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.
| o Large accelerated Filer | o 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. o
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o
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 May 15, 2025.
TABLE OF CONTENTS
| Page | ||
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements (Unaudited) | 3 |
| Condensed Consolidated Balance Sheet as of March 31, 2025, and December 31, 2024 | 3 | |
| Condensed Consolidated Statements of Operations for the three months ended March 31, 2025, and 2024 | 4 | |
| Condensed Consolidated Statement of Changes in Shareholders’ Deficit for the three months ended March 31, 2025, and 2024 | 5 | |
| Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2025, and 2024 | 6 | |
| Notes to Condensed Consolidated Financial Statements | 7 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 13 |
| Item 4. | Controls and Procedures | 14 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 16 |
| Item 1A. | Risk Factors | 16 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 16 |
| Item 3. | Defaults Upon Senior Securities | 16 |
| Item 4. | Mine Safety Disclosures | 16 |
| Item 5. | Other Information | 16 |
| Item 6. | Exhibits | 17 |
| 2 |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TURNONGREEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| March 31, 2025 | December 31, 2024 | |||||||
| 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, accrued expenses and other current liabilities | $ | $ | ||||||
| Lawsuit liability | ||||||||
| 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 | ||||||||
| 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 March 31, 2025, and December 31, 2024, respectively | ||||||||
| SHAREHOLDERS’ DEFICIT: | ||||||||
| Common Stock, par value $ a share; shares authorized as of March 31, 2025, and December 31, 2024: shares issued and outstanding on March 31, 2025, and as of December 31, 2024, 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 March 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenue | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| General and administrative | ||||||||
| Selling and marketing | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other expense: | ||||||||
| Interest expense, related party | ||||||||
| Interest expense | ||||||||
| 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 March 31, 2025
| Common Stock | Additional | Total | ||||||||||||||||||
| Shares | Amount | Paid in Capital | Accumulated Deficit | Shareholders’ Deficit | ||||||||||||||||
| Balance, January 1, 2025 | ( | ) | ( | ) | ||||||||||||||||
| Common stock issued upon exercise of warrants | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
Three Months Ended March 31, 2024
| Common Stock | Additional | Total | ||||||||||||||||||
| Shares | Amount | Paid in Capital | Accumulated Deficit | Shareholders’ Deficit | ||||||||||||||||
| Balance, January 1, 2024 | ( | ) | ( | ) | ||||||||||||||||
| Common stock issued upon exercise of warrants | ||||||||||||||||||||
| Preferred dividends | - | ( | ) | ( | ) | |||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| 5 |
TURNONGREEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
| For the Three Months ended March 31, | ||||||||
| Cash flows from operating activities: | 2025 | 2024 | ||||||
| Net (loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of right-of-use assets | ||||||||
| Inventory adjustment | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses, other current liabilities, and lawsuit liability | ( | ) | ||||||
| Dividends payable | ||||||||
| Operating lease liabilities and other 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 | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Net cash provided by financing activities | ||||||||
| Net decrease in cash and cash equivalents | ( | ) | ||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
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
MARCH 31, 2025
1. DESCRIPTION OF BUSINESS
Overview
TurnOnGreen, Inc., a Nevada corporation (“TOG”), through its wholly owned subsidiaries Digital Power Corporation (“Digital Power”) and TOG Technologies Inc. (“TOGT,” and together with Digital Power, the “Company”), is an emerging provider of premium power electronic and electric vehicle (EV) charging solutions. The Company designs, develops, manufactures, and sells highly engineered, feature-rich, high-grade power conversion systems and power solutions for mission-critical, life-sustaining, and lifesaving applications across a variety of sectors, particularly those operating in demanding and harsh environments.
The Company serves a broad range of markets, including defense and aerospace, medical and healthcare, industrial applications, telecommunications, e-Mobility, and OEM solutions. Our products are highly adaptive, featuring customized firmware meticulously configured to meet the specific requirements and challenges of our customers’ applications. In addition, we provide comprehensive EV charging infrastructure and subscription-based network management services for residential, fleet, hospitality, workplace, healthcare, municipal, and educational environments including universities and schools.
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 advances from Hyperscale, Inc. (“Hyperscale”) (See Note 10) until such time as funds provided by operations are sufficient to fund working capital requirements. Although management believes that capital sources will be available, there can be no assurances that Hyperscale will continue providing financing to the Company when needed 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 23, 2025.
