TerraVolt Holdings, Inc. 10-Q

Item 1: Financial Statements CalEthos, Inc. For the Three Months Ended March 31, 2023 Index to the Condensed Consolidated Financial Statements Contents Page (s) Condensed Consolidated Balance Sheets as of March 31, 2023 (unaudited) and December 31, 2022 1 Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 2 Unaudited Condensed Consolidated Statements of Stockholders’ Deficit for the three months ended March 31, 2023 and 2022 3 Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 4 Notes to the Unaudited Condensed Consolidated Financial Statements 5 - ii - CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain information set forth in this Quarterly Report on Form 10-Q, including in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein, may address or relate to future events and expectations and, as such, constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Act of 1995. Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our business, including many assumptions regarding future events. Such forward-looking statements include statements regarding, among other things: ● our ability to implement our current stated business plans; ● our ability to retain key members of our management team; ● our future financing or acquisition plans and our ability to consummate any such transactions on favorable terms if at all; ● our ability to close on the real estate property we have optioned and to obtain the necessary regulatory approvals required for the construction and build-out of our planned data center operation; ● our anticipated needs for working capital; and ● our ability to establish a market for our common stock and operate as a public company. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors. Readers should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason. - iii - CalEthos, Inc. Condensed Consolidated Balance Sheets As of March 31, 2023 As of December 31, 2022 (Unaudited) Assets Current assets Cash and cash equivalents $ 1,913,000 $ 2,067,000 Prepaid and other current assets - 4,000 Total current assets 1,913,000 2,071,000 Other assets 84,000 - Total assets $ 1,997,000 $ 2,071,000 Liabilities and stockholders’ deficit Current liabilities Accounts payable and accrued expenses $ 663,000 $ 540,000 Convertible promissory notes, net 4,613,000 4,613,000 Notes payable 61,000 61,000 Total current liabilities 5,337,000 5,214,000 Stockholders’ deficit Series A convertible preferred stock, par value $ 0.001 , 3,600,000 shares authorized; no shares issued and outstanding - - Preferred stock, par value $ 0.001 , 100,000,000 shares authorized; no shares issued and outstanding - - Preferred stock, value - - Common stock par value $ 0.001 : 100,000,000 shares authorized; 24,495,621 and 24,495,621 shares issued and outstanding 24,000 24,000 Additional paid-in capital 11,480,000 11,480,000 Other comprehensive income 7,000 5,000 Stock subscription receivable ( 2,000 ) ( 2,000 ) Accumulated deficit ( 14,849,000 ) ( 14,650,000 ) Total stockholders’ deficit ( 3,340,000 ) ( 3,143,000 ) Total liabilities and stockholders’ deficit $ 1,997,000 $ 2,071,000 See accompanying notes to these unaudited condensed consolidated financial statements. 1 CalEthos, Inc. Unaudited Condensed Consolidated Statements of Operations For the Three Months Ended March 31, 2023 2022 Revenues $ - $ - Operating expenses Professional fees 89,000 3,415,000 General and administrative expenses 8,000 4,000 Total operating expenses 97,000 3,419,000 Loss from operations ( 97,000 ) ( 3,419,000 ) Other income (expenses) Interest income 14,000 - Financing costs ( 116,000 ) ( 507,000 ) Total other expenses ( 102,000 ) ( 507,000 ) Loss before provision for income taxes ( 199,000 ) ( 3,926,000 ) Provision for income taxes - - Net loss $ ( 199,000 ) $ ( 3,926,000 ) Net loss per share, basic and diluted $ ( 0.01 ) $ ( 0.15 ) Weighted average common shares outstanding – basic and diluted 24,495,621 25,995,621 Comprehensive income (loss): Net loss $ ( 199,000 ) $ ( 3,926,000 ) Foreign currency translation adjustment 2,000 ( 3,000 ) Comprehensive loss $ ( 197,000 ) $ ( 3,929,000 ) See accompanying notes to these unaudited condensed consolidated financial statements. 