Core Scientific (CORZ) risk factors, FY2024 10-K

Other

1. 01Summary of Selected Risk Factors Associated with an Investment in Our Securities

Risks Related to our Businesses and Industries

1. 02Currently our HPC business is highly dependent on a single customer
2. 03obligations, could result in cancellation or non-renewal of our business relationship, or harm to our business relationship that could impact our future growth and which could have a material adverse effect on our business, financial condition and results of operations
3. 04We may not be able to maintain our competitive position as the Bitcoin network experiences increases in total network hash rate
4. 05Our HPC hosting operations may be impacted by costs and expenses beyond our control or require capital investment that neither we nor our customers are able to bear, reducing our revenue and profitability
5. 06Moreover, in order to grow our hosting business, we may need additional facilities to increase our capacity for more miners. The costs of constructing, developing, operating and maintaining hosting facilities and growing our hosting operations may not be profitable or possible
6. 07Our business is highly dependent on a small number of digital asset mining equipment suppliers
7. 08Miner manufacturers may continue requiring significant advance deposits before orders are fulfilled and delivered
8. 09Our reliance on third-party mining pool service providers for our earned mining reward payouts may have a negative impact on our operations
9. 10If we do not accurately predict our facility requirements, it could have a material adverse effect on our business, financial condition and results of operations
10. 11If we fail to accurately estimate the factors upon which we base our contract pricing, we may generate less profit than expected or incur losses on those contracts, which could have a material adverse effect on our business, financial condition and results of operations
11. 12We may be vulnerable to physical security breaches, which could disrupt our operations and have a material adverse effect on our business, financial condition and results of operations
12. 13Physical risks and regulatory changes relating to climate change may impact our costs, our access to materials and resources and demand for cryptocurrencies, potentially adversely impacting our business, capital expenditures, results of operations, financial condition and competitive position
13. 14We may be exposed to cybersecurity threats and breaches, which could have a material adverse effect on our business, financial condition and results of operations
14. 15Our digital infrastructure could be breached despite our security procedures
15. 16Our future success depends on our ability to keep pace with rapid technological changes that could make our current or future technologies less competitive or obsolete
16. 17If there are significant changes to the method of validating blockchain transactions, such changes could reduce demand for digital assets like bitcoin
17. 18validation method to a proof-of-stake method, mining would require less energy and may render any company that maintains advantages in the current climate (for example, from lower priced electricity, processing, real estate or hosting) less competitive
18. 19We may not be able to adequately protect our intellectual property rights and other proprietary rights, which could have a material adverse effect on our business, financial condition and results of operations
19. 20We may infringe on third-party intellectual property rights or other proprietary rights, which could have a material adverse effect on our business, financial condition and results of operations
20. 21Our success is dependent on the ability of our management team and our ability to attract, develop, motivate and retain other well-qualified employees, which may be more difficult, costly or time-consuming than expected
21. 22Our business is heavily impacted by social, political, economic and other events and circumstances in the United States and in countries outside of the United States, most particularly Asian and other non-Western countries
22. 23Global conflict could negatively impact the Company’s business, results of operations and financial conditions
23. 24Changes in tariffs or import restrictions could have a material adverse effect on our business, financial condition and results of operations
24. 25In the past, we have identified material weaknesses in our internal control over financial reporting, and additional material weaknesses may occur in the future
25. 26A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis
26. 27We may be required to record long-lived asset impairment charges, which could result in a significant charge to earnings
27. 28Losses relating to our business may be uninsured, or insurance may be limited

Risks Related to the Price of Bitcoin

1. 29Digital assets, and bitcoin in particular, are subject to price volatility. The value of bitcoin is dependent on a number of factors, any of which could have a material adverse effect on our business, financial condition and results of operations
2. 30To the extent that the profit margins of digital asset mining operations are not high, mining participants are more likely to sell their earned bitcoin, which could constrain bitcoin prices
3. 31Mining operators may sell a substantial amount of digital assets into the market, which may exert downward pressure on the price of the applicable digital asset and, in turn, could have a material adverse effect on our business, financial condition and results of operations
4. 32The cash needs of our HPC hosting growth initiatives will limit the amount of digital assets we hold, thus preventing us from recognizing any gain from the appreciation in value of the digital assets we have sold and may sell in the future

Risks Related to our Limited Operating History

1. 33We may not be able to compete effectively against our current and future competitors, which could have a material adverse effect on our business, financial condition and results of operations
2. 34successfully, or if competing successfully requires us to take costly actions in response to the actions of our competitors, our business, operating results and financial condition could be adversely affected
3. 35We have experienced difficulties in establishing relationships with banks, leasing companies, insurance companies and other financial institutions to provide us with customary financial products and services, which could have a material adverse effect on our business, financial condition and results of operations

