TOGI 8-K
TurnOnGreen, Inc. (TOGI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________
FORM
CURRENT REPORT
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Table of Contents
| Page | ||
| Note About Forward-Looking Statements | ||
| Item 1.01. | Entry into a Material Definitive Agreement | 1 |
| Item 2.01. | Completion of Acquisition or Disposition of Assets | 1 |
| Item 3.02. | Unregistered Sales of Equity Securities | 43 |
| Item 4.01. | Changes in Registrant’s Certifying Accountant | 44 |
| Item 5.02. | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers | 44 |
| Item 5.03. | Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year | 44 |
| Item 5.06. | Change in Shell Company Status | 45 |
| Item 7.01. | Regulation FD Disclosure |
45 |
| Item 9.01. | Financial Statements and Exhibits | 45 |
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Current Report on Form 8-K (the “Current Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to future events or our future financial performance. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “expects,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predict,” “should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions; uncertainties and other factors may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels or activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Our expectations are as of the date this Current Report is filed, and we do not intend to update any of the forward-looking statements after the date this Current Report is filed to confirm these statements to actual results, unless required by law.
This Current Report also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other industry data. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We have not independently verified the statistical and other industry data generated by independent parties and contained in this Current Report and, accordingly, we cannot guarantee their accuracy or completeness, though we do generally believe the data to be reliable. In addition, projections, assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and elsewhere in this Current Report. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.
| ITEM 1.01 | ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT |
Securities Purchase Agreement
As previously reported on a Current Report on Form 8-K filed by Imperalis Holding Corp., a Nevada corporation (“IMHC”) on March 21, 2022, on March 20, 2022, BitNile Holdings, Inc., a Delaware corporation (“BitNile” or the “Parent”) and IMHC entered into a Securities Purchase Agreement (the “Agreement”) with TurnOnGreen, Inc., a Nevada corporation (“TOGI”), a wholly-owned subsidiary of the Parent. Pursuant to the Agreement, at the Closing (hereinafter defined), which occurred on September 6, 2022 (the “Closing Date”), the Parent (i) delivered to IMHC all of the outstanding shares of common stock of TOGI held by the Parent, and (ii) eliminated all of the intercompany accounts between the Parent and TOGI evidencing historical equity investments made by the Parent to TOGI, in the approximate amount of $36,000,000, all in consideration for the issuance by IMHC to the Parent (the “Acquisition”) of an aggregate of 25,000 newly designated shares of Series A Preferred Stock (the “Series A Preferred Stock”), with each such share having a stated value of $1,000. The Series A Preferred Stock has an aggregate liquidation preference of $25 million, is convertible into shares of IMHC’s common stock, par value $0.001 per share (the “Common Stock”) at the Parent’s option, is redeemable by the Parent, and entitles the Parent to vote with the Common Stock on an as-converted basis. On September 5, 2022, BitNile, IMHC and TOGI entered into an amendment to the Agreement (the “Amendment”), pursuant to which IMHC agreed to (i) use commercially reasonable efforts to effectuate a distribution by the Parent of approximately 140 million shares of Common Stock beneficially owned by the Parent (the “Distribution”), including the filing of a registration statement (the “Distribution Registration Statement”) with the Securities and Exchange Commission (the “SEC”), (ii) to issue to Parent warrants to purchase an equivalent number of shares of Common Stock to be issued in the Distribution (the “Warrants”), and (iii) to register the Warrants and the shares of Common Stock issuable upon exercise of the Warrants on the Distribution Registration Statement. IMHC and BitNile will mutually agree to the terms and conditions of the Warrants and the Distribution Registration Statement after the Closing Date.
Immediately following the completion of the Acquisition, TOGI became a wholly-owned subsidiary of IMHC. IMHC’s outstanding shares of Common Stock and outstanding warrants and options to purchase Common Stock remain outstanding and unaffected upon completion of the Acquisition. The Common Stock remains registered under Section 12(g) of the Exchange Act immediately following the Acquisition.
The Agreement contains customary representations and warranties and pre- and post-closing covenants of each party and customary closing conditions. Breaches of the representations and warranties were subject to customary indemnification provisions, subject to specified aggregate limits of liability.
The issuance of shares of IMHC’s Series A Preferred Stock, and the underlying shares of Common Stock issuable upon conversion thereof, to the Parent in connection with the Agreement was not registered under the Securities Act, in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act, which exempts transactions by an issuer not involving any public offering, and Regulation D promulgated by the SEC thereunder. These securities may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirement.
The Agreement and Amendment are filed as Exhibit 2.1 and Exhibit 2.2, respectively, to this Current Report. All descriptions of the Agreement and Amendment herein are qualified in their entirety by reference to the text thereof filed as exhibits hereto, which are incorporated herein by reference.
| ITEM 2.01 | COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS |
The information contained in Item 1.01 above is incorporated herein by reference.
Overview
Imperalis Holding Corp., a Nevada corporation, was formed on April 5, 2005, under the name Coloured (US) Inc. On March 25, 2011, it changed its name to Imperalis Holding Corp.
On December 28, 2017, IMHC acquired 100% of the issued and outstanding common stock of The Crypto Currency Mining Company, Inc. (“Crypto”), in exchange for our issuance of 56,996,444 shares of Common Stock. Following IMHC’s acquisition of Crypto, IMHC focused on the mining of cryptocurrencies as its primary business.
On February 21, 2018, IMHC acquired all of the issued and outstanding capital stock of Dollar Shots Club, Inc. (“Dollar Shots”) in exchange for the issuance of 1,342,050 shares of Common Stock to the former shareholders of Dollar Shots. Through Dollar Shots, IMHC marketed flavored energy “shots” and similar beverages through a monthly subscription service.
In a common control transaction on April 29, 2019, IMHC acquired all of the issued and outstanding capital stock of CannaCure Sciences, Inc., a Wyoming corporation (“CannaCure”), in exchange for the issuance of 60,000,000 shares of Common Stock to the former shareholders of CannaCure. CannaCure attempted to develop a lineup of personal care products containing Cannabidiol.
The operations of Crypto and Dollar Shots have ceased as a result of their dissolution. The operations of CannaCure are dormant. IMHC intends to cause CannaCure to be dissolved.
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Recent Events – The Acquisition
On December 16, 2021, certain stockholders of IMHC (collectively, the “Sellers”) entered into a stock purchase agreement with BitNile, Inc. (“BNI”), a wholly owned subsidiary of BitNile, pursuant to which BNI purchased 129,363,756 shares of Common Stock from the Sellers for an aggregate consideration of $200,000. Upon the closing of the stock purchase agreement, BitNile owned approximately 90% of the Common Stock, resulting in a change in control of IMHC.
Immediately following the closing of the Agreement and the completion of the Acquisition and related transactions (the “Closing”), which occurred on the Closing Date, TOGI became a wholly-owned subsidiary of IMHC. Following the closing of the Acquisition, IMHC will dissolve its remaining dormant subsidiary. Further IMHC and TOGI intend to close an upstream merger whereby TOGI shall cease to exist. Upon consummation of the merger, IMHC shall have acquired two operating subsidiaries, TOG Technologies, Inc. (“TOGT”) and Digital Power Corporation (“Digital Power”). IMHC will continue the existing business operations of TOGI as a publicly-traded company under the name Imperalis Holding Corp., but intends to change the registrant’s name to TurnOnGreen, Inc. as soon as practicable. The Closing was subject to the Parent’s delivery to IMHC of audited financial statements of TOGI and other customary closing conditions.
Changes to the Board of Directors and Executive Officers. Upon the closing of the Acquisition: (i) Darren Magot resigned from his position as Chief Executive Officer but remains a member of the Board of Directors of IMHC (the “Board”); (ii) David Katzoff remained as IMHC’s Chief Financial Officer, Secretary and Treasurer; (iii) Marcus Charuvastra remained as IMHC’s President; (iv) Douglas Gintz remained as IMHC’s Chief Technology Officer, and (v) the Board appointed Amos Kohn as IMHC’s Chief Executive Officer and a member of the Board. IMHC intends to file a Schedule 14F-1 in connection herewith. Ten days thereafter, BitNile intends to cause TOGI to appoint additional individuals to its Board of Directors.
Changes to the Business. IMHC, through its wholly owned subsidiaries Digital Power and TOGT, is engaged in the design, development, manufacture and sale of highly engineered, feature-rich, high-grade power conversion and power system solutions for mission-critical applications and processes. For more than 50 years, Digital Power has been devoted to the perfection of power solution products that have enabled customer innovation in complex applications covering a wide range of industries. A natural outgrowth of its development of these power systems has been TOGT’s effort to apply the company’s proprietary core power technologies to optimizing the design and performance of electric vehicle (“EV”) charging solutions. TOGT began commercial sales of its product line of high-speed charging solutions in mid-2021. We believe that our charging solutions represent an entire generation of new chargers due to dramatic improvements in terms of size reduction in electronic circuitry and higher output density. We also believe that, by leveraging our experience and expertise in power conversion and generation, we can rapidly become a leader in the high growth EV charging solution market.
Current Beneficial Ownership. Immediately after giving effect to the Acquisition, there were 161,704,695 shares of our Common Stock issued and outstanding, as follows:
| · | The Parent beneficially owns 318,512,900 shares of Common Stock, which consists of: (i) 129,363,756 shares of Common Stock held by the Parent’s wholly-owned subsidiary BNI; (ii) 10,000 shares of Common Stock held by the Parent’s wholly-owned subsidiary, Digital Power Lending, LLC (“DPL”); (iii) 10,873,314 shares of Common Stock issuable upon conversion of an outstanding convertible promissory note held by DPL in the principal face amount of $101,529, which is convertible into shares at a conversion price of $0.01 per share; and (iv) 178,265,830 shares issuable upon conversion of BitNile’s Series A Preferred Stock; and |
| · | the other remaining stockholders of IMHC hold 32,330,939 shares of Common Stock. |
In connection with the Acquisition, IMHC issued to the Parent an aggregate of 25,000 newly designated shares of Series A Preferred Stock, with each such share having a stated value of $1,000. The terms of the Series A Preferred Stock are more fully described under Items 3.02 and 5.03 below.
Our common stock is available for quotation on the OTC Pink Market (OTC Pink) under the symbol “IMHC,” which IMHC expects to change to “TOGI” as promptly as practicable.
Accounting Treatment; Change in Control. The Acquisition is being accounted for as a “reorganization,” and IMHC is deemed to be the legal acquirer of TOGI but TOGI will be considered the acquiror for accounting and financial reporting purposes. Consequently, the assets and liabilities and the historical operations that will be reflected in the financial statements prior to the Acquisition will be those of TOGI and will be recorded at the historical cost basis of TOGI, and the consolidated financial statements after completion of the Acquisition will include the assets and liabilities, historical operations and operations of TOGI and its subsidiaries from the Closing Date of the Acquisition.
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Except as described in this Current Report, no arrangements or understandings exist among present or former controlling stockholders with respect to the election of members of our Board.
General.
We are a “shell company” as such term is defined in Rule 12b-2 under the Exchange Act. Following and as a result of the Acquisition, we have ceased to be a shell company. The information contained in this Current Report constitutes the current “Form 10 information” necessary to satisfy the conditions contained in Rule 144(i)(2) under the Securities Act.
As used in this Current Report henceforward, unless otherwise stated or the context clearly indicates otherwise, the terms “IMHC”, “TOGI,” the “Company,” the “Registrant,” “we,” “us,” and “our” refer to Imperalis Holding Corp., incorporated in Nevada, and the business of TOGI, after giving effect to the Acquisition. In certain instances, this Current Report refers to TurnOnGreen, Inc. prior to the Acquisition as the “Former TOGI.”
This Current Report contains summaries of the material terms of various agreements executed in connection with the transactions described herein. The summaries of these agreements are subject to, and are qualified in their entirety by, reference to these agreements, which are filed as exhibits hereto and incorporated herein by reference.
BUSINESS OF TURNONGREEN
Overview
TurnOnGreen, through its wholly owned subsidiaries Digital Power and TOGT, is engaged in the design, development, manufacture and sale of highly engineered, feature-rich, high-grade power conversion and power system solutions for mission-critical applications and processes. For more than 50 years, Digital Power has been devoted to the perfection of power solution products that have enabled customer innovation in complex applications covering a wide range of industries. A natural outgrowth of its development of these power systems has been TOGT’s effort to apply the company’s proprietary core power technologies to optimizing the design and performance of electric vehicle (“EV”) charging solutions. TOGT began commercial sales of its product line of high-speed charging solutions in mid-2021. We believe that our charging solutions represent an entire generation of new chargers due to dramatic improvements in terms of size reduction in electronic circuitry and higher output density. We also believe that, by leveraging our experience and expertise in power conversion and generation, we can rapidly become a leader in the high growth EV charging solution market.
At Digital Power, we provide a comprehensive range of integrated power system solutions that are designed to meet the diverse and precise needs of our customers with the highest levels of efficiency, flexibility and scalability. We design, develop and manufacture custom power systems to meet performance and/or form factor requirements that cannot be met with standard products. These power system solutions are designed to function reliably in harsh environments associated with defense and aerospace applications, while also being utilized for applications ranging from industrial equipment to medical instrumentation. Our products are highly adaptive and feature soft configurations in order to meet the requirements of both our customers and our original equipment manufacturers (“OEMs”). These products include our Open-Frame series of products, which are the industry’s smallest open frame AC/DC switchers, high-performance AC/DC desktop adaptor power supplies and a full range of compact AC or DC power supplies.
Our EV Charging Solutions
We recently formed TOGT, following more than two years of engineering design and product prototypes, to provide EV drivers of all types with easy access to convenient, reliable and high-speed EV charging. TOGT offers Level 2 AC charging infrastructure for use in single family homes, multi-family unit developments, commercial retail properties and fleet environments. TOGT provides Level 3 DC fast charger infrastructure for high traffic, high density urban, suburban, exurban locations, and portable microgrid charging infrastructure. Prior to August 2021, Digital Power operated the EV business presently conducted by TOGT. Our EV charging solutions are designed to address the expected rapid expansion of infrastructure required to support broad adoption of EVs globally. With more than 50 years of expertise in power technology, we provide EV charging solutions to enable the eMobility of tomorrow. Our innovative charging solutions produce a full charge for an EV with a 150-mile range battery in approximately 30 minutes. We provide a wide range of EV charging solutions, including a Level 2 AC charging product line compatible with the SAE J1772 standard, and a Level 3 DC fast charging product line compatible with the Combined Charging System (“CCS”) standard and the CHArge de MOve (“CHAdeMO”) standard.
Our network is capable of natively charging (i.e., charging without an adapter) all EV models and supports all charging standards currently available in the United States. Our network can serve a wide variety of private, retail, commercial and fleet customers. Our charging systems maintain the highest standards in the market and are backed by an internationally recognized certificate of safety and performance. We anticipate rapid growth in the number of EVs in North America, and we intend to expand our network of charging stations to accommodate this growth while prioritizing development of locations with favorable traffic and utilization characteristics.
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Below are renderings of our EV charging products and related services:
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Our strategy is to be the supplier of choice across numerous markets that require high-quality power system solutions where custom design, superior product, high quality, time to market and competitive prices are critical to business success. We believe that we provide advanced custom product design services to deliver high-grade products that reach a high level of efficiency and density and can meet rigorous environmental requirements. Our customers benefit from a direct relationship with us that supports all their needs for designing and manufacturing power solutions and products. By implementing our proprietary core technology, including process implementation in integrated circuits, we can provide cost reductions to our customers by replacing their existing power sources with our custom design cost-effective products.
Our Products and Markets
Power System Products and Technology
Power System Solutions. At Digital Power, we provide a comprehensive range of highly integrated power systems designed to meet the diverse and precise needs of our customers. We offer high-performance power systems to achieve the highest levels of efficiency, flexibility, and scalability for customers that require innovative technologies and customized solutions for critical applications and life-saving services. We design, develop, and manufacture custom power systems to meet performance and/or form factor requirements that cannot be met with standard products. These power system solutions are designed to function reliably in the harsh environments associated with defense and aerospace applications, while also being utilized for applications ranging from industrial equipment to medical instrumentation. We use integrated circuits and digital signal processor technology in our products, including with respect to our customized firmware. Our products are highly adaptive and feature soft configurations that in order to meet the requirements of both our customers and our OEMs.
Our power system solutions include wide range of power switchers and power conversions products including but not limited to open-frame, Compact PCI, board-mount, rackmount, desktop, capacity charger, modular and custom power series. Our power conversion technology produces the highest industry power conversion efficiency result in the smallest form-factor and high-performance AC/DC power switchers and DC/DC power conversion products. These power switching products incorporate active power factor correction (“PFC”) and universal AC input, making them ideal for a range of global applications. Our products are being used in mission critical applications, lifesaving services in diverse markets including defense & aerospace, medical, telecommunications and industrial where high reliability, high efficiency and advance features are required while operating in harsh environment.
In most cases, when our customers contract with us to develop custom power solutions, these contracts will include two folds; non-recurring engineering (“NRE”) to charge our customers for custom product development and ii, multi-year, high-volume production and product sale contract of such custom developed product. These contracts result with high-margin, low competition and multi-years accurate sales plan while reducing our manufacturing costs. Although our customers pay for NRE, we maintain our intellectual property (“IP”) of the product we designed to allow us to secure the sale of such custom products through the lifetime of our customers customized application. We believe that this business model provides an incentive to our customers to be committed for long lifetime, ongoing and high-volume products’ orders.
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Power Technology for High-Grade Power Products. We offer our feature rich based power rectifiers that support flexible configuration and high-grade design implementation. This includes innovative designs and implementation of digital power management improving power efficiently and customization of the product. It includes digital signal processor (“DSP”) controls for the power factor correction (“PFC”) and DC to DC conversing. The advanced power technology used in our products includes synchronous rectifiers, two-phase PFC, power management integrated circuits (“ICs”) and features such as hot plug capacity and intelligent current sharing. While some of our customers have special requirements that include a full custom design, other customers may require only certain electrical changes to standard power supply products, such as modified output voltages, unique status and control signals and mechanical repackaging tailored to fit the specific application. We offer a wide range of standard and modified standard products that can be easily integrated with any platform across our diversified market segments.
For example, our board mount converters are ideal for a range of consumer electronics, medical applications and industrial control applications. These AC-DC and DC-DC power supplies range from 10 to 9,000 watts, with operating temperatures from -40 to +85 degrees Celsius and include universal AC input and/or wide range of DC inputs that are widely used by our defense and aerospace customers and for uninterruptible power supplies (“UPS”) applications.
Value-Added Services. We also offer a range of AC-DC and DC-DC products that provide value to our customers due to the configuration we provide to fit each customer’s specific needs, which often require multiple voltage outputs. These custom products illustrate the benefits and flexibility of our modular approach to offer higher performance, higher power densities, lower costs and faster delivery than many competitive offerings. Our configurable products typically are used in a wide range of distributed power architecture implementations in defense and aerospace electronic systems, industrial and telecommunication applications, as well as medical and healthcare instrumentation and equipment. Such configurable products include our capacitor charger supplies, which support out powers from 50 watts to 9,000 watts, with configurable voltages from 500 volts to 3,000 volts.
Power System Markets
We sell our power systems as integrated solutions to our diverse customers for a wide range of applications in the global markets and sectors we serve, including medical and healthcare, defense and aerospace, and industrial and telecommunications. We also sell our products as stand-alone products to our commercial customers and, most recently, we have started to roll out our EV charger products to consumers. Our current commercial customer base consists of approximately 220 companies, which are served through our direct sales groups and our strategic partner channels. Our power supply products and related services sold through Digital Power accounted for all of our revenues in the six months ended June 30, 2022 and the years ended December 31, 2021 and 2020. During these time periods, approximately 83.7%, 87.6% and 82.8% of our revenues, respectively, were generated from customers located in North America. During the six months ended June 30, 2022, revenues from Europe accounted for approximately 2.1% of our revenues and did not exceed 10% of our revenues in prior periods. The key industries for our products include:
Medical and Healthcare. Our power solutions are ideal for healthcare and medical applications that require a high level of reliability and performance due to their quality, output power and high-power density. Our power supplies meet the rigorous medical safety requirements and major industrial safety standards related to such products to major industrial safety standards, including the EN60601-1 safety standard and the 4th Edition EMC compliance requirements, and help medical device and system manufacturers speed compliance testing of their own products. Our qualification testing facilities are also approved by various safety agencies to test and qualify power products to be used in medical devices. We have obtained the medical quality management systems ISO 13485 certification to support rigorous design requirements and high-quality manufacturing of our medical power systems. Our medical power products help OEMs minimize the risk of encountering unexpected development problems outside of their own areas of expertise. The typical applications for our power products in the medical and healthcare industry include portable oxygen concentrators, patient monitoring systems, pulsed lasers drivers for dental and surgical treatment, DNA sequencers, medical beds and ultrasounds. Revenues from the medical and healthcare industry accounted for approximately 29%, 32% and 36% of all revenues received from our power supply products during the six months ended June 30, 2022 and years ended December 31, 2021 and 2020, respectively.
Defense and Aerospace. We offer a broad range of rugged power solutions for the defense and aerospace market. These solutions feature the ability to withstand harsh environments. For more than 50 years, we have been providing rugged COTS products and custom power solutions designed end-to-end for military and aerospace applications. We offer a wide variety of units designed to comply with the most demanding United States and international MIL-STDs. Our military products meet all relevant military standards in accordance with the Defense Standardization Program Policies and Procedures. This includes specifications related to space, weight, output power, electromagnetic compatibility, power density and multiple output requirements, all of which we meet due to decades of experience held by our engineering teams. Certain of our products that are specifically designed, modified, configured or adapted for military systems are subject to the United States ITAR, which are administered by the U.S. Department of State. We obtain required export licenses for any exports subject to ITAR. Our defense manufacturing facilities are compliant with the international Quality Management System standard for the AS&D AS9100.
The typical applications for our power products in the defense and aerospace industry include mobile and ground communications, naval power conversion, automated test and simulation equipment for weapon systems, combat and airborne power supplies, radar arrays power source, tactical gyro position and navigation systems and active protection of tactical vehicles. Revenues from the defense and aerospace industry accounted for approximately 27%, 22% and 26% of all revenues received from our power supply products during the six months ended June 30, 2022 and years ended December 31, 2021 and 2020, respectively.
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Industrial and Telecommunications. We build products for custom and standard applications used in industrial and telecommunication markets and set the standard in flexibility, efficiency and reliability. Our compact, high-density and flexible power supplies and power converters allow optimal performance, boost functionality and decrease costs. Due to the breadth of our experience, our products have proven to easily meet stringent design requirements. Our industrial power solutions are designed to stand up to the extreme temperatures, input surges, vibration and shock found through uses such as industrial automation, material handling, industrial lasers, robotics, agriculture, oil, and gas, mining and outdoor applications. Our technology is designed for superior thermal management, reliability, EMI/EMC specifications and power density, with rugged performance that is typically unavailable in standard power supplies. The typical applications for our power products in the industrial and telecommunications industry include packaging equipment, laboratory and diagnostic equipment, industrial laser drivers, datacenter computing and turbomachinery control solutions. Revenues from the industrial and telecommunications industry accounted for approximately 44%, 46% and 38% of all revenues received from our power supply products during the six months ended June 30, 2022 and years ended December 31, 2021 and 2020, respectively.
The EV Charging Industry and Trends
The market for BEVs and HEVs has experienced significant growth in the past five years, and we believe that growth will increase dramatically over the next five years. As the economic and environmental costs of fossil fuel burning automobiles increases each year, consumer demand for vehicles with greater fuel efficiency, greater performance and with lower or no environmental emissions has also increased. With a variety of federal, state and municipal incentive programs for both EV drivers and electric vehicle supply equipment (“EVSE”) infrastructure construction, we anticipate a significant increase in the demand for BEVs and HEV charging solutions at home, work and in public.
We believe that the industry trends for sustained growth are favorable for us. Multiple states and municipalities have set ambitious Zero Emission Vehicle goals for the next ten years. In order to meet these goals, mandates for EV sales have been established by states like California, New York, Oregon, Washington and others. While at the same time, oil and gas prices continue to rise, EV battery technology continues to improve and become more affordable. The average consumer cost to acquire an EV declined 13.5% from 2018 to 2019 and continues to fall as more automobile manufacturers introduce new EV models to the market each year, notwithstanding the fact that EVs are generally remain more expensive than ICE automobiles.
Automobile and battery manufacturers have substantially increased their efforts to offer EVs at a wider range of price points and to develop batteries with higher efficiencies and lower costs. According to Reuters, more than $300 billion has been invested or is committed for investment in the next five to ten years by global automobile OEMs. These investments will expand and put into mass production the EV offerings and associated technologies from such OEMs and optimize the global EV supply chain. Efforts to date by OEMs have already lowered the upfront costs of EVs, and we expect further price reductions over the next several model years. Bloomberg New Energy Finance estimates that most EVs will reach upfront cost parity with ICE vehicles by 2023 on an unsubsidized basis. As measured in terms of total cost of ownership (“TCO”), certain classes of EVs already are at or below parity with their ICE counterparts. As overall EV costs decline, more car makes, and models will reach TCO parity with their ICE equivalents and the TCO advantage for other types of EVs will expand. According to the Electric Drive Transportation Association, sales of plug-in vehicles since introduction to the market in 2010 is over 500,000 and according to a third-party research firm, sales are expected to grow by a factor of 12 to over 4,000,000 in 2025. The cost to maintain an EV is half of what it costs to maintain an ICE automobile. The cost to add 200 miles of range to an ICE car is roughly twice the cost of its all-electric counterpart. As multiple market conditions are favorable for growth, we believe that the number of EVs on the road in 2025 will exceed 4,000,000.
EV charging demand is a direct result of the number of EVs operating during a given period, miles traveled by such EVs and the efficiency of such EVs. The current market for fulfilling charging demand is bifurcated between Level 1 and Level 2 charging and high-powered Level 3 DC fast charging (“DCFC”) devices. The demand for different charging types is a function of the EV mix, owner demographics, locational factors, charger availability, pricing and EV use cases (i.e., private ownership, rideshare, delivery and municipally-owned fleets). Lower-powered Level 1 and Level 2 charging are primarily used by EV owners with access to home, workplace and “play” charging, and currently account for the majority of personal EV charging. Level 2 charging is also used by certain fleets that have the ability to charge overnight, have a low daily mileage requirement and return to a centralized location daily. Current DCFC users primarily are drivers who need to charge away from home in central business districts, drivers who do not have access to home or workplace charging and high-mileage fleets that seek to minimize downtime and maximize miles traveled.
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EV Charging Products
We formed TOGT in August 2021, following more than two years of engineering design and product prototypes, to provide EV drivers of all types with easy access to convenient, reliable and high-speed charging. We offer a Level 2 AC charging infrastructure for use in single family homes, multi-family unit developments, commercial retail properties and fleet environments. TOGT provides Level 3 DC fast charger infrastructure for high traffic, high density urban, suburban, exurban locations, and portable microgrid charging infrastructure. Our EV charging solutions are designed to address the expected rapid expansion of infrastructure required to support broad adoption of EVs globally. With more than 50 years of expertise in power technology, we provide EV charging solutions to enable the eMobility of tomorrow. Our innovative charging solutions produce a full charge for an EV with a 150-mile range battery in approximately 30 minutes. We provide a wide range of EV charging solutions, including a Level 2 AC charging product line compatible with the SAE J1772 standard, and a Level 3 DC fast charging product line compatible with the Combined Charging System Type 1 (“CCS1”) standard and the CHAdeMO standard.
The final barrier to widespread BEV and HEV adoption is the lack of EV charging infrastructure. We believe that the demand for EV charging is increasing each day. Utility companies are upgrading their grid infrastructure in preparation for the increased demand. We expect the demand from businesses, municipalities and individuals to outpace supply over the next five years, creating a highly favorable environment for EVSE companies. We therefore intend to generate revenues with TOGT primarily through the sale of networked charging hardware, combined with cloud-based services that provide consumers with the ability to locate, reserve, authenticate and transact EV charging sessions, which we refer to as our TOG Network or TOG Network Services. TOG Network Services, and an optional extended warranty, are billed as an annual subscription, and access to the network is available through each of our commercial charging ports. We expect that the revenue contribution for recurring TOG Network or extended warranty sales will equal the revenue contribution from one-time EV700, EVP700, EV1100 and EVP1100 charger sales for commercial use after approximately seven years. TOGT also offers a hardware portfolio powered by software, which cannot be accessed without a TOG Network charger-as-a-service (CaaS) subscription.
With a shared mission to do our part to fight climate change, our team strives to bring to established and emerging markets innovative solutions that provide value for the company and our stockholders. We provide green energy services to homeowners, business partners, and EV drivers, leveraging our highly efficient, flexible, and software-managed technologies to meet their needs for reliable and customized energy saving services. We benefit from newer technologies and by learning from the experience of our competition to offer smarter and better product and services to our markets.
Level 2 Charging Solutions for Single and Multi-Family Homes
Our Level 2 EV charging solutions for in-home usage feature the EV700, which is an ENERGY STAR certified state-of-the-art, plug and play SMART home charger that allows the addition of up to 200 miles of range in 8 hours of charging. Compatible with most EVs on the road today, including Tesla, the EV700 is an affordable upgrade to a standard Level 1 charger. The slim, modern design of the EV700 is ideal for installation in most garages and outdoor charging locations and comes equipped with standard NEMA 6-50, or optional NEMA 14-50, inlet plugs and works with a standard 200-240V appliance outlet, making it ideal for residential use. Additional key features of the EV700 include the following:
| · | Compatibility with all EVs. The SAE J1772 charging connector that comes with the EV700 ensures compatibility with virtually all EVs, including Tesla models with the SAE J1772 adapters that are typically included with a Tesla purchase. |
| · | Savings with Every Charge. SMART features allow users to schedule charging an EV during off-peak hours using the EV700 Application on their I-Phone or Android Phone. The EV700 can add more than 200 miles of range overnight at an optimal cost. |
| · | Restrict Access in Public Areas. The EV700 can be passcode protected, so only the unit owner or authorized user can initiate a charging session by entering the code on the LCD touch screen or by using the EV700 APP. This feature was added to address the needs of multi-family unit dwellers, hotels and home rental companies. |
| · | SMART RFID Programmable. The EV700 can be activated using the RFID cards that are included with the unit. Additional RFID cards can be programmed by the unit owner to initiate a charge. |
| · | All-Weather Design. The rugged metal, all-weather enclosure of the EV700 makes it the ideal smart charger for year-round, indoor and outdoor use. |
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Level 2 EV Charging Solutions for Businesses
We offer the TOG EVP700 and EVP1100 series of Level 2 EV SMART charging stations for deployment on public, commercial and private properties such as the workplace, multifamily units, hospitality, retail and municipalities. Our Level 2 commercial EV charging solutions support multiple users at the same time and offer operators the flexibility to set rates, send push notifications to drivers, and manage power settings. These networked charging units, which are eligible for city, state, federal and utility rebate programs, are built to last and provide businesses with an edge in attracting EV drivers. Our chargers are also tested and certified by Occupational Safety and Health Administration nationally recognized testing laboratories TÜV Rheinland and Underwriters Laboratories according to ANSI/UL standards and add up to 200 miles of range in 6 to 8 hours of charge time. Additional key features with respect to these products include:
| · | Charging Speed. Our Level 2 chargers provide charging speeds up to nine times faster than Level 1 chargers. |
| · | Safety and Quality. These chargers are both durable and compact for usage in indoor and outdoor installations. |
| · | Compatibility. We provide a built-in SAE J1772 connector for compatibility with virtually all EVs. |
| · | Open Charge Point Protocol. We enable our customers to collect payments and manage charging activities via the open charge point protocol. |
Level 3 DC Fast Charging Solutions for Commercial Use
Our Level 3 DC Fast Chargers are state-of-the-art EV charging units built for speed. The addition of up to 200 miles of range in a minimal charging time of minutes is ensured with unique air-cooling technology and dynamic power management options. Eligible for city, state and federal rebate programs and compatible with most EVs on the road today, our Level 3 DC Fast Chargers can take an EV battery charge from 20% to 80% in less than 30 minutes on average.
Our Level 3 DC Fast Chargers were developed for commercial properties that include car rental locations, auto dealerships, hotels, grocery and convenience stores, gas stations and other retail establishments. The Level 3 DC Fast Chargers support multiple users at the same time and offer operators the flexibility to set rates, manage power settings, and generate revenue through charging and advertisements. Additional key features with respect to the Level 3 DC Fast Chargers include:
| · | All-Weather Design. The rugged metal all-weather enclosure makes the Level 3 DC Fast Chargers ideal for year-round use. |
| · | Charging Speeds. The Level 3 DC Fast Chargers are capable of charging an EV to 80% in less than 30 minutes on average, which is up to 34x faster than a 7kW Level 2 charger. |
| · | Dual Charging Ports. The Level 3 DC Fast chargers allow up to two EVs to be charged simultaneously with up to 120kW per charging port. |
| · | Open Charge Point Protocol. Our customers can view earnings and manage machines using the TurnOnGreen Dashboard that is accessible upon purchase. |
| · | Compatibility. We offer both CHAdeMO and CSS1 connectors in any configuration combination to ensure compatibility with virtually all EVs, including Tesla models through use of the appropriate CHAdeMO or CCS1 to Tesla adaptor. |
DC/AC Hybrid DC/AC Fast Charger
The TurnOnGreen AC/DC Hybrid is a cutting-edge EV charging station that produces both DC and AC charges. Designed for mixed fleet application, such as school bus depots or car rental depots, it includes up to two Level 3 DC charging ports compatible with both CCS1 and CHAdeMO standards, and up to two Level 2 AC charging ports compatible with the SAE J1772 standard. These products offer a unique air-cooling technology and dynamic power management system to deliver a state-of-the-art charging experience. The AC/DC Hybrid is also compatible with most EV models on the road today and can charge an EV battery from 20% to 80% in less than 30 minutes of charging time. Additional key features include:
| · | All-Weather Design. The rugged metal all-weather enclosure of the AC/DC Hybrid chargers makes the products ideal for year-round outdoor use. |
| · | Dual Charging Ports. The AC/DC Hybrid enable customers to charge up to four EVs simultaneously with both high power Level 3 DC fast charging and Level 2 AC charging. |
| · | Charging Speeds. The Level 3 DC charging ports in the AC/DC Hybrid allows customers to charge an EV to 80% in less than 30 minutes on average. |
| · | Open Charge Point Protocol. As is the case with the Level 3 DC Fast Chargers, AC/DC Hybrid consumers may view earnings and manage machines using the TurnOnGreen Dashboard. |
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| · | Compatibility. SAE J1772, CCS1 and CHAdeMO charging connectors are available with each charging station to ensure compatibility with virtually all EVs, including Tesla models with the appropriate CHAdeMO or CCS1 to Tesla adaptor. |
EV Charging Revenue Model
EV Hardware Unit Sales. We recognize revenues through the sale of our charging solutions in the form of hardware sales, extended warranty purchases and recurring network subscriptions. We intend to employ various business models with customers for our EV charging unit sales based on which party bears the costs of installation, equipment and maintenance, and the relative percentages of the continuing, long-term revenue-sharing arrangement.
OEM Charging and Related Services. Through discussions with OEM partners, we are pioneering innovative revenue models to meet a wide variety of OEM objectives related to the availability of charging infrastructure and provisioning charging services for EV drivers. We are working with OEMs and their distribution networks to provide charging residential hardware and home installation services to drivers who have purchased or leased EVs who can also access our public network of chargers. This approach is designed to expand our residential and commercial charging infrastructure and to provide related services. We view our OEM relationships as a core customer-acquisition channel.
Retail Charging. We intend to sell electricity directly to EV drivers who access our publicly available networked chargers. We offer various pricing plans for customers. Drivers have the choice of charging either as members (with monthly fees and reduced per-minute pricing) through a subscription service, or as non-members. Drivers locate chargers through our mobile application, their vehicle’s in-dash navigation system, or third-party databases that license charger location information from us. We aim to install our chargers in parking spaces owned or leased by commercial or public entity site hosts that desire to provide our charging services at their locations. Commercial suite hosts include hotels, museums, wineries, retail centers, offices, medical complexes, airports and convenience stores. We believe that our offerings are well aligned with the goals of site hosts, as many commercial businesses increasingly view our charging capabilities as essential to attracting tenants, employees, customers and visitors, and to achieving sustainability goals. Site hosts will generally be able to obtain these benefits at no cost when partnering with us, as we are responsible for the installation and operation of chargers located on site host properties. In many cases, site hosts will earn additional revenue from license payments made by us in exchange for use of the sites.
Commercial Charging. High volume fleet customers, such as delivery services, auto dealerships, and rental car locations can install our charging infrastructure at selected locations as well as use our public network for opportunity charging when in transit. Pricing for charging services is to be negotiated directly between us and the fleet owner based on business needs and usage patterns of the fleet, and we will typically contract with and bill the fleet owner directly rather than the individual fleet drivers who utilize our chargers. Access to our public network enables fleet and rideshare operators to support mass adoption of transportation electrification and achieve sustainability goals while avoiding direct capital investments in charging infrastructure or the incurrence of operating costs associated with charging equipment.
TOG Management App and Dashboard
Our TOG Software Platform as a Service (“PaaS”) is a comprehensive eMobility charging station management system used for managing our charging supply equipment and network charging services. We enable EV drivers to easily manage their charging services, locate and access EV charging stations and pay for EV charging. We also provide custom mobile apps and a desktop dashboard, creating custom experiences for our users and partners. Our innovative application programming interface platform unlocks access to scalable EV charging features, such as the ability to push relevant coupons to drivers when they plug in, the ability to tie charging to loyalty programs, and the ability to submit proof-of-use information for rebates from state and utility programs. Additional key features related to our management system include:
| · | Energy Cost Optimization. Our customers can manage the duration of the charge in order to control energy costs, avoid demand surcharges and take advantage of the lowest energy charges. |
| · | Simplification of Operations. Our management system simplifies the deployment, management and optimization of charging for fleet operations. |
| · | Usage Tracking. Through our management system, customers can consolidate transaction history, including mobile app sessions, Text & Go™️ sessions and RFID sessions. |
| · | 24/7 Customer Support. Human customer service agent is available 24/7 through the in-app messaging or toll-free number that is provided. |
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| · | Remote Updates. The management system enables remote updates to hardware, firmware and features over the internet. |
Our Growth Strategies
We sell our power products and charging solutions in the form of hardware, recurring network subscriptions, extended warranty purchases and related services. We will continue to optimize our operating model, combining high quality power and charging hardware and related services with appealing business models for our customers. We believe that this approach creates significant customer network effects and provides the potential for recurring revenue. Key elements of our growth strategies include:
| · | Continue to Innovate and Enhance Our EV Products. While maintaining our core business of power system solutions for our existing markets, we intend to support the growth of the company by continuing to release advanced, new power technologies with respect to our eMobility network and EV charging infrastructures. Specifically, we intend to take advantage of a significant increase in eMobility market opportunities that we expect to see over the next five to ten years for our non-networked and networked Level 2 chargers and our high-power DC fast charging solutions. We intend to invest in EV charging station components for use in connection with installations of charging solutions at customer sites. We will expand our eMobility charging services through our TurnOnGreen Served (“TOGS”) PaaS for commercial and fleet customers and continue to design and develop innovative products and services leveraging our knowledge of power electronics technology and advanced charging network management. |
| · | Develop Our Strategic Partnership Network. In order to achieve our goals – particularly with respect to the rapid deployment of our EV charging products – we will evaluate and enter into strategic partnerships that facilitate our ability to bring best-in-class solutions to a wider network of EV drivers than we would be able to reach on our own. Since the launch of TOGI, we have entered into several strategic agreements, including (i) Tesco Solutions LLC an Indiana based construction firm, (ii) Unique Electric Solutions, a New York based firm focused on re-powering school bus fleets, (iii) Best Western International, Inc. (“BWI”), a global network of hotels and resorts, headquartered in Phoenix, AZ, which includes more than 2,000 hotels in North America, (iv) CED National Accounts, headquartered in Irvine, CA, which provides turnkey solutions for EV chargers field deployment including site design, permitting, construction and installation, (v) Sunrise Hills Commercial, an association owns the facility used by the Tuolumne County Transportation Council of which support deployment of EV charger throughout the Tuolumne County and the Seaira corridor, and (vi) with EV-olution Charging Systems, a Canadian based EVSE distributor. |
| · | Expand within Existing Customers. We are focused on maintaining our customer retention model, which encourages existing customers to increase their utilization of our products and to renew their subscriptions due to the expansion of our network. We expect additional growth to result from the breadth of ecosystem integrations that are enabled through our TurnOnGreen Network. This eMobility network would integrate platforms such as in-vehicle infotainment systems, consumer mobile applications, payment systems, mapping tools, home automation assistants, fleet fuel cards and residential utility programs. |
| · | Make Opportunistic Investments in Marketing. We intend to continue to aggressively market and sell our core power products through our existing domestic and international markets, with an emphasis on the North American market. We also intend to generate revenues by our eMobility charging services through various partnership and business models to reach new customers, in each case coordinated through our dedicated sales groups. |
| · | Pursue Strategic Business Acquisitions for Growth. Through selective acquisitions of, or investments in, complementary businesses, products, services and technologies in the power system solutions and EV charging industries, we aim to broaden our existing product and technology base, build on our long-standing industry relationships and enhance our ability to penetrate new markets. Along with our controlling stockholder, we are experienced at evaluating prospective operations in order to increase efficiencies and capitalize on market and technological synergies. We currently have no commitments or agreements with respect to any such acquisitions or investments. |
| · | Cooperative Partnerships with Site Hosts. Partnering with commercial property owners to expand public charging infrastructure is a key driver of revenue for the Company. Working with select hotels, golf courses, museums, hospitals, universities, and other high volume long dwell time EV destinations through revenue sharing agreements, we offer to fund and build the EV charging infrastructure while operating the EV chargers and retaining the majority of the revenue generated through energy use sales for a contracted period of time. Under the cooperative model, the company can recoup infrastructure costs through grant and rebate programs, energy sales, and or the sale of carbon credits generated through the use of accredited machines. |
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Sales and Markets
We sell and market our products through a variety of sales channels. Our direct sales groups are dedicated to developing commercial and fleet sales in well-defined customer segments in specific geographic regions. Our channel partners, which include independent manufacturer representatives and distributors focus on e-commerce and business-to-business sales. Our sales and marketing efforts target specific verticals and territories that we believe will have the highest demand for EVSE over the next five to ten year period. Our segment-based sales strategy focuses on regional priorities where demand is highest, strategic partnerships in commercial real estate development and business development projects that provide ongoing revenue to EV owners.
We have an internal marketing team that has built a digital and social media marketing program to increase brand awareness, product promotion and product sales. We have a variety of digital assets that can be easily shared across multiple platforms to help us scale sales quickly. We plan to market directly to consumers through our software applications, e-commerce platforms and digital advertising campaigns. We will also work across channels to help our distribution partners market our products and services by utilizing their ecommerce and social platforms.
Revenues of approximately $2.1 million, $5.3 million and $5.4 million, or 96.4%, 99.7% and 100%, of total revenues were attributable to power electronics products under various OEM agreements in the six months ended June 30, 2022 and years ended December 31, 2021 and 2020, respectively. Two customers accounted for more than 10% of our total revenues during each of these periods.
Manufacturing and Supplies
Consistent with our strategy of focusing on custom designed, high-grade, flexible and configurable products to support our diverse applications in the markets we serve, we aim to maintain a high degree of flexibility in our manufacturing through the use of strategically focused contract manufacturer partners. These partnerships give us access to new markets and benefit our production processes, which are designed for high-mix and fast-line-charge and take advantage of technologies such as electronically controlled operating instructions, automated pick and place, automatic optical inspection and automatic testing. To achieve our high-quality and low-cost manufacturing goals with labor-intensive products, we have entered into strategic manufacturing agreements with certain contract manufacturers in the United States and Asia.
We strive to bring low cost and fast delivery production to our customers in a way that limits the impact on the natural environment. Our Asia manufacturing capabilities have provided the opportunity to not only sell but also manufacture high quality, energy efficient power systems for our global customers, with recognized standards, that we control and audit. We demonstrate through our manufacturing partners our attitude to the environment by holding our partners accountable for certain environmental-friendly standards for their manufacturing facilities. We are also continually improving our internal processes and monitoring the processes of our contract manufacturers to ensure the highest quality and consistent manufacturing of our power product solutions so that our customers can use our products right out of the box. Customer specific testing services are offered with custom designed test standards to simulate operation within our customer applications.
We are in compliance with international safety standards, which is critical for every application. By obtaining the ISO 9001 quality management system, we seek to offer total quality at every stage, from in-house design to manufacturing facilities around the world. Our contract manufacturing partners are also in compliance with such international safety standards and maintain the same ISO 9001 quality management system, as well as the ISO 14001 environmental management system, the ISO 13485 medical management system and the AS&D AS9100 quality management system. Such standards are the cornerstones of our integrated management system to drive continuous improvement of our product quality.
We maintain multiple sources of supply on all critical items and manage our purchasing commitments on a worldwide basis to leverage our purchasing strength. However, the COVID-19 pandemic could impact our supply chain for components we need for the products we sell, particularly as a result of mandatory shutdowns in locations where such components are manufactured or held for distribution.
Product Design and Development
Our product design and development efforts are primarily directed toward developing new products in conjunction with our strategy of continuing to introduce advanced product solutions for the markets we serve and to expand our business into emerging markets based on our disruptive power technology.
Our engineering groups are strategically located around the world to facilitate communication with, and access to, our worldwide customer base and manufacturing facilities. This collaborative approach facilitates partnerships with customers for technical development efforts and enables us to develop technological products that support complex and evolving markets such as eMobility, cloud computing, military and aerospace. On occasion, we execute non-disclosure agreements with customers to help develop proprietary, next generation products designed for rapid deployment. We also sponsor memberships in technical organizations that allow our engineers to participate in developing standards for emerging technologies. We believe that this participation is critical in establishing credibility and a reputable level of expertise in the marketplace, as well as to position us among industry leaders in new product development.
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Our internal product design and development programs have also been augmented by third party development programs with engineering partners to achieve the best technological and product design results for specific customer product applications. In June 2021, we entered into a partnership agreement with ChargeLab, Inc. to design, build and publish cross-platform mobile experiences for residential and commercial end-users of our EV chargers. Under this agreement, ChargeLab will support us in the pre-production stage of our EV charging products by performing testing sessions to ensure and validate solid firmware compliance with the Open Charge Point Protocol.
When required, we modify standard products to meet specific customer requirements. Such modifications include, but are not limited to, redesigning commercial products to meet MIL-STD requirements for military applications based on COTS products and to meet other customized product requirements. We continually seek to improve our product power density, adaptability and efficiency, while attempting to anticipate changing market demands for increased functionality, such as PFC controlled digital signal processors, customized firmware and improved electromagnetic interference (“EMI”) filtering. We also continue to attempt to differentiate all of our products from commodity-type products by enhancing, modifying and customizing our existing product portfolio through our engineering integrating laboratory located in California.
The development of our new custom and emerging product solutions is driven by our ability to provide our customers with advanced technologies that meet their product needs within a short turnaround time at a competitive price point. We believe that we are successfully executing our strategic account focus, as evidenced by the award of second and third generation product development contracts from some of our customers. In addition, our standard contract for custom power solutions includes a multi-year high-volume production forecast that could allow us to secure long-term production guarantees while providing an environment that promotes the development of our IP portfolio.
Product design and development expenditures were approximately $0.5 million, $0.5 million and $0.3 million in the six months ended June 30, 2022 and years ended December 31, 2021 and 2020, respectively. The significant increase in product design and development in the most recent period was due to costs incurred related to the development of our EV charging products.
Key Design Consideration for Safety Compliance
TOG’s EVSE product line (product) complies with several safety requirements and regulations to ensure electric safety and prevent hazardous accidents, in which safety requirements for the EV supply equipment and the EV battery. To facilitate the safety requirements in our EVSE product line, key requirements of electrical safety are presented. These crucial design rules implemented in our products including functional requirements, constructional requirements, personal protection against electric shock, insulation coordination, electromagnetic compatibility and charging control were implemented to fulfil the electrical safety completely.
To meet national and international safety standards requirements, we use step design methodology including product design review, product testing, approval, certificate, and listing. To obtain the safety certification for our EVSE product, we designed the product to by compliance with the safety requirements and standards for North America. The major standards reflected in our EVSE product are listed below:
| · | UL 2202 - Electric Vehicle Charging System Equipment (AC to DC) |
| · | UL 2594 - Electric Vehicle Supply Equipment (AC to AC) |
| · | UL 9741 - Bidirectional Electric Vehicle (EV) Charging System Equipment |
| · | UL 2231-1 - Personnel Protection Systems for Electric Vehicle Supply Circuits – General Requirements |
| · | UL 2231-2 - Personnel Protection Systems for Electric Vehicle Supply Circuits – Protective Devices for Use in Charging Systems |
| · | UL 2251 - Electric Vehicle Plugs, Receptacles and Couplers |
| · | Electromagnetic compatibility (EMC) - Requirements FCC part 15 subpart B |
| · | National Electrical Code (NEC) Article 625 - Vehicle Charging System |
Electric shock hazard, fire hazard and injury hazard are three major concerns for all EV charging systems address by the various standards. TOG corresponding design of our EVSE product considering these standard requirements to prevent above-mentioned hazards. To assure we design and manufacture safe charging equipment, we compliance with the major standards and we have implemented crucial design rules to meet these requirements for the different element of our EVSE product include construction of exterior and interior, personal protection against electric shock, insulation coordination, electromagnetic compatibility, charging control, and the like.
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Competitive Strengths and Competition
We offer highly engineered, feature-rich, high-grade power conversion and power system solutions on a global scale. We believe that we differentiate ourselves from our competition and have been able to grow our business as a result of the following key competitive strengths:
| · | Custom-Made Products. We have designed our base model power system platform so that it can be quickly and economically adapted to the specific power needs of any hosting platform or OEM, which minimizes the time between customer consultation and delivery of the products. |
| · | Specialized Technical Expertise. We benefit from more than 50 years of expertise in power technologies and energy management. This has given us a wealth of experience in designing and manufacturing AC/DC power conversion solutions, and positions us to benefit from the ongoing transformation towards eMobility with smarter and greener EV charging infrastructure solutions. |
| · | Diverse Product and Customer Base and Revenue Streams. We have a diverse power supply product and customer base. With our growing EV charging solution segment, we will receive additional revenue streams through a range of different sources such as energy sales, hardware sales, network management services, advertising sales and energy services. We will also offer customers a variety of business model options, particularly with respect to our EV charging solution installation and maintenance services. |
| · | Minimal Non-Recurring Engineering Expenses. Our ability to seamlessly modify our base model power system platform to produce bespoke products for our customer needs results in minimal NRE expenses, meaning that we generally avoid charging our OEM customers for such NRE expenses. |
| · | Emphasis on Product Design Development Efforts. We have strategically deployed engineering groups around the world to facilitate communication with and access to our global customer base and manufacturing facilities. This enables us to develop cutting-edge products to support highly complex and evolving markets such as eMobility, cloud computing, military and aerospace. |
We compete in two operating segments, power solutions and EV charging solutions.
Power Electronic Segment. Our competition in the power solutions industry includes many companies located throughout the world. Many of our competitors, including Bel Fuse, Artesyn Embedded Technologies, TDK-Lambda, Delta Electronics, Murata and Mean-Well Power Supplies, have greater fiscal and marketing resources and a more expansive geographic presence than we do. We also face competition from current and prospective customers who may decide to internally design and manufacture power supplies needed for their products. Further, certain larger OEMs tend to contract only with larger power supply manufacturers. We believe that our power system solutions and advanced technology are superior to our competitors’ power supplies based in part on our use of the latest power technology processing and controls, which make our power supplies highly customized and efficient. In addition, we believe the power-to-volume ratio makes our power solutions more compact compared to what is offered by our competitors and is suitable for custom infrastructures to meet our customers’ requirements.
Notably, the flexibility of our power system products provides us with another advantage by employing an adjustable power range and a selectable number of output product design platforms. We believe that we are in a competitive position with our targeted customers that need a high-quality, compact product that can be readily modified to meet specific requirements. We have also designed the base model power system platform so that it can be quickly and economically modified and adapted to the specific power needs of any hosting platform or OEM. This emphasis on flexibility has allowed us to provide samples of modified power systems to OEM customers only a few days after initial consultation. This is an important capability given the emphasis placed by OEMs on “time to market.” It also results in very low NRE expenses, which allow us generally not to charge our OEM customers for NRE expenses related to tailoring a power system to a customer’s specific requirements. We believe that this approach gives us an additional advantage over our competitors, many of which charge their customers for NRE expenses.
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Electrical Vehicle Supply Equipment and Network Segment. Our EVSE business segment competes directly with several companies in the North American market. We expect to face competition across multiple verticals in the future as demand for EVSE increases. The EV charging market has grown significantly over the past five years and can be divided into the three following macro segments:
| · | Public open network Level 2 and Level 3 charging; |
| · | Commercial fleet closed network charging; and |
| · | Residential single and multi-family home charging. |
Growth in the North American market has primarily been driven by a subset of companies including Tesla, ChargePoint, Blink Charging, EVGO, Electrify America, and Sema Connect. These companies primarily focus on the growth of public open network charging solutions but are increasingly diversifying into commercial and residential closed network sales. The EVSE competitive market is fragmented, and not necessarily aligned with the EV needs of tomorrow. As EVSE charging standards are established and the market is consolidated, we expect that the competitive landscape will favor our approach to market segmentation, strategic partnerships and product development. EV driver charging behavior indicates that residential and commercial closed network charging are the areas with the most potential for growth, as an estimated of 85% of EV drivers charge at home or at work.
The competitive landscape for closed network residential EVSE sales can be found in the ecommerce segment, where there are several product and class competitors that vary in size and market reach. This segment is primarily driven by purchasing decisions that are dictated by price, consumer reviews and product features. Competitors will likely consolidate in the future to establish larger open charging networks, cooperative relationships with OEM’s, and other EVSE product-based companies. As new alliances emerge in the market, EVSE manufactures that have greater market share, access to more dynamic and user-friendly software and hardware will put us at a competitive disadvantage. If we are slow to adapt to changing market conditions and EV innovations our growth will be limited, which would negatively affect our ability to scale business and operations.
Intellectual Property and Proprietary Technology
We rely on a combination of trade secrets, industry expertise, confidential procedures and contractual provisions to protect our intellectual property. Given the continuous updates and revisions that we are making to our products, we believe that the cost of obtaining patents would outweigh the benefits of doing so. However, we may seek to obtain patents in the future as we continue to develop unique core technologies.
We do not patent technology developed by us and we cannot be sure that others will not independently develop the same or similar technology or otherwise obtain access to our technology. To protect our rights in these areas, we require all employees, consultants and others who work for or with us to enter into confidentiality agreements. We cannot be sure, however, that these agreements will provide meaningful protection for our trade secrets, know-how or other information in the event of any unauthorized use, misappropriation or disclosure.
We have a registered trademark with the United States Patent and Trademark Office and the International Register of Marks maintained under the Madrid Agreement and Protocol for “DP Digital Power Flexible Power”. In February 2021, we submitted an application for the trademark “TurnOnGreen, Inc.” to the United States Patent and Trademark Office. This application remains pending.
Currently we are not planning to apply for a protected patent for some of the products we have developed for EV charging supply equipment. However, we will maintain the IP of the proprietary products and solutions we developed for the eMobility market and some other adjacent markets. We periodically monitor for infringements on our intellectual property and have never encountered such an infringement. We do not believe that our lack of patents is material to our ongoing business.
Environmental Matters and Other Government Regulations
Our businesses are heavily regulated in most of our markets. We handle power electronics products mainly in the form of power conversion. We must take into account several standards for electronic safety to protect the health of humans and animals. We serve diverse markets including automotive, medical and healthcare, defense and aerospace, and industrial and telecommunications, each of which has its own set of their safety regulations and standards with which we must comply. Compliance with these laws has not been a material cost to us and has not had a material effect upon our capital expenditures, earnings or competitive position.
Environmental Matters. We are subject to various federal, state local and non-U.S. laws and regulations relating to environmental protection, including the discharge, treatment, storage, disposal and remediation of hazardous substances and wastes. We continually assess our compliance status and management of environmental matters to ensure that our operations are in compliance with all applicable environmental laws and regulations. Investigation, remediation and operation and maintenance costs associated with environmental compliance and management of sites are a normal, recurring part of our operations. Because we typically use third party manufacturing sources for our products, compliance with these laws has not been a material cost to us and has not had a material effect upon our capital expenditures, earnings or competitive position.
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Government Contracts. The U.S. government and foreign governments may terminate any of our government contracts at their convenience, as well as for default based on our failure to meet specified performance requirements. If any of our U.S. government contracts were to be terminated for convenience, we would generally be entitled to receive payment for work completed and allowable termination or cancellation costs. If any of our government contracts were to be terminated for default, generally the U.S. government would pay only for the work that has been accepted and could require us to pay the difference between the original contract price and the cost to re-procure the contract items, net of the work accepted from the original contract. The U.S. government can also hold us liable for damages resulting from the default.
Medical Device Power Supplies. Our medical power supplies must incorporate one or more means of protection (“MOP”) to avoid electrocution. A MOP can be safety insulation, a protective earth, a defined creepage distance, an air gap (clearance) or other protective impedance. These can be used in various combinations – having two MOPs means if one fails, there is another in place. We must comply with a standard that treats operators and patients, resulting in the classifications “means of operator protection” and “means of patient protection.” The latter requirements are more stringent because the patient may be physically connected via an AP and unconscious when the fault occurs.
Non-U.S. Sales. Our non-U.S. sales are subject to both U.S. and non-U.S. governmental regulations and procurement policies and practices, including regulations relating to import-export control, tariffs, investment, exchange controls, anti-corruption and repatriation of earnings. Non-U.S. sales are also subject to varying currency, political and economic risks.
Human Resources
As of June 30, 2022 we have approximately 18 full-time employees and two part-time employees, of whom two were in engineering, three in production, seven in sales and marketing, three in customer support and eight in general and administrative. Our employees are not covered by any collective bargaining agreements. We consider relations with our employees to be good.
We believe that we have been successful in attracting experienced and capable personnel. All of our employees have entered into agreements with our company or BitNile requiring them not to disclose our proprietary information, assigning to us all rights to inventions made during their employment and prohibiting them from competing with us.
Backlog
As of June 30, 2022 and December 31, 2021, our backlog was approximately $6.0 million and $4.0 million, respectively, compared with $3.4 million and $2.9 million as of June 30, 2020 and December 31, 2020, respectively. Due to the nature of our manufacturing process and customer base, we purchase and ship products to our customers without experiencing a significant backlog and recognize revenue at a point in time when goods are transferred.
Properties
We lease our executive offices in Milpitas, California. Our total rent expense for this office, which consists of 31,165 square feet, is $67,000 per month. Our current lease expires on January 31, 2026.
Legal Proceedings
The Company is involved in litigation arising from other matters in the ordinary course of business. We are regularly subject to claims, suits, regulatory and government investigations, and other proceedings involving labor and employment, commercial disputes, and other matters. Such claims, suits, regulatory and government investigations, and other proceedings could result in fines, civil penalties, or other adverse consequences.
Certain of these outstanding matters include speculative, substantial or indeterminate monetary amounts. We record a liability when we believe that it is probable that a loss has been incurred and the amount can be reasonably estimated. If we determine that a loss is reasonably possible and the loss or range of loss can be estimated, we disclose the reasonably possible loss. We evaluate developments in our legal matters that could affect the amount of liability that has been previously accrued, and the matters and related reasonably possible losses disclosed, and make adjustments as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters.
With respect to our other outstanding matters, based on our current knowledge, we believe that the amount or range of reasonably possible loss will not, either individually or in aggregate, have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows. However, the outcome of such matters is inherently unpredictable and subject to significant uncertainties.
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RISK FACTORS
An investment in our common stock involves significant risks. You should carefully consider the following risks and all other information set forth in this Current Report before deciding to invest in our common stock. If any of the events or developments described below occurs, our business, financial condition and results of operations may suffer. In that case, the value of our common stock may decline and you could lose all or part of your investment.
You should consider each of the following risk factors and any other information set forth in this Current Report and the other reports filed by the Company with the SEC, including our financial statements and related notes, in evaluating our business and prospects. The risks and uncertainties described below are not the only ones that impact on our operations and business. Additional risks and uncertainties not presently known to the Company, or that the Company currently considers immaterial, may also impair its business or operations. If any of the following risks actually occurs, our business and financial condition, results or prospects could be harmed. Please also read carefully the section entitled “Note About Forward-Looking Statements” at the beginning of this Current Report.
Risks Related to the Company and Its Financial Condition
TurnOnGreen has a history of annual net losses which may continue and negatively impact its ability to achieve its business objectives.
As of June 30, 2022, we had cash of $0.3 million and working capital of $2.4 million. We have incurred recurring losses, anticipate continuing losses, and reported losses for the six months ended June 30, 2022 and the years ended December 31, 2021, and 2020 of $1.9 million, $1.8 million and $0.6 million, respectively. In the past, we have financed our operations principally through investment by BitNile, our current parent company. There can be no assurance that, even if our revenues increase, future operations will result in net income. Our failure to increase our revenues or improve our gross margins will harm our business. We may not be able to sustain or increase profitability on a quarterly or annual basis in the future. If our revenues grow more slowly than we anticipate, our gross margins fail to improve or our operating expenses exceed our expectations, our operating results will suffer. The prices we charge for our products may decrease, which would reduce our revenues and gross margins and harm our business. If we are unable to sell our products at acceptable prices relative to our costs, or if we fail to develop and introduce on a timely basis new products from which we can derive additional revenues, our financial results will suffer.
TurnOnGreen’s business model will continue to evolve as we focus on our EV charging operating segment, which will increase the complexity of our business.
Our business model has evolved in the past and will continue to do so as we focus on our EV charging operating segment. In prior years we have added additional types of services and product offerings and in some cases, we have modified or discontinued those services and product offerings. We intend to continue to try to offer additional types of products or services, including with respect to our EV charging products and services, and we do not know whether any of them will be successful. From time to time we have also modified aspects of our business model relating to our product mix. We do not know whether these or any other modifications will be successful. The additions and modifications to our business have increased the complexity of our business and placed significant strain on our management, personnel, operations, systems, technical performance, financial resources, and internal financial control and reporting functions. Future additions to or modifications of our business are likely to have similar effects. Further, any new business or website we launch that is not favorably received by the market could damage our reputation or our brand. The occurrence of any of the foregoing could have a material adverse effect on our business.
