UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 26, 2022
(Exact name of registrant as specified in its charter)
| Delaware | 001-40046 | 86-1243837 | ||
| (State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
| 210 Barton Springs Road Suite 300 Austin, Texas |
78704 | |
| (Address of principal executive offices) | (Zip Code) |
(512) 402-5233
(Registrant’s telephone number, including area code)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240-13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class |
Trading symbol(s) |
Name of each exchange on which registered | ||
| Common stock, par value $0.0001 per share | CORZ | The Nasdaq Global Select Market | ||
| Warrants, exercisable for shares of common stock | CORZW | The Nasdaq Global Select Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 5.02 | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
On October 26, 2022, Core Scientific, Inc. (“Core Scientific,” “we,” “our,” “us” or the “Company”) announced the appointment of Neal P. Goldman to its board of directors (the “Board”). As a result of the appointment of Mr. Goldman the size of the Board increased from six members to seven members. As compensation for his services as a director, the Company has agreed to pay Mr. Goldman a monthly fee of $35,000. The Company expects to enter into an indemnification agreement with Mr. Goldman substantially in the form entered into by the Company’s existing directors.
There are no arrangements or understandings between Mr. Goldman and any other persons pursuant to which Mr. Goldman was selected as director. There are no family relationships between Mr. Goldman and the Company’s existing directors and officers. There has been no transaction, nor is there any currently proposed transaction, between Mr. Goldman and the Company that would require disclosure under Item 404(a) of Regulation S-K.
| Item 8.01 | Other Events |
The Company also announced today updates on its business and liquidity position.
As previously disclosed, the Company’s operating performance and liquidity have been severely impacted by the prolonged decrease in the price of bitcoin, the increase in electricity costs, the increase in the global bitcoin network hash rate and the litigation with Celsius Networks LLC and its affiliates (“Celsius”). As a result, management has been actively taking steps to decrease monthly costs, delay construction expenses, reduce and delay capital expenditures and increase hosting revenues. In addition, the Board has decided that the Company will not make payments coming due in late October and early November 2022 with respect to several of its equipment 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, including electing to accelerate the principal amount of such debt, suing the Company for nonpayment or taking action with respect to collateral, where applicable. Any such creditor actions may result in events of default under the Company’s other indebtedness agreements, including its two series of convertible notes due 2025, and the potential exercise of remedies by creditors under such agreements.
In light of the foregoing, the Company is in the process of exploring a number of potential strategic alternatives with respect to the Company’s capital structure, including hiring strategic advisers, raising additional capital or restructuring its existing capital structure. Specifically, the Company has engaged Weil, Gotshal & Manges LLP, as legal advisers, and PJT Partners LP, as financial advisers, to assist the Company in analyzing and evaluating potential strategic alternatives and initiatives to improve liquidity. The Company and its advisers have begun to engage in discussions with certain of its creditors regarding these initiatives. The Company expects these activities will continue and intensify. Among possible alternatives, the Company may explore liability management transactions, including exchanging its existing debt for equity or additional debt, which transactions may be dilutive to holders of the Company’s common stock. These discussions may not result in any agreement on commercially acceptable terms or at all. Furthermore, the Company may seek alternative sources of equity or debt financing, delay capital expenditures or evaluate potential asset sales, and potentially could seek relief under the applicable bankruptcy or insolvency laws. In the event of a bankruptcy proceeding or insolvency, or restructuring of our capital structure, holders of the Company’s common stock could suffer a total loss of their investment.
As of October 26, 2022, the Company held 24 bitcoins and approximately $26.6 million in cash as compared to 1,051 bitcoins and approximately $29.5 million in cash as of September 30, 2022.
On July 20, 2022, the Company entered into an equity purchase agreement with B. Riley Principal Capital II (“B. Riley”), pursuant to which, the Company has the right to sell to B. Riley up to $100,000,000 of shares of the Company’s common stock, subject to certain limitations and conditions set forth in the purchase agreement (the “B. Riley equity line of credit”). As of October 26, 2022, the Company has sold 13,354,892 shares of common stock under B. Riley equity line of credit for net proceeds of approximately $20.7 million. The Company intends to use additional proceeds from the equity line of credit, if any, for working capital purposes, including payment of adviser fees and expenses. The Company’s existing shareholders will be diluted if, and to the extent, the Company elects to further utilize the B. Riley equity line of credit.
It is very difficult to estimate our future liquidity requirements. The Company anticipates that existing cash resources will be depleted by the end of 2022 or sooner. Depending on the Company’s assumptions regarding the timing and ability to achieve more normalized levels of operating revenue, the estimates of amounts of required liquidity vary significantly. Similarly, it is very difficult to predict when or if bitcoin prices will recover or energy costs will abate.
