TerraVolt Holdings, Inc. 10-K

Item 1. Business. We are in the early stages of implementing our plan for the construction and operation of clean-energy-powered data centers to lease to large enterprise information technology (IT) customers that are creating or addressing the growing demand for AI, Cloud and High-Performance Computing (HPC) digital services. Data centers are highly-specialized and secure buildings that house networking, storage and communications technology infrastructure, including servers, storage devices, switches, routers and fiber optic transmission equipment. They are designed to provide the space, power, cooling and network connectivity necessary to efficiently operate mission-critical IT equipment. Telecommunications carriers and internet providers typically provide network access into a data center through optical fiber connections. The demand for data center infrastructure is being driven by many factors, but most importantly by significant growth in data and increased demand for data processing and storage infrastructure. The market for data center facilities includes established “traditional” enterprises that are web-enabling their applications and business processes, as well as cloud-centric companies with sophisticated technology requirements. There are many types of data centers and service models available in the marketplace. Generally, their classification depends on whether they are owned by one or many organizations, how they fit into the topology of other data centers, what technologies they use for computing and storage, and even their energy efficiency. However, there are four main types of data centers: ● Enterprise Data Centers. These are built, owned and operated by companies and are optimized for their end users. Most often they are housed on the corporate campus. ● Managed Services Data Centers. These data centers are managed by a third party (or a managed services provider) on behalf of a company. The company leases the equipment and infrastructure instead of buying it. ● Wholesale Colocation Data Centers. In colocation (“colo”) data centers, a company rents space within a data center owned by others and located off company premises. The colocation data center hosts the infrastructure: building, cooling, bandwidth, security, etc., while the company provides and manages the components, including servers, storage, and firewalls. ● Cloud Data Centers. In this off-premises form of data center, data and applications are hosted by a cloud services provider such as Amazon Web Services (AWS), Microsoft (Azure), or IBM Cloud or other public cloud provider. We are developing our business model to compete in the wholesale colocation segment of the data center services industry, which is focused on providing data center space to companies that provide the processing, networking and storage of data. With the move to treat data as an asset, the data services market is expected to experience significant growth over the next decade. Industry automation and digital businesses are expanding, and these businesses are expected to require huge amounts of data for their businesses. North America is the most advanced region globally and data center services are in high demand. 1 In planning for our initial data centers, we are in discussions with several large companies that would lease all or part of the data center campus, with the intention of cultivating long-term strategic relationships with them once they become our customers and providing them with solutions for their data center facilities and IT infrastructure requirements. We initially intend to provide clean-energy powered wholesale colocation space with flexibility for customers to scale for future growth. As currently contemplated, our offerings will provide clean energy power, flexibility, reliability and security delivered through a tailored, customer-service-focused platform that will be designed to foster long-term relationships. Our plan is to focus on technology and large cloud computing customers that are expanding their services rapidly in the public and private cloud environments to provide them with solutions that address their current and future needs. We expect that our facilities and construction design will allow us to offer flexibility in rack density and power resiliency, and the opportunity for expansion as our customers’ needs grow. Plan of Operations As of the filing of this Report, we have completed Phase I and entered into Phase II of our data center development plans. In the initial phase of our project, we signed an option agreement on March 30, 2023 to acquire 80 acres of commercially-zoned land in Imperial County, California that is surrounded by nearby geothermal power plants and solar farms. We believe this site is a unique location in that it will provide us with a rare opportunity to acquire commercially-zoned land on which we can combine nearby direct clean geothermal/solar energy with a 24/7 data center operation. We believe 100% clean-energy-powered data centers are an important element in the ability of the U.S. to meet its carbon neutral climate goals and for hyperscale and enterprise IT companies to meet their shareholder and customer commitments to have an ESG-compliant, clean digital footprint before 2030. As a result, we believe the availability of nearby clean energy for our Imperial County site will provide us a significant competitive advantage in the marketplace. In Phase I of our development plan, which we completed in December 2023, we contracted with leading data center advisory firms to complete site, power and connectivity assessments, feasibility studies, engineering plans and