We will need, but may be unable to obtain, funding on satisfactory terms, which could dilute our stockholders and investors, or impose burdensome financial restrictions on our business.
We have relied upon cash from financing activities and in the future, we hope to rely on revenues generated from operations to fund all of the cash requirements of our activities. However, it is extremely unlikely that we will be able to generate any significant cash from our operating activities in the foreseeable future. Future financings may not be available on a timely basis, in sufficient amounts or on terms acceptable to us, if at all. Any debt financing or other financing of securities senior to our common stock will likely include financial and other covenants that will restrict our flexibility. Any failure to comply with these covenants may cause an event of default and acceleration of the obligation to pay the debt, which would have a material adverse effect on our business, prospects, financial condition and results of operations and we could lose our existing sources of funding and impair our ability to secure new sources of funding. You should not assume that BitNile will support us financially in the future. There can be no assurance that we will be able to generate any further investor interest in our securities or other types of funding, in which case you would likely lose the entirety of your investment in us.
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Our acquisition growth strategy is subject to a significant degree of risk.
Our growth strategy through acquisitions involves a significant degree of risk. Some of the companies that we have identified as acquisition targets may not have a developed business or are experiencing inefficiencies and incur losses. Therefore, we may lose our investment in the event that these companies’ businesses do not develop as planned or that they are unable to achieve the anticipated cost efficiencies or reduction of losses.
Further, in order to implement our growth plan, we have hired additional staff and consultants to review potential investments and implement our plan. As a result, we have substantially increased our infrastructure and costs. If we fail to quickly find new companies that provide revenue to offset our costs, we will continue to experience losses. No assurance can be given that our product development and investments will produce sufficient revenues to offset these increases in expenditures.
If we make any acquisitions, they may disrupt or have a negative impact on our business.
In the event that we acquire other entities in the future, we could have difficulty integrating the acquired companies’ personnel and operations with our own. In addition, the key personnel of the acquired business may not be willing to work for us. We cannot predict the effect expansion may have on our core business. Regardless of whether we are successful in making an acquisition, the negotiations could disrupt our ongoing business, distract our management and employees and increase our expenses. In addition to the risks described above, acquisitions are accompanied by several inherent risks, including, without limitation, the following:
| • | If senior management and/or management of future acquired companies terminate their employment prior to our completion of integration; |
| • | difficulty of integrating acquired products, services or operations; |
| • | integration of new employees and management into our culture while maintaining focus on operating efficiently and providing consistent, high-quality goods and services; |
| • | potential disruption of the ongoing businesses and distraction of our management and the management of acquired companies; |
| • | unanticipated issues with transferring customer relationships; |
| • | complexity associated with managing our combined company; |
| • | difficulty of incorporating acquired rights or products into our existing business; |
| • | difficulties in disposing of the excess or idle facilities of an acquired company or business and expenses in maintaining such facilities; |
| • | difficulties in maintaining uniform standards, controls, procedures and policies; |
| • | potential impairment of relationships with employees and customers as a result of any integration of new management personnel; |
| • | potential inability or failure to achieve additional sales and enhance our customer base through cross-marketing of the products to new and existing customers; |
| • | effect of any government regulations which relate to the business acquired; and |
| • | potential unknown liabilities associated with acquired businesses or product lines, or the need to spend significant amounts to retool, reposition or modify the marketing and sales of acquired products or the defense of any litigation, whether or not successful, resulting from actions of the acquired company prior to our acquisition. |
Our business could be severely impaired if and to the extent that we are unsuccessful in addressing any of these risks or other problems encountered in connection with these acquisitions, many of which cannot be presently identified. If we fail to satisfactorily address them, these risks and problems could disrupt our ongoing business, distract our management and employees, increase our expenses and adversely affect our results of operations.
Our business and operations are growing, and if we fail to effectively manage our growth, our business and operating results could be harmed.
We have experienced, and may continue to experience, growth in our operations. This has placed, and may continue to place, significant demands on our management, operational and financial infrastructure. If we do not manage our growth effectively, the quality of our products and services could suffer, which could negatively affect our operating results. To effectively manage our growth, we must continue to improve our operational, financial and management controls and reporting systems and procedures. These systems improvements may require significant capital expenditures and management resources. Failure to implement these improvements could hurt our ability to manage our growth and our financial position.
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There is no assurance of successful expansion of operations.
Our significant increase in the scope and the scale of our operations, including the hiring of additional personnel, has resulted in significantly higher operating expenses. We anticipate that our operating expenses will continue to increase. Expansion of our operations may also make significant demands on our management, finances and other resources. Our ability to manage the anticipated future growth, should it occur, will depend upon a significant expansion of our accounting and other internal management systems and the implementation and subsequent improvement of a variety of systems, procedures and controls. We cannot assure that significant problems in these areas will not occur. Failure to expand these areas and implement and improve such systems, procedures and controls in an efficient manner at a pace consistent with our business could have a material adverse effect on our business, financial condition and results of operations. We cannot assure that attempts to expand our marketing, sales, manufacturing and customer support efforts will succeed or generate additional sales or profits in any future period. As a result of the expansion of our operations and the anticipated increase in our operating expenses, along with the difficulty in forecasting revenue levels, we expect to continue to experience significant fluctuations in its results of operations.
We may be unable to successfully expand our production capacity, which could result in material delays, quality issues, increased costs and loss of business opportunities, which may negatively impact our product margins and profitability.
Part of our future growth strategy is to increase our production capacity to meet increasing demand for our goods. Assuming we obtain sufficient funding to increase our production capacity, any projects to increase such capacity may not be constructed on the anticipated timetable or within budget. We may also experience quality control issues as we implement any production upgrades. Any material delay in completing these projects, or any substantial cost increases or quality issues in connection with these projects could materially delay our ability to bring our products to market and adversely affect our business, reduce our revenue, income and available cash, all of which could harm our financial condition.
If we fail to anticipate and adequately respond to rapid technological changes in our industry, including evolving industry-wide standards, in a timely and cost-effective manner, our business, financial condition and results of operations would be materially and adversely affected.
The markets in which we operate are characterized by technological changes. Such changes, including evolving industry standards, changes in customer requirements and new product introductions and enhancements, could render our products obsolete. Accordingly, we are required to constantly monitor and anticipate technological changes in our industry and develop new product offerings and technologies or adapt or modify our existing offerings and technologies to keep pace with technological advances in our industry and remain competitive.
Our ability to implement our business strategy and continue to grow our revenues will depend on a number of factors, including our continuing ability to:
| · | identify emerging technological trends in our current and target markets; |
| · | identify additional uses for our existing technology to address customer needs in our current and future markets; |
| · | enhance our offerings by adding innovative features that differentiate our offerings from those of our competitors; and |
| · | design, develop, manufacture, assemble, test, market and support new products and enhancements in a timely and cost-effective manner. |
We believe that, to remain competitive in the future, we will need to continue to invest significant financial resources in developing new offerings and technologies or to adapt or modify our existing offerings and technologies, including through internal product design and development, strategic acquisitions and joint ventures or other arrangements. However, these efforts may be more costly than we anticipate and there can be no assurance that they will be successful.
To the extent our customers adopt such new technology in place of our products, the sales of our products may be adversely affected. Such competition may also increase pricing pressure for our products and adversely affect the revenues from such products.
Our future success depends upon our ability to develop, and market differentiated, leading-edge power conversion products for larger customers as well as off-grid power generation and distribution technologies, potentially contributing to lengthy product development and sales cycles that may result in significant expenditures before revenues are generated.
The power system industry and the industries in which many of our customers operate are characterized by intense competition, rapid technological change, quickened product obsolescence, and price erosion for mature products, each of which could have an adverse effect on our results of operations. The development of new, innovative products is often a complex, time-consuming and costly process involving significant investment in research and development, with no assurance of return on investment. Although we have introduced many products over recent years, there can be no assurance we will be able to continue to develop and introduce new and improved products and power system concepts in a timely or efficient manner. Similarly, there can be no assurance that recently introduced or future products will achieve customer acceptance.
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Our success depends substantially upon customer acceptance of our innovative products and services. As we have been in the early stages of market penetration for our EVSE infrastructure and eMobility service, we have experienced lengthy periods during which we have focused our product development efforts on the specific requirements of a limited number of large customers, followed by further periods of delay before meaningful purchase orders are received. As a result, we may incur significant product development expenses, as well as significant sales and marketing expenses, before we generate the related revenues for these products.
We cannot offer any assurance that the markets we currently serve will grow in the future, our power products, including EVSE infrastructure and services, will meet respective market requirements, or we can maintain adequate gross margins or operating profits in these markets.
Our results will depend on our ability to maintain and expand our existing sales channels and to build out our marketing, business development and sales functions.
To grow our business, we must add new customers for our products in addition to retaining and increasing sales to our current customers. Currently, we have a limited sales force focused on establishing relationships with customers that we expect to expand over time. We have historically relied on key executives to drive growth through return business with existing customers. Building out marketing, business development and sales functions in all operating subsidiaries is critical to drive significant growth in line with our strategic plans. We plan to contract for marketing services to improve our websites, manage public relations and optimize our social media presence. Failure to recruit and retain the business development and sales personnel to execute on outreach and capture of new business, or the failure of those new hires or marketing services to perform as expected, will limit our ability to achieve our growth targets.
The sale of our products is dependent upon our ability to satisfy the proprietary requirements of our customers.
We depend upon a relatively narrow range of products for the majority of our revenue. Our success in marketing our products is dependent upon their continued acceptance by our customers. In some cases, our customers require that our products meet their own proprietary requirements. If we are unable to satisfy such requirements, or forecast and adapt to changes in such requirements, our business could be materially harmed.
We depend upon a few major customers for a majority of our revenues, and the loss of any of these customers, or the substantial reduction in the quantity of products that they purchase from us, would significantly reduce our revenues.
We currently depend upon a few major OEMs and other customers for a significant portion of our revenues. Given the nascent stage of the industry, a limited number of contractual commercial customers and OEM partners currently account for a substantial portion of our income. Our operating projections are currently contingent on our performance under our commercial contracts with medical and healthcare, defense and aerospace, and industrial and telecommunications customers. We expect that a majority of our sales outside of our new eMobility market may continue to come from a concentrated number of commercial customers and OEM partners. We expect a substantial portion of our revenues in the near future to be from our eMobility market and as a result, to be subject to any risks specific to those entities and the jurisdictions and markets in which they operate, including their ability to develop a portfolio of EV charging infrastructure models and attract customers for those models. We may be unable to accomplish our business plan to diversify and expand our customer and OEM partner base by attracting a broad array of customers and OEM partners, which could negatively affect our business, results of operations and financial condition.
If our major OEM customers reduce or cancel their orders scaling back some of their activities, our revenues would be significantly reduced. Further, diversions in the capital spending of certain of these customers to new network elements have and could continue to lead to their reduced demand for our products, which could, in turn, have a material adverse effect on our business and results of operations. If the financial condition of one or more of our major customers should deteriorate, or if they have difficulty acquiring investment capital due to any of these or other factors, a substantial decrease in our revenues would likely result. We are dependent on the electronic equipment industry, and accordingly will be affected by the impact on that industry of current economic conditions.
Substantially all of our existing customers are in the electronic equipment industry, and they manufacture products that are subject to rapid technological change, obsolescence and large fluctuations in demand. This industry is further characterized by intense competition and volatility. The OEMs serving this industry are pressured for increased product performance and lower product prices. OEMs, in turn, make similar demands on their suppliers, such as our company, for increased product performance and lower prices. Such demands may adversely affect our ability to successfully compete in certain markets or our ability to sustain our gross margins.
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We anticipate growing international sales for a portion of our revenues, for which there can be no assurance.
Sales to customers outside of North America accounted for 16.3%, 12.4%, and 17.2% of revenues for the six months ended June 30, 2022 and the years ended December 31, 2021 and 2020, respectively, and we expect that international sales will represent an increasing portion of our total revenues. International sales are subject to the risks of international business operations as described above, as well as generally longer payment cycles, greater difficulty collecting accounts receivable and currency restrictions.
Our backlog is subject to reduction and cancellation and unavailability of raw materials used in our products, which could negatively impact our revenues and results of operations.
Backlog represents products or services that our customers have committed by contract to purchase from us. Many of the orders that comprise our backlog may be canceled by our customers, and we cannot be certain that the amount of our backlog does not exceed the level of orders that will ultimately be delivered. Moreover, cancellations of purchase orders or reductions of product quantities in existing contracts could substantially and materially reduce backlog and, consequently, future revenues. Our failure to replace canceled or reduced backlog could negatively impact our revenues and results of operations. Further, disruption in supply chain of electronic components and material parts used as raw materials in our products may affect our ability to manufacture products which could substantially reduce backlog.
Although we depend on sales of our legacy products for a meaningful portion of our revenues, these products are mature, and their sales will decline.
A relatively large portion of our sales have historically been attributable to our legacy products. We expect that these products may continue to account for a meaningful percentage of our revenues for the foreseeable future. However, these sales are declining. Although we are unable to predict future prices for our legacy products, we expect that prices for these products will continue to be subject to significant downward pressure in certain markets for the reasons described above. Accordingly, our ability to maintain or increase revenues will be dependent on our ability to expand our customer base, to increase unit sales volumes of these products and to successfully, develop, introduce, and sell new products such as custom design and value-added products. We cannot assure you that we will be able to expand our customer base, increase unit sales volumes of existing products or develop, introduce and/or sell new products.
We are heavily dependent on our senior management, and a loss of a member of our senior management team could cause our stock price to suffer.
If we lose the services of Amos Kohn, our Founder and Chief Executive Officer, Marcus Charuvastra, our President and Chief Revenue Officer, Douglas Gintz, our Chief Technology Officer, and/or certain key employees, we may not be able to find appropriate replacements on a timely basis, and our business could be adversely affected. Our existing operations and continued future development depend to a significant extent upon the performance and active participation of these individuals and certain key employees. Although we have entered into an employment agreement with Mr. Kohn and we may enter into employment agreements with additional key employees in the future, we cannot guarantee that we will be successful in retaining the services of these individuals. If we were to lose any of these individuals, we may not be able to find appropriate replacements on a timely basis and our financial condition and results of operations could be materially adversely affected.
If we are unable to identify, attract, train and retain qualified personnel, especially our design and technical personnel, our business and results of operations would be materially and adversely affected, and we may not be able to effectively execute our business strategy.
Our performance and future success largely depends on our continuing ability to identify, attract, train, retain and motivate qualified personnel, including our management, sales and marketing, finance and in particular our engineering, design and technical personnel. For example, we currently have limited number of qualified personnel for the assembling and testing processes. We do not know whether we will be able to retain all these personnel as we continue to pursue our business strategy. Our engineering, design and technical personnel represent a significant asset. The competition for qualified personnel in our industry is intense and constrains our ability to attract qualified personnel. The loss of the services of one or more of our key employees, especially of our key engineering, design and technical personnel, or our inability to attract, retain and motivate qualified personnel could have a material adverse effect on our business, financial condition and operating results.
Our technology is generally unpatented, and others may seek to copy it.
We operate in an industry in which the ability to compete depends on the development or acquisition of proprietary technologies that must be protected to preserve the exclusive use of such technologies. We devote substantial resources to establish and protect our proprietary rights. This protection, however, may not prevent competitors from independently developing products similar or superior to ours. We may be unable to protect our IP that competitors could restrict or replicate, all of which may have a material adverse effect on our competitive position. In addition, the intellectual property laws of foreign countries may not protect our rights to the same extent as those of the United States.
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We generally do not patent technology developed by us and we cannot be sure that others will not independently develop the same or similar technology or otherwise obtain access to our technology. To protect our rights in these areas, we require all employees, consultants and others who work for or with us to enter into confidentiality agreements. We cannot be sure, however, that these agreements will provide meaningful protection for our trade secrets, know-how or other information in the event of any unauthorized use, misappropriation or disclosure.
Failure of our information technology infrastructure to operate effectively could adversely affect our business.
We depend heavily on information technology infrastructure to achieve our business objectives. If a problem occurs that impairs this infrastructure, the resulting disruption could impede our ability to record or process orders, manufacture and ship in a timely manner, or otherwise carry on business in the normal course. Any such events could cause us to lose customers or revenue and could require us to incur significant expense to remediate.
Our insurance coverage and indemnity may be insufficient to cover potential liabilities we may face due to the risks inherent in the products and services we provide.
We are exposed to liabilities that are unique to the products and services we provide. A significant portion of our business relates to designing, developing and manufacturing, components, integrated assemblies and subsystems for advanced defense, medical, transportation, industrial, technology and communications systems and products. New technologies associated with these systems and products may be untested or unproven. Components of certain of the defense systems and products we develop are inherently dangerous. Failures of satellites, missile systems, air traffic control systems, homeland security applications and aircraft have the potential to cause loss of life and extensive property damage. In most circumstances, we may receive indemnification from the government end users of our defense offerings in the United States, the United Kingdom and Israel. In addition, failures of products and systems that we manufacture or distribute for medical devices, transportation controls or industrial systems also have the potential to result in loss of life, personal injury and/or extensive property damage.
While we maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover all claims or liabilities, and we may be forced to bear substantial costs from an accident or incident. It also is not possible for us to obtain insurance to protect against all operational risks and liabilities. Substantial claims resulting from an incident in excess of government indemnity and our insurance coverage would harm our financial condition, results of operations and cash flows. Moreover, any accident or incident for which we are liable, even if fully insured, could negatively affect our standing with our customers and the public, thereby making it more difficult for us to compete effectively, and could significantly impact the cost and availability of adequate insurance in the future.
Risks Related to Our EV Charging Business and the EV Charging Industry
We are dependent upon our and our contract manufacturers’ ability to timely procure electronic components.
Because of the global economy, many raw material vendors have reduced capacities, closed production lines and, in some cases, even discontinued their operations. As a result, there is a global shortage of certain electronic or mineral components, which may extend our production lead-time and our production costs. Some materials are no longer available to support some of our products, thereby requiring us to search for cross materials or, even worse, redesign some of our products to support currently available materials. Such redesign efforts may require certain regulatory and safety agency re-submittals, which may cause further production delays. While we have initiated actions that we believe will limit our exposure to such problems, the dynamic business conditions in many of our markets may challenge the solutions that have been put in place, and issues may recur in the future.
In addition, most of our products are manufactured, assembled and tested by third party subcontractors and contract manufacturers located in Asia, and particularly China. While we have had relationships with many of these third parties in the past, we cannot predict how or whether these relationships will continue in the future. In addition, changes in management, financial viability, manufacturing demand or capacity, or other factors, at these third parties could hurt our ability to manufacture our products.
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We may not be able to procure necessary key components or raw materials, or we may purchase excess raw material inventory or unusable inventory, which increases the risk of reserve charges to reduce the value of any inventory deemed excess or obsolete, thereby reducing our profitability.
The power systems industry, and the electronics industry as a whole, can be subject to pronounced, lengthy business cycles and otherwise subject to sudden and sharp changes in demand. Our success, in part, is dependent on our ability to forecast and procure inventories of components and materials to match production schedules and customer delivery requirements. Many of our products require raw materials supplied by a limited number of vendors and, in some instances, a single vendor. During certain periods, key components or materials required to build our products may become unavailable in the timeframe required for us to meet our customers’ needs. Our inability to secure sufficient raw materials to manufacture products for our customers has reduced, in the past, our revenue and profitability and could do so again.
We may choose, and have chosen, to mitigate our inventory risks by increasing the levels of inventory for certain products, components and materials. Such increased inventory levels may increase the potential risk for excess or obsolete inventories, should our forecasts fail to materialize or if there are negative factors impacting our customers’ end markets, leading to order cancellation. If we identify excess inventory or determine certain inventory is obsolete, we likely will record additional inventory reserves (i.e., expenses representing the write-off of the excess or obsolete inventory), which could have an adverse effect on our gross margins and on our operating results.
We depend on international operators for a substantial portion of our components and products.
We purchase a substantial portion of our components from foreign manufacturers and have a substantial portion of our commercial products assembled, packaged and tested by subcontractors located outside the United States. These activities are subject to the uncertainties associated with international business operations, including trade barriers and other restrictions, changes in trade policies, governmental regulations, currency exchange fluctuations, reduced protection for intellectual property, war and other military activities, terrorism, changes in social, political, or economic conditions, and other disruptions or delays in production or shipments, any of which could have a materially adverse effect on our business, financial condition, and/or operating results.
Potential tariffs or a global trade war could increase the cost of our products, which could adversely impact the competitiveness of our products and our financial results.
Since 2018, the United States has imposed tariffs on certain imports from China. If the U.S. administration imposes additional tariffs, or if additional tariffs or trade restrictions are implemented by the United States or other countries, the cost of our products manufactured in China and imported into the United States or other countries could increase, which in turn could adversely affect the demand for these products and have a material adverse effect on our business and results of operations. As of the date of this Current Report, tariffs have not adversely affected the purchase price of our products manufactured in China and imported into the United States.
Changes to fuel economy standards may negatively impact the EV market and thus the demand for our products and services.
As regulatory initiatives have required an increase in the mileage capabilities of cars, consumption of renewable transportation fuels, such as ethanol and biodiesel, and consumer acceptance of EVs and other alternative vehicles has been increasing. If fuel efficiency of non-electric vehicles continues to rise, whether as the result of regulations or otherwise, and affordability of vehicles using traditional transportation fuels improves, the demand for electric and high energy vehicles could diminish. Regulatory bodies may also adopt rules that substantially favor certain alternatives to petroleum-based propulsion over others, which may not necessarily be EVs. This may impose additional obstacles to the purchase of EVs or the development of a more ubiquitous EV market. Finally, the current litigation between the state of California and the National Highway Transit Safety Administration could impact California’s ability to set fuel economy standards that encourage the adoption of EVs and are followed by many other states. If any of the above lead to reduced demand by consumers or businesses for EVs, it would materially and adversely affect our business, operating results, financial condition and prospects.
The EV market currently benefits from the availability of rebates, tax credits and other financial incentives from governments, utilities and others to offset the purchase or operating cost of EVs and EV charging stations. The reduction, modification, or elimination of such benefits could cause reduced demand for EVs and EV charging stations, which would adversely affect our financial results.
The U.S. federal government, foreign governments and some state and local governments provide incentives to end users and purchasers of EVs and EV charging stations in the form of rebates, tax credits, and other financial incentives, such as payments for regulatory credits. The EV market relies on these governmental rebates, tax credits and other financial incentives to significantly lower the effective price of EVs and EV charging stations to customers. However, these incentives may expire on a particular date, end when the allocated funding is exhausted, or be reduced or terminated as a matter of regulatory or legislative policy.
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We also derive other revenue from regulatory credits. If government support of these credits declines, our ability to generate this kind of revenue in the future would be adversely affected. The availability of such credits may decline even with general governmental support of the transition to EV infrastructure. For example, in September 2020, California Governor Gavin Newsom issued Executive Order N-79-20 (the “EO”), announcing a target for all in-state sales of new passenger cars and trucks to be zero-emission by 2035. While the EO calls for the support of EV infrastructure, the form of this support is unclear. If California or other jurisdictions choose to adopt regulatory mandates instead of establishing or continuing green energy credit regimes for EV infrastructure, our revenue from these credits would be adversely impacted.
Our business is subject to risks associated with construction, cost overruns and delays, and other contingencies that may arise in the course of completing installations, and such risks may increase in the future as we expand the scope of such services with other parties.
We do not typically install charging stations at customer sites. These installations are often performed by our partners or electrical contractors with an existing relationship with the customer and/or knowledge of the site. The installation of charging stations at a particular site is generally subject to oversight and regulation in accordance with state and local laws and ordinances relating to building codes, safety, environmental protection and related matters, and frequently requires various local and other governmental approvals and permits that may vary by jurisdiction. In addition, building codes, accessibility requirements or regulations may hinder EV charger installation because they end up costing the developer or installer more in order to meet the code requirements. Meaningful delays or cost overruns may impact our recognition of revenue in certain cases and/or impact customer relationships, either of which could impact our business and profitability.
Further, we may in the future elect to install charging stations at customer sites or manage contractors, likely as part of offering customers a turnkey solution. Working with contractors may require us to obtain licenses or require us or our customers to comply with additional rules, working conditions and other union requirements, which can add costs and complexity to an installation project. In addition, if these contractors are unable to provide timely, thorough and quality installation-related services, customers could fall behind their construction schedules, leading to liability or cause customers to become dissatisfied with the solutions we offer, and our overall reputation would be harmed.
If we fail to offer high-quality support to charging station owners and drivers, our business and reputation will suffer.
Once a customer has installed our charging stations and subscribed to our services, station owners and drivers will rely on us to provide support services to resolve any issues that might arise in the future. Rapid and high-quality customer support is important so station owners can provide charging services and drivers can receive reliable charging for their EVs. The importance of high-quality customer support will increase as we seek to expand our business and pursue new customers and geographies. If we do not quickly resolve issues and provide effective support, our ability to retain customers or sell additional products and services to existing customers could suffer and our brand and reputation could be harmed.
We rely on charging station manufacturing and other partners, and a loss of any such partner or interruption in the partner’s production could have a material adverse effect on our business.
If we experience a significant increase in demand for our charging stations and services, or if we need to replace an existing supplier, we may not be able to supplement or replace them on acceptable terms, which may undermine our ability to deliver products to customers in a timely manner. For example, it may take a significant amount of time to identify a manufacturer that has the capability and resources to build charging stations in sufficient volume. Identifying suitable suppliers and manufacturers could be an extensive process that requires us to become satisfied with their quality control, technical capabilities, responsiveness and service, financial stability, regulatory compliance, and labor and other ethical practices. Accordingly, a loss of any significant suppliers or manufacturers, or an interruption in their production, could have an adverse effect on our business, financial condition and operating results.
Moreover, the bi-directional EV charging station market as a whole is relatively new and charging station manufacturers are even more limited and requirements are evolving. Though we work with multiple vendors, it is likely that at the time a new product is launched, and new requirements are rolled out, we may rely on a single vendor. Certifications might also be delayed, as tests are not always available at the time of commercial launch. Certain of these requirements might at times apply to technology inside the vehicles, in which case such risks could also be pushed on the vehicle OEMs. To the extent we rely on a single supplier, the risks to us would be intensified.
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Our future results are dependent on our ability to establish, maintain and expand our manufacturers’ representative OEM relationships and our other relationships.
We market and sell our products through domestic and international OEM relationships and other distribution channels, such as manufacturers’ representatives and distributors. Our future results are dependent on our ability to establish, maintain and expand our relationships with OEMs as well as with manufacturers’ representatives and distributors to sell our products. If, however, the third parties with whom we have entered into such OEM and other arrangements should fail to meet their contractual obligations, cease or curtain doing business with us or otherwise fail to meet their own performance objectives, customer demand for our products could be adversely affected, which would have an adverse effect on our revenues.
We rely on third-party vendors and subcontractors for supply of components, assemblies, and services and, therefore, cannot control the availability or quality of such components, assemblies, and services.
We depend on third-party vendors and subcontractors to supply components, assemblies and services used to manufacture our products, some of which are supplied by a single vendor. We have experienced shortages of certain semiconductor and electronic components and delays in service delivery, have incurred additional and unexpected costs to address the shortages and delays, and have experienced our own delays in production and shipping.
If suppliers or subcontractors cannot provide their products or services on time or to our specifications, we may not be able to meet the demand for our products and our delivery times may be negatively affected. In addition, we cannot directly control the quality of the products and services provided by third parties. In order to expand revenue, we likely will need to identify and qualify new suppliers and subcontractors to supplement or replace existing suppliers and subcontractors, which may be a time-consuming and expensive process. In addition, any qualification of new suppliers may require customers of our products utilizing products and services from new suppliers and service providers to undergo a re-qualification process. Such circumstances likely would lead to disruptions in our production, increased manufacturing costs, delays in shipping to our customers, and/or increases in prices paid to third parties for products and services.
As pointed out, we rely on a third-party partner to provide certain manufacturing steps associated with some of our proprietary process to support our power products and solutions. This process, developed with the third-party partners, involves complex printed circuit board assembly, advanced environmental conditioning and accelerated testing performed on equipment developed by us or the third-party partners. An important, differentiating benefit of this proprietary process is that it does not generate problematic effluent, resulting in an environmentally safe approach to our products with minimal waste. We have entered into agreements with the third-party partner for production and transfer of technologies and process know-how, including the purchase of the enabling equipment developed by the third-party partner.
To date, we have successfully relied upon this third-party partner to perform these manufacturing steps, although we have experienced delivery delays associated with the third-party partner’s volume constraints. This experience caused us to accelerate our schedule for establishing our own high-volume capabilities in-house, modifying, in 2020, our construction plans to accommodate a dedicated, on-premises metal surface finishing facility. We expect to rely on our third-party partner for production requirements through the installation and qualification for production of our products. We also expect to rely on our third-party partner in the future for surge capacity requirements.
We face intense industry competition, price erosion and product obsolescence, which, in turn, could reduce our profitability.
We operate in an industry that is generally characterized by intense competition. We believe that the principal bases of competition in our markets are breadth of product line, quality of products, stability, reliability and reputation of the provider, along with cost. Quantity discounts, price erosion, and rapid product obsolescence due to technological improvements are therefore common in our industry as competitors strive to retain or expand market share. Product obsolescence can lead to increases in unsaleable inventory that may need to be written off and, therefore, would increase our operating losses. Similarly, price erosion would also increase our operating losses by decreasing our revenues and our gross margins. In fact, we have seen price erosion over the last several years on most of the products we sell, and we expect additional price erosion in the future.
If we are unable to satisfy our customers’ specific product quality, certification or network requirements, our business could be disrupted, and our financial condition could be harmed.
Our customers demand that our products meet stringent quality, performance and reliability standards. We have, from time to time, experienced problems in satisfying such standards. Defects or failures have occurred in the past, and may in the future recur, relating to our product quality, performance and reliability. From time to time, our customers also require us to implement specific changes to our products to allow these products to operate within their specific network configurations. If we are unable to remedy these failures or defects or if we cannot effect such required product modifications, we could experience lost revenues, increased costs, including inventory write-offs, warranty expense and costs associated with customer support, delays in, or cancellations or rescheduling of, orders or shipments and product returns or discounts, any of which would harm our business.
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Risks Related to Our Relationship with BitNile
As long as BitNile controls us, your ability to influence matters requiring stockholder approval will be limited.
As a result of the consummation of the Acquisition, BitNile presently beneficially owns 318,512,900 shares of TurnOnGreen common stock, representing approximately 90.8% of the beneficial ownership of our outstanding common stock. For so long as BitNile beneficially owns shares of our common stock representing at least a majority of the votes entitled to be cast by the holders of outstanding common stock, and potentially even a number of beneficially owned shares that falls short of a majority, BitNile will be able to elect all of the members of our Board.
In addition, until such time as BitNile beneficially owns shares of our common stock representing less than a majority of the votes entitled to be cast by the holders of outstanding common stock, BitNile will have the ability to take stockholder action without the vote of any other stockholder and without having to call a stockholder meeting, and stockholders will not be able to affect the outcome of any stockholder vote during this period. As a result, BitNile will have the ability to control all matters affecting us, including:
| • | the composition of our Board and, through our Board, any determination with respect to our business plans and policies; |
| • | any determinations with respect to mergers, acquisitions and other business combinations; |
| • | our acquisition or disposition of assets; |
| • | our financing activities; |
| • | changes to our articles of incorporation and bylaws; |
| • | corporate opportunities that may be suitable for us and BitNile; |
| • | determinations with respect to enforcement of rights we may have against third parties, including with respect to intellectual property rights; |
| • | the payment of dividends on our common stock; |
| • | the number of shares available for issuance under our stock plan for our prospective and existing employees; and |
| • | the strategy, direction and objectives of our business. |
It should be noted that BitNile may not require beneficial ownership amounting to an outright majority to control or very strongly influence any of the above matters, in part because many shareholders would not attend, whether in person or not, any of our shareholder meetings(s). If BitNile does not provide any requisite consent allowing us to conduct such activities when requested, we will not be able to conduct such activities and, as a result, our business and our operating results may be harmed.
BitNile’s voting control and its additional rights described above may discourage transactions involving a change of control of us, including transactions in which you as a holder of our Common Stock might otherwise receive a premium for your shares over the then-current market price. BitNile is not prohibited from selling a controlling interest in us to a third party and may do so without your or our approval and without providing for a purchase of your shares of Common Stock. Accordingly, your shares of Common Stock may be worth less than they would be if BitNile did not maintain voting control over us or have the additional rights described above.
BitNile’s interests and objectives as a stockholder may not align with, or may even directly conflict with, your interests and objectives as a stockholder. For example, BitNile may be more or less interested in us entering into a transaction or conducting an activity due to the impact such transaction or activity may have on BitNile as a company, independent of us. In such instances, BitNile may exercise its control over us in a way that is beneficial to BitNile, and you will not be able to affect the outcome so long as BitNile continues to hold a majority of the outstanding shares entitled to vote. Even if BitNile were to reduce its ownership below a majority of the aggregate voting power of the Common Stock, it could still retain effective control of our company provided that it maintained a significant number of our outstanding Common Stock.
In the event BitNile is acquired or otherwise undergoes a change of control, any acquirer or successor will be entitled to exercise the voting control and contractual rights of BitNile and may do so in a manner that could vary significantly from what BitNile would have done or not done.
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General Risk Factors
If we fail to establish and maintain an effective system of internal control over financial reporting, we may not be able to report our financial results accurately or prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our Common Stock.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operations and access to capital. We have carried out an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the most recent period covered by this report. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.
A material weakness is a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board Audit Standard No. 5, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weakness which has caused management to conclude that as of December 31, 2021 our internal control over financial reporting was not effective at the reasonable assurance level:
We do not have sufficient resources in our accounting function, which restricts our ability to gather, analyze and properly review information related to financial reporting, including fair value estimates, in a timely manner. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. In addition, the Company's primary user access controls to ensure appropriate authorization and segregation of duties that would adequately restrict user and privileged access to the financially relevant systems and data to appropriate personnel were not designed and/or implemented effectively. Management evaluated the impact of our failure to have segregation of duties during our assessment of our disclosure controls and procedures and concluded that the control deficiency that resulted represented a material weakness.
While management evaluates the effectiveness of our internal controls on a regular basis, these controls may not always be effective. There are inherent limitations on the effectiveness of internal controls, including collusion, management override, and failure in human judgment. In addition, control procedures are designed to reduce rather than eliminate business risks. In the event our Chief Executive Officer or Chief Financial Officer, our certifying officers under the Sarbanes-Oxley Act of 2002 (the “SOX”), or our independent registered public accounting firm determines our internal controls over financial reporting are not effective as defined under Section 404 of SOX, we may be unable to produce reliable financial reports or prevent fraud, which could materially harm our business. In addition, we may be subject to sanctions or investigation by government authorities or self-regulatory organizations, such as the SEC or the Financial Industry Regulatory Authority. Any such actions could affect investor perceptions of the Company and result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements, which could cause the market price of our Common Stock to decline or limit our access to capital.
Our operating results may vary from quarter to quarter.
Our operating results have in the past been subject to quarter-to-quarter fluctuations, and we expect that these fluctuations will continue, and may increase in magnitude, in future periods. Demand for our products is driven by many factors, including the availability of funding for our products in our customers’ capital budgets. There is a trend for some of our customers to place large orders near the end of a quarter or fiscal year, in part to spend remaining available capital budget funds. Seasonal fluctuations in customer demand for our products driven by budgetary and other concerns can create corresponding fluctuations in period-to-period revenues, and we therefore cannot assure you that our results in one period are necessarily indicative of our revenues in any future period. In addition, the number and timing of large individual sales and the ability to obtain acceptances of those sales, where applicable, have been difficult for us to predict, and large individual sales have, in some cases, occurred in quarters subsequent to those we anticipated, or have not occurred at all. The loss or deferral of one or more significant sales in a quarter could harm our operating results for such quarter. It is possible that, in some quarters, our operating results will be below the expectations of public market analysts or investors. In such events, or in the event adverse conditions prevail, the market price of our Common Stock may decline significantly.
Many of our competitors are larger and have greater financial and other resources than we do.
Our products compete and will compete with similar if not identical products produced by our competitors. These competitive products could be marketed by well-established, successful companies that possess greater financial, marketing, distribution personnel, and other resources than we do. Using said resources, these companies can implement extensive advertising and promotional campaigns, both generally and in response to specific marketing efforts by competitors. They can introduce new products to new markets more rapidly. In certain instances, competitors with greater financial resources may be able to enter a market in direct competition with us, offering attractive marketing tools to encourage the sale of products that compete with our products or present cost features that consumers may find attractive.
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Existing or new competitors may develop products or technologies that more effectively address the demands of our customers and markets with enhanced performance, features and functionality or lower cost. Larger competitors frequently seek to maintain market share and protect customer relationships through heavily-discounted pricing, which we may not be able to match. If we fail to develop and commercialize leading-edge technologies and products that are cost effective and maintain high standards of quality and introduce them to the market on a timely basis, our competitive position and results of operations could be materially adversely affected.
Changes in the U.S. tax and other laws and regulations may adversely affect our business.
The U.S. government may revise tax laws, regulations or official interpretations in ways that could have a significant adverse effect on our business, including modifications that could reduce the profits that we can effectively realize from our international operations, or that could require costly changes to those operations, or the way in which they are structured. For example, the effective tax rates for most U.S. companies reflect the fact that income earned and reinvested outside the U.S. is generally taxed at local rates, which may be much lower than U.S. tax rates. If we expand abroad and there are changes in tax laws, regulations or interpretations that significantly increase the tax rates on non-U.S. income, our effective tax rate could increase, and our profits could be reduced. If such increases resulted from our status as a U.S. company, those changes could place us at a disadvantage to our non-U.S. competitors if those competitors remain subject to lower local tax rates.
Our sales and profitability may be affected by changes in economic, business and industry conditions.
If the economic climate in the United States or abroad deteriorates, customers or potential customers could reduce or delay their technology investments. Reduced or delayed technology and entertainment investments could decrease our sales and profitability. In this environment, our customers may experience financial difficulty, cease operations and fail to budget or reduce budgets for the purchase of our products and professional services. This may lead to longer sales cycles, delays in purchase decisions, payment and collection, and can also result in downward price pressures, causing our sales and profitability to decline. In addition, general economic uncertainty and general declines in capital spending in the information technology sector make it difficult to predict changes in the purchasing requirements of our customers and the markets we serve. There are many other factors which could affect our business, including:
| • | the introduction and market acceptance of new technologies, products and services; |
| • | new competitors and new forms of competition; |
| • | the size and timing of customer orders (for retail distributed physical product); |
| • | the size and timing of capital expenditures by our customers; |
| • | adverse changes in the credit quality of our customers and suppliers; |
| • | changes in the pricing policies of, or the introduction of, new products and services by us or our competitors; |
| • | changes in the terms of our contracts with our customers or suppliers; |
| • | the availability of products from our suppliers; and |
| • | variations in product costs and the mix of products sold. |
These trends and factors could adversely affect our business, profitability and financial condition and diminish our ability to achieve our strategic objectives.
Our limited ability to protect our proprietary information and technology may adversely affect our ability to compete, and our products could infringe upon the intellectual property rights of others, resulting in claims against us, the results of which could be costly.
Many of our products consist entirely or partly of proprietary technology owned by us. Although we seek to protect our technology through a combination of copyrights, trade secret laws and contractual obligations, these protections may not be sufficient to prevent the wrongful appropriation of our intellectual property, nor will they prevent our competitors from independently developing technologies that are substantially equivalent or superior to our proprietary technology. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States. In order to defend our proprietary rights in the technology utilized in our products from third party infringement, we may be required to institute legal proceedings, which would be costly and would divert our resources from the development of our business. If we are unable to successfully assert and defend our proprietary rights in the technology utilized in our products, our future results could be adversely affected.
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Although we attempt to avoid infringing known proprietary rights of third parties in our product development efforts, we may become subject to legal proceedings and claims for alleged infringement from time to time in the ordinary course of business. Any claims relating to the infringement of third-party proprietary rights, even if not meritorious, could result in costly litigation, divert management’s attention and resources, require us to reengineer or cease sales of our products or require us to enter into royalty or license agreements which are not advantageous to us. In addition, parties making claims may be able to obtain an injunction, which could prevent us from selling our products in the United States or abroad.
If we ship products that contain defects, the market acceptance of our products and our reputation will be harmed and our customers could seek to recover their damages from us.
Our products are complex, and despite extensive testing, may contain defects or undetected errors or failures that may become apparent only after our products have been shipped to our customers and installed in their network or after product features or new versions are released. Any such defect, error or failure could result in failure of market acceptance of our products or damage to our reputation or relations with our customers, resulting in substantial costs for us and our customers, as well as the cancellation of orders, warranty costs and product returns. In addition, any defects, errors, misuse of our products or other potential problems within or out of our control that may arise from the use of our products could result in financial or other damages to our customers. Our customers could seek to have us pay for these losses. Although we maintain product liability insurance, it may not be adequate.
The elimination of monetary liability against our directors, officers and employees under law and the existence of indemnification rights for or obligations to our directors, officers and employees may result in substantial expenditures by us and may discourage lawsuits against our directors, officers and employees.
Our articles of incorporation contain a provision permitting us to eliminate the personal liability of our directors to us and our stockholders for damages for the breach of a fiduciary duty as a director or officer to the extent provided by Nevada law. We may also have contractual indemnification obligations under any future employment agreements with our officers. The foregoing indemnification obligations could result in us incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and the resulting costs may also discourage us from bringing a lawsuit against directors and officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even though such actions, if successful, might otherwise benefit us and our stockholders.
Failure to build our finance infrastructure and improve our accounting systems and controls could impair our ability to comply with the financial reporting and internal controls requirements for publicly traded companies.
As a public company, we operate in an increasingly demanding regulatory environment, which requires us to comply with SOX, the rules and regulations of the SEC, disclosure requirements and more complex accounting rules. Company responsibilities required by SOX include establishing corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures. Effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent financial fraud. We must continually perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting in our Form 10-K filing for each year, as required by Section 404 of SOX.
If we are not able to comply with the requirements of Section 404 of SOX in a timely manner, or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements. If we cannot provide reliable financial reports or prevent fraud, our business and results of operations could be harmed, investors could lose confidence in our reported financial information and we could be subject to sanctions or investigations by the SEC or other regulatory authorities.
The effects of the COVID-19 pandemic have materially affected how we and our customers are operating our businesses, and the duration and extent to which this will impact our future results of operations and overall financial performance remains uncertain.
The COVID-19 pandemic has continued to affect many countries, upending entire supply chains of many important industries. In the attempt to control this pandemic, governments have imposed actions to assist limiting the spread of the disease, including orders to lockdowns, shelter-in-place, travel restrictions, and mandated business closures, have adversely affected workforces, organizations, customers, economies, and financial markets globally, leading to an economic downturn and increased market volatility. Our operations have been affected by a range of external factors related to the COVID-19 pandemic that are not within our control. The epidemic is having a very significant impact the electronics sector, with key manufacturers either completely closed following the orders issued by local governments or having to operate in an environment with inadequate numbers of staff at manufacturing units to maintain the security of their personnel. For example, many cities, counties, states and countries have imposed or may impose a wide range of restrictions on the physical movement of our employees, partners, and customers to limit the spread of COVID-19. The COVID-19 pandemic have a substantial impact on electronics manufactures. Many electronics manufactures are in dire need of electronics materials and materials required to support the manufacturing of products as well as staff to maintain core functions. The productivity of our employees and partners, a continued substantial impact on the attendance of our employees, or a continued and substantial impact on the ability of our customers to purchase our offerings, is likely to lead to our results of operations and overall financial performance may being harmed. The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions, the disruption caused by such actions, and the impact of these and other factors on our employees, customers, partners, vendors and the global economy. If we are not able to respond to and manage the impact of such events effectively, our business will be harmed. For more information with respect to the COVID-19 pandemic and its impact on our business, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Impact of Coronavirus on Our Operations”.
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MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our Common Stock is not listed on any securities exchange and is available for quotation on the OTC Pink Market under the symbol “IMHC”. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and do not necessarily represent actual transactions.
The last reported sales price of our Common Stock on the OTC Pink Market on August 31, 2022 was $0.19.
Holders
As of August 31, 2022, there were 204 shareholders of record of our Common Stock based upon the records of the shareholders provided by our transfer agent. Our transfer agent is Signature Stock Transfer, Inc.
Dividends
We have never paid or declared any dividends on our Common Stock and do not anticipate paying cash dividends in the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
We currently do not have any equity compensation plans.
Unregistered Sales of Equity Securities
We have previously disclosed all sales of securities without registration under the Securities Act.
Issuer Purchases of Equity Securities
None.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF TOGI
You should read the following discussion and analysis of our financial condition and results of our operations together with our financial statements and the notes thereto appearing elsewhere in this Current Report. This discussion contains forward-looking statements reflecting our current expectations, whose actual outcomes involve risks and uncertainties. Actual results and the timing of events may differ materially from those stated in or implied by these forward-looking statements due to several factors, including those discussed in the sections entitled “Risk Factors” and “Note About Forward-Looking Statements,” and elsewhere in this Current Report.
Overview
We are engaged, through our wholly owned subsidiaries, Digital Power and TOGT, in the design, development, manufacture and sale of highly engineered, feature-rich, high-grade power conversion and power system solutions for mission-critical applications and processes. For more than 50 years, Digital Power has been devoted to the perfection of our power solution products that have enabled customer innovation in complex product applications covering a wide range of industries. A natural outgrowth of our development of these power systems has been our effort to apply our proprietary core power technologies to optimizing the design and performance of EV charging solutions. We introduced our product line of residential and commercial high-speed EV charging solutions in late 2021. We believe that our charging solutions represent an entire generation of new chargers due to dramatic improvements in electronic circuitry size reduction, power conversion efficiency, modular topology and output density. We believe that our feature-rich EV chargers address the specific needs of multifamily unit home dwellers and single family home-owners by providing adjustable maximum electric current options, restricted user access, LCD touch screen for simple point of operation use, Bluetooth connectivity and programmable RFID card features. By leveraging our experience and expertise in power conversion and generation, we believe we can rapidly become a meaningful participant in the high growth EV charging solution market.
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Our strategy is to be the supplier of choice across numerous specialized markets that require high-quality power system solutions where custom design, product quality, responsiveness and reliability are critical to business success. We believe that we provide advanced custom product design services to deliver high-grade products that reach a high level of efficiency and density and can meet rigorous environmental requirements. We believe that this integrated approach, which many of our competitors do not provide, allows our customers to obtain all their needs for designing and manufacturing power solutions and products from a single source, enabling us to establish an ongoing relationship with our customers to provide for their future requirements. By implementing our proprietary core technology, including process implementation in integrated circuits, we can provide cost reductions to our customers by replacing their existing power sources with our custom-designed and engineered products.
Looking ahead, our mission is to maintain our core power electronics business and existing relationships while leveraging the experience and expertise we have gained in the development of power system solutions to introduce EV charging solutions. By offering EV charging solutions, as well as a convenient, reliable, and affordable EV charging e-mobility network through TOGT, we intend to drive sustainable, mission-driven growth related to powering environmentally beneficial EVs while continuing to be recognized as a trusted provider of advanced power supply technology.
Factors Affecting Our Performance
We believe that the growth of our business and our future success depend on various opportunities, challenges, trends and other factors, including the following:
| Ø | Our business model is evolving and we will need to invest a substantial amount of operating capital on an ongoing basis to support our EV charging solutions business. We expect to use the largest portion of any capital we may be able to raise to purchase EV components and inventory in connection with future sales and installations. To the extent that the capital expenditure requirements of our EV charging solutions business are greater than anticipated, any funds we have will be unavailable for our other operations. It is likely that we will need substantial additional funds for our working capital and capital expenditure requirements as we grow our EV charging solutions business. |
| Ø | Our ability to provide our products and systems on a timely basis is dependent on our ability to procure critical electronic components. The current supply chain crisis in the global economy has led to delivery delays and shortages of certain electronic components and associated raw materials that we use in our products. Should this supply chain crisis continue throughout 2022, it will likely extend our production time periods and delay the timing of revenue recognition. |
| Ø | To date, our operations were financed principally through investments by BitNile and took advantage of BitNile’s size and purchasing power in procuring goods, technology and services, including insurance, employee benefit support and audit, and other professional services. Though BitNile will be a controlling stockholder upon the completion of the Acquisition, we may not have access to BitNile’s financial and other resources. |
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based upon consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The preparation of these financial statements, in conformity with GAAP, requires our management to make estimates, judgments and assumptions. Management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Key estimates include allowances for inventory obsolescence, accruals of certain liabilities including product warranties, useful lives of assets, and deferred income taxes and related valuation allowance.
Management believes the following accounting policies are critical to our operating results or may affect significant estimates, judgments, and assumptions used in the preparation of our consolidated financial statements.
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Revenue Recognition
We recognize revenue under ASC 606, Revenue from Contracts with Customers. The core principle of this revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
| Ø | Step 1: Identify the contract with the customer; |
| Ø | Step 2: Identify the performance obligations in the contract; |
| Ø | Step 3: Determine the transaction price; |
| Ø | Step 4: Allocate the transaction price to the performance obligations in the contract; and |
| Ø | Step 5: Recognize revenue when the company satisfies a performance obligation. |
Our disaggregated revenues consisted of the following for the three and six months ended June 30, 2022 and 2021:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Primary Geographical Markets | ||||||||||||||||
| North America | $ | 822,000 | $ | 1,290,000 | $ | 1,834,000 | $ | 2,497,000 | ||||||||
| Europe | 28,000 | 453,000 | 47,000 | 562,000 | ||||||||||||
| Other | 212,000 | 88,000 | 310,000 | 154,000 | ||||||||||||
| Total Revenue | $ | 1,062,000 | $ | 1,831,000 | $ | 2,191,000 | $ | 3,213,000 | ||||||||
| Major Goods | ||||||||||||||||
| Power Supply Units | $ | 1,016,000 | $ | 1,831,000 | $ | 2,112,000 | $ | 3,213,000 | ||||||||
| EV Chargers | 46,000 | - | 79,000 | - | ||||||||||||
| Total Revenue | $ | 1,062,000 | $ | 1,831,000 | $ | 2,191,000 | $ | 3,213,000 | ||||||||
| Timing of Revenue Recognition | ||||||||||||||||
| Goods transferred at a point in time | $ | 1,062,000 | $ | 1,831,000 | $ | 2,191,000 | $ | 3,213,000 | ||||||||
Our disaggregated revenues consisted of the following for the years ended December 31, 2021 and 2020:
| 2021 | 2020 | |||||||
| Primary Geographical Markets | ||||||||
| North America | $ | 4,684,000 | $ | 4,482,000 | ||||
| Europe | 359,000 | 611,000 | ||||||
| Other | 303,000 | 323,000 | ||||||
| $ | 5,346,000 | $ | 5,416,000 | |||||
| Major Goods | ||||||||
| Power Supply Units | $ | 5,328,000 | $ | 5,416,000 | ||||
| EV Chargers | 18,000 | - | ||||||
| $ | 5,346,000 | $ | 5,416,000 | |||||
| Timing of Revenue Recognition | ||||||||
| Goods transferred at a point in time | $ | 5,346,000 | $ | 5,416,000 | ||||
We generate revenues from the sale of our products through a direct and indirect sales force. Our performance obligations to deliver products are satisfied at the point in time when products are received by the customer, which is when the customer obtains control over the goods. We provide standard assurance warranties, which are not separately priced, that the products function as intended. We primarily receive fixed consideration for sales of product. Some of our contracts with distributors include stock rotation rights after six months for slow moving inventory, which represents variable consideration. We use an expected value method to estimate variable consideration and constrain revenue for estimated stock rotations until it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. To date, returns have been insignificant. Our customers generally pay within 30 days from their receipt of our invoices.
| - 32 - |
Because our product sales agreements have an expected duration of one year or less, we have elected to adopt the practical expedient in ASC 606-10-50-14(a) of not disclosing information about our remaining performance obligations. We have elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component to the extent that the period between when we transfer our promised good or service to the customer and when the customer pays in one year or less.
Accounts Receivable
Our receivables are recorded when billed and represent claims against third parties that will be settled in cash. The carrying amount of our receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. We individually review all accounts receivable balances and based upon an assessment of current creditworthiness, estimate the portion, if any, of the balance that will not be collected. We estimate the allowance for doubtful accounts based on historical collection trends, age of outstanding receivables and existing economic conditions. If events or changes in circumstances indicate that a specific receivable balance may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. A customer’s receivable balance is considered past-due based on its contractual terms. Past-due receivable balances are written-off when our internal collection efforts have been unsuccessful in collecting the amount due. Based on an assessment as of June 30, 2022, December 31, 2021 and December 31, 2020 of the collectability of invoices, an allowance for doubtful accounts was not considered necessary and therefore no allowance was recorded.
Inventories
Inventories are stated at cost. Inventory write-offs are provided to cover risks arising from technological obsolescence as our products are mostly original equipment manufactured for our clients.
Cost of inventories is determined as follows:
| Ø | Raw materials, parts and supplies - using the “first-in, first-out” method. |
| Ø | Work-in-progress and finished products - based on direct manufacturing costs with the addition of indirect manufacturing costs. |
We periodically assess our inventories valuation in respect to obsolete items by reviewing revenue forecasts and technological obsolescence and moving such items into a reserve allowance for obsolescence. When inventories on hand exceed the foreseeable demand or become obsolete, the value of excess inventory, which at the time of the review was not expected to be sold, is written off. We have an obsolescence reserve of $0.1 million for the six months ended June 30, 2022 and for the years ended December 31, 2021 and 2020.
During the six months ended June 30, 2022 and years ended December 31, 2021 and 2020, we did not record inventory write-offs within the cost of revenue.
Property and Equipment, Net
Property and equipment are stated at cost, net of accumulated depreciation. Major additions and improvements are capitalized, while replacements, maintenance and repairs, which do not improve or extend the life of the respective assets, are expensed as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, at the following annual rates:
| Useful Lives | ||
| Asset | (In Years) | |
| Computer software and office and computer equipment | 3 - 5 | |
| Machinery and equipment, automobiles, furniture and fixtures | 3 - 10 | |
| Leasehold improvements | Over the term of the lease or the life of the asset, whichever is shorter |
| - 33 - |
Warranty
We offer a manufacturing warranty period for all our manufactured products to function free from defects in material and workmanship under normal use and service for one to two years on most products and up to five years for rugged power products for the defense and aerospace markets. For our EVSE product line, we offer up to a three-year extended warranty beyond the manufacturing warranty period. We also provide end user technical support for up to 15 years on many of our products which have long lifetimes. We estimate the costs that may be incurred under our warranty and record a liability in the amount of such costs at the time product revenue is recognized. Factors that affect our warranty liability include the number of units sold, the sector product is being used, historical rates of warranty claims and cost per claim. We periodically assess the adequacy of our recorded warranty liability. As of June 30, 2022 and December 31, 2021, our accrued warranty liability was $54,000 and at December 31, 2020 it was $44,000.
Segments
We operate in one business segment. Our Chief Executive Officer, who is the chief operating decision maker, views our operating performance on a consolidated basis as one segment providing comprehensive EV charging solutions, high-grade power systems and product solutions serving diverse industries and markets including defense and aerospace, medical and healthcare, telecommunications, industrial and e-Mobility.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and trade receivables.
Our trade receivables are mainly derived from sales to customers located primarily in the United States. We perform ongoing credit evaluations of our customers and to date have not experienced any material losses. An allowance for doubtful accounts is determined with respect to those amounts that we and our subsidiary have determined to be doubtful of collection. As of June 30, 2022, December 31, 2021 and 2020, there were no allowances for doubtful accounts.
The following table provides the percentage of total revenues attributable to a single customer from which 10% or more of total revenues are derived:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Customer A | 24 | % | - | 12 | % | - | ||||||||||
| Customer B | - | 24 | % | 12 | % | 20 | % | |||||||||
| For the Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Customer A | 17 | % | 16 | % | ||||
| Customer B | 12 | % | 10 | % | ||||
Impact of Coronavirus on Our Operations
Our business has been disrupted and materially adversely affected by the outbreak of COVID-19. As a result of measures imposed by the governments in affected regions, businesses and schools have been suspended due to quarantines intended to contain this outbreak and many people have been forced to work from home in those areas. While the COVID-19 outbreak is no longer in its early stages, international stock markets continue to reflect the uncertainty associated with the slow-down in the American, Israeli and UK economies and the reduced levels of international travel experienced since the beginning of January 2020. The significant volatility in the Dow Industrial Average throughout 2020 was largely attributed to the effects of COVID-19. We continue to monitor and assess our business operations and system supports and the impact COVID-19 may have on our results and financial condition, but there can be no assurance that this analysis will enable us to avoid part of or all the impacts from the continuing spread of COVID-19 or its consequences, including downturns in business sentiment generally or in our sectors particularly.
The impact of the COVID-19 pandemic, including changes in consumer and business behavior, pandemic fears and market downturns, and restrictions on business and individual activities, has created significant volatility in the global economy and has led to reduced economic activity. The spread of the COVID-19 pandemic has also created a disruption in the manufacturing, delivery and overall supply chain of power electronics manufacturing and suppliers and has led to a decrease in power electronics product sales in numerous markets around the world. Any sustained downturn in demand for power electronics products would harm our business. Widespread uncertainty associated with the pandemic has contributed to reduced business activity worldwide. As described further below, we have experienced production constraints since 2020 that resulted in delays, inefficiencies, and higher costs, which, in the aggregate, had a detrimental influence on our financial results for the past six quarters.
| - 34 - |
Our deliveries to and orders from the North American market in sectors we serve, including industrial, telecommunication, medical/healthcare and defense/aerospace, have declined since early 2020 given reduced manufacturing activity, unavailability of electronic components and associated raw materials used in our power products, and broad uncertainty. We believe domestic demand will further improve once the COVID-19 pandemic is substantially contained and uncertainties are reduced, but we cannot predict when this will occur. The COVID-19 pandemic has also led to an increase in the price for certain parts and materials used in the production of our power electronics and EV charging solution products.
Trading conditions in China deteriorated through 2019 due to macroeconomic and trade-related uncertainties. At the beginning of 2020, trading conditions were significantly further affected by the COVID-19 pandemic, with much of the country’s manufacturing disrupted from January through April 2020. By late April 2020, after aggressive measures to contain the coronavirus, the Chinese government quickly implemented economic stimulus measures. We believe this volume was primarily associated with the stimulus spending of the Chinese government, although we also believe an unquantifiable amount of this volume may have been associated with accelerated purchasing by customers anticipating further deterioration of the trade relationship between China and the U.S., which, if it were to occur, could substantially limit purchases by such customers. By the end of 2021 the COVID 19 pandemic continued to substantially affect our supply chain. However, we cannot predict if or when circumstances may change, nor can we predict the amount by which bookings or shipments may change.
From early March 2020, we took actions intended to protect the health and safety of our employees, customers, strategic channel partners and suppliers. Following guidance from the U.S. Centers for Disease Control and Prevention, the U.S. Occupational Health and Safety Administration, state and local health authorities, and existing internal crisis management policies, we developed and implemented comprehensive health and safety measures at all of our locations, including: distributing information and carrying out education initiatives; implementing social distancing requirements; distributing face masks, disposable gloves, disinfectant wipes and thermometers to employees; implementing temperature checks at the entrances to our manufacturing facility; extensive and frequent disinfecting of our workspaces; and enabling work-from-home arrangements for those employees who do not need to be physically on the premises to perform their work effectively. At our operations in Milpitas and Sonora, California, we have largely returned to normal operations with adherence to guidelines published by the Santa Clara Public Health Department. For example, certain individuals deemed to be high risk may work remotely as required. We expect to maintain all appropriate measures until we determine the pandemic is adequately contained for purposes of our business, and we may take further actions we consider to be in the best interests of our employees, customers, strategic channel partners and suppliers, or in response to further government mandates or requirements.
The extent to which the COVID-19 pandemic impacts our business, prospects and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, and when and to what extent normal economic and operating activities can resume. The COVID-19 pandemic could limit the ability of customers, suppliers, vendors and strategic channel partners to perform, including third-party suppliers’ ability to provide components and materials used in our power electronics products and systems including EV chargers or in providing installation or maintenance services. Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business due to its global economic impact, including any recession that has occurred or may occur in the future. Specifically, difficult macroeconomic conditions, such as decreases in per capita income and levels of disposable income, increased and prolonged unemployment or a decline in consumer confidence because of the COVID-19 pandemic, as well as reduced spending by businesses, could each have a material adverse effect on the demand for our products and services.
We are monitoring the rapidly changing circumstances and may take additional actions to address COVID-19 pandemic risks as they evolve. We continue to closely monitor the operating performance and financial health of our customers, strategic channel partners and suppliers, but an extended period of operational constraints brought about by the pandemic could cause financial hardship within our customer base and supply chain. Such hardship may continue to disrupt customer demand and limit our customers’ ability to meet their obligations to us. Similarly, such hardship within our supply chain could continue to restrict our access to critical electronic components and associated raw materials. Additionally, restrictions or disruptions of transportation systems, such as reduced availability of cargo transport by ship or air, could result in higher costs and inbound and outbound delays. Because much of the potential negative impact of the pandemic is associated with risks outside of our control, we cannot estimate the extent of such impact on our financial or operational performance, or when such impact might occur.