2 CalEthos, Inc. Unaudited Condensed Consolidated Statements of Stockholders’ Deficit For the Three Months Ended March 31, 2023 Shares Amount Shares Amount Shares Amount Capital Receivable Income Deficit Deficit Series A convertible preferred stock Preferred Stock Common Stock Additional Paid-in Stock Subscription Other Comprehensive Accumulated Total Stockholders’ Shares Amount Shares Amount Shares Amount Capital Receivable Income Deficit Deficit Balance, January 1, 2023 - $ - - $ - 24,495,621 $ 24,000 $ 11,480,000 $ ( 2,000 ) $ 5,000 $ ( 14,650,000 ) $ ( 3,143,000 ) Foreign currency translation income - - - - - - - - 2,000 - 2,000 Net loss - - - - - - - - - ( 199,000 ) ( 199,000 ) Balance, March 31, 2023 - $ - - $ - 24,495,621 $ 24,000 $ 11,480,000 $ ( 2,000 ) $ 7,000 $ ( 14,849,000 ) $ ( 3,340,000 ) For the Three Months Ended March 31, 2022 Series A convertible preferred stock Preferred Stock Common Stock Additional Paid-in Stock Subscription Other Comprehensive Accumulated Total Stockholders’ Shares Amount Shares Amount Shares Amount Capital Receivable Loss Deficit Deficit Balance, January 1, 2022 - $ - - $ - 25,995,621 $ 26,000 $ 16,269,000 $ ( 2,000 ) $ ( 2,000 ) $ ( 16,831,000 ) $ ( 540,000 ) Restricted stock grants - - - - - - 3,170,000 - - - 3,170,000 Foreign currency translation loss - - - - - - - - ( 3,000 ) - ( 3,000 ) Net loss - - - - - - - - - ( 3,926,000 ) ( 3,926,000 ) Balance, March 31, 2022 - $ - - $ - 25,995,621 $ 26,000 $ 19,439,000 $ ( 2,000 ) $ ( 5,000 ) $ ( 20,757,000 ) $ ( 1,299,000 ) See accompanying notes to these unaudited condensed consolidated financial statements. 3 CalEthos, Inc. Unaudited Condensed Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2023 2022 Cash Flows From Operating Activities Net loss $ ( 199,000 ) $ ( 3,926,000 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of convertible promissory note discounts - 487,000 Fair value of equity-based compensation - 3,170,000 Changes in operating assets and liabilities Prepaid expenses and other current assets 4,000 ( 14,000 ) Accounts payable and accrued expenses 124,000 49,000 Net Cash Used in Operating Activities ( 71,000 ) ( 234,000 ) Cash Flows From Investing Activities Other assets ( 84,000 ) ( 37,000 ) Net Cash Used in Investing Activities ( 84,000 ) ( 37,000 ) Cash Flows From Financing Activities Repayments of notes payable - ( 25,000 ) Net Cash Used in Financing Activities - ( 25,000 ) Effect of exchange rate changes on cash and cash equivalents 1,000 ( 2,000 ) Net decrease in Cash ( 154,000 ) ( 298,000 ) Cash, Beginning of Period 2,067,000 3,047,000 Cash, End of Period $ 1,913,000 $ 2,749,000 Supplemental disclosure of cash flow information: Cash paid for interest $ - $ - Cash paid for income taxes $ - $ - Non-cash investing and financing activities: Reclassification of other assets to intangible assets $ - $ 38,000 See accompanying notes to these unaudited condensed consolidated financial statements. 4 CalEthos, Inc. Notes to Unaudited Condensed Consolidated Financial Statements March 31, 2023 Note 1 – Organization and Accounting Policies ORGANIZATION AND ACCOUNTING POLICIES CalEthos, Inc. (the “Company” or “we”) was incorporated on March 20, 2002 under the laws of the State of Nevada. The Company is implementing its plan to build a clean-energy-powered, modular data center operation using the latest energy-efficient immersion, liquid and conventional cooling technologies and provide wholesale colocation services to enterprise IT and hyperscale customers. In addition, the Company may acquire assets and all or part of other companies operating in the high-density computing industry or to invest or joint venture with other more-established companies already in the industry that would add value to the Company’s business strategy. In July 2022, due to the declining state of the bitcoin mining industry and the market for its planned products, the Company’s board of directors resolved to discontinue the development in South Korea of the Company’s 5 nanometer ASIC chip and containerized, immersion-cooled bitcoin mining computer system and to focus exclusively on developing the clean-energy-powered data center segment of its business strategy. The Company has suspended operations of its South Korean subsidiary and will decide in the next twelve months whether to use it to develop other products or dissolve it. Korean entity On November 5, 2021, AIQ System Inc. (“AIQ”) was incorporated in Seoul, Republic of Korea. AIQ is authorized to issue 3 million shares of common stock. At the date of incorporation, 10,000 shares were issued to the Company for 100,000,000 Korean Won, or approximately $ 89,000 for 100 % ownership of AIQ. Basis of Presentation The accompanying Condensed Consolidated Financial Statements and notes thereto are unaudited. The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in the Company’s annual financial statements have been condensed or omitted. The March 31, 2023, condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. These interim unaudited condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows for the interim three-months ended March 31, 2023 and 2022. The results for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the full year ending December 31, 2023 or for any future period. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2022, included in the Company’s annual report on Form 10-K filed with the SEC on April 17, 2023. 