project benchmarking. Phase I of our plan included: ● Engaging HDR Engineering, Inc., a global professional services firm specializing in architecture, engineering , environmental and construction services (“HDR Engineering”), to complete a site assessment, project feasibility study, and the initial shovel-ready site development plan for our Imperial County site. ● Engaging ZGlobal, Inc., a power engineering and energy solutions firm (“ZGlobal”), to assess all available power and transmission routes in the immediate area of the site and to develop a plan to access power from close by geothermal and solar producers via Behind-The-Meter, Off-Take and Power Purchase Agreements directly and through agreements with the local grid operator. ● Engaging American Dark Fiber, Inc., a provider of dark fiber connectivity to municipalities, carriers, anchor institutions, content developers, data-center operators, and other sophisticated private network users, to develop a robust fiber-based infrastructure that will provide multiple diverse geographic routes of connectivity to our data center site. ● Engaging Linesight, a construction consultancy services firm (“Linesight”), to provide cost benchmarking of initial design concepts, and to assist with desktop pre-qualification of architect-engineering firms and construction managers Based on the project assessment, feasibility and initial shovel-ready site plan developed by HDR Engineering, and the benchmarking of the project by Linesight against 25 other large data center developments in the U.S. over the last 24 months, we plan to develop our 80-acre parcel in Imperial County, California to support a 300-megawatt (MW) critical IT load data center campus of up to one million square feet of rentable colocation space utilizing baseload geothermal and supplemental solar from local power producers. Our site is industrial zoned, approved for data center use and today has access to up to 500MW of clean energy that can be delivered to it through two separate highly-reliable 230kV high-voltage transmission lines. 2 At the end of December 2023, we started Phase II of our data center development plan. Phase II includes hiring additional staff and consultants to complete environmental, health and safety and cyber security procedures and to develop a set of data center operating procedures to meet customer pre-qualification requirements. During this phase, we will also develop requests for proposals (RFPs) and contract packages for contracting an engineering/design firm and general contractor. In addition, we will ramp up our operating staff to support the infrastructure and buildings design processes and the development of building plans and the permit packages. We will also undertake and complete utility studies, transmission planning, substation design and the next level of geotechnical testing. Over the next few months, we plan to complete our negotiations with the local grid operator to deliver geothermal and solar power to our Imperial County site directly from local producers and to have selected and contracted our architect/engineering firm and general contractor. In addition, we expect that it will take three to six months to complete the necessary customer pre-qualifications and basic infrastructure and building designs required to negotiate a letter of intent with a customer that will lease all or a substantial portion of our planned data center capacity. We are currently in discussions with a number of companies that are interested in leasing wholesale colocation space under a long-term lease and we are entertaining build-to-suit arrangements with a number of potential customers. Based upon the interest we have received from potential customers, we expect that we will have a letter of intent signed by the end of the second quarter or the beginning of the third quarter of 2024 t lease all or a substantial part of the development. We plan to start the design process for our initial data center in the beginning of May 2024 and to have plans and permit packages completed by the end of 2024. If those components of Phase II are completed as planned, we would then start the initial phase of construction in January of 2025. As we move through the development process 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 for our initial project, which management expects to be substantial. The Data Center Industry According to a March 2023 report of Prescient & Strategic Intelligence Pvt. Ltd., a market intelligence and consulting firm, the data center industry is large and on pace to grow rapidly, from $263 billion in 2022 to over $602 billion in 2030 . The industry is not only large, but also very profitable. According to Dgtl Infra LLC, a digital infrastructure advisory firm, the larger data center developer/operator companies average 50% EBITDA on lease revenues. Those that are publicly traded are valued at an average of 25 times EBITDA . A key metric for the industry is the cost per kilowatt-of-power-per-month ($/kW/Mo.), which drives lease revenues. According to the Evercore Digital Infrastructure Sector Update for the third quarter of 2023 (the “Evercore Report”) of Evercore, a leading global independent investment bank, hyperscale lease transactions (transactions involving the lease of 100MWs or more of data center capacity) in the U.S. are being consummated at $130/kW/Mo. or higher vs. $65-75 just three years ago, and some wholesale colocation customers are paying as high as $165/kW/mo. Another key metric in the data center industry is the kilowatt (kW) of power-per-data-center-rack (the density of power a cabinet of servers or data storage systems consumes). According to the Evercore