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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________
FORM
8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
___________________________________________________________________
Date of Report (Date of earliest event
reported): September
6, 2022
Imperalis Holding Corp.
(Exact name of registrant as specified in its charter)
Nevada |
|
000-52140 |
|
20-5648820 |
(State or other jurisdiction of
incorporation or organization) |
|
(Commission File Number) |
|
(I.R.S. Employer Identification
No.) |
1421 McCarthy Blvd.,
Milpitas,
CA
95035
(Address of principal executive offices) (Zip Code)
(510)
657-2635
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant
under any of the following provisions:
¨ Written communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
¨ Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
¨ Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
None.
Indicate by check mark whether the registrant is an emerging growth
company as defined in Rule 405 of the Securities Act of 1933
(§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange
Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company x
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
Table of Contents
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|
Page |
|
Note About Forward-Looking
Statements |
|
Item 1.01. |
Entry into a Material Definitive
Agreement |
1 |
Item 2.01. |
Completion of Acquisition or
Disposition of Assets |
1 |
Item 3.02. |
Unregistered Sales of Equity
Securities |
43 |
Item 4.01. |
Changes in Registrant’s Certifying
Accountant |
44 |
Item 5.02. |
Departure of Directors or Certain
Officers; Election of Directors; Appointment of Certain Officers;
Compensatory Arrangements of Certain Officers |
44 |
Item 5.03. |
Amendments to Articles of
Incorporation or Bylaws; Change in Fiscal Year |
44 |
Item 5.06. |
Change in Shell Company Status |
45 |
Item 7.01. |
Regulation FD Disclosure
|
45 |
Item 9.01. |
Financial Statements and
Exhibits |
45 |
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Current Report on Form 8-K (the “Current Report”)
contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended (the “Securities
Act”), and Section 21E of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). These statements relate to
future events or our future financial performance. We have
attempted to identify forward-looking statements by terminology
including “anticipates,” “believes,” “expects,” “can,” “continue,”
“could,” “estimates,” “expects,” “intends,” “may,” “plans,”
“potential,” “predict,” “should” or “will” or the negative of these
terms or other comparable terminology. These statements are only
predictions; uncertainties and other factors may cause our actual
results, levels of activity, performance or achievements to be
materially different from any future results, levels or activity,
performance or achievements expressed or implied by these
forward-looking statements. Although we believe that the
expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity,
performance or achievements. Our expectations are as of the date
this Current Report is filed, and we do not intend to update any of
the forward-looking statements after the date this Current Report
is filed to confirm these statements to actual results, unless
required by law.
This Current Report also contains estimates and other statistical
data made by independent parties and by us relating to market size
and growth and other industry data. This data involves a number of
assumptions and limitations, and you are cautioned not to give
undue weight to such estimates. We have not independently verified
the statistical and other industry data generated by independent
parties and contained in this Current Report and, accordingly, we
cannot guarantee their accuracy or completeness, though we do
generally believe the data to be reliable. In addition,
projections, assumptions and estimates of our future performance
and the future performance of the industries in which we operate
are necessarily subject to a high degree of uncertainty and risk
due to a variety of factors, including those described in “Risk
Factors” and elsewhere in this Current Report. These and other
factors could cause results to differ materially from those
expressed in the estimates made by the independent parties and by
us.
|
ITEM 1.01 |
ENTRY INTO A MATERIAL DEFINITIVE
AGREEMENT |
Securities Purchase Agreement
As
previously reported on a Current Report on Form 8-K filed by
Imperalis Holding Corp., a
Nevada corporation (“IMHC”) on March 21, 2022,
on March 20, 2022, BitNile
Holdings, Inc., a Delaware corporation (“BitNile” or the
“Parent”) and IMHC entered into a Securities Purchase
Agreement (the “Agreement”) with TurnOnGreen, Inc., a Nevada
corporation (“TOGI”), a wholly-owned subsidiary of the
Parent. Pursuant to the Agreement, at the Closing (hereinafter
defined), which occurred on September 6, 2022 (the “Closing
Date”), the Parent (i) delivered to IMHC all of the outstanding
shares of common stock of TOGI held by the Parent, and (ii)
eliminated all of the intercompany accounts between the Parent and
TOGI evidencing historical equity investments made by the Parent to
TOGI, in the approximate amount of $36,000,000, all in consideration for the issuance
by IMHC to the Parent (the “Acquisition”) of an aggregate of
25,000 newly designated shares of Series A Preferred Stock (the
“Series A Preferred Stock”), with each such share having a
stated value of $1,000. The Series A Preferred Stock has an
aggregate liquidation preference of $25 million, is convertible
into shares of IMHC’s common stock, par value $0.001 per share (the
“Common Stock”) at the Parent’s option, is redeemable by the
Parent, and entitles the Parent to vote with the Common Stock on an
as-converted basis. On September 5, 2022, BitNile, IMHC and TOGI
entered into an amendment to the Agreement (the
“Amendment”), pursuant to which IMHC agreed to (i) use
commercially reasonable efforts to effectuate a distribution by the
Parent of approximately 140 million shares of Common Stock
beneficially owned by the Parent (the “Distribution”),
including the filing of a registration statement (the
“Distribution Registration Statement”) with the Securities
and Exchange Commission (the “SEC”), (ii) to issue to Parent
warrants to purchase an equivalent number of shares of Common Stock
to be issued in the Distribution (the “Warrants”), and (iii)
to register the Warrants and the shares of Common Stock issuable
upon exercise of the Warrants on the Distribution Registration
Statement. IMHC and BitNile will mutually agree to the terms and
conditions of the Warrants and the Distribution Registration
Statement after the Closing Date.
Immediately following the completion of the Acquisition, TOGI
became a wholly-owned subsidiary of IMHC. IMHC’s outstanding shares of
Common Stock and outstanding warrants and options to purchase
Common Stock remain outstanding and unaffected upon completion of
the Acquisition. The Common Stock remains registered under Section
12(g) of the Exchange Act immediately following the
Acquisition.
The Agreement contains customary representations and warranties and
pre- and post-closing covenants of each party and customary closing
conditions. Breaches of the representations and warranties
were subject to customary indemnification provisions, subject to
specified aggregate limits of liability.
The issuance of shares of IMHC’s Series A Preferred Stock, and the
underlying shares of Common Stock issuable upon conversion thereof,
to the Parent in connection with the Agreement was not registered
under the Securities Act, in reliance upon the exemption from
registration provided by Section 4(a)(2) of the Securities Act,
which exempts transactions by an issuer not involving any public
offering, and Regulation D promulgated by the SEC thereunder.
These securities may not be offered or sold in the United
States absent registration or an applicable exemption from the
registration requirement.
The Agreement and Amendment are filed as Exhibit 2.1 and
Exhibit 2.2,
respectively, to this Current Report. All descriptions of the Agreement and
Amendment herein are qualified in their entirety by reference to
the text thereof filed as exhibits hereto, which are incorporated
herein by reference.
|
ITEM 2.01 |
COMPLETION OF ACQUISITION OR
DISPOSITION OF ASSETS |
The information contained in Item 1.01 above is incorporated herein
by reference.
Overview
Imperalis Holding Corp., a Nevada corporation, was formed on April
5, 2005, under the name Coloured (US) Inc. On March 25, 2011, it
changed its name to Imperalis Holding Corp.
On December 28, 2017, IMHC acquired 100% of the issued and
outstanding common stock of The Crypto Currency Mining Company,
Inc. (“Crypto”), in exchange for our issuance of 56,996,444
shares of Common Stock. Following IMHC’s acquisition of Crypto,
IMHC focused on the mining of cryptocurrencies as its primary
business.
On February 21, 2018, IMHC acquired all of the issued and
outstanding capital stock of Dollar Shots Club, Inc. (“Dollar
Shots”) in exchange for the issuance of 1,342,050 shares of
Common Stock to the former shareholders of Dollar Shots. Through
Dollar Shots, IMHC marketed flavored energy “shots” and similar
beverages through a monthly subscription service.
In a common control transaction on April 29, 2019, IMHC acquired
all of the issued and outstanding capital stock of CannaCure
Sciences, Inc., a Wyoming corporation (“CannaCure”), in
exchange for the issuance of 60,000,000 shares of Common Stock to
the former shareholders of CannaCure. CannaCure attempted to
develop a lineup of personal care products containing
Cannabidiol.
The operations of Crypto and Dollar Shots have ceased as a result
of their dissolution. The operations of CannaCure are dormant. IMHC
intends to cause CannaCure to be dissolved.
Recent Events – The Acquisition
On December 16, 2021, certain stockholders of IMHC (collectively,
the “Sellers”) entered into a stock purchase agreement with
BitNile, Inc. (“BNI”), a wholly owned subsidiary of BitNile,
pursuant to which BNI purchased 129,363,756 shares of Common Stock
from the Sellers for an aggregate consideration of $200,000. Upon
the closing of the stock purchase agreement, BitNile owned
approximately 90% of the Common Stock, resulting in a change in
control of IMHC.
Immediately following the
closing of the Agreement and the completion of the Acquisition and
related transactions (the “Closing”), which occurred on the
Closing Date, TOGI became a wholly-owned subsidiary of IMHC.
Following the closing of the Acquisition, IMHC will dissolve its
remaining dormant subsidiary. Further IMHC and TOGI intend to close
an upstream merger whereby TOGI shall cease to exist. Upon
consummation of the merger, IMHC shall have acquired two operating
subsidiaries, TOG Technologies, Inc. (“TOGT”) and Digital
Power Corporation (“Digital Power”). IMHC will
continue the existing business operations of TOGI as a
publicly-traded company under the name Imperalis Holding Corp., but
intends to change the registrant’s name to TurnOnGreen, Inc. as
soon as practicable. The Closing was subject to the Parent’s
delivery to IMHC of audited financial statements of TOGI and other
customary closing conditions.
Changes to the Board of
Directors and Executive Officers. Upon the closing of the
Acquisition: (i) Darren Magot resigned from his position as Chief
Executive Officer but remains a member of the Board of Directors of
IMHC (the “Board”); (ii) David Katzoff remained as IMHC’s
Chief Financial Officer, Secretary and Treasurer; (iii) Marcus
Charuvastra remained as IMHC’s President; (iv) Douglas Gintz
remained as IMHC’s Chief Technology Officer, and (v) the Board
appointed Amos Kohn as IMHC’s Chief Executive Officer and a member
of the Board. IMHC intends to file a Schedule 14F-1 in connection
herewith. Ten days thereafter, BitNile intends to cause TOGI to
appoint additional individuals to its Board of Directors.
Changes to the
Business. IMHC, through its wholly owned subsidiaries
Digital Power and TOGT, is engaged in the design, development,
manufacture and sale of highly engineered, feature-rich, high-grade
power conversion and power system solutions for mission-critical
applications and processes. For more than 50 years, Digital Power
has been devoted to the perfection of power solution products that
have enabled customer innovation in complex applications covering a
wide range of industries. A natural outgrowth of its development of
these power systems has been TOGT’s effort to apply the company’s
proprietary core power technologies to optimizing the design and
performance of electric vehicle (“EV”) charging solutions.
TOGT began commercial sales of its product line of high-speed
charging solutions in mid-2021. We believe that our charging
solutions represent an entire generation of new chargers due to
dramatic improvements in terms of size reduction in electronic
circuitry and higher output density. We also believe that, by
leveraging our experience and expertise in power conversion and
generation, we can rapidly become a leader in the high growth EV
charging solution market.
Current Beneficial
Ownership. Immediately after giving effect to the
Acquisition, there were 161,704,695 shares of our Common
Stock issued and outstanding, as follows:
|
· |
The Parent beneficially owns
318,512,900 shares of Common Stock, which consists of: (i)
129,363,756 shares of
Common Stock held by the Parent’s wholly-owned subsidiary BNI; (ii)
10,000 shares of Common Stock held by the Parent’s wholly-owned
subsidiary, Digital Power Lending, LLC (“DPL”); (iii)
10,873,314 shares of
Common Stock issuable upon
conversion of an outstanding convertible promissory note held by
DPL in the principal face amount of $101,529, which is convertible
into shares at a conversion price of $0.01 per share; and
(iv) 178,265,830 shares issuable upon conversion of
BitNile’s Series A Preferred Stock; and |
|
· |
the other remaining stockholders of
IMHC hold 32,330,939 shares of Common Stock. |
In connection with the Acquisition, IMHC issued to the Parent
an aggregate of 25,000 newly
designated shares of Series A Preferred Stock, with each such share
having a stated value of $1,000. The terms of the Series A
Preferred Stock are more fully described under Items 3.02 and 5.03
below.
Our common stock is available for quotation on the OTC Pink Market
(OTC Pink) under the symbol “IMHC,” which IMHC expects to change to
“TOGI” as promptly as practicable.
Accounting Treatment;
Change in Control. The Acquisition is being accounted for as
a “reorganization,” and IMHC is deemed to be the legal acquirer of
TOGI but TOGI will be considered the acquiror for accounting and
financial reporting purposes. Consequently, the assets and
liabilities and the historical operations that will be reflected in
the financial statements prior to the Acquisition will be those of
TOGI and will be recorded at the historical cost basis of TOGI, and
the consolidated financial statements after completion of the
Acquisition will include the assets and liabilities, historical
operations and operations of TOGI and its subsidiaries from the
Closing Date of the Acquisition.
Except as described in this Current Report, no arrangements or
understandings exist among present or former controlling
stockholders with respect to the election of members of our
Board.
General.
We are a “shell company” as such term is defined in Rule 12b-2
under the Exchange Act. Following and as a result of the
Acquisition, we have ceased to be a shell company. The
information contained in this Current Report constitutes the
current “Form 10 information” necessary to satisfy the conditions
contained in Rule 144(i)(2) under the Securities Act.
As used in this Current Report henceforward, unless otherwise
stated or the context clearly indicates otherwise, the terms
“IMHC”, “TOGI,” the “Company,” the “Registrant,” “we,” “us,” and
“our” refer to Imperalis Holding Corp., incorporated in Nevada, and
the business of TOGI, after giving effect to the Acquisition. In
certain instances, this Current Report refers to TurnOnGreen, Inc.
prior to the Acquisition as the “Former TOGI.”
This Current Report contains summaries of the material terms of
various agreements executed in connection with the transactions
described herein. The summaries of these agreements are subject to,
and are qualified in their entirety by, reference to these
agreements, which are filed as exhibits hereto and incorporated
herein by reference.
BUSINESS OF TURNONGREEN
Overview
TurnOnGreen, through its wholly owned subsidiaries Digital Power
and TOGT, is engaged in the design, development, manufacture and
sale of highly engineered, feature-rich, high-grade power
conversion and power system solutions for mission-critical
applications and processes. For more than 50 years, Digital Power
has been devoted to the perfection of power solution products that
have enabled customer innovation in complex applications covering a
wide range of industries. A natural outgrowth of its development of
these power systems has been TOGT’s effort to apply the company’s
proprietary core power technologies to optimizing the design and
performance of electric vehicle (“EV”) charging solutions.
TOGT began commercial sales of its product line of high-speed
charging solutions in mid-2021. We believe that our charging
solutions represent an entire generation of new chargers due to
dramatic improvements in terms of size reduction in electronic
circuitry and higher output density. We also believe that, by
leveraging our experience and expertise in power conversion and
generation, we can rapidly become a leader in the high growth EV
charging solution market.
At Digital Power, we provide a comprehensive range of integrated
power system solutions that are designed to meet the diverse and
precise needs of our customers with the highest levels of
efficiency, flexibility and scalability. We design, develop and
manufacture custom power systems to meet performance and/or form
factor requirements that cannot be met with standard products.
These power system solutions are designed to function reliably in
harsh environments associated with defense and aerospace
applications, while also being utilized for applications ranging
from industrial equipment to medical instrumentation. Our products
are highly adaptive and feature soft configurations in order to
meet the requirements of both our customers and our original
equipment manufacturers (“OEMs”). These products include our
Open-Frame series of products, which are the industry’s smallest
open frame AC/DC switchers, high-performance AC/DC desktop adaptor
power supplies and a full range of compact AC or DC power
supplies.
Our EV Charging Solutions
We recently formed TOGT, following more than two years of
engineering design and product prototypes, to provide EV drivers of
all types with easy access to convenient, reliable and high-speed
EV charging. TOGT offers Level 2 AC charging infrastructure for use
in single family homes, multi-family unit developments, commercial
retail properties and fleet environments. TOGT provides Level 3 DC
fast charger infrastructure for high traffic, high density urban,
suburban, exurban locations, and portable microgrid charging
infrastructure. Prior to August 2021, Digital Power operated the EV
business presently conducted by TOGT. Our EV charging
solutions are designed to address the expected rapid
expansion of infrastructure required to support broad adoption
of EVs globally. With more than 50 years of
expertise in power technology, we provide EV charging
solutions to enable the eMobility of
tomorrow. Our innovative charging solutions produce
a full charge for an EV with a 150-mile range battery in
approximately 30 minutes. We provide a wide
range of EV
charging solutions, including a Level 2 AC
charging product line compatible
with the SAE J1772
standard, and a Level 3 DC fast charging product
line compatible with the Combined Charging System (“CCS”)
standard and the CHArge de MOve (“CHAdeMO”) standard.
Our network is capable of natively charging (i.e., charging without
an adapter) all EV models and supports all charging standards
currently available in the United States. Our network can serve a
wide variety of private, retail, commercial and fleet customers.
Our charging systems maintain the highest standards in the market
and are backed by an internationally recognized certificate of
safety and performance. We anticipate rapid growth in the number of
EVs in North America, and we intend to expand our network of
charging stations to accommodate this growth while prioritizing
development of locations with favorable traffic and utilization
characteristics.
Below are renderings of our EV charging products and related
services:
Our strategy is to be the supplier of choice across numerous
markets that require high-quality power system solutions where
custom design, superior product, high quality, time to market and
competitive prices are critical to business success. We believe
that we provide advanced custom product design services to deliver
high-grade products that reach a high level of efficiency and
density and can meet rigorous environmental requirements. Our
customers benefit from a direct relationship with us that supports
all their needs for designing and manufacturing power solutions and
products. By implementing our proprietary core technology,
including process implementation in integrated circuits, we can
provide cost reductions to our customers by replacing their
existing power sources with our custom design cost-effective
products.
Our Products and Markets
Power System Products and Technology
Power System
Solutions. At Digital Power, we provide a comprehensive range
of highly integrated power systems designed to meet the diverse and
precise needs of our customers. We offer high-performance
power systems to achieve the highest levels of efficiency,
flexibility, and scalability for customers that require innovative
technologies and customized solutions for critical applications and
life-saving services. We design, develop, and manufacture custom
power systems to meet performance and/or form factor requirements
that cannot be met with standard products. These power system
solutions are designed to function reliably in the harsh
environments associated with defense and aerospace applications,
while also being utilized for applications ranging from industrial
equipment to medical instrumentation. We use integrated circuits
and digital signal processor technology in our products,
including with respect to our customized firmware. Our products are
highly adaptive and feature soft configurations that in order to
meet the requirements of both our customers and our OEMs.
Our power system solutions include wide range of power switchers
and power conversions products including but not limited to
open-frame, Compact PCI, board-mount, rackmount, desktop, capacity
charger, modular and custom power series. Our power conversion
technology produces the highest industry power conversion
efficiency result in the smallest form-factor and high-performance
AC/DC power switchers and DC/DC power conversion products. These
power switching products incorporate active power factor correction
(“PFC”) and universal AC input, making them ideal for a
range of global applications. Our products are being used in
mission critical applications, lifesaving services in diverse
markets including defense & aerospace, medical,
telecommunications and industrial where high reliability, high
efficiency and advance features are required while operating in
harsh environment.
In most cases, when our customers contract with us to develop
custom power solutions, these contracts will include two folds;
non-recurring engineering (“NRE”) to charge our customers
for custom product development and ii, multi-year, high-volume
production and product sale contract of such custom developed
product. These contracts result with high-margin, low competition
and multi-years accurate sales plan while reducing our
manufacturing costs. Although our customers pay for NRE, we
maintain our intellectual property (“IP”) of the product we
designed to allow us to secure the sale of such custom products
through the lifetime of our customers customized application. We
believe that this business model provides an incentive to our
customers to be committed for long lifetime, ongoing and
high-volume products’ orders.
Power Technology for
High-Grade Power Products. We offer our feature rich based
power rectifiers that support flexible configuration and high-grade
design implementation. This includes innovative designs and
implementation of digital power management improving power
efficiently and customization of the product. It includes digital
signal processor (“DSP”) controls for the power factor
correction (“PFC”) and DC to DC conversing. The advanced
power technology used in our products includes synchronous
rectifiers, two-phase PFC, power management integrated circuits
(“ICs”) and features such as hot plug capacity and
intelligent current sharing. While some of our customers have
special requirements that include a full custom design, other
customers may require only certain electrical changes to standard
power supply products, such as modified output voltages, unique
status and control signals and mechanical repackaging tailored to
fit the specific application. We offer a wide range of standard and
modified standard products that can be easily integrated with any
platform across our diversified market segments.
For example, our board mount converters are ideal for a range of
consumer electronics, medical applications and industrial control
applications. These AC-DC and DC-DC power supplies range from 10 to
9,000 watts, with operating temperatures from -40 to +85 degrees
Celsius and include universal AC input and/or wide range of DC
inputs that are widely used by our defense and aerospace customers
and for uninterruptible power supplies (“UPS”)
applications.
Value-Added
Services. We also offer a range of AC-DC and DC-DC products
that provide value to our customers due to the configuration we
provide to fit each customer’s specific needs, which often require
multiple voltage outputs. These custom products illustrate the
benefits and flexibility of our modular approach to offer higher
performance, higher power densities, lower costs and faster
delivery than many competitive offerings. Our configurable products
typically are used in a wide range of distributed power
architecture implementations in defense and aerospace electronic
systems, industrial and telecommunication applications, as well as
medical and healthcare instrumentation and equipment. Such
configurable products include our capacitor charger supplies, which
support out powers from 50 watts to 9,000 watts, with configurable
voltages from 500 volts to 3,000 volts.
