereto, the “Restructuring Support Agreement”) with the ad hoc group of noteholders, 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.
15


Core Scientific, Inc.
(Debtor-in-Possession)
Notes to Unaudited Consolidated Financial Statements
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 B. Riley Commercial Capital, LLC, as administrative agent (the “Administrative Agent”), and the lenders from time to time party thereto (collectively, the “Replacement DIP Lender”). Proceeds of the Replacement DIP Facility were used to, among other things, repay amounts outstanding under the Original DIP Facility, including payment of all fees and expenses required to be paid under the terms of the Original DIP Facility. These funds, along with ongoing cash generated from operations, were anticipated to provide the necessary financing to effectuate the planned restructuring, facilitate the emergence from Chapter 11, and cover the fees and expenses of legal and financial advisors.
The Replacement DIP Facility, among other things, provides for a non-amortizing super-priority senior secured term loan facility in an aggregate principal amount not to exceed $70 million. Under the Replacement DIP Facility, (i) $35 million was made available following Bankruptcy Court approval of the Interim DIP Order and (ii) $35 million was made available following Bankruptcy Court approval of the Final DIP Order. Loans under the Replacement DIP Facility will bear interest at a rate of 10%, which will be payable in kind in arrears on the first day of each calendar month. The Administrative Agent received an upfront payment equal to 3.5% of the aggregate commitments under the Replacement DIP Facility on February 3, 2023, payable in kind, and the Replacement DIP Lender will receive an exit premium equal to 5% of the amount of the loans being repaid, reduced or satisfied, payable in cash. The Replacement DIP Credit Agreement includes representations and warranties, covenants applicable to the Debtors, and events of default. If an event of default under the Replacement DIP Credit Agreement occurs, the Administrative Agent may, among other things, permanently reduce any remaining commitments and declare the outstanding obligations under the Replacement DIP Credit Agreement to be immediately due and payable.
The maturity date of the Replacement DIP Credit Agreement is December 22, 2023, which can be extended, under certain conditions, by an additional three months to March 22, 2024. The Replacement DIP Credit Agreement will also terminate on the date that is the earliest of the following (i) the effective date of the Plan with respect to the Borrowers (the “Plan”) (as defined in the Replacement DIP Credit Agreement) or any other Debtor; (ii) the consummation of any sale or other disposition of all or substantially all of the assets of the Debtors pursuant to section 363 of the Bankruptcy Code; (iii) the date of the acceleration of the Loans and the termination of the Commitments (whether automatically, or upon any Event of Default or as otherwise provided in the Replacement DIP Credit Agreement); and (iv) conversion of the Chapter 11 Cases into cases under chapter 7 of the Bankruptcy Code.
On March 1, 2023, the Bankruptcy Court entered an order approving the Replacement DIP Facility on a final basis and the terms under which the Debtors are authorized to use the cash collateral of the holders of their convertible notes (the “Final DIP Order”).
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
On February 26, 2023, the Bankruptcy Court entered an order (the “NYDIG Order”), whereby the Debtors and NYDIG agree that the Debtors would transfer the miners serving as collateral under the NYDIG Loan back to NYDIG over a period of several months in exchange for the full extinguishment of the NYDIG Loan. The final shipment of miners serving as collateral under the NYDIG loan occurred during the quarter ended March 31, 2023, after which the NYDIG Loan was extinguished in full and the Company recorded a $20.8 million gain on extinguishment of debt in the Company’s Consolidated Statements of Operations.
Priority Power Settlement
On March 20, 2023, the Bankruptcy Court entered an order (the “Priority Power Order”), whereby the Debtors and Priority Power agree that the Debtors would transfer equipment to Priority Power and assume an Energy Management and Consulting Services Agreement and other new agreements. Priority Power was determined to have a single aggregate allowed claim of $20.8 million, 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
16


