TerraVolt Holdings, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation. The following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this Annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this Annual Report. Our audited financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles. 5 Plan of Operations It is the intention of our board of directors for our company to pursue the development of the 80 acres of land in Imperial County, California that we recently put under an exclusive option agreement and develop it for a large-scale, 100% geothermal/solar-powered, certifiable clean energy, data center operation that will utilize immersion and liquid cooled and conventional energy efficient data center systems and provide colocation services to enterprise IT customers. To implement our plan, we have optioned the land and hired an experienced data center builder and operator and we are now in the process of acquiring the other principal ingredients needed for our data center operation – clean energy and fiber connectivity. To this end, over the next couple of months, we plan to finish negotiations with local geothermal and solar power producers to deliver clean energy for our operation, and to complete agreements with multiple communication providers for access to their close-by long-haul and dark fiber communication networks for connectivity. We are also in the process of developing partnerships with leading-edge containerized and modular immersion and liquid cooled data center system providers whose systems we will offer for rent to our customers. We believe that, when construction of our data center is complete, the principal differentiators of our data center operations in the marketplace are expected to be that we are powered by 100% certified clean energy and that we provide leading-edge immersion and liquid cooled energy-efficient data center systems that will support the ever-increasing power and cooling needs of high-performance enterprise IT computer systems. 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 the property for a data center operation and to achieve our goals. The failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our 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. Results of Operations for the years ended December 31, 2022 and 2021 The following summary should be read in conjunction with our audited financial statements for the years ended December 31, 2022 and 2021. For the years ended December 31, 2022 2021 Revenues $ - $ - Operating Expenses Professional fees 667,000 1,033,000 Restricted stock grants (4,791,000 ) 5,062,000 Impairment loss 154,000 - General and administrative 52,000 57,000 Total operating (income) expenses (3,918,000 ) 6,152,000 Income (loss) from operations 3,918,000 (6,152,000 ) Financing costs (1,744,000 ) (597,000 ) Interest income 7,000 - Net income (loss) $ (2,181,000 ) $ (6,749,000 ) 6 Revenue For the years ended December 31, 2022 and 2021, we had no revenues. Operating Expenses Professional fees Our professional fees decreased from $1,033,000 in the year ended December 31, 2021 to $667,000 in the year ended December 31, 2022, which represented a decrease of approximately $366,000. The decrease was attributable to a reduction in the use of outside professional services. Restricted stock grant expense (gain ) Our restricted stock grant expense (gain) decreased from an expense of $5,062,000 in the year ended December 31, 2021 to a gain of $(4,791,000) in the year ended December 31, 2022, which represented a decrease of $9,853,000 brought about by the cancellation of the stock grants made in 2021. Impairment loss Our impairment loss increased from nil in the year ended December 31, 2021 to $154,000 in the year ended December 31, 2022, which represented an increase of approximately $154,000 due to the impairment of intangibles and other assets as a result of the suspension of our South Korean subsidiary’s operations. General and administrative expenses Our general and administrative expenses decreased from $57,000 in the year ended December 31, 2021 to $51,000 in the year ended December 31, 2022, which represented a decrease of approximately $6,000. Financing Costs Our financing cost increased from $597,000 in the year ended December 31, 2021 to $1,744,000 in the year ended December 31, 2022, which represented an increase of $1,147,000. Financing costs increased due to the amortization of debt issuance costs. Liquidity and Capital Resources Our financial position as of December 31 in each of the years indicated was as follows: Working Capital As of December 31, 2022 2021 Current assets $ 2,071,000 $ 3,054,000 Current liabilities (5,214,000 ) (3,632,000 ) Working deficit $ (3,143,000 ) $ (578,000 ) Our working capital decreased from a $578,000 deficit as of December 31, 2021 to a deficit of $3,143,000 as of December 31, 2022 for a total change of $2,565,000. The decline in our working capital was due to (i) an increase in a book basis of our convertible promissory notes book basis increasing due to the amortization of debt issuance discounts and (ii) the decrease in our cash and cash equivalents. Cash Flows For the years ended December 31, 2022 2021 Net cash used in operating activities $ (820,000 ) $ (565,000 ) Net cash used in investing activities (105,000 ) (38,000 ) Net cash provided by financing activities (50,000 ) 3,652,000 Effect of exchange rate changes (5,000 ) (2,000 ) Change in cash during the period (980,000 ) 3,047,000 Cash, beginning of period 3,047,000 - Cash, end of period $ 2,067,000 $ 3,047,000 7 Cash flows from operations Cash used in operating activities decreased to approximately $255,000 in 2022 from approximately $382,000 in 2021, which was predominantly related to the reduction in our expenditures for filing fees, legal fees, transfer agent fees and consulting fees paid during the year. Cash flow from investing We made payments of $105,000 in 2022 and $38,000 in 2021 to an engineering and design firm for the design and development work for our planned ASIC chip development. Cash flows from financing We made payments of $50,000 to reduce notes payable in 2022 and 2021. Additionally, in 2021, we received $3,592,000 and $150,000 in proceeds from the issuance of convertible debentures and notes payable, respectively. Going Concern The audited financial statements included in this Report have been prepared on a going concern basis, which implies that our company will continue to realize its assets and discharge its liabilities and commitments in the normal course of business. We are presently in the development stage and, apart from our cash balances, have only limited assets. Our company has not generated revenues in the last two fiscal years, has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. The continuation of our company as a going concern is dependent upon: (i) continued financial support from our shareholders; (ii) the ability of our company to continue raising necessary debt or equity financing to achieve its operating objectives; and (iii) our ability to acquire assets and establish a business or merge or otherwise acquire business opportunities. Our independent auditors included an explanatory paragraph in their report on our financial statements for the year ended December 31, 2022 regarding concerns about our ability to continue as a going concern. In addition, our financial statements contain further note disclosures in this regard. The implementation of our business plan is dependent upon our ability to continue raising sufficient new capital from equity or debt markets in order to fund our on-going operating losses and real estate acquisition activities. The issuance of additional equity securities could result in a significant dilution in the equity interests of our current stockholders. Application of Critical Accounting Policies The preparation of 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 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. 8 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 , we first allocate the cash proceeds of the notes between the notes and any warrants on a relative fair value basis. Proceeds are then allocated to the conversion feature. We account 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. We amortize these costs over the term of our 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. 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 Our management reviewed all recently-issued accounting standard updates (“ASU’s”) not yet adopted by our 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 consolidated financial condition or the results of -our operations. Off-Balance Sheet Arrangements We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial position, revenues and expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide this information. Item 8. Financial Statements and Supplementary Data. Our financial statements and notes thereto and the reports of RBSM LLP, our independent registered public accounting firm, are set forth on pages F-1 through F-18 of this Report. 9 Item 9. Changes In and Disagreements With Accountants On Accounting and Financial Disclosure. Not Applicable