Report, historically, this metric has averaged 8-10kW per rack over the last ten years. However, because of artificial intelligence (AI) and other high performance computing (HPC) requirements, data center rack power densities are climbing upwards towards 100kW per rack. These higher rack densities require liquid-cooled systems rather than the conventional air-cooling methods that have been the standard for decades. Based on an average rack density of 20-40kW per rack, data center build costs over the last two to four years have averaged $10 to $15 million per megawatt. However, today, because of the new power and cooling requirements, build costs for data center developments are projected to be more in the range of $15 to $20 million per megawatt . As a result of these changing dynamics, demand for data centers is intensive for both more facilities and greater power density. In the Evercore Report it was noted that during the third quarter of 2023, every data center under construction was pre-leased two to five years in advance of occupancy. The key constraint for the growth of data centers is the availability of power. However, in the Evercore Report, Evercore, noted that during the third quarter of 2023, on a nationwide basis, there was no availability of contiguous data center capacity above 10MW, and only three blocks of 5 MWs were available. To illustrate the power constraint, today’s data center developments start in increments of 100MW, while mega-campuses of 1GW or more are being planned . To meet the growing demands of the digital world, it is projected by McKinsey & Company that the industry will increase energy consumption from 17GW today to over 35GW by 2030. This projected increase in demand for power has left data center developers and operators searching for electricity in any region with available power, land for construction and sufficient network bandwidth . 3 A second consideration is the environmental impact of power generation and use. Sustainability regulations are projected to become more difficult to meet, and it is expected that using renewable energy credits (RECs) to offset carbon footprints of conventional power sources will no longer qualify. Today, less than 5% of the energy powering data centers is clean. Competition The competition in the data center industry is primarily driven by the increasing presence of small- and large-scale service providers globally, and we will compete with numerous developers, and public and private owners and operators of technology-related real estate and data centers. The key participants in the data center colocation market are Digital Realty, Equinix, CyrusOne, QTS, and, Vantage, Compass, among many others. In addition, we may face competition from other new entrants into the data center market. Many of our current and potential competitors may have significant advantages over us, including greater name recognition, longer operating histories, pre-existing relationships with current or potential customers, significantly greater financial, marketing and other resources, ownership of more data centers and data centers that are more broadly distributed geographically, access to less expensive power, and more robust interconnected hubs in certain geographic markets. All of these potential advantages could allow competitors to respond more quickly to new or changing opportunities. In addition, once we are operational, if our competitors offer space, power and/or interconnection services at rates below current market rates, or below the rates we are then charging our customers, we may lose potential customers or be pressured to reduce our rental rates below those we are then charging or have modelled in order to retain customers when our customers’ leases expire. As a new entrant into the data center marketplace, we will compete against the larger, more established and better capitalized companies that today control the majority of market share. We believe our principal advantages will be our location, which provides us with access to an abundance of reasonably-priced local baseload geothermal and supplemental solar energy to power a 24/7 data center operation, low-latency connectivity to major market hubs, the various power distribution and cooling designs that we will employ to support a wide range of data center racking densities, and our proximity to the Southern California market and the multitudes of companies utilizing high-performance computing that want close-by data center space. As a developer of clean-energy powered data center space, we also compete for the services of key third-party service providers, including engineers and contractors with expertise in the development of data centers. The competition for the services of specialized contractors and other third-party providers required for the development of data centers is intense, increasing the cost of engaging such providers and the risk of delays in completing our development projects. Finally, we face competition from real estate developers in our sector and in other industries for the acquisition of additional properties suitable for data center development. Such competition may reduce the number of properties available for acquisition or development, increase the price of these properties and reduce the demand for data center space in the markets we seek to serve. 