Power System Markets
We sell our power systems as integrated solutions to our diverse
customers for a wide range of applications in the global markets
and sectors we serve, including medical and healthcare, defense and
aerospace, and industrial and telecommunications. We also sell our
products as stand-alone products to our commercial customers and,
most recently, we have started to roll out our EV charger products
to consumers. Our current commercial customer base consists of
approximately 220 companies, which are served through our direct
sales groups and our strategic partner channels. Our power supply
products and related services sold through Digital Power accounted
for all of our revenues in the six months ended June 30, 2022 and
the years ended December 31, 2021 and 2020. During these time
periods, approximately 83.7%, 87.6% and 82.8% of our revenues,
respectively, were generated from customers located in North
America. During the six months ended June 30, 2022, revenues from
Europe accounted for approximately 2.1% of our revenues and did not
exceed 10% of our revenues in prior periods. The key industries for
our products include:
Medical and
Healthcare. Our power solutions are ideal for healthcare and
medical applications that require a high level of reliability and
performance due to their quality, output power and high-power
density. Our power supplies meet the rigorous medical safety
requirements and major industrial safety standards related to such
products to major industrial safety standards, including the
EN60601-1 safety standard and the 4th Edition EMC compliance
requirements, and help medical device and system manufacturers
speed compliance testing of their own products. Our qualification
testing facilities are also approved by various safety agencies to
test and qualify power products to be used in medical devices. We
have obtained the medical quality management systems ISO 13485
certification to support rigorous design requirements and
high-quality manufacturing of our medical power systems. Our
medical power products help OEMs minimize the risk of encountering
unexpected development problems outside of their own areas of
expertise. The typical applications for our power products in the
medical and healthcare industry include portable oxygen
concentrators, patient monitoring systems, pulsed lasers drivers
for dental and surgical treatment, DNA sequencers, medical beds and
ultrasounds. Revenues from the medical and healthcare industry
accounted for approximately 29%, 32% and 36% of all revenues
received from our power supply products during the six months ended
June 30, 2022 and years ended December 31, 2021 and 2020,
respectively.
Defense and
Aerospace. We offer a broad range of rugged power solutions
for the defense and aerospace market. These solutions feature the
ability to withstand harsh environments. For more than 50 years, we
have been providing rugged COTS products and custom power solutions
designed end-to-end for military and aerospace applications. We
offer a wide variety of units designed to comply with the most
demanding United States and international MIL-STDs. Our military
products meet all relevant military standards in accordance with
the Defense Standardization Program Policies and Procedures. This
includes specifications related to space, weight, output power,
electromagnetic compatibility, power density and multiple output
requirements, all of which we meet due to decades of experience
held by our engineering teams. Certain of our products that are
specifically designed, modified, configured or adapted for military
systems are subject to the United States ITAR, which are
administered by the U.S. Department of State. We obtain required
export licenses for any exports subject to ITAR. Our defense
manufacturing facilities are compliant with the international
Quality Management System standard for the AS&D AS9100.
The typical applications for our power products in the defense and
aerospace industry include mobile and ground communications, naval
power conversion, automated test and simulation equipment for
weapon systems, combat and airborne power supplies, radar arrays
power source, tactical gyro position and navigation systems and
active protection of tactical vehicles. Revenues from the defense
and aerospace industry accounted for approximately 27%, 22% and 26%
of all revenues received from our power supply products during the
six months ended June 30, 2022 and years ended December 31, 2021
and 2020, respectively.
Industrial and
Telecommunications. We build products for custom and
standard applications used in industrial and telecommunication
markets and set the standard in flexibility, efficiency and
reliability. Our compact, high-density and flexible power supplies
and power converters allow optimal performance, boost functionality
and decrease costs. Due to the breadth of our experience, our
products have proven to easily meet stringent design requirements.
Our industrial power solutions are designed to stand up to the
extreme temperatures, input surges, vibration and shock found
through uses such as industrial automation, material handling,
industrial lasers, robotics, agriculture, oil, and gas, mining and
outdoor applications. Our technology is designed for superior
thermal management, reliability, EMI/EMC specifications and power
density, with rugged performance that is typically unavailable in
standard power supplies. The typical applications for our power
products in the industrial and telecommunications industry include
packaging equipment, laboratory and diagnostic equipment,
industrial laser drivers, datacenter computing and turbomachinery
control solutions. Revenues from the industrial and
telecommunications industry accounted for approximately 44%, 46%
and 38% of all revenues received from our power supply products
during the six months ended June 30, 2022 and years ended December
31, 2021 and 2020, respectively.
The EV Charging Industry and Trends
The market for BEVs and HEVs has experienced significant growth in
the past five years, and we believe that growth will increase
dramatically over the next five years. As the economic and
environmental costs of fossil fuel burning automobiles increases
each year, consumer demand for vehicles with greater fuel
efficiency, greater performance and with lower or no environmental
emissions has also increased. With a variety of federal, state and
municipal incentive programs for both EV drivers and electric
vehicle supply equipment (“EVSE”) infrastructure construction, we
anticipate a significant increase in the demand for BEVs and HEV
charging solutions at home, work and in public.
We believe that the industry trends for sustained growth are
favorable for us. Multiple states and municipalities have set
ambitious Zero Emission Vehicle goals for the next ten years. In
order to meet these goals, mandates for EV sales have been
established by states like California, New York, Oregon, Washington
and others. While at the same time, oil and gas prices
continue to rise, EV battery technology continues to improve and
become more affordable. The average consumer cost to acquire an EV
declined 13.5% from 2018 to 2019 and continues to fall as
more automobile manufacturers introduce new EV models to the market
each year, notwithstanding the fact that EVs are generally remain
more expensive than ICE automobiles.
Automobile and battery manufacturers have substantially increased
their efforts to offer EVs at a wider range of price points and to
develop batteries with higher efficiencies and lower costs.
According to Reuters, more than $300 billion has been invested or
is committed for investment in the next five to ten years by global
automobile OEMs. These investments will expand and put into mass
production the EV offerings and associated technologies from such
OEMs and optimize the global EV supply chain. Efforts to date by
OEMs have already lowered the upfront costs of EVs, and we expect
further price reductions over the next several model years.
Bloomberg New Energy Finance estimates that most EVs will reach
upfront cost parity with ICE vehicles by 2023 on an unsubsidized
basis. As measured in terms of total cost of ownership
(“TCO”), certain classes of EVs already are at or below
parity with their ICE counterparts. As overall EV costs decline,
more car makes, and models will reach TCO parity with their ICE
equivalents and the TCO advantage for other types of EVs will
expand. According to the Electric
Drive Transportation Association, sales of plug-in vehicles since
introduction to the market in 2010 is over 500,000 and according to
a third-party research firm, sales are expected to grow by a factor
of 12 to over 4,000,000 in 2025. The cost to maintain an
EV is half of what it costs to maintain an ICE automobile. The cost
to add 200 miles of range to an ICE car is roughly twice the cost
of its all-electric counterpart. As multiple market conditions are
favorable for growth, we believe that the number of EVs on the road
in 2025 will exceed 4,000,000.
EV charging demand is a direct result of the number of EVs
operating during a given period, miles traveled by such EVs and the
efficiency of such EVs. The current market for fulfilling charging
demand is bifurcated between Level 1 and Level 2 charging and
high-powered Level 3 DC fast charging (“DCFC”) devices. The
demand for different charging types is a function of the EV mix,
owner demographics, locational factors, charger availability,
pricing and EV use cases (i.e., private ownership, rideshare,
delivery and municipally-owned fleets). Lower-powered Level 1 and
Level 2 charging are primarily used by EV owners with access to
home, workplace and “play” charging, and currently account for the
majority of personal EV charging. Level 2 charging is also used by
certain fleets that have the ability to charge overnight, have a
low daily mileage requirement and return to a centralized location
daily. Current DCFC users primarily are drivers who need to charge
away from home in central business districts, drivers who do not
have access to home or workplace charging and high-mileage fleets
that seek to minimize downtime and maximize miles traveled.
EV Charging Products
We formed TOGT in August 2021, following more than two years of
engineering design and product prototypes, to provide EV drivers of
all types with easy access to convenient, reliable and high-speed
charging. We offer a Level 2 AC charging infrastructure for use in
single family homes, multi-family unit developments, commercial
retail properties and fleet environments. TOGT provides Level 3 DC
fast charger infrastructure for high traffic, high density urban,
suburban, exurban locations, and portable microgrid charging
infrastructure. Our EV charging
solutions are designed to address the expected rapid
expansion of infrastructure required to support broad adoption
of EVs globally. With more than 50 years of
expertise in power technology, we provide EV charging
solutions to enable the eMobility of
tomorrow. Our innovative charging solutions produce
a full charge for an EV with a 150-mile range battery in
approximately 30 minutes. We provide a wide
range of EV
charging solutions, including a Level 2 AC
charging product line compatible
with the SAE J1772
standard, and a Level 3 DC fast charging product
line compatible with the Combined Charging System Type 1
(“CCS1”) standard and the CHAdeMO standard.
The final barrier to widespread BEV
and HEV adoption is the lack of EV charging infrastructure. We
believe that the demand for EV charging is increasing each day.
Utility companies are upgrading their grid infrastructure in
preparation for the increased demand. We expect the
demand from businesses, municipalities and individuals to
outpace supply over the next five years, creating a highly
favorable environment for EVSE companies. We therefore
intend to generate revenues with TOGT primarily through the sale of
networked charging hardware, combined with cloud-based services
that provide consumers with the ability to locate, reserve,
authenticate and transact EV charging sessions, which we refer to
as our TOG Network or TOG Network Services. TOG Network Services,
and an optional extended warranty, are billed as an annual
subscription, and access to the network is available through each
of our commercial charging ports. We expect that the revenue
contribution for recurring TOG Network or extended warranty sales
will equal the revenue contribution from one-time EV700, EVP700,
EV1100 and EVP1100 charger sales for commercial use after
approximately seven years. TOGT also offers a hardware portfolio
powered by software, which cannot be accessed without a TOG Network
charger-as-a-service (CaaS) subscription.
With a shared mission to do our part to fight climate change, our
team strives to bring to established and emerging markets
innovative solutions that provide value for the company and our
stockholders. We provide green energy services to homeowners,
business partners, and EV drivers, leveraging our highly efficient,
flexible, and software-managed technologies to meet their needs for
reliable and customized energy saving services. We benefit from
newer technologies and by learning from the experience of our
competition to offer smarter and better product and services to our
markets.
Level 2 Charging Solutions
for Single and Multi-Family Homes
Our Level 2 EV charging solutions for in-home usage feature the
EV700, which is an ENERGY STAR certified state-of-the-art, plug and
play SMART home charger that allows the addition of up to 200 miles
of range in 8 hours of charging. Compatible with most EVs on the
road today, including Tesla, the EV700 is an affordable upgrade to
a standard Level 1 charger. The slim, modern design of the EV700 is
ideal for installation in most garages and outdoor charging
locations and comes equipped with standard NEMA 6-50, or optional
NEMA 14-50, inlet plugs and works with a standard 200-240V
appliance outlet, making it ideal for residential use. Additional
key features of the EV700 include the following:
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· |
Compatibility with all EVs.
The SAE J1772 charging connector that comes with the EV700 ensures
compatibility with virtually all EVs, including Tesla models with
the SAE J1772 adapters that are typically included with a Tesla
purchase. |
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Savings with Every Charge.
SMART features allow users to schedule charging an EV during
off-peak hours using the EV700 Application on their I-Phone or
Android Phone. The EV700 can add more than 200 miles of range
overnight at an optimal cost. |
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Restrict Access in Public
Areas. The EV700 can be passcode protected, so only the unit
owner or authorized user can initiate a charging session by
entering the code on the LCD touch screen or by using the EV700
APP. This feature was added to address the needs of multi-family
unit dwellers, hotels and home rental companies. |
|
· |
SMART RFID Programmable. The
EV700 can be activated using the RFID cards that are included with
the unit. Additional RFID cards can be programmed by the unit owner
to initiate a charge. |
|
· |
All-Weather Design. The
rugged metal, all-weather enclosure of the EV700 makes it the ideal
smart charger for year-round, indoor and outdoor use. |
Level 2 EV Charging
Solutions for Businesses
We offer the TOG EVP700 and EVP1100 series of Level 2 EV SMART
charging stations for deployment on public, commercial and private
properties such as the workplace, multifamily units, hospitality,
retail and municipalities. Our Level 2 commercial EV charging
solutions support multiple users at the same time and offer
operators the flexibility to set rates, send push notifications to
drivers, and manage power settings. These networked charging units,
which are eligible for city, state, federal and utility rebate
programs, are built to last and provide businesses with an edge in
attracting EV drivers. Our chargers are also tested and certified
by Occupational Safety and Health Administration nationally
recognized testing laboratories TÜV Rheinland and Underwriters
Laboratories according to ANSI/UL standards and add up to 200 miles
of range in 6 to 8 hours of charge time. Additional key features
with respect to these products include:
|
· |
Charging Speed. Our Level 2
chargers provide charging speeds up to nine times faster than Level
1 chargers. |
|
· |
Safety and Quality. These
chargers are both durable and compact for usage in indoor and
outdoor installations. |
|
· |
Compatibility. We provide a
built-in SAE J1772 connector for compatibility with virtually all
EVs. |
|
· |
Open Charge Point Protocol.
We enable our customers to collect payments and manage charging
activities via the open charge point protocol. |
Level 3 DC Fast Charging
Solutions for Commercial Use
Our Level 3 DC Fast Chargers are state-of-the-art EV charging units
built for speed. The addition of up to 200 miles of range in a
minimal charging time of minutes is ensured with unique air-cooling
technology and dynamic power management options. Eligible for city,
state and federal rebate programs and compatible with most EVs on
the road today, our Level 3 DC Fast Chargers can take an EV battery
charge from 20% to 80% in less than 30 minutes on average.
Our Level 3 DC Fast Chargers were developed for commercial
properties that include car rental locations, auto dealerships,
hotels, grocery and convenience stores, gas stations and other
retail establishments. The Level 3 DC Fast Chargers support
multiple users at the same time and offer operators the flexibility
to set rates, manage power settings, and generate revenue through
charging and advertisements. Additional key features with respect
to the Level 3 DC Fast Chargers include:
|
· |
All-Weather Design. The
rugged metal all-weather enclosure makes the Level 3 DC Fast
Chargers ideal for year-round use. |
|
· |
Charging Speeds. The Level 3
DC Fast Chargers are capable of charging an EV to 80% in less than
30 minutes on average, which is up to 34x faster than a 7kW Level 2
charger. |
|
· |
Dual Charging Ports. The
Level 3 DC Fast chargers allow up to two EVs to be charged
simultaneously with up to 120kW per charging port. |
|
· |
Open Charge Point Protocol.
Our customers can view earnings and manage machines using the
TurnOnGreen Dashboard that is accessible upon purchase. |
|
· |
Compatibility. We offer both
CHAdeMO and CSS1 connectors in any configuration combination to
ensure compatibility with virtually all EVs, including Tesla models
through use of the appropriate CHAdeMO or CCS1 to Tesla
adaptor. |
DC/AC Hybrid DC/AC Fast
Charger
The TurnOnGreen AC/DC Hybrid is a cutting-edge EV charging station
that produces both DC and AC charges. Designed for mixed fleet
application, such as school bus depots or car rental depots, it
includes up to two Level 3 DC charging ports compatible with both
CCS1 and CHAdeMO standards, and up to two Level 2 AC charging ports
compatible with the SAE J1772 standard. These products offer a
unique air-cooling technology and dynamic power management system
to deliver a state-of-the-art charging experience. The AC/DC Hybrid
is also compatible with most EV models on the road today and can
charge an EV battery from 20% to 80% in less than 30 minutes of
charging time. Additional key features include:
|
· |
All-Weather Design. The
rugged metal all-weather enclosure of the AC/DC Hybrid chargers
makes the products ideal for year-round outdoor use. |
|
· |
Dual Charging Ports. The
AC/DC Hybrid enable customers to charge up to four EVs
simultaneously with both high power Level 3 DC fast charging and
Level 2 AC charging. |
|
· |
Charging Speeds. The Level 3
DC charging ports in the AC/DC Hybrid allows customers to charge an
EV to 80% in less than 30 minutes on average. |
|
· |
Open Charge Point Protocol.
As is the case with the Level 3 DC Fast Chargers, AC/DC Hybrid
consumers may view earnings and manage machines using the
TurnOnGreen Dashboard. |
|
· |
Compatibility. SAE J1772,
CCS1 and CHAdeMO charging connectors are available with each
charging station to ensure compatibility with virtually all EVs,
including Tesla models with the appropriate CHAdeMO or CCS1 to
Tesla adaptor. |
EV Charging Revenue Model
EV Hardware Unit
Sales. We recognize revenues through the sale of our
charging solutions in the form of hardware sales, extended warranty
purchases and recurring network subscriptions. We intend to employ
various business models with customers for our EV charging unit
sales based on which party bears the costs of installation,
equipment and maintenance, and the relative percentages of the
continuing, long-term revenue-sharing arrangement.
OEM Charging and Related
Services. Through discussions with OEM partners, we are
pioneering innovative revenue models to meet a wide variety of OEM
objectives related to the availability of charging infrastructure
and provisioning charging services for EV drivers. We are working
with OEMs and their distribution networks to provide charging
residential hardware and home installation services to drivers who
have purchased or leased EVs who can also access our public network
of chargers. This approach is designed to expand our residential
and commercial charging infrastructure and to provide related
services. We view our OEM relationships as a core
customer-acquisition channel.
Retail Charging. We
intend to sell electricity directly to EV drivers who access our
publicly available networked chargers. We offer various pricing
plans for customers. Drivers have the choice of charging either as
members (with monthly fees and reduced per-minute pricing) through
a subscription service, or as non-members. Drivers locate chargers
through our mobile application, their vehicle’s in-dash navigation
system, or third-party databases that license charger location
information from us. We aim to install our chargers in parking
spaces owned or leased by commercial or public entity site hosts
that desire to provide our charging services at their locations.
Commercial suite hosts include hotels, museums, wineries, retail
centers, offices, medical complexes, airports and convenience
stores. We believe that our offerings are well aligned with the
goals of site hosts, as many commercial businesses increasingly
view our charging capabilities as essential to attracting tenants,
employees, customers and visitors, and to achieving sustainability
goals. Site hosts will generally be able to obtain these benefits
at no cost when partnering with us, as we are responsible for the
installation and operation of chargers located on site host
properties. In many cases, site hosts will earn additional revenue
from license payments made by us in exchange for use of the
sites.
Commercial
Charging. High volume fleet customers, such as delivery
services, auto dealerships, and rental car locations can install
our charging infrastructure at selected locations as well as use
our public network for opportunity charging when in transit.
Pricing for charging services is to be negotiated directly between
us and the fleet owner based on business needs and usage patterns
of the fleet, and we will typically contract with and bill the
fleet owner directly rather than the individual fleet drivers who
utilize our chargers. Access to our public network enables fleet
and rideshare operators to support mass adoption of transportation
electrification and achieve sustainability goals while avoiding
direct capital investments in charging infrastructure or the
incurrence of operating costs associated with charging
equipment.
TOG Management App and Dashboard
Our TOG Software Platform as a Service (“PaaS”) is a
comprehensive eMobility charging station management system used for
managing our charging supply equipment and network charging
services. We enable EV drivers to easily manage their charging
services, locate and access EV charging stations and pay for EV
charging. We also provide custom mobile apps and a desktop
dashboard, creating custom experiences for our users and partners.
Our innovative application programming interface platform unlocks
access to scalable EV charging features, such as the ability to
push relevant coupons to drivers when they plug in, the ability to
tie charging to loyalty programs, and the ability to submit
proof-of-use information for rebates from state and utility
programs. Additional key features related to our management system
include:
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· |
Energy Cost Optimization.
Our customers can manage the duration of the charge in order to
control energy costs, avoid demand surcharges and take advantage of
the lowest energy charges. |
|
· |
Simplification of
Operations. Our management system simplifies the deployment,
management and optimization of charging for fleet operations. |
|
· |
Usage Tracking. Through our
management system, customers can consolidate transaction history,
including mobile app sessions, Text & Go™️ sessions and RFID
sessions. |
|
· |
24/7 Customer Support. Human
customer service agent is available 24/7 through the in-app
messaging or toll-free number that is provided. |
|
· |
Remote Updates. The
management system enables remote updates to hardware, firmware and
features over the internet. |
Our Growth Strategies
We sell our power products and charging solutions in the form of
hardware, recurring network subscriptions, extended warranty
purchases and related services. We will continue to optimize our
operating model, combining high quality power and charging hardware
and related services with appealing business models for our
customers. We believe that this approach creates significant
customer network effects and provides the potential for recurring
revenue. Key elements of our growth strategies include:
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· |
Continue to Innovate and
Enhance Our EV Products. While maintaining our core
business of power system solutions for our existing markets, we
intend to support the growth of the company by continuing to
release advanced, new power technologies with respect to our
eMobility network and EV charging infrastructures. Specifically, we
intend to take advantage of a significant increase in eMobility
market opportunities that we expect to see over the next five to
ten years for our non-networked and networked Level 2 chargers and
our high-power DC fast charging solutions. We intend to invest in
EV charging station components for use in connection with
installations of charging solutions at customer sites. We will
expand our eMobility charging services through our TurnOnGreen
Served (“TOGS”) PaaS for commercial and fleet customers and
continue to design and develop innovative products and services
leveraging our knowledge of power electronics technology and
advanced charging network management. |
|
· |
Develop Our Strategic
Partnership Network. In order to achieve our goals –
particularly with respect to the rapid deployment of our EV
charging products – we will evaluate and enter into strategic
partnerships that facilitate our ability to bring best-in-class
solutions to a wider network of EV drivers than we would be able to
reach on our own. Since the launch of TOGI, we have entered into
several strategic agreements, including (i) Tesco Solutions LLC an
Indiana based construction firm, (ii) Unique Electric Solutions, a
New York based firm focused on re-powering school bus fleets, (iii)
Best Western International, Inc. (“BWI”), a global network of
hotels and resorts, headquartered in Phoenix, AZ, which includes
more than 2,000 hotels in North America, (iv) CED National
Accounts, headquartered in Irvine, CA, which provides turnkey
solutions for EV chargers field deployment including site design,
permitting, construction and installation, (v) Sunrise Hills
Commercial, an association owns the facility used by the Tuolumne
County Transportation Council of which support deployment of EV
charger throughout the Tuolumne County and the Seaira corridor, and
(vi) with EV-olution Charging Systems, a Canadian based EVSE
distributor. |
|
· |
Expand within Existing
Customers. We are focused on maintaining our customer
retention model, which encourages existing customers to increase
their utilization of our products and to renew their subscriptions
due to the expansion of our network. We expect additional growth to
result from the breadth of ecosystem integrations that are enabled
through our TurnOnGreen Network. This eMobility network would
integrate platforms such as in-vehicle infotainment systems,
consumer mobile applications, payment systems, mapping tools, home
automation assistants, fleet fuel cards and residential utility
programs. |
|
· |
Make Opportunistic
Investments in Marketing. We intend to continue to
aggressively market and sell our core power products through our
existing domestic and international markets, with an emphasis on
the North American market. We also intend to generate revenues by
our eMobility charging services through various partnership and
business models to reach new customers, in each case coordinated
through our dedicated sales groups. |
|
· |
Pursue Strategic Business
Acquisitions for Growth. Through selective acquisitions of,
or investments in, complementary businesses, products, services and
technologies in the power system solutions and EV charging
industries, we aim to broaden our existing product and technology
base, build on our long-standing industry relationships and enhance
our ability to penetrate new markets. Along with our controlling
stockholder, we are experienced at evaluating prospective
operations in order to increase efficiencies and capitalize on
market and technological synergies. We currently have no
commitments or agreements with respect to any such acquisitions or
investments. |
|
· |
Cooperative Partnerships with
Site Hosts. Partnering with commercial property owners to
expand public charging infrastructure is a key driver of revenue
for the Company. Working with select hotels, golf courses, museums,
hospitals, universities, and other high volume long dwell time EV
destinations through revenue sharing agreements, we offer to fund
and build the EV charging infrastructure while operating the EV
chargers and retaining the majority of the revenue generated
through energy use sales for a contracted period of time. Under the
cooperative model, the company can recoup infrastructure costs
through grant and rebate programs, energy sales, and or the sale of
carbon credits generated through the use of accredited
machines. |
Sales and Markets
We sell and market our products through a variety of sales
channels. Our direct sales groups are dedicated to developing
commercial and fleet sales in well-defined customer segments in
specific geographic regions. Our channel partners, which include
independent manufacturer representatives and distributors focus on
e-commerce and business-to-business sales. Our sales and
marketing efforts target specific verticals and territories that we
believe will have the highest demand for EVSE over the next five to
ten year period. Our segment-based sales strategy focuses on
regional priorities where demand is highest, strategic partnerships
in commercial real estate development and business development
projects that provide ongoing revenue to EV owners.