Results of Operations
The following discussion should be read in conjunction with the information set forth in the financial statements and the accompanying notes appearing elsewhere in this Current Report.
| - 35 - |
Comparison of three months ended June 30, 2022 and 2021
| For the Three Months Ended June 30, | Increase | |||||||||||||||
| 2022 | 2021 | (Decrease) | % | |||||||||||||
| Revenues | $ | 1,062,000 | $ | 1,831,000 | $ | (769,000 | ) | -42 | % | |||||||
| Cost of revenue | 672,000 | 976,000 | (304,000 | ) | -31 | % | ||||||||||
| Gross profit | 390,000 | 855,000 | (465,000 | ) | -54 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 304,000 | 72,000 | 232,000 | 322 | % | |||||||||||
| Selling and marketing | 319,000 | 298,000 | 21,000 | 7 | % | |||||||||||
| General and administrative | 771,000 | 451,000 | 320,000 | 71 | % | |||||||||||
| Total operating expenses | 1,394,000 | 821,000 | 573,000 | 70 | % | |||||||||||
| Net income (loss) | $ | (1,004,000 | ) | $ | 34,000 | $ | (1,038,000 | ) | -3053 | % | ||||||
Comparison of six months ended June 30, 2022 and 2021
| For the Six Months Ended June 30, | Increase | |||||||||||||||
| 2022 | 2021 | (Decrease) | % | |||||||||||||
| Revenues | $ | 2,191,000 | $ | 3,213,000 | $ | (1,022,000 | ) | -32 | % | |||||||
| Cost of revenue | 1,338,000 | 1,837,000 | (499,000 | ) | -27 | % | ||||||||||
| Gross profit | 853,000 | 1,376,000 | (523,000 | ) | -38 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 510,000 | 296,000 | 214,000 | 72 | % | |||||||||||
| Selling and marketing | 660,000 | 424,000 | 236,000 | 56 | % | |||||||||||
| General and administrative | 1,620,000 | 920,000 | 700,000 | 76 | % | |||||||||||
| Total operating expenses | 2,790,000 | 1,640,000 | 1,150,000 | 70 | % | |||||||||||
| Net loss | $ | (1,937,000 | ) | $ | (264,000 | ) | $ | (1,673,000 | ) | 634 | % | |||||
Comparison of Years Ended December 31, 2021 and 2020
| For the Year Ended December 31, | Increase | |||||||||||||||
| 2021 | 2020 | (Decrease) | % | |||||||||||||
| Revenues | $ | 5,346,000 | $ | 5,416,000 | $ | (70,000 | ) | -1 | % | |||||||
| Cost of revenue | 3,662,000 | 3,821,000 | (159,000 | ) | -4 | % | ||||||||||
| Gross profit | 1,684,000 | 1,595,000 | 89,000 | 6 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 504,000 | 337,000 | 167,000 | 50 | % | |||||||||||
| Selling and marketing | 910,000 | 342,000 | 568,000 | 166 | % | |||||||||||
| General and administrative | 2,097,000 | 1,493,000 | 604,000 | 40 | % | |||||||||||
| Total operating expenses | 3,511,000 | 2,172,000 | 1,339,000 | 62 | % | |||||||||||
| Loss from operations | (1,827,000 | ) | (577,000 | ) | (1,250,000 | ) | 217 | % | ||||||||
| Other income: | ||||||||||||||||
| Interest income | - | 9,000 | (9,000 | ) | -100 | % | ||||||||||
| Net loss | $ | (1,827,000 | ) | $ | (568,000 | ) | $ | (1,259,000 | ) | 222 | % | |||||
| - 36 - |
Liquidity, Going Concern and Management Plans
As of June 30, 2022, we had cash of $0.3 million and working capital of $2.4 million. Currently, we are dependent on BitNile for our continued support to fund our operations, without which we would need to cease or curtail such operations. BitNile is committed to providing us such funding as may be necessary to permit us to fund our operations, while we are a wholly owned subsidiary of BitNile.
We believe our current cash on hand together with funds advanced by the Parent are sufficient to meet our operating and capital requirements for at least the next twelve months.
Cash and Cash Equivalents
We maintain our cash in accounts with reputable financial institutions. These balances may exceed the U.S. Federal Deposit Insurance Corporation insurance limits. As of June 30, 2022, December 31, 2021 and 2020, we had cash of $0.3 million, $0.1 million and $0.3 million, respectively. We have not experienced any losses on deposits of cash and cash equivalents.
Contractual Obligations
The company had no contractual cash obligations as of June 30, 2022 and December 31, 2021.
Emerging Growth Company Status
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
Impact of Inflation
We believe that inflation has not had a material impact on our results of operations for the years ended December 31, 2021 and 2020. During fiscal year 2022, we expect the impact of inflation on the Company’s business will be significant due to increases for materials and services throughout fiscal year 2022. The Company believes this may continue to impact expenses in fiscal 2023 and future years.
Controls and Procedures
We will not be required to comply with the internal control requirements of the Sarbanes-Oxley Act prior to our fiscal year ending December 31, 2023. Only if we are deemed to be a large, accelerated filer or an accelerated filer would we need to comply with the independent registered public accounting firm attestation requirement. Further, for as long as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies including, but not limited to, not having to comply with the independent registered public accounting firm attestation requirement.
We have not completed an assessment, nor have our auditors tested our systems, of internal controls. We expect to assess the internal controls of our company and, if necessary, to implement and test additional controls as we may determine necessary to state that we maintain an effective system of internal controls, in areas such as:
| Ø | staffing for financial, accounting and external reporting areas, including segregation of duties; |
| Ø | reconciliation of accounts; |
| Ø | proper recording of expenses and liabilities in the period to which they relate; |
| Ø | evidence of internal review and approval of accounting transactions; |
| Ø | documentation of processes, assumptions and conclusions underlying significant estimates; and |
| Ø | documentation of accounting policies and procedures. |
| - 37 - |
Because it will take time, management involvement and perhaps outside resources to determine what internal control improvements are necessary for us to meet regulatory requirements and market expectations for our operation of a target business, we may incur significant expenses in meeting our public reporting responsibilities, particularly in the areas of designing, enhancing, or remediating internal and disclosure controls. Doing so effectively may also take longer than we expect, thus increasing our exposure to financial fraud or erroneous financing reporting.
Once our management's report on internal controls is complete, we will retain our independent auditors to audit and render an opinion on such report when required by SOX Section 404. The independent auditors may identify additional issues concerning a target business's internal controls while performing their audit of internal control over financial reporting.
Recent Accounting Pronouncements and Standards
For information about recently adopted accounting pronouncements and recently issued accounting standards that may impact our financial statements, please refer to Note 3 of Notes to Financial Statements under the respective headings “Recently Adopted Accounting Pronouncements.”
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth the names and positions of our executive officers and directors. Directors will be elected at our annual meeting of stockholders and serve for one year or until their successors are elected and qualify. Officers are elected by the Board and their terms of office are, except to the extent governed by employment contract, at the discretion of the Board.
| Name | Age | Position | ||||
| Amos Kohn | 62 | Chief Executive Officer and Director | ||||
| Darren Magot | 53 | Director | ||||
| Marcus Charuvastra | 44 | President and Chief Revenue Officer | ||||
| David J. Katzoff | 61 | Chief Financial Officer, Secretary and Treasurer | ||||
| Douglas Gintz | 55 | Chief Technology Officer | ||||
Amos Kohn has been our Chief Executive Officer and a member of our Board of Directors since the date of the Acquisition. Prior thereto, he was the founder and Chief Executive Officer and a member of the board of directors of the Former TOGI, including when its name was Coolisys Technologies, Inc., since its formation in January of 2020. He has led Digital Power, now part of TurnOnGreen, for more than 15 years, and currently he is leading TurnOnGreen as the chief executive officer and architect of its EVSE portfolio. He served as a director of BitNile from 2003 to 2020, its President and Chief Executive Officer from 2008 to 2017 and President from 2017 to 2020. Prior to his appointment as President and Chief Executive Officer of Digital Power Corporation, Mr. Kohn held executive roles with several US and international companies. For more than 30 years, Mr. Kohn has provided leadership, oversight and strategic direction for worldwide privately held and publicly traded companies in the high-technology sector. He holds a Bachelor of Science degree in electrical and electronics engineering and a Certificate of Business Administration from the University of California, Berkeley, and a Major (Ret) at IDF. He is named as an inventor on several United States and international patents. We believe that Mr. Kohn’s extensive executive-level management experience in diversified industries expanding companies into new markets including power electronics, eMobility, telecommunications and defense give him the qualifications and skills to serve as one of our directors.
Darren Magot served as our Chief Executive Officer from March 2022 through the date of the Acquisition. He remains a member of the Board of Directors. Mr. Magot currently serves the Senior Vice President of BitNile, Inc., a wholly owned subsidiary of BitNile, since February 2022, and as a member of the board of directors of Ault & Company, Inc., since his appointment in July 2018. Mr. Magot has served as the Chief Executive officer and sole member of the Board of Directors of AC Management, Inc., and AMRE Management, Inc., since October 2020 and previously served as the Chief Executive Officer and as a director of Ault Alliance, Inc., a wholly owned subsidiary of BitNile, from January 2019 to February 2022. Mr. Magot has over 30 years of experience in sales and sales management, financial management, and business development with companies in both the private and public sector. A proven leader in all functional areas of both private and public organizations, with a track record in successful financial and operational leadership, he holds a bachelor's degree in Finance from California State University. We believe that Mr. Magot’s expertise in strategic planning, development, organizational change and efficiency for disruptive and emerging technologies give him the qualifications and skills to serve as one of our directors.
| - 38 - |
Marcus Charuvastra has served as our President since the Acquisition. Prior thereto, he served as the President of the Former TOGI since January 2022 and previously served as its Chief Revenue Officer since June 2021. Mr. Charuvastra is an accomplished leader with 20 years of experience in strategic planning, sales, services, marketing and business and organizational development. Mr. Charuvastra spent nine years at Targeted Medical Pharma, Inc. serving as Vice President of Operations and as the Managing Director of this microcap biotech start-up, from 2012 to May 2021. During his tenure, he was instrumental in guiding Targeted Medical Pharma’s initial public offering. Mr. Charuvastra was previously Director of Sales and Marketing at Physician Therapeutics from 2009 to 2012 and was responsible for building the sales and distribution network in the United States and abroad. He is a graduate of UCLA.
David J. Katzoff has served as our Chief Financial Officer since December 2021. Mr. Katzoff has served as Senior Vice President of Finance for BitNile since January 2019. Mr. Katzoff has served as the Chief Operating Officer of Alzamend Neuro, Inc., a biotechnology firm dedicated to finding the treatment, prevention and cure for Alzheimer’s Disease from December 2020. From November 2019 to December 2020, Mr. Katzoff served as Alzamend’s Senior Vice President Operations. From 2015 to 2018, Mr. Katzoff served as Chief Financial Officer of Lumina Media, LLC, a privately held media company and publisher of life-style publications. From 2003 to 2017, Mr. Katzoff served a Vice President Finance for Local Corporation, a publicly held local search company. Mr. Katzoff received a B.S. in Business Management from the University of California at Davis.
Douglas Gintz has served as our Chief Technology Officer since the Acquisition. Prior thereto, he served as the Chief Technology Officer of the Former TOGI since February 2021. Mr. Gintz is responsible for driving strategic software initiatives and delivering key technologies essential to the market penetration of our EV charging solutions business. Mr. Gintz has over 30 years of hands-on experience bringing products to market. Specializing in emerging technologies, Mr. Gintz has developed manufacturing compliance systems, DNA reporting engines, medical billing software, e-commerce applications, and retail software for companies ranging from startups to multinational corporations. Mr. Gintz also currently serves as the Chief Technology Officer and Director of Global Technology Implementation at BitNile Holdings, Inc. since February 2021. Mr. Gintz's previous leadership roles include Chief Executive Officer of Pacific Coders, LLC. from August 2002 to January 2022; Chief Technology Officer of Endocanna Health, Inc. from January 2019 to January 2021; Mr. Gintz served at Targeted Medical Pharma, Inc., a publicly-traded microcap, as Chief Marketing Officer and Technology Officer from January 2018 to December 2019, and Chief Technology Officer and Chief Information Officer from January 2012 to May 2016.
Election of Directors and Officers
Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected and qualified. Officers are appointed to serve until the meeting of the Board following the next annual meeting of stockholders and until their successors have been elected and qualified.
Audit Committee
We do not have any committees of the Board. Consequently, the Board serves as the Audit Committee.
Director Independence
We do not currently have any independent directors. We evaluate independence by the standards for director independence established by Marketplace Rule 5605(a)(2) of the Nasdaq Stock Market, Inc.
Board Leadership Structure
Due to the limited size of our Board, our Chief Executive Officer, Mr. Kohn, also serves as the chairman of the Board.
Code of Ethics
Our Board has not adopted a Code of Ethics due to our size and limited number of employees.
| - 39 - |
EXECUTIVE COMPENSATION
Summary Compensation Table
IMHC did not pay any compensation to its Chief Executive Officer during the last two fiscal years through the Acquisition and there were no executive officers serving as of the end of the last two fiscal years whose compensation exceeded $100,000.
The following table sets forth summary compensation information for the following persons: (i) all persons serving as our principal executive officer during the years ended December 31, 2021 and 2020, and (ii) our two other most highly compensated executive officers who received compensation during the years ended December 31, 2021 and 2020 of at least $100,000 and who were executive officers on December 31, 2021. We refer to these persons as our “named executive officers” in this Current Report. The following table includes all compensation earned by the named executive officers for the respective period, regardless of whether such amounts were actually paid during the period:
| Name and principal position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
| Amos Kohn | 2021 | 350,000 | 2,500 | 30,640 | 383,140 | |||||||||||||||||||||||
| Chief Executive Officer | 2020 | 350,000 | 30,247 | 380,247 | ||||||||||||||||||||||||
| Marcus Charuvastra | 2021 | 92,387 | (1) | 27,250 | 751 | 120,388 | ||||||||||||||||||||||
| President and Chief Revenue Officer | 2020 | - | - | |||||||||||||||||||||||||
(1) Mr. Charuvastra’s annual salary is $125,000. The figure in the table reflects the fact that he was hired on April 6, 2021.
Employment Agreements
As of the date of this Current Report, we have no contract, agreement, plan or arrangement, whether written or unwritten, that provides for payments to an executive officer at, following or in connection with any termination, including without limitation, resignation, severance, retirement or a constructive termination of an executive officer, or a change in control of our company or a change in the executive officer’s responsibilities, with respect to each executive officer.
Termination Provisions
As of the date of this Current Report, we have no contract, agreement, plan, or arrangement, whether written or unwritten, that provides for payments to a Named Executive Officer at, following, or in connection with any termination, including without limitation resignation, severance, retirement or a constructive termination of a Named Executive Officer, or a change in control of the Company or a change in the Named Executive Officer’s responsibilities, with respect to each Named Executive Officer, other than with respect to Mr. Kohn.
Outstanding Equity Awards at Fiscal Year End
As of December 31, 2021 none of our Named Executive Officers held any unexercised options, stock that have not vested, or other equity incentive plan awards.
Director Compensation
To date, we have not paid any of our directors any compensation for serving on our Board.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding beneficial ownership of our Common Stock as of the close of business on September 1, 2022 by (i) each person who is known by the Company to own beneficially more than 5% of any classes of outstanding Common Stock, (ii) each director of the Company, (iii) each of the Named Executive Officers and (iv) all directors and executive officers of the Company as a group based upon 161,704,695 shares outstanding.
| - 40 - |
| Name and Address of Beneficial Owners of Common Stock (1) | Number of shares beneficially owned | % of Common Stock | ||||||
| Darren Magot | - | - - - | ||||||
| David J. Katzoff | - | - - - | ||||||
| Directors and Officers (Two persons) | - | - - - | ||||||
| BitNile Holdings, Inc. (2) | 318,512,900 | 90.8 | % | |||||
(1) Unless otherwise indicated, the business address of each of the individuals is c/o TurnOnGreen, Inc., 1421 McCarthy Blvd., Milpitas, California 95035.
(2) Represents (i) 129,363,756 shares held by BitNile, Inc., (ii) 10,000 shares held by DPL and (iii) 10,873,314 shares of Common Stock issuable upon conversion of an outstanding convertible promissory note held by DPL in the principal face amount of $101,529, which is convertible into shares at a conversion price of $0.01 per share. Also presumes that the issuance to BitNile of the Series A Preferred Stock to occur on the Closing Date has occurred, which shares would be convertible into 178,265,830 shares. Does not include shares that are also issuable upon conversion of the note representing accrued but unpaid interest. BitNile may be deemed to beneficially own the shares beneficially owned by BitNile, Inc. and DPL as BitNile, Inc. and DPL are wholly owned subsidiaries of BitNile. Milton C. Ault, III, the Executive Chairman of BitNile, exercises voting and dispositive power over the shares owned by BitNile. The business address of each of these entities and individuals is 11411 Southern Highlands Parkway, Suite 240, Las Vegas, Nevada 89141.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
BitNile will continue to perform certain administrative services for TurnOnGreen. These services include certain use of BitNile’s management information system, assist in the preparation of federal and state tax returns and certain cash management services.
Imperalis Note
On December 15, 2021, DP Lending, a wholly-owned subsidiary of BitNile, entered into an exchange agreement with Imperalis pursuant to which Imperalis issued to DP Lending a convertible promissory note (the “Imperalis Note”) in the principal amount of $101,529, in exchange for prior promissory notes dated August 18, 2021 and November 5, 2021 issued by IMHC to DP Lending in the aggregate principal amount of $100,000, which had accrued and unpaid interest of $1,529 as of December 15, 2021. The terms of the Imperalis Note provide for (i) an interest rate at 10% per annum, (ii) a maturity date of December 15, 2023, and (iii) conversion of the principal, together with accrued but unpaid interest thereon, into shares of IMHC common stock at DP Lending’s option at a conversion price of $0.01 per share.
Securities Purchase Agreement
As previously reported on a Current Report on Form 8-K filed by IMHC on March 21, 2022, on March 20, 2022, BitNile and IMHC entered into a Securities Purchase Agreement (the “Agreement”) with TurnOnGreen, a wholly-owned subsidiary of BitNile. Pursuant to the Agreement, at the closing of the Agreement (the “Closing”), which occurred on September 6, 2022, BitNile (i) delivered to IMHC all of the outstanding shares of common stock of TurnOnGreen held by BitNile, and (ii) eliminated all of the intercompany accounts between BitNile and TurnOnGreen evidencing historical equity investments made by BitNile to TurnOnGreen, in the approximate amount of $36,000,000, all in consideration for the issuance by IMHC to BitNile (the “Acquisition”) of an aggregate of 25,000 newly designated shares of Series A Preferred Stock (the “Series A Preferred Stock”), with each such share having a stated value of $1,000. The Series A Preferred Stock has an aggregate liquidation preference of $25 million, is convertible into shares of IMHC’s common stock, par value $0.001 per share (the “Common Stock”) at BitNile’s option, is redeemable by BitNile, and entitles BitNile to vote with the Common Stock on an as-converted basis.
Immediately following the Closing, TurnOnGreen became a wholly-owned subsidiary of IMHC. Following the Closing, IMHC shall dissolve its dormant subsidiary. Further, IMHC and TurnOnGreen intend to close an upstream merger whereby TurnOnGreen shall cease to exist. Upon consummation of the merger, IMHC shall have acquired two operating subsidiaries, TOG Technologies and Digital Power. IMHC will continue the existing business operations of TurnOnGreen as a publicly-traded company under the name Imperalis Holding Corp., but intends to change the registrant’s name to TurnOnGreen, Inc. as soon as practicable. The Closing was subject to BitNile’s delivery to IMHC of audited financial statements of TurnOnGreen and other customary closing conditions.
| - 41 - |
One executive officer of TurnOnGreen is also an executive officer of BitNile. See “Directors, Executive Officers and Corporate Governance.”
Policies and Procedures for Related Party Transactions
The TurnOnGreen audit committee will have the primary responsibility for reviewing and approving or disapproving “related party transactions,” which are transactions between TurnOnGreen and related persons in which the aggregate amount involved exceeds or may be expected to exceed $120,000 and in which a related person has or will have a direct or indirect material interest. The policy regarding transactions between TurnOnGreen and related persons will provide that a related person is defined as a director, executive officer or greater than 5% beneficial owner of common stock, in each case since the beginning of the most recently completed year, and any of their immediate family members. An investor may obtain a written copy of this policy, once adopted, by sending a written request to TurnOnGreen, Inc., 1421 McCarthy Blvd, Milpitas, California 95035, Attention: Legal Department. TurnOnGreen’s audit committee charter that will be in effect will provide that the audit committee shall review and approve or disapprove certain related party transactions, including material transactions with BitNile.
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue 200,000,000 shares of Common Stock. As of the date of this Current Report, there were 161,704,695 shares of Common Stock issued and outstanding.
The holders of Common Stock have equal ratable rights to dividends from funds legally available therefore, when, as and if declared by our Board. Holders of Common Stock are also entitled to share ratably in all of IMHC’s assets available for distribution to holders of Common Stock upon liquidation, dissolution or winding up of the affairs of IMHC.
The holders of shares of our Common Stock do not have cumulative voting rights, which means that the holders of more than 50% of such outstanding shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose, and in such event, the holders of the remaining shares will not be able to elect any of our directors. The holders of 50% percent of the outstanding Common Stock constitute a quorum at any meeting of shareholders, and the vote by the holders of a majority of the outstanding shares or a majority of the shareholders at a meeting at which quorum exists are required to effect certain fundamental corporate changes, such as liquidation, merger or amendment of our articles of incorporation.
Voting Rights
Except as otherwise required by law or as may be provided by the resolutions of the Board of Directors authorizing the issuance of common stock, all rights to vote and all voting power shall be vested in the holders of common stock. Each share of Common Stock shall entitle the holder thereof to one vote.
No Cumulative Voting
Except as may be provided by the resolutions of the Board of Directors authorizing the issuance of Common Stock, cumulative voting by any shareholder is expressly denied.
Rights upon Liquidation, Dissolution or Winding-Up of the Company
Upon any liquidation, dissolution or winding-up of the corporation, whether voluntary or involuntary, the remaining net assets of the Company shall be distributed pro rata to the holders of the common stock.
Preferred Stock
The Company is authorized to issue up to 10,000,000 shares of Preferred Stock, par value $0.001. The Preferred Stock may be issued in one or more classes or series by the board of directors, who has the authority to designate the rights, preferences, and other aspects of each class or series of Preferred Stock.
We refer you to our Articles of Incorporation, any amendments thereto, Bylaws, and the applicable provisions of the Nevada Revised Statutes for a more complete description of the rights and liabilities of holders of our securities.
| - 42 - |
Description of the Series A Preferred Stock
There are 25,000 shares of Series A Preferred Stock issued and outstanding. Each share of Series A Preferred Stock has a stated value of $1,000, for an aggregate value of $25 million.
In the event that TOGI shall be liquidated, dissolved or wound up, then before any distribution or payment shall be made to the holders of any Common Stock or any other class or series of junior stock, the holders of Series A Preferred Stock shall be entitled to receive liquidating distributions in an amount equal to the stated value for each share of Series A Preferred Stock held by such holders.
Dividends on the Series A Preferred Stock shall accrue daily and be cumulative from, and including, the date of original issue and shall be payable quarterly on the last day of each calendar quarter out of funds legally available therefor, at the rate of eight percent (8%) per annum based on a 360 day calendar year.
Each holder shall be entitled to vote on an “as converted” basis with holders of outstanding shares of Common Stock, voting together as a single class, with respect to any and all matters presented to the stockholders for their action or consideration. For so long as the holder shall continue to hold any shares of Series A Preferred Stock issued to it on the date of the Acquisition, the holder shall be entitled to elect a number of directors to the Board of Directors equal to a percentage determined by the number of Series A Preferred Stock beneficially owned by the holders, determined on an “as converted” basis, divided by the sum of the number of shares of Common Stock outstanding plus the number of Series A Preferred Stock outstanding on an “as converted” basis
Each share of Series A Preferred Stock may be convertible at the holder’s option into shares of Common Stock of the Company where the conversion price shall be the stated value of each share of Series A Preferred Stock divided by eighty percent (80%) of the volume weighed average price (“VWAP”) of the Company’s Common Stock over the ten (10) days immediately preceding the date of conversion. The conversion price will be subject to standard anti-dilution provisions in connection with any stock split, stock dividend, subdivision or similar reclassification of the Common Stock as well as carry full ratchet protection.
Upon the one-year anniversary of the Acquisition, the shares of Series A Preferred Stock shall be subject to redemption in cash at the option of the holder in an amount per share equal to the stated value plus all accrued and unpaid dividends thereon.
The foregoing does not purport to be a complete description of the Series A Preferred Stock, which is qualified in its entirety by reference to the full text of the Certificate of Designations, Preferences, Rights and Limitations of Series A Convertible Redeemable Preferred Stock, which is filed as Exhibit 3.1 hereto.
Options
None.
Warrants
None.
Liability and Indemnity of Directors and Officers
Our bylaws provide that we may indemnify our officers, directors, employees, agents and any other persons to the maximum extent permitted by the Nevada Revised Statutes.
| ITEM 3.02 | UNREGISTERED SALES OF EQUITY SECURITIES |
The information contained in Items 1.01 and 2.01 is incorporated herein by reference.
At Closing, BitNile (i) delivered to the Company all of the outstanding shares of common stock of the Former TOGI held by BitNile, and (ii) forgave and eliminated the intercompany accounts between BitNile and Former TOGI evidencing historical equity investments made by BitNile to Former TOGI, in the approximate amount of $36,000,000, in consideration for the issuance by the Company to BitNile of an aggregate of 25,000 newly designated shares of Series A Preferred Stock, with each such share having a stated value of $1,000.
Each of these issuances was exempt from registration under Section 4(a)(2) of the Securities Act as transactions by an issuer not involving any public offering. The recipients of securities in each transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and other instruments issued in such transactions. None of these securities was sold through an underwriter and, accordingly, there were no underwriting discounts or commissions involved.
| - 43 - |
| ITEM 4.01 | CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT |
On August 10, 2022 the Board of Directors of the Company approved the dismissal of Heaton & Company, PLLC (“Heaton”) as its independent registered public accounting firm. On August 10, 2022, the Company engaged Marcum LLP (“Marcum”) as its new independent registered public accounting firm based on the recommendation of the Board.
The reports of Heaton on the financial statements of IMHC for the fiscal year ended December 31, 2021 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. Notwithstanding the foregoing, IMHC states in Note 3 to its financial statements that they were prepared assuming that IMHC will continue as a going concern and that there was substantial doubt about its ability to continue as a going concern. In connection with its audits of IMHC’s financial statements for the fiscal years ended December 31, 2021 and its review of IMHC’s financial statements for the fiscal quarters ended March 31, 2022 and June 30, 2022, there were no disagreements with Heaton on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Heaton, would have caused it to make reference thereto in its report on the financial statements for such years or periods, as the case may be.
IMHC has furnished to Heaton the statements made in this Item 4.01. Attached as Exhibit 16.1 to this Form 8-K is Heaton’s letter to the Securities and Exchange Commission, dated August 11, 2022, regarding these statements.
During the fiscal years ended December 31, 2020 and December 31, 2021 and through August 11, 2022, IMHC has not consulted with Marcum on any matter that (i) involved the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on IMHC’s financial statements, in each case where a written report was provided or oral advice was provided that Marcum concluded was an important factor considered by IMHC in reaching a decision as to the accounting, auditing or financial reporting issue, or (ii) was either the subject of a disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K, or a reportable event, as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
| ITEM 5.02 | DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS |
The information regarding departure and election of directors and departure and appointment of principal officers of IMHC in connection with the Acquisition set forth in Item 2.01 is incorporated herein by reference.
| ITEM 5.03 | AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS; CHANGE IN FISCAL YEAR |
Certificate of Designations
The information set forth in Item 1.01 and 2.01 is incorporated by reference herein.
On August 11, 2022, the Company filed a Certificate of Designations of Rights and Preferences of Series A Convertible Redeemable Preferred Stock (the “Certificate of Designations”) to its Articles of Incorporation with the Secretary of State of the State of Nevada to establish the preferences, limitations and relative rights of the Series A Preferred Stock.
Dividends on the Series A Preferred Stock shall accrue from, and including, the date of original issuance to, but not including, the redemption date, and shall be payable quarterly on the last day of each calendar quarter, subject to the terms and conditions set forth in the Certificate of Designations. The first dividend on the Series A Preferred Stock is scheduled to be paid on January 20, 2023 (in the approximate amount of $20.00 per share) to the persons who are the holders of record of the Series A Preferred Stock at the close of business on the corresponding record date, which will be December 31, 2022. Dividends accrue at the annual rate of 8%, which is equivalent to $80.00 per annum per share, based on the $25,000,000 liquidation preference from, and including, the date of original issuance to, but not including, the redemption date.
Each share of Series A Preferred Stock shall become convertible, at the option of the holder, commencing on the date of issuance, into such number of fully paid and non-assessable shares of Common Stock determined by dividing the stated value of the Series A Preferred Stock by the then applicable Conversion Price. “Conversion Price” shall mean a price equal to eighty percent (80%) of the average VWAP per share of the Common Stock for the ten (10) trading days immediately preceding the date of conversion.
| - 44 - |
Unless previously converted into shares of Common Stock, any shares of Series A Preferred Stock issued and outstanding, shall be redeemable at the option of the holder and repurchased by the Company for cash at a redemption price of $1,000 per share of Series A Preferred Stock, plus any accumulated and unpaid dividends thereon to, but not including, the date of on which written notice to the Company is delivered requesting that the Company redeem, in whole or in part, such holder’s Series A Preferred Stock. In addition, upon the voluntary or involuntary liquidation, dissolution or winding up of the Company’s affairs, then, before any distribution or payment shall be made to the holders of any Common Stock or any other class or series of Junior Stock (as defined the Certificate of Designations), the holders of the Series A Preferred Stock shall be entitled to receive out of the Company’s assets legally available for distribution to stockholders, liquidating distributions in the amount of the liquidation preference, or $1,000 per share.
The Conversion Price will be subject to standard anti-dilution provisions in connection with any stock split, stock dividend, subdivision or similar reclassification of the Common Stock in addition to full ratchet price protection.
Holders of the Series A Preferred Stock shall be entitled to vote with holders of outstanding shares of Common Stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Company for their action or consideration (whether at a meeting of stockholders of the Company, by written action of stockholders in lieu of a meeting or otherwise). The Series A Preferred Stock shall be voted on an “as converted” basis together with the Common Stock, subject to the provisions of the Nevada Revised Statutes. For so long as the Parent shall continue to hold any shares of Series A Preferred Stock, the Parent shall be entitled to elect a number of directors to the Board equal to a percentage determined by the number of Series A Preferred Stock beneficially owned by the Parent, determined on an “as converted” basis, divided by the sum of the number of shares of Common Stock outstanding plus the number of Series A Preferred Stock outstanding on an “as converted” basis.
The foregoing description of the Certificate of Designations does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the full text of the document, which is attached hereto as Exhibit 3.1 to this Current Report on Form 8-K, and is incorporated herein by reference.
| ITEM 5.06 | CHANGE IN SHELL COMPANY STATUS |
Prior to the Acquisition, we were a “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended). As a result of the Acquisition, we have ceased to be a shell company. The information contained in this Current Report constitutes the current “Form 10 information” necessary to satisfy the conditions contained in Rule 144(i)(2) under the Securities Act of 1933, as amended.
| ITEM 7.01 | REGULATION FD DISCLOSURE |
On September 6, 2022, BitNile and the Company issued a press release announcing the completion of the Acquisition. A copy of the press release is furnished herewith as Exhibit 99.2 and is incorporated by reference herein.
In accordance with General Instruction B.2 of Form 8-K, the information under this item shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing. This report will not be deemed an admission as to the materiality of any information required to be disclosed solely to satisfy the requirements of Regulation FD.
The Securities and Exchange Commission encourages registrants to disclose forward-looking information so that investors can better understand the future prospects of a registrant and make informed investment decisions. This Current Report on Form 8-K and exhibits may contain these types of statements, which are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and which involve risks, uncertainties and reflect the Registrant’s judgment as of the date of this Current Report on Form 8-K. Forward-looking statements may relate to, among other things, operating results and are indicated by words or phrases such as “expects,” “should,” “will,” and similar words or phrases. These statements are subject to inherent uncertainties and risks that could cause actual results to differ materially from those anticipated at the date of this Current Report on Form 8-K. Investors are cautioned not to rely unduly on forward-looking statements when evaluating the information presented within.
| ITEM 9.01 | FINANCIAL STATEMENTS AND EXHIBITS |
(a) Financial statements of business acquired.
In accordance with Item 9.01(a), Former TOGI’s audited financial statements as of and for the years ended December 31, 2021 and 2020, and the Former TOGI’s unaudited condensed financial statements as of, and for the three and six months ended June 30, 2022 and 2021, are included in this Report beginning on Page F-1.
(b) Pro forma financial information.
The pro forma financial information concerning the acquisition of the business operations of the Former TOGI are appended to this Current Report beginning on page F-33.
(c) Shell company transactions.
Reference is made to Items 9.01(a) and 9.01(b) above and the exhibits referred to therein, which are incorporated herein by reference.
| - 45 - |
(d) Exhibits.
_______________________
* Filed herewith.
| - 46 - |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| IMPERALIS HOLDING CORP. | ||
| Dated: September 6, 2022 |
/s/ Amos Kohn |
|
| Amos Kohn Chief Executive Officer |
||
- 47 -
Exhibit 2.2
AMENDMENT TO SECURITIES PURCHASE AGREEMENT
DATED SEPTEMBER 5, 2022
This amendment (the “Amendment”) to the Securities Purchase Agreement dated March 20, 2022 (the “SPA”), by and among BitNile Holdings, Inc. (“Parent”), Imperalis Holding Corp. (“IMHC”) and TurnOnGreen, Inc. (“TOGI”, and together with BitNile and IMHC, the “Parties”), is dated September 5, 2022. All capitalized terms in this Amendment and not defined herein shall have the meanings ascribed to such terms in the SPA.
WHEREAS, the Parties desire to amend the SPA.
NOW, THEREFORE, in consideration of the foregoing and intending to be legally bound hereby, the parties hereto agree as follows:
| 1. | Article VII of the SPA is hereby amended by adding thereto a new Section 7.10 as follows: |
SECTION 7.10. Issuance of Warrants to Parent Shareholders. IMHC acknowledges that the Parent desires to effectuate a distribution to its shareholders of approximately 140 million shares of IMHC Common Stock (the “Distributed Stock”) beneficially owned by Parent and its affiliates (the “Distribution”). IMHC shall utilize commercially reasonable efforts to effectuate the Distribution as requested by Parent, including by filing and obtaining effectiveness of a registration statement with the SEC relating to the Distribution (the “Distribution Registration Statement”). In addition, IMHC agrees to issue to the Parent, warrants to purchase an equivalent number of shares of IMHC Common Stock equal to the number of shares of the Distributed Stock (the “Distribution Warrants”), with such Distribution Warrants and the shares of IMHC Common Stock issuable upon exercise of the Distribution Warrants, to be registered on the Distribution Registration Statement. IMHC and Parent shall mutually agree to the terms and conditions of the Distribution Warrants and the Distribution Registration Statement after Closing.
| 2. | This Amendment shall be binding on the Parties and each of their successors, heirs, personal representatives and assigns and permitted transferees. |
| 3. | Except as amended hereby, the SPA shall remain unmodified and is hereby ratified in all respects. |
| 4. | This Amendment may be executed and delivered (including by electronic or facsimile transmission) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed and delivered shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. |
Agreed this 5th day of September, 2022.
| BITNILE HOLDINGS, INC. | IMPERALIS HOLDING CORP. | ||||
| By: | By: | ||||
| William B. Horne | Darren Magot | ||||
| Chief Executive Officer | Chief Executive Officer | ||||
| TURNONGREEN, INC. | |||
| By: | |||
| Amos Kohn | |||
| Chief Executive Officer | |||
Exhibit 3.1
Business Entity - Filing Acknowledgement 08/11/2022 Work Order Item Number: W2022081101343-2310384 Filing Number: 20222543351 Filing Type: Certificate of Designation Filing Date/Time: 8/11/2022 2:25:00 PM Filing Page(s): 21 Indexed Entity Information: Entity ID: E0185402005-9 Entity Name: IMPERALIS HOLDING CORP. Entity Status: Active Expiration Date: None Non-Commercial Registered Agent LAXAGUE LAW, INC. 1 EAST LIBERTY, SUITE 600, Reno, NV 89501, USA BARBARA K. CEGAVSKE Secretary of State KIMBERLEY PERONDI Deputy Secretary for Commercial Recordings STATE OF NEVADA OFFICE OF THE SECRETARY OF STATE Commercial Recordings Division 202 N. Carson Street Carson City, NV 89701 Telephone (775) 684-5708 Fax (775) 684-7138 North Las Vegas City Hall 2250 Las Vegas Blvd North, Suite 400 North Las Vegas, NV 89030 Telephone (702) 486-2880 Fax (702) 486-2888 The attached document(s) were filed with the Nevada Secretary of State, Commercial Recording Division. The filing date and time have been affixed to each document, indicating the date and time of filing. A filing number is also affixed and can be used to reference this document in the future. Respectfully, BARBARA K. CEGAVSKE Secretary of State Page 1 of 1 Commercial Recording Division 202 N. Carson Street f iled In ,hcOffic<: of I Busfous Number ~K.. Fitll'\8,Nlltnbtt b • ~ ~EO~l~8~~G~!-=~9 ____ 1 U>lllS4l1S1 • BARBARA K. C£GAVSKE Secretary ol SUie 21)2 Nonh Careon Strfft Cll'HR City, Nevada 89701-4201 (775) 684-11708 W.balte: www.nY11ot,9ov Sc,;rc,tvy ofSt;itc: I Med On su~ Of N<:~·.-da &flllJOll l:lS:00 P'.\f I N'u~r ufl>;,,¥U 21 Certificate, Amendment or Withdrawal of Designation NRS 78.1955, 78.1955(6) ~ Certificate of De$1gnation D Certlflcate of Amendment to Oeslgnatlon - Before Issuance of Clasa or Serie$ D Certificate of Amendment to 0t$lgnatlon - After Issuance of Clas. or Serie$ 0 Cer11flcate of Withdrawal of Cer1ifleate of De&lgnatlon TYPE OR PRINT • USE DARK INK OHL Y • DO NOT HIGHLIGHT 1. Entity lnformetlon: 2. Effective date and time: 3. Class or seriH of stock: (Certificate of Oll$ignation only) 4. lnformatlon for amendment of class or seriH of stock: 5. Amendment of class or series of stock: &. R.solutlon: C<lrtificate of Designation and Amoodment to Oosi9netion only) 1. Wllhdrawal: Name of entity: I IMPERALIS HOLDING CORP. Enlity or Nevada 8usiness Identification Number (NVID): I NV20051099020 Date: Time: 1 For Certificate ol Designation or Amendment to Designation Only (Optional): {must not b& later I/Ian 90 dltys after the oortificate is filed) The ci8$$ or series of stock being designated whhin this flli"9: Series A Convertible Redeemable Preferred Stock The original cl&$$ or series of stock being amended wtthin this fillng: D Certificate of Amendment to Oesignati0l\o Before Issuance of Class or Series As of the date of this .:erti!cate no share~ of the cia,s,, or sari es of stock haw~ been issued. 0 Certificale of Amendment to Designation-After Issuance ol Class or Serie, The amendment has been approved by the vole of stockholders hO~ing shares in the OOIJ)O<ation entitling them to exercise a m~ority of Illa voting power, o, such greater l)(Ol)Ortlon of the voting ixmer a• may be requir~ by the articles of incotporation or the carMc:ate of designation. By resolution or the board of di,ectors pursuant to a provision In the articles of incorport1llon this certificate establishes OR amend& the following regarding the voting powers. designations. preferences, limitations, ,estric1ions and rGlative rights of the following class or series of stock.• 25,000 shares of a new serles of preferred stock designated as "Series A 1convertible Redeemable Preferred Stock." be. and hereby are, authorized. I ' - ~ - - Designation being1 I Date of Withdrawn: L -------------' Designation: No shares of the class or series of stock being withdrawn ara outstandin9. The resolution of the board of direclO/$ euthorizing the withdrawal of the cer@cata of designation establishin9 the class or series of stock: • 8. Signature: (Required) X z:,~ 7n. ~(;" Signature of Officer Oale: 08/11/2022 • Atlaeh additional page<sl if neoess3ry This loon must be accompa~ie<I by appropriate fees. P"'961ol1 R~Md:: 1/1/2019 IMPERALIS liOLIJING CORP. CERTIFICATE OF DESIGNATIONS OF RIGHTS AND PREFERENCES OF SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK PURSUANT TO SECTION 78.19SSOFTHf NEVADA REVISED STATUTES AUGUST 11, 2022 Pursuant to Section 78.1955 of the Nevada Revised Statutes (the "NRS") and Ar1icle IV of the Aniclts of Incorporation (as amended on March 11, 201 l, the "Articles of Incorporation") of lmperalis Holding Corp. (the "Corporation1 '): WHEREAS, Anlcle IV of the Anicles of Incorporation authoriu lhe issuance of up to I 0,000,000 shares of preferred s1ock, par value S0.001 per share, of1he Corporation C'Preftrred Stock") in one or more series, and expressly authorizes the Boord of Direclors oflhe Corporal Ion (1he "Board"), subj«:\ to limitations prescribed by law, to provide, out of the unissued .shares of Prcfened Stock, one or more series of Preferred Stock, and. with respe~I to each such series. to establish and fix the number of share:$ to be included in any series of Preferred Stock and the designation, righlS. prefcrcn«-S. powers, restrictions and limitation.s of the sh,ares of suth s.erics; WHEREAS, it is the desire of the Board to establish and fix the number of shares to be included in a new series of Preferred Stock and the designation. rights. preferences and limitations of the shares of such new s~ries; and WHEREAS, the Board, pursuanl to the nuthority oonferred upon it by Ar1icle IV of the Anicles of Incorporation and in accordance with Section 78.1955 of the NRS, acting by unanimous written consent daied August 11, 2022, adopted the following resolutions: RESOLVED, 1hat a new series of Preferred Stock of the Corporation, designated as "Serks A Convenible Redeemable Preferred Stock," be, and It hereby is, created, and that the designation and amount thett<>f and the voting powers, preferen~s and relative, puticipating. optional and ()(her special rights of the Series A Convertible Redeemable Preferred S1oek (the "Serlts A Preferred Stock"), and the qualifications, limitalions or restrictions !hereof are as set forth in such new Ccr1ificate of Designation (1he "Certfflcett"), as filed wilh the Nevada Secretaty of State in accordance with the Col')>Oration's Articles of Incorporation and its Bylaws and the NRS~ and be it furthcc RESOLVED, that the otalcmcnts contained in the for"'oing resolutions treating and designlling the said shares and fixing the number, limited powers, preferencc.s and relative. optional, participating, and other special rights and the qualifications, limita1ions1 restrictions, and other distin.guishing characteristics thereof shall, upon the c-ffec1ive date of said series, be deemed to be included in and be a par1 of the Articles of Incorporation of the Corporntion; and be it funher RESOLVED, thll 1he Board does hereby approve the adoption of the Certificate related to tho Series A Preferred Slock to the Corporation's Articles of Incorporation, and does hereby determine that the adoption oflhe Certificate is in the best intere11s of the stockholders; and be ii f•l1her RESOLVED, tbal the Chief Exeeu1ive Officer of the Corporalion be, and he hereby is, au1hori,.ed and dlrec1ed to lake all actions necessary to prepare and ftle the Certificate with the S.trctary of State of lhc State of Nevada as he, in consuhation with legal counsel, deems necessary and advisable to proceed with any such filing. Section t. Number of Shares and Desii:natlon. This series of Preferred Stock shall be design,,ted as 1he "Series A Convertible Redeemable Preferred Stock," par value $0.001 per share (the "Serles A Preferred Stock"). The Series , __ A Pn:fen-ed Stock $hall be perpetual, subject to the provisions of Stt\WQS 6 and Z hereof, and the authorized number of shares of 1he Series A Preferred Stock shall be 25,000. The number of shares of Series A Preferred Stock may be increased from time to time subjeel to lhe provisions of S.e1ion Sand Sccljon 11 hereof and any such additional shares of Series A Preferred Stock shall fom, a single series with the Series A Preferred S1ock. Each share of Series A Prefcm:cl Stock shall have the same dcsignt:ttlons. rights.. pr~ferences) power~. R:Stcictlons and limitations 8.$ every other share of Serie> A PrcfcrT<!d S1oclc.. Seetioo 2. Certain Dellnltions. The following terms shall have lhe meanings defined in this Section 2: "Al!ilial•" shall have the meaning ascribed to ,uch term in Rule 405 of the Securities Act. 0 Business Day" means any day, other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authoriztd or obligated by Jaw, regularion, or ex«u1ivc order to close. "Capital Sto,I<" means any and all shares, interests, rights to purchase, warrants, options. panicipations or other equivalents of or interest in (however de,ignated} capital stock. "Certiliralt" means 1his Certificate of Designati<lns of Ri&h1$ and Prefercn«s of Series A Convertible Preferred Stoek. "Chang• of Control Ennf' shall n,ean lhe occurren« of any oflhe following in one or a series of related lransacttOns: (i) one or more acquisitions after 1hc date hereof by an individual or legal entity or ··group" (as desoribed in Rule I Jd-S(b)(I) under the Exclwlgc Act), resulting in a majority or more of the votin.s rights or equity inten:slS in lhe Corporation being 1111nsfen-ed to such Persons or their Affiliat~• (ii) a replacement of more lhan a majority of the members oflhe Board that is not approved by (i} 1hosc individuals ,"110 ate members of lhc Board on lhe date hereof (or <llher directors previously approved by such individuals) and (ii) the Majority Holders; (iii) a merger or consolidation of the: Corp0ratiott or any one or moR' Sut>.sidiaries owning a majority of the consolidated assets of 1he Corporation and all Subsidiaries, or a SBle of all or substMtially all of the assets oflhe C<•rporation and its consolidated Subsidiaries in one or a series of related trans.actions. unl~ss following such transaction or series of transactions, the Hold<r,; of the Corporation's securitie1. immediately prior to lhe first such transaction continue to hold at lcas1 a majority of I.he voting rights and equity interests in the survivin& eni;ty or acquire< of such assets; (iv) a recapi,aliz.ation. reorganization or other tn1nsaetion invoh•ing the Corporation or any Subsidiary that constitutes or results in a transfer of a mejority or more of the voting ri~hts or equity jnteres1s jn the Corporation to any P<:rsons: or (v) the cxec1.ttion by lhe Corporation or its controlling stodcholders ofan agr~emc:nt providing for any of the foregoing events. "Closlng Bid Price" means. for any security as of any date, the last closing bid price for such security on the National Market or Tr.idin& Morke~ as applitable, a, reponcd by Bloomberg, or, if the Principal Market begin, 10 operate on on extended hours basis and does not designate lhe closing bid prit< or the closing trade price (as the case may be} then the last bid price or last trde price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if a National Market is not the principal s«urities exchange or trading market for such se:curil)'. U\e last clost"g bid price of stJeh security on the principal securities e,,..c:hangc: or trading market where such sccuri1y is listed or traded as reported by Bloomberg. or if the foregoing do not opply, tho last closing bid price of such security in the <lver•the•counter market on the electronic bulletin board for such security as. reported by Bloomberg, or, ifno closin& bid prioe or last trade price, respectively, is reported foe such security by Bloomberg. the ave,age of . 2. I the bid pri«s. or the ask prfoes.. respectively, of an)' market makers for such security as reported in the "pink sheets'> by OTC Markets Group Inc. (formerly Pink Sh«ts LLC). "Commission" means che United States Securities and Exc:hang.c Commission. "Com111on Stock" means (i) !he common stock, S0.00 I par value, of the Corporslion and (ii) any Capital Stock into which such common stock ~hall have- been c.hanged or atty shaJe capital resuhing from a reclassification of such common stock. "ComD'lon Stock £.quivalents" mC3ns any seeuritic-.s of the Corporation or MlY of its. Subsidiaries ,vhich would entitle th• holder thereof 10 acquire at any time Common Stock, including, without limiwion, any debt, prefcrn:d stock. rights, options, warrants or other insttvment that is at any time convertible into or exercisable or exchangeable for, or olhcrwisc enlitks the holder lh~f lO receive, Common S1ock. •·Continuing Director" means any person (a) who was a memb<r ofehe Boord of Di~tors on Mareh/April ~ 2022 or (b) who h!IS been nomina,ed to be a memberofthe Board of Pir~lors by a majority of,he other Conlinuing Directors then in office. "Conver,iom Dat•" shall have the meaning set forth in Scc!ion 6/bl(ijl hereof. ''Converslom Pritt" shall mc•n a price equal to eighty (80%) pcn:ent of the M•rlm Price as at !he Conversion Date, "Exchang• Act" meons ,he Securi1ics Exchtnge Act of 1934, as amcndcd, and the rules and regulations of the Commission thereunder, an as in effect at 1he time. "t'undamrntal Transacclon" means that (i) the Corporation or any of its Subsidiari0$ shall, dire<lly or indirectly. in one or mor~ related transactions. (A) tonsolidatc or mcrg.e with or into (whe1her or not the Corporation or any of ils Subsidiaries is the surviving corporation) any other Perscn, or (B) s,:ll, Jcasc, license. 11Ssign, transfer, convey or otherwise dispose of all or substantially •II of its respective propenies or llSSets 10 any olhcr Person, or (C) allow any other !'er.son to make a pur<:hase, tender or exchange offer 1hat is accepted by the holders of more than SO% of the oulstanding shares of Voting Stock of lite Corporation (not including any shares of Voting Stock of the Corporstion hcld by the Person or Persons making or party to, or aswcia1ed or affiliated with the Persons making or party 10. such purc:hasc. fender or e-xehang.e offer). or (D) oonsummate a scoc:k or share purchase agreement or other business combinaiion (including, without limitation, a reorganization, r~capitalization, spin-off or scheme of arr1111gement) wi1h any oth<r Person whereby such other Person ncquiru mo"' than SO% of the outstanding shares of Voling Stock of the Corporation (not including any share, of Voting Stock oflhe Corporation held by the other l'erson or other Persons making or paz,y 10, or associated or affiliated with 1hc other Persons making or party to, such stock or .share purchase agreement or other busi"es.s combination), or (E) reorganize. recapitalize or R:ielassify the Conlmon Stock, or(ii) any "person•· or"&roup" (as these 1enns are used for purposc,s of Sections I J(d) and 14(d) of tho Exchange Act and the n,les 3nd regulations promulgate<! thereunder) is or shall become the "beneficial owner" (as defined in Rule I )d·) under the Exchange Act), directly or indirectly, of SO¾ oflhe aggregate ordinary voting power represented by issued and outstanding Voting Stock of the Corporation. "lloldtr" or "Holden" shall mean each hold<r of shares of Series A Prcferr<d Stock. "l$1uen« D•I•" me1111s the Closing Dale under the Securities l'urchase Agreement, dated as of Man:h 20, 2022, as 1hc same may from time to time be amended, pursuant 10 which the Corporation shall issue, 1111d the Purchaser shall acquire, 25,000 shares of Series A Preferred Stock . .. Junior Sto~k.l) shall have lhc meaning set forth in s«ti2D 9 hereof. "Liens" means any and all claims, liabilities 1111d obligations and any 1111d all liens, plcdgcs, charges. morcga.ges., security interests. restrictions, lease-s, tioenscs, eas,cmcnts, tiabilities., cJ3ims, encumbrances. p,efc,ence>. priorities or ri&}lts of olhm of ev<ry kind and domiption . • 3 • I ":lhjority Holden" mean• ony Holder(s) of a majority of Ille then outstanding shares of Series A Pref err«! Stock. "Marktt Prf«" shall mean the averogc VWAP per share of the Common Stotk oflhc Corporation. !IS traded on a National Market, or if not trad«t on a National Market, the principal Trading Marl:et for the shares of Common Stock, for the ten (10) eroding days immediately preceding the Convmion Date. "National Markel" shall mean the New York Stock Exchange ("NYSE"), the NYSE American U,C (the "NYSE Am,rlcan"} or Nasdaq Stoek Market ("NHdaq"}. or listed or quoted on an exchange or quotation system that is a •ucccssor to the NYSE, the NYSE American or Nasdaq. "Noli« of Conver,ion" shall have the meaning S<I fonh in See1ion 6!bllil hereof. "Parent En1Uy" of a Person means an entity lhal, di~tly or indirectly. controls the applicable Person and whose common stock or equivalent equity securit)• is quoted or listed on a Tradin& Market. or. if I.here is more than one such Person or Parent Entity, the Person or Parent En1ity wilh the loriest public market capilaliration as of th¢ date or cons.ummatlon of the FundamentaJ Transaccion. "Parlly Stotk" shall have 1hc m..,nin& se1 forlh in Sec1ion 9 hereof. "Person" means an individual. a corpor«tion. a partnership. an association, a limited liability company. an unincorporated business organization. a trust or other <:ntity or organization. and any government -0r po1icical subdivision or any agency or instrumentality lheteof. "Properties" melllls any and all properties and assets (real, personal or mixed. tangible or intangible) owned or usod by the Coll)Oration. "Pun:haser" moans the purchaser oflhc Series A Preferred Stock. "Securities Atf' means lhe Securities Act of 193), as amended, and lhe niles nnd regulations of tho Commission thereunder, an~ in df~t at the tinle. "Stcuritits Purchase Atrc:tmea.t" means that ccrt.ain Se(:urities Purchase AgR<mcnt by and betv.•een the Purchaser, the Corporation and the other signatory lhereto dated as of March 20. 2022 pursuant to which Purchasers ,hall have acquired the 25,000 shares of Serie, A Preferred Stock. "Senior Stock" shall have the meaning sci forth in ~Wion 9 hereof. "Share Delivery Datt" shall have the meanin& SCI fonh in Section 61bl!ij} hereof. "Stated Value" means $1,000.00 per share of Series A Preferred Stock. "Subsidiary" or "Subsldiari"'" of any Person means (i) any corporation wilh respect lo which mooe than SO% of the issued and outstanding: VO(ing equity int<!rc.s1S of $UCh corporation is at the lime directly or indir~Uy owned or <:ontrollcd by $Uch Penon) by such PerSQn and one or more of its other Subsidiaries Qr 1>y one or more of such Person's Olher Subsidiaries. or (ii) any partne~hip or limited liability company in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or cnpital contribution) of more 1han SO% or of which any such Person i, a general partner oc may exercise the powers of a general part nor. "Su«wor 11.ntity" means the Per"°n (or, if so clet!ed by the Majority Holders. the Parenl Entity) formed by, n:,ulling from or surviving any Fundl\menial Transaction or the Person (or, if so elected by the Majority Holder•, the Parenl Entity} with which such Fundamental Transaction shall have been entered into. "Trading Markel" means any of the following n1atk<ts or cxchan&es on which the Common Stock is listed or quoted for trading on the date in question: a National Market, any level of the OTC Markets operot<d by OTC • 4. Markets Group, Inc. or the OTC Bullelin Bo.ird (or eny suc<:csS<>rs U) any of the foregoing). "Voting .!,"tock" of a Persion means capim.1 stock of such Person of the class or classes pursuant to whith &he holders thereof have the gcntrsl voling power 10 elecl. or the general power 10 appoint, at least a majority ofll1c ooard of directors, managers. trustees or oU'lcr similar govcm;ng body of such Ptrson (im:spcctivc of whether or not at the time c,piM stock of any other olass or classes shall have or might have voting power ~y reason of the happ~ing of any con1ingency). "VW AP" means, for purposes of the Common Stoel< as of any period, the dollar volume-weighted average price for such security on the principal National Market or, if not lhcn tradod on a National Marl<tt, any Trading Market on which such s~urity is then traded durin& the period beginning on lhe first day of !he period a1 9:30:0 ! a.m., New York lime, and ending on the last day of 1he p<riod at 4:00:00 p.m .• New York time. as reponed by Bloombe11: throufl), its "Volume at Price" function or. if the foregoing does not apply, <he dollar volume-weigh<ed average price of such se.:urity in 1he over-the,coU/lter market on the olectronic bulletin board for such s~urity during the period beginning on the lir,t day oflhe period at 9:30:01 a.m., New York <ime, and ending on lhe last day oflhe period at 4:00:00 p.m., New Yori< 1ime. as reponed by Bloomberg, or, if no dollar volume-weighted average price is rCS)Oned for such security by Bloomberg for such hours, the average of the highes< Closing Bid Price and lhc low<St closing ask price of any of the market makers for such scourity es rep<>rted in lhe "pink sheelS" by OTC Markets Group Inc. (fommly Pink SheelS LLC). lfthc VW AP cannot be calculated for such security on such date on any oflh• fortgoing bases. the VWAP of such security on such date,; shall be the (air market value 33 mulually determined by the Corporation and the Purcha,cr. If 1he Corporation and the Purchaser are unable to agJct upon the fair ma,kel value of such s«urity. then such dispute shall be resolved in acoordance wilh the procedures in Section 61m). All such determinarions shall be appropriatoly adjusted for any stock dividend. stock split, reverse stock spli~ stock combinatioJ\, ,~capitalization or otht1 simitlu transaction during such period. Set:tion 3. Dividend$. (a) !;ljvidend Rate. Holders of sh•res of the Series A Preferred Stock arc entitled to receive, when, as and if declared by the Board, out offunds legally available for the payment of dividends, cumulative cash dividends at an annual rate of &.0%, which is equivalent lo 580.00 per annum per share, based on the $2S.000,000.00 liquidation preference (lhc "Dividend Rate"} for as long as any shares Series A Prefencd Stock remain outstanding (the "Tenn"). The Dividend Rate shall nccrue from, and including, the date of original issuance to, but not ineludin&, the Redemp(ion Date, as hereinafte, defined. "Busl nos Day" shall mean sny day, olher than a Saturday or S~nday, that is neither a legal holidoy nor a day on which banking institutions in New York. New York arc authorized or required by law, r<:g.ulati~n or exe(:utive order to close. (b) Diyjdend l'aymenl Date; Dividend Reoord Dare. Dividends on the Series A Preferred Stock shall accrue daily and be cumulative from, and including. lhe date of original issue and shall be payable quarterly on the last day of each calendar quarter (each sueh payment date, a 0 Dividend faymc:nc Date." and each suth quarte-rly period. a ''Dh•idend Period'~); provided that if any Dividend Payment Date is not a Business Day, lhcn the dividend that would otherwise have been payable on thai Dividend Payment Date may be paid on lhc next succeeding l!usiness Day, and no interest, additional dividends or other sums will •ecrue on the amount so payable for the period from and after that Dividend Payment Date to Iha! next suc<:cedins Business Day. The lir.,t dividend on the Series/\ Prefem:d Stock is scheduled ,o be paid on lanua,y 20,202) (in the amount of $20.00 per share) to the persons who are the holders of record of the Series A Preferred Stock at the close of business on the corresponding record date. which will be December 31, 2022. Any dividend payable on the Series A Preferred Stock, inoluding dividends payabk for ••y partial Dividend Period, will be computed on the ba>is of a 360•day year consis<ing of twelve 30, day months. Dividends will be payable to holders ofr«ord es they appear in <he Corporation·s stock records for the Series A l'refomd Stock al lhe closeofbusincsson 1he applicable reoord date, which shall be the last day of the calendar quarter, whether or not a l!usincss Day, in which 1he applicable Divid~d Payment Date falls (each, a "Oivi<ltnd Rtcord Date"). Such quancrly d(vldrnd shall be payable eilhtr in cash, or al the option oflhe Corporation. in additional sham of Common Stock, calculated by dividing the amount of the dividend lhcn payable by the Conversion Price then in effect. (c) Limiting Ooeuments. No dividends on shares of Series A J>rcfcrred Stock shall be authorized by the Board or paid or set apart for payment by the Corporation at any time when the payn,ent thereof would be unlawful under <he law, of the State of Delaware or when the temis and provisions of any agreement of lhe Corporation, including any agreement rcla1ing to the Corporation's indebtedness (the "Lirnitine; Documencs,·). prohibit the authorization. paynlent or setting apan for payment thcreiof or provide that the authorization. payment or setting apart for paym~nt thereof would constitute a breath -s. of the Limitin~ Documents or a default under the Lirniting Documents. or if the authorization, paymC1\l or $eUin& apart for paymen1 shall be restricted or prohibite<I by law, (d) Dividend Accrual. Notwithstanding the foregoing, dividends on the S<:rits A Preferred Stock will accrue regardless o( whether (i) the Corporalion has earnings: (ii) there arc funds legally available for the payment of such dividends: or (iii) such dividends as,: dc<lar<d by lhe Board. No inlc~I. or sum in lieu of interest, will be payable in respect of any dividend payment or payments on <he Series A Prefe1ted Stock which may be in ..,. .. rs. and holders of the Series A Preferred Stock will not be entitled to any dividends in excess of full cumula1ive dividends described above. Any dividend paymen< made on the Series /\ Prefcrrcd Stock shall first be credited against the earlies! accumulated but unpaid dividend due with n:spcet to chose sha?c:s. (e) Djyjdend, on Junior Stock or Parjty Stock. Unless full cumulative dividends on th• Series A Preferred Stock hove been or con1emporanrously are declared and paid or declared and a sum sufficient for the payment thereof is set ~pall for payment for all pas! Dividcnd Period,, no dividends (other than in shares of Common Stock), or in shares of any series of Preferred Stock that the Corporation may issue ranking junior to the Series A Preferred Stock as to dividends and upon liquidation) shall be deolan:d or paid or set aside for payment upon shares of any Junior Stock (as defined in SecJjon 9) or Parity Stock (a• defined in S.e1ion 9) the Corpora1ion may issue. (f) Pro Raia Dividends. When dividends arc not paid in full (or a sum sufficient for such full payment is not so s<t apan) upon the Series A Prefened Stock and 1he shares of any other series of !>referred Stock that the C<,rporalion may issue rankins on paril}' a, to dividends with <he Series A Preferred Stock, all dividends declared upon the Series A Preferred Stock and any other ,cries of Preferred Stock ~king on parity that the Corporation mey issue as lo dividends with the Series A Preferred Stock shall be declared pro rata so thal the amount of dividends declared per share of Series A Preferred Stock and such other series of !'referred Stock <hot the Corpo13tion may issue shall in all cases beer 10 each other !he same ratio that accrued dividends per share on the Series A Prefem:d Stock and such olhtr series of Preferred Stock Iha! the Corporation may issue (which shall not include any accrual in respect of unpaid dividends for prior Dividend Periods if such !'referred Stock does not have a cumulative dividend) bear to each other. No interest, or sum of money in lieu of inlercsl. shall be payable in respect of any dividend payment or payments on the Series A Preferrtd Stock which may bo in arrears. (g) PaymtnJ of Accrued and Unpaid Dividends. Holders of Series A Preferred S1ock shall not be entitled to any dividend in <«es. of all accumulated accrued ond unpaid dividends on the Series A Preferred Stock as desctibcd in this Section ,l. Any dividend payment made on the Sories A !>referred Stock shall first be cn:diled against the earliest accumulated accrued and unpaid dividend due with r<:spect to such ,haRS which remains payable at the time of such paymenc. (h) Dividend Otfoult. Whenever dividends on any shares of Series A Preferred S1ock are in 111Tears for two or more Dividend Periods, whether or not consecutive (a "Dividend Default"): (i) the Dividend Rate shall be increased to IO¾pcr annum (equivalent 10 Sl00.00 per annum pershare) (as increased, the "l'enalty Rate"), oommencing on the first doy after 1he Dividend Payment Pate on \\ilieh a Dividend Default occurs and for each subsequent Dividend Payment Date thereafter until such time as the Corporation has paid all accumuloted accrued and unpaid dividends on the Series A Preferred Stock in full, at which time the Dividend Rate shall reve!T lo the rate of 8.00% of the $1,000.00 per share stated liquidation preference per annum (the "Sta1c(I Role"); (ii) on 1he next Dividend Payment Date following the Dividend Payment Dale on which a Dividend Default OC(:\11"$, and continuing until such time M lhe Corporation has paid all accumula1ed accrued and unpaid dh•idend, on the Series A Preferred Stock in full, the Corporation shall pay all dividends on the S.ric:s A Preferred Stock, including all accumulsted accrued and unpaid dividends, on each Dividend Payment Date either in cash or, if nol paid in cash, by issuins to the holders thereof (A) if the Common Stock is then listed on a Na1ional Matket. shares of freely trade able Common Stock with a value equal 10 the amount of dividends being paid, calculated hased on the then current market value of the Common Stock, plus cash in lieu of any fractional share of Common Stock, or (B) iflhe Common Stock is not <hen listed M • National Market, additional shares of Series A l'refttTCd Stock with • value equal to the amount of dividends being paid, caloula1ed boscd on the stated S 1.000.00 liquidation preference per share oflhe Series A Preferred Stock, phis cash in lieu of any frac<ional Series A Preferred Stock; and (iii) to lhe extent 1hat the Corponuion detennincs a shelf registration staten1ent to cover resateSa of Common Stock or Serie$ A P~fcrrcd Stock is te<tllired in connection with the issuante of. or for res.ates of. such Common Stock or Series A Preferred Stock issued as payment of n dividend, the Corporation will use its commer<:ially reasonable effor,s to file and mainiain the effec<ivenen of such a shelf registration slatcmcnt until such lime as all shares of such stock have b= resold !hereunder or such snares arc eligible for «sale pursuant to Rule 144(b)( I) under lhc Securities A<:1 of 1933, as amended. following any Dividend Dofault that has been cured by the Corporation as provided above in subparagraph (i) of this paragraph (h), if the Corporation subsequently fails to pay cash dividends on the Series A Profem:d Stock in full for any Dividend Period, such subs,cqucnt failurt .shall conscitute a separate Dividend Default, and the foregoing provisi-ons of thii paragraph (h) shall immediately apply until such subsequent Dividend Default is <u«d as so provided. St(:tion 4. Liquid1rio1:1 Pre(ertnC't'. Upon the voluntary or invoJuntaf')' liquidation, dissolution or winding up of the Corporation's affairs, then, before any distribution or payment shall be made to !he holders of any Common Stock or any other chus or stries of Junior Stock, the Holdeu shall be enlillcd to receive out oflhe Corporation's assets legally available for distribution to stockholder.s, liquidllling distributions in the amount of the liquidation pr<:feren~. or $1,000.00 per $hare. After payment of the full amount of the liquidating distributiMs to whicll they are entitled, the Holders will have no right or claim to any of the Corporation's remaining assets. lo the event that, upon any such \'Oluntary or involwna,y liquidation, dissolution or winding v.p, the Corporation's availab!e ass.c(i an: insufficient to pay the amount of the Hquidating distributions on all ou~tanding $hares of Series A Preferred Stock and the 001Tesponding emounts payable on all Senior Stock and Parity Stock, then after payment of the liquidating distribution on all outstanding Senior Stock, the holders ofthe S<:ries A Preferred Stock and all other such classes or series of Parity Stock shall share ratably in MY su<h disiribution of assets in proponion lo tho full liquidating dislributions to which they would otho,wise be respectively en<itled. The merger or consolidation of the Corporation into or with another c:<>rporatiOr\ which results in the <:)'~han&e of outstanding .shart:s of the Corporation for securities or other consideration issued or paid or caused to be issued or paid by such other corporation or an affiliate I.hereof (excepr if such merger or consolidation does not result in the tn:nsfe-r of more than SO percent of the voting securilies of 1he Corporation}, or the sale of all or
