TOGI 10-Q
TurnOnGreen, Inc. (TOGI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended:
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
| ( | ||
| (Address of principal executive offices) | (Zip Code) | (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ¨ Large accelerated Filer | ¨ Accelerated Filer | |
| x |
||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: shares of common stock as of November 13, 2024.
TABLE OF CONTENTS
| 2 |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TURNONGREEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, 2024 | December 31, 2023 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventories | ||||||||
| Prepaid expenses | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets | ||||||||
| Other noncurrent assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Dividends payable | ||||||||
| Accrued legal contingencies | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Operating lease liability, current | ||||||||
| Related party notes and advances payable | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| LONG TERM LIABILITIES | ||||||||
| Operating lease liability, non-current | ||||||||
| Other long term liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES (NOTE 16) | ||||||||
| REDEEMABLE CONVERTIBLE PREFERRED STOCK | ||||||||
| Preferred stock series A subject to possible redemption, shares authorized: issued and outstanding at stated redemption value of $ per share as of September 30, 2024, and December 31, 2023, respectively | ||||||||
| SHAREHOLDERS’ DEFICIT: | ||||||||
| Common Stock, par value $ a share; shares authorized as of September 30, 2024, and December 31, 2023: shares issued and outstanding on September 30, 2024, and as of December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL SHAREHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
TURNONGREEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other expense: | ||||||||||||||||
| Interest expense, related party | ||||||||||||||||
| Total other expense | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Preferred Dividends | ( | ) | ( | ) | ( | ) | ||||||||||
| Net (loss) available to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share basic and diluted: | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average common shares, basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
TURNONGREEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ DEFICIT
(Unaudited)
Three Months Ended September 30, 2024
| Common Stock | Additional Paid in | Accumulated | Total Shareholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
| Balance, July 1, 2024 | ( | ) | ( | ) | ||||||||||||||||
| Forgiveness of accrued dividends | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
Three Months Ended September 30, 2023
| Common Stock | Additional Paid in | Accumulated | Total Shareholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
| Balance, July 1, 2023 | ( | ) | ( | ) | ||||||||||||||||
| Common stock issued upon conversion of convertible notes | ||||||||||||||||||||
| Issuance of common stock upon exercise of warrants | ||||||||||||||||||||
| Preferred dividends | - | ( | ) | ( | ) | |||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
Nine Months Ended September 30, 2024
| Common Stock | Additional Paid in | Accumulated | Total Shareholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
| Balance, January 1, 2024 | ( | ) | ( | ) | ||||||||||||||||
| Common stock issued upon exercise of warrants | ||||||||||||||||||||
| Preferred dividends | - | ( | ) | ( | ) | |||||||||||||||
Forgiveness of accrued dividends | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
Nine Months Ended September 30, 2023
| Common Stock | Additional Paid in | Accumulated | Total Shareholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
| Balance, January 1, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Contribution from Parent | - | |||||||||||||||||||
| Fair value of warrants issued | - | |||||||||||||||||||
| Common stock issued upon conversion of convertible notes | ||||||||||||||||||||
| Common stock issued upon exercise of warrants | ||||||||||||||||||||
| Preferred dividends | - | ( | ) | ( | ) | |||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| 5 |
TURNONGREEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
| For the Nine Months September 30, | ||||||||
| Cash flows from operating activities: | 2024 | 2023 | ||||||
| Net (loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of right-of-use assets | ||||||||
| Amortization of debt and warrant discounts | ||||||||
| Inventory adjustment | ||||||||
| Allocation of parent company overhead | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses and other assets | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other current liabilities | ( | ) | ||||||
| Dividends payable | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from related party advances, net of payments | ||||||||
| Proceeds from contribution from parent | ||||||||
| Proceeds from issuance of warrants | ||||||||
| Proceeds from note payable | ||||||||
| Net cash provided by financing activities | ||||||||
| Net decrease in cash and cash equivalents | ( | ) | ||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
Non-cash financing activities | ||||||||
Forgiveness of accrued dividends | $ | $ | ||||||
Conversion of principal and interest on convertible note | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
TURNONGREEN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
1. DESCRIPTION OF BUSINESS
Overview
TurnOnGreen, Inc. (formerly Imperalis Holding Corp.), a Nevada corporation (“TOG”), operates through its wholly owned subsidiaries, Digital Power Corporation and TOG Technologies, Inc. (“TOGT”). Together, they represent an emerging leader providing premium custom power products and electric vehicle (EV) infrastructure solutions. TOG focuses on the design, development, manufacturing, and sale of high-grade power conversion systems for mission-critical applications. Their advanced power solutions support industries such as medical, military, telecommunications, and industrial. Additionally, TOG provides EV charging equipment and services for the e-Mobility market, with applications spanning single-family homes, multifamily dwellings, hospitality, healthcare facilities, commercial properties, municipalities, schools, workplaces, and fleet operations.
