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, 2022. 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 our plan to continue our focus on building a large-scale, 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. While it was originally part of our strategy to build such a facility for our own utilization with the bitcoin mining systems that we planned to manufacture and use for our own bitcoin mining operations, going forward, our operating plan is to focus only on developing and building clean-energy powered data centers for enterprise IT and hyperscale customers. To implement this plan, we have optioned 80 acres of land for the initial phase of development and are having on-going discussions and negotiations to acquire clean energy from the local power utility and nearby geothermal power plants and solar farms and evaluating various paths to run conduit for accessing close-by fiber networks. We intend to engage a Data Center Architect and Engineering firm to complete a feasibility study and site development plan. Once the plan is developed, we will submit plans to authorities for approval and for permits to start construction. We expect, based on all related factors, that a submittable plan, which will include civil engineering, data center and infrastructure design and construction schedule will take approximately three to six months to complete. Once submitted to the appropriate governmental departments and agencies for approval, it is expected that it could take another three months or more before we receive the required permits for construction, and that the construction could take another six months or more to complete depending on supply chain issues at the time for data center, electrical and communication connectivity components of the data center build. As we move through the development process to build a clean-energy powered data center operation, we will continue to refine and finalize the courses 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 significant expenses in the implementation of our business plan as described herein, and that we will require substantial financing to complete the development and construction of the planned data center operation. A failure to obtain this necessary capital when required on acceptable terms, or at all, could force us to delay, limit, reduce, or terminate our development plans, any commercialization efforts and any 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. In addition, we 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 funding, however, may not be available when required 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 it is required, our ability to commence and grow our proposed business operations, to 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. 10 Results of Operations The table summarizes the results 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 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 ) Revenues We had no revenues for the three months ended March 31, 2023 and 2022. Expenses Our operating expenses were $97,000 and $3,419,000 for the three months ended March 31, 2023 and March 31, 2022, respectively. The decrease of $3,322,000 was due to no stock-based compensation for the three months ended March 31, 2023 because of the forfeiture of the stock-based awards. Stock based compensation expense for the three months ended March 31, 2022 was $3,170,000. Other income (expense) Our other income and expenses is comprised of interest income of approximately $14,000 from the short-term investment of our cash balance, and financing cost of approximately $116,000 for the interest incurred with our notes payable and convertible promissory notes. Liquidity and Capital Resources Our financial position as of March 31, 2023 and December 31, 2022 were as follows: Working Deficit March 31, 2023 December 31, 2022 (Unaudited) Current assets $ 1,913,000 $ 2,071,000 Current liabilities 5,337,000 5,214,000 Working deficit $ (3,424,000 ) $ (3,143,000 ) At March 31, 2023, we had cash of approximately $1,913,000. The working deficit increased by approximately $281,000 from December 31, 2022 to March 31, 2023. The increase in the working capital deficit was due primarily to the decrease in cash of $154,000 and the increase in accounts payable and accrued expenses of approximately $123,000. At March 31, 2023, we had outstanding promissory notes and accrued interest in the aggregate amount of $80,000 and outstanding convertible notes and accrued interest in the aggregate amount of $5,036,000, which were past due and all of which were in default. See Notes 4 and 5 to the accompanying unaudited condensed consolidated financial statements. Cash Flows For the Three Months Ended March 31, 2023 2022 Net cash used in operating activities $ (71,000 ) $ (234,000 ) Net cash used in investing activities (84,000 ) (37,000 ) Net cash used in financing activities - (25,000 ) Effect of exchange rate changes 1,000 (2,000 ) Net decrease in Cash during the Period (154,000 ) (298,000 ) Cash, Beginning of Period 2,067,000 3,047,000 Cash, End of Period $ 1,913,000 $ 2,749,000 11 Cash flows used in operating activities Net cash used in operating activities decreased by $163,000 during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 due to a decrease in cash expense of approximately $155,000. Cash flows used in investing activities Net cash used in investing activities was $84,000 during the three months ended March 31, 2023 compared to $37,000 for the three months ended March 31, 2022. The cash used during the three months ended March 31, 2023 was the deposit for the land purchase option. The cash used during the three months ended March 31, 2022 was the payment for design and development work for our proposed ASIC chip, which was discontinued in the third quarter of 2022. Cash flows used in financing activities Net cash used in financing activities was nil during the three months ended March 31, 2023 as compared to $25,000 for the three months ended March 31, 2022 due to repayment of notes payable. Capital Requirements We estimate that we will require up to $2 million for expenses and operating costs to complete the development of a comprehensive plan for our planned clean-energy powered, containerized, immersion-cooled data center operation. Once the plans are approved for construction by the requisite authorities, the Company estimates the initial phase of our planned data center operation will cost between $60 to $75 million to build. Past the plan development phase, we will need to raise capital in order to build its planned operations and achieve its growth targets, which the company plans to raise from investors by issuing common stock, preferred stock and/or debt securities. However, there can be no assurance that such financing will be available in sufficient amounts and on acceptable terms when it is needed. The precise amount and timing of our funding needs cannot be determined accurately at this time, and will depend on a number of factors, including but not limited to the condition of the capital market, investor interest in our business plan, demand for our services by enterprise customers, the timing of approvals from authorities to start construction, the management of working capital, and reasonable payment terms and conditions for the purchase of the goods and services we will need to build our data center operation. 12 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 our company and our 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 , we first allocated 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. 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 consolidated balance sheet as a direct deduction from the debt liability. We amortizes these costs over the term of its debt agreements as financing cost in the consolidated statement of operations. 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. 13 Recent Accounting Pronouncements Our management reviewed all recently issued accounting standard updates (“ASU’s”) not yet adopted by us and does not believe the future adoptions of any such ASU’s may be expected to cause a material impact on our condensed consolidated financial condition or the results of its operations. Off-Balance Sheet Arrangements As of March 31, 2023, 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.