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 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 Report. Our audited financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles. We are a developer of large-scale infrastructure designed to power the digital economy. Our primary focus is the development of a “master-planned” data center campus in a business-friendly Northwestern U.S. location. Unlike traditional developments, our campus will be designed to be onsite-powered, meaning we intend to provide our tenants with dedicated, reliable energy generated on the property. In May 2025, we formed TerraVolt Infrastructure Inc. (“TerraVolt”), a wholly-owned subsidiary established to meet the demand for sustainable, baseload, powered land and infrastructure solutions for large-scale data center development. TerraVolt’s proposed solution is a Physical Infrastructure-as-a-Service (PIaaS) platform that will integrate onsite behind-the-meter (BTM) power with construction-ready data center building sites that include utilities and fiber connectivity. TerraVolt plans to provide a turnkey solution with power and utilities to hyperscalers, colocation providers, and data center developers seeking to deploy new capacity faster than with traditional power and transmission from a local electric utility company. We are currently focused on a location where onsite power production using natural gas turbines and reciprocating engines is allowed under local and state building codes and where there is direct access to a natural gas pipeline with capacity for delivery within a reasonable timeframe. As of the date of this Report, we have commenced the initial phase of our planned onsite-powered data center campus development, which is focused on completing land-use applications, zone change requests, and supplemental site reports required by the local County Planning and Development Department. We anticipate securing land-use and conditional zone change approvals by year-end 2026. Concurrently, we are finalizing timelines and budgets for all necessary county and state environmental assessments. These studies cover the data center campus, the onsite power plant, electrical distribution systems, and critical utility infrastructure (water, sewer, fiber, and gas). We expect to file these reports before the end of 2026, with the aim of securing all necessary construction approvals by the second quarter of 2027. Additionally, we expect to submit to applicable state agencies all design and environmental documentation for the onsite natural gas power plant by mid-2026. 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 campus. 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. 8 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, 2025 and 2024 The following table summarizes our results of operations for the years ended December 31, 2025. Change 2025 2024 Dollar Percentage Revenues $ - $ - $ - - % Operating Expenses Professional fees 340,000 386,000 (46,000 ) (11.9 ) Equity-based compensation 80,000 369,000 (289,000 ) (78.3 ) General and administrative 52,000 49,000 3,000 6.1 Payroll and related cost 583,000 259,000 324,000 125.1 Total operating expenses (income) $ 1,055,000 $ 1,063,000 $ (8,000 ) (0.8 )% Other (expenses) income Interest income $ 5,000 $ 12,000 $ 7,000 58.3 % Financing costs (186,000 ) (12,000 ) 174,000 1,450.0 Financing costs - related party (676,000 ) (2,398,000 ) (1,722,000 ) 71.8 Abandoned development project cost (4,594,000 ) (344,000 ) 4,250,000 (1,235.5 ) Loss on extinguishment of notes payable – related party - (2,317,000 ) (2,317,000 ) (100.0 ) Loss on extinguishment of convertible promissory notes - (6,468,000 ) (6,468,000 ) (100.0 ) Gain from closure of foreign subsidiary 8,000 - (8,000 ) (100.0 ) Total other expense $ (5,443,000 ) $ (11,527,000 ) $ (6,084,000 ) (52.8 )% Revenues For the years ended December 31, 2025 and 2024, we had no revenues. 9 Operating Expenses Professional fees Our professional fees decreased to $340,000 for the year ended December 31, 2025 from $386,000 for the year ended December 31, 2024. The decrease of approximately $46,000 was attributable to increases in (i) audit fees of $17,000 and geological services of $37,000, offset by decreases in (ii) consulting services $34,000, legal services $61,000 and other professional expenses of $5,000. Equi ty -based compensation Our equity-based compensation for the year ended December 31, 2025 decreased to $80,000 from $369,000 for the year ended December 31, 2024. During the year ended December 31, 2025, we recorded a recapture of approximately $236,000 of equity-based compensation related to the non-performance of outstanding performance-based awards. The time-based equity-based compensation for the year ended December 31, 2025 was $316,000, for a net expense of $80,000. Payroll and related expenses Payroll and related expenses increased to $583,000 for the year ended December 31, 2025 from $259,000 for the year ended December 31, 2024. The increase of $324,000 related to our abandonment of our data center campus project in Imperial County, California in July 2025. As a result of the abandonment, we did not capitalize payroll and related expenses during the second, third and fourth quarters of 2025, we did not