substantially all the assets of<he Company, shall be deemed to be a liquidation, dissolution or windin& up of the Corporation for purposes of this Soction 4. unless the Majority Holders vote otherwise. The amount de,med distributed t<• the Holders of Series A Preferred Stock upon any such merger or consolidation shall be the ctUh or the value of the property, rigllls and/or securities distributed to such holders by the acquiring person, firm or other entity. The ,.,Ju• of such propeny. rishts or other securities shall be determined in good faith by the Board of Dir<ctors of the Company. Section S. (a) Vc,tjng Generally. Each Holder shall be entitled to vote wit~ holders of outstanding shares of Common Stock, voting together as a single class. with respect to any snd all matters presented lo the slOCkholders of the Corporation for their action or consideration (whether at a me<:tin& of stockholders of thi:: Corporalion, by written action of stockholders in lieu of a meeling or otherwise), ex<ept as provided by law or by the f)fOvisions of Section 5(bl and~ below. In any su<h vote, (i) in the c8"' of 1he election of directors, the Series A l'refom:d Stock shall be voted on an "as convened" basis together with the Common Stock, and (ii) in ~11 other cases, the Series A Preferred Stock shall be voted on an "as convened" basis together with 1he Common Stock, subject to the provisions of the NRS. Each hold<r ofou~tanding shares of Series A Preferred Stock shall be entilled to notice of all stocl<holder me,tings (or reques~ for written consent) in accordance with lhe Corporation'$ bylaws. (b) Protec1jye Provisions. Without limiting lhe foregoing, for so long as •t least 25% of the shares of Series A Preferred Stock issued 10 the P\lrohaser remain outstanding, the consent of tho Majority Holders of <he then-out.landing Series A Prefem:d shall be rcqui~ for any action that, among other items: (i) alters or chonges the rights, preference; or privileges of the Series A Profer,ed Stock, (ii) <«ales (by reclassification or othenvise) any new class or series of sharos having righ~. ptefcren.ces or privileges senior to the Series A Prefemd S1ock, (iii) r<:sulls in the redemption or rtpurchase of any shar<-s. of Common Stood:. (other than pursuant to agreements with service providers giving Che Company the right to tepur(:has.e s.hsrcs upon the cessation and/or tcrminalion of services). (iv) rcsulLS in atty Fundamental Transaction or any 01hcr merger. other ~orporate reorganiration. sale of control) or tn)' cransaclion in whkh all <1r substantially all of the assets of the Company ll.re sold) (v) amends. or waives any provision of the Company's. ,\niclcs or Incorporation or Bylaws r('lative to the Series A Preferred Stock, (vi) increa.<es the number of dir<ctors \\ilo may serve on the Company'• Board, (vii) result. in lhe paymont or declaration of any dividend on any shares of Common or Preferred Stock or (viii} enters into any \~nsection that contemplates any of the foregoin,i. Holders shall be entilled to written notice of all stockholdtr meetings or \\Ti non consents (and copies of proxy materials and other information sent to stockholder) wilh respect lo which they would be entitled 10 vote, which notice shall be provided pursuant to the Corporation'$ Bylaws and tho NRS . . 7. (c) Election ofDir«:tors. For so long as the Purchaser shall continue to hold any shan:s of Series A Profcmd Stock issued to it on the Issuance Date, the Purchaser shall be entitlod to elect a number of directors to the Corporation's Board equ,1 to a pe«entage de<enninod by the number of S<ries A Preferred Stock beneficially owned by the Purchaser, detem1ined on "" "as converted" basi,, divided by the sum of the number of shares <•f Common Stock outstanding plus the numbor of Series A Proferred Stock outstanding on an "as converted" basis (the "Series A Dlr,ctors'). Notwith31anding the foregoing, Ille number of Series A Directors ,hall, for as long as any shar0$ of the Series A Prefernd Stock remains issued and outstanding, constilUlc no less than a majority of the members of the Board. For so Jong as the Purchaser shall continue to hold any sham; of Sories A Prefmcd Stock issued 10 it on the Issuance Date. any Series A Dir~tor erected as provided in the pr<Coding sentence may be removed without cause by, and only by, the affirmative vote of the Pureh~r, given either at a special meeting of such stockholders duly called for 1hal l)<ll'J)OSe or pursuant 10 a written consent of the Put<:haser. The holders of record of the shares of Common Stock and of 31\Y other class or scric> of voting stock (including 1he Scties A Preferred S1ock), exclusively and voting together os a single class. shall be entitled to elect the balance of the t01al number of directors of the Corporation. Al any meeting held for the purpose of ele<ting • director, the presence in person or by proxy of the holders of a majority of the outstanding shares of the class or series entitled 10 cle<:I such director shllll constitute a quorum for lhe purpose of eleC1ing such director. f.xcer< as otherwise provided in this SWiOJ) Ste), a vacancy in any directorship filled by the holders of any closs or scrico shall be filled only by vote or written eonscnl in lieu of a meeting of the holders of such class or series or by any remaining director or directors elected by the holders of ,uch class or series pursuant to this Section 5(c). Section o. Convtnion ofSeriu A p,.rerro4 Stock. (a) Optional Conversion. Each shore of Series A Preferr<d Stock shall beC()mC convertible, at the option of the Holder, commencing on the Issuance Date, into such number of fully paid and non-assessable shan:s of Common Stock determined by dividing the Staled Value of the Series A t>refcrred Stock by the lhen applicable Conver,ion Price. The Conversion Price shall be subjeC110 adju,1ment as provided in Section 6(dl below. (bl Mechanics of Conversion. (i) Before ony Holder of Series A Pref med Stock shall be entitled to convert the some into shares of Common Stock pursuMt 10 Sec1ion 6{al hereof, such Holder shall give wrillen notfoe lo lhe Corporation al il3 principal corporate office of the cltc1ion to conven shares of Series A Preferred Stock, the number of shares of Series A Prefernd S1ock to be converted, the 11umber of shar~s of Series A Preferred Stock owned subsequent to the conversion at issue, l'.lnd lhe narne or names in which lhc cer1ifieate or cenificates for shares of Common Stock are to be is.suc-d (each. a "Notice of Conversion") substantially as set forth on Exhibit A hereto. No ink-original Noli~ of Conversion shall be required, nor shall any medallion guarantee (or 01hcr l)'pe of guarantee or nota.riz:alion) of any Notice of Conversion form be required. The calc:u1ation:S and entries set forth in the Notioc: of Conversion shall control in Che absence of manifest or mathematical error. To effec« conversions of shares of Series A Prefer,ed Stock, a Holder shall nol be required to surrender 1he certificatc(s) representing the shares of Series A Preferred Stock to the Corporation unlc:ss all of the shares of Series A Prdem:d Stock represented thereby are so converted, in which case such Holder shall deliver the certificate representing such shares of Series A Preferred Stock promptly followin& the Conversion Date a1 issue. (ii) Shares of Series A Preferred Stock converted into Common Stock or redeemed in accordance wiU, the terms hereof shall be cmccled and shall not be reissued. The Corporation shall, as soon as practicable ofter delivery of the Notice of Conversion, in 1he case of a conversion pursuant to Section 6(a) hereof. and I\S soon as practicable after delivery of the ccnificate(s) evidencing the Series A Preferred Stock, within three ()) Business Days thereafter (the "Shart l>tliv~ry Date"). issue and deliver or cause to be c:h:-livc"d to such Ho!der 01 Holders. orto the nominee or nominee~ thc~f. a certificate or certificate, representing the number of validly issued, fully paid and non-assessable shares of Common Stock to which such Holder or Holders shall be entitled as aforesaid. Conversion under this Section 6 shall be deemed lo have been made immediately pri-or to the close of business on the date of delivery of 1hc Notic.e-of Conversion, unless a later date- is specified in the Noli~ of Conversion, and the Person or Persons entitled to ~eive the shares of Common Stock issuable upon such conver,ion shall be treated for all purposes as the reccrd holder or holders of such shares of Common Stock as of such date (such date. the "Conversion Dale"). If, in the case of eny ccnversion ofthc Series A Preferred Stock pursuant to lhis ~ §., such shares of Common Stock arc nol delivered 10 or a.s dirc,;tcd by the applicable Holdor by the Share Delivery Date, the Holder shall be entitled to elect by written notice to 1he Corporation al any time on or before its receipt of such shares of Common Stock. to rescind such convc:rsion. in which event the Corporation shall promptly retum to che Holder any original Series A Preferred Stock certificate delivered lo lhe Corpor.uion and the I folder shall promptly return 10 the C<>rporation the shares of Common Stock issued to S\JC:h llolder pursuant to Che r~scinded conversion. The- C<>rporation's obligation to issue and deliver 1ho shares of Common S1ock upon <:<>nversion of Series A Preferred Stock in accor<lance wilh the tenns hereof are absolute and unoondi1ional, irrespective of any action or inaction b)I a Holder to enfo1 .. the same, any waiver or consent with respect to "'Y provision hcroof, the ~overy of nny judgment against any Person or any action 10 enforce the same. or any setoff, countcr(laim. r<:c<-upment, limitation or termination, or any breach or alleged breach by such Holder or any other P<:rson of any obligation 10 tho Corporation or any violation or alleged violation of law by such Holder or any other person. nnd irrespe<tivc of •ny other circun>s13ne< which might otherwise limit such obiigation of the Corpora1ion to such Holder in connection with 1he issuance of such shares of Common Stock. In the event a Holder shall ele<:l to c:onven any or all of the Stated Value of its Seri<S A Preferred Stock, the Corporation may not rduse c:onversion based on any claim that such Holder or anyone ,uotiated or affiliated with such Holder has been engaged in any viotation off aw, l'.IQrecmentor for any other reason. unless an injunction fiom a oourt. on l'\Otice to Holder. re-straining af\d/or enjoining conversion of all or part ofthi: Series A Prcfcmd Stock of' such Holder shall have been sought ond obtained, and the Corpon>lion posts a surety bond for the benefit of such Holder in the amount of 150% of the Stated Value of Series A Preferred Stock which is subject to the injunction, which bond shall remoin in effect until the completion ofamittation/litigalion of the underlying dispute and the proce<ds of which shall be payable 10 such tlolder to 1he extent it oblains judgment. In the absence of such injunction. the Corporation shall issue shares of Common Stock and, if applicable, cash, upon a properly noticed oonversion. If the Corporation fails lo deliver lo a Holder such shares of Common Stock pursuant to this Section 6 by the Share Delivc,y Date applicable to such oonversion, the Corpon>tion shall pay to such Holder, in wh. as liquida1ed damages Md not as• penalty, for each SS,000 ofSwted Val~• of Series A Preferred Stock being convened. $SO per Business Day (increasing to SIOO per Business Day on the third Business Day and increasing to $200 per Business Day on the sixth Business Day aRer such damages begin to accrue) for each Business Day at\er the Share Delivery Dale until such Shares of Common Stock are delivtrcd or Holder r<>Seinds such conversion. No1hing heroin shall limit a Holder's right 10 pursue actual damages forche Corporation's failure: to deliver shares of Common Stock within the period specified herein and such I folder shall have the right to pursue oil remedies available lo ii hereunder, at law or in e4uiry inc1uding. without limitation. a dec:rc:e of :Sp<:cifit perfonnancc and/or injunctive rtUef. The exercise of any such rights shall not prohibit• Holder from s«kins 10 enforce damages pursuant lo ••Yother Section hereof or under opp Ii coble law. (t) Fractional Shares; Computation Ortificates- (i) No fractional shares shall be issued upon conversion of the Series /\ Preferred Stock into shares of Common S1ock and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share for any share:, in excess of one-half (l/2), (ii) Upon the occurTcnce of each adjustment of the Conversion Price of Series A Prefmed Stock pursuant to this Section 6 the Corporation. at its ex.pcnsc, shall promptly compute S\l(h adjwtment in ac:cordanec wilh the tcnns het'eof ond prepare and furnish to each Holder of Series A Preferred Stock a statement, signed by its independent certified public accounlMIS, setting forth such adjustment and showin& in reasonable de1ail the facts upon which such adjustment is based. Th• Corporation shall. upon the wrinen request at any time of any Holder of Series A J>referrcd Stock. furnish or cause to be furnished to such Holder a likt certific.ue setting fonh (A) such adjustment, (B) the Conversion Price for such Series A Preferred Stock at the time in effect, and (C) the numb et of shara of Common Stock and the amount. if any, of other property which at tht time would be received upon the conversion of a share of such Series A Preferred Stock. (d) Adiu,1mentsoftb5;Conversion P1ie<:. The Conver,ion Price o(lhe Series A Preferred Stock shall be subject to adjustment from time to time as follows: (i) Adjustm(:n~ for Rec:apita1iz.aticm. Ire.tan)' time or from time to time U'lere shall be a rccar,itolization of th<: Comrnon Stoc\: (other than a subdivision, combination or mt:rger or safe of assets transaction pt-0vided for c:lse,vhere in this Section 6), provision shall be made so that the Holders sholl thereafter be entitled lo receive upon conversion of the Series A PreferTed Stock 1he number of shares of stock or other securities or property of th• Corporation or otherwise. co which a holder of Common Stock dcliven>ble upon oonvcrsion would have be<n entitled on such rccapitaliation. In any such case. appropriate adjustment shall be made in the application of !he provisions of this Scetjon 6 with respecl lo the rights of the Holders after the recapitalization to the end that the pr-0visionsof1hi$ S:<ction 6 (including, ,vithout limitation. provisions for adjt.1:Stments of the:: Conversion Price and the nunlber of shares: of Common Stock issuable upon oonversi<in of the Series A Preferred Stock) shall be applicable after that event •s nearly equivalent as may be practicable. (ii) Adjy§Jment for S1ock SnJjts and Combinatjons If the Corporation shall at any time or from time to time after the Effeetive Date effect a s\lbdivision of the oul:Standing Common Stoek. the Conversion Price in effect immc:diatcl)' • 9. before \hat subdivision shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of eseh share of such series shall be increased in proportion to such increase in the aggregate nun1bcr of shares of Common Stock ouistanding. If the Corporation shall al any time or from time to time afl<r tho Efftetivc Dal• combine the outstanding shares of Common Stock, the Conversion Price in effect immediately before the combination shall be proportionately increased so that tho number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion 10 such decrease in the aggregate number of shares of Common Stock outslanding. Any adjustment under this subsection shall become cff«:tivc at the close of business on the date llte subdivision or combina1ion b-ecomes effective. (iii) Adiuslments for Distribution. In addition to any adjustments pursuant to Scstion 6(d} hereof. in the esent the Corporation shall declare a distribution payable in Common Stock. Common Stock Equivalents or other se<urilies of the Corporation, any Subsidiary or any other Persons. evidences of indebtedness issued by the Corporation, any Subsidiary or olh<r Persons. assets (or rights to acquire assets), or options, rights or other property not referred to in Section Mel h<rcof to the holders of Common Stock, in each case whether by way of return of capital or otlt<rwisc (including, without limitation, any distribution of cash. stock or other s.ecurilics, propc-11)' or -Option$ b)· way of a dividend, spin off, reclassification, corporate rearrangement, scheme of a.rnngcrncnt or other similar ttansaction) (each, a "Distribu.tion .. ). thc-n, in each .such case for 1he purpose of this Scstjon 6/dl. llte Holders shall be entitled to a propo,1ionate share of any such Distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of $¢ties A Preferred Stock are convertible a, oflhe record date fixed forthe determination oflhe holders of Common Stock of the Corporation ontitled 10 rtt:tive $UCh Distribution. (iv) AdiuStffltol for Reorganization or Rcclas.sificatiOD· If any capital reorganization or rc:dassification of lhe capital stock of the Corporation or a Change of Control Even~ shall be effected while any shares of Series A Prcfem:d Stock ore outstanding in such a manner that holders of shares of Common Stock shall be entitled to r«eive stock, securities or assets with ~pi:ct to or in exchange for Common Stock, then. as a condition of such «:organization, reclassification. or Change ofContr0I Event. lawful and adequate provision shall b• made whereby each Holder who has not received the amounis to be dislributcd to such holder in accord•ncc with this Cenifica1e shall thcccaft<r have lhe right to receive upon the basis and upon \he terms and conditions specified herein and in lieu of the shares ofCon,mon Stock immtdialcly theretofore receivable upon conversion of Series A Preferred Stoel,:, S\lCh shBltS of stock. s.ccuriti<:s or assets as me.y be issued or payable with respect to or in exchange for a number of outstanding sharts of such Common Stock equal to the number of shores of such Common Stock immediately theretofore so n:ccivable had such reorganization, reclassification or Change of Control Event not taken place, and in such case appropriate provision shall be made with respect to the rights and interests of the Holders to the end that the provisiQns hereof (including, without lintitation, pro\•isions for adj\lStments of 1he Conversion Prlee. Corwersion Rate and the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock) sholl thcreafler be applicable, as nearly as may be possible, in relation to any shares of stock, securities or assets tht1"C1:1fter deliverable upon the conversion of such shar("S of Series A Preferred Stock. Prior to or simuhanrously with lhe cons.ummation of any such reorgani?.alion. n:classilication or Change of Conlrol Event, the survivor or sue«ssor COIJ)oration (if other 1han lhc Corporation) resulling from such reorganization. reclassification or Change of Control Event sha1l assume by written instrument cx«:utcd and mailed or delivered to c,ach Holder, 1hc obJigation to deliver to such Holders such shares of stock. scc:uriti~ or assets as. in accordance wilh the foregoing provisions. such Holder may be en1icled to receive. and containing the express assumption by S\ICh successor corporation of the due and punctual performanoc and obscMlnce of every provision of lhis CC'1iticate to be performed and observed by the Corpo,ation and of all liabilities and obligations of the Corporation hereunder with r<specl 10 the Series A Preferred Stock. (v) Subsequent Bguity Salst, If. at any time whik: :i;hares of Series A Preferred Stock sre outstanding, the Co'l'oration or any s•bsidiary, as applicable, sells or grents any option to purchase or sells or grants any right to reprice outs1anding securities, or otherwise disposes of or jssues (or announces any sa1e, grant or any option to purchase or other disposition), any Common Stock or any Common Stock Equivolent, entitling any Pe~on to acquire shares of Common Stock at an effcetive price per share that is tower than the 1hen Conv«sion Price (such lower prite, che "Base Conversion Price" and such issuances. collectively, a "Dilutive Issuance") (if the holder of the Common Stock or Common Stock Equivaltnts so iss.ued sheU at any time, whether by opi:ration of purchase price adju>tme:nts, reset provisions. Ooating. conversion. cx<:rt:isc or exchange prices or 01herwise, or due to warrantsc. options or righ1s pc:r share which are issued in connc,ction with such issuance. be entitled to receive sha~s -Of Common Stock at an cffce:1ive price per share that is Jowtr than. the Conversion Price, such issuance shall be deemed to have occuned for less th"" the Conv<rsion Pri~e on such date of the Dilutive Issuance), thon tho Conve~ion !"rice shall be reduced to equal the Base Conve~ion Price. Such adjustment shall be mode whenever such Common Stock or Common Stoek Equivalents ere issued. The COfJ)Oration shall notify the Holder i~ writing. no later than the Business Day following the i,1uance of any Common Stock or Common Stock Equivalents subject to chis Secti~n 6 indicating thetein 1he applicable issuance- price, or applicable r<:sct prlcc, exchange price, convcr.;ion price and other pneln& te-rms (such notice, Che "Dllutiv~ Jssuan~ Notic~"). For purposes of clarification, whether or not the Corporation provides a Dilutive Issuance Noti~ upon llte occurrtnceof any Dilutive Issuance. the Holder is entitled to ~eive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive lssuane<:. ccgardlc:ss of whether the Ho!der accurately rcfcn to the Base Conversion Price in the Notice of Conversion. (e) Ceniflcate as to Adiustm,cnJs. Upcn the OCWtrfflce of each adjustment or readju,tment of the Conv~r,ion Price pursuMt lo this Section 6. the Coll)Oration at ils expense shall, IIS promptly as r<asonably practicable bur in any event not later than five (S) days tberc:after. oompute such adjustment or readjustmenl in a«:ordancc with lhe t<nns htm>f and r"mish 10 each Holder a cenificate setting forth such adjustment or rta.djust.ment (including the kind and amount of secu?itics. cash or other property into which lhe Strics A Preferred Slock is convenible) and showing in detail the facts upon which such adjustment or readjustment is based. The Corpora lion shall, as promptly as reasonably practicable after the written ~uest at any time of any Holder (but in any event not later than five (S) days th<r<:after). fomish or cause to be furnished to such holder a oei1ilkate setting fonh (i)the Conversion Price thtn in effec~ and (ii) the number of shares of Common Stock and the amoun~ if any, of other s«:\lritics, cash or propeny which then would be received upon che conversion of Series A Preferred Stock. (f) Limitations 9n Conversions. Notwilhf>landing anything to the contrary contained hc~in, commencing on the Regislralion Dare and subject to lhe provisions of this Sec,ion6(1), sllares of Series A Preferred Stock shall not be convertible by the Holdor htreofinto Conversion Shares, and the Corporation shloll not effect any conversion ofsharcs of Series A Prefen-ed Stock into ConveNion Shares or o1hcnvis.c issue 811)' shares of Common Stock pursuant hereto. to the eJi.1ent (but only to the extent) that after giving eff~t to such Conversion or other share issuance hereunder the Holder (together with i1s Affiliates) would beneficially own in c.,cess of 4.99% (the "MHiroum Perc.nlaee"} of the Common Stock. To the extent lhe above limitation applies, the dctennina<ion of whether sham of Series A Preferred Stock shall be <<>nvertible (vis-~•vis other convertible. exercisable or cx<lumgeablc securities owned by the Holder or ••y of iis Affiliates) and of which such s~urities shall be conver1ible, exercisable or exchangeable (as among all such se<:urities owned by the Holder and its Affiliates) shall, subjeet to such Maximum ftf'C(:nta&e limitation. be determined on the basis of the first submission for t-0nversion or exercise (as Ute cas.c may be). Under no circumstances can 1he Maximum Percentage limitation be amended on less than 61 day~· n<ltice. if, as a result of such amendm<:nt, the Maxin1um Percentage is amc-nded to be above 9.9%,. No prior inability to conven sharci of Sorics A Preferred Stock. or to issue shares of Common Stock, pursuant to this paragraph shall have any effect on the ~pplicability of the provisions of this paragtaph with respect to any subsequent determination of oonvertibility. For pul))OSCS of !his paragraph, assuming !hat the Registration O.tc has occun-ed. beneficial ownership and all detenninations and calculation, (including, without limitation, with rt$pect to calculation:s of percenlage ownership) shall be detcnnined in accordance wilh Se<:tion I 3(d) of the llxchange Acl, and the niles and regulalions promuls-1ed thereunder. The provisions of this paragraph :shaH be implemented in a manner otherv.•ise than in strict conformity with the terms of1his paragraph to CCN'ect lhis para&ral)h (or any portion hmol) which may be defective or inconsistent with 1he intended Ma.,imum Percentage bcneficial ov.'llership limil.Ation herein conteinc:d or to make changes. or supplements ne(essary or desirable to property give cftect to such Mtuc:imum Percentage limitacion, for any rc:ason attn)' lime until the sham o( Setie$ A Preferred Stock hai been converted. upon the written or oral request of a Holder. the Coll)Oration shall within one (I) Business Day confinn orally 111\d in writing to the Holder the number of shares of Common Stock then outstanding, including by virtue of any prior conversion. exchange or cxen;ise of conven;bJe or cxc:reis.bte securities into Common Stock. including. without limitation. shares of S<:ries A Preferred Stock. In addition. under no c:ircumst.anee-s whatsoever may the aggregate number of shar<"S of Common Stock issued to the Holder in connection with the conversion ofthc Shares or exucisc: of the Warrant (as defined in lhe Agr«ment) at MY time cx«cd 19.9% of the total number of shares of Common Stuck outstanding or of the voting power of1he Common Stock (the "Con,•enion Muimum") as of the date of tho A~ement unless lhc Corporation has oblalned Shareholder Approval and thcreaf\er Exchange Approval, each as applicable. (f} Good Fajth Assistance. The Corpora1ion will not, by amendment of its Anicles oflncoll)Oration or Bylaws or through any reorganization, nc.apitaliz.ation. transfer of assets, consolidation, mcrx.er, disso1ution. issue or sale of securities or any 01her voluntary action. avoid or seek to avoid the obs.en•anc¢ or performance of any of the terms to be observed or performed hereunder by lhc Co!Jl()ration, but will at all times in good failh assist in the carrying out ofall the provisions of 1his ~ection 6 and in the taking of all such action AS may be necessary or appropriate in order to protect O\e conversion rights of the Holders against impairment. (g) Notice of Record l'aking. In the event of any taking by the Corporation of a record of the Holders of any cla» of sccuri1ies for the purpose of determining the Holders thereof who art entitled to receive any dividend (other than a • I I • t:ash dividend) or other distributtOn. any right to subscribe for, purchase or otherwise acquire any sharn of stock of any class or any 01her securities or property, or to rc<:eive any other right, the CoJl)Oration shall mail to each Holder, ot le.osi ten (10) days priQr tQ the date specified therein, a notice specifying the date on which any such rc<:ord is tQ be taken for the purpose of such dividend, distribution or right, and the amount and ehatacter of such dividend, distribution or right. (h) Reservation of Sh;w;s. The Corporation shall at all times reserve and keep available out ofilS authori~d but unissued $hares of Common Stock, solely for lhe purp<>se of eff~tini; the conversion of 1he shares of the Series A Preferred Stock. )00% of the number of shares of Common Sloe!< ns shall &on, time to time be sufficient to effect lhe convmion of all outstanding shares of S<tics A Preferred Stock (lhe "Require~ Rfflrvt Ainoual''); and if at any time the number of authorized but unissued shares of Common Stock sllall not be sufficient to enable the Corporation lo salisfy its Qbligation to have available for issuance upon oonversion of the Series A Pr<fem:d Stock at least a number of shares of Common Stock equal lo lhc Required Re.serve Amouni. th OJ>, in addition to such olher remedies as shall be available to the Holder, the Corpot'tltion will immediately take all such corporate action as may. in the opinion of its counsel. be necessary to increase its authorized but unissucd shares of Common Stock 10 such number of shares as shall be sufficient for such purpos,s, includins, with<>ut limitation, using its best efforts to ob!llin the requisite stockholder appro11111 of any necessary amendment to these provisions as SQon as pOS$ible. (i) Payment ofTaxes. The Corporation shall pay all documenta,y, stamp or other transaetional taxes (exclusive of inoome taxes) attributable to th¢ issuance or delivery of shar<s of •~ital stock of the Corporation upon oonvmion of any shares of Seri~ A Prefe1Ted Stock; provided. ho,yeve,. that the Corporation shall not be required to pay any taxes which may be payable in respcet of any lt'tlnsfer involved in the issuance or delivery of any cenificate for such shares in a name other than that ofthc holder of lhe shares of Series A Preferred Stock in respect of which such shar¢S •re being issued. (j) ~tatus of Sharos. AU shares of Common Stock that may be issued in connection with lhe conversion provisions set forth herein will, upon issuance by the Corporation, be validly issued, fully paid and non-assessable and free from all taxes, liens or charges with respect thereto. (k) Notice. Any notice r,quired by the provisions of this Section 6 to bo given to 1he Holders of sharos of Series A Preferred Stock shnll be deemed given upoo hand delivery, one ( I) Business Day after the notice is sent by overnight courier or three (3) Business Days atler the notice is deposited in the United States mail, postage prepaid, and addromd to each holder of record at his address appe-aring on !he stock books of the Corporation. The Corporation shall provide each Holder with prompt wrinen notice of all sc:cions. l.3.ken pursuant to the- tenns of this Cc:rtificitc. ineluding in reasonable detail a description of such action and the roason therefor. Without limiting the generality of the forcgoins, the Corporation shall give written notice to each Holder (i) promptly following any adjustment of th• Conversion Price, setting forth in reasonable detail, and ocrtifying, the calculation of such adjusin,ent and (ii) at least ten (10) day, prior to the date on which the C<,rporation closes its books or takes a record (A) with respect to any dividend or Distribution upon the Common Stock. (B) with respect to any grant, issuances, or sales of any Common Slock, Common Stock Equivalents, assets or other property to all holders of shues of Common Stock as~ class or (C) for dcterminin& rights to vote wilh respect to any matter on which the holders of Common Stock shall have the right to vote. (I) CanceUation of Series A Pufcrred Stock. In the event any shares of Series A Prcf•rrcd Stock shall be convened pursuant to this Section 6 or othervl'ise reacquired by the- Corporation. the shares so convened or reacquired shaU be canceled and may not be reissued. The Anicles of lncofl'oration of the Corporation may be appropriately amended from time to time to effect the corresponding reduction in the Corporation's authorized capital stock. {m) Conversion Qi$putes. In the case of any dispute wich «:f>pcct to a eonvers.ion. 1he CorporMion sha11 promptly issue such number of shares of Common Stock in accordance with s,,bpara_graph (c) above as art not disputed. If such dispute involves 1he calculation of lhe Conversion Priee. and such dispute is n<>t pronlptly resolved by discussion between the relevant Ho!dcr and the Corporation, the Corporation shall submit the disputed nleula!ions to .a.n independent outside aocountant vja fncsiniile within ten (I 0) Business Days of receipt of notice of such dispute. The aocounlant. at the Corporation's sole expense, shall promptly audit the calculations and notify rhe Corporalion and the holder of the results no later rhan ten (10) Businc>s Days: from the date it receives the disputed calculations. The e.ccountan1's <:akulation shall be deemed c,onclusive. absent manifest error. 'Ille CoJ'J)O~tion shall then is.sue Che appropriate number of shares of Common Stock in aocordanct with subparagr~h (c) above. If the accountant determines tho Cotparation's calculations are correct, the holder shall reimburse the CorporatiOt\ for the accountant's expense. Section 7. Red,mption. • I 2 • (a) R<demption at Option of Holder. The Holders thereof may deliver written notice to the Corporation (the "Notice ot Redtmption") rC(Juesting tha1 the Corporation redeem, in \\ilole or in pa,,, such Holder's Series A Preferred Stock at any time commencing on 1he first annivers.ry oflhe Issuance Date. Upon receipt oflhe Noliceo!Re,kmption, the Series A Preferred Stock mu,t be redeemed and repurchased by the Corporation for eash at a redemption price of $1,000.00 per share of Series A Prcfcrrtd Stock, plus any aocumulated and unpaid dividends thereon to, but not including, the date of the Notioe of Redemption (lhe "Red,mption Price"). (bl Redemption Procedures. (i) After the Corporation's te<:eipt of the Notice of Redemption, ii shall promptly notify such re([Ues!ing holder of Series A Preferred Stock !hat all or• portion oflhe Series A Preferred Stock will be redeemed on the date lhat is IS days following receipt of the No1ice of Redemption (such date, the "Re<lcmption Date"). On the Redemption O.te and in accordance with this Section 7. the Co'l"'ration will, to the eKtent it may lawfully do so. in connection with the surrender by such holders of the certificates representing such $hares, redeem the sharts specified in such request by paying in cash therefor a sum per share equal to lhe Redemption Price. (ii) On or before the Rcdemp1ion Date, each Hold<r of shares of Series A Preferred Stock shall SUtTender the certificate or certificate$ representing such shares to the Co1J>Oration, duly endorsed. in the msnner and at tht place designated in the nolice of redemption, and, upOII the Redemption Date, the Redeniption Price for $UCh shares shall be payable by wire lnlnsfer of immedialely •vailable
funds to an a«ount d~ignated in \\Tiling by the person whose name app<0rs on such c<rtificate, and ,ueh certificate shall be cancelled and relired. In the event th.i less Chan all of the shares of Series A Preferred Stock represented by a cenificatc are r<:deemed. a new certificate represent;ng the: 1.mredeemed share, of Scrks A Prdetred Stock shall be issued forthwith. (iii) Notice of redemption having been given as provided in SeCjion 7fal above, upon surrender to the Corporalion of any certificates for such shares for cancellation (or delivery to the Corporation by the registered holder of an affidavit a& to lhe loss, theft, dcstru.ction or mutilation of sueh certificatei), unl<:ss the Corporation dcfa.uHs in the payment in full of the applicable Redemption Price, from and after Ille Redemption Date designaled in the notice of redemption (i) 1he shares represented thereby shall no longer be deemed oumanding, (ii) the ri&hts to receive dividends thereon shall cease 10 ace,ue and (iii) all ri&hts of the holders of sharesofSeri<S A Prderred Stock to be rcdemed shall cease and terminat<, excepting only the right to receive the Redemption Price therefor. (iv) If the Corporation is legally unable or unable, without causing a default under any of the notes, bonds, debentures, indentures. credit or loan agreements., or any other agreement) document or instrument pcrtainin& to ony indebtcdn<:ss related. to borrowed money to which tht C-01'J)Oration is a party or to which its aS,<Sc,s are subject, to dischargt- its obligation to redeem all outstanding shares of the Series A Preferred Stock pursuant to Section 6<a) on the Redemption Date, such redemption obligation shall be dischargoo as soon as the C<>rporation is able to discharge such redemption obligalion. If the Corporation foils to discharge its obligation to redeem all sharesof1he Series A Preferred Stock requested to be redeemed pursuant to Sectjoo 6(a) on the Redemp1ion O.tc, the share$ of Series A Preferred Stock not re<leemed shall remain outstanding ond entitled to all the ri!;.hts and preferences provided herein, including the a«rual and payment of dividends. If and so long as the redemption oblig~tion with respect 10 Che Series A Preferr•d Stock shall not be fully discharged, 1he Co'l'oration shall not declare or make any dividend or other distribution or, dirccOy or ir1diteedy. redeem, purchase.. or othcnvist acquire for any consideration any other series or class or classes of stock or discharge any mandatory or optfonal redemption, sinking fund or 01hu similar obligalion in respect of any such securities. Section$. Status of Acquir,d Shares. All shares of Series A Preferred Stock redeemed by the Corporation in accordance will, S<:c,fon 7 hereof, or othi:nYise acquir<:d by the Corporation, shall be restored to the status of authoriv:d but unissucd snares of undcsignated Preferred Srock of the Co'l'oration. Section 9. Rankine. The Series A Prefen-ed Stock will r«nk: (i) senior to all of lhe Corporation's Common Stock and any other equily securities 1hat th• Corporation may issue in the future, the tenns of which specifically provide that sueh equity securities: rank junior to the Series A Prefened Stock, in e-adi case with respect to payment or amounts upon liquidation, dissolution or winding up (''Junl~r Stork"); (ii) equal to any shares of equity securities chat the Corporation moy issue in the future:, the tenns of which specifically provide that suc::h tquity securities ~nk on par with such Se-ries A f'>refcned Stock. ;n each case with ~spect to payment of o.n\ounts upon liquidation, di$S01ution or windini up. Without th<: prior v.iritten consent of the Majority Holders, the Co'l"'ration shall not create or issue any class or series of capital stock specifically ranking, • 13. by its terms. P"ri pus,-u wilh, lhe Series A Prefem:d Stock ("Pa,i1y Stock"); and (iii) juniorto all of 1he Corpora lion's exis1ing and future indebtedness. Wi1hou1 prior written conscnl ofll\c Majority Holders, the Corponition shall ool create or i5'11C eny class or series of capi!al stock specifically ranking, by its <enns, senior to the Series A Prefencd Stock (collectively, "Senior Stock"), as to dis,ribution of assets upon liquidation, dis.solution or winding up of the Col'J)Or.iion. whelllcr voluntary or invo)unlary, Section 10. Rights Upon Fundamental Tran1actlon1. The Co'l)Qration shall not enter into or be pany 10 a fundamental Transaction unless: (i) lhe Su~essor Entity assumes in writing all of the obligation• of the Corponition under this Cmificuc in accordance with the provisions of 1his Section 10 pu~uant to wrincn agreem¢nts in form a.nd substance s.iisfactory to the Majority Holders and approved by the Majority Holders prior to such FundAmcntal Transaction. including agreements 10 deliver to each Holder of S.rics A Preferred Stock in exchange for such shares of Series A Pn:ftrml Stock a security oflhe Successor Entity evidence<! by a written instrument subs!antially similar in form ond substance to this Cenificate, including, withou1 limitation, having a stated value c,qual 10 the stated value and dividend rate of the S.ric, A Preferred Stock held by the Holdeu and having similar ninking to <he Series A Preferred Stock, and r<:aoonably sa1isfactory to the Majority Holders and (ii) the Successor Entity (including its Parent Entity) is • publicly traded OOll)Oration whoso shan:s of common stock are quoted on or listed for tradin& on a Trading Market. Upon the occurrence of any Funda.mon!al Tnmsaction, the Suo«ssor Entily shall succeed to, and be sub,tituttd for (so th.i from and after the date of such Fund,mental Transaction, the provisions of this CCT1iftcatc referring to die "Coll)Oration" shall refer instead lo the Successor Entity), and may cxcrciso every right Md power of the Corporation and shall assume all of the obligations of the Corporation under 1his Certificate with lht ,au,,e effect a, if such Su~essor Entity had been named as lhc Corporation herein and therein. In addition lo lhe foregoing, upon consumnwion of a Fundamental Transaction, the Successor Entity shall deliver to each Holder confirmation that there shall be issued upon conversion of the S.rics A Preferred $1ock al any time after the oonsumma1ion of such Fundamental Transaclion, in lieu oflhe shar~ of Common Stock (or other securilics. cash, assm or other property (exeepl such i1ems still issuable under Stttion 6 which shall continue to be receivable thereafter)) issuable upon the conversion of the Series A Prefem:<I S1ock prior to such Fundomental Transoction. such shares of publicly traded common stock (or their equivalent) of the Successor Entity (including its Parent En1ily) that each Holder would have been en1illed to receive upon the happening of such fundamental TransRction had all the shan,s of Seri~ A Preferred S1ock held by each Hold~ been oonvertod immedialely prior to s\lch f'undamtntal Transaction (without regard to any limit.ations on che conversion of the Serie-s A Pre-fened Stoc:k eonteined in this Ccnificate). as adjusted in accordance with the pro\'isions of this Cef1ificate, The provisions of this~ lQ_shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations on the: conversion of the $(:fies A Preferred Stock. St<tion I I. N~•clve Covenants. For so long as the Purchaser shall continue to hold II leasl ten p<recnt ( 10%) of the shares of Series A Preferrc.d Stock issued 10 it on the Issuance Dale, willtoul the affirmativo consent or approval of tho Majority Holders of lhe shacc.s of Series A Preferred Stock lhen outstanding, the Corporation shall not, wheth<r dirt<lly or indir.clly, by amendment, me,ger, consolidation or olhcnvise, and shall not pennit any Subsidiary. to: (a) issue any additional shares of Series A !'referred Stock issued on the Issuance Date other than dividends payable, if any, to Ute Holders oflhe Series A Preferred S1ock; (b) take any aclion to authorize, create or issue any class or series of prefet1ed stock, whdher or not ranking junior, pari p4$$U or senior to the S<:ri<:s A Preferred Stock~ (c) se1 aside assets for a sinkint or other similar fund for the purchase. redemption, or retirtment of, or redeem, purchase, retire, orothc-t"\vise acquire any iha1'<S of the Common Stock or of a11y other capil&1 stock of the Corpota.tion, whether now or hereafter outstanding; except (or ,he ropurchase from employees of the Coll)Oration, pursuant to the provisions of the Corporation's stock option p!an, upon sueh emp!oyecs' tcnninatton of employment with the Corporation. of shares of Common Stoc:k issued pursuant 10 s,ock option cxc~iscs by or underlying stock option grants to such c:mplO)•Ces pursuant to 1hc tcnns of stock option ogreemcnts bc:tw<:e-n the Corporation and such empto)'eci; (d) make or decla,e, directly or indirecdy, any dividend (in cash, stock, rclum of capitol, or any other fonn of assels) on. or make any other payment or distribution on account of Common Stock or of any 01her ~rital stock of 1hc Corporation ranking junior to the Series A PreferTed Stock as 10 the payment of dividends or 1he distribution of assets upon Jiquid1uion. dissolution or winding up, whe1hcr now or hereafter oul3tanding; • 14 • (e-) take an)' ac«ion to amend, modify. alter or repeat any provision of its Articks of lncotpof't'llion or B)'laws which would have an adver,c cffeot on the Series A Prefmed Stock 1aken as a whole: (f) lake any action to alter the number of members of the Board, or designate classes of directors other than AS required by the federal securities laws or the rules of any registered national securities exchange applicable to the Corporation; (8) dfect or pennit, or offer or agr« to effect or pennit, a liquidation or Change of Control Event with respect to the Corporation or any subsidiary; (h) reclassify the shares of Common Stock or any other sharc, or any class or series of capital stock hereafter crcatcdjuniorto the Series A Preferred Stock into shares of any dass or series of <:apital stock (A) ranking, either a, to payment of dividends, distribution of assets or redemptions, senior to or pari passu with the Series A Preferred Stock, or (8) which in MY manner adversely affects the Holders of Series A Preferred Stock; (i) discontinue lhe businesses in which it or any subsidiary is engagcd as of the date of the Issuance Date, or engage, or pcnnit any subsidiary to engage, in any business other than the businesses in which it is engaged as of the Issuant< Date or any businesses or aci'ivitlcs substantially similar or related thereto or ancillary to the operation thereof, it being understood and agreed that for the purposes of this Section 11 (c). the Coll)oration shall engage in the busineu conducted by TumOnGrecn, Inc.; (j) invest in, purchase or acquire. directly or indircccly. in one or a series ofn:latc<I rransactions, any assets or capital stock of any Person, wherein 1he aggn,gate purchase price or other considcralion payable for such assets or capital stock shall cxoced $100,000 in any one transaction or $250,000, in the agtrtgate; (k) except for im1ances of stock option, to key employees. directors or consullMts, issue any shares of Common Stock of the Corporation or other s«uritiu oonvertible into or exercisable or eKchangeable for sha1'C"S of Common Stock of the Corporation; (l) Rc:d«m or repurchase any shan:s of Common Stock other than purswmt to agreements with scrvkc ptovidcrs giving the Corpora.lion the right to r<:purchase shares of Common Stock upon the oessation or termination of services. (m) except in connection with indebtedness existing as at the date of chis Cenificatc, incur indebtedness for borrowed money, purchase money indebtedness or lease obligations that would be required to be capitalized on a balanc,: sheet prepared in accordance with OAAP, or guarani)' the obligations of any other Person, in an aggregate amount at •ny time outstanding in e•cessof$SO,OOO in any individual transaction or $100.000 in the aggregate; (n) pennit Liens to exlst on its asscu and properties, 01h<:r than Liens outstanding at thi:: dale hereof. secure indebtedness of the Corporation or •ny of its Subsidiaries, in an aggregate amount at any lime oucstanding in excess ofSS0,000 in any individual transaction or $100,000 in the aggregate: (o) enter into or pennit any Subsidiary to enter into any ua.nsaction with any of che Corpora1ion•s officers, directors or employees or any Person din:elly or indirectly conlrollcd by or under comn,on control with the Corporation or any of its omoers. directors or employees (a "Rdattd Party") including, without limitation, any transaction for the purchase, sale or exchange of properly or the rendering of any service to or by any Related Party, except for transactions entered into in the ordinary ccurse with cmployees (excluding the Principal Stockholders or their Affiliates) that are approved by the Board including the unanin1ou, approval of the independent mcmbcrs thereof: (p) sell, lease, transferor dispose of any ofits Properties (other than sales nf products to c1.1Stomers in the ordinary course), waive- or release any rights of material value. or ta nee 1. e()mp,romisc, release or as.sign any indebtedness owed to it or any elaiins held by it; (q) enter into any transaetlan whh any director. oflioer, stod;holdcr or Alliliate of the Corpora1ion or with any Affiliate of any director, officer, stockh('f\ler or Afliliatc oflh<: Col'J)Ore.tion, except as contemplated by chis Certificate-~ - 15- (r) incrc-asc- in any manner the compensation or fringe benefils of any of its directors, offic«s. emp)oyees. including any increase of pension or retirement allowance, life insurance premiwns or 01her benefit payments IQ ""Y sucl! directors, offic<:rs or employees, or commit i1self to any employment agrccm<:nt or cmploymc-nt amngcmcnt with or for the ben<:fil of any officer, except as contemplated by this Certificate; (s) merge or consolidate with, or purch8.Se a subs:t.antta\ portion of the assets of, or by any other mannc-r acquire or combine with any business or any corporation, partner.ship, limited liability oompany. association or olher bwincss of8tniz:ation or division thereof oc oihenvise acquire or agree to acquire any assets which are material to the Corporation, its business. financial condition or tesults of operations; or (I) enter into an agreement to do any of the things desc,ibi:d in clauses (a) through (s) of this Section 11. Section 12. Information Right,. During any period in which (i) the Corporation is not subject to Section 13 or l 5(d) oflhc llxchan&e Act and (ii) at least twenty-five ()(rcent (25%} of the slulrts of Series A Preferred Srock issued to BitNilc on the Issuance Date mnain outstanding, the Corporation shall use its bK! efforts lo {a) transmit by mail to all the Holders who at that time c,wn more than 20% of the issued and outstanding sha,es of Series A Preferred Stock. as their names and addross._. appear in the Corporation's r<00rd books and withoul cost to such Holders, copies of the annu,l reports and quarterly repons that the Corp<>ttllion would have been required to file with the Commission pursuant to Section l 3 or l S(d) of the Bxchllnl;e Act i(the Corporation was subject to such sections (oth<r lhan any exhibits that would have been required) 811d (b) promptly upon written re(luest. supply copies of such repons to any prospe<:tive holder of Series A Prcfom:d Stock: prgvjded the! the requirements of this StctiQQ 12 shall terminate on the six (6) monlh anniversary of the date <m which the Corporation's 03mmon Stock tx:oomes subject to Smion l2(b} or 12(g) of the E,change Act. The Corporaiion shall mail the reports to the Holders wilhin JO doys after the rcsp~tive dates by which the Corpor81ion would have been required to file the repons with the Commission if the Co.,,oration wer< then subject to Section 13 or 15{d) of the Exchange Acl. assuming the Corporation is a "non-accelerated filer" in aeoordance with the Exchange Act. Section 13. Ptnaltles fo, 81-..ch. In the event that the Corporation shall (i) fail to honor any Notice of Convctsion on• timely ba>is as Se\ fonh in Section 6, (ii) fail to honor any Notice of Redemption on• timely basis as set fonh in Section 7, (iii) breach any of the Negative Covc.'1\lll\ts set forth in Section 11, or (iv) fail to timely file any periodic or current rcpon !C<!Uired to be filed under the Exchange Act (any such failure,• "Trlggcrlog f.veat"), then, unless the Majority Holder., determine othCJ'\vise: (a} the Majority Holders may request in writing that the Continuing Directors of the Corporation (A} increase the size of the Board by a number of seats such that, after giving effect 10 such increase, the number of vacant s,ats in the Board constiMes a majority of the Board. and (BJ nominate, approve and appoint the individuals nominated by the Majority Holders to fill e.ach vaant)' created by such incrta.se: and any successor to such individuali from lime to time nom;natc:d by the Majot'iry Holders (each such individual,• "l'un:hoser Dirttior" and, colleclively. the "Purchaser Dir<ctors"}; (b) if the Continuing Directors do not so nominate, approve and appoint each Purclt83er Ditcclor within five (5) Business Days after receipt of the request by Che Majority Holders pursuant to clause (i) above, then automatically, and without any action on the part of any Person (and notwithstanding any terms of the Bylaws to the contrary)the Majority Holders shall bo entitled to {A) increase the si1.e of the Boatd by a number of scats such lhat, after giving tffect to such increase, the number of \'scant scats in the Board constit\ltes a nlajority of the Board sufficient to cfTec1 the transactions confempla.ted herein, (B) nominate and appoint !he l'urchnser Directo1'3 101he Board; (C) nominate and appoint each successor to each such Puroht\Ser Direetor. and (D) direct the rtmoval from the Board of any individual nominaled and appointed undo, t~e foregoing clauses (6) or (CJ; and (c) each individual nominated and appointed under this Section Diel shall thcrcafler serve on the Board until (A) his or her resignation, or(O) his or her rcmowl al the dire<tion of the Majority Holden. Settion 14. R,cord Holde.-.. The Corporation and its transfer agent shall deem and lr<at the r..:ord t!older of any shares of Series A Preferred Stock os the true and lawful owner thereof for all purposes, and neither the Corporalion nor its transfer agent shall be affected by any notice to the contrary, Section 15. or sinking fund. Sinking Fund. The Seri .. A Preferred Stock shall not be entitkd to the benefits of any retirement • 16 • Stttlon 16, Amtndmtnt of Resolution. The Board r<scrves lhe ri&ht from time to time to increase (but not in excess of the total number of oulhoriud shal'e$ of Prefene<! St0<k) or decrease (but not below the number of shares ofStries A Pi'¢fetTcd Stock the.n outstanding) lhe number of shares lhaJ constitute the Series A Prefened Stock by further resolution adopted by the Board or a duly authorized oomminee of the Board and by lhc filing of a ccr1iftea1e pursuant to lhe provisions of the NRS stating that such increase or decrease, as Ill¢ case may be, has been so authorized and in olher rcspecU to •mend this Certificate within the limitations provided by low, this l'e$Olu1ion and lhe Articles of lnool'J)()rotion. Stctlon 17, Rfltriclion and Limilotlons. Except as expressly provided herein or as required by law so long as any shares of Series A PrcfcITTd Stoc'lr. remain outstanding, the Corporation shall not, without the vote or wri1ten consent of the Majority Holders. take any action which would adversely and materially affect any of the pr<fercnces, limita1ions or relative righu of the Series A Preferred Stock. Sertion 18, Walvtr. Any right or privilege of lhc Series A Preferred Stock may be waived (either generally or in a panicular instance and either retroactively or prospectively) by and only by lhe wriutn consent of the Corporation and lhc Majority Holders and any such waiver shall be binding upon each holder of Series A ~fttffil Stock or other securities exercisable for or convenible into Series A Prefemd Stock. No failure or delay on the part of a Holder in the exa<ise of any power. right or privilcg,c hc-re·under shall operate as a \Y3iver thereof. nor shall any single or par1ial c-xercise of any such. power, right or privile&e preclude other or funhcr exercise thereof or of any other righl, power or privilege. Sttlion 19. Lost or Slolrn Crr1iticalu. Upon receipt by the Corporation of evidenoe reasonably satisfactory to the Corporalion of the loss, theft, destruction or mutilation of any ccrlifteatcs repmencing Series A Preferred Stcxk (as to which a written certification and the indemnification con1cmplated below shall suffico as such evidenoe), and, in the oase of lo», theft or destruction, of an indomnificaiion undemking by 1hc applicable Holder to the Corporati<ln in cu.stoma,y and reasonable form .nd, in the case of mutilation, upon surrender and """collation of the cer1ificatc(s). the Corporation shall excculc and deliver new certificate(s) of li~e tenor and date. Section 20. Remedies, CJ,an,cterlulloru, Other Oblie,allons, Brtac~es and Injunctive Rrlid. The remedies provided in this Certificate shall be cumulativt and in addition to all othct r<:mC'dies available under this Cercificate and any of the o1her transaction documcnlS, at law or in equity (including a decree of specific performance and/or other injunctive relief), and no remedy contained h<:r<:in shall be deemed a waiver of tompliance with the provision!- giving rise to such remedy. Nothing herein shall limit any Holder's ri&ht lo pursue actual and consC<\Utntial d:unages for any failure by the Corporation to comply with the terms of this Cenificate. The C-Ol'J)()ralion <»vene.nts to ••ch Holder thai there shall be no characterization conceming thi~ instrument other than as expressly provjdcd herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thcrc<>f) shall l>e !he amounts to be reoeived by a Holder and shall nol, except IIS expressly provided herein, be subject lo any other obligation of the Corporation (or tho penonnanoe thereof). The Corporation acknowledges that a breach by it of ils obligations hereunder will cause irrerarable ham, to the Holders and that the remedy at law for any such breach may be inadequate. The Corporation lhcrefore agr«s that, in the event of any such breach or threatened breach, each Holder shall be entitled. in addition to all other available remedies, to an injunction restralning any such bre:aeh or nn.y such 1ht<atened breach. wi1hout the necessity of showing cc.onomfo loss and without any bond or other security bcing required, to lhe ex!ent pcnnitted by applicable law. The Corporation shall provide •II information and documentation to• Holder lhat is requested by such Holder to enablo such Holder to confinn the Corporation's i;Omplianoe wilh 1hc tcnns and conditions of this Certificate. Stctlon 21. Non-tlrcumvtntion. The Corporation hereby covenants and agrees that the Corporation will no1, by ainendment of its Articles of Incorporation. Bylaws or throv.gh any r«1rganiz.a.tion. transfer of auets, consolidation. merger, schcmt of arrangement, dissolution. issue or sale of securities, or any other voluntary ac,lOn. avoid or sc:ck to avoid 1he obs:er\'ancc or performance of any ofthe terrns of this Certificate-. and will al all times in good faith carry out a.O the provisions of lhis Cer1ificatc and take all ac!ion as may be required to protect lhe rights ofthc Holders. Wi1hout limiling the generality of the foregoing or any other provision of chis Certificate. the Corporalion (i) shall not increase the par value of any sh•res of Common Stock r<ceivable upon the conversion of any shares of Series A Prefcrr<d Stock obove the Stated V•lue then in effect, (ii) shall take all such actions as may be ne-eessary or appropriate in ord<r that the Corporation may validly and legally issue fully paid and non-assessal>le shares of Common Stock upon lhe conversion of Serie., A Prcfmcd Stock and (iii) shall, so long as any shares of Series A Preferred Stock ar<> outstanding. take all action necessary to reserve and keep available out of its authori.z>:d and unissucd sh•res of (',.ommon Stock. solely for the purpose of effecting the conversion of lhe Series A Preferred Stock, !he Roquired Reserve Amount. • I 7 • S.ctlon 12. Tren,fer oCSeri<t A l'rtftrr~ Stock. A Holder may ttan,fcr some or all of its shares of Serits A Preferred Stock without \he oonsent of the Corporation. Any such transfer shall comply wilh all applicable securities laws. S.ctlon 13. Register. The Corporation sh•II maintain at its principal executive offices (or such other office or agency of che Corporation as it may designate by notice to the Holdtr>). a register for the shares of Series A Pref med Stock, in which the co,,,oraiion ,hall m:ord the name, address and facsimile number of the l'er>ons in whose name tho shares of Series A Preferred Stock have been issued, as well as the name and address of each transferee. The Corporation m•y treat the Ptrson in whose name any ,hares of Series A Preferred Stock is n:gistcrcd on the resister as the owner and holder thereof for all purposes, notwith,1anding any notice 10 the contrary, but in all events recognizing any properly made transfer>. Sf<tioa 24, Amendment. This Certificate or any provision hereof may be an1ended by obtaining the affirmative vote at a meeting duly called for such purpose, or by written consent without a meeting in acoordan<'e with the NRS, of the Majority Holders. voting separately as• single class. ""d with such other stockholder approval, if any, as m•y thon be rtquirtd pursuant to ,he NRS and the Corporation's Articles of lnoorpon1tion nnd Bylaws. Se<:!ion 2S. S.vtrability. lfany provision of this Cenificatc is invalid. illegal or unenforteable, the balance of this Certificate shall remain in effect. and if any provision is inapplicable ,o any Person or circumstance, i, shall nevertheless remain applicable IO all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of int¢1'est perrnined undor applicable law. Stcelon 26. N••t Busln,i.ss Day. Whenever any payment or other obligation hereunder ,hall be d11< on a day other than a Business Day, such payment shall be made on the next succe«ling Business Day. Seclfon %7. Headinll,S. The headings conlllinc<I herein are forconvenicnceonly, do not constitute a par1 of1his Certificate and ,hall not be deemed to limit or affect any of the provisions her~f. [Signature Poge Follows) - 18 - IN WITNESS WHEREOF, lmpcralis HoldinH Co1J>. has cause<! !his Ce11ificate 10 be sign¢<! by !he undet$igned as of !he dale f1t$I written above. IMPERALIS HOLDING CORP. By: D~ 7n. ~t" Name: Darren Mogot Tille: Chief Executive Ofticer (Signa1ure Page to Series A Certificate of Designations) li.,hibit A FORM OF NOTICE OF CONVERSION To: l~PERALIS HOLDING CORP. The undorsignod own or of !hi$ Serie$ A Convertible Preferred Stock (lhc "Series A Preffrrtd St~k") i$$ued by Jmpmlis Hold in& Corp. (the "Corporation") hereby irrevocably exercises ii$ option to convert ____ shar<s of the Series A Preferred Stock into sharc;oflhc common stock, por value $0.001 per share ("Coa,mon S1ock"). of the Corporation in accordance with the terms of the Corporation's Series A Convertible Redeemable Certificate of Designation (the "Certificate or Dtslgnallon"J. ·me undersigned hercl>y instNCIS the Co'1'Qration to oonvcn the number of shMes of the Sories A Preferred Stock ,pcc:ified a.bovt into shares of Common Stock issued at conversion in actordance with the provisions of Section 6 of the Certificate of Designation. The under.signed directs that the Common Stock is.uable and «nificatcs therefor deliverable upon conversion and the ce«rtifieated Series A Prefeacd Stoc:k. if any. not being surtendered for oonver,ion hereby, tog.ether with any check in payment for fractional Common Stoel<. 1)e issued in the name of and dolivorcd 10 tho undersigned unless a different name has been indit:atcd below. All capitalized te.rms ust:d eu,d not defined herein have the rtspective meanings assigned to them tn 1he Cenificate of Designation. So long as the Series A Preferred Stock shall have been surrendered for conversion hereby, the oonvcrsion pursuant here<o shall be deemed to have b .. n drected at the date and time specified below, and at such time the righlS of the undersigned as a Holdt< of the Series A Preferred Stock shall cease and the Person or Persons in whoso name or names the Common Stock issued at conver..ion shall be issuable shall be deemed to have become lhc holder or holders of record of tho Common Shares ropr<scntcd thereby and all voting and olher rights associated with the beneficial ownership of such Common Shares shall at $UCh time vest with such Person or Persons. Date: and lime-: ___________ _ Signatu~ !'lease print name and address (including zip code number):
Exhibit 10.1
 |
Order Form #1232 |
| ChargeLab Inc | Prepared For | |
1049 El Monte Ave, Suite C #592 Zak Lefevre |
o TurnOnGreen Inc. o Amos Kohn CEO  Billing Address
1635 S Main St |
o Contract Length 48 months |
o Payment Method Bank Transfer |
| o Contract Period September 14, 2021—September 13, 2025 | o Billing Frequency Monthly: From Invoice Start Date |
o Enterprise License Agreement
By signing this Order Form, TurnOnGreen Inc. and ChargeLab Inc. enter this Enterprise License Agreement ("ELA").