TOG was incorporated in Nevada on
2. LIQUIDITY AND GOING CONCERN
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred recurring operating and net losses that have not provided sufficient cash flows. Management believes that the Company will continue to incur operating and net losses each quarter until at least the time it begins significant deliveries of its products. The Company’s inability to continue as a going concern could have a negative impact on the Company, including its ability to obtain needed financing. In view of these matters, there is substantial doubt about the Company’s ability to continue as a going concern.
The Company intends to finance its future development activities and its working capital needs largely through the sale of equity securities with some additional funding from other sources, including term notes until such time as funds provided by operations are sufficient to fund working capital requirements. Although management believes that such capital sources will be available, there can be no assurances that financing will be available to the Company when needed in order to allow the Company to continue its operations, or if available, on terms acceptable to the Company. The condensed consolidated financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
3. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), the instructions to Form 10-Q and Regulation S-X and do not include all the information and disclosures required by GAAP. The Company has made estimates and judgments affecting the amounts reported in the Company’s condensed consolidated financial statements and the accompanying notes. The actual results experienced by the Company may differ materially from the Company’s estimates. The condensed consolidated financial information is unaudited and reflects all normal adjustments that are, in the opinion of management, necessary to provide a fair statement of results for interim periods presented. These condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K filed with the SEC on April 11, 2024.
Significant Accounting Policies
There have been no material changes to the Company’s significant accounting policies previously disclosed in the Company’s Annual Report on Form 10-K filed with the SEC on April 11, 2024.
The Company does not expect that any recently issued accounting guidance will have a significant effect on its condensed consolidated financial statements.
| 7 |
4. REVENUE DISAGGREGATION
The Company’s disaggregated revenues consisted of the following:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Primary Geographical Markets | ||||||||||||||||
| North America | $ | $ | $ | $ | ||||||||||||
| Europe | ||||||||||||||||
| Other | ||||||||||||||||
| Total Revenue | $ | $ | $ | $ | ||||||||||||
| Major Goods | ||||||||||||||||
| Power supply units | $ | $ | $ | $ | ||||||||||||
| EV chargers | ||||||||||||||||
| Total Revenue | $ | $ | $ | $ | ||||||||||||
| Timing of Revenue Recognition | ||||||||||||||||
| Revenue recognized over time | $ | $ | $ | $ | ||||||||||||
| Goods transferred at a point in time | ||||||||||||||||
| Total Revenue | $ | $ | $ | $ | ||||||||||||
The following table provides the percentage of total revenue attributable to a single customer from which 10% or more of total revenue was derived:
| For the Three Months Ended September 30, 2024 | For the Nine Months Ended September 30, 2024 | |||||||||||||||
| Total Revenue | Percentage of | Total Revenue | Percentage of | |||||||||||||
| by Major | Total Company | by Major | Total Company | |||||||||||||
| Customers | Revenue | Customers | Revenue | |||||||||||||
| Customer A | $ | % | $ | % | ||||||||||||
| For the Three Months Ended September 30, 2023 | For the Nine Months Ended September 30, 2023 | |||||||||||||||