We have an internal marketing team that has built a digital and
social media marketing program to increase brand awareness, product
promotion and product sales. We have a variety of digital assets
that can be easily shared across multiple platforms to help us
scale sales quickly. We plan to market directly to consumers
through our software applications, e-commerce platforms and digital
advertising campaigns. We will also work across channels to help
our distribution partners market our products and services by
utilizing their ecommerce and social platforms.
Revenues of approximately $2.1 million, $5.3 million and $5.4
million, or 96.4%, 99.7% and 100%, of total revenues were
attributable to power electronics products under various OEM
agreements in the six months ended June 30, 2022 and years ended
December 31, 2021 and 2020, respectively. Two customers accounted
for more than 10% of our total revenues during each of these
periods.
Manufacturing and Supplies
Consistent with our strategy of focusing on custom designed,
high-grade, flexible and configurable products to support our
diverse applications in the markets we serve, we aim to maintain a
high degree of flexibility in our manufacturing through the use of
strategically focused contract manufacturer partners. These
partnerships give us access to new markets and benefit our
production processes, which are designed for high-mix and
fast-line-charge and take advantage of technologies such as
electronically controlled operating instructions, automated pick
and place, automatic optical inspection and automatic testing. To
achieve our high-quality and low-cost manufacturing goals with
labor-intensive products, we have entered into strategic
manufacturing agreements with certain contract manufacturers in the
United States and Asia.
We strive to bring low cost and fast delivery production to our
customers in a way that limits the impact on the natural
environment. Our Asia manufacturing capabilities have provided the
opportunity to not only sell but also manufacture high quality,
energy efficient power systems for our global customers, with
recognized standards, that we control and audit. We demonstrate
through our manufacturing partners our attitude to the environment
by holding our partners accountable for certain
environmental-friendly standards for their manufacturing
facilities. We are also continually improving our internal
processes and monitoring the processes of our contract
manufacturers to ensure the highest quality and consistent
manufacturing of our power product solutions so that our customers
can use our products right out of the box. Customer specific
testing services are offered with custom designed test standards to
simulate operation within our customer applications.
We are in compliance with international safety standards, which is
critical for every application. By obtaining the ISO 9001 quality
management system, we seek to offer total quality at every stage,
from in-house design to manufacturing facilities around the world.
Our contract manufacturing partners are also in compliance with
such international safety standards and maintain the same ISO 9001
quality management system, as well as the ISO 14001 environmental
management system, the ISO 13485 medical management system and the
AS&D AS9100 quality management system. Such standards are the
cornerstones of our integrated management system to drive
continuous improvement of our product quality.
We maintain multiple sources of supply on all critical items and
manage our purchasing commitments on a worldwide basis to leverage
our purchasing strength. However, the COVID-19 pandemic could
impact our supply chain for components we need for the products we
sell, particularly as a result of mandatory shutdowns in locations
where such components are manufactured or held for
distribution.
Product Design and Development
Our product design and development efforts are primarily directed
toward developing new products in conjunction with our strategy of
continuing to introduce advanced product solutions for the markets
we serve and to expand our business into emerging markets based on
our disruptive power technology.
Our engineering groups are strategically located around the world
to facilitate communication with, and access to, our worldwide
customer base and manufacturing facilities. This collaborative
approach facilitates partnerships with customers for technical
development efforts and enables us to develop technological
products that support complex and evolving markets such as
eMobility, cloud computing, military and aerospace. On occasion, we
execute non-disclosure agreements with customers to help develop
proprietary, next generation products designed for rapid
deployment. We also sponsor memberships in technical organizations
that allow our engineers to participate in developing standards for
emerging technologies. We believe that this participation is
critical in establishing credibility and a reputable level of
expertise in the marketplace, as well as to position us among
industry leaders in new product development.
Our internal product design and development programs have also been
augmented by third party development programs with engineering
partners to achieve the best technological and product design
results for specific customer product applications. In June 2021,
we entered into a partnership agreement with ChargeLab, Inc. to
design, build and publish cross-platform mobile experiences for
residential and commercial end-users of our EV chargers. Under this
agreement, ChargeLab will support us in the pre-production stage of
our EV charging products by performing testing sessions to ensure
and validate solid firmware compliance with the Open Charge Point
Protocol.
When required, we modify standard products to meet specific
customer requirements. Such modifications include, but are not
limited to, redesigning commercial products to meet MIL-STD
requirements for military applications based on COTS products and
to meet other customized product requirements. We continually seek
to improve our product power density, adaptability and efficiency,
while attempting to anticipate changing market demands for
increased functionality, such as PFC controlled digital signal
processors, customized firmware and improved electromagnetic
interference (“EMI”) filtering. We also continue to attempt
to differentiate all of our products from commodity-type products
by enhancing, modifying and customizing our existing product
portfolio through our engineering integrating laboratory located in
California.
The development of our new custom and emerging product solutions is
driven by our ability to provide our customers with advanced
technologies that meet their product needs within a short
turnaround time at a competitive price point. We believe that we
are successfully executing our strategic account focus, as
evidenced by the award of second and third generation product
development contracts from some of our customers. In addition, our
standard contract for custom power solutions includes a multi-year
high-volume production forecast that could allow us to secure
long-term production guarantees while providing an environment that
promotes the development of our IP portfolio.
Product design and development expenditures were approximately $0.5
million, $0.5 million and $0.3 million in the six months ended June
30, 2022 and years ended December 31, 2021 and 2020, respectively.
The significant increase in product design and development in the
most recent period was due to costs incurred related to the
development of our EV charging products.
Key Design Consideration for Safety Compliance
TOG’s EVSE product line (product) complies with several safety
requirements and regulations to ensure electric safety and prevent
hazardous accidents, in which safety requirements for the EV supply
equipment and the EV battery. To facilitate the safety requirements
in our EVSE product line, key requirements of electrical safety are
presented. These crucial design rules implemented in our products
including functional requirements, constructional requirements,
personal protection against electric shock, insulation
coordination, electromagnetic compatibility and charging control
were
implemented to fulfil the electrical safety completely.
To meet national and international safety standards requirements,
we use step design methodology including product design review,
product testing, approval, certificate, and listing. To obtain the safety
certification for our EVSE product, we designed the product to by
compliance with the safety requirements and standards for North
America. The major standards reflected in our EVSE product are
listed below:
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UL 2202 - Electric Vehicle Charging System Equipment (AC to
DC) |
|
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UL 2594 - Electric Vehicle Supply Equipment (AC to AC) |
|
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UL 9741 - Bidirectional Electric Vehicle (EV) Charging System
Equipment |
|
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UL 2231-1 - Personnel Protection Systems for Electric Vehicle
Supply Circuits – General Requirements |
|
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UL 2231-2 - Personnel Protection Systems for Electric Vehicle
Supply Circuits – Protective Devices for Use in Charging
Systems |
|
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UL 2251 - Electric Vehicle Plugs, Receptacles and Couplers |
|
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Electromagnetic compatibility (EMC) - Requirements FCC part 15
subpart B |
|
· |
National Electrical
Code (NEC) Article 625 - Vehicle Charging System |
Electric shock hazard, fire hazard and injury hazard are three
major concerns for all EV charging systems address by the various
standards. TOG corresponding design of our EVSE product considering
these standard requirements to prevent above-mentioned hazards. To
assure we design and manufacture safe charging equipment, we
compliance with the major standards and we have implemented crucial
design rules to meet these requirements for the different element
of our EVSE product include construction of exterior and interior,
personal protection against electric shock, insulation
coordination, electromagnetic compatibility, charging control, and
the like.
Competitive Strengths and Competition
We offer highly engineered, feature-rich, high-grade power
conversion and power system solutions on a global scale. We believe
that we differentiate ourselves from our competition and have been
able to grow our business as a result of the following key
competitive strengths:
|
· |
Custom-Made Products. We
have designed our base model power system platform so that it can
be quickly and economically adapted to the specific power needs of
any hosting platform or OEM, which minimizes the time between
customer consultation and delivery of the products. |
|
· |
Specialized Technical
Expertise. We benefit from more than 50 years of expertise in
power technologies and energy management. This has given us a
wealth of experience in designing and manufacturing AC/DC power
conversion solutions, and positions us to benefit from the ongoing
transformation towards eMobility with smarter and greener EV
charging infrastructure solutions. |
|
· |
Diverse Product and Customer
Base and Revenue Streams. We have a diverse power supply
product and customer base. With our growing EV charging solution
segment, we will receive additional revenue streams through a range
of different sources such as energy sales, hardware sales, network
management services, advertising sales and energy services. We will
also offer customers a variety of business model options,
particularly with respect to our EV charging solution installation
and maintenance services. |
|
· |
Minimal Non-Recurring
Engineering Expenses. Our ability to seamlessly modify our base
model power system platform to produce bespoke products for our
customer needs results in minimal NRE expenses, meaning that we
generally avoid charging our OEM customers for such NRE
expenses. |
|
· |
Emphasis on Product Design
Development Efforts. We have strategically deployed engineering
groups around the world to facilitate communication with and access
to our global customer base and manufacturing facilities. This
enables us to develop cutting-edge products to support highly
complex and evolving markets such as eMobility, cloud computing,
military and aerospace. |
We compete in two operating segments, power solutions and EV
charging solutions.
Power Electronic Segment. Our competition in the power
solutions industry includes many companies located throughout the
world. Many of our competitors, including Bel Fuse, Artesyn
Embedded Technologies, TDK-Lambda, Delta Electronics, Murata and
Mean-Well Power Supplies, have greater fiscal and marketing
resources and a more expansive geographic presence than we do. We
also face competition from current and prospective customers who
may decide to internally design and manufacture power supplies
needed for their products. Further, certain larger OEMs tend
to contract only with larger power supply manufacturers. We believe
that our power system solutions and advanced technology are
superior to our competitors’ power supplies based in part on our
use of the latest power technology processing and controls, which
make our power supplies highly customized and efficient. In
addition, we believe the power-to-volume ratio makes our power
solutions more compact compared to what is offered by our
competitors and is suitable for custom infrastructures to meet our
customers’ requirements.
Notably, the flexibility of our power system products provides us
with another advantage by employing an adjustable power range and a
selectable number of output product design platforms. We believe
that we are in a competitive position with our targeted customers
that need a high-quality, compact product that can be readily
modified to meet specific requirements. We have also designed
the base model power system platform so that it can be quickly and
economically modified and adapted to the specific power needs of
any hosting platform or OEM. This emphasis on flexibility has
allowed us to provide samples of modified power systems to OEM
customers only a few days after initial consultation. This is an
important capability given the emphasis placed by OEMs on “time to
market.” It also results in very low NRE expenses, which allow us
generally not to charge our OEM customers for NRE expenses related
to tailoring a power system to a customer’s specific requirements.
We believe that this approach gives us an additional advantage over
our competitors, many of which charge their customers for NRE
expenses.
Electrical Vehicle Supply Equipment and Network Segment. Our
EVSE business segment competes directly with several companies in
the North American market. We expect to face competition across
multiple verticals in the future as demand for EVSE increases. The
EV charging market has grown significantly over the past five years
and can be divided into the three following macro segments:
|
· |
Public open network Level 2 and Level 3 charging; |
|
· |
Commercial fleet closed network charging; and |
|
· |
Residential single and multi-family home charging. |
Growth in the North American market has primarily been driven by a
subset of companies including Tesla, ChargePoint, Blink Charging,
EVGO, Electrify America, and Sema Connect. These companies
primarily focus on the growth of public open network charging
solutions but are increasingly diversifying into commercial and
residential closed network sales. The EVSE competitive market is
fragmented, and not necessarily aligned with the EV needs of
tomorrow. As EVSE charging standards are established and the market
is consolidated, we expect that the competitive landscape will
favor our approach to market segmentation, strategic partnerships
and product development. EV driver charging behavior indicates that
residential and commercial closed network charging are the areas
with the most potential for growth, as an estimated of 85% of EV
drivers charge at home or at work.
The competitive landscape for closed network residential EVSE sales
can be found in the ecommerce segment, where there are several
product and class competitors that vary in size and market reach.
This segment is primarily driven by purchasing decisions that are
dictated by price, consumer reviews and product features.
Competitors will likely consolidate in the future to establish
larger open charging networks, cooperative relationships with
OEM’s, and other EVSE product-based companies. As new alliances
emerge in the market, EVSE manufactures that have greater market
share, access to more dynamic and user-friendly software and
hardware will put us at a competitive disadvantage. If we are slow
to adapt to changing market conditions and EV innovations our
growth will be limited, which would negatively affect our ability
to scale business and operations.
Intellectual Property and Proprietary Technology
We rely on a combination of trade secrets, industry expertise,
confidential procedures and contractual provisions to protect our
intellectual property. Given the continuous updates and revisions
that we are making to our products, we believe that the cost of
obtaining patents would outweigh the benefits of doing so. However,
we may seek to obtain patents in the future as we continue to
develop unique core technologies.
We do not patent technology developed by us and we cannot be sure
that others will not independently develop the same or similar
technology or otherwise obtain access to our technology. To protect
our rights in these areas, we require all employees, consultants
and others who work for or with us to enter into confidentiality
agreements. We cannot be sure, however, that these agreements will
provide meaningful protection for our trade secrets, know-how or
other information in the event of any unauthorized use,
misappropriation or disclosure.
We have a registered trademark with the United States Patent and
Trademark Office and the International Register of Marks maintained
under the Madrid Agreement and Protocol for “DP Digital Power
Flexible Power”. In February 2021, we submitted an application for
the trademark “TurnOnGreen, Inc.” to the United States Patent and
Trademark Office. This application remains pending.
Currently we are not planning to apply for a protected patent for
some of the products we have developed for EV charging supply
equipment. However, we will maintain the IP of the proprietary
products and solutions we developed for the eMobility market and
some other adjacent markets. We periodically monitor for
infringements on our intellectual property and have never
encountered such an infringement. We do not believe that our lack
of patents is material to our ongoing business.
Environmental Matters and Other Government Regulations
Our businesses are heavily regulated in most of our markets. We
handle power electronics products mainly in the form of power
conversion. We must take into account several standards for
electronic safety to protect the health of humans and animals. We
serve diverse markets including automotive, medical and healthcare,
defense and aerospace, and industrial and telecommunications, each
of which has its own set of their safety regulations and standards
with which we must comply. Compliance with these laws has not been
a material cost to us and has not had a material effect upon our
capital expenditures, earnings or competitive position.
Environmental Matters. We are subject to various
federal, state local and non-U.S. laws and regulations relating to
environmental protection, including the discharge, treatment,
storage, disposal and remediation of hazardous substances and
wastes. We continually assess our compliance status and management
of environmental matters to ensure that our operations are in
compliance with all applicable environmental laws and regulations.
Investigation, remediation and operation and maintenance costs
associated with environmental compliance and management of sites
are a normal, recurring part of our operations. Because we
typically use third party manufacturing sources for our products,
compliance with these laws has not been a material cost to us and
has not had a material effect upon our capital expenditures,
earnings or competitive position.
Government Contracts. The U.S. government and foreign
governments may terminate any of our government contracts at their
convenience, as well as for default based on our failure to meet
specified performance requirements. If any of our U.S. government
contracts were to be terminated for convenience, we would generally
be entitled to receive payment for work completed and allowable
termination or cancellation costs. If any of our government
contracts were to be terminated for default, generally the U.S.
government would pay only for the work that has been accepted and
could require us to pay the difference between the original
contract price and the cost to re-procure the contract items, net
of the work accepted from the original contract. The U.S.
government can also hold us liable for damages resulting from the
default.
Medical Device Power Supplies. Our medical power
supplies must incorporate one or more means of protection (“MOP”)
to avoid electrocution. A MOP can be safety insulation, a
protective earth, a defined creepage distance, an air gap
(clearance) or other protective impedance. These can be used in
various combinations – having two MOPs means if one fails, there is
another in place. We must comply with a standard that treats
operators and patients, resulting in the classifications “means of
operator protection” and “means of patient protection.” The latter
requirements are more stringent because the patient may be
physically connected via an AP and unconscious when the fault
occurs.
Non-U.S. Sales. Our non-U.S. sales are subject
to both U.S. and non-U.S. governmental regulations and procurement
policies and practices, including regulations relating to
import-export control, tariffs, investment, exchange controls,
anti-corruption and repatriation of earnings. Non-U.S. sales are
also subject to varying currency, political and economic risks.
Human Resources
As of June 30, 2022 we have approximately 18 full-time employees
and two part-time employees, of whom two were in engineering, three
in production, seven in sales and marketing, three in customer
support and eight in general and administrative. Our employees are
not covered by any collective
bargaining agreements. We consider relations with our employees to
be good.
We believe that we have been
successful in attracting experienced and capable personnel. All of
our employees have entered into agreements with our company or
BitNile requiring them not to disclose our proprietary information,
assigning to us all rights to inventions made during their
employment and prohibiting them from competing with us.
Backlog
As of June 30, 2022 and December 31, 2021, our backlog was
approximately $6.0 million and $4.0 million, respectively, compared
with $3.4 million and $2.9 million as of June 30, 2020 and December
31, 2020, respectively. Due to the nature of our manufacturing
process and customer base, we purchase and ship products to our
customers without experiencing a significant backlog and recognize
revenue at a point in time when goods are transferred.
Properties
We lease our executive offices in Milpitas, California. Our total
rent expense for this office, which consists of 31,165 square feet,
is $67,000 per month. Our current lease expires on January 31,
2026.
Legal Proceedings
The Company is involved in litigation arising from other matters in
the ordinary course of business. We are regularly subject to
claims, suits, regulatory and government investigations, and other
proceedings involving labor and employment, commercial disputes,
and other matters. Such claims, suits, regulatory and government
investigations, and other proceedings could result in fines, civil
penalties, or other adverse consequences.
Certain of these outstanding matters include speculative,
substantial or indeterminate monetary amounts. We record a
liability when we believe that it is probable that a loss has been
incurred and the amount can be reasonably estimated. If we
determine that a loss is reasonably possible and the loss or range
of loss can be estimated, we disclose the reasonably possible loss.
We evaluate developments in our legal matters that could affect the
amount of liability that has been previously accrued, and the
matters and related reasonably possible losses disclosed, and make
adjustments as appropriate. Significant judgment is required to
determine both likelihood of there being and the estimated amount
of a loss related to such matters.
With respect to our other outstanding matters, based on our current
knowledge, we believe that the amount or range of reasonably
possible loss will not, either individually or in aggregate, have a
material adverse effect on our business, consolidated financial
position, results of operations, or cash flows. However, the
outcome of such matters is inherently unpredictable and subject to
significant uncertainties.
RISK FACTORS
An investment in our common stock involves significant risks. You
should carefully consider the following risks and all other
information set forth in this Current Report before deciding to
invest in our common stock. If any of the events or developments
described below occurs, our business, financial condition and
results of operations may suffer. In that case, the value of our
common stock may decline and you could lose all or part of your
investment.
You should consider each of the following risk factors and any
other information set forth in this Current Report and the other
reports filed by the Company with the SEC, including our financial
statements and related notes, in evaluating our business and
prospects. The risks and uncertainties described below are not the
only ones that impact on our operations and business. Additional
risks and uncertainties not presently known to the Company, or that
the Company currently considers immaterial, may also impair its
business or operations. If any of the following risks actually
occurs, our business and financial condition, results or prospects
could be harmed. Please also read carefully the section entitled
“Note About Forward-Looking Statements” at the beginning of this
Current Report.
Risks Related to the
Company and Its Financial Condition
TurnOnGreen has a history of annual net losses which may
continue and negatively impact its ability to achieve its business
objectives.