4 Intellectual Property Our intellectual property will consist of data center designs and systems for supporting, immersion and liquid cooled data center systems that we will deploy for wholesale colocation services to hyperscale and enterprise IT customers. We intend to rely on a combination of patent, copyright, trademark and trade secret laws in the United States and other jurisdictions, as well as contractual protections, to protect our proprietary service offerings and data center management systems. However, as of the date of this Report, we do not have any patents or registered trademarks. We cannot provide any assurance that our proprietary rights with respect to our data center designs, systems or services will be viable or have value in the future since the validity, enforceability and type of protection of proprietary rights in these industries are uncertain and continuingly evolving. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our design, systems and services or to obtain and use information that we regard as proprietary. Policing unauthorized use of our designs and services is difficult, and while we are unable to determine the extent to which piracy of our designs, systems and services will exist, intellectual piracy can be expected to be a persistent problem. In addition, the laws of some foreign countries do not protect proprietary rights to as great an extent as do the laws of the United States, and effective copyright, trademark, trade secret and patent protection may not be available in those jurisdictions. Our means of protecting our proprietary rights may not be adequate to protect us from the infringement or misappropriation of such rights by others. Further, in recent years, there has been significant litigation in the United States involving patents and other intellectual property rights in the data center design, systems and service offerings and Internet-related data management industries. We can become subject to intellectual property infringement claims as the number of our competitors grows and our services overlap with competitive offerings. These claims, even if not meritorious, could be expensive to defend and could divert management’s attention from operating our business. If we become liable to third parties for infringing their intellectual property rights, we could be required to pay a substantial award of damages and to develop non-infringing design, systems and service offerings, obtain a license or cease providing the services that contain the infringing intellectual property. We may be unable to develop non-infringing data center design, systems and service offerings or obtain a license on commercially reasonable terms, if at all. Employees We currently have four employees, three of whom are our executive officers, and one of whom is our VP of Data Center Development. None of our employees are represented by a collective bargaining agreement, and we have never experienced any work stoppage. We believe we have good relations with our employees. Corporate History and Recent Developments We were incorporated pursuant to the laws of the State of Nevada on March 20, 2002 under the name Integrated Brand Solutions Inc., and on February 6, 2006, we changed our name to Upstream Biosciences Inc. From 2006 to December 2009, our company operated as a biotechnology company, and from 2010 until May 2013, our company had no operating business. On July 11, 2013, we changed our corporate name to RealSource Residential, Inc. Our initial business strategy in 2013 was to engage in various real estate related businesses. However, in 2016 we disposed of all of our real estate and other assets and continued operations as a public “shell” company. On December 20, 2018, we changed our corporate name from RealSource Residential, Inc. to CalEthos, Inc. in connection with the implementation of a plan for building a chain of large-format cannabis retail superstores to serve the needs of the rapidly-growing Southern California market. Over the subsequent two-year period, management assembled a number of acquisitions for retail licenses, store leases and display agreements with numerous cannabis brands as part of executing its business plan. However, once the COVID 19 pandemic lockdowns hit in early 2020 and Federal legalization of cannabis did not materialize after the 2020 elections, funding for cannabis-related businesses became less available and by the end of 2020, we concluded it would be better to pursue other business opportunities for our public company. After months of research, we determined there was a sizable opportunity to develop and manufacture high-performance computer systems for the cryptocurrency mining industry. In March 2021, we created a new business plan to develop a five nanometer ASIC chip and bitcoin mining computer system in South Korea utilizing Samsung technology and foundry capacity. 5 In August 2021, we hired an experienced chief technology officer from the chip industry to lead our product development and in September 2021, we closed a convertible debt financing of $3.5 million to fund the initial phase of product development. In connection with such capital raise, our board of directors determined that we are no longer a shell company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). During the development of our computer chip and system in Korea, we had also developed a plan to build a large-scale, clean-energy powered, containerized, immersion-cooled data center operation in Southern California to support the use of the systems we were developing for our company and for others. However, following the decline of the bitcoin market in early 2022, we decided to abandon our chip and system development efforts and we determined that we could develop a profitable business by offering wholesale data center colocation services to a larger customer base of hyperscale and enterprise IT companies. Item 1A. Risk Factors. We are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.