| Total Revenue | Percentage of | Total Revenue | Percentage of | |||||||||||||
| by Major | Total Company | by Major | Total Company | |||||||||||||
| Customers | Revenue | Customers | Revenue | |||||||||||||
| Customer A | $ | % | $ | % | ||||||||||||
| Customer B | $ | % | $ | % | ||||||||||||
5. TRADE RECEIVABLES
The following table provides the percentage of total trade receivables attributable to a single customer that accounted for 10% or more of the Company’s outstanding receivables:
| As of | As of | |||||||
| September 30, 2024 | December 31, 2023 | |||||||
| Customer A | | % | | % | ||||
| Customer B | % | % | ||||||
| Customer C | % | % | ||||||
| 8 |
6. PROPERTY AND EQUIPMENT, NET
As of September 30, 2024, and December 31, 2023, property and equipment consisted of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| Machinery and equipment | $ | $ | ||||||
| Leasehold improvements, furniture and equipment | ||||||||
| EV chargers | ||||||||
| Gross property and equipment | ||||||||
| Less: accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation and amortization expenses related
to property and equipment was $
7. INVENTORIES
As of September 30, 2024, and December 31, 2023, inventories consisted of:
| September 30, 2024 | December 31, 2023 | |||||||
| Raw materials, parts and supplies | $ | $ | ||||||
| Finished products | ||||||||
| Total inventories | $ | $ | ||||||
8. LEASES
Office and Warehouse Leases and Sublease
During the nine months ended September 30, 2024,
and 2023 the Company was a lessee as well as a sublessor for a certain office space lease. No residual value guarantees have been provided
by the sublessee and the Company recognized $
The components of net operating lease expenses, recorded within operating expenses on the Company's condensed consolidated statements of operations for the three and nine months ended September 30, 2024, and 2023, were as follows:
| Three Months Ended September 30, 2024 | Nine Months Ended September 30, 2024 | |||||||
| Operating lease cost | $ | $ | ||||||
| Less: Sublease income | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
| Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2023 | |||||||
| Operating lease cost | $ | $ | ||||||
| Less: Sublease income | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
| 9 |
9. RELATED PARTY TRANSACTIONS
The Company is a controlled subsidiary of Hyperscale, and as a result Hyperscale is deemed a related party.
Allocation of General Corporate Expenses
Hyperscale provides human resources, accounting
and other services to the Company, which are included as allocations of these expenses. The allocation method calculates an appropriate
share of overhead costs by using Company revenue as a percentage of total revenue. This method is reasonable and consistently applied.
Costs incurred in connection with the allocation of these costs are reflected in selling, general and administrative of $
Hyperscale has made capital contributions to
the Company of $
Related Party Sales and Receivables
The Company recognized related party sales revenue
during each of the three and nine months ended September 30, 2024, of $
Related Party Notes and Advances Payable
Related party notes and advances payable were used for working capital purposes and on September 30, 2024, and December 31, 2023, were comprised of the following:
| Interest rate | Due date | September 30, 2024 | December 31, 2023 | |||||||||
| Hyperscale advance payable | - | $ | $ | |||||||||
| Chief Executive Officer | Default | |||||||||||
| Non-officer advance payable | - | - | ||||||||||
| Total related party notes and advances payable | $ | $ | ||||||||||
The Hyperscale advance payable accrues interest of 10%, has no fixed terms of repayment and is recorded as related party notes and advances payable.