As of June 30, 2022, we had cash of $0.3 million and working
capital of $2.4 million. We have incurred recurring losses,
anticipate continuing losses, and reported losses for the six
months ended June 30, 2022 and the years ended December 31, 2021,
and 2020 of $1.9 million, $1.8 million and $0.6 million,
respectively. In the past, we have financed our operations
principally through investment by BitNile, our current parent
company. There can be no assurance that, even if our revenues
increase, future operations will result in net
income. Our failure to increase our revenues or improve
our gross margins will harm our business. We may not be
able to sustain or increase profitability on a quarterly or annual
basis in the future. If our revenues grow more slowly
than we anticipate, our gross margins fail to improve or our
operating expenses exceed our expectations, our operating results
will suffer. The prices we charge for our products may
decrease, which would reduce our revenues and gross margins and
harm our business. If we are unable to sell our products
at acceptable prices relative to our costs, or if we fail to
develop and introduce on a timely basis new products from which we
can derive additional revenues, our financial results will
suffer.
TurnOnGreen’s business model will continue to evolve as we focus
on our EV charging operating segment, which will increase the
complexity of our business.
Our business model has evolved in the past and will continue to do
so as we focus on our EV charging operating segment. In prior years
we have added additional types of services and product offerings
and in some cases, we have modified or discontinued those services
and product offerings. We intend to continue to try to offer
additional types of products or services, including with respect to
our EV charging products and services, and we do not know whether
any of them will be successful. From time to time we have also
modified aspects of our business model relating to our product mix.
We do not know whether these or any other modifications will be
successful. The additions and modifications to our business have
increased the complexity of our business and placed significant
strain on our management, personnel, operations, systems, technical
performance, financial resources, and internal financial control
and reporting functions. Future additions to or modifications of
our business are likely to have similar effects. Further, any new
business or website we launch that is not favorably received by the
market could damage our reputation or our brand. The occurrence of
any of the foregoing could have a material adverse effect on our
business.
We will need, but may be unable to obtain, funding on
satisfactory terms, which could dilute our stockholders and
investors, or impose burdensome financial restrictions on our
business.
We have relied upon cash from financing activities and in the
future, we hope to rely on revenues generated from operations to
fund all of the cash requirements of our activities. However, it is
extremely unlikely that we will be able to generate any significant
cash from our operating activities in the foreseeable future.
Future financings may not be available on a timely basis, in
sufficient amounts or on terms acceptable to us, if at all. Any
debt financing or other financing of securities senior to our
common stock will likely include financial and other covenants that
will restrict our flexibility. Any failure to comply with these
covenants may cause an event of default and acceleration of the
obligation to pay the debt, which would have a material adverse
effect on our business, prospects, financial condition and results
of operations and we could lose our existing sources of funding and
impair our ability to secure new sources of funding. You should not
assume that BitNile will support us financially in the future.
There can be no assurance that we will be able to generate any
further investor interest in our securities or other types of
funding, in which case you would likely lose the entirety of your
investment in us.
Our acquisition growth strategy is subject to a significant
degree of risk.
Our growth strategy through acquisitions involves a significant
degree of risk. Some of the companies that we have identified as
acquisition targets may not have a developed business or are
experiencing inefficiencies and incur losses. Therefore, we may
lose our investment in the event that these companies’ businesses
do not develop as planned or that they are unable to achieve the
anticipated cost efficiencies or reduction of losses.
Further, in order to implement our growth plan, we have hired
additional staff and consultants to review potential investments
and implement our plan. As a result, we have substantially
increased our infrastructure and costs. If we fail to quickly find
new companies that provide revenue to offset our costs, we will
continue to experience losses. No assurance can be given that our
product development and investments will produce sufficient
revenues to offset these increases in expenditures.
If we make any acquisitions, they may disrupt or have a negative
impact on our business.
In the event that we acquire other entities in the future, we could
have difficulty integrating the acquired companies’ personnel and
operations with our own. In addition, the key personnel of the
acquired business may not be willing to work for us. We cannot
predict the effect expansion may have on our core business.
Regardless of whether we are successful in making an acquisition,
the negotiations could disrupt our ongoing business, distract our
management and employees and increase our expenses. In addition to
the risks described above, acquisitions are accompanied by several
inherent risks, including, without limitation, the following:
|
• |
If senior management and/or
management of future acquired companies terminate their employment
prior to our completion of integration; |
|
• |
difficulty of integrating acquired
products, services or operations; |
|
• |
integration of new employees and
management into our culture while maintaining focus on operating
efficiently and providing consistent, high-quality goods and
services; |
|
• |
potential disruption of the ongoing
businesses and distraction of our management and the management of
acquired companies; |
|
• |
unanticipated issues with
transferring customer relationships; |
|
• |
complexity associated with managing
our combined company; |
|
• |
difficulty of incorporating
acquired rights or products into our existing business; |
|
• |
difficulties in disposing of the
excess or idle facilities of an acquired company or business and
expenses in maintaining such facilities; |
|
• |
difficulties in maintaining uniform
standards, controls, procedures and policies; |
|
• |
potential impairment of
relationships with employees and customers as a result of any
integration of new management personnel; |
|
• |
potential inability or failure to
achieve additional sales and enhance our customer base through
cross-marketing of the products to new and existing customers; |
|
• |
effect of any government
regulations which relate to the business acquired; and |
|
• |
potential unknown liabilities
associated with acquired businesses or product lines, or the need
to spend significant amounts to retool, reposition or modify the
marketing and sales of acquired products or the defense of any
litigation, whether or not successful, resulting from actions of
the acquired company prior to our acquisition. |
Our business could be severely impaired if and to the extent that
we are unsuccessful in addressing any of these risks or other
problems encountered in connection with these acquisitions, many of
which cannot be presently identified. If we fail to satisfactorily
address them, these risks and problems could disrupt our ongoing
business, distract our management and employees, increase our
expenses and adversely affect our results of operations.
Our business and operations are growing, and if we fail to
effectively manage our growth, our business and operating results
could be harmed.
We have experienced, and may continue to experience, growth in our
operations. This has placed, and may continue to place, significant
demands on our management, operational and financial
infrastructure. If we do not manage our growth effectively, the
quality of our products and services could suffer, which could
negatively affect our operating results. To effectively manage our
growth, we must continue to improve our operational, financial and
management controls and reporting systems and procedures. These
systems improvements may require significant capital expenditures
and management resources. Failure to implement these improvements
could hurt our ability to manage our growth and our financial
position.
There is no assurance of successful expansion of
operations.
Our significant increase in the scope and the scale of our
operations, including the hiring of additional personnel, has
resulted in significantly higher operating expenses. We anticipate
that our operating expenses will continue to increase. Expansion of
our operations may also make significant demands on our management,
finances and other resources. Our ability to manage the anticipated
future growth, should it occur, will depend upon a significant
expansion of our accounting and other internal management systems
and the implementation and subsequent improvement of a variety of
systems, procedures and controls. We cannot assure that significant
problems in these areas will not occur. Failure to expand these
areas and implement and improve such systems, procedures and
controls in an efficient manner at a pace consistent with our
business could have a material adverse effect on our business,
financial condition and results of operations. We cannot assure
that attempts to expand our marketing, sales, manufacturing and
customer support efforts will succeed or generate additional sales
or profits in any future period. As a result of the expansion of
our operations and the anticipated increase in our operating
expenses, along with the difficulty in forecasting revenue levels,
we expect to continue to experience significant fluctuations in its
results of operations.
We may be unable to successfully expand our production capacity,
which could result in material delays, quality issues, increased
costs and loss of business opportunities, which may negatively
impact our product margins and profitability.
Part of our future growth strategy is to increase our production
capacity to meet increasing demand for our goods. Assuming we
obtain sufficient funding to increase our production capacity, any
projects to increase such capacity may not be constructed on the
anticipated timetable or within budget. We may also experience
quality control issues as we implement any production upgrades. Any
material delay in completing these projects, or any substantial
cost increases or quality issues in connection with these projects
could materially delay our ability to bring our products to market
and adversely affect our business, reduce our revenue, income and
available cash, all of which could harm our financial
condition.
If we fail to anticipate and adequately respond to rapid
technological changes in our industry, including evolving
industry-wide standards, in a timely and cost-effective manner, our
business, financial condition and results of operations would be
materially and adversely affected.
The markets in which we operate are characterized by technological
changes. Such changes, including evolving industry standards,
changes in customer requirements and new product introductions and
enhancements, could render our products obsolete. Accordingly, we
are required to constantly monitor and anticipate technological
changes in our industry and develop new product offerings and
technologies or adapt or modify our existing offerings and
technologies to keep pace with technological advances in our
industry and remain competitive.
Our ability to implement our business strategy and continue to grow
our revenues will depend on a number of factors, including our
continuing ability to:
|
· |
identify emerging technological
trends in our current and target markets; |
|
· |
identify additional uses for our
existing technology to address customer needs in our current and
future markets; |
|
· |
enhance our offerings by adding
innovative features that differentiate our offerings from those of
our competitors; and |
|
· |
design, develop, manufacture,
assemble, test, market and support new products and enhancements in
a timely and cost-effective manner. |
We believe that, to remain competitive in the future, we will need
to continue to invest significant financial resources in developing
new offerings and technologies or to adapt or modify our existing
offerings and technologies, including through internal product
design and development, strategic acquisitions and joint ventures
or other arrangements. However, these efforts may be more costly
than we anticipate and there can be no assurance that they will be
successful.
To the extent our customers adopt such new technology in place of
our products, the sales of our products may be adversely affected.
Such competition may also increase pricing pressure for our
products and adversely affect the revenues from such products.
Our future success depends upon our ability to develop, and
market differentiated, leading-edge power conversion products for
larger customers as well as off-grid power generation and
distribution technologies, potentially contributing to lengthy
product development and sales cycles that may result in significant
expenditures before revenues are generated.
The power system industry and the industries in which many of our
customers operate are characterized by intense competition, rapid
technological change, quickened product obsolescence, and price
erosion for mature products, each of which could have an adverse
effect on our results of operations. The development of new,
innovative products is often a complex, time-consuming and costly
process involving significant investment in research and
development, with no assurance of return on investment. Although we
have introduced many products over recent years, there can be no
assurance we will be able to continue to develop and introduce new
and improved products and power system concepts in a timely or
efficient manner. Similarly, there can be no assurance that
recently introduced or future products will achieve customer
acceptance.
Our success depends substantially upon customer acceptance of our
innovative products and services. As we have been in the early
stages of market penetration for our EVSE infrastructure and
eMobility service, we have experienced lengthy periods during which
we have focused our product development efforts on the specific
requirements of a limited number of large customers, followed by
further periods of delay before meaningful purchase orders are
received. As a result, we may incur significant product development
expenses, as well as significant sales and marketing expenses,
before we generate the related revenues for these products.
We cannot offer any assurance that the markets we currently serve
will grow in the future, our power products, including EVSE
infrastructure and services, will meet respective market
requirements, or we can maintain adequate gross margins or
operating profits in these markets.
Our results will depend on our ability to maintain and expand
our existing sales channels and to build out our marketing,
business development and sales functions.
To grow our business, we must add new customers for our products in
addition to retaining and increasing sales to our current
customers. Currently, we have a limited sales force focused on
establishing relationships with customers that we expect to expand
over time. We have historically relied on key executives to drive
growth through return business with existing customers. Building
out marketing, business development and sales functions in all
operating subsidiaries is critical to drive significant growth in
line with our strategic plans. We plan to contract for marketing
services to improve our websites, manage public relations and
optimize our social media presence. Failure to recruit and retain
the business development and sales personnel to execute on outreach
and capture of new business, or the failure of those new hires or
marketing services to perform as expected, will limit our ability
to achieve our growth targets.
The sale of our products is dependent upon our ability to
satisfy the proprietary requirements of our customers.
We depend upon a relatively narrow range of products for the
majority of our revenue. Our success in marketing our products is
dependent upon their continued acceptance by our customers. In some
cases, our customers require that our products meet their own
proprietary requirements. If we are unable to satisfy such
requirements, or forecast and adapt to changes in such
requirements, our business could be materially harmed.
We depend upon a few major customers for a majority of our
revenues, and the loss of any of these customers, or the
substantial reduction in the quantity of products that they
purchase from us, would significantly reduce our revenues.
We currently depend upon a few major OEMs and other customers for a
significant portion of our revenues. Given the nascent stage of the
industry, a limited number of contractual commercial customers and
OEM partners currently account for a substantial portion of our
income. Our operating projections are currently contingent on our
performance under our commercial contracts with medical and
healthcare, defense and aerospace, and industrial and
telecommunications customers. We expect that a majority of our
sales outside of our new eMobility market may continue to come from
a concentrated number of commercial customers and OEM partners. We
expect a substantial portion of our revenues in the near future to
be from our eMobility market and as a result, to be subject to any
risks specific to those entities and the jurisdictions and markets
in which they operate, including their ability to develop a
portfolio of EV charging infrastructure models and attract
customers for those models. We may be unable to accomplish our
business plan to diversify and expand our customer and OEM partner
base by attracting a broad array of customers and OEM partners,
which could negatively affect our business, results of operations
and financial condition.
If our major OEM customers reduce or cancel their orders scaling
back some of their activities, our revenues would be significantly
reduced. Further, diversions in the capital spending of certain of
these customers to new network elements have and could continue to
lead to their reduced demand for our products, which could, in
turn, have a material adverse effect on our business and results of
operations. If the financial condition of one or more of our major
customers should deteriorate, or if they have difficulty acquiring
investment capital due to any of these or other factors, a
substantial decrease in our revenues would likely result. We are
dependent on the electronic equipment industry, and accordingly
will be affected by the impact on that industry of current economic
conditions.
Substantially all of our existing customers are in the electronic
equipment industry, and they manufacture products that are subject
to rapid technological change, obsolescence and large fluctuations
in demand. This industry is further characterized by intense
competition and volatility. The OEMs serving this industry are
pressured for increased product performance and lower product
prices. OEMs, in turn, make similar demands on their suppliers,
such as our company, for increased product performance and lower
prices. Such demands may adversely affect our ability to
successfully compete in certain markets or our ability to sustain
our gross margins.
We anticipate growing international sales for a portion of our
revenues, for which there can be no assurance.
Sales to customers outside of North America accounted for 16.3%,
12.4%, and 17.2% of revenues for the six months ended June 30, 2022
and the years ended December 31, 2021 and 2020, respectively, and
we expect that international sales will represent an increasing
portion of our total revenues. International sales are subject to
the risks of international business operations as described above,
as well as generally longer payment cycles, greater difficulty
collecting accounts receivable and currency restrictions.
Our backlog is subject to reduction and cancellation and
unavailability of raw materials used in our products, which could
negatively impact our revenues and results of operations.
Backlog represents products or services that our customers have
committed by contract to purchase from us. Many of the orders that
comprise our backlog may be canceled by our customers, and we
cannot be certain that the amount of our backlog does not exceed
the level of orders that will ultimately be delivered. Moreover,
cancellations of purchase orders or reductions of product
quantities in existing contracts could substantially and materially
reduce backlog and, consequently, future revenues. Our failure to
replace canceled or reduced backlog could negatively impact our
revenues and results of operations. Further, disruption in supply
chain of electronic components and material parts used as raw
materials in our products may affect our ability to manufacture
products which could substantially reduce backlog.
Although we depend on sales of our legacy products for a
meaningful portion of our revenues, these products are mature, and
their sales will decline.
A relatively large portion of our sales have historically been
attributable to our legacy products. We expect that these products
may continue to account for a meaningful percentage of our revenues
for the foreseeable future. However, these sales are declining.
Although we are unable to predict future prices for our legacy
products, we expect that prices for these products will continue to
be subject to significant downward pressure in certain markets for
the reasons described above. Accordingly, our ability to maintain
or increase revenues will be dependent on our ability to expand our
customer base, to increase unit sales volumes of these products and
to successfully, develop, introduce, and sell new products such as
custom design and value-added products. We cannot assure you that
we will be able to expand our customer base, increase unit sales
volumes of existing products or develop, introduce and/or sell new
products.
We are heavily dependent on our senior management, and a loss of
a member of our senior management team could cause our stock price
to suffer.
If we lose the services of Amos Kohn, our Founder and Chief
Executive Officer, Marcus Charuvastra, our President and Chief
Revenue Officer, Douglas Gintz, our Chief Technology Officer,
and/or certain key employees, we may not be able to find
appropriate replacements on a timely basis, and our business could
be adversely affected. Our existing operations and continued future
development depend to a significant extent upon the performance and
active participation of these individuals and certain key
employees. Although we have entered into an employment agreement
with Mr. Kohn and we may enter into employment agreements with
additional key employees in the future, we cannot guarantee that we
will be successful in retaining the services of these individuals.
If we were to lose any of these individuals, we may not be able to
find appropriate replacements on a timely basis and our financial
condition and results of operations could be materially adversely
affected.
If we are unable to identify, attract, train and retain
qualified personnel, especially our design and technical personnel,
our business and results of operations would be materially and
adversely affected, and we may not be able to effectively execute
our business strategy.
Our performance and future success largely depends on our
continuing ability to identify, attract, train, retain and motivate
qualified personnel, including our management, sales and marketing,
finance and in particular our engineering, design and technical
personnel. For example, we currently have limited number of
qualified personnel for the assembling and testing processes. We do
not know whether we will be able to retain all these personnel as
we continue to pursue our business strategy. Our engineering,
design and technical personnel represent a significant asset. The
competition for qualified personnel in our industry is intense and
constrains our ability to attract qualified personnel. The loss of
the services of one or more of our key employees, especially of our
key engineering, design and technical personnel, or our inability
to attract, retain and motivate qualified personnel could have a
material adverse effect on our business, financial condition and
operating results.
Our technology is generally unpatented, and others may seek to
copy it.
We operate in an industry in which the ability to compete depends
on the development or acquisition of proprietary technologies that
must be protected to preserve the exclusive use of such
technologies. We devote substantial resources to establish and
protect our proprietary rights. This protection, however, may not
prevent competitors from independently developing products similar
or superior to ours. We may be unable to protect our IP that
competitors could restrict or replicate, all of which may have a
material adverse effect on our competitive position. In addition,
the intellectual property laws of foreign countries may not protect
our rights to the same extent as those of the United States.
We generally do not patent technology developed by us and we cannot
be sure that others will not independently develop the same or
similar technology or otherwise obtain access to our technology. To
protect our rights in these areas, we require all employees,
consultants and others who work for or with us to enter into
confidentiality agreements. We cannot be sure, however, that these
agreements will provide meaningful protection for our trade
secrets, know-how or other information in the event of any
unauthorized use, misappropriation or disclosure.
Failure of our information technology infrastructure to operate
effectively could adversely affect our business.
We depend heavily on information technology infrastructure to
achieve our business objectives. If a problem occurs that impairs
this infrastructure, the resulting disruption could impede our
ability to record or process orders, manufacture and ship in a
timely manner, or otherwise carry on business in the normal course.
Any such events could cause us to lose customers or revenue and
could require us to incur significant expense to remediate.
Our insurance coverage and indemnity may be insufficient to
cover potential liabilities we may face due to the risks inherent
in the products and services we provide.
We are exposed to liabilities that are unique to the products and
services we provide. A significant portion of our business relates
to designing, developing and manufacturing, components, integrated
assemblies and subsystems for advanced defense, medical,
transportation, industrial, technology and communications systems
and products. New technologies associated with these systems and
products may be untested or unproven. Components of certain of the
defense systems and products we develop are inherently dangerous.
Failures of satellites, missile systems, air traffic control
systems, homeland security applications and aircraft have the
potential to cause loss of life and extensive property damage. In
most circumstances, we may receive indemnification from the
government end users of our defense offerings in the United States,
the United Kingdom and Israel. In addition, failures of products
and systems that we manufacture or distribute for medical devices,
transportation controls or industrial systems also have the
potential to result in loss of life, personal injury and/or
extensive property damage.
While we maintain insurance for certain risks, the amount of our
insurance coverage may not be adequate to cover all claims or
liabilities, and we may be forced to bear substantial costs from an
accident or incident. It also is not possible for us to obtain
insurance to protect against all operational risks and liabilities.
Substantial claims resulting from an incident in excess of
government indemnity and our insurance coverage would harm our
financial condition, results of operations and cash flows.
Moreover, any accident or incident for which we are liable, even if
fully insured, could negatively affect our standing with our
customers and the public, thereby making it more difficult for us
to compete effectively, and could significantly impact the cost and
availability of adequate insurance in the future.
Risks Related to Our EV Charging Business and the EV Charging
Industry
We are dependent upon our and our contract manufacturers’
ability to timely procure electronic components.
Because of the global economy, many raw material vendors have
reduced capacities, closed production lines and, in some cases,
even discontinued their operations. As a result, there is a global
shortage of certain electronic or mineral components, which may
extend our production lead-time and our production costs. Some
materials are no longer available to support some of our products,
thereby requiring us to search for cross materials or, even worse,
redesign some of our products to support currently available
materials. Such redesign efforts may require certain regulatory and
safety agency re-submittals, which may cause further production
delays. While we have initiated actions that we believe will limit
our exposure to such problems, the dynamic business conditions in
many of our markets may challenge the solutions that have been put
in place, and issues may recur in the future.
In addition, most of our products are manufactured, assembled and
tested by third party subcontractors and contract manufacturers
located in Asia, and particularly China. While we have had
relationships with many of these third parties in the past, we
cannot predict how or whether these relationships will continue in
the future. In addition, changes in management, financial
viability, manufacturing demand or capacity, or other factors, at
these third parties could hurt our ability to manufacture our
products.
We may not be able to procure necessary key components or raw
materials, or we may purchase excess raw material inventory or
unusable inventory, which increases the risk of reserve charges to
reduce the value of any inventory deemed excess or obsolete,
thereby reducing our profitability.
The power systems industry, and the electronics industry as a
whole, can be subject to pronounced, lengthy business cycles and
otherwise subject to sudden and sharp changes in demand. Our
success, in part, is dependent on our ability to forecast and
procure inventories of components and materials to match production
schedules and customer delivery requirements. Many of our products
require raw materials supplied by a limited number of vendors and,
in some instances, a single vendor. During certain periods, key
components or materials required to build our products may become
unavailable in the timeframe required for us to meet our customers’
needs. Our inability to secure sufficient raw materials to
manufacture products for our customers has reduced, in the past,
our revenue and profitability and could do so again.