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 23, 2025.
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 March 31, | ||||||||
| 2025 | 2024 | |||||||
| Primary Geographical Markets | ||||||||
| North America | $ | $ | ||||||
| Other | ||||||||
| Total Revenue | $ | $ | ||||||
| Major Goods | ||||||||
| Power supply units | $ | $ | ||||||
| EV chargers | ||||||||
| Total Revenue | $ | $ | ||||||
| Timing of Revenue Recognition | ||||||||
| Goods transferred at a point in time | $ | $ | ||||||
| Revenue recognized over 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 March 31, 2025 | For the Three Months Ended March 31, 2024 | |||||||||||||||
| Total Revenue | Percentage of | Total Revenue | Percentage of | |||||||||||||
| by Major | Total Company | by Major | Total Company | |||||||||||||
| Customers | Revenue | Customers | Revenue | |||||||||||||
| Customer A | $ | % | $ | % | ||||||||||||
| Customer B | $ | % | $ | % | ||||||||||||
| Customer C | $ | % | $ | % | ||||||||||||
| 8 |
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 | |||||||
| March 31, 2025 | December 31, 2024 | |||||||
| Customer A | % | % | ||||||
| Customer B | % | % | ||||||
Related party receivables
As of March 31, 2025, and December 31, 2024, the Company had
related party receivables of $- and $
6. PROPERTY AND EQUIPMENT, NET
As of March 31, 2025, and December 31, 2024, property and equipment consisted of the following:
| March 31, 2025 | December 31, 2024 | |||||||
| Machinery and equipment | $ | $ | ||||||
| Leasehold improvements, furniture and equipment | ||||||||
| 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 March 31, 2025, and December 31, 2024, inventories consisted of:
| March 31, 2025 | December 31, 2024 | |||||||
| Raw materials, parts and supplies | $ | $ | ||||||
| Finished products | ||||||||
| Total inventories | $ | $ | ||||||
8. LAWSUIT LIABILITY
Gordon v. Digital Power Corporation
On or about November 21, 2019, the plaintiff William Gordon filed a complaint against defendant, DPC, alleging wrongful termination and disability discrimination. The arbitration was conducted during October 2022. Aside from the opening and responding trial briefs, the arbitrator requested additional briefing on two subjects, undisclosed principal liability, and disclosed principal liability, both of which were submitted. In May 2023 the arbitrator entered a final award against the Company and in favor of Mr. Gordon in the amount of $1.1 million inclusive of interest, legal fees, administrative fees and expenses. Interest accrues at 10% per annum.
The Company has recorded a lawsuit liability of
$
| 9 |
9. LEASES
Office and Warehouse Leases and Sublease
The components of net operating lease expenses, recorded within operating expenses on the Company's condensed consolidated statements of operations for the three months ended March 31, 2025, and 2024, were as follows:
| Three Months Ended March 31, 2025 | ||||
| Operating lease cost | $ | |||
| Three Months Ended March 31, 2024 | ||||
| Operating lease cost | $ | |||
| Less: Sublease income | ( | ) | ||
| Total | $ | |||
10. 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 $
Related Party Notes and Advances Payable
Related party notes and advances payable were used for working capital purposes and on March 31, 2025, and December 31, 2024, were comprised of the following:
| Interest rate | Due date | Credit Limit | March 31, 2025 | December 31, 2024 | ||||||||||||||||
| Hyperscale advance payable | Demand | $ | $ | $ | ||||||||||||||||
| Chief Executive Officer | Default | |||||||||||||||||||
| Non-officer advance payable | - | - | ||||||||||||||||||
| Total related party notes and advances payable | $ | $ | ||||||||||||||||||
Pursuant to the Amendment, the Company and Hyperscale
have agreed to, among other things, amend the Credit Agreement to increase the Credit Limit to $
The Hyperscale advance payable funded the allocation of general corporate expenses noted above for the three months ended March 31, 2025, and 2024.