On September 26, 2024, the Company entered into
an amendment to the Loan and Security Agreement (the “Amendment”) with Hyperscale dated August 15, 2023 (the “Credit
Agreement”). The Credit Agreement provided for a secured, non-revolving credit facility with an aggregate
principal amount of up to $
Pursuant to the Amendment, the Company and Hyperscale have agreed to, among other things, amend the Credit Agreement
to increase the Credit Limit to $
Summary of interest expense, related party, recorded on the condensed consolidated statement of operations:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Interest expense, related party | $ | $ | $ | $ | ||||||||||||
Cash paid for related party notes and
advances payable was $
| 10 |
10. COMMITMENTS AND CONTINGENCIES
Litigation Matters
The Company is involved in litigation arising from other matters in the ordinary course of business. The Company is 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. The Company records an undiscounted liability for contingent losses, including future legal costs, settlements and judgments, when we consider it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. If the Company determines that a loss is reasonably possible and the loss or range of loss can be estimated, the Company discloses the reasonably possible loss. The Company evaluates developments in its legal matters that could affect the amount of liability that has been previously accrued, and the matters and related reasonably possible losses disclosed, and makes adjustments as additional information becomes available. Significant judgment is required to determine both the likelihood of there being a loss, and the estimated amount of a loss related to such matters.
With respect to the Company’s outstanding litigation matters, based on the Company’s current knowledge, the Company believes that the amount or range of reasonably possible loss will not, either individually or in aggregate, have a material adverse effect on the Company’s business, consolidated financial position, results of operations, or cash flows. However, the outcome of such matters is inherently unpredictable and subject to significant uncertainties.
| 11 |
Non-cancelable Obligations
In the normal course of business, the
Company enters into non-cancelable obligations with certain parties to purchase services, such as technology equipment and
subscription-based cloud service arrangements. As of September 30, 2024, and December 31, 2023, the Company had outstanding
non-cancellable purchase obligations with terms of one year or longer aggregating of $
In accordance with ASC 260, Earnings Per Share, the basic loss per common share is computed by dividing the net loss available to common shareholders by the weighted average number of common shares outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.
The Company excluded the potential common stock equivalents outstanding from the calculation of diluted weighted average net loss per share for the three and nine months ended September 30, 2024, and 2023, which would be anti-dilutive due to the net loss from continuing operations in those periods.
Anti-dilutive securities, which are convertible into or exercisable for the Company’s common stock, consisted of the following on September 30, 2024, and 2023:
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Warrants | ||||||||
| Convertible preferred stock | ||||||||
| Total | ||||||||
12. SHAREHOLDERS’ DEFICIT
Authorized Capital
Common Stock
The holders of the Company’s common stock have equal ratable rights to dividends from funds legally available therefore when, and if declared by the Company’s board of directors. Holders of common stock are also entitled to share ratably in all of the Company’s assets available for distribution to holders of common stock upon liquidation, dissolution or winding up of the Company’s affairs.
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.
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.
ELOC Purchase Agreement
On July 25, 2024, the Company entered into a purchase agreement (the “ELOC Purchase Agreement”) with GCEF Opportunity Fund, LLC (“GCEF”), which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company has the right to direct GCEF to purchase up to an aggregate of $25.0 million of shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) over the 36-month term of the ELOC Purchase Agreement and the Company will execute a warrant to purchase shares of Common Stock (“ELOC Warrant”), granting the GCEF the right to purchase Common Stock issuable upon the exercise of the ELOC Warrants, with an expiration date that is the third anniversary of the First Trading Day (as defined ELOC Purchase Agreement). Under the ELOC Warrant, GCEF has the right to buy up to 2% of our outstanding Common Stock within three business days after our Common Stock is publicly listed for trading on a U.S. national securities exchange or other trading platform.
The parties acknowledge and agree that in the first month following a listing of the shares for trading on the principal market or the consummation of a Reverse Merger Transaction (as defined in the ELOC Purchase Agreement), whichever is earlier the Company may, in its sole discretion, issue an advance notice (a “Draw Down Notice”) for a draw down amount directing GCEF to purchase any amount up to the Draw Down Limit (as described below).
| 12 |
The Draw Down Limit shall not exceed four hundred percent (400%) of the average daily trading volume for the 30 trading days immediately preceding the date the Company delivers the Draw Down Notice and the Common Stock at a per-share amount equal to 90% of the average daily closing price during the draw down pricing period (as defined in the ELOC Purchase Agreement), for an aggregate maximum amount of $25,000,000 (the “Aggregate Limit”).
