Core Scientific, Inc./tx

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited interim condensed consolidated financial statements reflect the application of certain significant

accounting policies as described below and elsewhere in these notes to the unaudited interim condensed consolidated financial

statements.

Basis of Presentation

The unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting

principles generally accepted in the United States of America (“GAAP”). All intercompany balances and transactions have been

eliminated in consolidation.

The results for the unaudited interim condensed consolidated statements of operations are not necessarily indicative of results to

be expected for the year ending December 31, 2026 or for any future interim period. The unaudited interim condensed consolidated

financial statements do not include all the information and notes required by GAAP for complete financial statements. The

accompanying unaudited interim financial statements should be read in conjunction with the consolidated financial statements and

related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

Use of Estimates

The preparation of the Company’s condensed 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 in property, plant and equipment, the initial measurement of lease

liabilities, stock-based compensation, the fair value of derivative liabilities, 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, including money market funds, with original

maturities of three months or less from the date of acquisition. As of March 31, 2026 and December 31, 2025, substantially all cash

and cash equivalents exceeded Federal Deposit Insurance Corporation insured limits. Restricted cash as of March 31, 2026, consisted

of funds held in escrow in connection with utility and other contractual arrangements.

Digital Assets

The Company’s digital assets have active markets with observable prices and their fair value measurements are considered

Level 1. The following table presents a roll-forward of total digital assets for thethree months ended March 31, 2026 and 2025 (in

thousands):

1 As of March 31, 2026, and December 31, 2025, there was$0.3 million and$0.4 million, respectively, of digital asset receivable included in Customer funding

receivable and other current assets on the Company’s condensed consolidated balance sheets.

The following table presents the Company’s bitcoin holdings(in thousands, except for quantity):

Property, Plant and Equipment, Net

Property, plant, and equipment includes the cost of land, buildings, and improvements for datacenter and support facilities and

the Company’s corporate office space. Property and equipment further consists of computer, mining, network, electrical and other

equipment, including property and equipment under finance leases. Property, plant and equipment, net is stated at cost less

accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the

estimated useful lives of the assets. Leasehold improvements are capitalized at cost and amortized over the shorter of their estimated

useful lives or the lease term. Future obligations related to finance leases are presented as Finance lease liabilities, current portion and

Finance lease liabilities, net of current portion in the Company’s condensed consolidated balance sheets. Depreciation expense,

including amortization of assets held under finance leases, is primarily included in Cost of revenue in the Company’s condensed

consolidated statements of operations.

Property, plant and equipment capitalized costs include the directly identifiable costs incurred to acquire, construct, install, or

otherwise prepare the asset for its intended use and to put it into service. Directly identifiable costs include construction payroll and

benefits and other direct capital project costs.

When management decides to abandon long-lived assets before the end of their previously estimated useful life, the Company

considers whether an impairment of the related asset group has been triggered. If that asset group is no longer recoverable, an

impairment is recognized for any excess of the asset group’s carrying value above its fair value. Thereafter, the estimated useful life,

salvage value, and prospective depreciation of the affected assets are revised to reflect their shortened remaining useful life. The

historical cost of assets, and related accumulated depreciation, are written off at the time that assets are removed from service.

Long-Lived Asset Impairments

The Company tests long-lived asset groups for recoverability whenever events or changes in circumstances have occurred that

may affect recoverability or the estimated useful lives of long-lived assets. Long-lived assets include property, plant and equipment

and intangible assets subject to amortization. A long-lived asset may be impaired when the estimated future undiscounted cash flows

are less than the carrying amount of the asset. If that comparison indicates that the asset’s carrying value may not be recoverable, the

impairment is measured based on the difference between the carrying amount and the estimated fair value of the asset. Long-lived

assets to be disposed of are reported at the lower of the carrying amount or estimated fair value less costs to sell.

Deferred Revenue

Deferred revenue from colocation services relate to prepaid base license fees for colocation lease arrangements which are

accounted for under Accounting Standards Codification (“ASC”) 842, Leases (“ASC Topic 842”). Prepaid base license fees relate to

capital expenditures on colocation facility site development funded by the customer. Deferred revenue from hosted mining services

relates to customer contracts for digital asset hosted mining services which are accounted for under ASC 606, Revenue Recognition

(“ASC Topic 606”). Advanced payments are typically recognized in the following month for hosted mining services and are generally

recognized within 30 months of license order commencement for colocation services.