Core Scientific, Inc.
(Debtor-in-Possession)
Notes to Unaudited Consolidated Financial Statements
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, 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. Expenses (including professional fees), realized gains and losses, and provisions for losses that can be directly associated with the reorganization must be reported separately as Reorganization items, net in the Consolidated Statements of Operations beginning December 21, 2022, the date of filing of the Chapter 11 Cases. Liabilities that may be affected by the Plan must be classified as liabilities subject to compromise at the amounts expected to be allowed by the Bankruptcy Court, even if they may be settled for lesser amounts as a result of the Plan or negotiations with creditors. The amounts currently classified as liabilities subject to compromise may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, determinations of secured status of certain claims, the values of any collateral securing such claims, or other events. Any resulting changes in classification will be reflected in subsequent financial statements. If there is uncertainty about whether a secured claim is undersecured, or will be impaired under the Plan, the entire amount of the claim is included with prepetition claims in liabilities subject to compromise.
As a result of the filing of the Chapter 11 Cases on December 21, 2022, the classification of pre-petition indebtedness is generally subject to compromise pursuant to the Plan. Generally, actions to enforce or otherwise effect payment of pre-bankruptcy filing liabilities are stayed. Although payment of pre-petition claims generally is not permitted, the Bankruptcy Court granted the Debtors authority to pay certain pre-petition claims in designated categories and subject to certain terms and conditions. This relief generally was designed to preserve the value of the Debtors’ businesses and assets. Among other things, the Bankruptcy Court authorized the Debtors to pay certain pre-petition claims relating to employee wages and benefits, taxes and critical vendors. The Debtors are paying and intend to pay undisputed post-petition liabilities in the ordinary course of business. In addition, the Debtors may reject certain pre-petition executory contracts and unexpired leases with respect to their operations with the approval of the Bankruptcy Court. Any damages resulting from the rejection of executory contracts and unexpired leases are treated as general unsecured claims.
Reorganization items, net incurred as a result of the Chapter 11 Cases presented separately in the accompanying Consolidated Statements of Operations were as follows (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2023 2023
Professional fees and other bankruptcy related costs $ 17,665  $ 37,772 
Debtor-in-possession financing costs 705  12,157 
Reorganization items, net $ 18,370  $ 49,929 
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 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. Differences between liabilities estimated and claims filed, or to be filed, will be investigated and resolved in connection with the claims resolution process.
17


Core Scientific, Inc.
(Debtor-in-Possession)
Notes to Unaudited Consolidated Financial Statements
Liabilities subject to compromise consisted of the following (in thousands):
June 30, 2023 December 31, 2022
Accounts payable $ 33,373  $ 20,908 
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 
Financing lease liability 68,536  70,796 
Debt subject to compromise 805,876  844,695 
Accrued interest on liabilities subject to compromise 12,505  12,553 
Leases, debt and accrued interest 900,392  941,912 
Liabilities subject to compromise $ 952,645  $ 1,027,313 
Determination of the value at which liabilities will ultimately be settled cannot be made until the Plan becomes effective and the Company emerges from bankruptcy. The Company will continue to evaluate and adjust the amount and classification of its pre-petition liabilities. Such adjustments may be material. Any additional liabilities that are subject to compromise will be recognized accordingly, and the aggregate amount of Liabilities subject to compromise may change.
4. DIGITAL ASSETS
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, net of receivables*
194,917  242,842 
Mining proceeds from shared hosting 4,610   
Proceeds from sales of digital assets (199,646) (246,249)
Gain from sales of digital assets 1,988  13,971 
Impairment of digital assets (2,183) (204,198)
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 $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.
5. NOTES PAYABLE
The commencement of the Chapter 11 Cases constituted an event of default under certain of the Company's debt agreements. Accordingly, all debt not reclassified as liabilities subject to compromise with original long-term stated maturities was classified as current on the Company’s Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022. However, any efforts to enforce payment obligations under the debt instruments are automatically stayed as a result of the Chapter 11 Cases and the creditors' rights in respect of the debt instruments are subject to the applicable provisions of the Bankruptcy Code. See Note 3 — Chapter 11 Filing and Other Related Matters for further information.
18