ChargeLab will connect and manage the OCPP EV chargers TurnOnGreen Inc. deploys across your portfolio of projects. Under this ELA, TurnOnGreen Inc. will pay a single discounted fee for a bulk subscription to ChargeLab's Premium Network Services (described below).
ChargeLab will bill TurnOnGreen Inc. the License Fees below at the beginning of each month based on the number of ports connected on the last day of the preceding month, where "ports" include any Level 2 or DC fast charging ports connected to ChargeLab's servers for TurnOnGreen Inc.:
| Ports connected | License Fee |
0 to 500 |
$10,000/month |
501 to 1,000 |
$18,000/month |
1,001 to 2,500 |
$40,000/month |
2,501 to 5,000 |
$70,000/month |
5,001 to 10,000 |
$120,000/month |
If this proposal is signed by DATE, ChargeLab will provide a ramp-up period for the first 6 months of this ELA. Under the ramp-up period, TurnOnGreen Inc. will be billed a reduced monthly as outlined below:
Timeline |
% of fee to be billed |
Sample fee¹ |
Month 1 |
0% |
$0 |
Month 2 |
0% |
$0 |
Month 3 |
0% |
$0 |
Month 4 |
50% |
$5,000 |
Month 5 onwards |
100% |
$10,000 |
¹Assuming first tier of license (0 to 500 ports connected).
o ChargeLab Services – Premium Plan
ChargeLab’s Services are for remote management of electric vehicle charging stations (“EVCS”) installed at properties owned or managed by End Customers of TurnOnGreen Inc. (the “Sites”). ChargeLab will provide TurnOnGreen Inc. and their End Customers with access to the Services selected below with a check mark.
 |
24/7 connection & monitoring
of EVCS |
 |
 |
Supply of 3G/4G SIM cards & data plan if needed |
| |
 |
Site host dashboard with unlimited
profiles |
|
|
Tier 1 End User support (24/7 call center) |
| |
 |
Monthly EVCS usage reports |
|
 |
Priority Tier 2 Customer support (email response within 24 hours) |
| |
 |
Access control settings & user
grouping |
|
 |
Active management of EVCS power output (“Power Management”) |
| |
 |
Billing End Users for the usage
of the EVCS |
|
 |
Custom web app branding |
| |
EVCS MONETIZATION
Customer will have full control over EVCS Usage Fees billed to End Users. If Customer chooses to bill EVCS Usage Fees, ChargeLab will facilitate all payments by providing user interfaces and credit card processing.
Customer EVCS may also be eligible generate additional revenue through low-carbon fuel standard (LCFS) credits. ChargeLab provides automated LCFS credit processing, eliminating administrative overhead and generating up to 30% more revenue for all credits sold.
Customer and ChargeLab agree to the following revenue splits:
| Customer |
ChargeLab | |
EVCS Usage Fees¹: |
95% |
5% |
LCFS credits²: |
75% |
25% |
¹Usage Fees can be updated by the Customer at any time.
²LCFS credits are currently only available in California. As LCFS or similar programs are rolled out in your geography, the revenue split specified here will apply.
Services
|
|
Price per Unit |
Annual Price |
NET-ELA-1 |
 |
 | |
• Ongoing connection & operation of Level 2 EV chargers and/or DC fast chargers • Includes support for any OCPP charger, • Priority Tier 2 support and power management features • Tier 1 fee valid for up to 500 ports connected |
Product |
Quantity |
Price per Unit |
Annual Price |
| Enterprise License Ramp-up Discounts Total ramp-up discounts for the first 4 months of ELA term. |
1 | -$35,000.00 / units | -$35,000.00 One-Time Fee |
| First Year Subtotal for Services |
$85,000.00 | ||
| Year 1 Overall Total | $85,000.00 | |
| Year 2 Overall Total | $120,000.00 | |
| Year 3 Overall Total | $120,000.00 | |
| Year 4 Overall Total | $120,000.00 |
o Terms and Conditions
Whereas "ChargeLab" and "Customer" are the organizations specified at the top of this Order Form, "Services" are the EV charger management services specified herein, and "Sites" are the locations specified under the Site List section of this Order Form, by signing this document Customer agrees to:
• Terms and Conditions for ChargeLab Services viewable at https://www.chargelab.co/terms-and-conditions/ca-services
• Terms and Conditions for Purchase of Hardware viewable at https://www.chargelab.co/terms-and-conditions/ca-hardware (only if hardware purchase is included in this Order Form)
o Marketing Permissions
For the duration of this Agreement, Customer grants ChargeLab permission to use any current name or logo of Customer for marketing, sales, public relations, or financial materials. This includes social media posts that may be used to promote he businesses of both ChargeLab and Customer.
Legal Terms on previous page
Signature Page
The above products and services meet our requirements and we agree to the listed price plus shipping fees and applicable taxes. I hereby accept this estimate and authorize ChargeLab to proceed with delivery of the specified products and services.
TurnOnGreen Inc.
| Name: |
| Title: |
| Email: |
Signature:
__________________________________
ChargeLab Inc
| Name: |
| Title: |
| Email: |
Signature:
__________________________________
Exhibit 10.2
DISTRIBUTION AND RESALE AGREEMENT
This Distribution and Resale Agreement (together with any Addenda, Schedules and Exhibits attached hereto, this “Agreement”) is by and among TurnOnGreen Inc., a Nevada corporation (“TOG”, “Supplier”) both with principal offices located at 1421 McCarthy Blvd., Milpitas CA 95008, and Total Energy Solutions Company, LLC an Indiana based Limited Liability Company (“Tesco”, “Distributor”) with principal offices located at 9955 Crosspoint Boulevard, Suite 100, Indianapolis, IN 46256, (each a “Party” and collectively the “Parties”) for the purchase, resale and distribution of Products (as defined hereinafter) identified in Addendum A, Products and Product Categories, hereto. The Parties hereto agree as follows:
| 1. | DEFINITIONS |
“Applicable Law” shall mean any present or future statute, law, ordinance, regulation, rule, policy, procedure, directive or order of any federal, State, municipal or other public body, department, bureau or authority, domestic or foreign, affecting the manufacture, transportation, import, export (including the export controls set forth in Section 19), marketing, purchase, sale, or installation of Products, or the execution of the terms of this Agreement.
“Business Day” means any day other than a Saturday, a Sunday, or a day on which banks in the United States are authorized or obligated by law or executive order to close. Notwithstanding the foregoing, in the case of any operational matters applicable to a facility relating to the fulfillment of obligations within a specified number of Business Days, a “Business Day” will mean any day other than a Saturday, Sunday or day in the country where the relevant facility is located on which banks are authorized or obligated by law or executive order to close. For the avoidance of doubt, references to a “day,” as opposed to a Business Day, will mean a calendar day.
“Confidential Information” shall have the meaning set forth in the Nondisclosure Agreement between Supplier and Distributor dated _____________ (the “Nondisclosure Agreement”).
“Days” shall mean calendar days, unless otherwise specified.
“Defect” means the failure of a Product to comply with the warranties provided in Sections 14 and 15.
“Delivery Date” means the date Supplier is required to deliver the Product to Distributor, subject to the terms hereof.
“Delivery Point” Supplier’s facility (warehouse)
“DOA” shall mean a Product that is functionally defective and unable to power on upon its first placement into service, whenever that occurs.
“Effective Date” shall be the date this Agreement has been signed by all Parties.
“EV” shall mean electrified vehicles or electric vehicles inclusive of cars, trucks and other consumer and commercial-used modes of roadway transportation.
| T: (510) 657-2635 • 1421 McCarthy Blvd., Milpitas, CA 95035 • www.turnongreen.com |
“In writing” means written documents, verified faxes, and successfully transmitted E-mails.
“Including” means “including without limitation.”
“Intellectual Property” shall mean all patents, patent applications, copyrights and copyrighted works, trade secrets, know-how, trademarks, service marks, trade names, brands, trade dress, and any other intellectual or proprietary rights recognized by any jurisdiction.
“Product Categories” shall mean the categories of products offered by Supplier to Distributor, as set forth in Addendum A, Products and Product Categories.
“Products” shall mean any products or services offered by Supplier to Distributor, including but not limited to:
| · | Level 2 Charging Solutions for Single Family and Multifamily Unit Dwellings |
| · | Level 2 EV Charging Solutions for Businesses |
| · | Level 3 DC Fast Charging Solutions for Commercial Use |
“Purchase Order” shall mean any purchase order for Products placed by Distributor, electronically or by hard paper copy, which shall be subject to the terms of this Agreement.
“Retail Locations” shall mean Distributor’s online stores or brick and mortar retail stores located in the Territory.
“Territory” shall mean Indiana, Illinois, and Ohio
“Unit,” with respect to Product, means a quantity of the applicable Product, as such quantity would be stated in a Purchase Order for Product.
Other terms are defined hereinafter.
| 2. | TERM |
The term of this Agreement shall commence on the Effective Date and continue until the date that shall be five (5) years from date thereof (the “Term”), provided, however, that: (i) the Parties may extend the Term by mutual written agreement executed by the Parties not less than 30 days prior to the end of the theretofore applicable Term, and (ii) Supplier and Distributor agree to conduct an assessment of the Agreement and the Parties’ performance every six months starting from the Effective Date of the Agreement. Pursuant to such assessment Supplier may, in good faith (a) takes no action with respect to the Agreement or its Term, (b) adjust the target sales performance, or (c) terminate the Agreement.
| 3. | APPOINTMENT OF DISTRIBUTOR |
Subject to Section 5 below, Supplier hereby appoints Distributor to market, solicit orders for, to resell and to distribute Products and related accessories in the Territory. Distributor hereby accepts such appointment and agrees to represent Supplier through marketing, soliciting orders for and reselling the Products, while also promoting the sale of EV chargers manufactured by Supplier.
| T: (510) 657-2635 • 1421 McCarthy Blvd., Milpitas, CA 95035 • www.turnongreen.com |
| 4. | TERRITORY & AUTHORIZED RESALE CHANNELS |
| A. | Distributor may sell to both Customers (as defined below) and resellers in the Territory, any Products ordered pursuant to this Agreement. |
| B. | Distributor may use distributors, third-party sales agents, buy-it-now online marketplaces, or any other resellers or re-marketers to sell the Products without Supplier’s prior written approval. Notwithstanding the forgoing, Supplier may prohibit the use of certain resellers or re-marketers to sell the Products upon prior written notice to Distributor actually received prior to Reseller’s use of or contractual commitment to such resellers or re-marketers. |
| C. | Distributor may not sell or export any Products anywhere outside the Territory without the express written consent of supplier. |
| D. | Distributor may not purchase any Supplier branded products (including the Products and any parts and accessories for any such products) from any other source or supplier, including those providing remanufactured, refurbished, recycled, reclaimed, gray market products, counterfeit or knockoffs, for resale. Distributor may not, except as set forth herein, refurbish Products to resell. Notwithstanding the foregoing, Supplier may, in its good-faith exercise of discretion, provide to Distributor refurbished products to sell as a replacement for Products returned to Supplier pursuant to Section 14, provided that such refurbished products are properly and conspicuously marked, and that Distributor and Supplier agree on an appropriate price for the use of such refurbished products. |
| 5. | EXCLUSIVITY; TERMS AND CONDITIONS |
Supplier hereby grants Distributor an exclusive right to resell Products in the Territory under this Agreement; provided, however, that Supplier expressly reserves the right to market and sell Products (and products similar thereto) to any end user with written knowledge provided to the Distributor for level 2 DC and above chargers . Supplier shall provide to Distributor, during the Term of this Agreement, initially 5,000 Units (inclusive of the 500 EV Units (defined below) included in the Initial Purchase Order (defined below) of the TurnOnGreen™ Residential and Commercial Level 2 7kW and 11kW EV Chargers along with charging outlet cords, SAE J1772 charging connector and inlet power cords and various other ancillary supplies which shall encompass a completed product for use by the consumer (“EV Unit”). The exclusivity period may be terminated by Supplier in its good-faith exercise of discretion: (i) if Distributor fails to reach sales of 5,000 units of Supplier’s Product in the 5 year term, (ii) if during any 6-month period distributor sells fewer than 100 EV Units, (iii) after 36 months from the Effective Date or (iv) in the event of a material breach of the terms of this Agreement by Distributor.
| T: (510) 657-2635 • 1421 McCarthy Blvd., Milpitas, CA 95035 • www.turnongreen.com |
| 6. | SALES, TERMS AND CONDITIONS |
| A. | This Agreement shall govern the terms and conditions of Purchase Orders. Any conflict between the terms of this Agreement and any Purchase Order shall be resolved in favor of the terms hereof, particularly Addendum B hereof. The Parties acknowledge and agree that the terms and conditions of this Agreement (i) apply to any open and current Purchase Orders issued prior to the date hereof and to the delivery and sale of any Product pursuant thereto and (ii) that this Agreement supersedes any prior agreement with respect to such open and current Purchase Orders. |
| B. | The terms and conditions set forth in this Agreement without regard to Addendum C hereto shall govern the Sale (as defined below) of Products by Supplier to Distributor. The terms and conditions of sale set forth in such Addendum C shall govern a Customer Sale (as such term is defined in Addendum C) of Products by Distributor to its customers (“Customer” or “Customers”). Supplier shall not be liable or responsible for any representations, warranties or other promises made by Distributor to any Customers that conflict with or are beyond the scope of the Supplier Terms. |
| C. | With respect to sales and delivery of Products by Supplier to Distributor: |
| (i) | Supplier shall retain absolute ownership interest in Products until a Sale has occurred. |
| (ii) | Supplier shall deliver Products purchased by Distributor to the Delivery Point at the sole cost and expense of the Distributor (for the avoidance of doubt, Distributor shall pay any freight, handling, delay or associated or similar costs related to delivery of Products to Distributor). |
| (iii) | Supplier shall deliver Product inventory to Distributor on a quarterly basis but shall have the ability to adjust its delivery schedule in accordance with the Reports submitted by Distributor as set forth in Section 8 below. |
| D. | For purposes of this Agreement, a sale of Product and the passing of title and risk of loss (a “Sale”) shall be deemed to have occurred upon delivery of such Product to Distributor as provided in Section 6(C). |
| E. | Distributor shall manage distribution and Sales in the Territory for Products; once Distributor is qualified, in Supplier’s good-faith exercise of discretion, Distributor shall provide customer service and support for Products on a “best-in-class” basis as specified in this Agreement, whether through Distributor’s Retail Locations or other channels and sources referred to Distributor by Supplier. |
| 7. | MARKETING |
| A. | Distributor shall market Products in appropriate channels and in a manner substantially functionally equivalent in efficacy or scope as other brands and manufacturers market similar or competing products. |
| B. | Distributor shall exercise its best commercial efforts to market and promote all Products actively, aggressively, honestly, and effectively. In furtherance of this objective, Distributor shall prominently display and feature Products in accordance with Section 7(C) below. |
| T: (510) 657-2635 • 1421 McCarthy Blvd., Milpitas, CA 95035 • www.turnongreen.com |
| C. | Excluding any marketing activities conducted by Supplier, Distributor will be solely responsible for all advertising and marketing media, including without limitation interpreting, monitoring, and compliance with Applicable Law. Distributor represents and warrants that Distributor’s content and the content of third parties included in the advertising and promotional materials: |
| (i) | Will not violate any Applicable Law or any rights of any third parties including but not limited to infringement or misappropriation of any Intellectual Property right, any privacy right, or any other property or other right; |
| (ii) | Will not contain any material that is obscene, pornographic, offensive, or defamatory; |
| (iii) | Will not promote discrimination of any kind, violence, or illegal activities; and |
| (iv) | Will be subject to review and approval by Supplier. |
Distributor agrees to preserve and respect the value and integrity of the Supplier logo and comply with all Supplier brand and logo standards to be provided by Supplier. All use of Supplier intellectual property shall be subject to Section 17 hereof. Supplier agrees that its review and approval of Distributor’s marketing activities, as stated in Section 7(C)(iv), shall serve as Supplier’s agreement that such marketing activities do not violate Section 7(C)(ii) or Section 7(C)(iii) hereof.
| D. | Distributor agrees, upon reasonable notice, to make its associates, salespeople, or any individual involved with the selling of Product, available for training on Products and background information regarding Supplier. Supplier will provide trainers, training material and any applicable supplemental information required for such training, and Distributor agrees to make facilities available for such training, if necessary, upon reasonable notice. |
| E. | Supplier will provide information as requested by Distributor inclusive of Product overview and details of Product features including “how to use” and “how to maintain,” Product demo videos and collateral materials as mutually agreed upon by the parties. |
| 8. | PURCHASE ORDERS & PAYMENT TERMS |
| A. | The terms and conditions of each order for Product by Distributor shall be as provided in this Agreement. Any conflict in terms between a Purchase Order under this Agreement and the provisions of either Party’s form of purchase order, order confirmation or other transactional document, shall be resolved in favor of the Terms set forth in Addendum B hereto. |
| T: (510) 657-2635 • 1421 McCarthy Blvd., Milpitas, CA 95035 • www.turnongreen.com |
| B. | Purchase Orders shall specify: |
| (i) | The Product(s) ordered by stock keeping unit (“SKU”), |
| (ii) | The quantity ordered, |
| (iii) | Supplier’s price quotation for the Product(s), |
| (iv) | The delivery location requested, |
| (v) | The requested ship date, and |
| (vi) | The invoice address. |
Distributor agrees to submit Purchase Orders not less than fourteen (14) weeks prior to the requested ship date. Distributor shall submit a separate Purchase Order for each delivery date.
| C. | After receiving a Purchase Order, Supplier shall transmit to Distributor an order confirmation specifying: |
| (i) | The Product(s) ordered by SKU, |
| (ii) | The quantity available by a target ship date, |
| (iii) | The unit price, |
| (iv) | The delivery location, and |
| (v) | The target ship date if it is later than the requested ship date. |
| D. | Orders are subject to rejection or cancellation by Supplier at any time prior to fulfillment in its good-faith exercise of its discretion and without liability, other than its obligation to pay Marketing Development Funds to Distributor. In no case may Distributor cancel a Purchase Order after the order process has begun. |
| E. | Supplier will date and transmit an invoice to Distributor reflecting the date of delivery of Product to Distributor at the Delivery Point in accordance with the terms of the relevant Purchase Order, provided that Supplier shall transmit to Distributor an electronical file of the packing slip that contains the shipping information listing the Purchase Order number and serial number for each unit of Product included in such delivery. Subject to Supplier’s providing such packing slip, Distributor agrees to accept and pay Supplier´ invoices, regardless of whether printed or electronic, and mailed or delivered electronically to Distributor’s address, as identified in this Agreement, and deemed Distributor’s accepted billing address. Supplier may invoice parts of a Purchase Order separately. If invoices are sent electronically, Distributor agrees that Supplier will issue only one invoice per Supplier order number, containing Supplier’s internal description of the Products purchased by Distributor, which may result in multiple invoices per Distributor Purchase Order number. Unless otherwise agreed in writing, Distributor’s payment terms will be net thirty (30) Days from the date of the invoice, to be paid by Check mailed by USPS ten (10) business days prior the invoice due date or Credit Card payment with a 3.5% service fee added. Distributor will pay Supplier in US dollars. Additional charges may apply if Distributor requests services that are performed outside of contracted hours or are beyond the normal coverage for the particular service. |
| T: (510) 657-2635 • 1421 McCarthy Blvd., Milpitas, CA 95035 • www.turnongreen.com |
| F. | For invoices not paid within thirty (30) Days of the invoice date, Supplier reserves the right to charge Distributor a late penalty charge of one and a half percent (1.5%) per month applied against undisputed overdue amounts, or the highest rate permitted by law, whichever is less. In addition, if an invoice balance is overdue by more than 45 days, Supplier may: |
| (i) | Refuse to accept additional orders from Distributor, |
| (ii) | Terminate this Agreement, |
| (iii) | Refuse to ship ordered Products, and |
| (iv) | Seek collection of overdue balance from Distributor, including all legal fees and other collection costs. |
The rights set forth in this Section 8(F) are cumulative to any other rights and remedies which Supplier may have at law or in equity.
| G. | Distributor hereby grants Supplier, and Supplier hereby retains, a purchase money security interest and lien on any and all of Distributor’s rights, title, and interest in Products purchased by it, wherever located, and all replacements and proceeds of the Products, until the invoice for the applicable Products is paid in full, including any late charges, costs of collection, and reasonable legal costs. Distributor consents to Supplier’s use of this Agreement, Product invoices, and the filing of financing statements for purposes of protecting and perfecting Supplier’s security interest; provided however, that Supplier shall not file any financing statements covering Product unless and until Distributor is late in its payment of the relevant invoice by more than 30 days. |
| 9. | RECORD KEEPING & REPORTING; FORECASTS |
| A. | During the Term of this Agreement, Distributor shall provide quarterly (and as otherwise reasonably requested by Supplier) the following data as it pertains to both Sales and inventory (a “Point of Sale Report”): |
SALES OUT
| (i) | Retail Location |
| (ii) | Sale Transaction Date (Date when Product was sold. Format DD/MM/YYYY) |
| (iii) | Distributor Part Number (Part number used by Distributor while ordering) |
| (iv) | Supplier Model Number / SKU (Valid Supplier part number) |
| (v) | Product Serial Number |
| (vi) | Gross Units Sold (Quantity of Products sold to customers in reporting week) |
| (vii) | Customer Returns (Quantity of Products returned by customers to the Retail Location) |
| (viii) | Returns to Supplier at Distributor’s option (Quantity of products returned by Distributor to Supplier) |
| T: (510) 657-2635 • 1421 McCarthy Blvd., Milpitas, CA 95035 • www.turnongreen.com |
INVENTORY
| (i) | Retail Location or Delivery Point |
| (ii) | Distributor Part Number (Part number used by Distributor while ordering) |
| (iii) | Supplier Model Number (Valid Supplier part number) |
| (iv) | Inventory Stock on Hand – End of Month (Quantity of stock on hand at the end of the reporting week. All Products currently at each Retail Location or Delivery Point should be included.) |
| (v) | Inventory/Stock on Order (Quantity ordered from Supplier but not yet received.) |
| (vi) | Inventory/Stock in Transit (Optional if included in stock on hand) |
Additionally:
| a. | All reports shall be sent by Distributor to Supplier (or designated third party) by the tenth day of the end of the quarter immediately following the reporting period. Distributor shall communicate any delay in reporting data to Supplier. Data shall be sent in a medium and format jointly agreed upon by Distributor and Supplier. Each Party shall designate a contact for ongoing reporting issues and questions. |
| b. | Accuracy and timing of the reporting requirements hereunder are critical to Supplier’s finance, accounting, and operations teams. Accordingly, any material deviation from such requirements shall be considered a breach of this Agreement. If noncompliance (timeliness, incomplete, etc.) with the above reporting requirements persist and are not resolved in a timely manner upon request, Supplier additionally reserves the right to terminate this Agreement. |
| B. | Distributor will provide to Supplier a quarterly forecast at the end of each calendar month, including, without limitation, the following information: |
The quantity of each SKU that Distributor anticipates it will order in the upcoming quarter.
| C. | Forecasts provided pursuant to Section 9(B) will be used for the purpose of facilitating Supplier manufacturing and inventory control and will not be deemed to be a Purchase Order, or to create a minimum purchase obligation on the part of Distributor. |
| D. | All information provided by Distributor to Supplier pursuant to Sections 9(A) and 9(B) shall be deemed Supplier Confidential Information and shall not be disclosed by Supplier to any entity other than Distributor hereunder. |
| E. | Distributor shall retain reports and supporting records for at least three (3) years after each report is generated. Supplier may, upon reasonable notice and at no cost to Distributor, audit Distributor to confirm the accuracy of reports and compliance with the terms of this Agreement. |
| T: (510) 657-2635 • 1421 McCarthy Blvd., Milpitas, CA 95035 • www.turnongreen.com |
| 10. | PRICING, PRICE CHANGES |
| A. | The Parties will mutually agree upon all prices. |
| B. | The sum of all expanded prices stated on the face of a Purchase Order will constitute the contract price. Supplier has the right, at any time, to propose for consideration a change, alteration, or amendment of Product prices upon sixty (60) Days written notice to Distributor. |
| C. | Notwithstanding the foregoing, Supplier may amend prices upon thirty (30) Days’ prior written notice where such price modifications are due to circumstances outside of Supplier’s control. Amended prices shall not apply to Products previously ordered. |
| D. | Each Party acknowledges that all pricing is deemed Confidential Information of the appropriate Party herein and that neither Party will disclose such information to any third party (including any customer of Distributor) without the other Party’s express written authorization. |
| 11. | PRODUCT REVISION & DISCONTINUATION |
| A. | Supplier’s policy is one of ongoing updates and revision of its product line. Supplier reserves the right to revise and discontinue any Product at any time upon thirty (30) Days prior notice to Distributor. |
| B. | With Distributor’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed, Supplier may fulfill a pending Purchase Order by shipping a later or updated revision of the SKU ordered under such Purchase Order. |
| 12. | TAXES |
Unless otherwise agreed in writing, all Product prices will be stated (and payments made) in United States dollars and are exclusive of sales, use, value added, and any other taxes and fees applicable to the sale of Product (“Sales Taxes”). Distributor shall be responsible for the payment of Sales Taxes, if any. Sales Taxes explicitly excludes any corporate income or franchise taxes or fees which shall be for the account of the Party on which such tax is imposed. Distributor agrees to collect and remit all applicable Sales Taxes associated with the sale of Products to its customers, and Distributor agrees to indemnify, defend, and hold harmless Supplier against all losses, penalties, interest, and expenses (including reasonable attorneys’ fees) for failure to remit any tax or fee for which Distributor is obligated according to this Section 12. Distributor represents that sales by Supplier to Distributor are for resale. Distributor will provide Supplier with valid resale certificates for those states (and localities) where deliveries are made that require such certificates.
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| 13. | SHIPPING TERMS |
| A. | All Products shipped from Supplier to Distributor shall be shipped Freight On Board (FOB) Supplier’s designated facility and governed by the Uniform Commercial Code rules of trade for the sale of goods.. Distributor will be responsible for the goods shipment from the Supplier designated facility. Title and risk of loss and damage shall pass to Distributor upon collecting goods by the freight forwarder. Any application software, as distinguished from firmware installed in the Product and required for the operation of such Product, (“Application Software”) included with Products shall be subject to the licensing terms of such Application Software. |
| B. | Supplier will enclose with all shipments a complete packing list containing the purchase order number, Supplier’s part number, quantity and date shipped, and amount on back order (if any). Supplier will comply with, and will provide with all shipments, all relevant information in accordance with applicable information and labeling requirements. |
| C. | The relevant Purchase Order number shall be placed on the shipping documents and in the reference fields of automated shipping documents. When a shipment contains multiple Purchase Orders, each Purchase Order number shall be listed and separated by a comma. |
| D. | Supplier shall mark all shipping containers and packages with all necessary shipping information, including Product bar code (if applicable), Purchase Order number, part number, quantity shipped and the addresses of shipper and consignee. |
| E. | Supplier shall work with Distributor to incorporate standard internal routing guide requirements over a timeframe to be mutually agreed upon by both Parties. |
| 14. | PRODUCT RETURNS |
| A. | Distributor may return Products to Supplier as provided hereunder. A Product is only eligible for return if the RMA (as defined below) with respect to such Product is requested within one year following the later of: (1) Sale of the Product to Distributor or (2) the sale of the Product to Distributor’s customer. All returns must include a return merchandise authorization (“RMA”) pursuant to Section 14(E) below and be received by Supplier within one year following the later of (1) Sale of the Product to Distributor or (2) the sale of the Product to Distributor’s Customer. This applies to all returns, including defective on arrival (“DOA”) and defective units. Supplier shall accept Product sent by Distributor’s customers directly to Supplier for warranty services (but not for refunds) if such returns are made in accordance with the terms hereof. Any Customers seeking a refund for a returned Product shall be required to return such Product to Distributor. All Product returns are subject to inspection by Supplier to confirm compliance with this Agreement before being accepted as returned hereunder. |
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| B. | RMA: Notwithstanding anything to the contrary herein, for each unit of Product to be returned to Supplier under subsection A of this section, Distributor must request and receive from Supplier an RMA before returning such Product to Supplier. To obtain an RMA, Distributor shall provide the Product Serial Number, date of Sale, Distributor Order Number associated with such Product and the reason for return. Distributor will use commercially reasonable efforts to consolidate all Product returned to Supplier and compile it in its original packaging, if available, with all components comprising such Product, including any accessories accompanying such Product. |
| C. | Transportation: Transportation for all DOA Product returned to Supplier by Distributor shall be arranged and paid for by Distributor, and Distributor shall bear the risk of loss or damage for all such returns. Title for all returned Product permitted to be returned under this Section shall pass from Distributor to Supplier upon (i) delivery to Supplier’s designated location for returned Product; and (ii) acceptance by Supplier of the product as returnable pursuant to this Agreement. Supplier will process, inspect, and determine the appropriateness of all returns by Distributor in good faith. For any Product returned by Distributor hereunder where the damage did not occur under normal use, or in any other manner not permitted for return by this Section (collectively, the “Unauthorized Returns”), Supplier will coordinate with Distributor to make such Unauthorized Returns available for collection by Distributor at Supplier’s facilities. Distributor will be responsible for arranging transportation of all such Unauthorized Returns from Supplier’s location. Within thirty (30) calendar days of written notice from Supplier detailing the amount and type of payments made to Distributor for any Unauthorized Returns, Distributor will remit payment to Supplier the amount of the payments for such Unauthorized Returns that Supplier has made to Distributor. |
| 15. | WARRANTIES, LIMITATIONS & DISCLAIMERS |
| A. | Supplier represents and warrants to Distributor, on the Effective Date, and with respect to each Product, at the time of the Sale of such Product to Distributor, that: |
| (i) | title to such Product will be delivered to Distributor free and clear of all liens and claims by third parties, provided that Application Software included with Products shall be subject to the licensing terms of such Application Software; |
| (ii) | such Product has been manufactured, imported, sold, shipped, packaged, labeled, and marketed in accordance with Applicable Law, and the sale of such Product in any jurisdiction in the Territory shall comply with Applicable Law; |
| (iii) | Supplier shall perform its obligations under the Customer warranty applicable to such Product; |
| (iv) | Supplier warrants that upon delivery of Product to Distributor, all Products purchased hereunder: |
| a. | shall be free from Defects in design, material and workmanship; |
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| b. | shall be new and not used, refurbished or reconditioned, unless otherwise specified; |
| c. | shall conform to the published specifications, drawings, and/or descriptions provided to Distributor before its purchase hereunder; and |
| d. | shall conform to all of Supplier’s representations and warranties. This warranty is in addition to and not in lieu of any other warranties given by Supplier and warranties created or existing pursuant to Applicable Law. This warranty is fully transferable by Distributor to Distributor’s customers. |
| (v) | The foregoing warranty does not apply to: |
| a. | any Products which have been subject to misuse, neglect, or accident or which have been modified, or caused to be modified, by Distributor, its agents, or employees, |
| b. | operating or environmental conditions that deviate from the parameters established in applicable specifications; |
| c. | improper installation, storage, maintenance, repair, or alteration by anyone other than Supplier; or |
| d. | Products having had their serial numbers or month and year of manufacture or shipment removed, defaced or altered. |
| (vi) | Distributor will notify Supplier of any Defect or DOA of which Distributor is aware. Subject to the provisions of Section 14, Supplier will, at no charge to Distributor, repair or replace such Product and return such Product to Distributor or (at Distributor’s request) the relevant Customer, without Defect or DOA within forty-five (45) Business Days at Supplier’s expense. |
| B. | Each Product sold by Distributor to a Customer shall be covered by the Supplier Limited Warranty set forth in Addendum C hereto from the date of the sale by Distributor to such Customer for a period of one year. |
| C. | Limitations on Warranties. |
Nothing in this Agreement or any other documentation or any oral communications with Distributor or any third parties may alter the terms and conditions of Supplier’s limited warranty statement shipped with the Products. Supplier may, in its sole discretion, revise its limited warranties from time to time. Amendments to Supplier’s limited warranties will have no effect on the Products previously received by or in transit to Distributor. DISTRIBUTOR SHALL BE SOLELY RESPONSIBLE FOR PROVIDING AND FULFILLING ANY WARRANTY IT MAKES TO ITS CUSTOMERS BEYOND SUCH WARRANTIES AS ARE ENUMERATED IN THIS AGREEMENT.
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| D. | Warranty Disclaimer. |
SUPPLIER MAKES NO EXPRESS OR IMPLIED WARRANTIES FOR ANY PRODUCTS EXCEPT THE LIMITED WARRANTY STATEMENT SHIPPED WITH THE SUPPLIER-BRANDED PRODUCTS, AND PUBLISHED AT WWW.TURNONGREEN.COM AND AS OTHERWISE EXPRESSLY SET FORTH HEREIN. SUPPLIER DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, IMPLIED WARRANTIES OF MERCHANTABILITY, NON-INFRINGEMENT, AND FITNESS FOR A PARTICULAR PURPOSE. SUPPLIER IS NOT RESPONSIBLE FOR THIRD-PARTY WARRANTIES OR FOR ANY EFFECT THAT THE SUPPLIER PRODUCTS OR SERVICES MAY HAVE ON THOSE WARRANTIES. THE PRODUCT WARRANTY AND ANY LIABILITY FOR ANY PRODUCT SHALL BE VOID IF MODIFIED OR DISASSEMBLED IN WHOLE OR IN PART BY AN NONAUTHORIZED USER OR SERVICER.
| E. | Supplier shall not sell or deliver to Distributor any Product manufactured by third parties that is subject to a limited warranty containing terms less favorable to Customers than the Supplier Limited Warranty without prior written consent of Distributor, which consent shall not be unreasonable withheld. |
| 16. | INDEMNIFICATION |
Supplier agrees to indemnify, defend and hold harmless Distributor and its employees, insurers, respective successors, representatives, attorneys and assigns, from and against any and all expenses, losses, costs, deficiencies, liabilities and damages (including related counsel fees and expenses) arising out of or due to (i) a breach of any of the representations, warranties or covenants of Supplier contained in this Agreement or (ii) the default in the performance of any of the covenants or agreements made by Supplier in this Agreement. Distributor agrees to indemnify, defend and hold harmless Supplier and its employees, insurers, respective successors, representatives, attorneys and assigns, from and against any and all expenses, losses, costs, deficiencies, liabilities and damages (including related counsel fees and expenses) arising out of or due to (i) a breach of any of the representations, warranties or covenants of Distributor contained in this Agreement or (ii) the default in the performance of any of the covenants or agreements made by Distributor in this Agreement.
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| 17. | INTELLECTUAL PROPERTY |
| A. | Subject to (i) advance written approval by Supplier of all uses of Supplier’s Intellectual Property, (ii) Distributor’s compliance with the terms and conditions set forth in this Agreement, and (iii) Distributor’s compliance with any logo/mark usage guidelines to be provided by Supplier, Supplier hereby grants Distributor a limited, revocable, royalty-free right and license to use and display Supplier Intellectual Property with respect to all Products herein, in the advertising and marketing of the Products during the term of this Agreement. |
| B. | Subject to (i) advance written approval by Distributor of all uses of Distributor’s Intellectual Property, (ii) Supplier’s compliance with the terms and conditions set forth in this Agreement, and (iii) Supplier’s compliance with any logo/mark usage guidelines to be provided by Distributor, Distributor hereby grants Supplier a limited, revocable, royalty-free right and license to use and display Distributor’s Intellectual Property with respect to all Products herein in the advertising and marketing of the Products during the term of this Agreement. |
| C. | Each Party agrees that it will take no action inconsistent with the other Party’s ownership of its Intellectual Property. During the term of this Agreement and thereafter, each Party agrees that it will neither have nor claim any right, title, or interest with respect to the other Party’s Intellectual Property. |
| D. | Each Party agrees that all uses by such Party of any of the other Party’s Intellectual Property shall reflect positively upon the owning Party and its products and will otherwise inure to the benefit of the owning Party. Each Party further acknowledges the great value of the goodwill associated with the other Party’s trademarks, logos, service marks, trade names, trade dress, and brands, and the fact that the other Party’s trademarks, service marks, trade names, and brands are inherently distinctive and/or have acquired secondary meaning in the mind of the public such that they are associated with the owning Party. |
| E. | Each Party agrees to change or correct, at its own expense, any material or activity that the other Party reasonably determines to be inaccurate, objectionable, or misleading or a misuse of the owning Party’s trademarks, service marks, trade names, brands, and copyrighted works. |
| 18. | INSURANCE |
| A. | Each Party shall procure at its own expense, and keep in effect at all times during the term of this Agreement, the following insurance policies: |
| (i) | A Commercial General Liability policy with limits of not less than one million dollars ($1,000,000) per occurrence for coverage protecting the other Party as an additional insured against claims for bodily injury and property damage, including but not limited to claims involving Products assembled and sold hereunder; two million dollars ($2,000,000) for the general aggregate; two million dollars ($2,000,000) for the products and completed operations aggregate; and one million dollars ($1,000,000) for personal and advertising injury; and the Commercial General Liability policy shall include contractual liability coverage in support of the indemnity provisions in this Agreement; and |
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| (ii) | An Umbrella Liability policy with limits of not less than one million dollars ($1,000,000) per occurrence and two million dollars ($2,000,000) aggregate, including but not limited to coverage for Products and contractual liability as provided above. |
| (iii) | Each such policy shall show the other Party as Additional Insured and shall provide that the issuer of such policy shall give the Additional Insured at least 30 days’ written notice of any cancelation of such policy. |
| B. | The failure by either Party to maintain either of the insurance policies specified in Sections 18(A)(i) and 18(A)(ii) constitutes a ground for immediate termination of this Agreement. |
| C. | Each Party shall furnish the other Party with certificates of insurance evidencing the insurance coverage specified in Sections 18(A)(i) and 18(A)(ii) annually and/or upon request, on or before the anniversary of the Effective Date. |
| 19. | NO EXPORT |
| A. | Distributor shall not export any Products to anywhere outside the Territory without the express written consent of Supplier. |
| B. | Distributor acknowledges that Products licensed or sold under this Agreement are subject to the export control laws and regulations of the United States or those of other countries from which they were manufactured or received and in which they are used. Distributor acknowledges that it is Distributor’s responsibility to comply with and abide by those laws and regulations. Further, under United States law, the Products shipped pursuant to this Agreement may not be sold, leased, or otherwise transferred to restricted countries or utilized by restricted Customers or a Customer engaged in activities related to weapons of mass destruction, including without limitation activities related to the design, development, production, or use of nuclear weapons, materials, or facilities, missiles or the support of missile projects, and chemical or biological weapons. Distributor agrees not to provide any written regulatory certifications or notifications on behalf of Supplier. |
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| 20. | FORCE MAJEURE |
Neither Party shall be liable for its failure to perform its obligations under this Agreement for such time and to the extent such failure to perform is caused by fire, flood, earthquake, tornado, typhoon, hurricane, pandemics (including COVID -19), or other acts of God, strikes, riots, war, acts of terrorism, rules or regulations of any governmental authority, or by compliance with any order or decision of any court, board or other governmental authority (each a “Force Majeure Event”); provided that the Party suffering a Force Majeure Event shall promptly give verbal notification, promptly confirmed in writing, to the other Party of the nature and extent of the matter causing the delay or failure and estimated duration of the suspension period.
| 21. | WAIVER; INDEPENDENT CONTRACTORS |
Either Party’s failure to insist on performance of any of the terms or conditions herein or to exercise any right or privilege or waiver of any breach hereunder shall not thereafter be deemed a waiver by such Party of any other terms, conditions, rights, or privileges. It is understood and agreed that Supplier and Distributor are independent contractors, and neither is to be considered an employee, agent, partner, or legal representative of the other, or a joint venture with the other, for any purpose. Neither Party will make any warranties or representations or assume any obligations on the other Party’s behalf. Neither Party is, or will claim to be, a legal representative, partner, franchisee, agent, or employee of the other Party. Each Party is responsible for the direction and compensation, and is liable for the actions of, its employees.
| 22. | ASSIGNMENT; SUCCESSORS |
The rights and obligations of the Parties under this Agreement may not be assigned by either Party, nor may either Party subcontract or otherwise delegate the performance of any of its duties without, in either case, the other’s prior written consent (which consent shall not be unreasonably withheld, and which consent shall not relieve the assigning Party of any obligations hereunder or for full responsibility for the actions or omissions of any permitted assignees, delegates, successors and subcontractors). The foregoing prohibition shall not apply to an assignment by a Party to a wholly owned subsidiary or affiliate of such Party. Any assignment or delegation in contravention hereof shall be null and void. The provisions hereof shall be binding upon and inure to the benefit of the Parties hereto and their respective heirs, legal representatives, successors, and assigns. No third party, other than such heirs, legal representatives, successors, and assigns shall be entitled to enforce any or all of the provisions of this Agreement or shall have any rights hereunder whatsoever.
| 23. | NOTICES |
Notices, consents and demands required or permitted to be given under this Agreement shall be in writing and shall be effective when received or refused, whether by hand delivery, nationally recognized overnight courier (with evidence of receipt or refusal), U.S. Mail (return receipt requested), or by electronic mail, to the Parties’ respective address as stated in this Agreement or to such other address as the Parties shall designate by written notice effective upon receipt to each other to the addresses set forth below:
|
If to Supplier: Attn: Amos Kohn TurnOnGreen Inc. 1421 McCarthy Blvd. |
If to Distributor: Attn: Attn: Kris Bowen Tesco-Solutions LLC 9955 Crosspoint Boulevard, Suite 100, Indianapolis, IN 46256 Email: [email protected] |
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For purpose of this Agreement, “Receipt” is defined as follows:
| (i) | for email, on the date sent (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient; |
| (ii) | for hand delivery, the date the sending Party delivers the Notice to the receiving Party or its agent (with written confirmation of receipt); |
| (iii) | for United States Mail, the third day after the sending party sends the Notice by certified or registered mail to the receiving Party’s principal place of business (with written confirmation of receipt); and |
| (iv) | for express courier, the date the express courier company delivers the Notice to the receiving Party (with written confirmation of receipt). |
| 24. | CONFIDENTIALITY; RESTRICTION ON USE OF CONFIDENTIAL INFORMATION |
Any Confidential Information disclosed by either Party related to this Agreement shall be subject to the Nondisclosure Agreement, except that the Parties’ obligations to protect Confidential Information shall survive the expiration or earlier termination of this Agreement for three (3) years.
| 25. | SEVERABILITY |
Any term or provision of this Agreement, which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is found to be so broad as to be unenforceable, the provision shall be interpreted to be only so broad as to be enforceable.
| 26. | TERMINATION; BANKRUPTCY & CREDITORS’ RELIEF PROCEEDINGS; SURVIVAL |
| A. | This Agreement may be terminated at any time upon the mutual written agreement of the Parties. |
| B. | This Agreement may be terminated by either Party by providing ninety (90) Days written notice. |
| C. | Either Party may refuse to continue to do business with the other Party, and immediately cancel all outstanding Purchase Orders or refuse to sell Products if the other Party is: |
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| (i) | in material breach of this Agreement, and |
| (ii) | does not cure such material breach within thirty (30) days of written notice, except as provided for to the contrary herein. |
| D. | In the event of insolvency, adjudication of bankruptcy, filing of voluntary or involuntary petition in bankruptcy, or any assignment for the benefit of creditors of, by or against a Party, the other Party, upon notice of such action, shall be entitled to immediately cancel any outstanding purchase orders or terminate this Agreement without notice and without liability to the other Party. |
| E. | Upon any termination of this Agreement, the provisions of this Agreement shall continue to apply to all Purchase Orders accepted by Supplier prior to the effective date of such termination, except as otherwise set forth in Section 26(D); termination shall not prejudice or otherwise affect the rights or liabilities of either Party with respect to activities prior to such termination. Termination of this Agreement shall not relieve Distributor of any obligation to make payments under the provisions of this Agreement. |
| F. | Termination shall not exclude other remedies for failure of a Party to perform its obligations. |
| G. | Unless otherwise provided herein, all sections of this Agreement required for enforcement of a Party’s rights hereunder, including Sections 8, 14, 15, 16, 17, 19, 24, 25, 26, 27 and 28, shall survive termination of this Agreement to the extent necessary to protect and enforce each Party’s rights enumerated hereunder. |
| 27. | LIMITATION OF LIABILITY; JURISDICTION; REMEDIES NOT EXCLUSIVE |
| A. | EXCEPT FOR A VIOLATION OF A PARTY’S INTELLECTUAL PROPERTY RIGHTS, BOTH PARTIES EXPRESSLY AGREE THAT IN NO EVENT SHALL EITHER PARTY BE LIABLE OR RESPONSIBLE TO THE OTHER PARTY FOR ANY INCIDENTAL, INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES WHATSOEVER, EVEN IF SUCH PARTY HAS BEEN ADVISED, KNEW OF, OR SHOULD HAVE KNOWN OF THE POSSIBILITY THEREOF. IN NO EVENT IS EITHER PARTY LIABLE FOR LOST INCOME, REVENUE, OR PROFITS (IN EACH CASE, EXCEPT FOR ANY PARTY’S PAYMENT OBLIGATIONS HEREUNDER), LOSS OF BUSINESS OPPORTUNITY, LOSS OF GOOD WILL OR REPUTATION, LOST OR CORRUPTED DATA OR SOFTWARE, BUSINESS INTERRUPTION, OR PROCUREMENT OF THIRD-PARTY PRODUCTS OR SERVICES. |
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| B. | The Parties will first attempt to resolve any claim, or dispute or controversy (whether in contract, tort, or otherwise) against the other, its agents, employees, successors, assigns, or affiliates arising out of or relating to this Agreement, advertising, or any related purchase (“Dispute”) through face-to-face negotiation with persons fully authorized to resolve such Dispute or through mediation utilizing a mutually agreeable mediator, rather than through litigation. The existence or results of any negotiation or mediation will be treated as confidential, for settlement purposes. In the event the Parties are unable to resolve such Dispute within thirty (30) Days of notice of such Dispute to the other Party, the Parties shall be free to pursue all remedies available at law or in equity. Should either party commence litigation to enforce any term of this Contract, such litigation shall be exclusively conducted in the Superior Court of New York, NY. |
| C. | Notwithstanding this Section 27, either Party will have the right to obtain from a court of competent jurisdiction a temporary restraining order, preliminary injunction, or other equitable relief to preserve the status quo, prevent irreparable harm, avoid the expiration of any applicable limitations period, or preserve a superior position with respect to other creditors, although the merits of the underlying Dispute will be resolved in accordance with Section 27. |
| D. | The rights and remedies contained in this Agreement are in addition to any other rights and remedies available at law or in equity. |
| 28. | ENTIRE AGREEMENT; PRECEDENCE OF DOCUMENTS; DRAFTING; GOVERNING LAW & VENUE |
| A. | This Agreement and the Nondisclosure Agreement represent the entire understanding and agreement between the Parties as to the subject matter hereof, and supersede any and all other prior agreements, either oral or written, between the Parties hereto with respect to the subject matter hereof. Each Party acknowledges that no representations, inducements, promises, or arguments, orally or otherwise have been made by any Party, or any third-party, except as may be set forth in this Agreement and the Nondisclosure Agreement. Supplier’s agreement to sell Products to Distributor is not conditioned upon any terms and conditions except as expressly set forth in this Agreement and the Nondisclosure Agreement. |
| B. | Nothing in this Agreement is intended to, or will be construed to, create any partnership, joint venture, joint enterprise or other similar joint relationship, nor shall either Party be deemed to be an employee, agent or legal representative of the other for any purpose whatsoever. Neither Party will have any authority, whether express, implied or apparent to assume or create any obligations for, on behalf of, in the name of, or for the benefit of the other. |
| C. | This Agreement may not be altered, supplemented, or amended except by an agreement in writing, signed by the Parties. |
| D. | To the extent that there may be conflicting provisions contained in any of the separate documents referenced in this Agreement or agreements between Distributor or Supplier, the documents shall be construed in such a way as to make the provisions non-conflicting. In the event that conflicting provisions cannot be so construed, the documents shall be given priority in the following order: |
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| (i) | Amendments to this Agreement, |
| (ii) | This Agreement, |
| (iii) | The Addenda to this Agreement, and |
| (iv) | Documents referenced in this Agreement. |
| E. | The Parties acknowledge that each has been represented by independent counsel of such Party’s choice throughout all negotiations that have preceded the execution of this Agreement and that each such Party has executed the same with consent, and upon the advice of said independent counsel. |
| F. | This Agreement shall be construed by the laws of the State of New York without giving effect to any principals of conflicts of laws, and each of the Parties hereto hereby consent to and agree that any action for the enforcement of this Agreement shall be brought in the courts of the State of New Yor in New York City. |
[Signature Page Follows]
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IN WITNESS WHEREOF, each Party has caused this Agreement to be executed by its duly authorized representative, to be effective as of the later date set forth below the Parties’ signatures.
Agreed and Accepted:
|
Supplier
TurnOnGreen Inc. |
Distributor
TESCO-SOLUTIONS LLC
| ||
|
Signature |
Signature | ||
|
Name: Amos Kohn |
Name: | ||
| Title: Chief Executive Officer |
Title: Chief Executive Officer | ||
T: (510) 657-2635 • 1421 McCarthy Blvd., Milpitas, CA 95035 • www.turnongreen.com
Exhibit 10.3
PURCHASE AGREEMENT
This Purchase Agreement (hereinafter “this Agreement”) is made and effective as of the 7th day of March, 2022 (hereinafter the “Effective Date”), by and between TurnOnGreen Inc., a Nevada corporation, having offices at 1635 S. Main Street Milpitas, California, 95035 (hereinafter “Company” or “Seller”) and Unique Electric Solutions, Inc., a Delaware Corporation having offices at 34 E Main St., Suite 313, Smithtown, NY 11787 (hereinafter “UES” or “Buyer”).