We may choose, and have chosen, to mitigate our inventory risks by
increasing the levels of inventory for certain products, components
and materials. Such increased inventory levels may increase the
potential risk for excess or obsolete inventories, should our
forecasts fail to materialize or if there are negative factors
impacting our customers’ end markets, leading to order
cancellation. If we identify excess inventory or determine certain
inventory is obsolete, we likely will record additional inventory
reserves (i.e., expenses representing the write-off of the excess
or obsolete inventory), which could have an adverse effect on our
gross margins and on our operating results.
We depend on international operators for a substantial portion
of our components and products.
We purchase a substantial portion of our components from foreign
manufacturers and have a substantial portion of our commercial
products assembled, packaged and tested by subcontractors located
outside the United States. These activities are subject to the
uncertainties associated with international business operations,
including trade barriers and other restrictions, changes in trade
policies, governmental regulations, currency exchange fluctuations,
reduced protection for intellectual property, war and other
military activities, terrorism, changes in social, political, or
economic conditions, and other disruptions or delays in production
or shipments, any of which could have a materially adverse effect
on our business, financial condition, and/or operating results.
Potential tariffs or a global trade war could increase the cost
of our products, which could adversely impact the competitiveness
of our products and our financial results.
Since 2018, the United States has imposed tariffs on certain
imports from China. If the U.S. administration imposes additional
tariffs, or if additional tariffs or trade restrictions are
implemented by the United States or other countries, the cost of
our products manufactured in China and imported into the United
States or other countries could increase, which in turn could
adversely affect the demand for these products and have a material
adverse effect on our business and results of operations. As of the
date of this Current Report, tariffs have not adversely affected
the purchase price of our products manufactured in China and
imported into the United States.
Changes to fuel economy standards may negatively impact the EV
market and thus the demand for our products and services.
As regulatory initiatives have required an increase in the mileage
capabilities of cars, consumption of renewable transportation
fuels, such as ethanol and biodiesel, and consumer acceptance of
EVs and other alternative vehicles has been increasing. If fuel
efficiency of non-electric vehicles continues to rise, whether
as the result of regulations or otherwise, and affordability of
vehicles using traditional transportation fuels improves, the
demand for electric and high energy vehicles could diminish.
Regulatory bodies may also adopt rules that substantially favor
certain alternatives to petroleum-based propulsion over
others, which may not necessarily be EVs. This may impose
additional obstacles to the purchase of EVs or the development of a
more ubiquitous EV market. Finally, the current litigation between
the state of California and the National Highway Transit Safety
Administration could impact California’s ability to set fuel
economy standards that encourage the adoption of EVs and are
followed by many other states. If any of the above lead to reduced
demand by consumers or businesses for EVs, it would materially and
adversely affect our business, operating results, financial
condition and prospects.
The EV market currently benefits from the availability of
rebates, tax credits and other financial incentives from
governments, utilities and others to offset the purchase or
operating cost of EVs and EV charging stations. The reduction,
modification, or elimination of such benefits could cause reduced
demand for EVs and EV charging stations, which would
adversely affect our financial results.
The U.S. federal government, foreign governments and some state and
local governments provide incentives to end users and purchasers of
EVs and EV charging stations in the form of rebates, tax credits,
and other financial incentives, such as payments for regulatory
credits. The EV market relies on these governmental rebates, tax
credits and other financial incentives to significantly lower the
effective price of EVs and EV charging stations to customers.
However, these incentives may expire on a particular date, end when
the allocated funding is exhausted, or be reduced or terminated as
a matter of regulatory or legislative policy.
We also derive other revenue from regulatory credits. If government
support of these credits declines, our ability to generate this
kind of revenue in the future would be adversely affected. The
availability of such credits may decline even with general
governmental support of the transition to EV infrastructure. For
example, in September 2020, California Governor Gavin Newsom
issued Executive Order N-79-20 (the “EO”), announcing a
target for all in-state sales of new passenger cars and trucks
to be zero-emission by 2035. While the EO calls for the
support of EV infrastructure, the form of this support is unclear.
If California or other jurisdictions choose to adopt regulatory
mandates instead of establishing or continuing green energy credit
regimes for EV infrastructure, our revenue from these credits would
be adversely impacted.
Our business is subject to risks associated with construction,
cost overruns and delays, and other contingencies that may arise in
the course of completing installations, and such risks may increase
in the future as we expand the scope of such services with other
parties.
We do not typically install charging stations at customer sites.
These installations are often performed by our partners or
electrical contractors with an existing relationship with the
customer and/or knowledge of the site. The installation of charging
stations at a particular site is generally subject to oversight and
regulation in accordance with state and local laws and ordinances
relating to building codes, safety, environmental protection and
related matters, and frequently requires various local and other
governmental approvals and permits that may vary by jurisdiction.
In addition, building codes, accessibility requirements or
regulations may hinder EV charger installation because they end up
costing the developer or installer more in order to meet the code
requirements. Meaningful delays or cost overruns may impact our
recognition of revenue in certain cases and/or impact customer
relationships, either of which could impact our business and
profitability.
Further, we may in the future elect to install charging stations at
customer sites or manage contractors, likely as part of offering
customers a turnkey solution. Working with contractors may require
us to obtain licenses or require us or our customers to comply with
additional rules, working conditions and other union requirements,
which can add costs and complexity to an installation project. In
addition, if these contractors are unable to provide timely,
thorough and quality installation-related services, customers could
fall behind their
construction schedules, leading to liability or cause customers to
become dissatisfied with the solutions we offer, and our overall
reputation would be harmed.
If we fail to offer high-quality support to charging station
owners and drivers, our business and reputation will
suffer.
Once a customer has installed our charging stations and subscribed
to our services, station owners and drivers will rely on us to
provide support services to resolve any issues that might arise in
the future. Rapid and high-quality customer support is important so
station owners can provide charging services and drivers can
receive reliable charging for their EVs. The importance of
high-quality customer support will increase as we seek to expand
our business and pursue new customers and geographies. If we do not
quickly resolve issues and provide effective support, our ability
to retain customers or sell additional products and services to
existing customers could suffer and our brand and reputation could
be harmed.
We rely on charging station manufacturing and other partners,
and a loss of any such partner or interruption in the partner’s
production could have a material adverse effect on our
business.
If we experience a significant increase in demand for our charging
stations and services, or if we need to replace an existing
supplier, we may not be able to supplement or replace them on
acceptable terms, which may undermine our ability to deliver
products to customers in a timely manner. For example, it may take
a significant amount of time to identify a manufacturer that has
the capability and resources to build charging stations in
sufficient volume. Identifying suitable suppliers and manufacturers
could be an extensive process that requires us to become satisfied
with their quality control, technical capabilities, responsiveness
and service, financial stability, regulatory compliance, and labor
and other ethical practices. Accordingly, a loss of any significant
suppliers or manufacturers, or an interruption in their production,
could have an adverse effect on our business, financial condition
and operating results.
Moreover, the bi-directional EV charging station market as a
whole is relatively new and charging station manufacturers are even
more limited and requirements are evolving. Though we work with
multiple vendors, it is likely that at the time a new product is
launched, and new requirements are rolled out, we may rely on a
single vendor. Certifications might also be delayed, as tests are
not always available at the time of commercial launch. Certain of
these requirements might at times apply to technology inside the
vehicles, in which case such risks could also be pushed on the
vehicle OEMs. To the extent we rely on a single supplier, the risks
to us would be intensified.
Our future results are dependent on our ability to establish,
maintain and expand our manufacturers’ representative OEM
relationships and our other relationships.
We market and sell our products through domestic and international
OEM relationships and other distribution channels, such as
manufacturers’ representatives and distributors. Our future results
are dependent on our ability to establish, maintain and expand our
relationships with OEMs as well as with manufacturers’
representatives and distributors to sell our products. If, however,
the third parties with whom we have entered into such OEM and other
arrangements should fail to meet their contractual obligations,
cease or curtain doing business with us or otherwise fail to meet
their own performance objectives, customer demand for our products
could be adversely affected, which would have an adverse effect on
our revenues.
We rely on third-party vendors and subcontractors for supply of
components, assemblies, and services and, therefore, cannot control
the availability or quality of such components, assemblies, and
services.
We depend on third-party vendors and subcontractors to supply
components, assemblies and services used to manufacture our
products, some of which are supplied by a single vendor. We have
experienced shortages of certain semiconductor and electronic
components and delays in service delivery, have incurred additional
and unexpected costs to address the shortages and delays, and have
experienced our own delays in production and shipping.
If suppliers or subcontractors cannot provide their products or
services on time or to our specifications, we may not be able to
meet the demand for our products and our delivery times may be
negatively affected. In addition, we cannot directly control the
quality of the products and services provided by third parties. In
order to expand revenue, we likely will need to identify and
qualify new suppliers and subcontractors to supplement or replace
existing suppliers and subcontractors, which may be a
time-consuming and expensive process. In addition, any
qualification of new suppliers may require customers of our
products utilizing products and services from new suppliers and
service providers to undergo a re-qualification process. Such
circumstances likely would lead to disruptions in our production,
increased manufacturing costs, delays in shipping to our customers,
and/or increases in prices paid to third parties for products and
services.
As pointed out, we rely on a third-party partner to provide certain
manufacturing steps associated with some of our proprietary process
to support our power products and solutions. This process,
developed with the third-party partners, involves complex printed
circuit board assembly, advanced environmental conditioning and
accelerated testing performed on equipment developed by us or the
third-party partners. An important, differentiating benefit of this
proprietary process is that it does not generate problematic
effluent, resulting in an environmentally safe approach to our
products with minimal waste. We have entered into agreements with
the third-party partner for production and transfer of technologies
and process know-how, including the purchase of the enabling
equipment developed by the third-party partner.
To date, we have successfully relied upon this third-party partner
to perform these manufacturing steps, although we have experienced
delivery delays associated with the third-party partner’s volume
constraints. This experience caused us to accelerate our schedule
for establishing our own high-volume capabilities in-house,
modifying, in 2020, our construction plans to accommodate a
dedicated, on-premises metal surface finishing facility. We expect
to rely on our third-party partner for production requirements
through the installation and qualification for production of our
products. We also expect to rely on our third-party partner in the
future for surge capacity requirements.
We face intense industry competition, price erosion and product
obsolescence, which, in turn, could reduce our
profitability.
We operate in an industry that is generally characterized by
intense competition. We believe that the principal bases of
competition in our markets are breadth of product line, quality of
products, stability, reliability and reputation of the provider,
along with cost. Quantity discounts, price erosion, and rapid
product obsolescence due to technological improvements are
therefore common in our industry as competitors strive to retain or
expand market share. Product obsolescence can lead to increases in
unsaleable inventory that may need to be written off and,
therefore, would increase our operating losses. Similarly, price
erosion would also increase our operating losses by decreasing our
revenues and our gross margins. In fact, we have seen price erosion
over the last several years on most of the products we sell, and we
expect additional price erosion in the future.
If we are unable to satisfy our customers’ specific product
quality, certification or network requirements, our business could
be disrupted, and our financial condition could be harmed.
Our customers demand that our products meet stringent quality,
performance and reliability standards. We have, from time to time,
experienced problems in satisfying such standards. Defects or
failures have occurred in the past, and may in the future recur,
relating to our product quality, performance and reliability. From
time to time, our customers also require us to implement specific
changes to our products to allow these products to operate within
their specific network configurations. If we are unable to remedy
these failures or defects or if we cannot effect such required
product modifications, we could experience lost revenues, increased
costs, including inventory write-offs, warranty expense and costs
associated with customer support, delays in, or cancellations or
rescheduling of, orders or shipments and product returns or
discounts, any of which would harm our business.
Risks Related to Our Relationship with BitNile
As long as BitNile controls us, your ability to influence
matters requiring stockholder approval will be limited.
As a result of the consummation of the Acquisition, BitNile
presently beneficially owns 318,512,900 shares of TurnOnGreen
common stock, representing approximately 90.8% of the beneficial
ownership of our outstanding common stock. For so long as BitNile
beneficially owns shares of our common stock representing at least
a majority of the votes entitled to be cast by the holders of
outstanding common stock, and potentially even a number of
beneficially owned shares that falls short of a majority, BitNile
will be able to elect all of the members of our Board.
In addition, until such time as BitNile beneficially owns shares of
our common stock representing less than a majority of the votes
entitled to be cast by the holders of outstanding common stock,
BitNile will have the ability to take stockholder action without
the vote of any other stockholder and without having to call a
stockholder meeting, and stockholders will not be able to affect
the outcome of any stockholder vote during this period. As a
result, BitNile will have the ability to control all matters
affecting us, including:
|
• |
the composition of our Board and,
through our Board, any determination with respect to our business
plans and policies; |
|
• |
any determinations with respect to
mergers, acquisitions and other business combinations; |
|
• |
our acquisition or disposition of
assets; |
|
• |
our financing activities; |
|
• |
changes to our articles of
incorporation and bylaws; |
|
• |
corporate opportunities that may be
suitable for us and BitNile; |
|
• |
determinations with respect to
enforcement of rights we may have against third parties, including
with respect to intellectual property rights; |
|
• |
the payment of dividends on our
common stock; |
|
• |
the number of shares available for
issuance under our stock plan for our prospective and existing
employees; and |
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• |
the strategy, direction and
objectives of our business. |
It should be noted that BitNile may not require beneficial
ownership amounting to an outright majority to control or very
strongly influence any of the above matters, in part because many
shareholders would not attend, whether in person or not, any of our
shareholder meetings(s). If BitNile does not provide any requisite
consent allowing us to conduct such activities when requested, we
will not be able to conduct such activities and, as a result, our
business and our operating results may be harmed.
BitNile’s voting control and its additional rights described above
may discourage transactions involving a change of control of us,
including transactions in which you as a holder of our Common Stock
might otherwise receive a premium for your shares over the
then-current market price. BitNile is not prohibited from selling a
controlling interest in us to a third party and may do so without
your or our approval and without providing for a purchase of your
shares of Common Stock. Accordingly, your shares of Common Stock
may be worth less than they would be if BitNile did not maintain
voting control over us or have the additional rights described
above.
BitNile’s interests and objectives as a stockholder may not align
with, or may even directly conflict with, your interests and
objectives as a stockholder. For example, BitNile may be more or
less interested in us entering into a transaction or conducting an
activity due to the impact such transaction or activity may have on
BitNile as a company, independent of us. In such instances, BitNile
may exercise its control over us in a way that is beneficial to
BitNile, and you will not be able to affect the outcome so long as
BitNile continues to hold a majority of the outstanding shares
entitled to vote. Even if BitNile were to reduce its ownership
below a majority of the aggregate voting power of the Common Stock,
it could still retain effective control of our company provided
that it maintained a significant number of our outstanding Common
Stock.
In the event BitNile is acquired or otherwise undergoes a change of
control, any acquirer or successor will be entitled to exercise the
voting control and contractual rights of BitNile and may do so in a
manner that could vary significantly from what BitNile would have
done or not done.
General Risk Factors
If we fail to establish and maintain an effective system of
internal control over financial reporting, we may not be able to
report our financial results accurately or prevent fraud. Any
inability to report and file our financial results accurately and
timely could harm our reputation and adversely impact the trading
price of our Common Stock.
Effective internal control over financial reporting is necessary
for us to provide reliable financial reports and prevent fraud. If
we cannot provide reliable financial reports or prevent fraud, we
may not be able to manage our business as effectively as we would
if an effective control environment existed, and our business and
reputation with investors may be harmed. As a result, our small
size and any current internal control deficiencies may adversely
affect our financial condition, results of operations and access to
capital. We have carried out an evaluation under the supervision
and with the participation of our management, including our
principal executive officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the most recent period
covered by this report. Based on the foregoing, our principal
executive officer and principal financial officer concluded that
our disclosure controls and procedures were not effective at the
reasonable assurance level due to the material weaknesses described
below.
A material weakness is a deficiency, or a combination of
deficiencies, within the meaning of Public Company Accounting
Oversight Board Audit Standard No. 5, in internal control over
financial reporting, such that there is a reasonable possibility
that a material misstatement of our annual or interim financial
statements will not be prevented or detected on a timely basis.
Management has identified the following material weakness which has
caused management to conclude that as of December 31, 2021 our
internal control over financial reporting was not effective at the
reasonable assurance level:
We do not have sufficient resources in our accounting function,
which restricts our ability to gather, analyze and properly review
information related to financial reporting, including fair value
estimates, in a timely manner. Due to our size and nature,
segregation of all conflicting duties may not always be possible
and may not be economically feasible. However, to the extent
possible, the initiation of transactions, the custody of assets and
the recording of transactions should be performed by separate
individuals. In addition, the Company's primary
user access controls to ensure appropriate authorization and
segregation of duties that would adequately restrict user and
privileged access to the financially relevant systems and data to
appropriate personnel were not designed and/or implemented
effectively. Management evaluated the impact of our failure
to have segregation of duties during our assessment of our
disclosure controls and procedures and concluded that the control
deficiency that resulted represented a material weakness.
While management evaluates the effectiveness of our internal
controls on a regular basis, these controls may not always be
effective. There are inherent limitations on the effectiveness of
internal controls, including collusion, management override, and
failure in human judgment. In addition, control procedures are
designed to reduce rather than eliminate business risks. In the
event our Chief Executive Officer or Chief Financial Officer, our
certifying officers under the Sarbanes-Oxley Act of 2002 (the
“SOX”), or our independent registered public accounting firm
determines our internal controls over financial reporting are not
effective as defined under Section 404 of SOX, we may be unable to
produce reliable financial reports or prevent fraud, which could
materially harm our business. In addition, we may be subject to
sanctions or investigation by government authorities or
self-regulatory organizations, such as the SEC or the Financial
Industry Regulatory Authority. Any such actions could affect
investor perceptions of the Company and result in an adverse
reaction in the financial markets due to a loss of confidence in
the reliability of our financial statements, which could cause the
market price of our Common Stock to decline or limit our access to
capital.
Our operating results may vary from quarter to quarter.
Our operating results have in the past been subject to
quarter-to-quarter fluctuations, and we expect that these
fluctuations will continue, and may increase in magnitude, in
future periods. Demand for our products is driven by many factors,
including the availability of funding for our products in our
customers’ capital budgets. There is a trend for some of our
customers to place large orders near the end of a quarter or fiscal
year, in part to spend remaining available capital budget funds.
Seasonal fluctuations in customer demand for our products driven by
budgetary and other concerns can create corresponding fluctuations
in period-to-period revenues, and we therefore cannot assure you
that our results in one period are necessarily indicative of our
revenues in any future period. In addition, the number and timing
of large individual sales and the ability to obtain acceptances of
those sales, where applicable, have been difficult for us to
predict, and large individual sales have, in some cases, occurred
in quarters subsequent to those we anticipated, or have not
occurred at all. The loss or deferral of one or more significant
sales in a quarter could harm our operating results for such
quarter. It is possible that, in some quarters, our operating
results will be below the expectations of public market analysts or
investors. In such events, or in the event adverse conditions
prevail, the market price of our Common Stock may decline
significantly.
Many of our competitors are larger and have greater financial
and other resources than we do.
Our products compete and will compete with similar if not identical
products produced by our competitors. These competitive products
could be marketed by well-established, successful companies that
possess greater financial, marketing, distribution personnel, and
other resources than we do. Using said resources, these companies
can implement extensive advertising and promotional campaigns, both
generally and in response to specific marketing efforts by
competitors. They can introduce new products to new markets more
rapidly. In certain instances, competitors with greater financial
resources may be able to enter a market in direct competition with
us, offering attractive marketing tools to encourage the sale of
products that compete with our products or present cost features
that consumers may find attractive.
Existing or new competitors may develop products or technologies
that more effectively address the demands of our customers and
markets with enhanced performance, features and functionality or
lower cost. Larger competitors frequently seek to maintain market
share and protect customer relationships through heavily-discounted
pricing, which we may not be able to match. If we fail to develop
and commercialize leading-edge technologies and products that are
cost effective and maintain high standards of quality and introduce
them to the market on a timely basis, our competitive position and
results of operations could be materially adversely affected.
Changes in the U.S. tax and other laws and regulations may
adversely affect our business.
The U.S. government may revise tax laws, regulations or official
interpretations in ways that could have a significant adverse
effect on our business, including modifications that could reduce
the profits that we can effectively realize from our international
operations, or that could require costly changes to those
operations, or the way in which they are structured. For example,
the effective tax rates for most U.S. companies reflect the fact
that income earned and reinvested outside the U.S. is generally
taxed at local rates, which may be much lower than U.S. tax rates.
If we expand abroad and there are changes in tax laws, regulations
or interpretations that significantly increase the tax rates on
non-U.S. income, our effective tax rate could increase, and our
profits could be reduced. If such increases resulted from our
status as a U.S. company, those changes could place us at a
disadvantage to our non-U.S. competitors if those competitors
remain subject to lower local tax rates.
Our sales and profitability may be affected by changes in
economic, business and industry conditions.
If the economic climate in the United States or abroad
deteriorates, customers or potential customers could reduce or
delay their technology investments. Reduced or delayed technology
and entertainment investments could decrease our sales and
profitability. In this environment, our customers may experience
financial difficulty, cease operations and fail to budget or reduce
budgets for the purchase of our products and professional services.
This may lead to longer sales cycles, delays in purchase decisions,
payment and collection, and can also result in downward price
pressures, causing our sales and profitability to decline. In
addition, general economic uncertainty and general declines in
capital spending in the information technology sector make it
difficult to predict changes in the purchasing requirements of our
customers and the markets we serve. There are many other factors
which could affect our business, including:
|
• |
the introduction and market acceptance of new technologies,
products and services; |
|
• |
new competitors and new forms of competition; |
|
• |
the size and timing of customer orders (for retail distributed
physical product); |
|
• |
the size and timing of capital expenditures by our
customers; |
|
• |
adverse changes in the credit quality of our customers and
suppliers; |
|
• |
changes in the pricing policies of, or the introduction of, new
products and services by us or our competitors; |
|
• |
changes in the terms of our contracts with our customers or
suppliers; |
|
• |
the availability of products from our suppliers; and |
|
• |
variations in product costs and the mix of products
sold. |
These trends and factors could adversely affect our business,
profitability and financial condition and diminish our ability to
achieve our strategic objectives.
Our limited ability to protect our proprietary information and
technology may adversely affect our ability to compete, and our
products could infringe upon the intellectual property rights of
others, resulting in claims against us, the results of which could
be costly.
