Core Scientific(CORZ) - 2021 Q4 - Annual Report

PART I Business Core Scientific operates as a large-scale digital asset mining and blockchain infrastructure provider in North America, offering self-mining and third-party hosting services with significant power capacity - Core Scientific is one of North America's largest blockchain infrastructure and digital asset mining companies, with approximately 497MW of power as of January 31, 2022[26] - The company operates two main business segments: mining for its own account and hosting for third-party customers, with self-mining significantly expanded following the Blockcap acquisition[27][29] - The company has six operational data centers in North Carolina, Georgia, North Dakota, and Kentucky, with new facilities under development in Texas (300MW) and Oklahoma (500MW)[26][42] - Core Scientific is highly dependent on a small number of suppliers, primarily Bitmain, for its specialized ASIC mining hardware, with agreements to procure over 135,000 miners for self-mining and over 85,000 for hosting customers[47][48][43] - As of September 30, 2021, over 50% of the power used in operations was generated from non-carbon emitting sources, with the company purchasing Renewable Energy Credits (RECs) to maintain a net carbon-neutral status[50][52][53] Risk Factors The company faces substantial risks including supplier dependency, capital intensity, power costs, digital asset price volatility, regulatory changes, and identified material weaknesses in internal financial controls - Business is highly dependent on a small number of digital asset mining equipment suppliers, such as Bitmain, and may face shortages or high prices[94] - Operations are capital intensive, requiring substantial investment in constructing facilities and acquiring new miners, with failure to obtain necessary capital potentially limiting expansion[95][98] - The business is subject to risks from its need for significant, low-cost electric power, where government restrictions or power outages could materially harm operations[125][128] - The price of digital assets is extremely volatile, directly impacting the profitability of mining operations and the value of assets held by the company[277] - Legacy Core and its predecessor XPDI both identified material weaknesses in their internal controls over financial reporting, which could adversely affect the ability to report financial results accurately and timely[302][325] - Regulatory changes regarding digital assets in the U.S. or other countries, such as China's ban on mining, could significantly impact the business[110][196] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[354] Properties The company's corporate headquarters is in Austin, Texas, operating facilities with 497MW of power as of January 31, 2022, and developing new data centers in Texas and Oklahoma - Corporate headquarters is located at 210 Barton Springs Rd., Austin, Texas 78704[355] - As of January 31, 2022, the company had approximately 497MW of operating electric power across its facilities in North Carolina, Georgia, North Dakota, and Kentucky[355] - The company is developing a 300MW data center in Denton, Texas, and a 500MW data center in Muskogee, Oklahoma[355] Legal Proceedings The company states that it is not currently a party to any legal proceedings that would have a material adverse effect on its business, financial condition, or operations - The company is not presently party to any legal proceedings that would be expected to have a material adverse effect on the business[356] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[357] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock and public warrants began trading on Nasdaq on January 20, 2022, with approximately 317.3 million shares outstanding held by 498 record holders, and no intention to pay future dividends - Common Stock trades on Nasdaq under the symbol 'CORZ' and public warrants trade under 'CORZW' since January 20, 2022[359] - As of the Closing Date, the company had 317,279,900 shares of Common Stock outstanding held by approximately 498 holders[360] - The company has not paid dividends to date and does not intend to pay cash dividends in the foreseeable future[363] Selected Financial Data This section is not applicable as the company is a smaller reporting company - Not applicable[367] Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the financial condition and results of operations for the predecessor XPDI, highlighting key performance drivers for the post-merger entity, including digital asset prices, and critical accounting policies - The company's performance is heavily influenced by the market price of Bitcoin, network difficulty, and the company's own hash rate[388][390][391] Impact of Key Drivers on Revenue | Driver | Increase in Driver | Decrease in Driver | | :--- | :--- | :--- | | Market Price of Bitcoin | Favorable | Unfavorable | | Difficulty | Unfavorable | Favorable | | Core Scientific Hash Rate | Favorable | Unfavorable | - The business operates in two segments: 'Equipment Sales and Hosting' and 'Mining', with mining generating revenue from digital currency rewards and hosting earning fees from infrastructure provision[376] - For the year ended December 31, 2021, the predecessor company XPDI had a net loss of approximately $32.5 million, which included a $26.2 million loss from the change in fair value of derivative warrant liabilities[418] - Critical accounting policies for the post-merger company include revenue recognition for hosting and equipment sales, accounting for digital currency assets as indefinite-lived intangible assets, and testing goodwill for impairment[444][455][452] Quantitative