Risks Related to Regulatory Framework

1. 36Our interactions with a blockchain may expose us to specially designated nationals (“SDN”) or blocked persons or cause us to violate provisions of law that did not contemplate distributed ledger technology
2. 37If we were deemed an “investment company” under the Investment Company Act of 1940, as amended (the “1940 Act”), applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business
3. 38Finally, we believe we are not an investment company under Section 3(b)(1) of the 1940 Act because we are primarily engaged in a non-investment company business
4. 39Any change in the interpretive positions of the SEC or its staff with respect to digital asset mining firms could have a material adverse effect on us
5. 40Recent developments have increased the likelihood that U.S. federal and state legislatures and regulatory agencies will enact laws and regulations to regulate digital assets and digital asset intermediaries, such as digital asset exchanges and custodians
6. 41considered illegal and subject to sanction. Governments may also take regulatory action that may increase the cost and/or subject digital asset mining companies to additional regulation
7. 42Increasing scrutiny and changing expectations from government regulators, investors, lenders, customers, and other market participants with respect to our Environmental, Social and Governance (“ESG”) policies may impose additional costs on us or expose us to additional risks
8. 43We may be subject to risks associated with misleading and/or fraudulent disclosure or use by the creators of digital assets
9. 44Our compliance and risk management methods might not be effective and may result in outcomes that could adversely affect our reputation, operating results, and financial condition

Risks Related to Digital Assets

1. 45Digital assets exchanges and other trading venues are relatively new and, in some cases, unregulated and some have experienced fraud and failure
2. 46Digital asset transactions are irrevocable and, if incorrectly transferred, digital assets may be irretrievable. As a result, any incorrectly executed digital asset transactions could have a material adverse effect on our business, financial condition and results of operations
3. 47We may not have adequate sources of recovery if the bitcoin held by us are lost, stolen or destroyed due to third-party digital asset services, which could have a material adverse effect on our business, financial condition and results of operations
4. 48Any loss or destruction of a private key required to access a digital asset is irreversible. Loss of access to digital assets may be permanent
5. 49The digital assets held by us are not subject to FDIC or SIPC protections
6. 50Digital assets, including bitcoin, face significant scaling obstacles that can lead to high fees or slow transaction settlement times and any mechanisms of increasing the scale of digital asset settlement may significantly alter the competitive dynamics in the market
7. 51Latency in confirming transactions on a network could result in a loss of confidence in the network, which could have a material adverse effect on our business, financial condition and results of operations
8. 52Malicious actors or botnet may obtain control of more than 50% of the processing power on the bitcoin or other network
9. 53Intellectual property rights claims may adversely affect the operation of any or all networks
10. 54A soft or hard fork on a network could have a material adverse effect on our business, financial condition and results of operations

Risks Related to our Indebtedness and Liquidity

1. 55We may incur additional indebtedness to execute our long-term growth strategy, which may reduce our profitability
2. 56Our indebtedness and liabilities could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and results of operations and impair our ability to satisfy our obligations under the notes
3. 57Both the 2029 Convertible Notes and 2031 Convertible Notes might also be converted by noteholders based on certain triggering events based on the trading price of the Company’s common stock or the note, as applicable
4. 58Provisions in our indentures could delay or prevent an otherwise beneficial takeover of us
5. 59The conditional conversion feature of the notes, if triggered, may adversely affect our financial condition and results of operations
6. 60The accounting method for the 2029 Convertible Notes and 2031 Convertible Notes, or any future notes, could adversely affect our reported financial condition and results

Risks Related to Taxes

1. 61Our ability to use some or all of our net operating loss and capital loss carryforwards and other tax attributes to offset future income may be limited
2. 62The IRS and certain states have taken the position that digital assets are “property” for income tax purposes
3. 63In addition, under the Tax Cuts and Jobs Act of 2017, as of January 1, 2018, “like-kind exchange” treatment does not apply to digital assets. This means that gain from the sale or exchange of digital assets cannot be deferred by undertaking an exchange of one type of virtual currency for another
4. 64Changes to, or changes to interpretations of, the U.S. federal, state, local or other jurisdictional tax laws could have a material adverse effect on our business, financial condition and results of operations

Risks Related to Ownership of Our Securities

1. 65An investment in our securities is highly speculative. The trading price of our securities may be volatile, and you could lose all or part of your investment
2. 66Future sales and issuances of our capital stock or rights to purchase capital stock could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to decline
3. 67The market price and trading volume of our securities could decline if securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business
4. 68We do not intend to pay dividends for the foreseeable future
5. 69We no longer qualify as an “emerging growth company” as of December 31, 2024, and, as a result, we will no longer be able to avail ourselves of certain reduced disclosure requirements applicable to emerging growth companies and/or smaller reporting companies

Risks Related to our Restructuring

1. 70Our actual financial results after emergence from bankruptcy may not be comparable to our projections filed with the Bankruptcy Court or otherwise made public in the course of the Chapter 11 Cases
2. 71Upon emergence from the Chapter 11 Cases, the composition of our Board of Directors changed significantly
3. 72The ability to attract and retain key personnel is critical to the success of our business and may be affected by our emergence from bankruptcy