| 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:
| · | 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. |
| · | 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. |
| · | 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:
| · | 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:
| · | 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:
| · | UL 2202 - Electric Vehicle Charging System Equipment (AC to DC) |
| · | UL 2594 - Electric Vehicle Supply Equipment (AC to AC) |
| · | UL 9741 - Bidirectional Electric Vehicle (EV) Charging System Equipment |
| · | UL 2231-1 - Personnel Protection Systems for Electric Vehicle Supply Circuits – General Requirements |
| · | UL 2231-2 - Personnel Protection Systems for Electric Vehicle Supply Circuits – Protective Devices for Use in Charging Systems |
| · | UL 2251 - Electric Vehicle Plugs, Receptacles and Couplers |
| · | 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 |
| • | 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.