The number of shares that the Company can issue to GCEF from time to time under the ELOC Purchase Agreement shall not be more than 4.99% of the number of Common Shares issued and outstanding as of the date of such proposed issuance.
There have been no purchases during the nine months ended September 30,2024.
13. REDEEMABLE SERIES A PREFERRED STOCK – RELATED PARTY
There are shares of Series A Preferred
Stock issued and outstanding. Each share of Series A Preferred Stock has a stated value of $
On August 9, 2024, the Company amended and restated its certificate
of designations of rights and preferences of the Series A Convertible Redeemable Preferred Stock (“Preferred Stock”). Pursuant
to the Series A Amendment, the holder of the preferred stock, which is a related party, waived all accrued and future dividends in exchange
for an increase in the liquidation preference to 125%. This modification of the Preferred Stock resulted in a non-cash decrease in accrued
dividends and a corresponding increase in additional paid in capital of $
On April 22, 2024, the Company amended its articles of incorporation. Pursuant to the Series A Amendment, the conversion price, for purposes of determining the number of votes the holder of Series A Preferred Stock is entitled to cast, shall not be lower than $0.072. Further, the price at which the Series A Preferred Stock shall become convertible into shares of common stock of the Company shall be equal to the greater of (i) $0.02 per share or (ii) eighty (80%) percent of the Market Price as at the Conversion Date.
14. WARRANTS
On April 29, 2024, the Company issued
Commitment Fee; Warrant
In consideration for GCEF’s execution of the ELOC Purchase Agreement, (note 12), the Company is required to issue to GCEF, as a commitment fee, a number of Common Stock equivalent to 2.0% of the Aggregate Limit or $0.5 million (“Commitment Fee Shares”), payable either in cash or freely tradeable Common Stock on the first trading day after 30 consecutive trading days commencing with the first trading day designated in each draw down notice. The draw down notice shall specify the draw down amount requested, set the threshold price for such draw down and designate the first trading day of the draw down pricing period that the Company wishes to grant to the purchaser during the draw down pricing period.
| 13 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to future events or our future financial performance. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “expects,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “approximate,” “might,” “budget,” “forecast,” “shall,” “project,” “predict,” “should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions; uncertainties and other factors may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels or activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements, or our ability to successfully remediate the material weakness in our internal control over financial reporting in an appropriate and timely manner or at all, and the other factors described under “Item 1A. Risk Factors” and elsewhere in our Annual Report on Form 10-K filed with the SEC on April 11, 2024. Our expectations are as of the date this Quarterly Report is filed, and we do not intend to update any of the forward-looking statements after the date this Quarterly Report is filed to confirm these statements to actual results, unless required by law.
Plan of Operations
We are an emerging electric vehicle (“EV”) electrification infrastructure solutions and premium custom power products company, through our wholly owned subsidiaries Digital Power Corporation (‘DPC”) and TOG Technologies Inc. (“TOGT”), design, develop, manufacture and sell highly engineered, feature-rich, high-grade-power conversion and power system solutions to diverse industries and markets including e-Mobility, medical, military, telecommunications, and industrial as well as design and provide a line of advanced EV charging solutions. Through DPC, we provide solutions which leverage a combination of low leakage power emissions, very high-power density with power efficiency, flexible design leveraging customized firmware and short time to market. Our designed and manufactured, highly engineered, precision power conversion and control solutions serve mission-critical applications and processes. Through TOGT, we market and sell a line of scalable EV residential, commercial and ultra-fast charging products and comprehensive charging management software and network services. The business represents a natural outgrowth from our proprietary core power technologies to optimizing the design and performance of EV charging solutions.
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.