WHEREAS, UES wishes to purchase from Company, and Company has agreed to supply, the Goods and Services set forth in the attached Exhibit A, subject to the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the mutual covenants set forth herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby irrevocably acknowledged, UES and Company hereby agree as follows:
| 1.0 | DEFINITIONS AND INTERPRETATION |
| 1.1 | Capitalized terms used herein shall have the meanings ascribed to them in the body of this Agreement or as set forth below in this Section 1.1. Unless the context requires otherwise: |
| (a) | “Agreement” means this Agreement, including any Exhibits attached hereto which are hereby incorporated by reference and form part of this Agreement; |
| (b) | “Buyer” means UES. |
| (c) | “Goods” means the products, materials, and equipment to be supplied by Seller and purchased by Buyer, which are more particularly described in the attached Exhibit A; |
| (d) | “Offer” means any quotation, bid, or proposal for Goods and/or Services made by Seller to Buyer; |
| (e) | “Order” means Buyer’s purchase order, or similar procurement instrument; |
| (f) | “Party” means Buyer or Seller, and “Parties” means both Buyer and Seller; |
| (g) | “Seller” means TurnOnGreen Corporation; |
| (h) | “Services” means the services to be performed by Seller and purchased by Buyer, which are more particularly described in the attached Exhibit A; and |
| (i) | “Statement of Work” means the specification(s), requirements, and details related to the Goods and/or Services. |
| 1.2 | In this Agreement: |
| (a) | The use of headings and the division of this Agreement into articles, sections and other subdivisions are for convenience of reference only and shall not affect the interpretation of this Agreement; |
| ©TurnOnGreen Inc. | Page 1 of 20 | Revision March, 2022 |
| (b) | References in this Agreement to an article, section or other subdivision are to the corresponding article, section or other subdivision of this Agreement, unless otherwise indicated; |
| (c) | A word defined in or importing the singular number has the same meaning when used in the plural number, and vice versa; and |
| (d) | Unless otherwise stipulated, all references to currency and amounts stated in this Agreement are in United States dollars ($USD). |
| 1.3 | The provisions of this Agreement shall apply to all Orders issued by Buyer to Seller. Seller’s acceptance of Buyer’s Order, and any changes or amendments thereto, is expressly conditioned upon and strictly limited to the terms and conditions set forth herein. Unless otherwise agreed upon in writing by a duly authorised representative of Buyer, Buyer objects to and is not bound by any terms or conditions that differ from, add to, or modify these terms and conditions including, but not limited to, any terms and conditions proposed by Seller whether contained in any forms, acknowledgements, or on Seller’s website. Buyer’s failure to object to any terms and conditions or any other provisions contained in any communication from Seller does not waive any of the provisions set forth herein. |
| 1.4 | This Agreement shall become effective as of the Effective Date specified above and, unless terminated earlier pursuant to the termination provisions specified herein, the Agreement shall automatically renew on an annual basis hereinafter referred to as the "Term"), unless otherwise terminated by either party within 60 days written notice of annual expiration date. Any outstanding Orders as of the date of such termination shall survive such termination until such Order is completed and all payment obligations thereunder are satisfied and further provided that the “Buyer’s Forecast” shall survive termination. |
| 2.0 | ACCEPTANCE AND DELIVERY OF ORDER |
| 2.1 | (A) Purchase Orders may be submitted under this Agreement at any time during the Term. All Purchase Orders submitted after notice of termination has been provided, but prior to the end of the term of the Agreement, will be honored by Supplier (but may be shipped after the end of the term of the Agreement). |
(B) All Purchase Orders submitted by Buyer shall reference this Agreement. Schedules and dates, including ship dates, must be agreed upon prior to the acceptance of the Purchase Order. Seller’s acceptance of a Purchase Order is conditioned upon (1) the submitting Party’s agreement and acceptance that all Purchase Orders shall be deemed to incorporate and be subject to the terms and conditions of this Agreement, and (2) the submitting Party’s continued creditworthiness. Supplier shall acknowledge all accepted Purchase Orders in writing or shall notify the submitting party if a Purchase Order for any reason cannot be accepted by Seller. The elapsed time, beginning when Seller accepts a Purchase Order and ending when the Product referenced in that Purchase Order is delivered to the Port of Origin (defined below), is referred to herein as the “Lead Time.” |
| 2.2 | (A) The elapsed time, beginning when Seller accepts a Purchase Order and ending when the Product referenced in that Purchase Order is delivered to the Port of Origin (defined below), is referred to herein as the “Lead Time.” |
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| (B) Delivery of any Product purchased under this Agreement (“Delivery”) shall be deemed to be effected upon Seller’s proper Delivery of such Product to the international carrier at the designated Port of Origin and such Product shall be deemed shipped FOB (Free On Board) shipping point according to Incoterms 2022 - International Commercial Terms, provided that such shipment relates to non-containerized sea freight and shipping on inland waterways, in other cases, EXW (Ex Works) shall apply to all shipments, for which Seller shall be responsible for the transport of the Products from its facilities to the designated facility or terminal at the Port of Origin. Seller assumes the transport costs and fees associated with the Product(s) until the Product(s) reach the port of origin (the “Port of Origin”) and loaded on a vessel for export to Buyer, and Seller shall be responsible for obtaining any required export permits and any other regulatory approvals to export the Product(s). Once the Products(s) are loaded on a vessel for export to Buyer, Buyer shall be financially responsible for all costs associated with transport as well as taxes, customs, fees and regulatory approvals associated with importing the Products into the United States, |
| (C) Purchase Order confirmations shall state Seller’s required Delivery time for the applicable Product(s). For Delivery of a Product to be considered on time, it must be delivered to the Port of Origin within the Delivery window. Proper scheduling requires the requested Delivery dates be set in accordance with the Lead Time. |
| (D) Supplier shall acknowledge receipt of Buyer’s order and confirm estimated Delivery date within five (5) business days of receipt of the Purchase Order. |
| 2.3 | Seller shall advise Buyer, within five (5) days of receipt of Buyer’s Order, whether Seller accepts or rejects Buyer’s Order. If Seller accepts Buyer’s Order, Seller shall issue an Order acknowledgement to Buyer within the aforesaid five (5) day period. If Buyer does not receive notice of rejection from Seller within the aforesaid five (5) day period, Seller shall be deemed to have accepted Buyer’s Order. |
| 3.0 | SCOPE OF WORK AND PERFORMANCE |
| 3.1 | Seller is responsible for delivery of Goods and/or performance of Services under Buyer’s Order, as applicable. |
| 3.2 | If Buyer’s Order includes a Statement of Work, which must be agreed upon by the parties in writing before becoming effective, (i) Seller is responsible for meeting all requirements specified therein, and (ii) Seller may subcontract any part of the Statement of Work to third parties, provided that the subcontractor will be bound by all obligations herein, including adherence to all export control requirements. |
| 3.3 | Seller shall to the best of their abilities maintain inventory of finished Goods in sufficient quantities to continuously meet Buyer’s anticipated requirements for the Goods provided by Buyer. Buyer will, to the best of their abilities, prepare and deliver to Seller a rolling 18-month forecast, updated every six (6) months, of the quantity of Goods, with separate line items to designate quantity forecasts for each Good, that Buyer expects to require from Seller (the “Buyer Forecast”). |
| 3.4 | Buyer’s Forecast does not constitute Buyer’s commitment to buy. Buyer will issue a “Blanket Purchase Order” to the Seller for a minimum twelve (12) month period, and Seller may adjust quantity and schedule every six (6) months to meet Buyer’s demands. |
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| 3.5 | If Seller’s manufacturing capacity or supply of materials or components becomes constrained for any reasons thereby impacting the ability of Seller to meet Buyer’s Forecast, Seller will nonetheless give Buyer’s Order allocation based on when time when the Purchase Order was received among all other customers of Seller. |
| 3.6 | Seller will to the best of their abilities accommodate an increase of up to twenty-five percent (25%) in the then current Buyer’s Forecast, upon request of Buyer, subject at all times to the production lead-time for the Goods. |
| 3.7 | Seller shall, at its own expense, use commercially reasonable efforts to continuously improve the quality of the Goods, and to achieve any mutually agreed upon cost, production efficiency, quality, and responsiveness targets. Seller’s efforts and accomplishments towards meeting such targets will be reviewed periodically. Buyer and Seller agree to pursue opportunities to further reduce the price of the Goods. |
| 3.8 | Seller shall give Buyer 75 days prior written notice in the event of any changes which may affect the performance of Buyer’s Order, including, but not limit to, any (i) organisational, operational, or other changes which may affect Seller’s performance of Buyer’s Order, (ii) relocation of any of Seller’s facility(ies) involved in performance of Buyer’s Order, (iii); transfer of any significant part of the relevant process or manufacturing operations from one facility to another, (iv) significant changes to Seller’s workforce, or (v) refusal, suspension, withdrawal, or revocation of a relevant quality or capabilities, systems, or approvals. |
| 3.9 | Buyer, with prior written consent from Seller, has the right to sell goods and services purchased under this agreement to sub-distributors in specific territories. |
| 3.10 | Seller acknowledges that, under the terms of this Agreement, Product warranties are transferable to sub-distributors upon Seller prior approval. The warranties obligation is subject to the terms identified in clause 13.1. |
| 3.11 | Buyer agrees that they will not approach nor compete for client’s accounts without prior formal consent of Seller at any time during the contracted course of the Agreement, and/or for a time of 24 months after Seller and Buyer terminate this Agreement. Buyer will provide to seller on a quarterly basis, a list of active clients for whom the Seller will not approach according to the terms of this Agreement. |
| 4.0 | PRICES |
| 4.1 | All prices stated in this Agreement and in Buyer’s Order are firm and stated in United States Dollars, and all invoices issued by Seller and payments made by Buyer shall be in United States Dollars. Seller shall not charge Buyer prices higher than those stated in this Agreement or Buyer’s Order unless agreed to in writing by a duly authorised representative of Buyer. |
| 4.2 | Products purchased from Seller requiring custom labeling, artwork, customized tooling and extended lead time or other unique identifying mark are subject to higher prices than those stated in this Agreement. The pricing for custom labeled goods shall be agreed upon in writing by both parties prior to order initiation. |
| 5.0 | INVOICES AND PAYMENT |
| 5.1 | Unless stated otherwise in Buyer’s Order, Seller shall not issue invoices and Buyer shall not make any payments to Seller prior to delivery of Goods or completion of Services. Seller invoices shall identify Buyer’s Order number, line-item number(s), part number(s), description(s), and quantity invoiced. Shipping charges, sales tax, or any other charges Buyer has agreed to pay must be itemized separately on Seller’s invoices. Unless such charges are itemised, Buyer may take any applicable discount based on the full amount of each invoice. Seller agrees that its books and records, or such parts thereof as may relate to the performance hereunder, shall at all reasonable times be subject to inspection and audit by Buyer’s employees or representatives, but no more than once per quarter. |
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| 5.2 | Buyer shall make payment to Seller within sixty thirty (60) days of receipt of a correct invoice for Goods delivered to and accepted by Buyer unless Buyer’s Order specifies different payment terms, in which case the payment terms specified in Buyer’s Order shall apply. Unless otherwise authorised by Buyer, the payment due date for Goods delivered early by Seller shall be calculated based on the delivery schedule specified in Buyer’s Order. Any payment discount offered by Seller shall be computed from the later of (i) the date of delivery, or (ii) the date a correct invoice is received by Buyer. For purposes of earning the discount, payment shall be deemed to have been made on the date that the funds are electronically transferred to Seller’s account. |
| 6.0 | TAXES |
| 6.1 | Except as otherwise specified in Buyer’s Order or unless prohibited by law, Buyer shall pay applicable VAT, or sales taxes that may be levied upon any of the Goods and/or Services by reason of the sale, or use of the Goods and/or Services. All taxes of any nature invoiced to Buyer must be specifically identified and itemised separately. If any tax, or portion thereof, included or added to the price paid by Buyer to Seller is subsequently refunded to Seller, Seller shall promptly pay to Buyer the amount of such refund. |
| 7.0 | PACKAGING, MARKING and PRIVATE LABELING |
| 7.1 | If stated in Buyer’s Order, Seller shall comply with any reasonable packaging, marking or custom label requirements as detailed in Exhibit B. however, some packaging materials such as product box and crates may not be customized; otherwise, Seller shall package and mark all Goods in accordance with good commercial practices and adequately protect Goods against damage and deterioration during transit. Packing or marking charges are not allowed, unless specifically authorised in Buyer’s Order. Seller’s packing list must include, at a minimum, Buyer’s Order number, line-item number(s), part number(s), serial number, description(s), and quantity shipped. |
| 8.0 | DELIVERY, SHIPPING TERMS, TITLE, AND RISK OF LOSS |
| 8.1 | Unless otherwise agreed in writing by the parties, Seller shall deliver the Goods to Buyer’s designated location (the "Delivery Point"). Time of performance and delivery is of the essence. Seller agrees to notify Buyer in writing immediately if at any time it appears that Seller may not be able to comply with the Order’s delivery schedule. Such notification shall include the actual or potential reasons for the delay, the actions being taken to remedy the delay, and the anticipated revised delivery schedule. Such notice, and any assistance furnished by Buyer to overcome delays, shall not waive Buyer’s remedies for delay and resulting default, including termination rights, if Seller fails to meet the Order delivery schedule. |
| 8.2 | All shipments shall be delivered DAP in accordance with the version of Incoterms in effect as of the date of Buyer’s Order, unless otherwise agreed to by the parties in writing. Seller shall bear risk of loss or damage to Goods during transit. Title and risk of loss passes to Buyer upon delivery of the Goods at the Delivery Point. For the avoidance of any doubt, under no circumstance shall Buyer be the importer of record for any shipment. Delivery shall not be deemed complete until the Goods have been actually received by Buyer at the Delivery Point. Unauthorised advance shipments and shipments of excess quantities may be returned at Buyer's sole option and Seller’s sole risk and expense |
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| 9.0 | FORCE MAJEURE |
| 9.1 | Any delay or failure of either Party to perform its obligations under Buyer’s Order shall be excused if such delay or failure is the result of an unforeseeable event or occurrence beyond the reasonable control of such Party, and without such Party’s fault or negligence including, but not limited to, acts of God, acts of government, terrorism, fires, floods, windstorms, explosions, riots, natural disasters, wars, sabotage, or court injunction (each a “Force Majeure Event”). If such delay exceeds thirty (30) calendar days, Buyer may, at its option, terminate Buyer’s Order without further liability to Seller except for Goods already delivered by Seller and accepted by Buyer prior to the date of such termination. |
| 10.0 | QUALITY CONTROL SYSTEM |
| 10.1 | Seller shall provide and maintain a quality control system to an industry recognised quality standard and in compliance with any other specific quality requirements identified in Buyer’s Order. Goods will be manufactured following the ISO 9001 standards and be Restriction of Hazardous Substances Directive (RoHs) compliant. Records of all quality control inspection work by Seller shall be kept complete and available to Buyer and its customers for a minimum of five (5) years or longer if stated in Buyer’s Order. |
| 11.0 | INSPECTION |
| 11.1 | Buyer reserves the right to inspect all Goods prior to shipment by Seller, and in furtherance thereof, Seller shall permit employees and/or representatives of Buyer and Buyer’s customer and regulatory authorities to have access to Seller’s facilities during normal business hours and without causing material disruption to Seller’s business. No audit or inspection shall occur unless Buyer has provided at least ten (10) days’ prior written notice thereof to Seller. Notwithstanding such inspection, all Goods shall be subject to final inspection and acceptance by Buyer upon receipt. Buyer’s inspection, or its lack of inspection, shall not affect any express or implied warranties. Where work is subcontracted to third parties, Seller shall seek to secure rights for Buyer to inspect, test, and review work at subcontractor’s premises. If Buyer’s Order specifies that Goods shall be subject to inspection at Seller’s facilities, Seller shall provide reasonable space and assistance for the safety and convenience of Buyer’s and Buyer’s customer’s employees and/or representatives. At the time of inspection, Seller shall make available to such representative’s copies of all specifications, drawings, and other technical data applicable to the Goods ordered. No inspection, test, delay, or failure to inspect or test, or failure to discover any defect or other non-conformance shall relieve Seller of any obligations under Buyer’s Order or impair any rights or remedies of Buyer, including revocation of acceptance. Seller shall provide a Certificate of Conformity with all deliveries certifying that Goods delivered and/or Services performed meet all requirements of Buyer’s Order and any Statement of Work thereunder. All nonconforming Goods and materials designated as scrap shall be permanently marked and controlled as such until physically rendered unusable. |
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| 12.0 | ACCEPTANCE |
| 12.1 | Payment for any Goods and Services under Buyer’s Order shall not constitute acceptance thereof. Buyer reserves the right to reject and refuse acceptance of Goods that do not conform to the requirements, instructions, specifications, drawings, data, or warranties stated or referenced in this Agreement or Buyer’s Order, provided that Buyer notifies Seller that such Goods are nonconforming within ten business (10) days of receipt. Nonconforming Goods shall be returned to Seller for full credit, repair, or replacement at Seller’s sole risk and expense, including transportation charges and Buyer will suspend payment of any invoice relating such nonconforming Goods. Such rights and remedies shall be in addition to any other remedies provided by this Agreement or law. |
| 13.0 | WARRANTIES |
| 13.1 | All warranties of Seller, whether created expressly by law or in fact, are incorporated herein by reference, apply to Buyer’s Order, and are supplemented by the following express warranties. For a period of thirty six (36) months from Buyer’s acceptance, or such other period as may be agreed by the Parties in writing or specified in Buyer’s Order (the “Warranty Period”), all Goods and/or Services shall (i) conform with any and all specifications, drawings, samples, or other descriptions referenced in and/or furnished in this Agreement or with Buyer’s Order, (ii) be free from defects in material, and workmanship, (iii) be new and not contain used or reconditioned material, (iv) be suitable for intended purpose, (v) be free and clear of any security interests, liens or other encumbrances, and (vii) comply with all applicable laws and regulations. Seller’s warranty shall be void and of no effect and does not apply to Product that have been subjected to: (i) operation in excess of recommended capacity, (ii) inadequate electrical power, overloaded, shorts, etc., or humidity-control, (iii) accident or disaster, including without limitation, fire, flood, water, wind, and lightning, (iv) neglect, including without limitation, power transients, (v) abuse or misuse, (vi) failure of the user to follow Seller’s operating instructions, (vii) unauthorized modification, installation or repair by persons other than authorized representatives of Seller, (viii) use for purposes other than as specified in the published operating instructions; or (viii) other like actions and conditions; or (d) are not properly stored, installed, maintained, or operated under normal conditions and in accordance with Seller’s recommendations. Seller’s warranty shall be void and of no effect if the defect has arisen from damages occurring to the Product subsequent to delivery at the location designated in Section 5.3. |
| 13.2 | If Buyer determines there is a defect in the Goods at any time during the Warranty Period, Seller shall, at its sole expense and without delay, repair or replace the defective Goods or, at Buyer’s sole option, refund to Buyer the price of the defective Goods. In the event that it is impractical to return the rejected Goods to Seller, Buyer may require Seller to carry out the necessary, repair, modification or replacement as appropriate at Seller’s expense where the Goods are located. Notwithstanding the foregoing, in case of product return under warranty, Buyer shall be responsible to cover the shipping cost of returned goods under warranty from Buyer to Seller and Seller will be responsible to cover the shipping cost of replace goods under warranty from Seller to Buyer. Seller will accept product for repair only after Buyer has obtained a return merchandise authorization from Seller, which shall be provided within three (3) business days from Buyer’s request. |
| 13.3 | Any and all repaired or replaced Goods shall be covered by this warranty for a new period equal to the original Warranty Period. All obligations of each party hereunder shall survive acceptance of and/or payment for the Goods. Seller shall indemnify and hold Buyer harmless from and against all liability, loss, consequential and incidental damages, and expenses resulting from the breach of any warranty, or resulting from any other act or omission by Seller, its agents, or employees, while in the performance hereof. |
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| 13.4 | If at any time the Goods and/or Services become non-conforming for any reason, Seller must immediately notify Buyer in writing. In addition, if required by Buyer, Seller shall provide Buyer a report identifying the cause of the non-conformance and any additional Goods or Services that may be affected by the defect, and/or the repair action to be taken. |
| 13.5 | The foregoing express warranties, as solely between Buyer and Seller hereunder, shall survive delivery, inspection, acceptance and payment and shall extend to Buyer’s first and second tier customers.. |
| 13.6 | EXCEPT FOR THE EXPRESS WARRANTY SET FORTH ABOVE, SELLER MAKES NO OTHER WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE GOODS, INCLUDING ANY WARRANTY OF MERCHANTABILITY, WHETHER EXPRESS OR IMPLIED BY LAW, COURSE OF DEALING, COURSE OF PERFORMANCE, USAGE OF TRADE OR OTHERWISE. |
| 14.0 | COUNTERFEIT PARTS |
| 14.1 | As used herein, “Part” means any material, product, component, device, module, assembly, subassembly, or the like sold or delivered by Seller to Buyer either as Goods or as a constituent part of a Goods, and “Counterfeit Part” means a Part that is (i) an unauthorised copy or substitute that has been identified, marked, and/or altered by a source other than the Part’s legally authorised source and/or has been misrepresented to be an authorised item of the legally authorised source, and/or (ii) previously used parts provided or represented as “new.” A Part is a “Suspect Counterfeit Part” if visual inspection, testing, or other information provides reason to believe that the Part may be a Counterfeit Part. As used herein, “authentic” means (i) genuine; (ii) from the legitimate source claimed or implied by the marking and design of the Part offered; and (iii) manufactured by, or at the behest and to the standards of, the manufacturer that has lawfully applied its name and trademark for that model/version of the Part. |
| 14.2 | Seller represents and warrants that only new and authentic Parts and materials are used in Goods ordered by Buyer and that such Goods contain no Counterfeit Parts. No other Part, except with respect to Goods replacement or repair, other than a new and authentic Part shall be used unless approved in advance in writing by Buyer’s duly authorised representative. To further mitigate the possibility of the inadvertent use of Counterfeit Parts, Seller shall only purchase authentic parts/components directly from original equipment manufacturers (“OEMs”) and original component manufacturers (“OCMs”) or through the OEM’s/OCM’s authorised distributors. Seller shall make available to Buyer, at Buyer’s request, OEM/OCM documentation that authenticates traceability of the Parts to the applicable OEM/OCM. Purchase of Parts from independent distributors is not authorised unless first approved in writing by Buyer’s duly authorised representative. |
| 14.3 | Seller shall maintain a documented system (policy, procedure, or other documented approach) that provides for prior notification to Buyer and Buyer’s written approval before Parts are procured from sources other than OEMs/OCMs or through the OEM’s/OCM’s authorised distributors. Seller shall provide copies of such documentation for its system for Buyer’s inspection upon Buyer’s request. |
| 14.4 | Acceptance of Buyer’s Order constitutes confirmation by Seller that it is the OEM, OCM, or a franchised or authorised distributor of the OEM/OCM for the Goods procured under Buyer’s Order. Seller further warrants that OEM/OCM acquisition documentation that authenticates traceability of the Parts is available upon request. Should Seller become aware of a confirmed or suspect Counterfeit Part that, by any means, has been delivered to Buyer or acquired for Buyer’s Order whether or not delivered to Buyer, Seller shall notify Buyer in writing as soon as possible but not later than five (5) days of such discovery. Seller shall verify receipt of this notification by Buyer. This requirement shall survive expiration or completion of Buyer’s Order. Seller shall be liable for cost of Counterfeit Parts and Suspect Counterfeit Parts and the cost of rework or corrective action that may be required by Buyer to remedy the use or inclusion of such Parts. Seller shall quarantine remaining Suspect Counterfeit Parts and Counterfeit Parts, in inventory and make them available for investigation by appropriate government authorities. |
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| 14.5 | Seller shall flow the requirements of this Section to its subcontractors and suppliers at any tier for the performance of Buyer’s Order. |
| 15.0 | DATA AND SOFTWARE |
| 15.1 | For data other than computer software delivered pursuant to or in connection with Buyer’s Order, Seller grants to Buyer, and all others acting on its behalf, a paid-up, non-exclusive, irrevocable worldwide licence, including a right to sublicence to its subcontractors, customers and their end-users, of all such data, including copyrighted data, and to make copies of it, by Buyer and its customers or their end users’ as needed to use such in connection with the Goods and/or Services. |
| 15.2 | For computer software delivered pursuant to or in connection with Buyer’s Order, Seller grants to Buyer, a paid-up, non-exclusive, irrevocable worldwide licence, including a right to sublicence to its subcontractors, customers and their end-users, of all such computer software, including copyrighted or patented software, and to make copies of, by Buyer and its customers or their end users’ as needed to use such in connection with the Goods and/or Services. |
| 16.0 | CHANGES |
| 16.1 | Seller will not make any changes to the Goods, their specifications, or revision without the Buyer’s prior written consent. To make any such changes, Seller will submit an engineering change notice (ECN) to Buyer. Buyer shall advise Seller in writing if Buyer wishes to proceed with the change as documented in the ECN. Seller shall not implement any changes associated with the ECN without first receiving written confirmation to proceed from Buyer. |
| 16.2 | Buyer may at any time, by a written change order or similar instrument issued by a duly authorised representative of Buyer, make changes within the general scope of Buyer’s Order including, but not limited to, changes to (i) specifications, drawings, designs, or description of Services, (ii) method of shipment or packaging, (iii) reasonable adjustments in quantities or delivery schedules or both, and (iv) place of delivery. Seller shall comply promptly with such direction. |
| 16.3 | If Buyer’s change order causes an increase or decrease in the cost of performance or in the time required for performance, an equitable adjustment may be made to the Order price and/or delivery schedule and Buyer’s Order shall be modified in writing accordingly. Any claim for adjustment under this Section shall be deemed waived unless asserted in writing within twenty (20) days from the date of receipt by Seller of the change order, provided, however, that Buyer in its sole discretion may receive and act upon such claim submitted at any time prior to final payment under Buyer’s Order. Any such claim must set forth the amount of any increase or decrease in the cost of performance resulting from the change in the format and detail reasonably specified by Buyer. Failure to agree upon an equitable adjustment shall not relieve Seller from proceeding without any delay in performance of Buyer’s Order as changed. Where the cost of property made obsolete or excess as a result of a change order is included in Seller’s claim for adjustment pursuant to this Section, Buyer shall have the right to prescribe the manner of disposition of such property. |
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| 16.4 | Buyer’s engineering and technical personnel may from time to time render assistance, give technical advice, or exchange information with Seller’s personnel in relation to Buyer’s Order. Such assistance, advice, and/or exchange of information shall not be construed as Buyer’s consent or authority to effect any changes to Buyer’s Order or the Goods and/or Services provided thereunder. Under no circumstances shall any resulting change in Goods and/or Services or provisions of Buyer’s Order be binding upon Buyer unless incorporated as a change in accordance with paragraph (a) above. |
| 16.5 | Seller shall provide Buyer not less than seventy five (75) days’ prior written notice of any organisational, operational, or other changes that may affect Seller’s performance of Buyer’s Order including, but not limited to (i) the relocation of any of Seller’s facilities involved in the manufacture Goods under Buyer’s Order, (ii) any significant changes in Seller’s processes or manufacturing operations affecting the Goods, (iii) any significant changes to Seller’s workforce that impacts Buyer’s Order, (iv) any changes to suppliers or subcontractors, and (v) the refusal, suspension, withdrawal, or revocation of a relevant quality or manufacturing approvals or certifications. |
| 17.0 | PRODUCT SUPPORT OBLIGATIONS |
| 17.1 | Seller shall provide product support for the Goods which may include, without limitation: (i) assuring that subcomponents and materials are available, (ii) maintaining tooling and other production capability, and (iii) reengineering components or systems to address obsolescence for a period of five (5) years after the last delivery under Buyer’s Order. If Seller discontinues the production of any Goods at any time within two (2) years after the final delivery of such Goods under Buyer’s Order, Seller shall give Buyer at least one hundred and twenty (120) days’ prior written notice of such discontinuance. Seller shall accept Orders from Buyer for such quantity of Goods as required by Buyer, at the prevailing quality and at no more than the prevailing price. |
| 18.0 | STOP WORK |
18.1 Buyer may direct Seller to stop work on Buyer’s Order for up to ninety (90) days in accordance with any written notice received from Buyer, or for such longer period of time as the Parties may agree. In such event, Seller shall take all reasonable steps to minimise the incurrence of costs allocable to Buyer’s Order during the period of work stoppage. Within such period, Buyer shall either terminate Buyer’s Order in accordance with the termination provisions herein or direct Seller to continue performance of Buyer’s Order by providing written notice to Seller. In the event a stop work continues beyond the ninety (90) day period, an equitable adjustment to the price, delivery schedule, or other provision(s) to the extent impacted by the stop work shall be made in accordance with the principles of the "Changes" Section herein
| 19.0 | CANCELLATION |
| 19.1 | Buyer may cancel or terminate a Buyer’s Order on 60 days written notice. |
| 19.2 | Buyer shall have the right to inspect and audit the records, facilities, work-in-process, and materials of Seller relating to Buyer’s Order. Buyer shall pay the Order price for completed Goods and any other Goods listed in the Buyer’s Forecast. |
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| 20.0 | TERMINATION FOR DEFAULT |
| 20.1 | Buyer may, by written notice to Seller, terminate Buyer’s Order for default in whole or in part if (i) Seller fails deliver the Goods or to perform the Services within the time specified in Buyer’s Order or any extension authorised by Buyer unless such failure is the result of a Force Majeure Event as defined above, (ii)Seller fails to make progress so as to endanger performance of Buyer’s Order, (iii) Seller fails to perform any of the provisions of Buyer’s Order, (iv) Seller makes any significant change to its processes or manufacturing operations which, in the sole opinion of Buyer, adversely affects the Goods, (v) Seller experiences any refusal, suspension, withdrawal, or revocation of a relevant quality or manufacturing approvals or certifications, or (vi) Seller is adjudicated bankrupt, files a petition for bankruptcy, makes an assignment for the benefit of creditors, or if an action under any law for the relief of debtors is taken. |
| 20.2 | Buyer’s right to terminate Buyer’s Order under subparagraphs (a)(ii) and (a)(iii) above may be exercised if Seller does not cure such failure within fifteen (15) days (or more if authorised in writing by Buyer) after receipt of Buyer’s notice specifying the failure. If Buyer terminates Buyer’s Order in whole or in part, Buyer may acquire Goods or Services similar to those terminated from a third party, and Seller shall be liable to Buyer for any excess costs for those Goods or Services. However, Seller shall continue any portion of the work not terminated by Buyer. |
| 20.3 | Except for defaults of vendors or subcontractors at any tier, Seller shall not be liable for any excess costs if the failure to perform Buyer’s Order arises as a result of a Force Majeure Event, as defined above. |
| 20.4 | Buyer may require Seller to transfer title and deliver to Buyer, as directed by Buyer, any completed Goods, partially completed Goods, and materials, parts, tools, dies, fixtures, plans, drawing, information, and contract rights (collectively referred to as “Manufacturing Materials” in this Section) that Seller has specifically produced or acquired for the terminated portion of Buyer’s Order. Upon direction of Buyer, Seller shall also protect and preserve property in its possession in which Buyer has an interest. Buyer shall pay the Order price for completed Goods delivered and accepted. Seller and Buyer shall agree on the amount of payment for the partially completed Goods and Manufacturing Materials delivered and accepted and for the protection and preservation of the property. If, after termination, it is determined that Seller was not in default, or that the default was excusable, the rights and obligations of the Parties shall be the same as if the termination had been issued for the convenience of Buyer. The rights and remedies of Buyer in this Section are in addition to any other rights and remedies provided by law, or under Buyer’s Order. |
| 21.0 | CONFIDENTIALITY |
| 21.1 | Each party may disclose to the other certain Confidential Information, as defined herein, to facilitate Seller’s performance of Buyer’s Order. All Confidential Information and any other technical information provided by one party to the other shall at all times be and remain the property of the disclosing party and shall only be used by the receiving party in connection with its performance hereunder. Unless agreed otherwise, the receiving party shall return all copies of Confidential Information provided by the disclosing party upon completion of this agreement. “Confidential Information”, as used herein, includes, but is not limited to, specifications, drawings, designs, technical data, data sheets, schematics, diagrams, configurations, business, financial, statistical, and commercial information, formulae, analyses, trade secrets, ideas, methods, processes, know-how, software, and computer programs. |
| ©TURNONGREEN INC. | Page 11 of 19 | Revision January, 2022 |
| 21.2 | Receiving party hereby agrees that any Confidential Information disclosed by the disclosing party (i) shall be maintained in a secure location, (ii) shall not be copied without the prior written approval of the disclosing party, (iii) shall be used by the receiving party solely to facilitate performance of Buyer’s Order, and (iv) shall only be disclosed to the receiving party’s employees on a need-to-know basis. The receiving party shall not disclose Confidential Information to any third parties including, but not limited to, its agents, consultants, vendors, suppliers, or subcontractors, without the prior written approval of the disclosing party. In the event the disclosing party provides the receiving party with written approval to disclose Confidential Information to a third party, receiving party shall ensure all third parties are bound by terms and conditions consistent with this Section prior to receiving such information. If it becomes necessary for the receiving party to disclose Confidential Information to a third party as a result of a requirement of law or regulation, such Confidential Information may be disclosed only to the extent required by law or regulation and, if so permitted, no earlier than five (5) business days after the receiving party provides the disclosing party with written notification of the requirement for such disclosure. Unless agreed otherwise, the receiving party shall return all copies of Confidential Information provided by the disclosing party upon completion of Buyer’s Order or at any time upon the disclosing party’s request. |
| 21.3 | The obligations of confidentiality and restrictions on the use and disclosure of Confidential Information specified in these terms and conditions do not apply to any information that (i) is lawfully and rightfully already in the possession of the receiving party without obligation of confidentiality at the time of receipt from the disclosing party, (ii) is independently developed by the receiving party without use or reference to the Confidential Information as evidenced by tangible evidence, (iii) appears in any printed publication or patent, or is in the public domain, except as a result of a breach of these terms and conditions by the receiving party, or (iv) is lawfully and rightfully received, free of restrictions, by the receiving party from a third party not known by the receiving party to be under any nondisclosure or confidentiality obligation or to have misappropriated or otherwise unlawfully obtained such information. |
| 21.4 | Except as required by law or regulation, no news releases, public announcements, or advertising materials regarding Buyer’s Order shall be issued by Seller without the prior written consent of Buyer. Seller shall extend this restriction to all lower-tier vendors and subcontractors involved in the performance of Buyer’s Order. |
| 22.0 | PATENT INDEMNITY |
| 22.1 | Seller agrees, upon receipt of notification, to promptly assume full responsibility for the defence of any suit or proceeding which may be brought against Buyer, its parent, subsidiaries or affiliates, constituent companies, agents, customers, subcontractors, or suppliers for alleged infringement of any United States, Canadian, or foreign patent, copyright, or trademark, as well as for the alleged unfair competition resulting from similarity in design, trademark, or appearance of components or parts of Goods designed or developed by Seller, except for components or parts of Goods manufactured or developed entirely from Buyer’s designs or instructions. Seller further agrees to indemnify Buyer against any and all losses and damages, including court costs and attorney’s fees, resulting from the bringing of such suit or proceeding, including any settlement or decree of judgment entered therein. Buyer may be represented by and actively participate through its own counsel in any such suit or proceeding, if it so desires. Seller’s obligation hereunder shall survive acceptance of the Goods or processes and payment by Buyer and expiration or completion of Buyer’s Order. |
| ©TURNONGREEN INC. | Page 12 of 19 | Revision January, 2022 |
| 23.0 | PROPRIETARY RIGHTS |
| 23.1 | Unless otherwise agreed in writing, all tangible and intangible property including, but not limited to, information or data of any description, drawings, computer software, know-how, documents, trademarks, or copyrights (“Buyer’s Intellectual Property”) provided by Buyer to Seller, or paid for by Buyer under Buyer’s Order, shall be and remain the property of Buyer. Buyer hereby grants a limited licence to Seller to use any such Buyer’s Intellectual Property solely for the purposes of performing Buyer’s Order. This licence is non-assignable, and may be terminated with or without cause by Buyer at any time. |
| 23.2 | Seller agrees to assign to Buyer any invention, improvement, discovery, ideas, works of authorship, or data, whether or not patentable, conceived or reduced to practice in the performance Buyer’s Order by any person employed by or working under the direction of Seller, and Buyer shall own exclusively all rights thereto, including all patent rights, copyrights, moral rights, rights in proprietary information, trademark rights, and other intellectual property rights. All such intellectual property that is protectable by copyright (i) shall be considered work(s) made for hire for Buyer, or (ii) Seller shall grant Buyer “first owner” status related to the work(s) under local copyright law where the work(s) was created, or (iii) if the Governing Law, as defined herein, does not allow Buyer to gain ownership of such intellectual property, Seller agrees to grant to Buyer an exclusive, perpetual, royalty-free, irrevocable, transferable licence for such intellectual property. |
| 23.3 | Buyer recognises and agrees that, unless otherwise agreed in writing between the Parties, the above rights and ownership of such rights shall not extend to or encompass any intellectual property owned, developed, or conceived by Seller prior to, or not in connection with, Buyer’s Order. |
| 24.0 | BUYER OWNED PROPERTY |
| 24.1 | If Buyer furnishes Seller with material or equipment, including, but not limited to, tools, jigs, designs, dies, moulds, fixtures, test equipment, or other property owned or paid for or agreed to be paid for by Buyer (“Buyer-Owned Property”), title thereto shall remain or vest in Buyer, and Seller shall label and identify all Buyer-Owned Property as Buyer’s property. Seller must examine all Buyer-Owned Property furnished by Buyer to ascertain its suitability for the purpose. All Buyer-Owned Materials shall (i) be used only for performance of Buyer’s Order, (ii) at all times be properly protected and maintained by Seller to ensure it is kept free from damage, deterioration, contamination and misuse, (iii) be covered, at Seller’s expense, by adequate liability, damage, and fire insurance for the replacement cost, (iv) not be commingled with the property of Seller or others, (v) not be moved from Seller’s premises without prior written authorisation of Buyer, and (vi) upon Buyer’s request, be immediately returned to Buyer at Seller’s expense in good condition, reasonable wear and tear excepted. Seller shall assume all risk of loss or damage to Buyer-Owned Materials while they are in the custody of Seller. Seller shall be responsible for any loss, damage, or destruction to such Buyer-Owned Property. All Buyer-Owned Property shall be held where Buyer instructs. Buyer reserves the right to enter any premises, upon prior notice, where Buyer-Owned Property is located in order to inspect, stock check, or obtain the return to Buyer such Buyer-Owned Property. |
| 24.2 | In the event that materials and/or equipment have only been partly funded by Buyer, Buyer and Seller shall jointly own the material and/or equipment in proportion to their respective funding. In circumstances where Buyer terminates the Order, Buyer, at its sole option, may become the sole owner of the partly funded material and/or equipment upon payment of a reasonable sum taking into account Seller’s investment in the material and/or equipment tooling and its current condition. |
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| 25.0 | INDEMNIFICATION |
| 25.1 | Each party agrees to indemnify, defend, and hold harmless the other party, its officers, directors, employees, and representatives from and against any and all liabilities, losses, expenses, liens, claims, demands, and causes of action for death, personal injury, or property damage arising from any grossly negligent act or omission of the indemnifying party in performance hereunder. |
| 25.2 | The party seeking indemnification should (i) give the indemnifying party prompt written notice of any such claim; (ii) allow the indemnifying party to control the defense and settlement of such claim; and (iii) refrains from entering into any settlement or compromise of such claim without the indemnifying party's prior written consent. Both parties agree to reasonably cooperate in any defense or settlement negotiations maintained by an indemnifying party hereunder to the extent requested, provided the cost of such cooperation shall be borne by the indemnifying party. Notwithstanding anything to the contrary above, both parties further agree that no settlement of any claims hereunder shall obligate the indemnified party to take or refrain from taking any action without such indemnified party's prior written consent, which such consent may be reasonably withheld. |
| 26.0 | INSURANCE |
| 26.1 | If Buyer’s Order provides for Services or work to be performed by Seller, or if Seller’s employees, representatives, agents, vendors, or subcontractors, are required to perform work on property owned and controlled by Buyer or on property of third-parties, Seller shall procure and maintain Commercial General Liability policy with limits of not less than one million dollars ($1,000,000) per occurrence for coverage protecting for bodily injury and property damage, including but not limited to claims involving Products assembled and sold hereunder; two million dollars ($2,000,000) for the general aggregate; two million dollars ($2,000,000) for the products and completed operations aggregate; and one million dollars ($1,000,000) for personal and advertising injury; and the Commercial General Liability policy shall include contractual liability coverage in support of the indemnity provisions in this Agreement; and an Umbrella Liability policy with limits of not less than one million dollars ($1,000,000) per occurrence and two million dollars ($2,000,000) aggregate, including but not limited to coverage for Products and contractual liability as provided above. |
| 26.2 | All liability insurance policies shall name Buyer, its officers, directors, employees, affiliates, successors, and assigns, as additional insureds. Seller shall provide evidence of the required insurance coverages and file with Buyer a Certificate of Insurance reasonably acceptable to Buyer prior to commencement of Services or work. The insurance policies and coverages required by this Section shall contain a provision that any such policies shall not be cancelled, allowed to expire, or reduces the coverages or limits in any manner unless at least thirty (30) days’ prior written notice has been given to Buyer. All insurance coverages shall be provided by insurance companies having ratings of A-/VII or better in the Best’s Key Rating Insurance Guide (latest edition in effect at the latest date stated in the Certificate of Insurance referred to herein). |
| 26.3 | Failure to obtain and maintain the required insurance shall constitute a material breach of Buyer’s Order and Seller shall be liable to Buyer for any and all costs, liabilities, damages, and penalties (including attorneys’ fees, court, and settlement expenses) resulting from such breach, unless a written waiver of the specific insurance requirement is provided to Seller by Buyer. |
| 27.0 | LIMITATION OF LIABILITY |
| 27.1 | Except for (i) infringement of third party patents and intellectual property and (ii) violations of law, under no circumstances shall either party be liable for any consequential, special, incidental, indirect, multiple, administrative, or punitive damages, or any damage of an indirect or consequential nature arising out of or related to its performance hereunder including, without limitation, loss of use, loss of revenues, loss of anticipated profits, and cost of capital, whether based upon breach of this Agreement, warranty, negligence, or any other type of Claim, and whether grounded in tort, contract, civil law, or other theories of liability, including strict liability, even if advised in advance of the possibility of such damages. |
| ©TURNONGREEN INC. | Page 14 of 19 | Revision January, 2022 |
| 27.2 | Buyer’s total liability arising from or related to this Agreement including, but not limited to, its liability for indemnity, defence, and hold harmless obligations hereunder, is limited to no more than the amount paid by Buyer to Seller under Buyer’s Order. To the extent that this limitation of liability conflicts with any other Section or provision herein, such provision shall be regarded as amended to whatever extent required to make such provision consistent with this Section. |
| 28.0 | NOTICE TO BUYER OF LABOUR DISPUTES |
| 28.1 | Whenever Seller has knowledge that any actual or potential labour dispute is delaying or threatens to delay the timely performance of Buyer’s Order, Seller shall immediately give notice to Buyer thereof, including all relevant information with respect thereto. |
| 29.0 | ORDER OF PRECEDENCE |
| 30.1 | The following order of precedence shall apply in the event of an inconsistency within Buyer’s Order and its related documents, as applicable: (i) this Agreement, (ii) the Statement of Work or Scope of Services, if any, (iii) Buyer’s Order, (iv) the Specification. |
| 30.0 | COMPLIANCE WITH LAW |
| 31.1 | Seller warrants and represents that the provision and shipment of Goods and/or the provision of Services or work to be performed by Seller under Buyer’s Order are in compliance with all applicable laws, orders, rules, ordinances, and regulations including, but not limited to, (i) all U.S., Canadian, and international prohibitions on child labour, forced labour, slavery, and human trafficking, (ii) all laws, rules, and regulation with respect to the environment, and (iii) all laws and regulations of Seller’s place of performance. |
| 31.2 | Sellers that furnish any materials identified on any governmental agency’s list of hazardous substances must furnish a Material Safety Data Sheet (MSDS) with the delivery of the material in a form and manner that conforms with the requirements of such governmental agency. |
| 31.3 | Seller warrants and represents that it has and shall maintain all registrations, licences, and permits required for the performance of Buyer’s Order. |
| 31.4 | Seller shall not offer or give a kickback or gratuity (in the form of entertainment, gifts, or otherwise) to any employee of Buyer for the purpose of obtaining or rewarding favourable treatment. By accepting Buyer’s Order, Seller warrants and represents that it has not made or solicited, and shall not make or solicit, kickbacks in violation of the United States Foreign Corrupt Practices Act (FCPA), 15 U.S.C. §§ 78dd1 through 78dd3, as amended, the Anti-Kickback Act of 1986 (41 USC 51-58), the provisions of the Canadian Government’s Corruption of Foreign Public Officials Act (CFPOA), and any equivalent legal requirements, the anticorruption laws, regulations and policies of the home country of Seller, and/or the anticorruption laws, regulations and policies of any other country with jurisdiction over the activities in the performance of Buyer’s Order. |
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| 31.5 | All of the provisions stated in subparagraphs (a) through (c) of this Section are incorporated by reference as part of Buyer’s Order. Any modification or amendment to Buyer’s Order shall be deemed a recertification of the accuracy and truthfulness of the foregoing representations and warranties herein. If, at any time, Seller becomes aware of information or circumstances that suggest any of the representations, warranties, and covenants referenced in this Section may not be accurate, it shall notify Buyer immediately in writing, but not more than five (5) days after becoming aware of such circumstances. Seller further agrees to indemnify Buyer against any loss, cost, liability, or damage whatsoever, including attorney’s fees, which may result from Seller’s violation of this Section. |
| 31.0 | GOVERNING LAW |
| 36.1 | The performance of the Parties, and any judicial or arbitration proceedings, shall be construed and governed in accordance with the laws of the Laws of the State of New York, excepting its laws and rules relating to conflict of law. Neither (i) the United Nations Convention on Contracts for the International Sale of Goods; (ii) the 1974 Convention on the Limitation Period in Contracts for the International Sale of Goods (the "1974 Convention"); nor (iii) the Protocol Amending the 1974 Convention held at Vienna, Austria, on April 11, 1980, apply in any manner to the interpretation or enforcement of this Agreement. |
| 32.0 | DISPUTES AND ARBITRATION |
The Parties shall attempt to resolve any dispute, controversy, or claim arising under or relating to Buyer’s Order, or to a material breach, including its interpretation, performance, or termination. If the Parties are unable to resolve such dispute, either Party may refer the dispute to arbitration. The arbitration shall be conducted in English, and in accordance with the National Arbitration Rules of The ADR Institute of USA, Inc. which shall administer the arbitration and act as appointing authority. The arbitration, including the rendering of the decision and/or award, shall take place in New York, New York USA and shall be the exclusive forum for resolving the dispute, controversy, or claim. The arbitrator shall make the final determination as to any discovery disputes between the Parties. Examination of witnesses by the Parties and by the arbitrator shall be permitted. A written transcript of the hearing shall be made and furnished to the Parties. The cost of this transcript shall be borne equally by the Parties. The award or decision of the arbitrator shall state the reasons upon which the award or decision is based, and shall be final and binding upon the Parties. The prevailing Party shall be entitled to compensation for the expense of the arbitration including, but not limited to, the award of attorneys’ fees, at the discretion of the arbitrator. Both Parties waive their right to any appeal under any system of law. The award shall be enforceable before any court of competent jurisdiction upon the application to such court by either Party. The arbitrator shall have no authority to award any of the types of damages excluded by herein, and shall be so instructed by the Parties.
| 33.0 | NOTICES |
| 38.1 | All notices given by the Parties shall be made in writing and delivered personally or sent by prepaid mail, facsimile, or email, addressed to the intended recipient at its address or at its electronic address. Regardless of the method of transmittal, the sending Party is responsible for obtaining a return receipt for the notice. |
| 34.0 | ASSIGNMENT AND SUBCONTRACTING |
| 39.1 | Seller shall not assign, delegate, sublicence, transfer Buyer’s Order or any of its obligations thereunder, whether by operation of law or otherwise, without Buyer’s written consent, and any assignment, delegation, sublicence, or transfer (i) without such written consent is void and of no effect, and (ii) if consent is given, shall be binding upon, and inure to the benefit of the successors and assigns of Seller. Buyer may, without Seller’s consent, assign Buyer’s Order to a parent, subsidiary, or affiliate company of Buyer, and shall have the right to assign Buyer’s Order to any successor, by way of merger or consolidation, or the acquisition of substantially all of the entire business and assets of Buyer relating to the subject matter of Buyer’s Order, provided that such successor shall expressly assume all of Buyer’s obligations and liabilities under Buyer’s Order. |
| ©TURNONGREEN INC. | Page 16 of 19 | Revision January, 2022 |
| 39.2 | Seller shall not subcontract any portion of Buyer’s Order or the performance thereof to any third party without Buyer’s written consent. |
| 35.0 | REMEDIES; NO WAIVER |
| 40.1 | The remedies herein reserved or created for Buyer shall be cumulative and in addition to any other or further remedies provided by law or equity. |
| 40.2 | Failure of Buyer to insist upon the performance of any of the terms, conditions, or provisions of Buyer’s Order, or to enforce any right or remedy hereunder, shall not be construed as a waiver or relinquishment of the future performance or exercise of such right or remedy; rather, the same shall continue in full force and effect. Nothing herein shall be waived by any act or knowledge on the part of Buyer, except by written instrument signed by a duly authorised representative of Buyer. In the event a waiver is granted by Buyer, it is not a continuing waiver or a waiver of any other rights or of any material breach or failure of performance of Seller. Seller shall pay all Buyer’s costs and expenses, including attorney's fees, incurred by Buyer in exercising any of its rights or remedies hereunder or enforcing any of the terms or conditions hereof. |
| 36.0 | HEADINGS; MODIFICATIONS; SEVERABILITY |
| 41.1 | The headings used herein are for reference purposes only and shall not affect the meaning or interpretation of any provision herein. |
| 41.2 | This Agreement may only be modified by a written instrument, signed by a duly authorised representative of Buyer. |
| 41.3 | If any provision herein is invalid, ineffective, or unenforceable under present or future laws, then the remainder of the provisions herein shall remain in full force and effect and shall in no way be affected, impaired, or invalidated. |
| 37.0 | PARTIES; RELATIONSHIP OF THE PARTIES |
| 42.1 | The Parties to this Agreement, and any Offer or Order issued hereunder, are Buyer and Seller and unless expressly stated otherwise, no other persons, parties, or entities have any rights, or receive any benefits hereunder. Neither UES, nor any of its subsidiaries, affiliates, or business units, other than Buyer, have any obligations or duties hereunder and are unrelated third-parties for all purposes. |
| 42.2 | Each Party is an independent contractor. Neither Party shall have authority to bind the other, and neither Party shall act as the agent for the other Party. Buyer’s Order is not intended by the Parties to constitute or create a joint venture, partnership, or formal business organisation of any kind, and the employees of one Party shall not be deemed employees of the other Party. |
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| 38.0 | ENTIRE AGREEMENT |
| 43.1 | This Agreement, including any Exhibits attached hereto or other documents referenced herein, constitutes the entire agreement between the Parties, and supersedes any prior oral or written agreements, commitments, understandings, or communications with respect to the subject matter of this Agreement. |
| 39.0 | SURVIVAL |
| 44.1 | Any Provision herein which contemplates performance or observance subsequent to any termination or expiration of this Agreement, or which by its nature should survive, shall survive any termination or expiration of this Agreement and continue in full force and effect. |
Signature Page Follows
| ©TURNONGREEN INC. | Page 18 of 19 | Revision January, 2022 |
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives as of the Effective Date.
TurnOnGreen Inc.
| Signature: | Signature: | |||
| Print Name: | Amos Kohn | Print Name: | Marcus Charuvastra | |
| Title: | Chief Executive Officer | Title: | Chief Revenue Officer |
| Unique Electric Services | ||
| Signature: | ||
| Print Name: | Joseph M. Ambrosio | |
| Title: | President and CEO | |
| ©TURNONGREEN INC. | Page 19 of 19 | Revision January, 2022 |
Exhibit 10.4
MARKETING AGREEMENT
Effective Date: June 10, 2022
-BY AND BETWEEN-
| BEST WESTERN: | Best Western International, Inc. (hereinafter "BWI") |
| 6201 North 24th Parkway | |
| Phoenix, Arizona 85016 |
- AND -
| SUPPLIER: | TurnOnGreen Inc. (hereinafter "Supplier") |
| 1421 McCarthy Blvd. | |
| Milpitas, CA 95035 |
Marked Exhibits are attached hereto and incorporated herein by reference:
| (Mark “X” where applicable): | xExhibit A-1: | U.S. Products/Services & Pricing |
| xExhibit A-2: | Canada Products/Services & Pricing | |
| xExhibit B-1: | U.S. Joint Marketing Opportunities | |
| xExhibit B-2: | Canada Joint Marketing Opportunities | |
| xExhibit C: | Advertising Logos | |
| ¨Exhibit D: | Sales Report Example | |
| ¨Exhibit E: | Terms & Conditions for Brand Logo Suppliers | |
| ¨Exhibit F: | Endorsed Distributors |
| BEST WESTERN INTERNATIONAL, INC. | Supplier | |||
| Signature: | Signature: | |||
| Printed Name: | Printed Name: | |||
| Title: | Title: | |||
| Date: | Date: | |||
| Marketing Agreement v.June 19 | ||
| Page 1 of 6 |
TERMS AND CONDITIONS
| 1. | DEFINITIONS |
| a. | “Hotel Affiliates” shall mean those other facilities or operations located in the United States and Canada and associated with the owners of Hotels who have other operations in the lodging industry. |
| b. | “Hotels” shall mean those independently owned and operated lodging facilities or hotels located in the United States and Canada and licensed by BWI (or its subsidiaries or third-party BWI-affiliated entities) to use its name and marks. |
| c. | BWI and Supplier are a times referred to herein individually as a “party” and collectively as the “parties.” |
| 2. | SCOPE OF RELATIONSHIP |
| a. | For the Term of this Agreement, Supplier shall be an endorsed supplier to distributors of the Products listed in Exhibit A. These distributors may then sell the Products directly to Hotels and Hotel Affiliates. |
| b. | As a result of Supplier’s participation in BWI’s Endorsed Supplier Program (“Program”), BWI may promote Supplier to Hotels and Hotel Affiliates. If mutually agreed by BWI and Supplier, a URL link(s) will exist on BWI’s website(s) through which Supplier’s website(s) can be accessed. |
| c. | Supplier shall be solely responsible for compliance with the requirements of participation in the Program, including, without limitation, those requirements regarding marketing, Product offerings, brand identity, and payment of fees. |
| d. | For the purpose of participation in the Program and implementation of this Agreement, Supplier grants to BWI a perpetual, irrevocable, worldwide license to use and publish Supplier logos, copyrights, and trademarks (and any content that incorporates such intellectual property) (collectively “Supplier IP”) that Supplier provides under separate cover for BWI to use as part of this Program (e.g., to use Supplier logos in connection with, if applicable, the aforementioned URL link(s)). |
| e. | If applicable, the aforementioned URL link(s) on BWI’s website(s) to Supplier’s website(s) will not constitute an endorsement of the content of Supplier’s website(s). Further, BWI disclaims responsibility for the content of Supplier’s website(s), including without limitation inaccuracies, unlawful content, infringement, and defamation. Additionally, Supplier represents and warrants that (i) all rights necessary to grant a license to BWI to use the domain name(s) for Supplier’s website(s) (in connection with said URL link(s)) is possessed (and will be maintained during the Term), (ii) it has (and will maintain during the Term) a standard privacy policy to protect the personal information of the users of its website(s) that, at a minimum, properly informs its users of the collection and use of information on its website(s), and (iii) it has taken (and will continue to take during the Term) commercially reasonably steps necessary to prevent the introduction of harmful programs or data into BWI’s website(s) that is intended to destroy, erase, damage, or otherwise disrupt or allow unauthorized access to the normal operation of BWI’s website(s). Finally, BWI shall have the right to remove said URL link(s) effective immediately if (i) in its sole discretion, the content of Supplier’s website(s) or the statements or opinions expressed on or through Supplier’s website(s) has or may expose BWI to regulatory, criminal, or civil liability, or (ii) in its sole discretion, said URL link(s) causes any dilution of BWI’s own intellectual property. |
| Marketing Agreement v.June 19 | ||
| Page 2 of 6 |
| f. | In conjunction with Supplier’s participation in the Program, Supplier has chosen to participate in certain joint marketing opportunities (“Joint Marketing Opportunities”) described in Exhibit B, as amended from time to time within BWI’s sole discretion. Payment of fees associated with those Joint Marketing Opportunities selected by Supplier for participation shall be due within 30 days from the date of invoice. A charge may be added to overdue accounts, calculated as one and one-half percent (1.5%) per month or the maximum amount permitted by law. |
| g. | All items delivered shall be new, most current model year, in first class condition, including containers suitable for shipment and storage, unless otherwise indicated. |
| h. | Supplier shall make the Products available to each of the Approved Endorsed Distributors identified on Exhibit F. |
| i. | Supplier acknowledges that from time to time BWI may receive comments or complaints regarding Supplier or the Products, and Supplier agrees that BWI is authorized to advise the Approved Endorsed Distributors and Hotels and/or Hotel Affiliates of such comments or complaints to the extent and in the detail as BWI deems appropriate in its sole and absolute discretion. BWI will inform Supplier of such complaints, and Supplier will use commercially reasonable efforts to resolve valid complaints to the reasonable satisfaction of BWI. |
| j. | All of the Products shall be provided in the case pack quantities indicated on Exhibit A. |
| k. | Any changes to the Products offered in Exhibit A shall be submitted by Supplier in writing to BWI, for BWI's approval, at least ninety (90) days prior to the proposed change date. |
| l. | Supplier acknowledges and agrees that BWI does not guarantee or give any assurances that Supplier will receive any orders or make any sales based upon this Agreement. |
| 3. | TERM AND TERMINATION |
| a. | Term: This Agreement shall begin on the Effective Date listed above and shall continue for one (1) year. This Agreement shall automatically renew for subsequent one year terms upon expiration of the previous term, unless notice of either party’s intent not to renew is provided at least thirty (30) days prior to expiration of the then current term, or unless otherwise terminated by either party as hereunder provided. The initial term and any renewal terms shall be collectively referred to as “the Term.” |
| b. | Termination Without Cause: BWI may terminate this Agreement, at any time and without cause, upon thirty (30) days written notice to Supplier. |
| c. | Termination for Cause: Either party may elect to terminate this Agreement, by providing thirty (30) days prior written notice of its intent to terminate to the other party, if the other party breaches any material term of this Agreement, and the party has failed to cure the breach during the notice period. Either party may terminate this Agreement immediately at any time upon written notice to the other party if the other party is adjudicated bankrupt, becomes insolvent, has a receiver appointed for it or substantially all of its property, makes a general assignment for the benefit of its creditors, has a substantial portion of its business acquired, is a party to a reorganization or recapitalization, suffers a material adverse change to its business operations, files a voluntary petition in bankruptcy or has an involuntary petition in bankruptcy filed against it. |
| d. | Supplier Removed From the BWI Endorsed Supplier Program: Supplier acknowledges and agrees that if this Agreement is terminated for any reason, BWI is entitled to immediately remove Supplier from the BWI Endorsed Supplier Program and Supplier IP (and, if applicable, the aforementioned URL link(s)) from BWI website(s). |
| Marketing Agreement v.June 19 | ||
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| e. | No Continued Use of Logo: Upon termination for any reason, Supplier agrees to immediately stop using all BWI logos, trade names, trademarks and service marks and will not represent itself in any way as having any relationship with BWI. Supplier will immediately destroy all collateral using any BWI "Endorsed Supplier" logo and will confirm the destruction of such collateral by written notice to BWI signed by an officer of Supplier within 15 days of termination of this Agreement. |
| 4. | ENDORSED SUPPLIER’S USE OF LOGOS AND MARKS |
| a. | During the Term of this Agreement, Supplier shall be permitted to use the BWI Endorsed Supplier logos (the “Logo(s)”) as described in Exhibit C, as amended from time to time, only upon prior written consent and approval of the designated BWI product manager. Supplier understands and agrees that BWI’s endorsement of Supplier and Supplier’s use of the Logo is limited to its good faith belief that Supplier conducts its business in accordance with generally accepted commercial standards. Supplier is required to immediately cease using the Logos upon receipt of written notification from BWI. Upon termination of this Agreement for any reasons, Supplier will comply with the termination of Logo requirements as described in Section 3(e) of this Agreement. |
| b. | Supplier agrees, and shall ensure, that its use of any licensed trademarks, trade names and logos (the “Licensed Marks”) in its marketing to Hotels and Hotel Affiliates shall be in compliance with BWI’s Brand Identity Guidelines & Logo Usage Policy, found at http://www.mybestwestern.com/ (click through to “Suppliers” pages), and all applicable laws. The right to use BWI's Licensed Marks is non-exclusive, non-assignable, and non-transferable. All uses by Supplier of BWI's Licensed Marks shall (a) be appropriate and dignified as befits BWI’s public image and (b) inure solely to the benefit of BWI. BWI shall have the right to change the design, artwork, logo, and/or other symbols and devices of its Licensed Marks at any time during the Term of the Agreement. The limited license provided herein does not extend to domain names or keywords, and Supplier agrees and warrants that it, its agents and affiliates shall not at any time register or claim any interest in any domain name, or bid on, acquire or use any keyword, that includes the words “best” and “western”, the abbreviation “bw”, or any term or phrase that is similar to the name Best Western or other BWI trademarks. |
| 5. | WARRANTIES BY SUPPLIER |
Supplier represents and warrants that:
| a. | All Products shall meet the descriptions, specifications, and performance standards provided in Exhibit A and elsewhere in this Agreement. |
| b. | Supplier has the necessary right, title, and interest to provide Products, Products will be free of liens and encumbrances, and Products do not infringe any third party intellectual property rights. |
| c. | During the Term of this Agreement, for those Products that have already been supplied to a Hotel or Hotel Affiliate, Supplier shall (i) promptly correct any non-conforming or defective Products at no additional cost to Hotel or Hotel Affiliate; or (ii) at Hotel or Hotel Affiliate’s option, Supplier shall promptly repair, replace, or refund the amount paid for such Products. Supplier shall bear the cost of shipping and shall bear the risk of loss of all defective or non-conforming Products while in transit. |
| Marketing Agreement v.June 19 | ||
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| 6. | INDEMNITY |
| a. | Supplier agrees to defend, indemnify and hold harmless BWI, Hotels, and Hotel Affiliates (and their respective affiliates, subsidiaries, directors, employees, members, and representatives) (collectively the “Indemnified Parties”) from and against any loss, damage, liability or claim, including those for actual or alleged infringement of any intellectual property rights, attributable to the sale, possession, use or transfer of the Products that may be suffered by and/or be the subject of a claim of a third party against the Indemnified Parties, including, without limitation, any loss, damage, liability or claim arising from injury or death to persons or damage to property. Further, Supplier agrees to defend, indemnify and hold harmless the Indemnified Parties from and against any loss, damage, liability or claim, including those for actual or alleged infringement of any intellectual property rights, attributable to Supplier’s actual or alleged breach of any obligation, warranty, or representation made hereunder that may be suffered by and/or be the subject of a claim of a third party against the Indemnified Parties, including, without limitation, any loss, damage, liability or claim arising from injury or death to persons or damage to property. Notwithstanding the foregoing, Supplier will have no indemnification obligation to the extent attributable to the negligent, intentional or willful acts or omissions of the Indemnified Parties. |
| b. | BWI agrees to defend, indemnify and hold harmless Supplier and their respective affiliates, subsidiaries, directors, employees, members, and representatives from and against any loss, damage, liability or claim, including those for actual or alleged infringement of any intellectual property rights but only to the extent caused by the negligence or willful misconduct of BWI. |
| 7. | INSURANCE |
Without limiting or qualifying Supplier's liabilities, obligations, or indemnities otherwise assumed by Supplier pursuant to this Agreement, Supplier shall maintain on an occurrence basis, at its sole cost and expense, Commercial General Liability with limits of liability not less than $1,000,000 per occurrence and including liability coverage for bodily injury or property damage (1) assumed in a contract or agreement pertaining to Supplier's business and (2) arising out of Supplier's Products. Supplier's insurance shall be primary with respect to liabilities assumed by Supplier in this Agreement to the extent such liabilities are the subject of Supplier's insurance, and any applicable insurance maintained by BWI shall be excess and non-contributing. The above coverage shall name BWI as additional insured. Supplier shall also maintain statutory Workers’ Compensation coverage, including a Broad Form All States Endorsement in the amount required by law. Such insurance shall include an insurer's waiver of subrogation in favor of BWI.
| 8. | CONFIDENTIALITY |
Neither party shall use or disclose to third parties any confidential information concerning their respective business or the business of BWI, Hotels, and/or Hotel Affiliates which may be acquired in the course of activities under this Agreement. Both parties shall take reasonable precautions to prevent any such disclosure by any of their employees, agents or representatives. Supplier agrees to read and to comply with applicable privacy laws and Best Western’s privacy policy with respect to the collection, security, use and transfer of customer information and shall maintain security measures consistent with those posted on www.bestwestern.com.
| 9. | GENERAL PROVISIONS |
| a. | Notice: Notice of termination or breach must be made in writing to the appropriate persons and sent by courier, certified, or registered mail to the other party at the address provided in this Agreement unless such address has been changed through written notification to the other party. All other notice may be provided in other forms of writing, including email. |
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| b. | Assignment: This Agreement may not be assigned or performance delegated by Supplier without the prior written consent of BWI, which consent shall be at BWI’s sole and absolute discretion. |
| c. | Waiver of Rights: Failure of either party to enforce or exercise any right set forth herein shall not be construed to be a waiver of such right. If any provision of this Agreement is determined invalid, such determination shall not affect any other provision of this Agreement. The rights and remedies set forth herein are intended to be cumulative and in addition to any remedies provided in law and equity. |
| d. | Legal Actions and Governing Jurisdiction: If either party brings any legal action to enforce the terms of this Agreement, the prevailing party in such action will be entitled to its costs and expenses incurred, including reasonable attorneys’ fees. This Agreement shall be governed solely and exclusively in accordance with the laws of the State of Arizona, without regard to its conflicts of law provisions. Any action relating to this Agreement shall be brought exclusively in a court of competent jurisdiction located in Maricopa County, Arizona, and the parties hereby consent and submit to the jurisdiction of such courts. |
| e. | Void or Unenforceable: In the event any part or article of this Agreement is held to be unenforceable, void or voidable or contrary to the law or public policy of any jurisdiction entitled to exercise authority hereunder, the remaining portions of this Agreement may nevertheless continue in full force and effect. |
| f. | Survival: All provisions of this Agreement that, by their nature, should survive the termination or expiration of this Agreement will survive the termination or expiration of this Agreement. |
| g. | Captions: Captions in this Agreement are inserted only as a matter of convenience and in no way define scope or intent of this Agreement. |
| h. | Force Majeure: In the event that either party is not able to perform its duties under this Agreement due to Acts of God, war, government regulation, disaster, strikes, illness or any other cause beyond the reasonable control of either party which makes performance impossible, the parties shall not be responsible for any damages provided that the parties use good faith efforts to remedy the lack of performance. If the period of delay continues for longer than two (2) weeks, then the non-affected party may terminate this Agreement with a thirty (30) day notice. |
| i. | Entire Agreement: This Agreement and its exhibits or other accompanying documents constitute the entire negotiated agreement between the parties with respect to the subject matter of this Agreement. This Agreement supersedes all prior oral or written agreements with respect to the subject matter hereof, to include (but not limited to) discussions, negotiations, commitments, writings or understandings, to include without limitation any oral or written representations contained in any sales literature, brochures, proposals or other written descriptive or advertising material. The fact that one party or his or its counsel, or the other, shall have drafted this Agreement, any document or particular provision hereof shall not be considered in the construction or interpretation of this Agreement, the documents or any provision hereof. |
| j. | Change, Modification or Amendment: This Agreement may not be canceled, changed or modified in any manner except by an instrument in writing signed by a duly authorized officer or representative of both parties. |
Marketing Agreement v.June 19
Page 6 of 6
Exhibit 10.5
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT is entered into this 29th day of April, 2022 (the "Effective Date") by TURNONGREEN INC. a Nevada corporation (“TurnOnGreen”), its subsidiaries (together with TurnOnGreen, the "Company"), each Company having a principal place of business at 1421McCarthy Blvd., Milpitas, CA 95035 and EV-olution Charging Systems, a Canadian corporation, having a principal place of business at 300 Supertest Rd, Unit 10, North York, ON M3J 2M2 ("Distributor”").
RECITALS
Whereas, the Company is a world-class solution driven organization unsurpassed in designing and manufacturing cutting-edge power supplies for the Defense, Medical, Datacom, Industrial and e-Mobility markets.
Whereas, the Distributor is desirous of acting as a non-exclusive Distributor for said product of the Company within the territory and on the terms and conditions herein set forth.
NOW, THEREFORE, the Company and the Distributor agree as follows:
| 1. | APPOINTMENT FOR DISTRIBUTOR / ACCEPTANCE. |
TurnOnGreen Inc. hereby appoints EV-olution Charging Systems and affiliated locations listed in Exhibit A, as its non-exclusive Distributor to market its products, solicit orders and resell for the purpose of distributing EV Charging and other power supplies manufactured by the Company. The Distributor hereby accepts such appointment and agrees to represent the Company, market its products, solicit orders, resell products, and promote the sale of power supplies manufactured by the Company.
| 2. | TERRITORY, CUSTOMERS and NON-COMPETE |
2.1 The Distributor shall have the right to solicit orders, purchase power supplies from the Company, and resell the product for any potential customer within the territory herein defined except those customers listed on Exhibit “A” attached hereto and made a part hereof by reference as House Accounts of the Company. The geographic area within which the Distributor is appointed as the sales Distributor of the Company is defined in Exhibit “A” entitled “Territory” attached hereto and made a part hereof by this reference.
| 2.2 | The Company agrees that it will not approach nor compete for Distributor’s accounts without prior formal consent from Distributor at any time during the contracted course of the Agreement, and/or for a time of 24 months after Company and Distributor terminate this Agreement. Distributor will provide to Company on a quarterly basis, a list of active clients for whom the Company will not approach according to the terms of this Agreement, such list being considered part of Distributor’s Confidential Information subject to Section 18. |
| 3. | FINDERS FEE/COMMISSIONS PAYABLE |
The Distributor shall not have the right to any commissions’ payable unless there is a written agreement that specifically references a specific piece of business.
| 4. | ACCEPTANCE OF ORDERS: |
The Company will furnish the Distributor an acknowledgment of each order accepted by the Company from the Distributor and a copy of each invoice for product shipped. The Company shall have the right, at its sole and absolute discretion to accept or reject any and all orders from the Distributor or any customer within the
territory. All orders shall be subject to acceptance by the Company at its home office and approval by its credit department.
1 | ||
| TurnOnGreen Inc. • 1421 McCarthy Blvd. • Milpitas • CA 95035 • 510-657-6634 • www.TurnOnGreen Inc.com | ||
| 5. | TERMS OF SALE: |
All sales shall at all times be at prices and upon terms and conditions established by the Company and not otherwise. The Company shall have the right, at its sole and absolute discretion, from time to time, to establish change, alter or amend its terms and conditions of sale, discount rates, prices, delivery, packing charges and method of payment. The Company shall provide the Distributor with notice of the terms and conditions of sale and any charges thereto that may occur on behalf of the Company. The Distributor is not authorized to quote any special terms of sale on behalf of the Company without written authorization from the Company.
| 6. | DELIVERY, SHIPPING TERMS, TITLE, AND RISK OF LOSS |
| a. | Unless otherwise agreed in writing by the parties, Company shall deliver the Goods to Distributor’s designated location (the "Delivery Point" “DP”) according to Incoterms rules of trade for the sale of goods. Time of performance and delivery is of the essence. Company agrees to notify Distributor in writing immediately if at any time it appears that Company may not be able to comply with the Order’s delivery schedule. Such notification shall include the actual or potential reasons for the delay, the actions being taken to remedy the delay, and the anticipated revised delivery schedule. Such notice, and any assistance furnished by Distributor to overcome delays, shall not waive Distributor’s remedies for delay and resulting default, including termination rights, if Company fails to meet the Order delivery schedule. |
| b. | All shipments shall be delivered DP in accordance with the version of Incoterms in effect as of the date of Distributor’s Order, unless otherwise agreed to by the parties in writing. Title and risk of loss passes to Distributor upon collecting of the Goods at the Company’s Shipping Point (the “Shipping Point”, “SP”. Distributor shall bear all shipping costs associated with shipping of the Good from the Company’s SP to the Distributor’s DP. Delivery shall not be deemed complete until the Goods have been received by Distributor at the Delivery Point. Distributor shall bear the risk of loss or damage to the Goods in transit. |
| 7. | PRICES: |
The prices for products purchased under this agreement shall be as set forth in the Company’s price list, Exhibit B. The prices shown in Exhibit B are subject to change upon at least a sixty (60) days prior written notice from the Company to Distributor.
| 8. | TAXES: |
Distributor shall be responsible for the payment of Sales Taxes, if any. Distributor agrees to collect and remit all applicable Sales Taxes associated with the sale of Products to its customers.
Price Increases. Prior to the effective date of a price increase, Distributor may order products for delivery at the prior (i.e. lower) price. All products shipped under the orders placed by Distributor prior to the effective date of any price increase shall be shipped and invoiced at the price in effect at the time of order placement.
Price Cap: The Company reserves the right to apply a resale Price Cap to assure competitive market price.
| 9. | SELLING EFFORT: |
The Distributor shall diligently promote the sale of the product and solicit orders from customers within the territory.