5 Liquidity and Going Concern The Company incurred net loss of approximately $ 199,000 for the three months ended March 31, 2023 and had an accumulated deficit of approximately $ 14,849,000 as of March 31, 2023. The Company has financed its activities principally through debt and equity financing and shareholder contributions. Management expects to incur additional losses and cash outflows in the foreseeable future in connection with its operating activities. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of these condensed consolidated financial statements. The Company’s condensed consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company is subject to a number of risks similar to those of other similar stage companies, including dependence on key individuals; successful development, marketing and branding of products; uncertainty of product development and generation of revenues; dependence on outside sources of financing; risks associated with research and development; dependence on third-party suppliers and collaborators; protection of intellectual property; and competition with larger, better-capitalized companies. Ultimately, the attainment of profitable operations is dependent on future events, including obtaining adequate financing to fund its operations and generating a level of revenues adequate to support the Company’s cost structure. The Company will need to raise debt or equity financing in the future in order to continue its operations and achieve its growth targets. However, there can be no assurance that such financing will be available in sufficient amounts and on acceptable terms, when and if needed, or at all. The precise amount and timing of the funding needs cannot be determined accurately at this time, and will depend on a number of factors, including market demand for the Company’s products and services, the success of product development efforts, the timing of receipts for customer deposits, the management of working capital, and the continuation of normal payment terms and conditions for purchase of goods and services. The Company believes its cash balances and cash flow from operations will not be sufficient to fund its operations and growth for the next twelve months from the issuance date of these financial statements. If the Company is unable to substantially increase revenues, reduce expenditures, or otherwise generate cash flows from operations, then the Company will likely need to raise additional funding from investors or through other avenues to continue as a going concern. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern COVID-19 The continuing COVID-19 global pandemic has caused significant disruption to the economy and financial markets globally, and the full extent of the potential impacts of COVID-19 are not yet known. Circumstances caused by the COVID-19 pandemic are complex, uncertain and rapidly evolving. The impact of COVID-19 has not been significant to the Company’s results of operations, financial condition, and liquidity and capital resources. Although no material impairment or other effects have been identified to date, there is substantial uncertainty in the nature and degree of its continued effects over time. That uncertainty affects management’s accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions as additional events and information become known. The Company will continue to consider the potential impact of the COVID-19 pandemic on its business operations. Earnings Per Share The Company uses ASC 260, “ Earnings Per Share ” for calculating the basic and diluted earnings (loss) per share. The Company computes basic earnings (loss) per share by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted earnings (loss) per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and warrants and stock awards. For periods with a net loss, basic and diluted loss per share is the same, in that any potential common stock equivalents would have the effect of being anti-dilutive in the computation of net loss per share. Securities that could potentially dilute loss per share in the future were not included in the computation of diluted loss per share for the three months ended March 31, 2023 and 2022 because their inclusion would be anti-dilutive. Common stock equivalents amounted to 7,510,448 and 19,011,450 as of March 31, 2023 and 2022, respectively. 