Results of Operations
For the Three Months Ended September 30, 2024, and 2023:
| 2024 | 2023 | Change ($) | Change (%) | |||||||||||||
| Revenue | $ | 1,290,000 | $ | 1,166,000 | $ | 124,000 | 11 | % | ||||||||
| Cost of revenue | 615,000 | 1,138,000 | (523,000 | ) | -46 | % | ||||||||||
| Gross profit | 675,000 | 28,000 | 647,000 | 2311 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | 812,000 | 339,000 | 473,000 | 140 | % | |||||||||||
| Selling and marketing | 326,000 | 766,000 | (440,000 | ) | -57 | % | ||||||||||
| Research and development | 97,000 | 97,000 | - | - | % | |||||||||||
| Total operating expenses | 1,235,000 | 1,202,000 | 33,000 | 3 | % | |||||||||||
| Operating loss | (560,000 | ) | (1,174,000 | ) | 614,000 | 52 | % | |||||||||
| Other expense: | ||||||||||||||||
| Interest expense, related party | 100,000 | 25,000 | 75,000 | -300 | % | |||||||||||
| Total other expense | 100,000 | 25,000 | 1,000 | -300 | % | |||||||||||
| Net loss | (660,000 | ) | (1,199,000 | ) | 539,000 | 45 | % | |||||||||
| Preferred dividends | - | (511,000 | ) | 511,000 | 100 | % | ||||||||||
| Net loss available to common shareholders | $ | (660,000 | ) | $ | (1,710,000 | ) | ||||||||||
| 14 |
Revenue and Gross (Loss) Profit
During the three-month period ended September 30, 2024, we had increased revenues of $124,000 and increased gross profits of $647,000 compared to the three-month period ended September 30, 2023, primarily due to increased sales of approximately $217,000 from two of our higher margin defense industry customers, somewhat offset by a decrease in sales from one of our medical customers during the three-month period ended September 30, 2024, compared to the three-month period ended September 30, 2023. The increase in gross profit during the three-month period ended September 30, 2024, was also impacted by a reduction in obsolete inventory expenses of $450,000 compared to the three months ended September 30, 2023.
Net Loss and Operating Expenses
During the three months ended September 30, 2024, our net loss decreased by $539,000 compared to the three-month period ended September 30, 2023, primarily due to the increase in gross profit as described above somewhat offset by an increase in payroll expense of $147,000 compared to the three-month period ended September 30, 2023.
Net Loss available to common shareholders
The Company amended and restated its certificate of designations of rights and preferences of the Series A Convertible Redeemable Preferred Stock. Pursuant to the Series A Amendment, the holder of the preferred stock, which is a related party, waived all accrued and future dividends in exchange for an increase in the liquidation preference to 125%.
The waived dividends resulted in a decrease in accrued preferred dividends for the three months ended September 30,2024 of $511,000 compared to the three months ended September 30, 2023.
For the Nine Months Ended September 30, 2024, and 2023:
| 2024 | 2023 | Change ($) | Change (%) | |||||||||||||
| Revenue | $ | 3,751,000 | $ | 2,766,000 | $ | 985,000 | 36 | % | ||||||||
| Cost of revenue | 1,950,000 | 2,430,000 | (480,000 | ) | -20 | % | ||||||||||
| Gross (loss) profit | 1,801,000 | 336,000 | 1,465,000 | 436 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | 2,408,000 | 2,819,000 | (411,000 | ) | -11 | % | ||||||||||
| Selling and marketing | 1,019,000 | 1,151,000 | (132,000 | ) | -15 | % | ||||||||||
| Research and development | 310,000 | 304,000 | 6,000 | 3 | % | |||||||||||
| Total operating expenses | 3,737,000 | 4,274,000 | (537,000 | ) | -19 | % | ||||||||||
| Operating loss | (1,936,000 | ) | (3,938,000 | ) | 2,002,000 | 50 | % | |||||||||
| Other expense: | ||||||||||||||||
| Interest expense, related party | 257,000 | 114,000 | 143,000 | 76 | % | |||||||||||
| Total other expense | 257,000 | 114,000 | 143,000 | 76 | % | |||||||||||
| Net loss | (2,193,000 | ) | (4,052,000 | ) | 1,859,000 | 46 | % | |||||||||
| Preferred dividends | (1,011,000 | ) | (1,517,000 | ) | 506,000 | -33 | % | |||||||||
| Net loss available to common shareholders | $ | (3,204,000 | ) | $ | $(5,569,000 | ) | ||||||||||
Revenue and Gross (Loss) Profit
During the nine-months ended September 30, 2024, we had increased revenues of $985,000 and increased gross profits of $1,465,000 compared to the nine-month period ended September 30, 2023, primarily due to increased sales of approximately $1,085,000 from our higher margin defense industry customers, somewhat offset by decreased sales of $236,000 to one of our medical customers during the nine-month period ended September 30, 2024, compared to the nine-month period ended September 30, 2023. The increase in gross profit during the nine months ended September 30, 2024, was also impacted by a reduction in obsolete inventory expenses of $696,000 compared to the nine-month period ended September 30, 2023.