2 | ||
| TurnOnGreen Inc. • 1421 McCarthy Blvd. • Milpitas • CA 95035 • 510-657-6634 • www.TurnOnGreen Inc.com | ||
| 10. | RELATIONSHIP CREATED: |
The Distributor is not an employee of the Company for any purpose whatsoever but is an independent contractor. The Company is interested only in the results obtained by the Distributor, who shall have sole control of the manner and means of performing under this Agreement. All expenses and disbursements, including but not limited to, those for travel and maintenance, entertainment, office, clerical and general expenses, that may be incurred by the Distributor in connection with this Agreement shall by borne wholly and completely by the Distributor and the Company shall not be in any way responsible or liable therefore. The Distributor does not have, nor shall he hold himself out as having, any right, power or authority to create any obligation, either expressed or implied, on behalf of, in the name of, or binding upon the Company or to pledge TurnOnGreen Inc’s credit, or to extend credit in TurnOnGreen Inc’s name unless the Company shall consent thereto in advance in writing. The Distributor shall have the right to appoint or otherwise designate suitable and desirable sales personnel, employees, and agents. The Distributor shall be solely responsible for such designees and their act. Such designees shall be at the Distributor’s own risk, expense and supervision, and such designees shall not have any claim against the Company for salaries, commission, items of cost, or other form of compensation or reimbursement and the Distributor represents, warrants and covenants that such designees shall be subordinate to the Distributor and subject to each and all of the terms, provisions and conditions applying to the Distributor herein.
| 11. | HOLD HARMLESS |
Each party shall hold the other harmless from and against and shall indemnify the other for any liability, loss, costs, expenses, or damages howsoever caused by reason of any injury (whether to body, property or personal or business character or reputation) sustained by any person or to any person or to property to the extent caused by the act, neglect, default, breach or omission of it or any of its agents or employees, and it shall pay all sums to be paid or discharged in case of an action or any such damages or injuries. If either party is sued in a court for damages by reason of any of the acts of the other party referred to in this paragraph, such other party shall defend said action (or cause same to be defended) at its own expense and shall pay and discharge any judgment that may be rendered in any such action; if such other party fails or neglects to so defend in said action, the party sued may defend the same and any expenses, including reasonable attorney’s fees, which it may pay or incur in defending said action and the amount of any judgment which it may pay or incur in defending said action and the amount of any judgment with it may be required to pay shall be promptly reimbursed upon demand. Nothing herein is intended to nor shall it relieve either party from liability for its own act, omission or negligence.
| 12. | SAMPLES, SELLING AIDS, SUPPLIES AND PROMOTION: |
The Company shall supply the Distributor, without cost from time to time, at the Distributor’s place of business, reasonable quantities of the Company’s advertising and selling literature.
| 13. | PRODUCT’S WARRANTY: |
The Distributor is not authorized to change, alter or modify the product’s warranty. All warranties of Company, whether created expressly by law or in fact, are incorporated herein by reference, apply to Distributor’s Order, and are supplemented by the following express warranties. For a period of thirty six (36) months from Distributor’s acceptance, or such other period as may be agreed by the Parties in writing or specified in Distributor’s Order (the “Warranty Period”), all Goods and/or Services shall (i) conform with any and all specifications, drawings, samples, or other descriptions referenced in and/or furnished in this Agreement or with Distributor’s Order, (ii) be free from defects in material, and workmanship, (iii) be new and not contain used or reconditioned material, (iv) be suitable for intended purpose, (v) be free and clear of any security interests, liens or other encumbrances, and (vii) comply with all applicable laws and regulations. Company’s warranty shall be void and of no effect and does not apply to Product that have been subjected to: (i) operation in excess of recommended capacity, (ii) inadequate electrical power, overloaded, shorts, etc., or humidity- control, (iii) accident or disaster, including without limitation, fire, flood, water, wind, and lightning, (iv) neglect, including without limitation, power transients, (v) abuse or misuse, (vi) failure of the user to follow Company’s operating instructions, (vii) unauthorized modification, installation or repair by persons other than authorized representatives of Company, (viii) use for purposes other than as specified in the published operating instructions; or (viii) other like actions and conditions; or (d) are not properly stored, installed, maintained, or operated under normal conditions and in accordance with Company’s recommendations. Company’s warranty shall be void and of no effect if the defect has arisen from damages occurring to the Product subsequent to delivery at the delivery point.
3 | ||
| TurnOnGreen Inc. • 1421 McCarthy Blvd. • Milpitas • CA 95035 • 510-657-6634 • www.TurnOnGreen Inc.com | ||
| 14. | PRODUCT CHANGES: |
Discontinuance and Obsolescence. The Company reserves the right to discontinue the manufacture or sale of, otherwise render or treat as obsolete, any or all of the products covered by this Agreement upon at least ninety (90) days prior written notice to Distributor. Distributor may, in its discretion, within ninety (90) days following receipt of such notice, notify the Company in writing of its intention to return any or all products so discontinued or rendered obsolete which remain in its inventory and shall receive a credit for such products equal to the net price paid by Distributor for the same, provided that said products are returned with sixty (60) days of the date of Distributor’s receipt of the Company’s Return Material Authorization, which RMA shall be promptly issued by the Company. The Company shall pay all freight and shipping charges in connection with any such returns. Returns of Products under this Section shall not be counted as “stock rotation” for purposes of computing the number of products by Distribution.
| 15. | PATENT INFRINGEMENT: |
The Company shall protect, indemnify, defend, and hold harmless the Distributor against any and all claims resulting from alleged patent infringement involving the product of the Company set forth in this Agreement.
| 16. | TERMINATION OF AGREEMENT: |
This Agreement shall continue in full force and effect, commencing with the opening of business on the 29th day of April 2022, and until terminated by either party, with or without cause, upon the giving of not less than thirty (30) days prior written notice to the other party. The effective date of termination shall be thirty- (30) days from the written notice date.
In the event that the Company terminates this Agreement, the Distributor shall be entitled to place orders or receive commissions on all scheduled orders shipped for a period of 30 days after the effective date of termination. After the effective date of termination, the Distributor will not receive commissions on any remaining scheduled orders or be able to place new orders.
In the event that the Distributor terminates this Agreement all conditions of the preceding paragraph shall apply.
At the close of business on the effective date of termination, the Distributor shall cease all dealings and contacts with customers on behalf of the Company and shall return to the Company all sales literature, brochures, price lists, samples and any and all other items or materials of whatever kind or nature furnished to him by the Company. Any product samples not returned shall be deducted at list price from the earned commissions of the Distributor.
In the event the Company terminates this Agreement without cause or elects not to renew the same, or Distributor terminates this Agreement for cause, the Company shall repurchase from Distributor any and all unsold products designated by Distributor from its inventory at the price paid therefore by Distributor, less any prior credits granted by the Company on such products. The Company shall pay all freight and shipping charges in connection with such repurchases.
In the event Distributor terminates this Agreement without cause or elects not to renew the same, the Company shall repurchase from Distributor any and all unsold products designated by Distributor from its inventory at the same price as set in above paragraph. A twenty percent (20%) handling charge may be deducted by the Company from the purchase price to be paid to Distributor for all products returned in saleable condition in opened or non-original packaging. Distributor shall pay all freight and shipping charges in connection with such repurchases.
4 | ||
| TurnOnGreen Inc. • 1421 McCarthy Blvd. • Milpitas • CA 95035 • 510-657-6634 • www.TurnOnGreen Inc.com | ||
Notwithstanding the foregoing, the Company shall be required to accept only those products which are in their original unopened packaging or, where not in such packaging, are undamaged and in saleable merchantable condition after testing and inspection by the Company.
| 17. | NOTICES AND REQUESTS |
Any notice, demand or request required or permitted to be given hereunder shall be in writing and shall be deemed effective twenty-four (24) hours after having been deposited in the United Stated mail, postage prepaid, registered or certified, and addressed to the addressee at the principal office set forth below. Any party may change its address for purposes of the Agreement by written notice given accordance herewith:
TURNONGREEN, ATTN: AMOS KOHN, 1421 McCarthy Blvd., Milpitas CA 95035. DISTRIBUTOR, ATTN: ALEX KIMMEL, 300 Supertest Rd, Unit 10, North York, ON M3J 2M2
| 18. | ENTIRE AGREEMENT |
This agreement, including the Exhibits attached hereto, constitutes the entire agreement between the Company and the Distributor concerning the subject matter hereof and supersedes all prior and contemporaneous agreements between the parties. This Agreement may be amended only by an instrument in writing, which expressly refers to the Agreement and specifically states that it is intended to amend it. No party is relying upon any warranties, representations or inducements not set forth herein.
| 19. | CONFIDENTIAL INFORMATION |
Any information obtained by either party regarding the other party in the performance of this agreement shall be deemed to be confidential and proprietary information. The receiving party agrees not to use such information for any purpose whatsoever other than the performance of it's obligations hereunder. In the event of a breach, the disclosing party shall be entitled to injunctive relief to restrain any such breach, threatened or actual.
| 20. | NON-ASSIGNABILITY: |
The rights and duties of the Distributor set forth in the Agreement, except the right to receive commissions payable, shall not be assigned or delegated in whole or in part and any purported assignment or delegation without the prior written consent of the Company shall be null and void; provided, however, that Distributor may assign its rights and duties hereunder, without prior consent, to an affiliate of Distributor or in the event Distributor sells substantially all of its assets.
| 21. | STOCK ROTATIONS: |
| A) | TurnOnGreen Inc does not promote the use of stock rotations or safety stock by the Distributor. |
| B) | TurnOnGreen Inc will allow the distributor to rotate sample inventory that has not been sold for part numbers they believe to be of greater demand in their area. This may be repeated each sixth month thereafter. The conditions of the stock exchange shall be as follows: |
| I. | Inventory must be in new condition and in original cartons where applicable |
| II. | Inventory must be no more than eighteen (18) months old from the manufactures date code of the product. |
| III. | Modified unit or models noted as non-cancellable or non-returnable (NCNR) cannot be returned |
| IV. | All returns must be prior approved by the Company. Authorization will be based upon the issuance of a RTS (Return to Stock) number |
| V. | Product can be returned at a rate no more than 5% of the Distributors previous sixth months purchases. |
| VI. | Product purchased prior to the 29th day of April 2022 or after this agreement has been terminated are not subject to Stock rotations |
| VII. | Any such stock rotations will be accompanied with an offsetting purchased order of equal or greater values (added) |
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| TurnOnGreen Inc. • 1421 McCarthy Blvd. • Milpitas • CA 95035 • 510-657-6634 • www.TurnOnGreen Inc.com | ||
| 22. | PAYMENT TERMS: |
Payment terms are net 30 days from the date of shipment on purchases placed by the Distributor to the Company. The Company reserves the right to set reasonable credit limits for the distributor based upon credit information and experience.
| 23. | GENERAL PROVISIONS |
This Agreement shall be governed by and construed, and the rights of the parties governed in accordance with the laws of the United States, particularly the laws of the state of California, without regard to conflicts of laws. Any dispute or issue arising hereunder, including any alleged breach by the Distributor, shall be heard, determined and resolved by an action commenced in the federal or state courts within the jurisdiction of Alameda County, California, USA, which the Distributor hereby agree shall have the exclusive jurisdiction over the issues and the parties. The Distributor hereby agrees to submit itself to the jurisdiction of the federal and state courts in California and waives the right to make any objections based on the exclusive jurisdiction or venue in such courts. The California courts shall have the right to grant all relief to which each party is or shall be entitled hereunder, including all equitable relief as the Court may deem appropriate. The Distributor agrees to service of process by registered mail at its agent for service of process in the appropriate jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above mentioned.
| THE COMPANY: | THE DISTRIBUTOR: | |
| TURNONGREEN INC. | ||
| BY: | BY: | |
| Amos Kohn | Alex Kimmel | |
| Name | ||
| Chief Executive Officer | ||
|
Co-founder & CEO Title |
6
TurnOnGreen Inc. • 1421 McCarthy Blvd. • Milpitas • CA 95035 • 510-657-6634 • www.TurnOnGreen Inc.com
Exhibit 10.6
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT is entered into this 20 day of May, 2022 (the “Effective Date”) by TURNONGREEN INC. a Nevada corporation (“TurnOnGreen”), its subsidiaries (together with TurnOnGreen, the “Company”), each Company having a principal place of business at 1421 McCarthy Blvd., Milpitas, CA 95035 and CED National Accounts, a Delaware corporation, having a principal place of business at 1920 Westridge Drive, Irving, Texas 75038, with locations in Yorba Linda, CA, Ft. Worth, TX, Nashville, TN, Salt Lake City, UT and Seattle, WA. (“Distributor”).
RECITALS
Whereas, the Company is a world-class solution driven organization unsurpassed in designing and manufacturing cutting-edge power supplies for the Defense, Medical, Datacom, Industrial and eMobility markets.
Whereas, the Distributor is desirous of acting as a non-exclusive Distributor for said product of the Company within the territory and on the terms and conditions herein set forth.
NOW, THEREFORE, the Company and the Distributor agree as follows:
| 1. | APPOINTMENT FOR DISTRIBUTOR / ACCEPTANCE. |
TurnOnGreen Inc hereby appoints CED National Accounts and affiliated locations listed in Exhibit A, as its non-exclusive Distributor to market its products, solicit orders and resell for the purpose of distributing EV Charging and other power supplies manufactured by the Company. The Distributor hereby accepts such appointment and agrees to represent the Company, market its products, solicit orders, resell products, and promote the sale of power supplies manufactured by the Company.
| 2. | TERRITORY, CUSTOMERS and NON-COMPETE |
2.1 The Distributor shall have the right to solicit orders, purchase power supplies from the Company, and resell the product for any potential customer within the territory herein defined except those customers listed on Exhibit “A” attached hereto and made a part hereof by reference as House Accounts of the Company. The geographic area within which the Distributor is appointed as the sales Distributor of the Company is defined in Exhibit “A” entitled “Territory” attached hereto and made a part hereof by this reference.
| 2.2 | The Company agrees that it will not approach nor compete for Distributor’s accounts without prior formal consent from Distributor at any time during the contracted course of the Agreement, and/or for a time of 24 months after Company and Distributor terminate this Agreement. Distributor will provide to Company on a quarterly basis, a list of active clients for whom the Company will not approach according to the terms of this Agreement, such list being considered part of Distributor’s Confidential Information subject to Section 18. |
| 3. | FINDERS FEE/COMMISSIONS PAYABLE |
The Distributor shall not have the right to any commissions’ payable unless there is a written agreement that specifically references a specific piece of business.
| 4. | ACCEPTANCE OF ORDERS: |
The Company will furnish the Distributor an acknowledgment of each order accepted by the Company from the Distributor and a copy of each invoice for product shipped. The Company shall have the right, at its sole and absolute discretion to accept or reject any and all orders from the Distributor or any customer within the territory. All orders shall be subject to acceptance by the Company at its home office and approval by its credit department.
1 | ||
| TurnOnGreen Inc. • 1421 McCarthy Blvd. • Milpitas • CA 95035 • 510-657-6634 • www.TurnOnGreen Inc.com | ||
| 5. | TERMS OF SALE: |
All sales shall at all times be at prices and upon terms and conditions established by the Company and not otherwise. The Company shall have the right, at its sole and absolute discretion, from time to time, to establish change, alter or amend its terms and conditions of sale, discount rates, prices, delivery, packing charges and method of payment. The Company shall provide the Distributor with notice of the terms and conditions of sale and any charges thereto that may occur on behalf of the Company. The Distributor is not authorized to quote any special terms of sale on behalf of the Company without written authorization from the Company.
| 6. | DELIVERY, SHIPPING TERMS, TITLE, AND RISK OF LOSS |
| a. | Unless otherwise agreed in writing by the parties, Company shall deliver the Goods to Distributor’s designated location (the "Delivery Point" “DP”) according to Incoterms rules of trade for the sale of goods. Time of performance and delivery is of the essence. Company agrees to notify Distributor in writing immediately if at any time it appears that Company may not be able to comply with the Order’s delivery schedule. Such notification shall include the actual or potential reasons for the delay, the actions being taken to remedy the delay, and the anticipated revised delivery schedule. Such notice, and any assistance furnished by Distributor to overcome delays, shall not waive Distributor’s remedies for delay and resulting default, including termination rights, if Company fails to meet the Order delivery schedule. |
| b. | All shipments shall be delivered DP in accordance with the version of Incoterms in effect as of the date of Distributor’s Order, unless otherwise agreed to by the parties in writing. Title and risk of loss passes to Distributor upon collecting of the Goods at the Company’s Shipping Point (the “Shipping Point”, “SP”. Distributor shall bear all shipping costs associated with shipping of the Good from the Company’s SP to the Distributor’s DP. Delivery shall not be deemed complete until the Goods have been actually received by Distributor at the Delivery Point. Distributor shall bear risk of loss or damage to Goods during transit. |
| 7. | PRICES: |
The prices for products purchased under this agreement shall be as set forth in the Company’s price list, Exhibit B. The prices shown in Exhibit B are subject to change upon at least a sixty (60) days prior written notice from the Company to Distributor.
| 8. | TAXES: |
Distributor shall be responsible for the payment of Sales Taxes, if any. Distributor agrees to collect and remit all applicable Sales Taxes associated with the sale of Products to its customers.
Price Increases. Prior to the effective date of a price increase, Distributor may order products for delivery at the prior (i.e. lower) price. All products shipped under the orders placed by Distributor prior to the effective date of any price increase shall be shipped and invoiced at the price in effect at the time of order placement.
Price Cap: The Company reserves the right to apply a resale Price Cap to assure competitive market price.
| 9. | SELLING EFFORT: |
The Distributor shall diligently promote the sale of the product and solicit orders from customers within the territory.
2 | ||
| TurnOnGreen Inc. • 1421 McCarthy Blvd. • Milpitas • CA 95035 • 510-657-6634 • www.TurnOnGreen Inc.com | ||
| 10. | RELATIONSHIP CREATED: |
The Distributor is not an employee of the Company for any purpose whatsoever but is an independent contractor. The Company is interested only in the results obtained by the Distributor, who shall have sole control of the manner and means of performing under this Agreement. All expenses and disbursements, including but not limited to, those for travel and maintenance, entertainment, office, clerical and general expenses, that may be incurred by the Distributor in connection with this Agreement shall by borne wholly and completely by the Distributor and the Company shall not be in any way responsible or liable therefore. The Distributor does not have, nor shall he hold himself out as having, any right, power or authority to create any obligation, either expressed or implied, on behalf of, in the name of, or binding upon the Company or to pledge TurnOnGreen Inc’s credit, or to extend credit in TurnOnGreen Inc’s name unless the Company shall consent thereto in advance in writing. The Distributor shall have the right to appoint or otherwise designate suitable and desirable sales personnel, employees, and agents. The Distributor shall be solely responsible for such designees and their act. Such designees shall be at the Distributor’s own risk, expense and supervision, and such designees shall not have any claim against the Company for salaries, commission, items of cost, or other form of compensation or reimbursement and the Distributor represents, warrants and covenants that such designees shall be subordinate to the Distributor and subject to each and all of the terms, provisions and conditions applying to the Distributor herein.
| 11. | HOLD HARMLESS |
Each party shall hold the other harmless from and against and shall indemnify the other for any liability, loss, costs, expenses, or damages howsoever caused by reason of any injury (whether to body, property or personal or business character or reputation) sustained by any person or to any person or to property to the extent caused by the act, neglect, default, breach or omission of it or any of its agents or employees, and it shall pay all sums to be paid or discharged in case of an action or any such damages or injuries. If either party is sued in a court for damages by reason of any of the acts of the other party referred to in this paragraph, such other party shall defend said action (or cause same to be defended) at its own expense and shall pay and discharge any judgment that may be rendered in any such action; if such other party fails or neglects to so defend in said action, the party sued may defend the same and any expenses, including reasonable attorney’s fees, which it may pay or incur in defending said action and the amount of any judgment which it may pay or incur in defending said action and the amount of any judgment with it may be required to pay shall be promptly reimbursed upon demand. Nothing herein is intended to nor shall it relieve either party from liability for its own act, omission or negligence.
| 12. | SAMPLES, SELLING AIDS, SUPPLIES AND PROMOTION: |
The Company shall supply the Distributor, without cost from time to time, at the Distributor’s place of business, reasonable quantities of the Company’s advertising and selling literature.
| 13. | PRODUCT’S WARRANTY: |
The Distributor is not authorized to change, alter or modify the product’s warranty. All warranties of Company, whether created expressly by law or in fact, are incorporated herein by reference, apply to Distributor’s Order, and are supplemented by the following express warranties. For a period of thirty six (36) months from Distributor’s acceptance, or such other period as may be agreed by the Parties in writing or specified in Distributor’s Order (the “Warranty Period”), all Goods and/or Services shall (i) conform with any and all specifications, drawings, samples, or other descriptions referenced in and/or furnished in this Agreement or with Distributor’s Order, (ii) be free from defects in material, and workmanship, (iii) be new and not contain used or reconditioned material, (iv) be suitable for intended purpose, (v) be free and clear of any security interests, liens or other encumbrances, and (vii) comply with all applicable laws and regulations. Company’s warranty shall be void and of no effect and does not apply to Product that have been subjected to: (i) operation in excess of recommended capacity, (ii) inadequate electrical power, overloaded, shorts, etc., or humidity- control, (iii) accident or disaster, including without limitation, fire, flood, water, wind, and lightning, (iv) neglect, including without limitation, power transients, (v) abuse or misuse, (vi) failure of the user to follow Company’s operating instructions, (vii) unauthorized modification, installation or repair by persons other than authorized representatives of Company, (viii) use for purposes other than as specified in the published operating instructions; or (viii) other like actions and conditions; or (d) are not properly stored, installed, maintained, or operated under normal conditions and in accordance with Company’s recommendations. Company’s warranty shall be void and of no effect if the defect has arisen from damages occurring to the Product subsequent to delivery at the delivery point.
3 | ||
| TurnOnGreen Inc. • 1421 McCarthy Blvd. • Milpitas • CA 95035 • 510-657-6634 • www.TurnOnGreen Inc.com | ||
| 14. | PRODUCT CHANGES: |
Discontinuance and Obsolescence. The Company reserves the right to discontinue the manufacture or sale of, otherwise render or treat as obsolete, any or all of the products covered by this Agreement upon at least ninety (90) days prior written notice to Distributor. Distributor may, in its discretion, within ninety (90) days following receipt of such notice, notify the Company in writing of its intention to return any or all products so discontinued or rendered obsolete which remain in its inventory and shall receive a credit for such products equal to the net price paid by Distributor for the same, provided that said products are returned with sixty (60) days of the date of Distributor’s receipt of the Company’s Return Material Authorization, which RMA shall be promptly issued by the Company. The Company shall pay all freight and shipping charges in connection with any such returns. Returns of Products under this Section shall not be counted as “stock rotation” for purposes of computing the number of products by Distribution.
| 15. | PATENT INFRINGEMENT: |
The Company shall protect, indemnify, defend, and hold harmless the Distributor against any and all claims resulting from alleged patent infringement involving the product of the Company set forth in this Agreement.
| 16. | TERMINATION OF AGREEMENT: |
This Agreement shall continue in full force and effect, commencing with the opening of business on the 20 day of May 2022, and until terminated by either party, with or without cause, upon the giving of not less than thirty (30) days prior written notice to the other party. The effective date of termination shall be thirty- (30) days from the written notice date.
In the event that the Company terminates this Agreement, the Distributor shall be entitled to place orders or receive commissions on all scheduled orders shipped for a period of 30 days after the effective date of termination. After the effective date of termination, the Distributor will not receive commissions on any remaining scheduled orders or be able to place new orders.
In the event that the Distributor terminates this Agreement all conditions of the preceding paragraph shall apply.
At the close of business on the effective date of termination, the Distributor shall cease all dealings and contacts with customers on behalf of the Company and shall return to the Company all sales literature, brochures, price lists, samples and any and all other items or materials of whatever kind or nature furnished to him by the Company. Any product samples not returned shall be deducted at list price from the earned commissions of the Distributor.
In the event the Company terminates this Agreement without cause or elects not to renew the same, or Distributor terminates this Agreement for cause, the Company shall repurchase from Distributor any and all unsold products designated by Distributor from its inventory at the price paid therefore by Distributor, less any prior credits granted by the Company on such products. The Company shall pay all freight and shipping charges in connection with such repurchases.
In the event Distributor terminates this Agreement without cause or elects not to renew the same, the Company shall repurchase from Distributor any and all unsold products designated by Distributor from its inventory at the same price as set in above paragraph. A twenty percent (20%) handling charge may be deducted by the Company from the purchase price to be paid to Distributor for all products returned in saleable condition in opened or non-original packaging. Distributor shall pay all freight and shipping charges in connection with such repurchases.
4 | ||
| TurnOnGreen Inc. • 1421 McCarthy Blvd. • Milpitas • CA 95035 • 510-657-6634 • www.TurnOnGreen Inc.com | ||
Notwithstanding the foregoing, the Company shall be required to accept only those products which are in their original unopened packaging or, where not in such packaging, are undamaged and in saleable merchantable condition after testing and inspection by the Company.
| 17. | NOTICES AND REQUESTS |
Any notice, demand or request required or permitted to be given hereunder shall be in writing and shall be deemed effective twenty-four (24) hours after having been deposited in the United Stated mail, postage prepaid, registered or certified, and addressed to the addressee at the principal office set forth below. Any party may change its address for purposes of the Agreement by written notice given accordance herewith:
TURNONGREEN INC., ATTN: AMOS KOHN, 1421 McCarthy Blvd., Milpitas CA 95035.
CED National Accounts, ATTN: Dan Cheetham 1920 Westridge Drive, Irving, TX 75038
| 18. | ENTIRE AGREEMENT |
This agreement, including the Exhibits attached hereto, constitutes the entire agreement between the Company and the Distributor concerning the subject matter hereof and supersedes all prior and contemporaneous agreements between the parties. This Agreement may be amended only by an instrument in writing, which expressly refers to the Agreement and specifically states that it is intended to amend it. No party is relying upon any warranties, representations or inducements not set forth herein.
| 19. | CONFIDENTIAL INFORMATION |
Any information obtained by either party regarding the other party in the performance of this agreement shall be deemed to be confidential and proprietary information. The receiving party agrees not to use such information for any purpose whatsoever other than the performance of it's obligations hereunder. In the event of a breach, the disclosing party shall be entitled to injunctive relief to restrain any such breach, threatened or actual.
| 20. | NON-ASSIGNABILITY: |
The rights and duties of the Distributor set forth in the Agreement, except the right to receive commissions payable, shall not be assigned or delegated in whole or in part and any purported assignment or delegation without the prior written consent of the Company shall be null and void; provided, however, that Distributor may assign its rights and duties hereunder, without prior consent, to an affiliate of Distributor or in the event Distributor sells substantially all of its assets.
| 21. | STOCK ROTATIONS: |
| A) | TurnOnGreen Inc does not promote the use of stock rotations or safety stock by the Distributor. |
| B) | TurnOnGreen Inc will allow the distributor to rotate sample inventory that has not been sold for part numbers they believe to be of greater demand in their area. This may be repeated each sixth month thereafter. The conditions of the stock exchange shall be as follows: |
| I. | Inventory must be in new condition and in original cartons where applicable |
| II. | Inventory must be no more than eighteen (18) months old from the manufactures date code of the product. |
| III. | Modified unit or models noted as non-cancellable or non-returnable (NCNR) cannot be returned |
| IV. | All returns must be prior approved by the Company. Authorization will be based upon the issuance of a RTS (Return to Stock) number |
| V. | Product can be returned at a rate no more than 5% of the Distributors previous sixth months purchases. |
| VI. | Product purchased prior to May 20, 2022 or after this agreement has been terminated are not subject to Stock rotations |
| VII. | Any such stock rotations will be accompanied with an offsetting purchased order of equal or greater values (added) |
5 | ||
| TurnOnGreen Inc. • 1421 McCarthy Blvd. • Milpitas • CA 95035 • 510-657-6634 • www.TurnOnGreen Inc.com | ||
PAYMENT TERMS:
Payment terms are net 30 days from the date of shipment on purchases placed by the Distributor to the Company. The Company reserves the right to set reasonable credit limits for the distributor based upon credit information and experience.
| 22. | GENERAL PROVISIONS |
This Agreement shall be governed by and construed, and the rights of the parties governed in accordance with the laws of the United States, particularly the laws of the state of California, without regard to conflicts of laws. Any dispute or issue arising hereunder, including any alleged breach by the Distributor, shall be heard, determined and resolved by an action commenced in the federal or state courts within the jurisdiction of Alameda County, California, USA, which the Distributor hereby agree shall have the exclusive jurisdiction over the issues and the parties. The Distributor hereby agrees to submit itself to the jurisdiction of the federal and state courts in California and waives the right to make any objections based on the exclusive jurisdiction or venue in such courts. The California courts shall have the right to grant all relief to which each party is or shall be entitled hereunder, including all equitable relief as the Court may deem appropriate. The Distributor agrees to service of process by registered mail at its agent for service of process in the appropriate jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above mentioned.
| THE COMPANY: | THE DISTRIBUTOR: | |
| TURNONGREEN INC. | ||
| BY: | BY: | |
| Amos Kohn | ||
| Name | ||
| Chief Executive Officer | ||
| Title |
6
TurnOnGreen Inc. • 1421 McCarthy Blvd. • Milpitas • CA 95035 • 510-657-6634 • www.TurnOnGreen Inc.com
Exhibit 10.7
ELECTRIC VEHICLE CHARGER SITE LICENSE AGREEMENT
This Electric Vehicle Charger Site License Agreement (together with any Exhibits attached hereto, this “Agreement”) is entered into this 23 day of May, 2022 (the "Effective Date") by and among TURNONGREEN INC. a Nevada corporation (“TurnOnGreen”), its subsidiaries (together with TurnOnGreen, the "Company"), each Company having a principal place of business at 1421 McCarthy Blvd., Milpitas, CA 95035 and Sunrise Hills Commercial Association, having a principal place of business at 945 Morning Star Drive, Sonora, CA 95370 (“Association”).
RECITALS
WHEREAS, the Company is a world-class solution driven organization unsurpassed in designing and manufacturing cutting-edge power electronic products and charging solutions for the Defense, Medical, Telecommunication, Industrial and e-Mobility markets.
WHEREAS, TurnOnGreen, through the provision of electric vehicle charging services at the Property (as hereinafter defined), will provide value to Association by attracting electric vehicle owners and the public to, and providing additional visibility of, the Property; and
WHEREAS, Association acknowledges the value of TurnOnGreen’s electric vehicle charging services at the Property and desires to grant possession and control of the Premises (as hereinafter defined) to TurnOnGreen pursuant to the terms set forth herein.
NOW THEREFORE, that the Authorized Persons are, and each of them is, authorized, in the name and on behalf of the Corporation, to sign and execute this Agreement
NOW THEREFORE, in consideration of the above and for other good and valuable consideration, the receipt and legal sufficiency of which is hereby acknowledged, the parties agree as follows with the intent to be legally bound hereby:
| 1. | PREMISES: Association hereby grants to TurnOnGreen possession and control of four (4) parking spaces, up to five (5) feet of additional parking width to comply with the Americans with Disabilities Act of 1990 and approximately 200-400 square feet of landscaped space for equipment (the “Premises”) on the property commonly known as Tuolumne County Transportation Council, located at 975 Morning Star Dr. Sonora, CA 95370 and as depicted on Exhibit A attached hereto (the “Property”) in order to build an electric vehicle charging station to charge electric vehicles (the “Charger Station”). |
| 2. | CONSTRUCTION: Upon delivery of possession of the Premises to TurnOnGreen, TurnOnGreen shall, at its sole expense, construct improvements as described in and pursuant to the procedures set forth in Exhibit B, attached hereto and made a part hereof, and will install certain trade fixtures indicated in Exhibit B (the “Trade Fixtures” as further described and defined in Exhibit B). Association specifically acknowledges and agrees that if the utilities necessary to operate the Charger Station: (i) are available upon the Premises, then TurnOnGreen and its contractors shall have the right to trench, connect or otherwise tie-in on the Premises the conduits, wires or other infrastructure necessary to enable such utilities to the Charger Station, in each case pursuant to such specifications and in such areas in each case as are set forth and/or depicted in Exhibit B; and (ii) are not available upon the Premises, then TurnOnGreen and its contractors shall have the right to trench, connect or otherwise tie-in on or through property owned or controlled by Association (collectively, “Association Property”) the conduits, wires or other infrastructure necessary to enable such utilities to the Charger Station, in each case pursuant to such specifications and in such areas in each case as are set forth and/or depicted in Exhibit B, and if applicable pursuant to the terms of this Section 3, Association hereby grants to TurnOnGreen the right and license to use the Association Property in accordance with the terms of this Agreement and Association agrees to enter into such easement agreements or other documents that are necessary or advisable in order to memorialize the same. |
| Page 1 |
| 3. | FOOTPRINT: A total of four (4) parking spaces, accommodating a total of Four (4) ports and two (2) pedestals (“Chargers”) to charge electric vehicles, shall be made available by Association upon the Premises. The Chargers and any applicable restrictions shall be identified by signage substantially similar to the signage depicted in Exhibit B. Association agrees that TurnOnGreen may line, stripe or otherwise mark such applicable parking spaces on the Premises, or otherwise distinguish the Premises from other areas or parking spaces in the vicinity of the Premises, in order to identify the same pursuant to such specifications as are set forth in Exhibit B or that are mutually agreeable to Association and TurnOnGreen. |
| 4. | Possession Date: The first date where TurnOnGreen may enter the Premises and Property to begin its work pursuant to the Agreement effective date (the “Possession Date”). |
| 5. | COMMENCEMENT DATE: Pursuant the completion of construction and installation of Charger Station associated with the Premises, the Charger Station opens to the public (the “Commencement Date”) provided that no external permitting, utility or other requirements beyond TurnOnGreen’s control delay the installation. TurnOnGreen shall deliver written notice to Association promptly following the Commencement Date to confirm such date for recordkeeping purposes. |
| 6. | TERM: The initial term of the Agreement shall expire Five (5) years from the Commencement Date (the “Initial Term”). TurnOnGreen shall have the right to twice extend the Agreement and each extension shall be for an additional period of Five (5) years (each a “Renewal Term” and TurnOnGreen ether with the Initial Term, the “Term”). To extend the Term, TurnOnGreen shall deliver written notice of such extension to Association no later than thirty (30) days prior to the expiration of the Term. In the event of a sale or transfer of the Property or Premises by Association while the Agreement is in effect, TURNONGREEN’s rights shall be conveyed with the Property or Premises. |
| 7. | UTILITIES: TurnOnGreen agrees to arrange and pay the charges for all TurnOnGreen -related utility services provided or used in or at the Premises during the Term. TurnOnGreen shall pay to the Association the cost of any and all such TurnOnGreen-related utility services used for TurnOnGreen charging services. Association shall not be responsible for any damages suffered by TurnOnGreen in connection with the quality, quantity, or interruption of utility service, unless the cause of the disruption or damage was due to Association’s negligence or willful misconduct or that of Association’s employees, contractors or representatives. Association agrees to provide TurnOnGreen with a copy of their utility bill to determine the kW/h reimbursement rate. TurnOnGreen will provide to Association a monthly report of kW/h utilization of TurnOnGreen chargers at the location. |
| 8. | USE: TurnOnGreen shall use and occupy the Premises during the Term for a Charger Station and incidental purposes, including generating photovoltaic electricity and operating an energy storage system. All use of the Premises by TurnOnGreen shall comply with applicable codes, laws, and ordinances. Association specifically acknowledges and agrees that, in addition to the rights and licenses granted to TurnOnGreen under this Agreement, TurnOnGreen’s employees, contractors, Associations, permittees, invitees and customers shall be permitted to utilize the Premises and the Chargers thereon in accordance with the terms of this Agreement. |
| 9. | PAYMENT FOR CHARGING SERVICES; [REVENUE SHARING]: Association shall have no right to request or accept payment from TurnOnGreen customers or any other third parties in connection with TurnOnGreen electric vehicle charging services. TurnOnGreen will establish charging rates and will retain 100% of NET charging revenues until the cost of equipment (Trade Fixtures) and installation (Infrastructure costs), as described in Exhibit C, is recouped by TurnOnGreen. Once the infrastructure costs have been recouped by TurnOnGreen, TurnOnGreen will continue to retain 80% of the NET charging revenues and will share the remaining 20% of the net revenue with the Association (Note: NET charging revenues means charging revenues less network fee and electricity cost). |
| 10. | MAINTENANCE: TurnOnGreen shall be responsible for maintaining the Trade Fixtures and Infrastructure (as defined in Exhibit B) and Association shall not have any liability for damage to the Trade Fixtures or the Infrastructure unless such damage is caused by Association’s negligence or willful misconduct or that of Association’s employees, contractors or representatives. Notwithstanding the foregoing, Association’s normal responsibility to maintain the common and similar areas of the Property shall also apply to the Premises, such as for snow removal and garbage collection. Association agrees to coordinate any parking lot maintenance with TurnOnGreen to ensure that charging stalls within the Premises remain available for electric vehicle charging at all times. TurnOnGreen may, in its discretion and at its sole cost, install security cameras and other equipment to monitor the Premises from off-site. |
| Page 2 |
| 11. | ASSOCIATION COVENANTS: Association represents that it is the owner of the Property and any applicable Association Property, or that Association has the right or license to otherwise grant TurnOnGreen the rights and licenses granted hereunder through a lease or other legally binding agreement or arrangement, and that this Agreement does not violate any agreement, lease or other commitment of Association. Association shall not take any action that would impair or interrupt the use of the Premises, the Association Property (if applicable) or the Trade Fixtures. Association agrees to notify TurnOnGreen within a commercially reasonable time if (i) it has knowledge of actual or anticipated activities by Association or any third party that may impair or constitute misuse of the Premises or Trade Fixtures, or (ii) it obtains knowledge of a needed repair to the Premises or Trade Fixtures. If motorists repeatedly park on the Premises for greater than the permitted duration, then the parties shall TurnOnGreen ether determine and implement an appropriate and effective strategy for preventing such impairment, including, without limitation, alternative signage and painted asphalt. Association shall use commercially reasonable efforts to actively monitor the Premises to ensure that use of the vehicle charging stalls on the Premises is not impaired. |
| 12. | ASSIGNMENT: TurnOnGreen shall not assign this Agreement voluntarily or by operation of law, or any right hereunder, nor sublet the Premises or any part thereof, without the prior written consent of Association, which shall not be unreasonably withheld, conditioned or delayed; provided that the foregoing prohibition shall not limit TurnOnGreen’s ability to transfer this Agreement to a company that is controlled by, controls, or is under common control with TurnOnGreen including without limitation any TurnOnGreen affiliate. |
| 13. | ALTERATIONS: Excepting the items of Exhibit B, TurnOnGreen shall not make or permit to be made any alterations, changes in or additions to the Premises without the prior written consent of Association, which shall not be unreasonably withheld, conditioned, or delayed. Upon termination of this Agreement, unless terminated due to a default of Association, the Infrastructure shall become the property of Association; provided that all Trade Fixtures and all related intellectual property shall at all times remain the property of TurnOnGreen and all Trade Fixtures will be promptly removed by TurnOnGreen upon termination of the Agreement. |
| 14. | SIGNAGE: TurnOnGreen signage to be installed at the Premises is represented in Exhibit B. Any material revisions or additions to the signage depicted in Exhibit B shall be subject to Association approval, which shall not be unreasonably withheld, conditioned, or delayed. All signage shall be professionally prepared, installed and maintained at TurnOnGreen’s expense. |
| 15. | INDEMNIFICATION: Except to the extent of any negligence or willful misconduct of Association or that of Association’s employees, contractors or representatives, TurnOnGreen hereby agrees to indemnify, hold harmless and defend the Property, Association, its directors, officers, employees, consultants, agents and representatives from all liability, damages, loss, costs and obligations, including, court costs and attorney’s fees, on account of or arising out of or alleged to have arisen out of any claim of any third party directly related to TurnOnGreen’s use of the Premises. TurnOnGreen shall promptly remove or bond any liens placed on the Property as a result of any claims for labor or materials furnished to or for TurnOnGreen at or for use on the Premises. |
Except to the extent of any negligence or willful misconduct of TurnOnGreen or that of TurnOnGreen’s employees, contractors or representatives, Association hereby agrees to indemnify, hold harmless and defend TurnOnGreen, its directors, officers, employees, consultants, agents and representatives from all liability, damages, loss, costs and obligations, including, court costs and attorney’s fees, on account of or arising out of or alleged to have arisen out of directly or indirectly, any claim of any third party directly related to Association’s actions or omissions with respect to the Premises and/or the Landlord Property.
In addition to the foregoing, each party agrees to indemnify, hold harmless and defend the other party and its directors, officers, employees, consultants, agents and representatives from all liability, damages, loss, costs and obligations, including, court costs and attorney’s fees, on account of or arising out of or alleged to have arisen out of directly or indirectly, any claim of the other party directly related to the indemnifying party or its employees, contractors or representatives causing bodily injury or property damage to the other party or its personal or real property.
| Page 3 |
This Section 16 shall survive the expiration or earlier termination of this Agreement.
| 16. | DESTRUCTION: Any total destruction of the Premises shall, at Association’s or TurnOnGreen’s written election within thirty (30) days of such destruction, terminate this Agreement. |
| 17. | DEFAULT: Each of the following shall constitute an “Event of Default” by TurnOnGreen under this Agreement: |
(1) the failure by TurnOnGreen to perform or observe any material term or condition of this Agreement and such failure continues for a period of thirty (30) days after receipt of written notice thereof, provided however, that if the nature of such default is such that the same cannot reasonably be cured within said thirty (30) day period, then TurnOnGreen shall have such additional time as is reasonably required to cure such failure provided TurnOnGreen commences to cure such failure within such thirty (30) day period and proceeds to cure such failure with diligence and continuity; or
(2) the appointment of a receiver or trustee to take possession of all or substantially all of the assets of TurnOnGreen located at the Premises if possession is not restored to TurnOnGreen within sixty (60) days; or a general assignment by TurnOnGreen for the benefit of creditors; or any action or proceeding commenced by or against TurnOnGreen under any insolvency or bankruptcy act, or under any other statute or regulation having as its purpose the protection of creditors and in the case of involuntary actions filed against the TurnOnGreen the same are not discharged within sixty (60) days after the date of commencement.
| 18. | REMEDIES: Association and TurnOnGreen acknowledge and agree that each party shall have all remedies available at law or in equity if the other party is in default under the terms of this Agreement. If an Event of Default has occurred and is continuing, then Association, in addition to any other remedies given at law or in equity, may: |
(A) continue this Agreement in effect by not terminating TurnOnGreen’s right to possession of said Premises and thereby be entitled to enforce all Association’s rights and remedies under this Agreement;
or
(B) bring an action to recover and regain possession of said Premises in the manner provided by the laws of eviction then in effect of the State where the Premises is located.
If Association fails to perform or observe any material term or condition of this Agreement and such failure continues for a period of thirty (30) days after receipt of written notice thereof (provided however, that if the nature of such default is such that the same cannot reasonably be cured within said thirty (30) day period, then Association shall have such additional time as is reasonably required to cure such failure provided Association commences to cure such failure within such thirty (30) day period and proceeds to cure such failure with diligence and continuity), then TurnOnGreen, in addition to any other remedies given at law or in equity, may terminate this Agreement upon notice to Association, remove all Trade Fixtures and be reimbursed by Association for any outstanding infrastructure costs due to TurnOnGreen.
| 19. | INSURANCE: TURNONGREEN shall carry commercial general liability insurance with limits of not less than One Million Dollars ($1,000,000) for bodily injury or death and property damage and an umbrella insurance policy of not less than Five Million Dollars ($2,000,000). A certificate evidencing such insurance shall be delivered to Association upon the execution of this Agreement and from time to time thereafter as may be requested by Association. Upon request, TurnOnGreen shall include Association as additional insured on its commercial general liability and umbrella insurance policies. TurnOnGreen will also carry worker’s compensation insurance in accordance with state and federal law. |
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| 20. | CONFIDENTIALITY AND PUBLICITY: |
(A) TurnOnGreen and Association agree that the terms of this Agreement are confidential information, and both parties agree not to disclose such confidential information to any person or entity other than (i) financial, legal and space planning consultants that have a “need to know” such confidential information and have agreed to abide by confidentiality terms no less protective than the terms of this Agreement and (ii) as required by law.
(B) Neither party will use the other party’s name, trademark or logo without such other party’s prior written consent. Notwithstanding the foregoing or anything to the contrary set forth in this Agreement, both parties shall be permitted to identify the location of the Premises as being a Charger-enabled location (which may include the name, address, business or similar characteristics of the other party).
| 21. | EXCLUSIONS: Notwithstanding anything herein to the contrary, neither party shall be liable for, and each party expressly releases the other party from any claims from, speculative, indirect, consequential, or punitive damages, including any lost sales or profits of the other party. |
| 22. | ENVIRONMENTAL MATTERS: Association represents and warrants that the Premises shall be delivered free of environmental contamination. TurnOnGreen shall have no liability for any environmental contamination unless caused by TurnOnGreen, its agents, employees or contractors. During the Term, Association is responsible for remediating any pre-existing contamination or any contamination not caused by TurnOnGreen, its agents, contractors, or employees. TurnOnGreen shall have no liability for diminution in value of the Property as it relates to environmental contamination. |
| 23. | NOTICES AND REQUESTS: Any notice, demand or request required or permitted to be given hereunder shall be in writing and shall be deemed effective twenty-four (24) hours after having been deposited in the United Stated mail, postage prepaid, registered or certified, and addressed to the addressee at the principal office set forth below. Any party may change its address for purposes of the Agreement by written notice given accordance herewith: |
TO TURNONGREEN, ATTN: AMOS KOHN, 1421 McCarthy Blvd., Milpitas CA 95035.
TO ASSOCIATION, ATTN: DEREK MAXSON, 945 Morning Star Dr., Sonora, CA 95370.
| 24. | ENTIRE AGREEMENT: This agreement, including the Exhibits attached hereto, constitutes the entire agreement between the Company and the Distributor concerning the subject matter hereof and supersedes all prior and contemporaneous agreements between the parties. This Agreement may be amended only by an instrument in writing, which expressly refers to the Agreement and specifically states that it is intended to amend it. No party is relying upon any warranties, representations or inducements not set forth herein. |
| 25. | BROKERS: Association and TurnOnGreen represent to each other that each has dealt with no broker, and each hereby agrees to indemnify and hold the other harmless from any claims for any such commissions or fees. |
| 26. | SUCCESSORS AND ASSIGNS: This Agreement shall be binding upon and shall inure to the benefit of Association and TurnOnGreen and their respective successors and assigns. |
| 27. | GOVERNING LAW: This Agreement shall be governed by the laws of the State where the Premises is located. |
| 28. | TIME: Time is of the essence in this Agreement. |
| 29. | COUNTERPARTS: This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which TurnOnGreen ether will constitute one agreement. Signed copies transmitted electronically in PDF or similar format shall be treated as originals. |
[Signature page follows.]
| Page 5 |
IN WITNESS WHEREOF, the parties hereto have each caused an authorized representative to execute this Agreement as of the Effective Date first written above.
| COMPANY: | ASSOCIATION: | ||||
| TURNONGREEN, INC. | FRONT PORCH, INC. | ||||
| Signature: | Signature: | ||||
|
By: Amos Kohn |
By: |
DEREK MAXSON |
|||
|
Title: Chief Executive Officer |
Title: |
CEC |
|||
| Page 6 |
EXHIBIT A
Premises and Property Depiction and Address
Property Address:
975 Morning Star Dr.
Sonora, CA 95370
Premises and Property Depiction: Four Parking Spaces in the main parking lot.
EXHIBIT B
TurnOnGreen Improvements
TurnOnGreen shall install the Charger Stations on the Premises pursuant to the terms of this Exhibit B. TurnOnGreen installation shall include the installation of the infrastructure for the Charger Station, which may include power supply, utility connections, concrete pads, conduit and wiring (the “Infrastructure”).
The Charger Station will also include certain trade fixtures as determined by TurnOnGreen, which may include, without limitation, the charger pedestal (“Charger Pedestal”), Chargers, switchgear, signage, fence or other visual barriers, canopy, solar panels, and an energy storage system (the “Trade Fixtures”).
The Trade Fixtures to be installed as of the Commencement Date will include the following:
| · | Two (2) Charger Dual Pedestals |
| · | Three (3) EVP700-G Chargers |
| · | One (1) EV700 Charger |
| · | EV Signage |
The installation of the Infrastructure and the Trade Fixtures is collectively referred to as the “TurnOnGreen Improvements.” TurnOnGreen will not perform the TurnOnGreen Improvements until the plans and specifications, including exact locations, have been approved by Association, which approval may be by e-mail communication and shall not be unreasonably withheld, conditioned, or delayed. All TurnOnGreen Improvements shall at all times comply with applicable laws, codes and ordinances and Infrastructure and Trade Fixtures shall be installed, maintained and replaced at TurnOnGreen’s sole cost.
[TO INCLUDE ANY TRENCHING, UTILITY TIE-IN, PARKING SPACE LINING OR OTHER SPECIFICATIONS OR DEPICTIONS AS ARE NECESSARY TO ENABLE UTILITIES TO THE CHARGING STATION OR SET THE PREMISES APART FROM ADJACENT PROPERTY]
Signage Example (below)
EXHIBIT C
TurnOnGreen Trade Fixture Costs
| Product Name | Quantity | MSRP | Total Cost |
| EVP7004-G | 3 | $1,120.00 | $3,360.00 |
| EV700 | 1 | $740.00 | $740.00 |
| PEDESTAL-DUO EVP (PLUS HOOK) | 2 | $742.00 | $1,484.00 |
| Network Fee* | 4 | $624.00 | $2,496.00* |
| 3-year Warranty (optional) ** | 4 | $224.00 | $896.00 |
| Sub-Total | $8,976.00 |
*Network Fee Billed Annually
** Optional dependent upon ownership
TurnOnGreen Infrastructure Costs – ESTIMATE SUBJECT TO CHANGE
| Product Name | Quantity | MSRP | Total Cost |
| Installation | 1 | TBD | TBD |
| Trenching | 0 | ||
| Permitting | 0 | ||
| TOTAL | Estimate $20k-$25k | TBD |
Exhibit 16.1
August 11, 2022
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Ladies and Gentlemen:
We have read Item 4.01 of the Form 8-K of Imperalis Holding Corp. and are in agreement with the statements contained therein as much as they relate to our firm. We have no basis to agree or disagree with any other statement of the registrant contained therein.
Very truly yours,
/s/Pinnacle Accountancy Group of Utah
Pinnacle Accountancy Group of Utah
(a dba of Heaton & Company, PLLC)
Farmington, Utah
Exhibit 21
Subsidiaries of the Registrant
1. Digital Power Corporation, a Delaware corporation
2. TOG Technologies, Inc., a Nevada corporation
3. CannaCure Sciences Inc, a Wyoming corporation
Exhibit 99.1
INDEX TO FINANCIAL STATEMENTS
| Report of Independent Registered Public Accounting Firm – Marcum LLP | F-2 |
| Consolidated Balance Sheets as of December 31, 2021 and 2020 | F-3 |
| Consolidated Statements of Operations for the years ended December 31, 2021 and 2020 | F-4 |
| Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2021 and 2020 | F-5 |
| Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020 | F-6 |
| Notes to the Consolidated Financial Statements | F-7 |
| Unaudited Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 | F-18 |
| Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021 | F-19 |
| Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021 | F-20 |
| Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 | F-22 |
| Notes to Unaudited Consolidated Financial Statements | F-23 |
| Unaudited Pro Forma Condensed Combined Financial Statements | F-33 |
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
TurnOnGreen, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of TurnOnGreen, Inc., formerly known as Coolisys Technologies Corp., and its Subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Marcum llp
Marcum llp
We have served as the Company’s auditor since 2021
New York, NY
August 16, 2022
| F-2 |
TURNONGREEN, INC. AND SUBSIDIARIES
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 112,000 | $ | 258,000 | ||||
| Accounts receivable, net | 627,000 | 872,000 | ||||||
| Prepaid expenses and other current assets | 1,800,000 | 92,000 | ||||||
| Inventories | 1,246,000 | 332,000 | ||||||
| TOTAL CURRENT ASSETS | 3,785,000 | 1,554,000 | ||||||
| Property and equipment | 111,000 | 118,000 | ||||||
| Right of use assets | 244,000 | 312,000 | ||||||
| Other noncurrent asset | 290,000 | 20,000 | ||||||
| TOTAL ASSETS | $ | 4,430,000 | $ | 2,004,000 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 657,000 | $ | 1,066,000 | ||||
| Operating lease liability, current | 73,000 | 64,000 | ||||||
| Other current liabilities | 519,000 | 336,000 | ||||||
| TOTAL CURRENT LIABILITIES | 1,249,000 | 1,466,000 | ||||||
| LONG TERM LIABILITIES | ||||||||
| Operating lease liability, non-current | 191,000 | 264,000 | ||||||
| TOTAL LIABILITIES | 1,440,000 | 1,730,000 | ||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock, $0.001 par value – 50,000,000 shares authorized; nil shares | ||||||||
| issued and outstanding at December 31, 2021 and 2020 | - | - | ||||||
| Class A Common Stock, $0.001 par value – 400,000,000 shares authorized; | ||||||||
| 1,000 shares issued and outstanding at December 31, 2021 and 2020 | - | - | ||||||
| Class B Common stock, $0.001 par value – 50,000 shares authorized; | ||||||||
| nil shares issued and outstanding at December 31, 2021 and 2020 | - | - | ||||||
| Investment by parent | 34,383,000 | 29,840,000 | ||||||
| Accumulated deficit | (31,393,000 | ) | (29,566,000 | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | 2,990,000 | 274,000 | ||||||
| TOTAL LIABILTIIES AND STOCKHOLDERS’ EQUITY | $ | 4,430,000 | $ | 2,004,000 | ||||
| F-3 |
TURNONGREEN, INC. AND SUBSIDIAIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | $ | 5,346,000 | $ | 5,416,000 | ||||
| Cost of revenue | 3,662,000 | 3,821,000 | ||||||
| Gross profit | 1,684,000 | 1,595,000 | ||||||
| Operating expenses: | ||||||||
| Research and development | 504,000 | 337,000 | ||||||
| Selling and marketing | 910,000 | 342,000 | ||||||
| General and administrative | 2,097,000 | 1,493,000 | ||||||
| Total operating expenses | 3,511,000 | 2,172,000 | ||||||
| Loss from operations | (1,827,000 | ) | (577,000 | ) | ||||
| Other income: | ||||||||
| Interest income | - | 9,000 | ||||||
| Net loss | $ | (1,827,000 | ) | $ | (568,000 | ) | ||
| Basic and diluted net loss per common share | $ | (1,827 | ) | $ | (568 | ) | ||
| Weighted average common shares outstanding, basic and diluted | 1,000 | 1,000 | ||||||
| F-4 |
TURNONGREEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| Total | ||||||||||||||||||||||||||||
| Preferred Stock | Class A Common Stock | Investment | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | By Parent | Deficit | Equity | ||||||||||||||||||||||
| BALANCES, January 1, 2020 | - | $ | - | 1,000 | $ | - | $ | 28,713,000 | $ | (28,998,000 | ) | $ | (285,000 | ) | ||||||||||||||
| Net transfer from parent | - | - | - | - | 1,127,000 | - | 1,127,000 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (568,000 | ) | (568,000 | ) | |||||||||||||||||||
| BALANCES, December 31, 2020 | - | $ | - | 1,000 | $ | - | $ | 29,840,000 | $ | (29,566,000 | ) | $ | 274,000 | |||||||||||||||
| Net transfer from parent | - | - | - | - | 4,543,000 | - | 4,543,000 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (1,827,000 | ) | (1,827,000 | ) | |||||||||||||||||||
| BALANCES, December 31, 2021 | - | $ | - | 1,000 | $ | - | $ | 34,383,000 | $ | (31,393,000 | ) | $ | 2,990,000 | |||||||||||||||
| F-5 |
TURNONGREEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (1,827,000 | ) | $ | (568,000 | ) | ||
| Adjustment to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 25,000 | 33,000 | ||||||
| Amortization of right-of-use assets | 68,000 | 27,000 | ||||||
| Increase in net parent investment for corporate overhead | 330,000 | 490,000 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 245,000 | 157,000 | ||||||
| Prepaid expenses and other current assets | (1,998,000 | ) | (60,000 | ) | ||||
| Inventory | (914,000 | ) | 224,000 | |||||
| Other noncurrent assets | 20,000 | (7,000 | ) | |||||
| Accounts payable | (390,000 | ) | (510,000 | ) | ||||
| Other current liabilities | 164,000 | (166,000 | ) | |||||
| Lease liabilities | (64,000 | ) | (11,000 | ) | ||||
| Net cash used in operating activities | (4,341,000 | ) | (391,000 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | (18,000 | ) | (26,000 | ) | ||||
| Net cash used in investing activities | (18,000 | ) | (26,000 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from investment from parent | 4,213,000 | 637,000 | ||||||
| Net cash provided by financing activities | 4,213,000 | 637,000 | ||||||
| Net (decrease) increase in cash | (146,000 | ) | 220,000 | |||||
| Cash at beginning of period | 258,000 | 38,000 | ||||||
| Cash at end of period | $ | 112,000 | $ | 258,000 | ||||
| F-6 |
TURNONGREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021
| 1. | DESCRIPTION OF BUSINESS |
TurnOnGreen, Inc., was incorporated in Nevada in January 2020. TurnOnGreen, Inc. is a wholly owned subsidiary of BitNile Holdings, Inc. a Delaware corporation (“BitNile”). TurnOnGreen, Inc. currently operates as an operating segment of BitNile.
TurnOnGreen, Inc., through its wholly owned subsidiaries Digital Power Corp. (“DPC”) and TOG Technologies, Inc. (“TOG Technologies”) (collectively, the “Company” or “TurnOnGreen”), designs, develops, manufactures and sells highly engineered, feature-rich, high-grade-power conversion and power system solutions to diverse industries and markets including automotive, medical, military, telecom, commercial and industrial as well as designs and provides a line of high-speed electric vehicle (“EV”) charging solutions.
On January 20, 2020, TurnOnGreen acquired all the outstanding securities of DPC. Through DPC, the company provides solutions which leverage a combination of low leakage power emissions, very high-power density with power efficiency, flexible design leveraging customize firmware and short time to market. Its designs and manufactured, highly engineered, precision power conversion and control solutions serve mission-critical applications and processes.
In April 2021, we formed TOG Technologies as a Nevada corporation (initially under the name TurnOnGreen, Inc.) to market and sell its 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.
On August 25, 2021, the Company changed its name from Coolisys Technologies Corp., to TurnOnGreen, Inc.
2. LIQUIDITY, GOING CONCERN AND MANAGEMENT PLANS
As of December 31, 2021, the Company had cash of $112,000 and working capital of $2.6 million. Currently, the Company is dependent on BitNile for its continued support to fund its operations, without which the Company would need to cease or curtail such operations. BitNile intends to provide TurnOnGreen such funding as may be necessary to permit the Company to fund its operations, while TurnOnGreen is a wholly owned subsidiary of BitNile.
The Company believes its current cash on hand together with funds advanced by the parent are sufficient to meet its operating and capital requirements for at least the next twelve months from the date these financial statements are issued.
3. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”).
Principles of Consolidation
The consolidated financial statements include the accounts of TurnOnGreen, Inc. and its wholly owned subsidiaries, DPC and TOG Technologies. All significant intercompany accounts have been eliminated in consolidation.
Net Parent Investment
The consolidated financial statements were derived from the consolidated financial statements of BitNile on a carve-out basis. The primary components of the net parent investment are intercompany balances other than related party payables, the allocation of shared costs, and funding received to cover any shortfall on operating cash requirements. Balances between TurnOnGreen and BitNile that were not historically cash settled are included in net parent investment. Net parent investment represents BitNile’s interest in the recorded assets of TurnOnGreen and represents the cumulative investment by BitNile in TurnOnGreen through the dates presented.
| F-7 |
TURNONGREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021
Accounting Estimates
The preparation of financial statements, in conformity with U.S. GAAP, requires management to make estimates, judgments and assumptions. The Company’s management believes that the estimates, judgments, and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Key estimates include allowances for inventory obsolescence, accruals of certain liabilities including product warranties, useful lives of assets, and related valuation allowance.
Revenue Recognition
The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
| · | Step 1: Identify the contract with the customer, |
| · | Step 2: Identify the performance obligations in the contract, |
| · | Step 3: Determine the transaction price, |
| · | Step 4: Allocate the transaction price to the performance obligations in the contract, and |
| · | Step 5: Recognize revenue when the company satisfies a performance obligation. |
Sales of Products
The Company generates revenues from the sale of its products through a direct and indirect sales force. The Company’s performance obligations to deliver products are satisfied at the point in time when products are received by the customer, which is when the customer obtains control over the goods. The Company provides standard assurance warranties, which are not separately priced, that the products function as intended. The Company primarily receives fixed consideration for sales of product. Some of the Company’s contracts with distributors include stock rotation rights after six months for slow moving inventory, which represents variable consideration. The Company uses an expected value method to estimate variable consideration and constrains revenue for estimated stock rotations until it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. To date, returns have been insignificant. The Company’s customers generally pay within 30 days from the receipt of a valid invoice.
Because the Company’s product sales agreements have an expected duration of one year or less, the Company has elected to adopt the practical expedient in ASC 606-10-50-14(a) of not disclosing information about its remaining performance obligations.
The Company has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component to the extent that the period between when the Company transfers its promised good or service to the customer and when the customer pays in one year or less.
Cash and Cash Equivalents
The Company’s cash is maintained in checking accounts with reputable financial institutions. These balances may exceed the U.S. Federal Deposit Insurance Corporation insurance limits. As of December 31, 2021 and 2020, the Company had cash of $112,000 and $258,000, respectively. The Company has not experienced any losses on deposits of cash and cash equivalents.
Accounts Receivable, Net
The Company’s receivables are recorded when billed and represent claims against third parties that will be settled in cash. The carrying amount of the Company’s receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. The Company individually reviews all accounts receivable balances and based upon an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected. The Company estimates the allowance for doubtful accounts based on historical collection trends, age of outstanding receivables and existing economic conditions. If events or changes in circumstances indicate that a specific receivable balance may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. A customer’s receivable balance is considered past-due based on its contractual terms. Past-due receivable balances are written-off when the Company’s internal collection efforts have been unsuccessful in collecting the amount due. Based on an assessment, as of December 31, 2021 and 2020, of the collectability of invoices, accounts receivable is presented net of an allowance for doubtful accounts of $0.
| F-8 |
TURNONGREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021
Inventory
Inventories are valued at the lower of cost or net realizable value after using the first-in, first-out method. Inventory write-offs are provided to cover risks arising from technological obsolescence as the Company’s products are mostly original equipment manufactured for its clients.
The Company periodically assesses its inventories valuation with respect to obsolete items by reviewing revenue forecasts and technological obsolescence and moving such items into a reserve allowance for obsolescence. When inventories on hand exceed the foreseeable demand or become obsolete, the value of excess inventory, which at the time of the review was not expected to be sold, is written off.