Core Scientific, Inc.
(Debtor-in-Possession)
Notes to Unaudited Consolidated Financial Statements
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 
NYDIG loan
11.0% - 15.0%
Various   38,573 
Stockholder loan 10.0% 2023 10,000  10,000 
Trinity loan 11.0% 2024 23,356  23,356 
Bremer loan 5.5% 2026 18,331  18,331 
Blockfi loan
9.7% - 13.1%
2023 53,913  53,913 
Anchor Labs loan 12.5% 2024 25,159  25,159 
Mass Mutual Barings loans 13.0% 2025 63,844  63,844 
B. Riley Bridge Notes 7.0% 2023 41,777  41,777 
Liberty loan 10.6% 2024 6,968  6,968 
Secured Convertible Notes1
10.0% 2025 237,584  237,584 
Other Convertible Notes2
10.0% 2025 322,396  322,396 
Original DIP Credit Agreement3
10.0% 2023   35,547 
Replacement DIP Credit Agreement4
10.0% 2023 26,987   
Other 2,732  2,960 
Notes payable, prior to reclassification to Liabilities subject to compromise 833,619  880,937 
Less: Notes payable in Liabilities subject to compromise5
805,876  844,695 
Unamortized discount and debt issuance costs6
  (36,456)
Fair value adjustment on convertible notes7
  (808,148)
Total notes payable, net $ 27,743  $ 36,242 
1 Secured Convertible Notes includes principal balance at issuance and PIK interest.
2 Other Convertible Notes includes principal balance at issuance and PIK interest.
3 Original DIP Credit Agreement, see Note 3 - Chapter 11 Filing and Other Related Matters for further information.
4 Replacement DIP Credit Agreement, see Note 3 - Chapter 11 Filing and Other Related Matters for further information.
5 In connection with the Company's Chapter 11 Cases, $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 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. At maturity, any Secured Convertible Notes not converted will be owed two times the original face value plus accrued interest; any Other Convertible Notes not converted will be owed the original face value plus accrued interest. In addition, at any time (both before and after the merger with XPDI), the Company has the right to prepay the Convertible Notes at the minimum payoff of two times the outstanding principal amount plus accrued interest. All of the Convertible Notes, totaling $560.0 million as of 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.
19


Core Scientific, Inc.
(Debtor-in-Possession)
Notes to Unaudited Consolidated Financial Statements
6. FAIR VALUE MEASUREMENTS
The Company measures certain assets and liabilities at fair value on a recurring or non-recurring basis in certain circumstances. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:
Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
The Company uses observable market data when determining fair value whenever possible and relies on unobservable inputs only when observable market data is not available.
Level 3 Recurring Fair Value Measurements
Securities are transferred from Level 2 to Level 3 when observable market prices for similar securities are no longer available and unobservable inputs become significant to the fair value measurement. All transfers into and out of Level 3 are assumed to occur at the beginning of the quarterly reporting period in which they occur. As of June 30, 2023 and December 31, 2022, there were no Level 3 financial instruments.
Nonrecurring fair value measurements
The Company’s non-financial assets, including digital assets, property, plant and equipment, and intangible assets are measured at estimated fair value on a nonrecurring basis. These assets are adjusted to fair value only when an impairment is recognized, or the underlying asset is held for sale. Refer to Note 2 — Summary of Significant Accounting Policies, for more information regarding fair value considerations when measuring impairment.
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 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.
7. LEASES
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. In addition, certain leases contain bargain renewal options extending through 2051. The Company recognizes lease expense for these leases on a straight-line basis over the lease term, which includes any bargain renewal options. The Company recognizes rent expense on a straight-line basis over the lease period. In addition to minimum rent, certain leases require payment of real estate taxes, insurance, common area maintenance charges, and other executory costs. Differences between rent expense and rent paid are recognized as adjustments to operating lease right-of-use assets on the 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.
20


Core Scientific, Inc.
(Debtor-in-Possession)
Notes to Unaudited Consolidated Financial Statements
The components of operating and finance leases are presented on the Company’s Consolidated Balance Sheets as follows (in thousands):
Financial statement line item June 30, 2023 December 31, 2022
Assets:
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 $ 32,675  $ 39,803 
Liabilities:
Operating lease liabilities,
   current portion
Operating lease liabilities,
   current portion
$ 423  $ 769 
Operating lease liabilities, net
   of current portion
Operating lease liabilities, net
   of current portion
$ 1,030  $ 720 
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 June 30,
Financial statement line item 2023 2022
Operating lease expense General and administrative expenses $ 224  $ 154 
Short-term lease expense General and administrative expenses 182  287 
Finance lease expense:
Amortization of right-of-use assets Cost of revenue 3,572  8,699 
Interest on lease liabilities Interest expense, net 433  2,248 
Total finance lease expense 4,005  10,947 
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. Our incremental borrowing rate is based on an estimated secured rate with reference to recent borrowings of similar collateral and tenure when available. Determining our incremental borrowing rate, especially if there are insufficient observable borrowings near the time of lease commencement, may require significant judgment.
21