Net Loss and Operating Expenses
During the nine months ended September 30, 2024, our net loss decreased by $1,859,000 compared to the nine-month period ended September 30, 2023, primarily due to the increase in gross profit as described above as well as by decreased legal expenses of $443,000, decreased marketing expenses of $132,000, and decreased consulting and audit expenses of $97,000 somewhat offset by an increase in salaries and benefits of $266,000 compared to the nine-month period ended September 30, 2023.
| 15 |
Net Loss available to common shareholders
The waived dividends resulted in a decrease in accrued preferred dividends for the nine months ended September 30,2024 of $556,000 compared to the nine months ended September 30, 2023.
Liquidity and Capital Resources
The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. We have incurred recurring net losses and operations have not provided sufficient cash flows. We believe that we will continue to incur operating and net losses each quarter until at least the time we begin significant deliveries of our products. Our inability to continue as a going concern could have a negative impact on our Company, including our ability to obtain needed financing. In view of these matters, there is substantial doubt about our ability to continue as a going concern. We intend to finance our future development activities and its working capital needs largely through the sale of equity securities with some additional funding from other sources, including term notes until such time as funds provided by operations are sufficient to fund working capital requirements. Our consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should we be unable to continue as a going concern. As of September 30, 2024, we had cash and cash equivalents of $0.0 million and negative working capital of $4.9 million.
Critical Accounting Estimates
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The accounting principles we use require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and amounts of income and expenses during the reporting periods presented. We believe in the quality and reasonableness of our critical accounting policies; however, materially different amounts may be reported under different conditions or using assumptions different from those that we have applied. The accounting policies that have been identified as critical to our business operations and to understanding the results of our operations pertain to the valuation of inventories and accruals of certain liabilities.
Recently Issued Accounting Pronouncements
Our management has considered all recent accounting pronouncements issued since the last audit of our financial statements. Our management believes that these recent pronouncements will not have a significant effect on our financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Because we are a smaller reporting company, this section is not applicable.
| 16 |
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
As of September 30, 2024, our management, with the participation and supervision of our principal executive officer and our principal financial officer, evaluated our disclosure controls and procedures (as defined in Rules 13a-15I and 15d-15(e) under the Exchange Act). The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based upon their evaluation, our principal executive officer and our principal financial officer concluded that, solely as a result of the material weaknesses identified by management and described below, our disclosure controls and procedures were not effective to ensure that material information relating to the Company required to be disclosed by the Company in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board (“PCAOB”) 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 weaknesses, which have caused management to conclude that as of September 30, 2023, our internal control over financial reporting (“ICFR”) 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. 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; |
| · | The insufficient resources in our accounting function also resulted in a deficiency over design and implementation of effective revenue recognition policies, procedures and controls with respect to the identification, timing and treatment of various new contracts with customers; |
| · | Management also concluded that there was a deficiency in internal controls over financial reporting relating to the accounting treatment for complex financial instruments which resulted in the failure to properly account for such instruments, specifically with respect to the classification and proper accounting treatment of preferred shares; and |
| · | Lastly, we did not design and maintain effective controls associated with related party transactions and disclosures. The controls in place were not designed at a sufficient level of precision or rigor to effectively prepare and review the complete financial records in such manner as to identify and properly disclose the nature and financial data of all our related party relationships. |
Management evaluated the impact of our failure to have segregation of duties and proper reviews, inadequacy in design of revenue recognition policies and procedures, failure to properly account for and provide adequate disclosures of complex financial instruments, fair value estimate procedures and reviews, and deficiency in identification and a disclosure of related party transactions and concluded that the multiple control deficiencies that resulted represented material weaknesses.