Summary of interest expense, related party, recorded on the condensed consolidated statement of operations:
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Interest expense, related party | $ | $ | ||||||
| 10 |
Anti-dilutive securities, which are convertible into or exercisable for the Company’s common stock, consisted of the following:
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Warrants | ||||||||
| Convertible preferred stock | ||||||||
| Total | ||||||||
12. SEGMENT INFORMATION
Disclosures regarding the Company’s reportable segment with reconciliations to consolidated totals for the three months ended March 31, 2025, and March 31, 2024, are presented below:
| Three months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenue | ||||||||
| Manufacturing costs | ||||||||
| Distribution costs | ||||||||
| Inventory adjustment | ||||||||
| EV chargers | ||||||||
| Other | ||||||||
| Cost of revenue | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Research and development: | ||||||||
| Payroll and benefits | ||||||||
| Occupancy costs | ||||||||
| Other research and development | ||||||||
| Total research and development | ||||||||
| Selling and marketing: | ||||||||
| Payroll and benefits | ||||||||
| Occupancy costs | ||||||||
| Other selling and marketing | ||||||||
| Total selling and marketing | ||||||||
| General and administrative | ||||||||
| Payroll and benefits | ||||||||
| Professional fees and outside services | ||||||||
| Occupancy costs | ||||||||
| Other general and administrative | ||||||||
| Total general and administrative | ||||||||
| Total operating expenses | ||||||||
| Operating loss | $ | ( | ) | $ | ( | ) | ||
| 11 |
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 23, 2025. 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 a premium custom power products and emerging electric vehicle (“EV”) electrification infrastructure solutions 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 March 31, 2025, and 2024:
| 2025 | 2024 | Change ($) | Change (%) | |||||||||||||
| Revenue | $ | 1,592,000 | $ | 1,225,000 | $ | 367,000 | 30 | % | ||||||||
| Cost of revenue | 862,000 | 667,000 | 195,000 | 29 | % | |||||||||||
| Gross profit | 730,000 | 558,000 | 172,000 | 31 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | 769,000 | 752,000 | 17,000 | 2 | % | |||||||||||
| Selling and marketing | 246,000 | 361,000 | (115,000 | ) | -32 | % | ||||||||||
| Research and development | 125,000 | 111,000 | 14,000 | 13 | % | |||||||||||
| Total operating expenses | 1,140,000 | 1,224,000 | (84,000 | ) | -7 | % | ||||||||||
| Operating loss | (410,000 | ) | (666,000 | ) | 256,000 | 38 | % | |||||||||
| Other expense: | ||||||||||||||||
| Interest expense, related party | 124,000 | 69,000 | 55,000 | 80 | % | |||||||||||
| Interest expense | 7,000 | - | 7,000 | - | ||||||||||||
| Total other expense | 131,000 | 69,000 | 62,000 | 90 | % | |||||||||||
| Net loss | (541,000 | ) | (736,000 | ) | 195,000 | 26 | % | |||||||||
| Preferred dividends | - | (500,000 | ) | 500,000 | 100 | % | ||||||||||
| Net loss available to common shareholders | $ | (541,000 | ) | $ | (1,236,000 | ) | ||||||||||
| 12 |
Revenue and Gross (Loss) Profit
During the three-month period ended March 31, 2025, we had increased revenues of $367,000 and increased gross profits of $172,000 compared to the three-month period ended March 31, 2024, primarily due to increased sales of approximately $408,000 from two of our higher margin defense industry customers, and sales of $190,000 from a new EV customer somewhat offset by a decrease in sales of $228,000 from our medical customers during the three-month period ended March 31, 2025, compared to the three-month period ended March 31, 2024. The increase in gross profit during the three-month period ended March 31, 2025, was also impacted by a reduction in obsolete inventory expenses of $37,000 compared to the three months ended March 31, 2024.
Net Loss and Operating Expenses
During the three months ended March 31, 2025, our net loss decreased by $195,000 compared to the three-month period ended March 31, 2024, primarily due to the increase in gross profit as described above and the $115,000 decrease in selling and marketing expenses somewhat offset by an increase in interest expenses of $62,000 compared to the three-month period ended March 31, 2024.
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 March 31,2025 of $500,000 compared to the three months ended March 31, 2024.
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 March 31, 2025, we had cash and cash equivalents of $0 million and negative working capital of $6.9 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.
| 13 |
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
As of March 31, 2025, 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 March 31, 2025, 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.
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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 March 31, 2025, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
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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.
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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.
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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: May 16, 2025
| TURNONGREEEN, INC. | |
| By: /s/ Amos Kohn | |
| Amos Kohn | |
|
Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial and Accounting Officer) |
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