Core Scientific, Inc.
(Debtor-in-Possession)
Notes to Unaudited Consolidated Financial Statements
Information relating to the lease term and discount rate is as follows:
June 30, 2023 June 30, 2022
Weighted Average Remaining Lease Term (Years)
Operating leases 10.7 21.5
Finance leases 1.5 2.5
Weighted Average Discount Rate
Operating leases 6.5  % 6.4  %
Finance leases 12.8  % 11.0  %

The following tables summarizes the Company’s supplemental cash flow information (in thousands):
Three Months Ended June 30,
2023 2022
Lease Payments
Operating lease payments $ 261  $ 101 
Finance lease payments $ 1,168  $ 15,169 
Supplemental Noncash Information
Finance lease right-of-use assets obtained in exchange for lease obligations     $   $  

Six Months Ended June 30,
2023 2022
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
Remaining 2023 $ 1,468  $ 35,935 
2024 1,810  39,108 
2025 1,866  1,862 
2026 1,924  3 
2027 1,985   
Thereafter 12,037   
Total lease payments 21,090  76,908 
Less: imputed interest 6,162  8,372 
Less: Liabilities subject to compromise 13,475  68,536 
Total $ 1,453  $  
22


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 (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.
8. COMMITMENTS AND CONTINGENCIES
Legal Proceedings—The Company is subject to legal proceedings arising in the ordinary course of business. The Company accrues losses for a legal proceeding when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. However, the uncertainties inherent in legal proceedings make it difficult to reasonably estimate the costs and effects of resolving these matters. Accordingly, actual costs incurred may differ materially from amounts accrued and could materially adversely affect the Company’s business, cash flows, results of operations, financial condition and prospects. Unless otherwise indicated, the Company is unable to estimate reasonably possible losses in excess of any amounts accrued.
Effect of Automatic Stay
Subject to certain exceptions under the Bankruptcy Code, the filing of the Company Parties’ Chapter 11 Cases automatically stayed the continuation of most legal proceedings or the filing of other actions against or on behalf of the Debtors or their property to recover on, collect or secure a claim arising prior to the Petition Date or to exercise control over property of the Debtors’ bankruptcy estates, unless and until the Bankruptcy Court modifies or lifts the automatic stay as to any such claim. Notwithstanding the general 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. On September 28, 2022, Celsius filed a motion in the Chapter 11 case alleging that the Company is violating the automatic stay with respect to the Master Services Agreement between Celsius and the Company (the “Celsius Agreement”). Celsius is also using its Chapter 11 proceeding to withhold payment of certain charges billed to Celsius pursuant to the Celsius Agreement. 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 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. filed a demand for arbitration with JAMS alleging the existence and breach of a contract for hosting services. The arbitration demand alleges that the Company has failed to provide contracted for services and to return prepayments allegedly made by Sphere 3D for such services. The Company denies the allegations contained in Sphere 3D’s arbitration demand and intends to vigorously defend its interests. The arbitration demand was stayed by the filing of the Company Parties’ Chapter 11 Cases. Refer to the discussion contained within this footnote under the subtitle “Effect of Automatic Stay.”
In November 2022, McCarthy Building Companies, Inc. filed a complaint against the Company in the United States District Court for the Eastern District of Texas, alleging breach of contract for failing to pay when due certain payments allegedly owing under a contract for construction entered into between the parties. 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
23


Core Scientific, Inc.
(Debtor-in-Possession)
Notes to Unaudited Consolidated Financial Statements
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.
9. 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 
Research and development 368  13,177  810  15,059 
Sales and marketing 539  9,132  1,044  9,590 
General and administrative 11,866  71,807  22,595  93,225 
Total stock-based compensation expense $ 14,280  $ 110,998  $ 26,553  $ 136,795 

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.
10. INCOME TAXES
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. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. Valuation allowances are recorded as appropriate to reduce deferred tax assets to the amount considered likely to be realized.
24