Given the uncertainty regarding the Company’s financial condition, substantial doubt exists about the Company’s ability to continue as a going concern for a reasonable period of time.
In connection with the transactions described above, the Company is filing the updated risk factors attached hereto as Exhibit 99.1 (together with the other risk factors referred to therein, the “Risk Factors”), which is incorporated herein by reference.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 8-K may constitute “forward-looking statements” for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our and our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this Form 8-K may include, for example, statements about our ability to:
| • | meet future liquidity requirements and comply with covenants in our indebtedness; |
| • | effectively respond to general economic and business conditions, including the price of bitcoin; |
| • | maintain the listing on, or to prevent the delisting of our securities from, Nasdaq or another national securities exchange; |
| • | obtain additional capital, whether equity or debt, or exist or remain as a going concern; |
| • | enhance future operating and financial results; |
| • | successfully execute expansion plans; |
| • | attract and retain employees, officers or directors; |
| • | anticipate rapid changes in laws, regulations and technology; |
| • | execute its business strategy, including enhancement of the profitability of services provided; |
| • | realize the benefits expected from the acquisition of Blockcap, including any related synergies; |
| • | anticipate the uncertainties inherent in the development of new business strategies; |
| • | anticipate the impact of the COVID-19 pandemic, including variant strains of COVID-19, and its effect on business and financial conditions; |
| • | manage risks associated with operational changes in response to the COVID-19 pandemic, including the emergence of variant strains of COVID-19; |
| • | increase brand awareness; |
| • | upgrade and maintain effective business controls and information technology systems; |
| • | acquire and protect intellectual property; |
| • | comply with laws and regulations applicable to its business, including tax laws and laws and regulations related to data privacy and the protection of the environment; |
| • | stay abreast of modified or new laws and regulations applicable to its business or withstand the impact of any new laws and regulations related to its industry; |
| • | anticipate the impact of, and response to, new accounting standards; |
| • | anticipate the significance and timing of contractual obligations; |
| • | maintain key strategic relationships with partners and distributors; |
| • | respond to uncertainties associated with product and service development and market acceptance; |
| • | anticipate the impact of changes in U.S. federal income tax laws, including the impact on deferred tax assets; and |
| • | successfully defend litigation, including matters in the Celsius chapter 11 proceedings. |
These forward-looking statements are based on information available as of the date of this Form 8-K, and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
You should read this Form 8-K with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Form 8-K and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and such statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.
| Item 9.01 | Financial Statement and Exhibits |
(d) Exhibits
| Exhibit No. |
Description | |
| 99.1 | Core Scientific, Inc. Additional Risk Factors. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Core Scientific, Inc. | ||||||
| Dated: October 27, 2022 | ||||||
| By: | /s/ Todd M. DuChene | |||||
| Name: | Todd M. DuChene | |||||
| Title: | Executive Vice President, General Counsel, Chief Compliance Officer and Secretary | |||||
Exhibit 99.1
ADDITIONAL RISK FACTORS
Investing in our common stock is highly speculative and involves risks. You should carefully consider the additional risk factors below as well as the risk factors described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 and any updates to those risk factors or new risk factors contained in our subsequent Quarterly Reports on Form 10-Q and any registration statements that we file with the Securities and Exchange Commission. We expect to update these Risk Factors from time to time in the periodic and current reports that we file with the Securities and Exchange Commission after the date of this Form 8-K.
Because there is substantial doubt about our ability to continue as a going concern for a reasonable period of time, an investment in our common stock is highly speculative; holders of our common stock could suffer a total loss of their investment.
The Company anticipates that existing cash resources will be depleted by the end of 2022 or sooner. Although the Company’s board of directors determined in late October 2022 that the Company will not make certain payments with respect to several of its equipment and other financings, including its bridge promissory notes, the additional liquidity created by such measures may be insufficient. In addition, the creditors under such debt facilities may exercise remedies following any applicable grace periods, including electing to accelerate the principal amount of the indebtedness, suing the Company for nonpayment or taking action with respect to collateral where applicable. Any such creditor actions may result in events of default under the Company’s other indebtedness agreements, including its two series of convertible notes due 2025, and the potential exercise of remedies by the creditors under such agreements. As a result, the Company is in the process of exploring a number of potential strategic alternatives with respect to the Company’s corporate or capital structure, including hiring strategic advisers, raising additional capital or restructuring its existing capital structure. The Company has begun to engage in discussions with certain of its creditors regarding these initiatives. The Company expects these activities will continue and intensify. Among possible alternatives, the Company may explore liability management transactions, including exchanging its existing debt for equity or additional debt, which transactions may be dilutive to holders of the Company’s common stock. These discussions may not result in any agreement on commercially acceptable terms or at all. Furthermore, the Company may seek alternative sources of equity or debt financing, delay capital expenditures or evaluate potential asset sales, and potentially could seek relief under the applicable bankruptcy or insolvency laws. In the event of a bankruptcy proceeding or insolvency, or restructuring of our capital structure, holders of the Company’s common stock could suffer a total loss of their investment.