We have begun to implement the actions below (including appropriate staffing to execute such actions) in the following areas to strengthen our internal control over financial reporting in an effort to remediate the material weaknesses.
| 17 |
Remediation
Inventory. We have enhanced the design of existing controls and implemented new controls over the accounting, processing and recording of inventory. Specifically, we have strengthened the design of the management review control over inventory-in-transit. We have implemented processes to ensure timely identification and evaluation of inventory cut-off, and we are requiring additional accountability from counterparties on the accuracy of incoming and outgoing shipment documentation. We have deployed information system enhancements and have made better use of current system capabilities in order to improve the accuracy of inventory cut-off, reporting and reconciliation. In addition, we have been creating an assembly bill of materials (“BOM”) in our business software to facilitate efficient and accurate manufacturing and provide proper recording of raw materials inventory. The BOM structure ultimately minimizes inventory inaccuracies and production delays, and we have been increasing cycle counting of inventory used in production to improve accuracy. Lastly, we have recently hired a material specialist whose responsibility is to maintain inventory records.
Revenue Recognition. We intend on enhancing the design of existing controls and implementing new controls over the review of the application and recording of revenue for customer contracts under the guidance outlined in ASC 606. We also intend on implementing more thorough reviews of contracts by evaluating contractual terms and determining whether certain contracts should be consolidated, involve related parties and the proper timing of revenue recognition. These reviews will include more comprehensive contractual analysis from our legal team while ensuring qualified resources are involved and adequate oversight is performed during the internal technical accounting review process.
Accounts Receivable. We intend on enhancing the design of existing controls and implementing new controls over the processing and review of accounts receivable billings. We plan to supplement our accounting staff with more experienced personnel. We will also evaluate information system capabilities in order to reduce the manual calculations within this business process.
Complex Financial Instruments. We will design and implement controls to properly identify and implement the proper accounting treatment and classifications of our complex financial instruments to ensure our equity accounting and treatment is in accordance with U.S. generally accepted accounting principles. We intend to accomplish this by implementing more thorough reviews of certain details regarding all rights, penalties, record holders and negative covenants of the financial instruments in order to apply the correct accounting guidance (liabilities vs. equity vs. temporary equity).
Fair Value Estimates. We will design and implement additional control activities to ensure controls related to fair value estimates (including controls that validate the reasonableness, completeness and accuracy of information, data and assumptions), are properly designed, implemented and documented.
While these actions and planned actions are subject to ongoing management evaluation and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles, we are committed to the continuous improvement of our internal control over financial reporting. We will continue to diligently review our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2024, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
| 18 |
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is currently involved in litigation arising from 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 or indeterminate monetary amounts. We record an undiscounted liability for contingent losses, including future legal costs, settlements and judgments, when we consider it is probable that a liability has been incurred and the amount of the loss 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 a loss and the estimated amount of loss related to such matters.
With respect to our 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.
ITEM 1A. RISK FACTORS.
Because we are a smaller reporting company, this section is not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES OR USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
| 19 |
ITEM 6. EXHIBITS.
*Filed herewith.
** This certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent specifically incorporated by reference into such filing.
| 20 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: November 14, 2024
| TURNONGREEEN, INC. | |
| By: /s/ Amos Kohn | |
| Amos Kohn | |
|
Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial and Accounting Officer) |
21