The following table presents a rollforward of deferred revenue for the periods presented (in thousands):

Revenue Recognition - Colocation Revenue

The Company’s Colocation segment generates revenue by licensing data center space to customers under licensing agreements.

These arrangements contain lease components for the right to use data center space and nonlease components for power delivery,

physical security, and maintenance services. The Company has elected the practical expedient available under ASC Topic 842, to

combine the nonlease revenue components that have the same pattern of transfer as the related operating lease components into a

single combined component. The single combined component is accounted for under ASC Topic 842 as an operating lease if the lease

components are the predominant components and is accounted for under ASC Topic 606 if the nonlease components are the

predominant components. The lease components are the predominant components in the Company’s current licensing arrangements

and the single combined component in these arrangements is accounted for under the operating lease guidance of ASC Topic 842.

The Company has concluded that it is probable that substantially all of the payments will be collected over the term of the

arrangements and recognizes the total combined component license payments under the agreements on a straight-line basis over the

non-cancellable term. The difference between straight-line license revenue and amounts billed or received is recorded as deferred

revenue in the condensed consolidated balance sheets. Certain arrangements include options to extend the term. These extension

options are not reasonably certain to be exercised and are excluded from the lease term and calculation of lease payments at lease

commencement.

Certain licensing arrangements provide for variable payments for power delivery services and maintenance services on

customer assets and reimbursements for lessor costs such as taxes. Payments for physical security and other routine maintenance

services are included in the fixed lease payments. Power delivery services represent a stand ready obligation to make power available

to the customer over the coterminous lease term and have the same pattern of transfer as the related operating lease components.

Customers may request and the Company may provide maintenance services on customer assets during the coterminous lease term.

Customers are charged monthly for fees incurred on these maintenance services delivered and actual power costs incurred at current

utility or fuel cost rates. These payments from customers for power delivery and maintenance services are recognized as variable lease

payments in accordance with the practical expedient elected. Variable lease payments are presented on a gross basis and are included

in Colocation revenue in the condensed consolidated statements of operations.

Revenue From Contracts With Customers - Digital Asset Self-Mining Revenue

The Company recognizes revenue in accordance with ASC Topic 606.

One of the Company’s ongoing major or central operations is to provide hash calculations to third-party pool operators as a

participant in mining pools. The Company considers the third-party mining pool operators to be its customers under ASC Topic 606.

Contract inception and the Company’s enforceable right to consideration begin when the Company commences providing hash

calculation services to the mining pool operators. Each party to the contract has the unilateral right to terminate the contract at any

time without any compensation to the other party for such termination. As such, the duration of a contract is less than a day and may

be continuously renewed multiple times throughout the day. The implied renewal option is not a material right because there are no

upfront or incremental fees in the initial contract and the terms, conditions, and compensation amount for the renewal options are at

the then market rates.

The Company is entitled to non-cash compensation based on the Full-Pay-Per-Share (“FPPS”) model of the mining pool in

which it participates. FPPS pools pay block rewards and transaction fees, net of mining pool fees, and participants are entitled to non-

cash consideration even if a block is not successfully validated by the mining pool operator. The Company is entitled to compensation

once it begins to perform hash calculations for the pool operator in accordance with the operator’s specifications over a daily 24-hour

period beginning 00:00:00 UTC and ending 23:59:59 UTC. The non-cash consideration for providing hash calculations to the pool

operator under the FPPS payout method is comprised of block rewards and transaction fees net of pool operator fees, determined as

follows:

•The non-cash consideration in the form of a block reward is based on the total blocks expected to be generated on the Bitcoin

Network for the daily 24-hour period beginning 00:00:00 UTC and ending 23:59:59 UTC in accordance with the following

formula: the daily hash calculations that the Company provided to the pool operator as a percent of the Bitcoin Network’s

implied hash calculations as determined by the network difficulty, multiplied by the total Bitcoin Network block rewards

expected to be generated for the same daily period.

•The non-cash consideration in the form of transaction fees paid by transaction requestors is based on the share of total actual

fees paid over the daily 24-hour period beginning 00:00:00 UTC and ending 23:59:59 UTC in accordance with the following

formula: total actual transaction fees generated on the Bitcoin Network during the 24-hour period as a percent of total block

rewards the Bitcoin Network actually generated during the same 24-hour period, multiplied by the block rewards the

Company earned for the same 24-hour period noted above.