capitalize payroll and related expenses. Financing costs Our financing cost for the year ended December 31, 2025 increased to $186,000 compared to $12,000 for the year ended December 31, 2024. Our convertible debentures were outstanding for the twelve months of the year ended December 31, 2025 compared to four months of the year ended December 31, 2024. Financing costs – related party Our financing cost – related party for the year ended December 31, 2025 decreased to $676,000 from $2,398,000 for the year ended December 31, 2024. The decrease of $1,722,000 was due to a decrease in interest and loan discount expense for notes payable to the related party. Loss on extinguishment of notes payable - related par ty During the year ended December 31, 2025, we did not have an extinguishment for our notes payable to related party. Loss on extinguishment of convertible promissory notes During the year ended December 31, 2025, we did not have a loss on extinguished of convertible promissory notes. Gain from closure of foreign subsidiary During the year ended December 31, 2025, we finalized the closure of our Korean subsidiary. Abandonment of development project cost We elected not to renew our purchase option on the existing property in Imperial County, California when it expired in July 2025. Consequently, previously capitalized data center development costs were expensed, and we will cease capitalizing additional data center development expenses until we can secure parcels with appropriate zoning for data center use and greater certainty around the execution of our development plans. At the termination of the data center development, we had approximately $4,581,000 of capitalized development cost, which has been recorded as abandoned project costs. 10 Liquidity and Capital Resources Our working capital deficit as of December 31, 2025 and 2024 was as follows. 2025 2024 Current assets $ 295,000 $ 296,000 Current liabilities (3,095,000 ) (515,000 ) Working capital deficit $ (2,800,000 ) $ (219,000 ) Our working capital deficit increased from a $219,000 deficit as of December 31, 2024 to a deficit of $2,800,000 as of December 31, 2025 for an increase of $2,582,000. The increase in our working capital deficit was due to increases in (i) $1,581,000 of convertible debentures, (ii) $728,000 of notes payable related parties and (iii) $271,000 of accounts payable. Cash Flows, for the years ended December 31, 2025 2024 Net cash used in operating activities $ (750,000 ) $ (859,000 ) Net cash used in investing activities (464,000 ) (1,467,000 ) Net cash provided by financing activity 1,215,000 2,305,000 Effect of exchange rate changes - (1,000 ) Change in cash and cash equivalents during the period 1,000 (22,000 ) Cash and cash equivalents, beginning of period 286,000 308,000 Cash and cash equivalents, end of period $ 287,000 $ 286,000 Cash Flows from Operations Cash used in operating activities decreased to approximately $750,000 for the year ended December 31, 2025 from approximately $859,000 for the year ended December 31, 2024, which was predominantly related to the increase in our payroll and related expenses that was offset in part by a decrease in professional fees. Cash Flows from Investing Our cash used in investing activities decreased to approximately $464,000 for the year ended December 31, 2025 from approximately $1,467,000 for the year ended December 31, 2024. The primary use of cash was for expenditures for the development of our data center campus, which was suspended during the quarter ended June 30, 2025. Cash Flows from Financing Our cash provided by financing activities decreased to $1,215,000 for the year ended December 31, 2025 from approximately $2,305,000 for the year ended December 31, 2024. The cash provided of $1,215,000 was funded by one of our shareholders, who is also a member of our board. Liquidity and Material Cash Requirements Even though we experienced negative cash flows from operations of approximately $750,000 for the year ended December 31, 2025, as a result of the funding from one of our shareholders, we had cash and cash equivalents of approximately $287,000 at December 31, 2025. As of December 31, 2025, we had approximately $1,635,000 of convertible debentures with maturity dates of December 31, 2026 and $1,000,000 of notes payable related party with maturity dates of June 30, 2026. It is anticipated that we will incur expenses in the implementation of our business plan described above, and such expenses will require substantial financing to complete the development of the property for a data center operation and to achieve our goals. We currently have only limited capital with which to pay these anticipated expenses. To repay our short-term indebtedness and to fund our business plan going forward, we intend to raise funds from investors by issuing common stock, preferred stock and/or debt securities. We are currently in discussions with several potential funding sources. However, there can be no assurance we will be able to successfully raise additional funds when required, if at all. 11 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. 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-21 of this Report. Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure. Not Applicable