6 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. Note 2 – Other Assets OTHER ASSETS On March 30, 2023, the Company signed an option agreement to acquire 80 acres of commercially zoned land in Imperial County, California (the “Option”) for $ 3,360,000 (“Purchase Price”). The Option expires in September 2024 . The Company paid a non-refundable deposit of $ 84,000 on the signing of the Option, which has been recognized as other assets in the condensed consolidated balance sheet. The Company is required to deposit an additional $ 84,000 into an escrow (“Escrow Funds”) within 10 days after the execution of the agreement. As of the issuance of these interim condensed consolidated financial statements, the escrow had not been set up. Once the escrow is set up, the Company will deposit the $ 84,000 . If the Company does not exercise the Option by September 2024, the Escrow funds will be returned to the Company. The Purchase Price is payable with a cash payment of $ 1,680,000 and the issuance of 840,000 shares of the Company’s common stock (the “Purchase Shares”). At the closing of the purchase (“Closing Date”), if the stock is trading at a value less than $ 1.00 per share, the Company is required to issue a promissory note in the amount of $ 840,000 , payable on the third anniversary of the closing date, with an interest rate equal to the Secured Overnight Financing Rate plus 2.0 % . If the Purchase Shares are issued at the Closing Date, the Company has agreed to repurchase the Shares (the “Put Option”) under specific circumstances. However, the Put Option expires if the Company’s common stock trades above $2.00 per share for 120 consecutive days. If the Company’s common stock trades below $2.00 per for 10 consecutive days, the Holder has the option for the Company to repurchase the Purchase Shares for $2.00 per share . Note 3 – Accounts Payable and Accrued Expenses ACCOUNTS PAYABLE AND ACCRUED EXPENSES The following table summarizes the Company’s accounts payable and accrued expense balances: SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES March 31, December 31, 2023 2022 Accounts payable $ 186,000 $ 186,000 Accrued expenses 35,000 28,000 Accrued interest 442,000 326,000 Accounts payable and accrued expenses $ 663,000 $ 540,000 Accrued Interest The following table presents the details of accrued interest: SCHEDULE OF ACCRUED INTEREST March 31, December 31, 2023 2022 Notes payable $ 19,000 $ 17,000 Convertible promissory notes 423,000 309,000 Balance, end of the year $ 442,000 $ 326,000 7 Note 4 – Notes Payable NOTES PAYABLE The table below summarizes the transactions: SCHEDULE OF NOTES PAYABLE March 31, December 31, 2023 2022 Balance, beginning of the year $ 61,000 $ 111,000 Additions - - Payments - ( 50,000 ) Balance, end of the year $ 61,000 $ 61,000 On July 7, 2020, the Company issued a promissory note in the principal amount of $ 11,000 . The note is noninterest bearing. The principal was due on or before March 11, 2022. During any event of default under the note, the interest rate shall increase to 10 % per annum. Events of default include failure to pay principal or interest, breach of covenants, breach of representations and warranties, borrower’s assignment of substantial part of its property or business, any money judgment, writ, or similar process shall be entered or filed against the borrower or any subsidiary of the borrower or any of its properties or other assets for more than $ 100,000 , bankruptcy, liquidation of business, and cessation of operations. The principal amount outstanding under this note was $ 11,000 as of March 31, 2023. The note principal and interest are past due, therefore in default. Interest accrued as of March 31, 2023 was $ 3,000 . On April 22, 2021, the Company issued a promissory note in the principal amount of $ 50,000 . The interest on the unpaid principal balance accrued at a rate of 10 % per annum. The principal and any accrued interest were to be paid in a single installment on or before April 22, 2022 . If the Company fails to pay the balance of this note in full on the date or fails to make any payments due within 15 days of the due date, any unpaid principal shall accrue interest at the rate of 15 % per annum during the default. Events of default include failure to make any payment including accrued interest when due, voluntary, or involuntary petition of bankruptcy, appointment of a receiver, custodian, trustee, or similar party to take possession of the Company’s assets or property, or assignment made by the Company for the benefit of creditors. The principal amount outstanding under this note was $ 50,000 as of March 31, 2023. The note principal and interest are past due, therefore in default. Interest accrued, including default interest, as of March 31, 2023 was $ 12,000 . Interest expense on notes payable amounted to $ 2,000 and $ 2,000 for the three months ended March 31, 2023 and 2022, respectively. Note 5 – Convertible Promissory Notes CONVERTIBLE PROMISSORY NOTES During the years ended December 2020 and 2019, the Company issued convertible promissory notes for approximately $ 708,000 . As of March 31, 2023, the accrued and unpaid interest was approximately $ 193,000 . In 2021, the Company issued two convertible promissory notes of $ 55,000 and $ 3,850,000 (the “Notes”), respectively. The total aggregate proceeds were $ 3,550,000 due to a $ 355,000 aggregate original issue discount. The Notes are non-interest bearing with the principal due and payable on March 1, 2022 and August 31, 2022 , respectively. Any amount of unpaid principal on the date of maturity will accrue