Many of our products consist entirely or partly of proprietary
technology owned by us. Although we seek to protect our technology
through a combination of copyrights, trade secret laws and
contractual obligations, these protections may not be sufficient to
prevent the wrongful appropriation of our intellectual property,
nor will they prevent our competitors from independently developing
technologies that are substantially equivalent or superior to our
proprietary technology. In addition, the laws of some foreign
countries do not protect our proprietary rights to the same extent
as the laws of the United States. In order to defend our
proprietary rights in the technology utilized in our products from
third party infringement, we may be required to institute legal
proceedings, which would be costly and would divert our resources
from the development of our business. If we are unable to
successfully assert and defend our proprietary rights in the
technology utilized in our products, our future results could be
adversely affected.
Although we attempt to avoid infringing known proprietary rights of
third parties in our product development efforts, we may become
subject to legal proceedings and claims for alleged infringement
from time to time in the ordinary course of business. Any claims
relating to the infringement of third-party proprietary rights,
even if not meritorious, could result in costly litigation, divert
management’s attention and resources, require us to reengineer or
cease sales of our products or require us to enter into royalty or
license agreements which are not advantageous to us. In addition,
parties making claims may be able to obtain an injunction, which
could prevent us from selling our products in the United States or
abroad.
If we ship products that contain defects, the market acceptance
of our products and our reputation will be harmed and our customers
could seek to recover their damages from us.
Our products are complex, and despite extensive testing, may
contain defects or undetected errors or failures that may become
apparent only after our products have been shipped to our customers
and installed in their network or after product features or new
versions are released. Any such defect, error or failure could
result in failure of market acceptance of our products or damage to
our reputation or relations with our customers, resulting in
substantial costs for us and our customers, as well as the
cancellation of orders, warranty costs and product returns. In
addition, any defects, errors, misuse of our products or other
potential problems within or out of our control that may arise from
the use of our products could result in financial or other damages
to our customers. Our customers could seek to have us pay for these
losses. Although we maintain product liability insurance, it may
not be adequate.
The elimination of monetary liability against our directors,
officers and employees under law and the existence of
indemnification rights for or obligations to our directors,
officers and employees may result in substantial expenditures by us
and may discourage lawsuits against our directors, officers and
employees.
Our articles of incorporation contain a provision permitting us to
eliminate the personal liability of our directors to us and our
stockholders for damages for the breach of a fiduciary duty as a
director or officer to the extent provided by Nevada law. We may
also have contractual indemnification obligations under any future
employment agreements with our officers. The foregoing
indemnification obligations could result in us incurring
substantial expenditures to cover the cost of settlement or damage
awards against directors and officers, which we may be unable to
recoup. These provisions and the resulting costs may also
discourage us from bringing a lawsuit against directors and
officers for breaches of their fiduciary duties and may similarly
discourage the filing of derivative litigation by our stockholders
against our directors and officers even though such actions, if
successful, might otherwise benefit us and our
stockholders.
Failure to build our finance infrastructure and improve our
accounting systems and controls could impair our ability to comply
with the financial reporting and internal controls requirements for
publicly traded companies.
As a public company, we operate in an increasingly demanding
regulatory environment, which requires us to comply with SOX, the
rules and regulations of the SEC, disclosure requirements and more
complex accounting rules. Company responsibilities required by SOX
include establishing corporate oversight and adequate internal
control over financial reporting and disclosure controls and
procedures. Effective internal controls are necessary for us to
produce reliable financial reports and are important to help
prevent financial fraud. We must continually perform system and
process evaluation and testing of our internal controls over
financial reporting to allow management to report on the
effectiveness of our internal controls over financial reporting in
our Form 10-K filing for each year, as required by Section 404 of
SOX.
If we are not able to comply with the requirements of Section 404
of SOX in a timely manner, or if we are unable to maintain proper
and effective internal controls, we may not be able to produce
timely and accurate financial statements. If we cannot provide
reliable financial reports or prevent fraud, our business and
results of operations could be harmed, investors could lose
confidence in our reported financial information and we could be
subject to sanctions or investigations by the SEC or other
regulatory authorities.
The effects of the COVID-19 pandemic have materially affected
how we and our customers are operating our businesses, and the
duration and extent to which this will impact our future results of
operations and overall financial performance remains
uncertain.
The COVID-19 pandemic has continued to affect many countries,
upending entire supply chains of many important industries. In the
attempt to control this pandemic, governments have imposed actions
to assist limiting the spread of the disease, including orders to
lockdowns, shelter-in-place, travel restrictions, and mandated
business closures, have adversely affected workforces,
organizations, customers, economies, and financial markets
globally, leading to an economic downturn and increased market
volatility. Our operations have been affected by a range of
external factors related to the COVID-19 pandemic that are not
within our control. The epidemic is having a very significant
impact the electronics sector, with key manufacturers either
completely closed following the orders issued by local governments
or having to operate in an environment with inadequate numbers of
staff at manufacturing units to maintain the security of their
personnel. For example, many cities, counties, states and countries
have imposed or may impose a wide range of restrictions on the
physical movement of our employees, partners, and customers to
limit the spread of COVID-19. The COVID-19 pandemic have a
substantial impact on electronics manufactures. Many electronics
manufactures are in dire need of electronics materials and
materials required to support the manufacturing of products as well
as staff to maintain core functions. The productivity of our
employees and partners, a continued substantial impact on the
attendance of our employees, or a continued and substantial impact
on the ability of our customers to purchase our offerings, is
likely to lead to our results of operations and overall financial
performance may being harmed. The duration and extent of the
impact from the COVID-19 pandemic depends on future developments
that cannot be accurately predicted at this time, such as the
severity and transmission rate of the virus, the extent and
effectiveness of containment actions, the disruption caused by such
actions, and the impact of these and other factors on our
employees, customers, partners, vendors and the global economy. If
we are not able to respond to and manage the impact of such events
effectively, our business will be harmed. For more information
with respect to the COVID-19 pandemic and its impact on our
business, see “Management’s Discussion and Analysis of Financial
Condition and Results of Operation – Impact of Coronavirus on Our
Operations”.
MARKET FOR REGISTRANT’S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market Information
Our Common Stock is not listed on any securities exchange and is
available for quotation on the OTC Pink Market under the symbol
“IMHC”. Such quotations reflect inter-dealer prices, without retail
mark-up, mark-down, or commission and do not necessarily represent
actual transactions.
The last reported sales price of our Common Stock on the OTC Pink
Market on August 31, 2022 was $0.19.
Holders
As of August 31, 2022, there were 204 shareholders of record of our
Common Stock based upon the records of the shareholders provided by
our transfer agent. Our transfer agent is Signature Stock Transfer,
Inc.
Dividends
We have never paid or declared any dividends on our Common Stock
and do not anticipate paying cash dividends in the foreseeable
future.
Securities Authorized for Issuance Under Equity Compensation
Plans
We currently do not have any equity compensation plans.
Unregistered Sales of Equity Securities
We have previously disclosed all sales of securities without
registration under the Securities Act.
Issuer Purchases of Equity Securities
None.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF TOGI
You should read the following discussion and analysis of our
financial condition and results of our operations together with our
financial statements and the notes thereto appearing elsewhere in
this Current Report. This discussion contains forward-looking
statements reflecting our current expectations, whose actual
outcomes involve risks and uncertainties. Actual results and the
timing of events may differ materially from those stated in or
implied by these forward-looking statements due to several factors,
including those discussed in the sections entitled “Risk Factors”
and “Note About Forward-Looking Statements,” and elsewhere in this
Current Report.
Overview
We are engaged, through our wholly owned subsidiaries, Digital
Power and TOGT, in the design, development, manufacture and sale of
highly engineered, feature-rich, high-grade power conversion and
power system solutions for mission-critical applications and
processes. For more than 50 years, Digital Power has been devoted
to the perfection of our power solution products that have enabled
customer innovation in complex product applications covering a wide
range of industries. A natural outgrowth of our development of
these power systems has been our effort to apply our proprietary
core power technologies to optimizing the design and performance of
EV charging solutions. We introduced our product line of
residential and commercial high-speed EV charging solutions in late
2021. We believe that our charging solutions represent an entire
generation of new chargers due to dramatic improvements in
electronic circuitry size reduction, power conversion efficiency,
modular topology and output density. We believe that our
feature-rich EV chargers address the specific needs of multifamily
unit home dwellers and single family home-owners by providing
adjustable maximum electric current options, restricted user
access, LCD touch screen for simple point of operation use,
Bluetooth connectivity and programmable RFID card features. By
leveraging our experience and expertise in power conversion and
generation, we believe we can rapidly become a meaningful
participant in the high growth EV charging solution market.
Our strategy is to be the supplier of choice across numerous
specialized markets that require high-quality power system
solutions where custom design, product quality, responsiveness and
reliability are critical to business success. We believe that we
provide advanced custom product design services to deliver
high-grade products that reach a high level of efficiency and
density and can meet rigorous environmental requirements. We
believe that this integrated approach, which many of our
competitors do not provide, allows our customers to obtain all
their needs for designing and manufacturing power solutions and
products from a single source, enabling us to establish an ongoing
relationship with our customers to provide for their future
requirements. By implementing our proprietary core technology,
including process implementation in integrated circuits, we can
provide cost reductions to our customers by replacing their
existing power sources with our custom-designed and engineered
products.
Looking ahead, our mission is to maintain our core power
electronics business and existing relationships while leveraging
the experience and expertise we have gained in the development of
power system solutions to introduce EV charging solutions. By
offering EV charging solutions, as well as a convenient,
reliable, and affordable EV
charging e-mobility network through TOGT, we intend to drive
sustainable, mission-driven growth related to powering
environmentally beneficial EVs while continuing to be recognized as
a trusted provider of advanced power supply technology.
Factors Affecting Our Performance
We believe that the growth of our business and our future success
depend on various opportunities, challenges, trends and other
factors, including the following:
|
Ø |
Our business model is evolving and
we will need to invest a substantial amount of operating capital on
an ongoing basis to support our EV charging solutions business. We
expect to use the largest portion of any capital we may be able to
raise to purchase EV components and inventory in connection with
future sales and installations. To the extent that the capital
expenditure requirements of our EV charging solutions business are
greater than anticipated, any funds we have will be unavailable for
our other operations. It is likely that we will need substantial
additional funds for our working capital and capital expenditure
requirements as we grow our EV charging solutions business. |
|
Ø |
Our ability to provide our products
and systems on a timely basis is dependent on our ability to
procure critical electronic components. The current supply chain
crisis in the global economy has led to delivery delays and
shortages of certain electronic components and associated raw
materials that we use in our products. Should this supply chain
crisis continue throughout 2022, it will likely extend our
production time periods and delay the timing of revenue
recognition. |
|
Ø |
To date, our operations were
financed principally through investments by BitNile and took
advantage of BitNile’s size and purchasing power in procuring
goods, technology and services, including insurance, employee
benefit support and audit, and other professional services. Though
BitNile will be a controlling stockholder upon the completion of
the Acquisition, we may not have access to BitNile’s financial and
other resources. |
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition
and results of operations is based upon consolidated financial
statements, which have been prepared in accordance with generally
accepted accounting principles in the United States of America
(“GAAP”). The preparation of these financial statements, in
conformity with GAAP, requires our management to make estimates,
judgments and assumptions. Management believes that the estimates,
judgments and assumptions used are reasonable based upon
information available at the time they are made. These estimates,
judgments and assumptions can affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the dates of the financial statements, and the reported amounts
of revenue and expenses during the reporting periods. Actual
results could differ from those estimates. Key estimates include
allowances for inventory obsolescence, accruals of certain
liabilities including product warranties, useful lives of assets,
and deferred income taxes and related valuation allowance.
Management believes the following accounting policies are critical
to our operating results or may affect significant estimates,
judgments, and assumptions used in
the preparation of our consolidated financial statements.
Revenue Recognition
We recognize revenue under ASC 606, Revenue from Contracts
with Customers. The core principle of this revenue standard is that
a company should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects
the consideration to which the company expects to be entitled in
exchange for those goods or services. The following five steps are
applied to achieve that core principle:
|
Ø |
Step 1: Identify the contract with
the customer; |
|
Ø |
Step 2: Identify the performance
obligations in the contract; |
|
Ø |
Step 3: Determine the transaction
price; |
|
Ø |
Step 4: Allocate the transaction
price to the performance obligations in the contract; and |
|
Ø |
Step 5: Recognize revenue when the
company satisfies a performance obligation. |
Our disaggregated revenues consisted of the following for the three
and six months ended June 30, 2022 and 2021:
|
|
For
the Three Months Ended June 30, |
|
|
For
the Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Primary
Geographical Markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
822,000 |
|
|
$ |
1,290,000 |
|
|
$ |
1,834,000 |
|
|
$ |
2,497,000 |
|
Europe |
|
|
28,000 |
|
|
|
453,000 |
|
|
|
47,000 |
|
|
|
562,000 |
|
Other |
|
|
212,000 |
|
|
|
88,000 |
|
|
|
310,000 |
|
|
|
154,000 |
|
Total
Revenue |
|
$ |
1,062,000 |
|
|
$ |
1,831,000 |
|
|
$ |
2,191,000 |
|
|
$ |
3,213,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Major Goods |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Power Supply Units |
|
$ |
1,016,000 |
|
|
$ |
1,831,000 |
|
|
$ |
2,112,000 |
|
|
$ |
3,213,000 |
|
EV Chargers |
|
|
46,000 |
|
|
|
- |
|
|
|
79,000 |
|
|
|
- |
|
Total
Revenue |
|
$ |
1,062,000 |
|
|
$ |
1,831,000 |
|
|
$ |
2,191,000 |
|
|
$ |
3,213,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of Revenue
Recognition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods
transferred at a point in time |
|
$ |
1,062,000 |
|
|
$ |
1,831,000 |
|
|
$ |
2,191,000 |
|
|
$ |
3,213,000 |
|
Our disaggregated revenues consisted of the following for the years
ended December 31, 2021 and 2020:
|
|
2021 |
|
|
2020 |
|
Primary
Geographical Markets |
|
|
|
|
|
|
|
|
North America |
|
$ |
4,684,000 |
|
|
$ |
4,482,000 |
|
Europe |
|
|
359,000 |
|
|
|
611,000 |
|
Other |
|
|
303,000 |
|
|
|
323,000 |
|
|
|
$ |
5,346,000 |
|
|
$ |
5,416,000 |
|
|
|
|
|
|
|
|
|
|
Major Goods |
|
|
|
|
|
|
|
|
Power Supply Units |
|
$ |
5,328,000 |
|
|
$ |
5,416,000 |
|
EV Chargers |
|
|
18,000 |
|
|
|
- |
|
|
|
$ |
5,346,000 |
|
|
$ |
5,416,000 |
|
|
|
|
|
|
|
|
|
|
Timing of Revenue
Recognition |
|
|
|
|
|
|
|
|
Goods
transferred at a point in time |
|
$ |
5,346,000 |
|
|
$ |
5,416,000 |
|
We generate revenues from the sale of our products through a direct
and indirect sales force. Our performance obligations to
deliver products are satisfied at the point in time when products
are received by the customer, which is when the customer obtains
control over the goods. We provide standard assurance warranties,
which are not separately priced, that the products function as
intended. We primarily receive fixed consideration for sales of
product. Some of our contracts with distributors include stock
rotation rights after six months for slow moving inventory, which
represents variable consideration. We use an expected value method
to estimate variable consideration and constrain revenue for
estimated stock rotations until it is probable that a significant
reversal in the amount of cumulative revenue recognized will not
occur. To date, returns have been insignificant. Our customers
generally pay within 30 days from their receipt of our
invoices.
Because our product sales agreements have an expected duration of
one year or less, we have elected to adopt the practical expedient
in ASC 606-10-50-14(a) of not disclosing information about our
remaining performance obligations. We have elected the practical
expedient to not adjust the promised amount of consideration for
the effects of a significant financing component to the extent that
the period between when we transfer our promised good or service to
the customer and when the customer pays in one year or less.
Accounts Receivable
Our receivables are recorded when billed and represent claims
against third parties that will be settled in cash. The carrying
amount of our receivables, net of the allowance for doubtful
accounts, represents their estimated net realizable value. We
individually review all accounts receivable balances and based upon
an assessment of current creditworthiness, estimate the portion, if
any, of the balance that will not be collected. We estimate the
allowance for doubtful accounts based on historical collection
trends, age of outstanding receivables and existing economic
conditions. If events or changes in circumstances indicate that a
specific receivable balance may be impaired, further consideration
is given to the collectability of those balances and the allowance
is adjusted accordingly. A customer’s receivable balance is
considered past-due based on its contractual terms. Past-due
receivable balances are written-off when our internal collection
efforts have been unsuccessful in collecting the amount due. Based
on an assessment as of June 30, 2022, December 31, 2021 and
December 31, 2020 of the collectability of invoices, an allowance
for doubtful accounts was not considered necessary and therefore no
allowance was recorded.
Inventories
Inventories are stated at cost. Inventory write-offs are provided
to cover risks arising from technological obsolescence as our
products are mostly original equipment manufactured for our
clients.
Cost of inventories is determined as follows:
|
Ø |
Raw materials, parts and supplies - using the “first-in,
first-out” method. |
|
Ø |
Work-in-progress and finished
products - based on direct manufacturing costs with the addition of
indirect manufacturing costs. |
We periodically assess our inventories valuation in respect to
obsolete items by reviewing revenue forecasts and technological
obsolescence and moving such items into a reserve allowance for
obsolescence. When inventories on hand exceed the foreseeable
demand or become obsolete, the value of excess inventory, which at
the time of the review was not expected to be sold, is written off.
We have an obsolescence reserve of $0.1 million for the six months
ended June 30, 2022 and for the years ended December 31, 2021 and
2020.
During the six months ended June 30, 2022 and years ended December
31, 2021 and 2020, we did not record inventory write-offs within
the cost of revenue.
Property and Equipment, Net
Property and equipment are stated at cost, net of accumulated
depreciation. Major additions and improvements are capitalized,
while replacements, maintenance and repairs, which do not improve
or extend the life of the respective assets, are expensed as
incurred. Depreciation is calculated using the straight-line method
over the estimated useful lives of the assets, at the following
annual rates:
|
|
Useful Lives |
Asset |
|
(In Years) |
|
|
|
Computer software and office and computer equipment |
|
3 - 5 |
Machinery and equipment, automobiles, furniture and
fixtures |
|
3 - 10 |
Leasehold improvements |
|
Over the term of the lease or the
life of the asset, whichever is shorter |
Warranty
We offer a manufacturing warranty period for all our manufactured
products to function free from defects in material and workmanship
under normal use and service for one to two years on most products
and up to five years for rugged power products for the defense and
aerospace markets. For our EVSE product line, we offer up to a
three-year extended warranty beyond the manufacturing warranty
period. We also provide end user technical support for up to 15
years on many of our products which have long lifetimes. We
estimate the costs that may be incurred under our warranty and
record a liability in the amount of such costs at the time product
revenue is recognized. Factors that affect our warranty liability
include the number of units sold, the sector product is being used,
historical rates of warranty claims and cost per claim. We
periodically assess the adequacy of our recorded warranty
liability. As of June 30, 2022 and December 31, 2021, our accrued
warranty liability was $54,000 and at December 31, 2020 it was
$44,000.
Segments
We operate in one business segment. Our Chief Executive Officer,
who is the chief operating decision maker, views our operating
performance on a consolidated basis as one segment providing
comprehensive EV charging solutions, high-grade power systems and
product solutions serving diverse industries and markets including
defense and aerospace, medical and healthcare, telecommunications,
industrial and e-Mobility.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations
of credit risk consist principally of cash and trade
receivables.
Our trade receivables are mainly derived from sales to customers
located primarily in the United States. We perform ongoing credit
evaluations of our customers and to date have not experienced any
material losses. An allowance for doubtful accounts is determined
with respect to those amounts that we and our subsidiary have
determined to be doubtful of collection. As of June 30, 2022,
December 31, 2021 and 2020, there were no allowances for doubtful
accounts.
The following table provides the percentage of total revenues
attributable to a single customer from which 10% or more of total
revenues are derived:
|
|
For
the Three Months Ended June 30, |
|
|
For
the Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Customer A |
|
|
24 |
% |
|
|
- |
|
|
|
12 |
% |
|
|
- |
|
Customer B |
|
|
- |
|
|
|
24 |
% |
|
|
12 |
% |
|
|
20 |
% |
|
|
For
the Years Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
|
2020 |
|
Customer A |
|
|
17 |
% |
|
|
16 |
% |
Customer B |
|
|
12 |
% |
|
|
10 |
% |
Impact of Coronavirus on Our Operations
Our business has been disrupted and materially adversely affected
by the outbreak of COVID-19. As a result of measures imposed by the
governments in affected regions, businesses and schools have been
suspended due to quarantines intended to contain this outbreak and
many people have been forced to work from home in those areas.
While the COVID-19 outbreak is no longer in its early stages,
international stock markets continue to reflect the uncertainty
associated with the slow-down in the American, Israeli and UK
economies and the reduced levels of international travel
experienced since the beginning of January 2020. The significant
volatility in the Dow Industrial Average throughout 2020 was
largely attributed to the effects of COVID-19. We continue to
monitor and assess our business operations and system supports and
the impact COVID-19 may have on our results and financial
condition, but there can be no assurance that this analysis will
enable us to avoid part of or all the impacts from the continuing
spread of COVID-19 or its consequences, including downturns in
business sentiment generally or in our sectors particularly.
The impact of the COVID-19 pandemic, including changes in consumer
and business behavior, pandemic fears and market downturns, and
restrictions on business and individual activities, has created
significant volatility in the global economy and has led to reduced
economic activity. The spread of the COVID-19 pandemic has also
created a disruption in the manufacturing, delivery and overall
supply chain of power electronics manufacturing and suppliers and
has led to a decrease in power electronics product sales in
numerous markets around the world. Any sustained downturn in demand
for power electronics products would harm our business. Widespread
uncertainty associated with the pandemic has contributed to reduced
business activity worldwide. As described further below, we have
experienced production constraints since 2020 that resulted in
delays, inefficiencies, and higher costs, which, in the aggregate,
had a detrimental influence on our financial results for the past
six quarters.