During the years ended December 31, 2021 and 2020, the Company did not record inventory write-offs within the cost of revenue.
Property and Equipment, Net
Property and equipment are stated at cost, net of accumulated depreciation. Major additions and improvements are capitalized, while replacements, maintenance and repairs, which do not improve or extend the life of the respective assets, are expensed as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, at the following annual rates:
| Useful Lives | ||
| Asset | (In Years) | |
| Computer software and office and computer equipment | 3 - 5 | |
| Machinery and equipment, automobiles, furniture, and fixtures | 3 - 10 | |
| Leasehold improvements | Over the term of the lease or the life of the asset, whichever is shorter |
Warranty
The Company offers a warranty period for all its manufactured products Warranty period to function free from defects in material and workmanship under normal use and service for one to two years on most products and up to five (5) years for rugged power products for the defense and aerospace markets. For our EVSE product line, we offer up to three (3) year extended warranty beyond the manufacturing warranty period. We also provide end user technical support for up to fifteen (15) years on many of our products which have long lifetimes. The Company estimates the costs that may be incurred under its warranty and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company’s warranty liability include the number of units sold, the sector product being used, historical rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability. As of December 31, 2021 and 2020 the Company’s accrued warranty liability was $54,000 and $44,000 respectively.
Income Taxes
The Company determines its income taxes under the asset and liability method in accordance with FASB ASC No. 740, Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Income and Comprehensive Income in the period that includes the enactment date.
| F-9 |
TURNONGREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021
The Company accounts for uncertain tax positions in accordance with ASC No. 740-10-25. ASC No. 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC No. 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. To the extent that the final tax outcome of these matters is different than the amount recorded, such differences impact income tax expense in the period in which such determination is made. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense. ASC No. 740-10-25 also requires management to evaluate tax positions taken by the Company and recognize a liability if the Company has taken uncertain tax positions that more likely than not would not be sustained upon examination by applicable taxing authorities. Management of the Company has evaluated tax positions taken by the Company and has concluded that as of December 31, 2021, there are no uncertain tax positions taken, or expected to be taken, that would require recognition of a liability that would require disclosure in the financial statements.
Segments
The Company determines that its primary brands constitutes its operating segments. In 2021, with the launch of the EV business, the Company now operates as two operating segments. However, the Company’s operating segments continue to be aggregated into one reportable segment based on the similarity in economic characteristics, other qualitative factors and the objectives and principles of ASC 280, Segment Reporting.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and trade receivables.
Trade receivables of the Company and its subsidiaries are mainly derived from sales to customers located primarily in the U.S. The Company performs ongoing credit evaluations of its customers and to date has not experienced any material losses. An allowance for doubtful accounts is determined with respect to those amounts that the Company and its subsidiaries have determined to be doubtful of collection. As of December 31, 2021 and 2020, there were no allowances for doubtful accounts.
The following table provides the percentage of total revenues attributable to a single customer from which 10% or more of total revenues are derived:
| For the Year Ended December 31, 2021 | ||||||||
| Total Revenues | Percentage of | |||||||
| by Major | Total Company | |||||||
| Customers | Revenues | |||||||
| Customer A | $ | 933,000 | 17 | % | ||||
| Customer B | $ | 628,000 | 12 | % | ||||
| For the Year Ended December 31, 2020 | ||||||||
| Total Revenues | Percentage of | |||||||
| by Major | Total Company | |||||||
| Customers | Revenues | |||||||
| Customer A | $ | 883,000 | 16 | % | ||||
| Customer B | $ | 559,000 | 10 | % | ||||
| F-10 |
TURNONGREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021
Leases
The Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases. Operating leases are recognized as Right-of-use (“ROU”) assets, Operating lease liability, current, and Operating lease liability, non-current on the consolidated balance sheets. Lease assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. In certain of the lease agreements, the Company receives rent holidays and other incentives. The Company recognizes lease costs on a straight-line basis over the lease term without regard to deferred payment terms, such as rent holidays, that defer the commencement date of required payments. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the life of the lease, without assuming renewal features, if any, are exercised. The Company elected the practical expedient in ASC842 and does not separate lease and non-lease components for its leases.
Net Loss per Share
Net loss per share is computed by dividing the net loss to common stockholders by the weighted average number of common shares outstanding.
Recently Adopted Accounting Pronouncements
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, “Revenue from Contracts with Customers.” The guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.
In May 2021, the Financial Accountings Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-04, “Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815- 40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.” The guidance became effective for the Company on January 1, 2022. The Company adopted the guidance on January 1, 2022, and has concluded the adoption did not have a material impact on its consolidated financial statements.
In October 2020, the FASB issued ASU 2020-10, Codification Improvements to make incremental improvements to GAAP and address stakeholder suggestions, including, among other things, clarifying that the requirement to provide comparative information in the financial statements extends to the corresponding disclosures section. The Company adopted the ASU effective January 1, 2021. The amendments in this update should be applied retrospectively and at the beginning of the period that includes the adoption date. The impact of adopting the ASU was immaterial to the consolidated results of operations, cash flows, financial position, and disclosures.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU also adds guidance to reduce the complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company adopted the ASU effective January 1, 2021. The impact of adopting the ASU was immaterial to the consolidated results of operations, cash flows, financial position, and disclosures.
| F-11 |
TURNONGREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses,” (“ASU 2016-13”) to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. This guidance is effective for the Company beginning on January 1, 2023, with early adoption permitted. The Company does not expect that the adoption of this standard will have a significant impact on its consolidated financial statements and related disclosures.
4. REVENUE DISAGGREGATION
The Company’s disaggregated revenues consist of the following for the years ended December 31,
| 2021 | 2020 | |||||||
| Primary Geographical Markets | ||||||||
| North America | $ | 4,684,000 | $ | 4,482,000 | ||||
| Europe | 359,000 | 611,000 | ||||||
| Other | 303,000 | 323,000 | ||||||
| $ | 5,346,000 | $ | 5,416,000 | |||||
| Major Goods | ||||||||
| Power Supply Units | $ | 5,328,000 | $ | 5,416,000 | ||||
| EV Chargers | 18,000 | - | ||||||
| $ | 5,346,000 | $ | 5,416,000 | |||||
| Timing of Revenue Recognition | ||||||||
| Goods transferred at a point in time | $ | 5,346,000 | $ | 5,416,000 | ||||
5. INVENTORIES
At December 31, 2021 and 2020, inventories consist of:
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Raw materials, parts and supplies | $ | 594,000 | $ | 104,000 | ||||
| Finished products | 652,000 | 228,000 | ||||||
| Total inventories, net of obsolescence | $ | 1,246,000 | $ | 332,000 | ||||
6. PROPERTY AND EQUIPMENT
At December 31, 2021 and 2020, property and equipment consist of the following:
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Machinery and equipment | $ | 679,000 | $ | 661,000 | ||||
| Computers | 484,000 | 484,000 | ||||||
| Office furniture and equipment | 160,000 | 160,000 | ||||||
| Leasehold improvements | 89,000 | 89,000 | ||||||
| 1,412,000 | 1,394,000 | |||||||
| Less: accumulated depreciation and amortization | (1,301,000 | ) | (1,276,000 | ) | ||||
| Property and equipment, net | $ | 111,000 | $ | 118,000 | ||||
Depreciation and amortization expense related to property and equipment was $25,000 and $33,000 for the years ended December 31, 2021 and 2020, respectively.
| F-12 |
TURNONGREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021
7. OTHER CURRENT LIABILITIES
As of December 31, 2021 and 2020 accrued expenses consist of the following:
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Customer prepayments | $ | 258,000 | $ | 87,000 | ||||
| Other accrued liabilities | 47,000 | 53,000 | ||||||
| Accrued payroll and payroll taxes | 214,000 | 196,000 | ||||||
| $ | 519,000 | $ | 336,000 | |||||
8. LEASES
The Company has operating leases for office space and manufacturing locations. The Company’s only long term lease has a remaining lease term of 2 years.
The following table provides a summary of leases by balance sheet category as of December 31, 2021 and 2020:
| December 31, 2021 | December 31, 2020 | |||||||
| Operating right-of-use assets | $ | 244,000 | $ | 312,000 | ||||
| Operating lease liability - current | 73,000 | 64,000 | ||||||
| Operating lease liability - non-current | 191,000 | 264,000 | ||||||
The components of lease expenses for the year ended December 31, 2021 and 2020 were as follows:
| December 31, 2021 | December 31, 2020 | |||||||
| Operating lease cost | $ | 98,000 | $ | 41,000 | ||||
| Short-term lease cost | - | - | ||||||
| Variable lease cost | - | - | ||||||
The following tables provides a summary of other information related to leases for the year ended December 31, 2021 and 2020:
| December 31, 2021 | December 31, 2020 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | 93,000 | $ | 25,000 | ||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | - | - | ||||||
| Weighted-average remaining lease term – operating leases | 2.9 years | 3.1 years | ||||||
| Weighted-average discount rate – operating leases | 10% | 10% | ||||||
| F-13 |
TURNONGREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021
Maturity of lease liabilities under the Company’s non-cancellable operating leases as of December 31, 2021, are as follows:
| Payments due by period | ||||
| 2022 | $ | 96,000 | ||
| 2023 | 109,000 | |||
| 2024 | 102,000 | |||
| Total lease payments | 307,000 | |||
| Less interest | (43,000 | ) | ||
| Present value of lease liabilities | $ | 264,000 | ||
9. RELATED PARTY TRANSACTIONS
Allocation of General Corporate Expenses
BitNile provides human resources, accounting, and other services to the Company. The Company obtains its business insurance under BitNile. The accompanying financial statements include allocations of these expenses. The allocation method calculates the appropriate share of overhead costs to the Company by using the Company’s revenue as a percentage of total revenue of BitNile. The Company believes the allocation methodology used is reasonable and has been consistently applied, and results in an appropriate allocation of costs incurred. However, these allocations may not be indicative of the cost had the Company been a stand-alone entity or of future services. BitNile allocated $330,000 and $490,000 of costs for the years ended December 31, 2021 and 2020, respectively. These costs were treated as a Net Investment by Parent (see Note 3).
Net Transfers From our parent
The Company received funding from BitNile to cover any shortfalls on operating cash requirements. In addition to the allocation of general corporate expenses, the Company received $4.2 million and $0.6 million from BitNile for the years ended December 31, 2021 and 2020, respectively. Such amounts are reflected in the Net Parent Investment (see Note 3).
Sales to related party
The Company recognized $23,000 and $18,000 in revenue in the years ended December 31, 2021 and 2020, respectively, from arm’s length sales to another subsidiary of BitNile.
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 a liability when it believes that it is probable that a loss has been incurred and the amount 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 appropriate. Significant judgment is required to determine both likelihood of there being, and the estimated amount of a loss related to such matters.
With respect to 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.
| F-14 |
TURNONGREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021
11. STOCKHOLDERS’ EQUITY
Authorized Capital
This Corporation is authorized to issue four hundred million (400,000,000) shares of Class A Common Stock, par value $0.001 per share, fifty million (50,000,000) shares of Class B Common Stock, par value $0.001 per share, (collectively, the “Common Stock”) and fifty million shares (50,000,000) shares of Preferred Stock, par value $0.001 per share (the “Preferred Stock”). The number of authorized shares of any class or classes of stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of at least a majority of the voting power of the issued and outstanding shares of Common Stock of the Corporation, voting together as a single class. As of December 31, 2021 and 2020, there was 1,000 shares of “Common Stock” issued and outstanding and held by one shareholder.
12. INCOME TAXES
The Company files its tax returns as part of its sole shareholder’s consolidated federal and state income tax filings. The estimated deferred tax assets and tax liabilities is based on if the Company had filed on a stand-alone basis and not as part of a consolidated return.
The following is a geographical breakdown of income/loss before the provision for income tax, for the years ended December 31, 2021 and 2020:
| 2021 | 2020 | |||||||
| Pre-tax income (loss) | ||||||||
| U.S. Federal | $ | (1,827,000 | ) | $ | (568,000 | ) | ||
| Foreign | - | - | ||||||
| Total | $ | (1,827,000 | ) | $ | (568,000 | ) | ||
The federal and state income tax (provision) benefit is summarized as:
| 2021 | 2020 | |||||||
| Current | ||||||||
| U.S. Federal | $ | - | $ | - | ||||
| U.S. State | - | - | ||||||
| Foreign | - | - | ||||||
| Total current provision | - | - | ||||||
| Deferred | ||||||||
| U.S. Federal | - | - | ||||||
| U.S. State | - | - | ||||||
| Foreign | - | - | ||||||
| Total deferred provision (benefit) | - | - | ||||||
| Total provision (benefit) for income taxes | $ | - | $ | - |
| F-15 |
TURNONGREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes and (b) operating losses and tax credit carryforwards. Significant components of the Company's deferred taxes as of December 31 were as follows:
| 2021 | 2020 | |||||||
| Deferred tax asset: | ||||||||
| Net operating loss | 5,302,000 | 4,931,000 | ||||||
| Intangible asset basis | 146,000 | 160,000 | ||||||
| Deferred rent liability | 74,000 | 92,000 | ||||||
| Accrued vacation | - | 55,000 | ||||||
| Accrued warranty | 12,000 | 12,000 | ||||||
| Total deferred tax asset | 5,534,000 | 5,250,000 | ||||||
| Deferred tax liability: | ||||||||
| ROU assets | (68,000 | ) | (87,000 | ) | ||||
| Fixed asset basis | (15,000 | ) | (20,000 | ) | ||||
| Total deferred income tax liabilities | (83,000 | ) | (107,000 | ) | ||||
| Net deferred income tax assets | 5,451,000 | 5,143,000 | ||||||
| Valuation allowance | (5,451,000 | ) | (5,143,000 | ) | ||||
| Deferred tax asset (liability), net | $ | (- | ) | $ | (- | ) | ||
Events which may restrict utilization of a company’s net operating loss and credit carryforwards include, but are not limited to, certain ownership change limitations as defined in Internal Revenue Code Section 382 and similar state provisions. In the event the Company has had a change of ownership, utilization of carryforwards could be restricted to an annual limitation. The annual limitation may result in the expiration of net operating loss carryforwards before utilization. The Company has not undertaken a study to determine if its net operating losses are limited. In the event the Company previously experienced an ownership change, or should experience an ownership change in the future, the amount of net operating loss carryovers available in any taxable year could be limited and may expire unutilized. The impact of any such limitations or expirations would not have a material impact on the financials since all the deferred tax assets for the Company’s attributes are fully offset by a valuation allowance.
ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is "more likely than not." Realization of the future tax benefits is dependent on the Company's ability to generate sufficient taxable income within the carryforward period. Because of the Company's recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance.
The valuation allowance increased by $308,000 during 2021 and $149,000 during 2020.
Net operating losses and tax credit carryforwards as of the Financial Statement Dates are as follows:
| 2021 Amount | Expiration Years | |||||
| Net operating losses, federal (Post December 31, 2017) | $ | 7,860,000 | Do Not Expire | |||
| Net operating losses, federal (Pre-January 1, 2018) | 11,185,000 | 2022 to 2037 | ||||
| Net operating losses, state | 18,653,000 | 2029 to 2041 | ||||
| 2020 Amount | Expiration Years | |||||
| Net operating losses, federal (Post December 31, 2017) | $ | 5,805,000 | Do Not Expire | |||
| Net operating losses, federal (Pre-January 1, 2018) | 12,152,000 | 2020 to 2031 | ||||
| Net operating losses, state | 16,610,000 | 2029 to 2040 | ||||
| F-16 |
TURNONGREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021
The effective tax rate of the Company’s provision (benefit) for income taxes differs from the federal statutory rate as follows:
| 2021 | 2020 | |||||||
| Statutory Rate | 21.00% | 21.00% | ||||||
| State Tax | 6.98% | 6.53% | ||||||
| Permanent Differences | - | -0.06% | ||||||
| Changes in VA | -16.87% | -26.18% | ||||||
| True-ups | -11.11 | -1.29% | ||||||
| Total | 0.00% | 0.00% | ||||||
The Company’s statute of limitations remains open for various taxable years in various U.S. federal and California jurisdictions.
12. SUBSEQUENT EVENTS
In accordance with FASB ASC 855-10, the Company has analyzed its operations subsequent to December 31, 2021, and thru the date of this report being issued and has determined that it does not have any material subsequent events to disclose in these financial statements except for the following.
TurnOnGreen Lease Agreement
On November 5, 2021, the Company’s subsidiary, TurnOnGreen, entered into a lease agreement to lease a 31,165 square foot building in Milpitas, California. The lease term is approximately 50 months beginning on January 1, 2022 ending January 31, 2026. The total commitment under the lease is $2.3 million.
Entry in Securities Purchase Agreement
On March 20, 2022, the Company entered into a securities purchase agreement (the “Agreement”) with Imperalis Holding Corp. (OTC Pink: IMHC) (“Imperalis”), a publicly traded subsidiary of the Company’s parent. Upon closing of the Agreement, TurnOnGreen will become a subsidiary of Imperalis and Imperalis will change its name to TurnOnGreen, Inc., and through an upstream merger, the Company and its subsidiaries shall cease to exist. The Company’s parent will then assist the newly merged company in pursuing an uplisting to the Nasdaq Capital Market, subject to Nasdaq’s seasoning rules and other criteria for listing.
| F-17 |
TURNONGREEN, INC. AND SUBSIDIARIES
(Unaudited)
| June 30, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 320,000 | $ | 112,000 | ||||
| Accounts receivable, net | 908,000 | 627,000 | ||||||
| Prepaid expenses and other current assets | 841,000 | 1,800,000 | ||||||
| Inventories | 2,703,000 | 1,246,000 | ||||||
| TOTAL CURRENT ASSETS | 4,772,000 | 3,785,000 | ||||||
| Property and equipment, net | 227,000 | 111,000 | ||||||
| Right of use assets | 1,908,000 | 244,000 | ||||||
| Other noncurrent asset | 290,000 | 290,000 | ||||||
| TOTAL ASSETS | $ | 7,197,000 | $ | 4,430,000 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 985,000 | $ | 657,000 | ||||
| Operating lease liability, current | 521,000 | 73,000 | ||||||
| Other current liabilities | 838,000 | 519,000 | ||||||
| TOTAL CURRENT LIABILITIES | 2,344,000 | 1,249,000 | ||||||
| LONG TERM LIABILITIES | ||||||||
| Operating lease liability, non-current | 1,539,000 | 191,000 | ||||||
| TOTAL LIABILITIES | 3,883,000 | 1,440,000 | ||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock, $0.001 par value – 50,000,000 shares authorized: nil shares | ||||||||
| Issued and outstanding at June 30, 2022 and December 31, 2021 | - | - | ||||||
| Class A Common Stock, $0.001 par value – 400,000,000 shares authorized: | ||||||||
| 1,000 shares issued and outstanding at June 30, 2022 and December 31, 2021 | - | - | ||||||
| Class B Common stock, $0.001 par value – 50,000 shares authorized; | ||||||||
| nil shares issued and outstanding at June 30, 2022 and December 31, 2021 | - | - | ||||||
| Investment by parent | 36,644,000 | 34,383,000 | ||||||
| Accumulated deficit | (33,330,000 | ) | (31,393,000 | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | 3,314,000 | 2,990,000 | ||||||
| TOTAL LIABILTIIES AND STOCKHOLDERS’ EQUITY | $ | 7,197,000 | $ | 4,430,000 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-18 |
TURNONGREEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | $ | 1,062,000 | $ | 1,831,000 | $ | 2,191,000 | $ | 3,213,000 | ||||||||
| Cost of revenue | 672,000 | 976,000 | 1,338,000 | 1,837,000 | ||||||||||||
| Gross profit | 390,000 | 855,000 | 853,000 | 1,376,000 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 304,000 | 72,000 | 510,000 | 296,000 | ||||||||||||
| Selling and marketing | 319,000 | 298,000 | 660,000 | 424,000 | ||||||||||||
| General and administrative | 771,000 | 451,000 | 1,620,000 | 920,000 | ||||||||||||
| Total operating expenses | 1,394,000 | 821,000 | 2,790,000 | 1,640,000 | ||||||||||||
| Net (loss) income | $ | (1,004,000 | ) | $ | 34,000 | $ | (1,937,000 | ) | $ | (264,000 | ) | |||||
| Basic and diluted net (loss) income | ||||||||||||||||
| per common share | $ | (1,004 | ) | $ | 34 | $ | (1,937 | ) | $ | (264 | ) | |||||
| Weighted average common shares | ||||||||||||||||
| outstanding, basic and diluted | 1,000 | 1,000 | 1,000 | 1,000 | ||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-19 |
TURNONGREEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
For the Three and Six Months Ended June 30, 2022
| Total | ||||||||||||||||||||||||||||
| Preferred Stock | Class A Common Stock | Investment | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | By Parent | Deficit | Equity | ||||||||||||||||||||||
| BALANCES, April 1, 2022 | - | $ | - | 1,000 | $ | - | $ | 35,394,000 | $ | (32,326,000 | ) | $ | 3,068,000 | |||||||||||||||
| Net transfer from parent | - | - | - | - | 1,250,000 | - | 1,250,000 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (1,004,000 | ) | (1,004,000 | ) | |||||||||||||||||||
| BALANCES, June 30, 2022 | - | $ | - | 1,000 | $ | - | $ | 36,644,000 | $ | (33,330,000 | ) | $ | 3,314,000 | |||||||||||||||
| Total | ||||||||||||||||||||||||||||
| Preferred Stock | Class A Common Stock | Investment | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | By Parent | Deficit | Equity | ||||||||||||||||||||||
| BALANCES, January 1, 2022 | - | $ | - | 1,000 | $ | - | $ | 34,383,000 | $ | (31,393,000 | ) | $ | 2,990,000 | |||||||||||||||
| Net transfer from parent | - | - | - | - | 2,261,000 | - | 2,261,000 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (1,937,000 | ) | (1,937,000 | ) | |||||||||||||||||||
| BALANCES, June 30, 2022 | - | $ | - | 1,000 | $ | - | $ | 36,644,000 | $ | (33,330,000 | ) | $ | 3,314,000 | |||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-20 |
TURNONGREEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
For the Three and Six Months Ended June 30, 2021
| Total | ||||||||||||||||||||||||||||
| Preferred Stock | Class A Common Stock | Investment | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | By Parent | Deficit | Equity | ||||||||||||||||||||||
| BALANCES, April 1, 2021 | - | $ | - | 1,000 | $ | - | $ | 30,513,000 | $ | (29,864,000 | ) | $ | 649,000 | |||||||||||||||
| Net transfer from parent | - | - | - | - | 1,161,000 | - | 1,161,000 | |||||||||||||||||||||
| Net income | - | - | - | - | - | 34,000 | 34,000 | |||||||||||||||||||||
| BALANCES, June 30, 2021 | - | $ | - | 1,000 | $ | - | $ | 31,674,000 | $ | (29,830,000 | ) | $ | 1,844,000 | |||||||||||||||
| Total | ||||||||||||||||||||||||||||
| Preferred Stock | Class A Common Stock | Investment | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | By Parent | Deficit | Equity | ||||||||||||||||||||||
| BALANCES, January 1, 2021 | - | $ | - | 1,000 | $ | - | $ | 29,840,000 | $ | (29,566,000 | ) | $ | 274,000 | |||||||||||||||
| Net transfer from parent | - | - | - | - | 1,834,000 | - | 1,834,000 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (264,000 | ) | (264,000 | ) | |||||||||||||||||||
| BALANCES, June 30, 2021 | - | $ | - | 1,000 | $ | - | $ | 31,674,000 | $ | (29,830,000 | ) | $ | 1,844,000 | |||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-21 |
TURNONGREEN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (1,937,000 | ) | $ | (264,000 | ) | ||
| Adjustment to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 30,000 | 13,000 | ||||||
| Amortization of right-of-use assets | 240,000 | 33,000 | ||||||
| Increase in net parent investment for corporate overhead | 160,000 | 165,000 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (281,000 | ) | (279,000 | ) | ||||
| Prepaid expenses and other current assets | 959,000 | (1,085,000 | ) | |||||
| Inventory | (1,457,000 | ) | 8,000 | |||||
| Accounts payable | 328,000 | (408,000 | ) | |||||
| Other current liabilities | 320,000 | 342,000 | ||||||
| Lease liabilities | (108,000 | ) | (35,000 | ) | ||||
| Net cash used in operating activities | (1,746,000 | ) | (1,510,000 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | (147,000 | ) | - | |||||
| Net cash used in investing activities | (147,000 | ) | - | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from investment from parent | 2,101,000 | 1,669,000 | ||||||
| Net cash provided by financing activities | 2,101,000 | 1,669,000 | ||||||
| Net increase in cash | 208,000 | 159,000 | ||||||
| Cash at beginning of period | 112,000 | 258,000 | ||||||
| Cash at end of period | $ | 320,000 | $ | 417,000 | ||||
| Non-cash investing and financing activities: | ||||||||
| Recognition of new operating lease right-of-use assets | ||||||||
| and lease liabilities | $ | 1,905,000 | $ | - | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-22 |
TURNONGREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
| 1. | DESCRIPTION OF BUSINESS |
TurnOnGreen, Inc., was incorporated in Nevada in January 2020. TurnOnGreen, Inc. is a wholly owned subsidiary of BitNile Holdings, Inc. a Delaware corporation (“BitNile”). TurnOnGreen, Inc. currently operates as an operating segment of BitNile.
TurnOnGreen, Inc., through its wholly owned subsidiaries Digital Power Corp. (“DPC”) and TOG Technologies, Inc. (“TOG Technologies”) (collectively, the “Company” or “TurnOnGreen”), designs, develops, manufactures and sells highly engineered, feature-rich, high-grade-power conversion and power system solutions to diverse industries and markets including automotive, medical, military, telecom, commercial and industrial as well as designs and provides a line of high-speed electric vehicle (“EV”) charging solutions.
On January 20, 2020, TurnOnGreen acquired all the outstanding securities of DPC. Through DPC, the Company provides 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. Its designed and manufactured, highly engineered, precision power conversion and control solutions serve mission-critical applications and processes.
In April 2021, we formed TOG Technologies as a Nevada corporation (initially under the name TurnOnGreen, Inc.) to market and sell its 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.
On August 25, 2021, the Company changed its name from Coolisys Technologies Corp., to TurnOnGreen, Inc.
On March 20, 2022, the Company entered into a securities purchase agreement (the “Agreement”) with Imperalis Holding Corp. (OTC Pink: IMHC) (“Imperalis”), a publicly traded subsidiary of the Company’s parent. Upon closing of the Agreement, TurnOnGreen will become a subsidiary of Imperalis and Imperalis will change its name to TurnOnGreen, Inc., and through an upstream merger, the Company and its subsidiaries shall cease to exist. The Company’s parent will then assist the newly merged company in pursuing an uplisting to the Nasdaq Capital Market, subject to Nasdaq’s seasoning rules and other criteria for listing.
2. LIQUIDITY, GOING CONCERN AND MANAGEMENT PLANS
As of June 30, 2022, the Company had cash of $0.3 million and working capital of $2.4 million. Currently, the Company is dependent on BitNile for its continued support to fund its operations, without which the Company would need to cease or curtail such operations. BitNile is committed to provide TurnOnGreen such funding as may be necessary to permit the Company to fund its operations, while TurnOnGreen is a wholly owned subsidiary of BitNile.
The Company believes its current cash on hand together with funds advanced by the parent are sufficient to meet its operating and capital requirements for at least the next twelve months from the date these financial statements are issued.
3. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”).
| F-23 |
TURNONGREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
Principles of Consolidation
The consolidated financial statements include the accounts of TurnOnGreen, Inc. and its wholly owned subsidiaries, DPC and TOG Technologies. All significant intercompany accounts have been eliminated in consolidation.
Net Parent Investment
The consolidated financial statements were derived from the consolidated financial statements of BitNile on a carve-out basis. The primary components of the net parent investment are intercompany balances other than related party payables, the allocation of shared costs, and funding received to cover any shortfall on operating cash requirements. Balances between TurnOnGreen and BitNile that were not historically cash settled are included in net parent investment. Net parent investment represents BitNile’s interest in the recorded assets of TurnOnGreen and represents the cumulative investment by BitNile in TurnOnGreen through the dates presented.
Accounting Estimates
The preparation of financial statements, in conformity with GAAP, requires management to make estimates, judgments and assumptions. The Company’s management believes that the estimates, judgments, and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Key estimates include allowances for inventory obsolescence, accruals of certain liabilities including product warranties, useful lives of assets, and related valuation allowance.
Unaudited Interim Consolidated Financial Statements
The interim consolidated balance sheet as of June 30, 2022, interim consolidated statements of operations for the three and six months ended June 30, 2022 and 2021, interim consolidated statements of cash flows for the six months ended June 30, 2022 and 2021, and the interim consolidated statements of changes in stockholders’ equity for the three and six months ended June 30, 2022 and 2021 are unaudited. The financial data and the other financial information disclosed in the notes to these consolidated financial statements related to the three and six-month periods are also unaudited. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full fiscal year or any other period.
Revenue Recognition
The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
| · | Step 1: Identify the contract with the customer, |
| · | Step 2: Identify the performance obligations in the contract, |
| · | Step 3: Determine the transaction price, |
| · | Step 4: Allocate the transaction price to the performance obligations in the contract, and |
| · | Step 5: Recognize revenue when the company satisfies a performance obligation. |
| F-24 |
TURNONGREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
Sales of Products
The Company generates revenues from the sale of its products through a direct and indirect sales force. The Company’s performance obligations to deliver products are satisfied at the point in time when products are received by the customer, which is when the customer obtains control over the goods. The Company provides standard assurance warranties, which are not separately priced, that the products function as intended. The Company primarily receives fixed consideration for sales of product. Some of the Company’s contracts with distributors include stock rotation rights after six months for slow moving inventory, which represents variable consideration. The Company uses an expected value method to estimate variable consideration and constrains revenue for estimated stock rotations until it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. To date, returns have been insignificant. The Company’s customers generally pay within 30 days from the receipt of a valid invoice.
Because the Company’s product sales agreements have an expected duration of one year or less, the Company has elected to adopt the practical expedient in ASC 606-10-50-14(a) of not disclosing information about its remaining performance obligations.
The Company has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component to the extent that the period between when the Company transfers its promised good or service to the customer and when the customer pays in one year or less.
Cash and Cash Equivalents
The Company’s cash is maintained in checking accounts with reputable financial institutions. These balances may exceed the U.S. Federal Deposit Insurance Corporation insurance limits. As of June 30, 2022 and December 31, 2021, the Company had cash of $0.3 million and $0.1 million, respectively. The Company has not experienced any losses on deposits of cash and cash equivalents.
Accounts Receivable
The Company’s receivables are recorded when billed and represent claims against third parties that will be settled in cash. The carrying amount of the Company’s receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. The Company individually reviews all accounts receivable balances and based upon an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected. The Company estimates the allowance for doubtful accounts based on historical collection trends, age of outstanding receivables and existing economic conditions. If events or changes in circumstances indicate that a specific receivable balance may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. A customer’s receivable balance is considered past-due based on its contractual terms. Past-due receivable balances are written-off when the Company’s internal collection efforts have been unsuccessful in collecting the amount due. Based on an assessment, as of June 30, 2022 and December 31, 2021, of the collectability of invoices, an allowance for doubtful accounts was not recorded against the Company’s accounts receivable.
Inventory
Inventories are valued at the lower of cost or net realizable value after using the first-in, first-out method. Inventory write-offs are provided to cover risks arising from technological obsolescence as the Company’s products are mostly original equipment manufactured for its clients.
The Company periodically assesses its inventories valuation with respect to obsolete items by reviewing revenue forecasts and technological obsolescence and moving such items into a reserve allowance for obsolescence. When inventories on hand exceed the foreseeable demand or become obsolete, the value of excess inventory, which at the time of the review was not expected to be sold, is written off.
| F-25 |
TURNONGREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
During the six months ended June 30, 2022 and the year ended December 31, 2021, the Company did not record inventory write-offs within the cost of revenue.
Property and Equipment, Net
Property and equipment are stated at cost, net of accumulated depreciation. Major additions and improvements are capitalized, while replacements, maintenance and repairs, which do not improve or extend the life of the respective assets, are expensed as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, at the following annual rates:
| Useful Lives | ||
| Asset | (In Years) | |
| Computer software and office and computer equipment | 3 - 5 | |
| Machinery and equipment, automobiles, furniture, and fixtures | 3 - 10 | |
| Leasehold improvements | Over the term of the lease or the life of the asset, whichever is shorter |
Warranty
The Company offers a warranty period for all its manufactured products to function free from defects in material and workmanship under normal use and service for one to two years on most products and up to five (5) years for rugged power products for the defense and aerospace markets. For our electric vehicle supply equipment (“EVSE”) product line, we offer up to a three (3) year extended warranty beyond the manufacturing warranty period. We also provide end user technical support for up to fifteen (15) years on many of our products which have long lifetimes. The Company estimates the costs that may be incurred under its warranty and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company’s warranty liability include the number of units sold, the sector product being used, historical rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability. As of June 30, 2022 and December 31, 2021 the Company’s accrued warranty liability was $54,000.
Income Taxes
The Company determines its income taxes under the asset and liability method in accordance with FASB ASC No. 740, Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Income and Comprehensive Income in the period that includes the enactment date.
The Company accounts for uncertain tax positions in accordance with ASC No. 740-10-25. ASC No. 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC No. 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. To the extent that the final tax outcome of these matters is different than the amount recorded, such differences impact income tax expense in the period in which such determination is made. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense. ASC No. 740-10-25 also requires management to evaluate tax positions taken by the Company and recognize a liability if the Company has taken uncertain tax positions that more likely than not would not be sustained upon examination by applicable taxing authorities. Management of the Company has evaluated tax positions taken by the Company and has concluded that as of June 30, 2022 and December 31, 2021, there are no uncertain tax positions taken, or expected to be taken, that would require recognition of a liability that would require disclosure in the financial statements.
| F-26 |
TURNONGREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
Segments
The Company determined that its primary brands constitutes its operating segments. In 2021, with the launch of the EV business, the Company now operates as two operating segments. However, the Company’s operating segments continue to be aggregated into one reportable segment based on the similarity in economic characteristics, other qualitative factors and the objectives and principles of ASC 280, Segment Reporting.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and trade receivables.
Trade receivables of the Company and its subsidiaries are mainly derived from sales to customers located primarily in the U.S. The Company performs ongoing credit evaluations of its customers and to date has not experienced any material losses. An allowance for doubtful accounts is determined with respect to those amounts that the Company and its subsidiaries have determined to be doubtful of collection. As of June 30, 2022 and December 31, 2021, there were no allowances for doubtful accounts.
The following table provides the percentage of total revenues attributable to a single customer from which 10% or more of total revenues are derived:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Customer A | 24 | % | - | 12 | % | - | ||||||||||
| Customer B | - | 24 | % | 12 | % | 20 | % | |||||||||
Leases
The Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases. Operating leases are recognized as Right-of-use (“ROU”) assets, Operating lease liability, current, and Operating lease liability, non-current on the consolidated balance sheets. Lease assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. In certain of the lease agreements, the Company receives rent holidays and other incentives. The Company recognizes lease costs on a straight-line basis over the lease term without regard to deferred payment terms, such as rent holidays, that defer the commencement date of required payments. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the life of the lease, without assuming renewal features, if any, are exercised. The Company elected the practical expedient in ASC842 and does not separate lease and non-lease components for its leases.
| F-27 |
TURNONGREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
Net Loss per Share
Net loss per share is computed by dividing the net loss to common stockholders by the weighted average number of common shares outstanding.
Recently Adopted Accounting Pronouncements
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, “Revenue from Contracts with Customers.” The guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.
In May 2021, the Financial Accountings Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-04, “Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815- 40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.” The guidance became effective for the Company on January 1, 2022. The Company adopted the guidance on January 1, 2022, and has concluded the adoption did not have a material impact on its consolidated financial statements.
In October 2020, the FASB issued ASU 2020-10, Codification Improvements to make incremental improvements to GAAP and address stakeholder suggestions, including, among other things, clarifying that the requirement to provide comparative information in the financial statements extends to the corresponding disclosures section. The Company adopted the ASU effective January 1, 2021. The amendments in this update should be applied retrospectively and at the beginning of the period that includes the adoption date. The impact of adopting the ASU was immaterial to the consolidated results of operations, cash flows, financial position, and disclosures.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU also adds guidance to reduce the complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company adopted the ASU effective January 1, 2021. The impact of adopting the ASU was immaterial to the consolidated results of operations, cash flows, financial position, and disclosures.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses,” (“ASU 2016-13”) to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. This guidance is effective for the Company beginning on January 1, 2023, with early adoption permitted. The Company does not expect that the adoption of this standard will have a significant impact on its consolidated financial statements and related disclosures.
4. REVENUE DISAGGREGATION
The Company’s disaggregated revenues consist of the following for the three and six months ended June 30, 2022 and 2021.
| F-28 |
TURNONGREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Primary Geographical Markets | ||||||||||||||||
| North America | $ | 822,000 | $ | 1,290,000 | $ | 1,834,000 | $ | 2,497,000 | ||||||||
| Europe | 28,000 | 453,000 | 47,000 | 562,000 | ||||||||||||
| Other | 212,000 | 88,000 | 310,000 | 154,000 | ||||||||||||
| Total Revenue | $ | 1,062,000 | $ | 1,831,000 | $ | 2,191,000 | $ | 3,213,000 | ||||||||
| Major Goods | ||||||||||||||||
| Power Supply Units | $ | 1,016,000 | $ | 1,831,000 | $ | 2,112,000 | $ | 3,213,000 | ||||||||
| EV Chargers | 46,000 | - | 79,000 | - | ||||||||||||
| Total Revenue | $ | 1,062,000 | $ | 1,831,000 | $ | 2,191,000 | $ | 3,213,000 | ||||||||
| Timing of Revenue Recognition | ||||||||||||||||
| Goods transferred at a point in time | $ | 1,062,000 | $ | 1,831,000 | $ | 2,191,000 | $ | 3,213,000 | ||||||||
5. INVENTORIES
At June 30, 2022 and December 31, 2021, inventories consist of:
| June 30, 2022 | December 31, 2021 | |||||||
| Finished products | $ | 1,613,000 | $ | 652,000 | ||||
| Raw materials, parts and supplies | 1,090,000 | 594,000 | ||||||
| Total inventories, net of obsolescence | $ | 2,703,000 | $ | 1,246,000 | ||||
6. PROPERTY AND EQUIPMENT
At June 30, 2022 and December 31, 2021, property and equipment consist of the following:
| June 30, 2022 | December 31, 2021 | |||||||
| Machinery and equipment | $ | 667,000 | $ | 679,000 | ||||
| Computers | - | 484,000 | ||||||
| Office furniture and equipment | 66,000 | 160,000 | ||||||
| Leasehold improvements | 73,000 | 89,000 | ||||||
| EV chargers | 64,000 | - | ||||||
| 870,000 | 1,412,000 | |||||||
| Less: accumulated depreciation and amortization | (643,000 | ) | (1,301,000 | ) | ||||
| Property and equipment, net | $ | 227,000 | $ | 111,000 | ||||
Depreciation and amortization expense related to property and equipment was $24,000 and $30,000 for the three and six months ended June 30, 2022, respectively, and was $6,000 and $13,000 for the three and six months ended June 30, 2021, respectively.
| F-29 |
TURNONGREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
7. OTHER CURRENT LIABILITIES
As of June 30, 2022 and December 31, 2021, other current liabilities consist of the following:
| June 30, 2022 | December 31, 2021 | |||||||
| Customer prepayments | $ | 557,000 | $ | 258,000 | ||||
| Other accrued liabilities | 67,000 | 47,000 | ||||||
| Accrued payroll and payroll taxes | 214,000 | 214,000 | ||||||
| $ | 838,000 | $ | 519,000 | |||||
8. LEASES
The Company has operating leases for office space and manufacturing locations. The Company’s leases have remaining lease terms of 1.6 years to 3.6 years, some of which may include options to extend the leases perpetually, and some of which may include options to terminate the leases within 1 year.
The following table provides a summary of leases by balance sheet category as of June 30, 2022:
| June 30, 2022 | ||||
| Operating right-of-use assets | $ | 1,908,000 | ||
| Operating lease liability - current | 521,000 | |||
| Operating lease liability - non-current | 1,539,000 | |||
The components of lease expenses for the six months ended June 30, 2022 were as follows:
| Six Months Ended June 30, 2022 | ||||
| Operating lease cost | $ | 324,000 | ||
| Short-term lease cost | - | |||
| Variable lease cost | - | |||
The following tables provides a summary of other information related to leases for the six months ended June 30, 2022:
| June 30, 2022 | ||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||
| Operating cash flows from operating leases | $ | 192,000 | ||
| Right-of-use assets obtained in exchange for new operating lease liabilities | - | |||
| Weighted-average remaining lease term – operating leases | 3.4 years | |||
| Weighted-average discount rate – operating leases | 8 | % | ||
| F-30 |
TURNONGREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
Maturity of lease liabilities under the Company’s non-cancellable operating leases as of June 30, 2022, are as follows:
| Payments due by period | ||||
| 2022 (remaining) | $ | 325,000 | ||
| 2023 | 682,000 | |||
| 2024 | 693,000 | |||
| 2025 | 608,000 | |||
| 2026 | 51,000 | |||
| Total lease payments | 2,359,000 | |||
| Less interest | (299,000 | ) | ||
| Present value of lease liabilities | $ | 2,060,000 | ||
9. RELATED PARTY TRANSACTIONS
Allocation of General Corporate Expenses
BitNile provides human resources, accounting, and other services to the Company. The Company obtains its business insurance under BitNile. The accompanying financial statements include allocations of these expenses. The allocation method calculates the appropriate share of overhead costs to the Company by using the Company’s revenue as a percentage of total revenue of BitNile. The Company believes the allocation methodology used is reasonable and has been consistently applied, and results in an appropriate allocation of costs incurred. However, these allocations may not be indicative of the cost had the Company been a stand-alone entity or of future services. BitNile allocated $100,000 and $160,000 of costs for the three and six months ended June 30, 2022, respectively, and allocated $83,000 and $165,000 of costs for the three and six months ended June 30, 2021, respectively. These costs were treated as a Net Investment by Parent (see Note 3).
Net Transfers From our parent
The Company received funding from BitNile to cover any shortfalls on operating cash requirements. In addition to the allocation of general corporate expenses, the Company received $2.3 million and $1.8 million from BitNile for the six months ended June 31, 2022 and 2021, respectively. Such amounts are reflected in the Net Parent Investment (see Note 3).
Revenue From related parties
The Company recognized revenue from subsidiaries of BitNile. During the three and six months ended June 30, 2022, the Company recognized $2,000 and during the three and six months ended June 30, 2021, the Company recognized $9,000 of revenue from BitNile’s subsidiaries.
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.
| F-31 |
TURNONGREEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
Certain of these outstanding matters include speculative, substantial or indeterminate monetary amounts. The Company records a liability when it believes that it is probable that a loss has been incurred and the amount 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 appropriate. Significant judgment is required to determine both likelihood of there being, and the estimated amount of a loss related to such matters.
With respect to 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. STOCKHOLDERS’ EQUITY
Authorized Capital
The Company is authorized to issue four hundred million (400,000,000) shares of Class A Common Stock, par value $0.001 per share and fifty million (50,000,000) shares of Class B Common Stock, par value $0.001 per share (collectively, the “Common Stock”) and fifty million shares (50,000,000) shares of Preferred Stock, par value $0.001 per share (the “Preferred Stock”). The number of authorized shares of any class or classes of stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of at least a majority of the voting power of the issued and outstanding shares of Common Stock of the Corporation, voting together as a single class. As of June 30, 2022 and December 31, 2021, there was 1,000 shares of “Common Stock” issued and outstanding and held by one shareholder.
11. SUBSEQUENT EVENTS
In accordance with FASB ASC 855-10, the Company has analyzed its operations subsequent to June 30, 2022, and thru the date of this report being issued and has determined that it does not have any material subsequent events to disclose in these financial statements.
| F-32 |
Unaudited Pro Forma Combined Condensed Financial Statements
In these unaudited pro forma combined condensed financial statements, the term “TOG” refers to TurnOnGreen, Inc., a Nevada corporation (formerly known as Coolisys Technologies Corp.) and its consolidated subsidiaries during the periods prior to the transactions and (ii) the term “IMHC” refers to Imperalis Holding Corp., a Nevada corporation and its consolidated subsidiaries during the periods prior to the transactions, and the term “TOGI” refers to the combined business of TOG and IMHC after giving effect to the Acquisition, in each case, unless otherwise stated or the context otherwise indicates. The term “Common Stock” refers to IMHC common stock, $0.001 par value per share, and the term “Series A Preferred Stock” refers to IMHC Series A convertible redeemable preferred stock, $0.001 par value per share issued on the Closing Date.
The unaudited pro forma combined condensed statements of operations for the year ended December 31, 2021 and the six months ended June 30, 2022 give effect to the transactions, as described below (collectively, the “transactions”). The unaudited pro forma combined condensed statements of operations give effect to the transactions as if they had occurred on January 1, 2021 and were prepared using the accounting for transactions between entities under common control under U.S. generally accepted accounting principles, or GAAP, which is subject to change and interpretation. Prior to completion of the transaction, both TOG and IMHC were controlled by BitNile Holdings, Inc. (“BitNile”) and as such, the transactions were accounted for as a transfer of interest under common control in accordance with Accounting Standards Codification Topic 805-50-15-6. Accordingly, TOG’s combined financial statements recognize, and will continue to recognize, the assets and liabilities received in the transaction at their historical carrying amounts, as reflected in the historical consolidated financial statements of TOG. The unaudited pro forma combined condensed statements of operations have been prepared by TOG management and are based on TOG’s historical financial statements and the assumptions and adjustments described in the notes to the unaudited pro forma combined condensed financial information below. The presentation of the unaudited pro forma financial statements is prepared in conformity with Article 11 of Regulation S-X rules effective January 1, 2021.
TOG’s historical financial information for the six months ended June 30, 2022 and for the fiscal year ended December 31, 2021 have been derived from TOG’s consolidated financial statements and the related notes, in each case, which are included in this Current Report. IMHC’s historical financial information for the six months ended June 30, 2022 and for the fiscal year ended December 31, 2021 have been derived from IMHC’s consolidated financial statements and the related notes, in each case, in IMHC’s Quarterly Report on Form 10-Q and Annual Report on Form 10-K for the corresponding periods, which are available at the Securities and Exchange Commission’s (the “SEC”) website at www.sec.gov.
The unaudited pro forma combined condensed statements of operations have been prepared to include a transaction accounting adjustment to reflect the results of operations as if TOGI were a separate stand-alone entity for the entirety of the period presented.
The transaction accounting adjustment reflects the effects of the completion of the Acquisition and includes an adjustment for the issuance by IMHC to BitNile of an aggregate of 25,000 shares of Series A Preferred Stock, with each such share having a stated value of $1,000 and the elimination of all of the intercompany accounts between BitNile and TOG evidencing historical equity investments made by BitNile to TOG.
The unaudited pro forma combined condensed balance sheet and statements of operations should be read in conjunction with the TOGI’s “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Current Report for the corresponding periods. In addition, the unaudited pro forma combined condensed balance sheet and statements of operations were based on and should be read in conjunction with the separate audited consolidated balance sheet and statements of operations of TOGI for the year ended December 31, 2021 and the unaudited condensed consolidated balance sheet and statements of operations for the six months ended June 30, 2022 and the related notes in this Current Report for the corresponding periods, respectively.
| F-33 |
The unaudited pro forma combined condensed balance sheet and statements of operations have been presented for informational purposes only. The pro forma information is not necessarily indicative of what TOGI’s results of operations would have been had the transactions been completed as of the dates indicated. In addition, the unaudited pro forma combined condensed balance sheet and statements of operations, which include adjustments which have been made solely for the purpose of providing unaudited pro forma combined condensed financial statements prepared in accordance with the rules and regulations of the SEC, do not purport to project TOGI’s future operating results.
The unaudited pro forma combined condensed balance sheet and statements of operations also do not reflect all future costs that may be incurred in the future as a result of the Acquisition or the costs to transition certain corporate functions from BitNile to TOGI.
| F-34 |
Unaudited Pro Forma Combined Condensed Balance Sheet
As of June 30, 2022
| Transaction | ||||||||||||||||
| Accounting | ||||||||||||||||
| TOG | IMHC | Adjustments (1) | Pro Forma | |||||||||||||
| ASSETS | ||||||||||||||||
| CURRENT ASSETS | ||||||||||||||||
| Cash | $ | 320,000 | $ | 4,000 | $ | - | $ | 324,000 | ||||||||
| Accounts receivable, net | 908,000 | - | - | 908,000 | ||||||||||||
| Prepaid expenses and other current assets | 841,000 | 11,000 | - | 852,000 | ||||||||||||
| Inventories | 2,703,000 | - | - | 2,703,000 | ||||||||||||
| TOTAL CURRENT ASSETS | 4,772,000 | 15,000 | - | 4,787,000 | ||||||||||||
| Property and equipment | 227,000 | - | - | 227,000 | ||||||||||||
| Right of use assets | 1,908,000 | - | - | 1,908,000 | ||||||||||||
| Other noncurrent asset | 290,000 | - | - | 290,000 | ||||||||||||
| TOTAL ASSETS | $ | 7,197,000 | $ | 15,000 | $ | - | $ | 7,212,000 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
| CURRENT LIABILITIES | ||||||||||||||||
| Accounts payable | $ | 985,000 | $ | - | $ | - | $ | 985,000 | ||||||||
| Accounts payable, related party | - | 15,000 | - | 15,000 | ||||||||||||
| Operating lease liability, current | 521,000 | - | - | 521,000 | ||||||||||||
| Accrued interest, related party | - | 6,000 | - | 6,000 | ||||||||||||
| Convertible notes payable, net | - | 45,000 | - | 45,000 | ||||||||||||
| Other current liabilities | 838,000 | 6,000 | - | 844,000 | ||||||||||||
| TOTAL CURRENT LIABILITIES | 2,344,000 | 72,000 | - | 2,416,000 | ||||||||||||
| LONG TERM LIABILITIES | ||||||||||||||||
| Convertible notes payable, net, related party | - | 101,000 | - | 101,000 | ||||||||||||
| Operating lease liability, non-current | 1,539,000 | - | - | 1,539,000 | ||||||||||||
| TOTAL LIABILITIES | 3,883,000 | 173,000 | - | 4,056,000 | ||||||||||||
| STOCKHOLDERS’ EQUITY | ||||||||||||||||
| Series A Convertible Preferred stock, $1,000 stated value per | ||||||||||||||||
| share, $0.001 par value – 25,000 shares authorized; | ||||||||||||||||
| 25,000 shares issued and outstanding at June 30, 2022 | - | - | - | - | ||||||||||||
| Common Stock, $0.001 par value – 200,000,000 shares | ||||||||||||||||
| authorized; 161,704,695 shares issued and outstanding | ||||||||||||||||
| at June 30, 2022 | - | 162,000 | - | 162,000 | ||||||||||||
| Investment by parent | 36,644,000 | - | (36,644,000 | ) | - | |||||||||||
| Additional paid-in-capital | - | 6,035,000 | 36,644,000 | 42,679,000 | ||||||||||||
| Accumulated deficit | (33,330,000 | ) | (6,355,000 | ) | - | (39,685,000 | ) | |||||||||
| TOTAL STOCKHOLDERS’ EQUITY | 3,314,000 | (158,000 | ) | - | 3,156,000 | |||||||||||
| TOTAL LIABILTIIES AND STOCKHOLDERS’ EQUITY | $ | 7,197,000 | $ | 15,000 | $ | - | $ | 7,212,000 | ||||||||
See accompanying notes to unaudited pro forma combined condensed financial information.
| F-35 |
Unaudited Pro Forma Combined Condensed Statement of Operations
For the six months ended June 30, 2022
| Transaction | ||||||||||||||||
| Accounting | ||||||||||||||||
| TOG | IMHC | Adjustments (2) | Pro Forma | |||||||||||||
| Revenues | $ | 2,191,000 | $ | - | $ | - | $ | 2,191,000 | ||||||||
| Cost of revenue | 1,338,000 | - | - | 1,338,000 | ||||||||||||
| Gross profit | 853,000 | - | - | 853,000 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 510,000 | - | - | 510,000 | ||||||||||||
| Selling and marketing | 660,000 | - | - | 660,000 | ||||||||||||
| General and administrative | 1,620,000 | 17,000 | - | 1,637,000 | ||||||||||||
| Total operating expenses | 2,790,000 | 17,000 | - | 2,807,000 | ||||||||||||
| Loss from operations | (1,937,000 | ) | (17,000 | ) | - | (1,954,000 | ) | |||||||||
| Other income: | ||||||||||||||||
| Interest expense | - | (3,000 | ) | - | (3,000 | ) | ||||||||||
| Interest expense, related party | - | (5,000 | ) | - | (5,000 | ) | ||||||||||
| Amortization of debt discount | - | (3,000 | ) | - | (3,000 | ) | ||||||||||
| Net loss | (1,937,000 | ) | (28,000 | ) | - | (1,965,000 | ) | |||||||||
| Preferred dividends | - | - | (1,000,000 | ) | (1,000,000 | ) | ||||||||||
| Net loss available to common stockholders | $ | (1,937,000 | ) | $ | (28,000 | ) | $ | (1,000,000 | ) | $ | (2,965,000 | ) | ||||
See accompanying notes to unaudited pro forma combined condensed financial information.
| F-36 |
Unaudited Pro Forma Combined Condensed Statement of Operations
For the year ended December 31, 2021
| Transaction | ||||||||||||||||
| Accounting | ||||||||||||||||
| TOG | IMHC | Adjustments (2) | Pro Forma | |||||||||||||
| Revenues | $ | 5,346,000 | $ | - | $ | - | $ | 5,346,000 | ||||||||
| Cost of revenue | 3,662,000 | - | - | 3,662,000 | ||||||||||||
| Gross profit | 1,684,000 | - | - | 1,684,000 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 504,000 | - | - | 504,000 | ||||||||||||
| Selling and marketing | 910,000 | - | - | 910,000 | ||||||||||||
| General and administrative | 2,097,000 | 156,000 | - | 2,253,000 | ||||||||||||
| Total operating expenses | 3,511,000 | 156,000 | - | 3,667,000 | ||||||||||||
| Loss from operations | (1,827,000 | ) | (156,000 | ) | - | (1,983,000 | ) | |||||||||
| Other income: | ||||||||||||||||
| Interest expense | - | (10,000 | ) | - | (10,000 | ) | ||||||||||
| Amortization of debt discount | - | (42,000 | ) | - | (42,000 | ) | ||||||||||
| Net loss | (1,827,000 | ) | (208,000 | ) | - | (2,035,000 | ) | |||||||||
| Preferred dividends | - | - | (2,000,000 | ) | (2,000,000 | ) | ||||||||||
| Net loss available to common stockholders | $ | (1,827,000 | ) | $ | (208,000 | ) | $ | (2,000,000 | ) | $ | (4,035,000 | ) | ||||
See accompanying notes to unaudited pro forma combined condensed financial information.
| F-37 |
Notes to Unaudited Pro Forma
Combined Condensed Financial Information
Transaction accounting adjustment
| (1) | The transaction accounting adjustment reflects the effects of the completion of the Acquisition and includes an adjustment for the issuance by IMHC to BitNile of an aggregate of 25,000 shares of Series A Preferred Stock, with each such share having a stated value of $1,000 and the elimination of all of the intercompany accounts between BitNile and TOG evidencing historical equity investments made by BitNile to TOG. |
| (2) | Includes an adjustment for dividends on the Series A Preferred Stock, which accrue daily and are cumulative, at the rate of eight percent (8%) per annum based on a 360 day calendar year. |
F-38
Exhibit 99.2
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BitNile Holdings’ Subsidiary, TurnOnGreen, Acquired by Another Subsidiary, Imperalis Holding Corp., Creating a Separate, Publicly Traded EV Charging and Power Solutions Company
BitNile to Distribute to its Stockholders Approximately 140 Million Shares and Warrants to Purchase an Equal Number of Shares of TurnOnGreen
Las Vegas, NV, September 6, 2022 – BitNile Holdings, Inc. (NYSE American: NILE), a diversified holding company (“BitNile” or the “Company”), announced a divestiture of the Company’s subsidiary, TurnOnGreen, Inc. (“TurnOnGreen”), an electric vehicle (“EV”) charging and power solutions company, to Imperalis Holding Corp. (OTC Pink: IMHC) (“Imperalis”), a publicly traded subsidiary of BitNile. Completing this transaction constitutes a significant step in BitNile’s planned distribution of TurnOnGreen’s securities to its stockholders.
Today TurnOnGreen closed upon the securities purchase agreement with Imperalis, whereby Imperalis acquired all of the outstanding shares of common stock of TurnOnGreen from BitNile (the “Acquisition”). As a result of the Acquisition, TurnOnGreen became a subsidiary of Imperalis.
As part of the Acquisition, BitNile eliminated all of the intercompany accounts between itself and TurnOnGreen evidencing historical equity investments made by BitNile in the approximate amount of $36,000,000, and Imperalis issued BitNile 25,000 shares of Series A Preferred Stock, with each such share having a stated value of $1,000. The Series A Preferred Stock has an aggregate liquidation preference of $25 million, is convertible into shares of Imperalis common stock at BitNile’s option, is redeemable by BitNile, and entitles BitNile to vote with the common stock on an as-converted basis.
Imperalis, which intends to change its name to TurnOnGreen as soon as practicable, will operate through TurnOnGreen’s two subsidiaries, TOG Technologies Inc. and Digital Power Corporation. Imperalis intends to dissolve its remaining dormant subsidiary. Now that the Acquisition is completed, BitNile will assist TurnOnGreen in pursuing an uplisting to the Nasdaq Capital Market, subject to Nasdaq’s seasoning rules and other criteria for listing.
The Company anticipates setting a record date soon whereby stockholders of BitNile will receive a dividend of securities of TurnOnGreen. BitNile expects to distribute to BitNile’s stockholders approximately 140 million shares of TurnOnGreen common stock and warrants to purchase an additional 140 million shares of TurnOnGreen common stock, subject to regulatory approval and compliance with US federal securities laws. The Company plans to cause Imperalis to apply to have the warrants publicly traded.
Milton “Todd” Ault, III, the Company’s Executive Chairman, stated, “We are excited to close the acquisition of TurnOnGreen by Imperalis, resulting in TurnOnGreen becoming a publicly traded company. TurnOnGreen is dedicated to enabling the electrification of American vehicles and its participation in reshaping the nation’s infrastructure to support green technology. We believe this transaction, creating a pureplay public company focused on EV chargers and power solutions, will be accretive in value for our stockholders.”
Upon the closing of the Acquisition, Imperalis appointed Amos Kohn as its Chief Executive Officer and the Charmain of its Board and as a member of its board of directors, as well as appointed Marcus Charuvastra as the President of Imperalis.
“We look forward to leveraging the public markets to drive the development and distribution of TurnOnGreen’s innovative technology,” said Amos Kohn, CEO of Imperalis. “TurnOnGreen has a team of experienced professionals, and we look forward to the planned distribution whereby stockholders of BitNile will become stockholders of TurnOnGreen. Together, we will continue the journey to deliver on the vision of making green energy technology a part of everyday life.”
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Update Call
The Company will host a conference call at 2:00 PM Pacific Time on Tuesday, September 6, 2022, to provide a summary on the completed Acquisition of TurnOnGreen by Imperalis and the planned distribution of securities to BitNile’s stockholders. The update call will be open to the public. Stockholders, investors, and interested parties who would like to participate in the webcast should use the following link to register in advance. Registration link: https://us06web.zoom.us/webinar/register/WN_qqYTeE06SbCyIIgYF5QV7A
Please direct any questions regarding obtaining access to the conference call to BitNile via e-mail, at [email protected], or by calling 1-888-753-2235.
For more information on TurnOnGreen’s product line, please visit www.TurnOnGreen.com.
For more information on BitNile Holdings and its subsidiaries, BitNile recommends that stockholders, investors, and any other interested parties read BitNile’s public filings and press releases available under the Investor Relations section at www.BitNile.com or available at www.sec.gov.
This announcement is for information purposes only and is not intended to and does not constitute an offer to sell or the solicitation of an offer to buy any securities in the United States or any other jurisdiction in which such offer, solicitation or sale would be unlawful.
About BitNile Holdings, Inc.
BitNile Holdings, Inc. is a diversified holding company pursuing growth by acquiring undervalued businesses and disruptive technologies with a global impact. Through its wholly and majority-owned subsidiaries and strategic investments, BitNile owns and operates a data center at which it mines Bitcoin and provides mission-critical products that support a diverse range of industries, including oil exploration, defense/aerospace, industrial, automotive, medical/biopharma, karaoke audio equipment, hotel operations and textiles. In addition, BitNile extends credit to select entrepreneurial businesses through a licensed lending subsidiary. BitNile’s headquarters are located at 11411 Southern Highlands Parkway, Suite 240, Las Vegas, NV 89141; www.BitNile.com.
About TurnOnGreen, Inc.
TurnOnGreen Inc. designs and manufactures innovative, feature-rich, and top-quality power products for mission-critical applications, lifesaving and sustaining applications spanning multiple sectors in the harshest environments. The diverse markets we serve include defense and aerospace, medical and healthcare, industrial, telecommunications and e-Mobility. TurnOnGreen brings decades of experience to every project, working with our clients to develop leading-edge products to meet a wide range of needs. TurnOnGreen’s headquarters are located at Milpitas, CA; www.turnongreen.com.
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Forward-Looking Statements
This press release contains “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements generally include statements that are predictive in nature and depend upon or refer to future events or conditions, and include words such as “believes,” “plans,” “anticipates,” “projects,” “estimates,” “expects,” “intends,” “strategy,” “future,” “opportunity,” “may,” “will,” “should,” “could,” “potential,” or similar expressions. Statements that are not historical facts are forward-looking statements. Forward-looking statements are based on current beliefs and assumptions that are subject to risks and uncertainties. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update any of them publicly in light of new information or future events. Actual results could differ materially from those contained in any forward-looking statement as a result of various factors. More information, including potential risk factors, that could affect the Company’s business and financial results are included in the Company’s filings with the U.S. Securities and Exchange Commission, including, but not limited to, the Company’s Forms 10-K, 10-Q and 8-K. All filings are available at www.sec.gov and on the Company’s website at www.BitNile.com.
Contacts:
[email protected] or 1-888-753-2235