and Qualitative Disclosures About Market Risk This section is not required as the company qualifies as a smaller reporting company - The company is a smaller reporting company and is not required to provide the information under this item[460] Financial Statements and Supplementary Data This section refers to the full financial statements and supplementary data, which are included from page F-1 to F-22 of the report - Refers to the financial statements from pages F-1 through F-22[461] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Information for this item is incorporated by reference from a Current Report on Form 8-K filed on January 24, 2022 - Information is incorporated by reference from the Form 8-K filed on January 24, 2022[462] Controls and Procedures As of December 31, 2021, management concluded that the predecessor company XPDI's disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting, leading to restatement of prior financial statements - XPDI's disclosure controls and procedures were concluded to be not effective as of December 31, 2021[464] - A material weakness was identified in internal control over financial reporting concerning the interpretation and accounting for complex equity instruments (Class A common stock and warrants)[464] - This material weakness led to the restatement of XPDI's balance sheet as of February 12, 2021, and interim financial statements for the quarters ended March 31, June 30, and September 30, 2021[464] Other Information The company reports no other information for this item - None[468] PART III Items 10 through 14, covering Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, Certain Relationships, and Principal Accountant Fees, are incorporated by reference from the company's definitive Proxy Statement for the 2022 Annual Meeting of Stockholders, which will be filed with the SEC within 120 days of the fiscal year-end Directors, Executive Officers, Compensation, Security Ownership, and Accountant Fees The information required for Items 10, 11, 12, 13, and 14 will be included in the company's definitive Proxy Statement for the 2022 Annual Meeting of Stockholders and is incorporated herein by reference - Information regarding directors, executive officers, corporate governance, executive compensation, security ownership, related transactions, and principal accountant fees is incorporated by reference from the forthcoming 2022 Proxy Statement[472][473][474] PART IV Exhibits, Financial Statement Schedules This section lists all exhibits filed as part of the Annual Report on Form 10-K, including the Merger Agreement, corporate governance documents, and material contracts - This section provides an index of all exhibits filed with the report, such as merger agreements, bylaws, warrant agreements, and material power and service contracts[479][480] Form 10-K Summary This section is not applicable - Not applicable[489] Financial Statements This section presents the audited consolidated financial statements for the predecessor XPDI, reflecting its financial position and operations as a SPAC prior to the business combination Report of Independent Registered Public Accounting Firm Marcum LLP issued an unqualified opinion on the consolidated financial statements of Core Scientific, Inc. (f/k/a Power & Digital Infrastructure Acquisition Corp.) for the fiscal years ended December 31, 2021 and 2020, noting no audit of internal control over financial reporting was performed - The auditor, Marcum LLP, expressed an unqualified opinion that the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020[501] - The Company was not required to have, nor was the auditor engaged to perform, an audit of its internal control over financial reporting[503] Consolidated Financial Statements The consolidated financial statements for XPDI show its financial position as a SPAC before the merger, with total assets of $346.4 million and a net loss of $32.5 million for 2021 XPDI Consolidated Balance Sheet Highlights (as of Dec 31, 2021) | Metric | Amount (USD) | | :--- | :--- | | Assets | | | Cash | $970,876 | | Investments held in Trust Account | $345,034,536 | | Total Assets | $346,368,517 | | Liabilities & Equity | | | Derivative warrant liabilities | $49,291,420 | | Deferred underwriting commissions | $12,075,000 | | Total Liabilities | $65,578,469 | | Class A common stock subject to possible redemption | $345,000,000 | | Total stockholders' deficit | $(64,209,952) | XPDI Consolidated Statement of Operations (For the Year Ended Dec 31, 2021) | Metric | Amount (USD) | | :--- | :--- | | Loss from operations | $(5,213,592) | | Change in fair value of derivative warrant liabilities | $(26,263,920) | | Net loss | $(32,498,553) | | Basic and diluted net loss per share, Class A | $(0.83) | Notes to Consolidated Financial Statements The notes detail the basis of presentation for the pre-merger SPAC, XPDI, including its IPO, derivative warrant liabilities, temporary equity classification of Class A common stock, and the subsequent business combination - The financial statements are for Power & Digital Infrastructure Acquisition Corp. (XPDI), a blank check company, prior to its business combination with Core Scientific[518] - The company's public and private warrants are classified as derivative liabilities and re-measured to fair value at each reporting period, with changes recognized in the statement of operations[553][554] - All 34,500,000 shares of Class A common stock were subject to possible redemption and classified as temporary equity[556][589] - The business combination with Legacy Core was approved on January 19, 2022, and is treated as a subsequent event in these financial statements[531]