Our deliveries to and orders from the North American market in
sectors we serve, including
industrial, telecommunication, medical/healthcare and
defense/aerospace, have declined since early 2020 given reduced
manufacturing activity, unavailability of electronic components and
associated raw materials used in our power products, and broad
uncertainty. We believe domestic demand will further improve once
the COVID-19 pandemic is substantially contained and uncertainties
are reduced, but we cannot predict when this will occur. The
COVID-19 pandemic has also led to an increase in the price for
certain parts and materials used in the production of our power
electronics and EV charging solution products.
Trading conditions in China deteriorated through 2019 due to
macroeconomic and trade-related uncertainties. At the beginning of
2020, trading conditions were significantly further affected by the
COVID-19 pandemic, with much of the country’s manufacturing
disrupted from January through April 2020. By late April 2020,
after aggressive measures to contain the coronavirus, the Chinese
government quickly implemented economic stimulus measures. We
believe this volume was primarily associated with the stimulus
spending of the Chinese government, although we also believe an
unquantifiable amount of this volume may have been associated with
accelerated purchasing by customers anticipating further
deterioration of the trade relationship between China and the U.S.,
which, if it were to occur, could substantially limit purchases by
such customers. By the end of 2021 the COVID 19 pandemic continued
to substantially affect our supply chain. However, we cannot
predict if or when circumstances may change, nor can we predict the
amount by which bookings or shipments may change.
From early March 2020, we took actions intended to protect the
health and safety of our employees, customers, strategic channel
partners and suppliers. Following guidance from the U.S. Centers
for Disease Control and Prevention, the U.S. Occupational Health
and Safety Administration, state and local health authorities, and
existing internal crisis management policies, we developed and
implemented comprehensive health and safety measures at all of our
locations, including: distributing information and carrying out
education initiatives; implementing social distancing requirements;
distributing face masks, disposable gloves, disinfectant wipes and
thermometers to employees; implementing temperature checks at the
entrances to our manufacturing facility; extensive and frequent
disinfecting of our workspaces; and enabling work-from-home
arrangements for those employees who do not need to be physically
on the premises to perform their work effectively. At our
operations in Milpitas and Sonora, California, we have largely
returned to normal operations with adherence to guidelines
published by the Santa Clara Public Health Department. For example,
certain individuals deemed to be high risk may work remotely as
required. We expect to maintain all appropriate measures until we
determine the pandemic is adequately contained for purposes of our
business, and we may take further actions we consider to be in the
best interests of our employees, customers, strategic channel
partners and suppliers, or in response to further government
mandates or requirements.
The extent to which the COVID-19 pandemic impacts our business,
prospects and results of operations will depend on future
developments, which are highly uncertain and cannot be predicted,
including the duration and spread of the pandemic, its severity,
the actions to contain the virus or treat its impact, and when and
to what extent normal economic and operating activities can resume.
The COVID-19 pandemic could limit the ability of customers,
suppliers, vendors and strategic channel partners to perform,
including third-party suppliers’ ability to provide components and
materials used in our power electronics products and systems
including EV chargers or in providing installation or maintenance
services. Even after the COVID-19 pandemic has subsided, we may
continue to experience an adverse impact to our business due to its
global economic impact, including any recession that has occurred
or may occur in the future. Specifically, difficult macroeconomic
conditions, such as decreases in per capita income and levels of
disposable income, increased and prolonged unemployment or a
decline in consumer confidence because of the COVID-19 pandemic, as
well as reduced spending by businesses, could each have a material
adverse effect on the demand for our products and services.
We are monitoring the rapidly changing circumstances and may take
additional actions to address COVID-19 pandemic risks as they
evolve. We continue to closely monitor the operating performance
and financial health of our customers, strategic channel partners
and suppliers, but an extended period of operational constraints
brought about by the pandemic could cause financial hardship within
our customer base and supply chain. Such hardship may continue to
disrupt customer demand and limit our customers’ ability to meet
their obligations to us. Similarly, such hardship within our supply
chain could continue to restrict our access to critical electronic
components and associated raw materials. Additionally, restrictions
or disruptions of transportation systems, such as reduced
availability of cargo transport by ship or air, could result in
higher costs and inbound and outbound delays. Because much of the
potential negative impact of the pandemic is associated with risks
outside of our control, we cannot estimate the extent of such
impact on our financial or operational performance, or when such
impact might occur.
Results of Operations
The following discussion should be read in conjunction with the
information set forth in the financial statements and the
accompanying notes appearing elsewhere in this Current Report.
Comparison of three months ended June 30, 2022 and
2021
|
|
For
the Three Months Ended June 30, |
|
|
Increase |
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|
% |
|
Revenues |
|
$ |
1,062,000 |
|
|
$ |
1,831,000 |
|
|
$ |
(769,000 |
) |
|
|
-42 |
% |
Cost of revenue |
|
|
672,000 |
|
|
|
976,000 |
|
|
|
(304,000 |
) |
|
|
-31 |
% |
Gross profit |
|
|
390,000 |
|
|
|
855,000 |
|
|
|
(465,000 |
) |
|
|
-54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development |
|
|
304,000 |
|
|
|
72,000 |
|
|
|
232,000 |
|
|
|
322 |
% |
Selling and
marketing |
|
|
319,000 |
|
|
|
298,000 |
|
|
|
21,000 |
|
|
|
7 |
% |
General
and administrative |
|
|
771,000 |
|
|
|
451,000 |
|
|
|
320,000 |
|
|
|
71 |
% |
Total operating
expenses |
|
|
1,394,000 |
|
|
|
821,000 |
|
|
|
573,000 |
|
|
|
70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) |
|
$ |
(1,004,000 |
) |
|
$ |
34,000 |
|
|
$ |
(1,038,000 |
) |
|
|
-3053 |
% |
Comparison of six months ended June 30, 2022 and
2021
|
|
For
the Six Months Ended June 30, |
|
|
Increase |
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|
% |
|
Revenues |
|
$ |
2,191,000 |
|
|
$ |
3,213,000 |
|
|
$ |
(1,022,000 |
) |
|
|
-32 |
% |
Cost of revenue |
|
|
1,338,000 |
|
|
|
1,837,000 |
|
|
|
(499,000 |
) |
|
|
-27 |
% |
Gross profit |
|
|
853,000 |
|
|
|
1,376,000 |
|
|
|
(523,000 |
) |
|
|
-38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development |
|
|
510,000 |
|
|
|
296,000 |
|
|
|
214,000 |
|
|
|
72 |
% |
Selling and
marketing |
|
|
660,000 |
|
|
|
424,000 |
|
|
|
236,000 |
|
|
|
56 |
% |
General
and administrative |
|
|
1,620,000 |
|
|
|
920,000 |
|
|
|
700,000 |
|
|
|
76 |
% |
Total operating
expenses |
|
|
2,790,000 |
|
|
|
1,640,000 |
|
|
|
1,150,000 |
|
|
|
70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1,937,000 |
) |
|
$ |
(264,000 |
) |
|
$ |
(1,673,000 |
) |
|
|
634 |
% |
Comparison of Years Ended December 31, 2021 and
2020
|
|
For
the Year Ended December 31, |
|
|
Increase |
|
|
|
|
|
|
2021 |
|
|
2020 |
|
|
(Decrease) |
|
|
% |
|
Revenues |
|
$ |
5,346,000 |
|
|
$ |
5,416,000 |
|
|
$ |
(70,000 |
) |
|
|
-1 |
% |
Cost of revenue |
|
|
3,662,000 |
|
|
|
3,821,000 |
|
|
|
(159,000 |
) |
|
|
-4 |
% |
Gross profit |
|
|
1,684,000 |
|
|
|
1,595,000 |
|
|
|
89,000 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development |
|
|
504,000 |
|
|
|
337,000 |
|
|
|
167,000 |
|
|
|
50 |
% |
Selling and
marketing |
|
|
910,000 |
|
|
|
342,000 |
|
|
|
568,000 |
|
|
|
166 |
% |
General
and administrative |
|
|
2,097,000 |
|
|
|
1,493,000 |
|
|
|
604,000 |
|
|
|
40 |
% |
Total operating
expenses |
|
|
3,511,000 |
|
|
|
2,172,000 |
|
|
|
1,339,000 |
|
|
|
62 |
% |
Loss from operations |
|
|
(1,827,000 |
) |
|
|
(577,000 |
) |
|
|
(1,250,000 |
) |
|
|
217 |
% |
Other income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income |
|
|
- |
|
|
|
9,000 |
|
|
|
(9,000 |
) |
|
|
-100 |
% |
Net loss |
|
$ |
(1,827,000 |
) |
|
$ |
(568,000 |
) |
|
$ |
(1,259,000 |
) |
|
|
222 |
% |
Liquidity, Going Concern and Management Plans
As of June 30, 2022, we had cash of $0.3 million and working
capital of $2.4 million. Currently, we are dependent on BitNile for
our continued support to fund our operations, without which we
would need to cease or curtail such operations. BitNile is
committed to providing us such funding as may be necessary to
permit us to fund our operations, while we are a wholly owned
subsidiary of BitNile.
We believe our current cash on hand together with funds advanced by
the Parent are sufficient to meet our operating and capital
requirements for at least the next twelve months.
Cash and Cash Equivalents
We maintain our cash in accounts with reputable financial
institutions. These balances may exceed the U.S. Federal Deposit
Insurance Corporation insurance limits. As of June 30, 2022,
December 31, 2021 and 2020, we had cash of $0.3 million, $0.1
million and $0.3 million, respectively. We have not experienced any
losses on deposits of cash and cash equivalents.
Contractual Obligations
The company had no contractual cash obligations as of June 30, 2022
and December 31, 2021.
Emerging Growth Company Status
We are an emerging growth company, as defined in the Jumpstart Our
Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act,
emerging growth companies can delay adopting new or revised
accounting standards issued subsequent to the enactment of the JOBS
Act, until such time as those standards apply to private companies.
We have elected to use this extended transition period for
complying with new or revised accounting standards that have
different effective dates for public and private companies until
the earlier of the date that we (i) are no longer an emerging
growth company or (ii) affirmatively and irrevocably opt out of the
extended transition period provided in the JOBS Act. As a result,
these financial statements may not be comparable to companies that
comply with the new or revised accounting pronouncements as of
public company effective dates.
Impact of Inflation
We believe that inflation has not had a material impact on our
results of operations for the years ended December 31, 2021 and
2020. During fiscal year 2022, we expect the impact of inflation on
the Company’s business will be significant due to increases for
materials and services throughout fiscal year 2022. The Company
believes this may continue to impact expenses in fiscal 2023 and
future years.
Controls and Procedures
We will not be required to comply with the internal control
requirements of the Sarbanes-Oxley Act prior to our fiscal year
ending December 31, 2023. Only if we are deemed to be a large,
accelerated filer or an accelerated filer would we need to comply
with the independent registered public accounting firm attestation
requirement. Further, for as long as we remain an emerging growth
company as defined in the JOBS Act, we intend to take advantage of
certain exemptions from various reporting requirements that are
applicable to other public companies including, but not limited to,
not having to comply with the independent registered public
accounting firm attestation requirement.
We have not completed an assessment, nor have our auditors tested
our systems, of internal controls. We expect to assess the internal
controls of our company and, if necessary, to implement and test
additional controls as we may determine necessary to state that we
maintain an effective system of internal controls, in areas such
as:
|
Ø |
staffing for financial, accounting
and external reporting areas, including segregation of duties; |
|
Ø |
reconciliation of accounts; |
|
Ø |
proper recording of expenses and
liabilities in the period to which they relate; |
|
Ø |
evidence of internal review and
approval of accounting transactions; |
|
Ø |
documentation of processes,
assumptions and conclusions underlying significant estimates;
and |
|
Ø |
documentation of accounting
policies and procedures. |
Because it will take time, management involvement and perhaps
outside resources to determine what internal control improvements
are necessary for us to meet regulatory requirements and market
expectations for our operation of a target business, we may incur
significant expenses in meeting our public reporting
responsibilities, particularly in the areas of designing,
enhancing, or remediating internal
and disclosure controls. Doing so effectively may also take longer
than we expect, thus increasing our exposure to financial fraud or
erroneous financing reporting.
Once our management's report on internal controls is complete, we
will retain our independent auditors to audit and render an opinion
on such report when required by SOX Section 404. The
independent auditors may identify additional issues concerning a
target business's internal controls while performing their audit of
internal control over financial reporting.
Recent Accounting Pronouncements and Standards
For information about recently adopted accounting pronouncements
and recently issued accounting standards that may impact our
financial statements, please refer to Note 3 of Notes to Financial
Statements under the respective headings “Recently Adopted
Accounting Pronouncements.”
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not applicable.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth the names and positions of our
executive officers and directors. Directors will be elected at our
annual meeting of stockholders and serve for one year or until
their successors are elected and qualify. Officers are elected by
the Board and their terms of office are, except to the extent
governed by employment contract, at the discretion of the
Board.
Name |
|
Age |
|
|
Position |
Amos Kohn |
|
|
62 |
|
|
Chief Executive Officer and Director |
|
|
|
|
|
|
|
Darren Magot |
|
|
53 |
|
|
Director |
|
|
|
|
|
|
|
Marcus Charuvastra |
|
|
44 |
|
|
President and Chief Revenue Officer |
|
|
|
|
|
|
|
David J. Katzoff |
|
|
61 |
|
|
Chief Financial Officer, Secretary and Treasurer |
|
|
|
|
|
|
|
Douglas Gintz |
|
|
55 |
|
|
Chief Technology Officer |
Amos Kohn has been our Chief Executive Officer and a member
of our Board of Directors since the date of the Acquisition. Prior
thereto, he was the founder and Chief Executive Officer and a
member of the board of directors of the Former TOGI, including when
its name was Coolisys Technologies, Inc., since its formation in
January of 2020. He has led Digital Power, now part of TurnOnGreen,
for more than 15 years, and currently he is leading TurnOnGreen as
the chief executive officer and architect of its EVSE portfolio. He
served as a director of BitNile from 2003 to 2020, its President
and Chief Executive Officer from 2008 to 2017 and President from
2017 to 2020. Prior to his appointment as President and Chief
Executive Officer of Digital Power Corporation, Mr. Kohn held
executive roles with several US and international companies. For
more than 30 years, Mr. Kohn has provided leadership, oversight and
strategic direction for worldwide privately held and publicly
traded companies in the high-technology sector. He holds a Bachelor
of Science degree in electrical and electronics engineering and a
Certificate of Business Administration from the University of
California, Berkeley, and a Major (Ret) at IDF. He is named as an
inventor on several United States and international patents. We
believe that Mr. Kohn’s extensive executive-level management
experience in diversified industries expanding companies into new
markets including power electronics, eMobility, telecommunications
and defense give him the qualifications and skills to serve as one
of our directors.
Darren Magot served as our Chief Executive Officer from
March 2022 through the date of the Acquisition. He remains a member
of the Board of Directors. Mr. Magot currently serves the Senior
Vice President of BitNile, Inc., a wholly owned subsidiary of
BitNile, since February 2022, and as a member of the board of
directors of Ault & Company, Inc., since his appointment in
July 2018. Mr. Magot has served as the Chief Executive officer and
sole member of the Board of Directors of AC Management, Inc., and
AMRE Management, Inc., since October 2020 and previously served as
the Chief Executive Officer and as a director of Ault Alliance,
Inc., a wholly owned subsidiary of BitNile, from January 2019 to
February 2022. Mr. Magot has over 30 years of experience in sales
and sales management, financial management, and business
development with companies in both the private and public sector. A
proven leader in all functional areas of both private and public
organizations, with a track record in successful financial and
operational leadership, he holds a bachelor's degree in Finance
from California State University. We believe that Mr. Magot’s
expertise in strategic planning, development, organizational change
and efficiency for disruptive and emerging technologies give him
the qualifications and skills to serve as one of our directors.
Marcus Charuvastra has served as our President since
the Acquisition. Prior thereto, he served as the President of the
Former TOGI since January 2022 and previously served as its Chief
Revenue Officer since June 2021. Mr. Charuvastra is an accomplished
leader with 20 years of experience in strategic planning, sales,
services, marketing and business and organizational development.
Mr. Charuvastra spent nine years at Targeted Medical Pharma, Inc.
serving as Vice President of Operations and as the Managing
Director of this microcap biotech start-up, from 2012 to May 2021.
During his tenure, he was instrumental in guiding Targeted Medical
Pharma’s initial public offering. Mr. Charuvastra was previously
Director of Sales and Marketing at Physician Therapeutics from 2009
to 2012 and was responsible for building the sales and distribution
network in the United States and abroad. He is a graduate of
UCLA.
David J. Katzoff has served as our Chief Financial
Officer since December 2021. Mr. Katzoff has served as Senior Vice
President of Finance for BitNile since January 2019. Mr. Katzoff
has served as the Chief Operating Officer of Alzamend Neuro, Inc.,
a biotechnology firm dedicated to finding the treatment, prevention
and cure for Alzheimer’s Disease from December 2020. From November
2019 to December 2020, Mr. Katzoff served as Alzamend’s Senior Vice
President Operations. From 2015 to 2018, Mr. Katzoff served as
Chief Financial Officer of Lumina Media, LLC, a privately held
media company and publisher of life-style publications. From 2003
to 2017, Mr. Katzoff served a Vice President Finance for Local
Corporation, a publicly held local search company. Mr. Katzoff
received a B.S. in Business Management from the University of
California at Davis.
Douglas Gintz has served as our Chief Technology
Officer since the Acquisition. Prior thereto, he served as the
Chief Technology Officer of the Former TOGI since February 2021.
Mr. Gintz is responsible for driving strategic software initiatives
and delivering key technologies essential to the market penetration
of our EV charging solutions business. Mr. Gintz has over 30 years
of hands-on experience bringing products to market. Specializing in
emerging technologies, Mr. Gintz has developed manufacturing
compliance systems, DNA reporting engines, medical billing
software, e-commerce applications, and retail software for
companies ranging from startups to multinational corporations. Mr.
Gintz also currently serves as the Chief Technology Officer and
Director of Global Technology Implementation at BitNile Holdings,
Inc. since February 2021. Mr. Gintz's previous leadership roles
include Chief Executive Officer of Pacific Coders, LLC. from August
2002 to January 2022; Chief Technology Officer of Endocanna Health,
Inc. from January 2019 to January 2021; Mr. Gintz served at
Targeted Medical Pharma, Inc., a publicly-traded microcap, as Chief
Marketing Officer and Technology Officer from January 2018 to
December 2019, and Chief Technology Officer and Chief Information
Officer from January 2012 to May 2016.
Election of Directors and Officers
Directors are elected to serve until the next annual meeting of
stockholders and until their successors have been elected and
qualified. Officers are appointed to serve until the meeting of the
Board following the next annual meeting of stockholders and until
their successors have been elected and qualified.
Audit Committee
We do not have any committees of the Board. Consequently, the Board
serves as the Audit Committee.
Director Independence
We do not currently have any independent directors. We evaluate
independence by the standards for director independence established
by Marketplace Rule 5605(a)(2) of the Nasdaq Stock Market, Inc.
Board Leadership Structure
Due to the limited size of
our Board, our Chief Executive Officer, Mr. Kohn, also serves
as the chairman of the Board.
Code of Ethics
Our Board has not adopted a Code of Ethics due to our size and
limited number of employees.
EXECUTIVE COMPENSATION
Summary Compensation Table
IMHC did not pay any compensation to its Chief Executive Officer
during the last two fiscal years through the Acquisition and there
were no executive officers serving as of the end of the last two
fiscal years whose compensation exceeded $100,000.
The following table sets forth summary compensation information for
the following persons: (i) all persons serving as our
principal executive officer during the years ended December 31,
2021 and 2020, and (ii) our two other most highly compensated
executive officers who received compensation during the years ended
December 31, 2021 and 2020 of at least $100,000 and who were
executive officers on December 31, 2021. We refer to these persons
as our “named executive officers” in this Current Report. The
following table includes all compensation earned by the named
executive officers for the respective period, regardless of whether
such amounts were actually paid during the period:
Name and principal position |
|
Year |
|
|
Salary ($) |
|
|
Bonus ($) |
|
|
Stock
Awards
($) |
|
|
Option
Awards
($) |
|
|
All Other
Compensation ($) |
|
|
Total ($) |
|
Amos
Kohn |
|
|
2021 |
|
|
|
350,000 |
|
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
30,640 |
|
|
|
383,140 |
|
Chief Executive Officer |
|
|
2020 |
|
|
|
350,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,247 |
|
|
|
380,247 |
|
Marcus
Charuvastra |
|
|
2021 |
|
|
|
92,387 |
(1) |
|
|
27,250 |
|
|
|
|
|
|
|
|
|
|
|
751 |
|
|
|
120,388 |
|
President and Chief Revenue
Officer |
|
|
2020 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
(1) Mr. Charuvastra’s
annual salary is $125,000. The figure in the table reflects the
fact that he was hired on April 6, 2021.
Employment Agreements
As of the date of this
Current Report, we have no contract, agreement, plan or
arrangement, whether written or unwritten, that provides for
payments to an executive officer at, following or in connection
with any termination, including without limitation, resignation,
severance, retirement or a constructive termination of an executive
officer, or a change in control of our company or a change in the
executive officer’s responsibilities, with respect to each
executive officer.
Termination Provisions
As of the date of this Current Report, we have no contract,
agreement, plan, or arrangement, whether written or unwritten, that
provides for payments to a Named Executive Officer at, following,
or in connection with any termination, including without limitation
resignation, severance, retirement or a constructive termination of
a Named Executive Officer, or a change in control of the Company or
a change in the Named Executive Officer’s responsibilities, with
respect to each Named Executive Officer, other than with respect to
Mr. Kohn.
Outstanding Equity Awards at Fiscal Year End
As of December 31, 2021 none of our Named Executive Officers held
any unexercised options, stock that have not vested, or other
equity incentive plan awards.
Director Compensation
To date, we have not paid any of our directors any compensation for
serving on our Board.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding
beneficial ownership of our Common Stock as of the close of
business on September 1, 2022 by (i) each person who is known by
the Company to own beneficially more than 5% of any classes of
outstanding Common Stock, (ii) each director of the Company, (iii)
each of the Named Executive Officers and (iv) all directors and
executive officers of the Company as a group based upon 161,704,695
shares outstanding.