•The block reward and transaction fees earned by the Company are reduced by mining pool fees charged by the operator for

operating the pool based on a rate schedule per the mining pool contract. The mining pool fee is only incurred to the extent

the Company performs hash calculations and generate revenue in accordance with the pool operator’s payout formula during

the same daily 24-hour period.

The above non-cash consideration is variable, since the amount of block reward earned depends on the amount of hash

calculations the Company performs; the amount of transaction fees the Company is entitled to depends on the actual Bitcoin Network

transaction fees over the same 24-hour period; and the operator fees for the same 24-hour period are variable since they are determined

based on the total block rewards and transaction fees in accordance with the pool operator’s agreement. The Company estimates

variable consideration at contract inception and includes amounts for which it is probable that a significant reversal in the amount of

revenue recognized will not occur when the uncertainty is subsequently resolved. The Company recognizes the non-cash consideration

on the same day that control is transferred of the underlying bitcoin, which is the same day as contract inception.

The Company measures the non-cash consideration using the spot rate for Bitcoin as quoted on Coinbase Global, Inc., the

Company’s principal market. The Company recognizes non-cash consideration on the same day that control of the contracted service

is transferred to the pool operator, which is the same day as the contract inception.

Direct expenses associated with providing hash calculation services to a third-party operated mining pool are recorded as cost

of revenues. Depreciation and amortization expenses on fixed and right-of-use assets, including digital asset mining equipment, used

to provide the services are also recorded as a component of cost of revenues.

Revenue From Contracts With Customers - Digital Asset Hosted Mining Services

The Company generates revenue from contracts with customers from digital asset hosted mining services. The Company

recognizes revenue when the promised service is performed. Revenue excludes any amounts collected on behalf of third parties,

including sales and indirect taxes.

Hosting Services

The Company regularly enters contracts that include hosting services, for which revenue is recognized as services are

performed on a variable basis. The Company performs hosting services that enable customers to run blockchain and other HPC

operations. The Company’s performance obligation related to these services is satisfied over time. The Company recognizes revenue

for services that are performed on a consumption basis, such as the amount of electricity used in a period, based on the customer’s use

of such resources. The Company recognizes variable consumption usage hosting revenue each month as the uncertainty related to the

consideration is resolved, hosting services are provided to the Company’s customers, and its customers utilize the hosting services (the

customer simultaneously receives and consumes the benefits of the Company’s performance). The Company generally bills its

customers in advance based on estimated consumption under the contract. The Company recognizes revenue based on actual

consumption in the period and invoices adjustments in subsequent periods or retains credits toward future consumption. The term

between invoicing and when payment is due typically does not exceed 30 days.

The Company grants performance and market conditioned restricted stock units (“PSUs”) to certain executives as part of its

long-term equity compensation program. Each PSU has service conditions and either market or performance conditions that are

subject to respective graded vesting schedules. Each tranche in the respective graded vesting schedule is a separate award for

accounting purposes and the Company applies the accelerated attribution method to recognize compensation expense. Compensation

expense is recognized over the longer of the explicit service period or the performance measurement period of each tranche.

PSU tranches with market conditions, such as the relative total shareholder return (“RTSR”) metric, are measured on the grant

date using a Monte Carlo simulation model. PSU tranches with performance conditions are measured using the grant date fair value of

the Company’s common stock and are expensed only when the performance condition is deemed probable of achievement. The

Company reassesses the probability of achieving performance conditions at each reporting date and adjusts for actual forfeitures as

they occur.

Recently Adopted Accounting Standards

In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2024-04, Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments

(“ASU 2024-04”), which clarifies the accounting for certain settlements of convertible debt instruments as induced conversions versus

extinguishments. The guidance is effective for fiscal years beginning after December 15, 2025. The Company adopted ASU 2024-04

as of January 1, 2026, and will apply the guidance prospectively. The adoption of ASU 2024-04 did not have a material impact on the

Company’s consolidated financial statements and related disclosures.

Accounting Standards Not Yet Adopted

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense

Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires

disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. In

January 2025, the FASB issued ASU 2025-01 to clarify the effective date of ASU 2024-03 for all public business entities. The

amendments are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within

annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments should be applied

prospectively; retrospective application is also permitted. The Company is currently evaluating the impact these ASUs will have on its

consolidated financial statements and related disclosures.