Due to these factors, substantial doubt exists about the Company’s ability to continue as a going concern for a reasonable period of time. An investment in our common stock is highly speculative.
Our substantial level of indebtedness and our current liquidity constraints could adversely affect our financial condition and our ability to service our indebtedness, which could negatively impact your ability to recover your investment in the common stock.
We have a substantial amount of indebtedness, which requires significant interest payments. As of September 30, 2022, we and our subsidiaries had approximately $1 billion aggregate principal amount of indebtedness outstanding. Our substantial level of indebtedness and the current constraints on our liquidity could have important consequences, including the following:
| • | we must use a substantial portion of our cash flow from operations to pay interest and principal on our indebtedness, which reduces or will reduce funds available to us for other purposes such as working capital, capital expenditures, other general corporate purposes and potential acquisitions; |
| • | our ability to refinance such indebtedness or to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes may be impaired; |
| • | our leverage may be greater than that of some of our competitors, which may put us at a competitive disadvantage and reduce our flexibility in responding to current and changing industry and financial market conditions; |
| • | there are significant constraints on our ability to generate liquidity through incurring additional debt; and |
| • | we may be more vulnerable to economic downturn and adverse developments in our business. |
We and our subsidiaries may be able to incur substantial additional indebtedness in the future, subject to the restrictions contained in the agreements governing our indebtedness. To the extent new indebtedness is added to our debt levels, including as a result of satisfying interest payment obligations on certain of our indebtedness with payments-in-kind, the related risks that we now face could intensify. If we are unable to comply with our covenants under our indebtedness, our liquidity may be further adversely affected.
Our ability to meet our expenses, to remain in compliance with our covenants under our debt instruments and to make future principal and interest payments in respect of our debt depends on, among other factors, our operating performance, competitive developments and financial market conditions, all of which are significantly affected by financial, business, economic and other factors. We are not able to control many of these factors. Given current industry and economic conditions, our cash flow may not be sufficient to allow us to pay principal and interest on our debt and meet our other obligations.
For example, in late October 2022, the board of directors of the Company determined that the Company will not make payments with respect to several of its equipment and other financings, including its bridge promissory notes. The creditors under these debt facilities may exercise remedies following any applicable grace periods, including electing to accelerate the principal amount of the indebtedness, suing the Company for nonpayment or taking action with respect to collateral where applicable. In addition, if the holders of certain of these debt instruments were to accelerate their obligations, such acceleration would trigger events of default under our convertible notes. We may seek waivers or other relief from the creditors under certain of our indebtedness agreements with respect to any events of default; however there is no guarantee that any such efforts will be successful. If certain creditors were to accelerate and we were not able to refinance such indebtedness, such acceleration could have an adverse effect on the Company and could ultimately force the Company into bankruptcy or liquidation. In the event of a bankruptcy or liquidation, the claims in respect of indebtedness rank senior to claims of an equity holder, and the holders of common stock could suffer a total loss on their investment.
The agreements governing our indebtedness contain covenants that may limit our ability to take advantage of certain business opportunities advantageous to us.
The agreements governing our indebtedness contain various covenants that limit our ability to, among other things:
| • | pay dividends or make other distributions to our stockholders; |
| • | make restricted payments; |
| • | incur liens; |
| • | engage in transactions with affiliates; |
| • | modify certain material contracts; and |
| • | enter into business combinations. |
These restrictions could limit our ability to obtain future financing, make acquisitions, fund needed capital expenditures, withstand economic downturns in our business or the economy in general, conduct operations or otherwise take advantage of business opportunities that may arise. At the same time, the covenants in the instruments governing our indebtedness may not provide investors with protections against transactions they may deem undesirable.
If our cash flows prove inadequate to service our debt and provide for our other obligations, we may be required to refinance all or a portion of our existing debt or future debt at terms unfavorable to us.
Our ability to make payments on and refinance our debt and other financial obligations and to fund our capital expenditures and acquisitions will depend on our ability to generate substantial operating cash flow. This will depend on our future performance, which will be subject to prevailing economic conditions and to financial, business and other factors beyond our control.
In addition, our debt obligations require us to repay or refinance our obligations when they come due. If our cash flows were to prove inadequate to meet our debt service, rental and other obligations in the future, we may be required to refinance all or a portion of our existing or future debt, on or before maturity, to sell assets or to obtain additional financing. We cannot give assurance that we will be able to refinance any of our indebtedness, sell any such assets, or obtain additional financing on commercially reasonable terms or at all.