Name and Address of Beneficial
Owners of Common Stock (1) |
|
Number of
shares
beneficially
owned
|
|
|
% of
Common
Stock |
|
Darren Magot |
|
|
- |
|
|
|
- - - |
|
David J. Katzoff |
|
|
- |
|
|
|
- - - |
|
Directors and Officers
(Two persons) |
|
|
- |
|
|
|
- - - |
|
BitNile Holdings, Inc.
(2) |
|
|
318,512,900 |
|
|
|
90.8 |
% |
(1) Unless otherwise
indicated, the business address of each of the individuals is c/o
TurnOnGreen, Inc., 1421 McCarthy Blvd., Milpitas, California
95035.
(2) Represents (i) 129,363,756
shares held by BitNile, Inc., (ii) 10,000 shares held by DPL and
(iii) 10,873,314
shares of Common Stock issuable upon conversion of an
outstanding convertible promissory note held by DPL in the
principal face amount of $101,529, which is convertible into shares
at a conversion price of $0.01 per share. Also presumes that
the issuance to BitNile of the Series A Preferred Stock to occur on
the Closing Date has occurred, which shares would be convertible
into 178,265,830 shares. Does not include shares that are also
issuable upon conversion of the note representing accrued but
unpaid interest. BitNile may be deemed to beneficially own the
shares beneficially owned by BitNile, Inc. and DPL as BitNile, Inc.
and DPL are wholly owned subsidiaries of BitNile. Milton C. Ault,
III, the Executive Chairman of BitNile, exercises voting and
dispositive power over the shares owned by BitNile. The business
address of each of these entities and individuals is 11411 Southern
Highlands Parkway, Suite 240, Las Vegas, Nevada 89141.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
BitNile will continue to perform certain administrative services
for TurnOnGreen. These services include certain use of BitNile’s
management information system, assist in the preparation of federal
and state tax returns and certain cash management services.
Imperalis Note
On December 15, 2021, DP Lending, a wholly-owned subsidiary of
BitNile, entered into an exchange agreement with Imperalis pursuant
to which Imperalis issued to DP Lending a convertible promissory
note (the “Imperalis Note”) in the principal amount of $101,529, in
exchange for prior promissory notes dated August 18, 2021 and
November 5, 2021 issued by IMHC to DP Lending in the aggregate
principal amount of $100,000, which had accrued and unpaid interest
of $1,529 as of December 15, 2021. The terms of the Imperalis Note
provide for (i) an interest rate at 10% per annum, (ii) a maturity
date of December 15, 2023, and (iii) conversion of the principal,
together with accrued but unpaid interest thereon, into shares of
IMHC common stock at DP Lending’s option at a conversion price of
$0.01 per share.
Securities Purchase Agreement
As previously reported on a Current Report on Form 8-K filed by
IMHC on March 21, 2022, on March 20, 2022, BitNile and IMHC entered
into a Securities Purchase Agreement (the “Agreement”) with
TurnOnGreen, a wholly-owned subsidiary of BitNile. Pursuant to the
Agreement, at the closing of the Agreement (the “Closing”), which
occurred on September 6, 2022, BitNile (i) delivered to IMHC all of
the outstanding shares of common stock of TurnOnGreen held by
BitNile, and (ii) eliminated all of the intercompany accounts
between BitNile and TurnOnGreen evidencing historical equity
investments made by BitNile to TurnOnGreen, in the approximate
amount of $36,000,000, all in consideration for the issuance by
IMHC to BitNile (the “Acquisition”) of an aggregate of 25,000 newly
designated shares of Series A Preferred Stock (the “Series A
Preferred Stock”), with each such share having a stated value of
$1,000. The Series A Preferred Stock has an aggregate liquidation
preference of $25 million, is convertible into shares of IMHC’s
common stock, par value $0.001 per share (the “Common Stock”) at
BitNile’s option, is redeemable by BitNile, and entitles BitNile to
vote with the Common Stock on an as-converted basis.
Immediately following the Closing, TurnOnGreen became a
wholly-owned subsidiary of IMHC. Following the Closing, IMHC shall
dissolve its dormant subsidiary. Further, IMHC and TurnOnGreen
intend to close an upstream merger whereby TurnOnGreen shall cease
to exist. Upon consummation of the merger, IMHC shall have acquired
two operating subsidiaries, TOG Technologies and Digital Power.
IMHC will continue the existing business operations of TurnOnGreen
as a publicly-traded company under the name Imperalis Holding
Corp., but intends to change the registrant’s name to TurnOnGreen,
Inc. as soon as practicable. The Closing was subject to BitNile’s
delivery to IMHC of audited financial statements of TurnOnGreen and
other customary closing conditions.
One executive officer of TurnOnGreen is also an executive officer
of BitNile. See “Directors, Executive Officers and Corporate
Governance.”
Policies and Procedures for Related Party Transactions
The TurnOnGreen audit committee will have the primary
responsibility for reviewing and approving or disapproving “related
party transactions,” which are transactions between TurnOnGreen and
related persons in which the aggregate amount involved exceeds or
may be expected to exceed $120,000 and in which a related person
has or will have a direct or indirect material interest. The policy
regarding transactions between TurnOnGreen and related persons will
provide that a related person is defined as a director, executive
officer or greater than 5% beneficial owner of common stock, in
each case since the beginning of the most recently completed year,
and any of their immediate family members. An investor may obtain a
written copy of this policy, once adopted, by sending a written
request to TurnOnGreen, Inc., 1421 McCarthy Blvd, Milpitas,
California 95035, Attention: Legal Department. TurnOnGreen’s audit
committee charter that will be in effect will provide that the
audit committee shall review and approve or disapprove certain
related party transactions, including material transactions with
BitNile.
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue 200,000,000 shares of Common Stock. As
of the date of this Current Report, there were 161,704,695 shares of Common Stock
issued and outstanding.
The holders of Common Stock have equal ratable rights to dividends
from funds legally available therefore, when, as and if declared by
our Board. Holders of Common Stock are also entitled to share
ratably in all of IMHC’s assets available for distribution to
holders of Common Stock upon liquidation, dissolution or winding up
of the affairs of IMHC.
The holders of shares of our Common Stock do not have cumulative
voting rights, which means that the holders of more than 50% of
such outstanding shares, voting for the election of directors, can
elect all of the directors to be elected, if they so choose, and in
such event, the holders of the remaining shares will not be able to
elect any of our directors. The holders of 50% percent of the
outstanding Common Stock constitute a quorum at any meeting of
shareholders, and the vote by the holders of a majority of the
outstanding shares or a majority of the shareholders at a meeting
at which quorum exists are required to effect certain fundamental
corporate changes, such as liquidation, merger or amendment of our
articles of incorporation.
Voting Rights
Except as otherwise required by law or as may be provided by the
resolutions of the Board of Directors authorizing the issuance of
common stock, all rights to vote and all voting power shall be
vested in the holders of common stock. Each share of Common Stock
shall entitle the holder thereof to one vote.
No Cumulative Voting
Except as may be provided by the resolutions of the Board of
Directors authorizing the issuance of Common Stock, cumulative
voting by any shareholder is expressly denied.
Rights upon Liquidation, Dissolution or Winding-Up of the
Company
Upon any liquidation, dissolution or winding-up of the corporation,
whether voluntary or involuntary, the remaining net assets of the
Company shall be distributed pro rata to the holders of the common
stock.
Preferred Stock
The Company is authorized to issue up to 10,000,000 shares of
Preferred Stock, par value $0.001. The Preferred Stock may be
issued in one or more classes or series by the board of directors,
who has the authority to designate the rights, preferences, and
other aspects of each class or series of Preferred Stock.
We refer you to our Articles of Incorporation, any amendments
thereto, Bylaws, and the applicable provisions of the Nevada
Revised Statutes for a more complete description of the rights and
liabilities of holders of our securities.
Description of the Series
A Preferred Stock
There are 25,000 shares of Series A Preferred Stock issued and
outstanding. Each share of Series A Preferred Stock has a stated
value of $1,000, for an aggregate value of $25 million.
In the event that TOGI shall be liquidated, dissolved or wound up,
then before any distribution or payment shall be made to the
holders of any Common Stock or any other class or series of junior
stock, the holders of Series A Preferred Stock shall be entitled to
receive liquidating distributions in an amount equal to the stated
value for each share of Series A Preferred Stock held by such
holders.
Dividends on the Series A Preferred Stock shall accrue daily and be
cumulative from, and including, the date of original issue and
shall be payable quarterly on the last day of each calendar quarter
out of funds legally available therefor, at the rate of eight
percent (8%) per annum based on a 360 day calendar year.
Each holder shall be entitled to vote on an “as converted” basis
with holders of outstanding shares of Common Stock, voting together
as a single class, with respect to any and all matters presented to
the stockholders for their action or consideration. For so long as
the holder shall continue to hold any shares of Series A Preferred
Stock issued to it on the date of the Acquisition, the holder shall
be entitled to elect a number of directors to the Board of
Directors equal to a percentage determined by the number of Series
A Preferred Stock beneficially owned by the holders, determined on
an “as converted” basis, divided by the sum of the number of shares
of Common Stock outstanding plus the number of Series A Preferred
Stock outstanding on an “as converted” basis
Each share of Series A Preferred Stock may be convertible at the
holder’s option into shares of Common Stock of the Company where
the conversion price shall be the stated value of each share of
Series A Preferred Stock divided by eighty percent (80%) of the
volume weighed average price (“VWAP”) of the Company’s
Common Stock over the ten (10) days immediately preceding the date
of conversion. The conversion price will be subject to standard
anti-dilution provisions in connection with any stock split, stock
dividend, subdivision or similar reclassification of the Common
Stock as well as carry full ratchet protection.
Upon the one-year anniversary of the Acquisition, the shares of
Series A Preferred Stock shall be subject to redemption in cash at
the option of the holder in an amount per share equal to the stated
value plus all accrued and unpaid dividends thereon.
The foregoing does not purport to be a complete description of the
Series A Preferred Stock, which is qualified in its entirety by
reference to the full text of the Certificate of Designations,
Preferences, Rights and Limitations of Series A Convertible
Redeemable Preferred Stock, which is filed as Exhibit 3.1 hereto.
Options
None.
Warrants
None.
Liability and Indemnity of Directors and Officers
Our bylaws provide that we may indemnify our officers, directors,
employees, agents and any other persons to the maximum extent
permitted by the Nevada Revised Statutes.
|
ITEM 3.02 |
UNREGISTERED SALES OF EQUITY SECURITIES |
The information contained in Items 1.01 and 2.01 is incorporated
herein by reference.
At Closing, BitNile (i) delivered to the Company all of the
outstanding shares of common stock of the Former TOGI held by
BitNile, and (ii) forgave and eliminated the intercompany accounts
between BitNile and Former TOGI evidencing historical equity
investments made by BitNile to Former TOGI, in the approximate
amount of $36,000,000, in consideration for the issuance by the
Company to BitNile of an aggregate of 25,000 newly designated
shares of Series A Preferred Stock, with each such share having a
stated value of $1,000.
Each of these issuances was exempt from registration under Section
4(a)(2) of the Securities Act as transactions by an issuer not
involving any public offering. The recipients of securities in each
transaction represented their intention to acquire the securities
for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends
were affixed to the share certificates and other instruments issued
in such transactions. None of these securities was sold
through an underwriter and, accordingly, there were no underwriting
discounts or commissions involved.
|
ITEM 4.01 |
CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT |
On August 10, 2022 the Board of Directors of the Company approved
the dismissal of Heaton & Company, PLLC (“Heaton”) as
its independent registered public accounting firm. On August 10,
2022, the Company engaged Marcum LLP (“Marcum”) as its new
independent registered public accounting firm based on the
recommendation of the Board.
The reports of Heaton on the financial statements of IMHC for the
fiscal year ended December 31, 2021 contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principle. Notwithstanding
the foregoing, IMHC states in Note 3 to its financial statements
that they were prepared assuming that IMHC will continue as a going
concern and that there was substantial doubt about its ability to
continue as a going concern. In connection with its audits of
IMHC’s financial statements for the fiscal years ended December 31,
2021 and its review of IMHC’s financial statements for the fiscal
quarters ended March 31, 2022 and June 30, 2022, there were no
disagreements with Heaton on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction
of Heaton, would have caused it to make reference thereto in its
report on the financial statements for such years or periods, as
the case may be.
IMHC has furnished to Heaton the statements made in this Item 4.01.
Attached as Exhibit 16.1 to this Form 8-K is Heaton’s letter to the
Securities and Exchange Commission, dated August 11, 2022,
regarding these statements.
During the fiscal years ended December 31, 2020 and December 31,
2021 and through August 11, 2022, IMHC has not consulted with
Marcum on any matter that (i) involved the application of
accounting principles to a specified transaction, either completed
or proposed, or the type of audit opinion that might be rendered on
IMHC’s financial statements, in each case where a written report
was provided or oral advice was provided that Marcum concluded was
an important factor considered by IMHC in reaching a decision as to
the accounting, auditing or financial reporting issue, or (ii) was
either the subject of a disagreement, as that term is defined in
Item 304(a)(1)(iv) of Regulation S-K and the related instructions
to Item 304 of Regulation S-K, or a reportable event, as that term
is defined in Item 304(a)(1)(v) of Regulation S-K.
|
ITEM 5.02 |
DEPARTURE OF DIRECTORS OR
PRINCIPAL OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF PRINCIPAL
OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS |
The information regarding departure and election of directors and
departure and appointment of principal officers of IMHC in
connection with the Acquisition set forth in Item 2.01 is
incorporated herein by reference.
|
ITEM 5.03 |
AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS; CHANGE IN
FISCAL YEAR |
Certificate of
Designations
The information set forth in Item 1.01 and 2.01 is incorporated by
reference herein.
On August 11, 2022, the Company filed a Certificate of Designations
of Rights and Preferences of Series A Convertible Redeemable
Preferred Stock (the “Certificate of Designations”) to its
Articles of Incorporation with the Secretary of State of the State
of Nevada to establish the preferences, limitations and relative
rights of the Series A Preferred Stock.
Dividends on the Series A Preferred Stock shall accrue from, and
including, the date of original issuance to, but not including, the
redemption date, and shall be payable quarterly on the last day of
each calendar quarter, subject to the terms and conditions set
forth in the Certificate of Designations. The first dividend on the
Series A Preferred Stock is scheduled to be paid on January 20,
2023 (in the approximate amount of $20.00 per share) to the persons
who are the holders of record of the Series A Preferred Stock at
the close of business on the corresponding record date, which will
be December 31, 2022. Dividends accrue at the annual rate of 8%,
which is equivalent to $80.00 per annum per share, based on the
$25,000,000 liquidation preference from, and including, the date of
original issuance to, but not including, the redemption date.
Each share of Series A Preferred Stock shall become convertible, at
the option of the holder, commencing on the date of issuance, into
such number of fully paid and non-assessable shares of Common Stock
determined by dividing the stated value of the Series A Preferred
Stock by the then applicable Conversion Price. “Conversion Price”
shall mean a price equal to eighty percent (80%) of the average
VWAP per share of the Common Stock for the ten (10) trading days
immediately preceding the date of conversion.
Unless previously converted into shares of Common Stock, any shares
of Series A Preferred Stock issued and outstanding, shall be
redeemable at the option of the holder and repurchased by the
Company for cash at a redemption price of $1,000 per share of
Series A Preferred Stock, plus any accumulated and unpaid dividends
thereon to, but not including, the date of on which written notice
to the Company is delivered requesting that the Company redeem, in
whole or in part, such holder’s Series A Preferred Stock. In
addition, upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company’s affairs, then, before
any distribution or payment shall be made to the holders of any
Common Stock or any other class or series of Junior Stock (as
defined the Certificate of Designations), the holders of the Series
A Preferred Stock shall be entitled to receive out of the Company’s
assets legally available for distribution to stockholders,
liquidating distributions in the amount of the liquidation
preference, or $1,000 per share.
The Conversion Price will be subject to standard anti-dilution
provisions in connection with any stock split, stock dividend,
subdivision or similar reclassification of the Common Stock in
addition to full ratchet price protection.
Holders of the Series A Preferred Stock shall be entitled to vote
with holders of outstanding shares of Common Stock, voting together
as a single class, with respect to any and all matters presented to
the stockholders of the Company for their action or consideration
(whether at a meeting of stockholders of the Company, by written
action of stockholders in lieu of a meeting or otherwise). The
Series A Preferred Stock shall be voted on an “as converted” basis
together with the Common Stock, subject to the provisions of the
Nevada Revised Statutes. For so long as the Parent shall continue
to hold any shares of Series A Preferred Stock, the Parent shall be
entitled to elect a number of directors to the Board equal to a
percentage determined by the number of Series A Preferred Stock
beneficially owned by the Parent, determined on an “as converted”
basis, divided by the sum of the number of shares of Common Stock
outstanding plus the number of Series A Preferred Stock outstanding
on an “as converted” basis.
The foregoing description of the Certificate of Designations does
not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the full text of the document, which
is attached hereto as Exhibit 3.1 to this Current
Report on Form 8-K, and is incorporated herein by reference.
|
ITEM 5.06 |
CHANGE IN SHELL COMPANY STATUS |
Prior to the Acquisition, we were a “shell company” (as such term
is defined in Rule 12b-2 under the Securities Exchange Act of 1934,
as amended). As a result of the Acquisition, we have ceased
to be a shell company. The information contained in this
Current Report constitutes the current “Form 10 information”
necessary to satisfy the conditions contained in Rule 144(i)(2)
under the Securities Act of 1933, as amended.
|
ITEM 7.01 |
REGULATION FD DISCLOSURE |
On September 6, 2022, BitNile and the Company issued a press
release announcing the completion of the Acquisition. A copy of the
press release is furnished herewith as Exhibit 99.2 and is
incorporated by reference herein.
In accordance with General Instruction B.2 of Form 8-K, the
information under this item shall not be deemed filed for purposes
of Section 18 of the Securities Exchange Act of 1934, as amended,
nor shall such information be deemed incorporated by reference in
any filing under the Securities Act of 1933, as amended, except as
shall be expressly set forth by specific reference in such a
filing. This report will not be deemed an admission as to the
materiality of any information required to be disclosed solely to
satisfy the requirements of Regulation FD.
The Securities and Exchange Commission encourages registrants to
disclose forward-looking information so that investors can better
understand the future prospects of a registrant and make informed
investment decisions. This Current Report on Form 8-K and exhibits
may contain these types of statements, which are “forward-looking
statements” within the meaning of the Private Securities Litigation
Reform Act of 1995, and which involve risks, uncertainties and
reflect the Registrant’s judgment as of the date of this Current
Report on Form 8-K. Forward-looking statements may relate to, among
other things, operating results and are indicated by words or
phrases such as “expects,” “should,” “will,” and similar words or
phrases. These statements are subject to inherent uncertainties and
risks that could cause actual results to differ materially from
those anticipated at the date of this Current Report on Form 8-K.
Investors are cautioned not to rely unduly on forward-looking
statements when evaluating the information presented within.
|
ITEM 9.01 |
FINANCIAL STATEMENTS AND EXHIBITS |
(a) Financial statements of business acquired.
In accordance with Item 9.01(a), Former TOGI’s audited financial
statements as of and for the years ended December 31, 2021 and
2020, and the Former TOGI’s unaudited condensed financial
statements as of, and for the three and six months ended June 30,
2022 and 2021, are included in this Report beginning on Page
F-1.
(b) Pro forma financial information.
The pro forma financial information concerning the acquisition of
the business operations of the Former TOGI are appended to this
Current Report beginning on page F-33.
(c) Shell company transactions.
Reference is made to Items 9.01(a) and 9.01(b) above and the
exhibits referred to therein, which are incorporated herein by
reference.
(d) Exhibits.
Exhibit No. |
Description |
2.1 |
Securities Purchase Agreement dated March
20, 2022 by and among Imperalis Holding Corp., BitNile Holdings,
Inc and TurnOnGreen, Inc. Incorporated by reference to Exhibit 2.1
to the Current Report on Form 8-K filed March 21,
2022. |
2.2* |
Form of
Amendment to Securities Purchase Agreement, dated September 5,
2022. |
3.1* |
Certificate of
Designations of Rights and Preferences of Series A Convertible
Redeemable Preferred Stock. |
4.1 |
Convertible Promissory Note, dated
December 15, 2021, made by Imperalis Holding Corp. in favor of
Digital Power Lending, LLC. Incorporated by reference to Exhibit
4.1 to the Current Report on Form 8-K filed December 21,
2021. |
10.1* |
Form of
Partnership Agreement, dated April 26, 2021, between TurnOnGreen,
Inc. (formerly Coolisys Technologies Corp.) and ChargeLab,
Inc. |
10.2* |
Form of
Distribution and Resale Agreement with Tesco Solutions LLC an
Indiana based construction firm. |
10.3* |
Form of
Purchase Agreement with Unique Electric Solutions, a New York based
entity. |
10.4* |
Form of Best
Western International Marketing Agreement. |
10.5* |
Form of
EV-olution Charging Systems Distribution Agreement. |
10.6* |
Form of CED
National Accounts Distribution Agreement. |
10.7* |
Form of
Electric Vehicle Charger Site License Agreement dated May 23, 2002
by and between TurnOnGreen and Sunrise Hills Commercial
Association. |
16.1* |
Letter from
Heaton & Company, PLLC to the Securities and Exchange
Commission, regarding the change in the independent registered
public accounting firm of Imperalis Holding Corp. |
21* |
Subsidiaries of
the Registrant. |
99.1* |
Financial
statements of TurnOnGreen for the fiscal years ended December 31,
2020 and 2021, as well as the interim period for the six months
ended June 30, 2022 and the pro forma condensed combined financial
statements of the registrant for the year ended December 31, 2021
and the six months ended June 30, 2022. |
99.2* |
Press
release, issued September 6, 2022. |
101 |
Pursuant to Rule 406 of Regulation
S-T, the cover page is formatted in Inline XBRL (Inline eXtensible
Business Reporting Language). |
104 |
Cover Page Interactive Data File
(formatted as Inline XBRL and contained in Exhibit 101). |
_______________________
* Filed
herewith.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
|
IMPERALIS HOLDING CORP. |
|
|
|
|
|
|
Dated: September 6, 2022 |
/s/ Amos Kohn
|
|
|
Amos Kohn
Chief Executive Officer |
|
- 47 -
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