interest at rate of 10 % per annum (default interest). Interest accrued as of March 31, 2023 is $ 230,000 . The principal amount and all accrued interest are convertible into shares of the Company’s common stock, as of the date of issuance, at a rate of $ 1.00 and $ 1.25 per share (“Conversion Rate”), respectively. The Conversion Rate is adjustable if, at any time when any principal amount of the Notes remains unpaid or unconverted, the Company issues or sells any shares of the Company’s common stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith), which is less than the Conversion Rate in effect on the date of such issuance (or deemed issuance) of such shares of common stock (a “Dilutive Issuance”). Immediately upon a Dilutive Issuance, the Conversion Rate will be reduced to the amount of the consideration per share received by the Company in such Dilutive Issuance. Events of default include failure to issue conversion shares, the occurrence of a breach or default under any other agreement, any money judgment, writ, or similar process entered or filed against the Company or any of its property or other assets for more than $ 100,000 , bankruptcy filing, application for the appointment of a custodian, trustee or receiver, insolvency, the Company’s common stock delisted, or dissolution, winding up, or termination of the business of the Company. The note principal and interest are past due, therefore in default. In connection with the issuance of the Notes, the Company issued to the purchasers of the Notes stock purchase warrants (the “Warrants”) to purchase an aggregate of 1,567,500 shares of the Company’s common stock for a purchase price of $ 1.50 to $ 1.87 per share, subject to adjustments. The Warrants were valued using the Black Scholes option pricing model for a total fair value of $ 3,004,000 based on a 3 -year term, volatility of 404.91 % to 405.93 %, a risk-free equivalent yield of 0.27 % to 0.42 %, and stock price ranging from $ 0.10 to $ 1.95 . In accordance with ASC 470 - Debt, the Company has allocated the cash proceeds amounts of the Notes among the Notes, the Warrants, and the conversion feature. The relative fair value of the Warrants issued amounted to approximately $ 1,690,000 and the beneficial conversion amounted to nil, which amounts are being amortized and expensed over the term of the Notes. The Company determined that the conversion feature of the Notes would not be an embedded feature to be bifurcated and accounted for as a derivative in accordance with ASC 815-15 Derivatives and Hedging . 8 Financing cost recognized for the amortization of debt discount was nil and approximately $ 487,000 for the three months ended March 31, 2023 and 2022, respectively. The convertible promissory notes consisted of the following: SCHEDULE OF CONVERTIBLE PROMISSORY NOTES March 31, December 31, 2023 2022 Principal Balance, beginning of year $ 4,613,000 $ 4,613,000 Additions - - Balance, end of period 4,613,000 4,613,000 Discount Balance, beginning of year - 1,526,000 Additions - - Amortization - ( 1,526,000 ) Balance, end of period - - Net carrying amount $ 4,613,000 $ 4,613,000 Potential future shares to be issued on conversion of the notes as of the dates indicated are as follows: SCHEDULE OF POTENTIAL FUTURE SHARES ISSUANCE OF CONVERSION NOTES March 31, December 31, 2023 2022 Principal $ 4,613,000 $ 4,613,000 Interest 423,000 309,000 Total 5,036,000 4,922,000 Conversion price per share 1.00 – 1.25 1.00 – 1.25 Potential future share 4,220,448 4,125,699 The default interest expense for the convertible promissory notes amounted to $ 114,000 and $ 18,000 for the three months ended March 31, 2023 and 2022, respectively. Note 6 – Commitments and contingencies COMMITMENTS AND CONTINGENCIES Litigation From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights. The Company is not currently a party to any material legal proceedings, nor is the Company aware of any pending or threatened litigation that would have a material adverse effect on the Company’s business, operating results, cash flows or financial condition should such litigation be resolved unfavorably. N ote 7 – Equity EQUITY Warrants Expired During the three months ended March 31, 2023, a total of 73,304 warrants expired, leaving a remaining outstanding balance of 1,695,000 warrants as of March 31, 2023, with a weighted average exercise price of $ 1.46 and average remaining life of 0 .75 years. Note 8 – Subsequent Events SUBSEQUENT EVENTS The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued to determine if they must be reported. The management of the Company determined there are no reportable events except for the following. Cancellation of Restricted Stock Awards On April 10, 2023, the Company completed the required paperwork for our transfer agent to cancel 10,000,000 shares of restricted stock that was previously issued to its former Chief Technology Officer. 9