TerraVolt Holdings, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2021. This discussion contains certain forward-looking statements that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those discussed in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth herein and elsewhere in this Quarterly Report and in our other filings with the Securities and Exchange Commission. See “Cautionary Note Regarding Forward Looking Statements.” Plan of Operations As of the filing of this Report, it is the intention of the board of directors for our company to develop and manufacture high-performance computer systems that are scalable, upgradeable, and cost effective for processing cryptocurrencies, tokens and blockchain-based transactions. In November 2021, we established AIQ Systems, a subsidiary company in South Korea, and contracted an engineering design team to start the development of an ASIC chip, which we plan to incorporate into an industrial-grade immersion-cooled bitcoin mining system. Currently, the first phase of ASIC chip development is complete, we are now waiting for the release by one of the qualified semiconductor foundries of a low-voltage design kit that will allow us to move to the next phase of chip development. In parallel to chip development, we have been working with a number of vendors that can supply immersion-cooled systems that will be altered to accommodate the electrical distribution and cooling specifications we require to meet our system performance and energy consumption goals. As we move through the chip and immersion-cooled bitcoin mining system development process, we will continue to refine and finalize the course of action needed to implement our business plan and operations. As a result, management has not fully determined our actual short-term or long-term capital requirements, which management expects to be substantial. It is anticipated that we will incur expenses in the implementation of the business plan described herein, and such expenses will require substantial financing to complete the development of our ASIC chip and immersion-cooled bitcoin mining system and to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development plans, any commercialization efforts or other operations. We may not be able to secure financing on favorable terms, or at all, to meet our future capital needs. In addition, even if we are able to obtain sufficient funding to commence our business operations, we may need to pursue additional financing in the future to make expenditures and/or investments to support the growth of our business and may require additional capital to pursue our business objectives and respond to new competitive pressures, pay extraordinary expenses or fund our growth, including through acquisitions. Additional funds, however, may not be available when we need them on terms that are acceptable to us, or at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to commence our proposed business operations, to continue to grow and support our business and to respond to business challenges could be significantly limited. We currently have only limited capital with which to pay these anticipated expenses. To fund our business plan going forward, we intend to raise funds from investors by issuing common stock, preferred stock and/or debt securities. 12 Results of Operations The table summarizes the results of operations for the three months ended March 31: 2022 2021 Revenues $ - $ - Operating expenses Professional fees 3,415,000 73,000 General and administrative expenses 4,000 2,000 Operating expenses 3,419,000 75,000 Loss from operations (3,419,000 ) (75,000 ) Other expenses Financing cost (507,000 ) (17,000 ) (507,000 ) (17,000 ) Loss before provision for income taxes (3,926,000 ) (92,000 ) Provision for income taxes - - Net loss $ (3,926,000 ) $ (92,000 ) Revenues The Company had no revenues for the three months ended March 31, 2022 and 2021. Expenses Operating expenses for the three months ended March 31, 2022 were $3,419,000, compared to $75,000 for the three months ended March 31, 2021. The increase of $3,344,000 or 4,459% pertained primarily to (1) the accretion of stock-based compensation related to the restricted stock awards issued to consultants totalling to $3,170,000 in relation to their services and (2) accretion of $90,000 for settling a legal case. Liquidity and Capital Resources The Company’s financial position as of March 31, 2022 and December 31, 2021 were as follows: Working Deficit March 31, 2022 December 31, 2021 (Unaudited) Current assets $ 2,770,000 $ 3,054,000 Current liabilities 4,143,000 3,632,000 Working deficit $ (1,373,000 ) $ (578,000 ) At March 31, 2022, the Company had cash of approximately $2,749,000 and prepaid expenses of approximately $21,000. Working deficit increased by approximately $705,000 from December 31, 2021 to March 31, 2022. Cash Flows For the Three Months Ended March 31, 2022 2021 Net cash used in operating activities $ (234,000 ) $ (79,000 ) Net cash used in investing activities (37,000 ) - Net cash provided by (used in) financing activities (25,000 ) 90,000 Effect of exchange rate changes (2,000 ) - Increase (decrease) in Cash during the Period (298,000 ) 11,000 Cash, Beginning of Period 3,047,000 - Cash, End of Period $ 2,749,000 $ 11,000 13 Cash flows used in operating activities Net cash used in operating activities increased by $155,000 or 196% during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 due to (1) payment of consulting fees and other operating expenses, (2) payment for prepaid expenses and (3) payment of accounts payable and accrued expenses. Cash flows used in investing activities Net cash used in investing activities increased by $37,000 or 100% during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 due to payments for design and development work for the Company’s ASIC chip. Cash flows used in financing activities Net cash used in financing activities increased to $25,000 during the three months ended March 31, 2022 due to repayment of notes payable. Net cash provided by investing activities increased to $90,000 during the three months ended March 31, 2021 due to proceeds from convertible promissory notes and notes payable amounting to $50,000 and $40,000, respectively. Critical Accounting Policies The preparation of condensed consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying disclosures of our company. Although these estimates are based on management’s knowledge of current events and actions that our company may undertake in the future, actual results may differ from such estimates. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary from the formation date. All material intercompany transactions and balances have been eliminated in consolidation. Foreign Currency Translation The financial statements of our foreign subsidiary, for which the functional currency is the local currency, are translated into U.S. dollars using the exchange rate at the consolidated balance sheet date for assets and liabilities and a weighted-average exchange rate during the year for revenue, expenses, gains and losses. Translation adjustments are recorded as other comprehensive income (loss) within shareholders’ equity (deficit). Gains or losses from foreign currency transactions are recognized in the consolidated statements of operations. Debt and Debt Discounts In accordance with ASC 470-20, Debt with Conversion and Other Options , the Company first allocates the cash proceeds of the notes between the notes and the warrants on a relative fair value basis, secondly, proceeds are then allocated to the conversion feature. The Company accounts for debt discounts originating in connection with conversion features that remain embedded in the related notes in accordance with ASC 470-20. These costs are classified on the balance sheet as a direct deduction from the debt liability. The Company amortizes these costs over the term of its debt agreements as financing cost in the consolidated statement of operations and comprehensive loss. Stock-Based Compensation We account for our stock-based compensation under ASC 718, “ Compensation – Stock Compensation ” using the fair value based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. 14 We use the fair value method for equity instruments granted to non-employees and use the BSM model for measuring the fair value of options. The stock based fair value compensation is determined as of the date of the grant (measurement date) and is recognized over the vesting periods. Recent Accounting Pronouncements The Company’s management reviewed all recently issued accounting standard updates (“ASU’s”) not yet adopted by the Company and does not believe the future adoptions of any such ASU’s may be expected to cause a material impact on the Company’s condensed consolidated financial condition or the results of its operations. Off-Balance Sheet Arrangements As of March 31, 2022, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K. Item 3. Quantitative and Qualitative Disclosures about Market Risk Not required under Regulation S-K for smaller reporting companies.