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)
Income tax expense $ 129  $ (48,650) $ 233  $ (6,244)
Effective income tax rate
(1.4) % 5.7  % (2.5) % 0.5  %
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. federal statutory rate of 21.0% due to a change in the valuation allowance 9.3%, state taxes (1.4)%, non-deductible transaction costs (29.2)% and other items (2.2)%. The Company has a full valuation allowance on its net deferred tax asset as the evidence indicates that it is not more likely than not expected to realize such asset.
For the three months ended 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 (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.
11. 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 June 30, Six Months Ended June 30,
2023 2022 2023 2022
Net loss $ (9,260) $ (810,475) $ (9,648) $ (1,276,679)
Weighted average shares outstanding - basic 375,779  324,967  375,875  316,269 
Add: 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)
Potentially 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 June 30, Six Months Ended June 30,
  2023 2022 2023 2022
Stock options
22,025  30,588  22,025  30,588 
Warrants
14,892  18,311  14,892  18,311 
Restricted stock and restricted stock units
39,937  52,064  39,937  52,064 
Convertible Notes 69,988  68,126  69,988  68,126 
SPAC Vesting Shares 1,725  1,725  1,725  1,725 
Total potentially dilutive securities
148,567  170,814  148,567  170,814 
25


Core Scientific, Inc.
(Debtor-in-Possession)
Notes to Unaudited Consolidated Financial Statements
12. SEGMENT REPORTING
The Company’s operating segments are aggregated into reportable segments only if they exhibit similar economic characteristics and have similar business activities.
The Company has two operating segments: “Hosting” which consists primarily of its blockchain infrastructure and third-party hosting business; and “Mining” consisting of digital asset mining for its own account. The blockchain hosting business generates revenue through the sale of consumption-based contracts for its hosting services which are recurring in nature. During 2022, our “Hosting” segment also included sales of mining equipment to customers and was referred to as “Hosting and Equipment Sales”. The Mining segment generates revenue from operating owned computer equipment as part of a pool of users that process transactions conducted on one or more blockchain networks. In exchange for these services, the Company receives digital assets.
The primary financial measures used by the chief operating decision maker (“CODM”) to evaluate performance and allocate resources are revenue and gross profit. The CODM does not evaluate performance or allocate resources based on segment asset or liability information; accordingly, the Company has not presented a measure of assets by segment. The segments’ accounting policies are the same as those described in the summary of significant accounting policies. The Company excludes certain operating expenses and other expense from the allocations to operating segments.
The following table presents revenue and gross profit by reportable segment for the periods presented (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
Hosting Segment
Revenue:
Hosting revenue $ 29,830  $ 38,936  $ 52,459  $ 72,150 
Equipment sales   15,194    41,499 
Total revenue 29,830  54,130  52,459  113,649 
Cost of revenue:
Cost of hosting services 23,107  43,644  39,305  74,875 
Cost of equipment sales   13,541    36,076 
Total cost of revenue 23,107  57,185  39,305  110,951 
Gross profit (loss)
$ 6,723  $ (3,055) $ 13,154  $ 2,698 
Mining Segment
Revenue:
Digital asset mining income $ 97,082  $ 109,842  $ 195,108  $ 242,842 
Total revenue
97,082  109,842  195,108  242,842 
Cost of revenue:
Cost of digital asset mining 66,846  94,070  139,522  162,820 
Total cost of revenue 66,846  94,070  139,522  162,820 
Gross profit
$ 30,236  $ 15,772  $ 55,586  $ 80,022 
Consolidated
Consolidated total revenue
$ 126,912  $ 163,972  $ 247,567  $ 356,491 
Consolidated cost of revenue
$ 89,953  $ 151,255  $ 178,827  $ 273,771 
Consolidated gross profit
$ 36,959  $ 12,717  $ 68,740  $ 82,720 
For the three months ended June 30, 2023 and 2022, cost of revenue included depreciation 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.
26


Core Scientific, Inc.
(Debtor-in-Possession)
Notes to Unaudited Consolidated Financial Statements
Concentrations of Revenue and Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. Credit risk with respect to accounts receivable is concentrated with a small number of customers. 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 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:
Customer
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:
Customer
D 10