The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
1. DESCRIPTION OF BUSINESS
Overview
Imperalis Holding Corp (“IMHC”), to
be renamed TurnOnGreen, Inc., an emerging electric vehicle (“EV”) electrification infrastructure solutions and premium custom
power products company through its wholly owned subsidiaries Digital Power Corporation and TOG Technologies (collectively, the “Company”),
designs, develops, manufactures and sells highly engineered, feature-rich, high-grade power electronic products and systems as well as
EV charging solutions to diverse industries, markets and sectors including e-Mobility, medical, military, telecommunications, and industrial.
IMHC was incorporated in Nevada on April 5, 2005
and is a subsidiary of BitNile Holdings, Inc. a Delaware corporation (the “Parent” or “BitNile”) and currently
operates as a reporting segment of BitNile.
Recapitalization and Reorganization
On March 20, 2022, BitNile and IMHC entered into
a Securities Purchase Agreement (the “Agreement”) with TurnOnGreen, Inc., a Nevada corporation (“TOGI”), a then
wholly-owned subsidiary of the Parent. Pursuant to the Agreement, at the Closing, which occurred on September 6, 2022 (the “Closing
Date”), the Parent delivered to IMHC all of the outstanding shares of common stock of TOGI held by the Parent 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 the Company’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.
Immediately following the Acquisition, TOGI became
a wholly-owned subsidiary of IMHC, and subsequent thereto, TOGI was merged with and into IMHC, pursuant to which TOGI ceased to exist.
The acquisition was treated as an asset acquisition and the equity
of the Company was retroactively restated for the conversion of 1,000 shares
for 25,000 shares of preferred stock upon
completion of the Acquisition.
Pursuant to Accounting Standards Codification
(“ASC”) 250-10 and ASC 805-50, the Acquisition was recognized prospectively for all periods. While IMHC was deemed to be the
legal acquirer of TOGI, TOGI was considered the acquiror and predecessor for accounting and financial reporting purposes and, therefore,
was deemed to be the receiving entity and is presented on a stand-alone basis for all periods. The accompanying financial statements have
been prospectively updated as a result of the asset acquisition under common control, which was completed on September 6, 2022.
As a result of the Acquisition, prior period shares
and per share amounts appearing in the accompanying condensed consolidated financial statements have not been adjusted until the date
of the Acquisition as a part of the net assets acquired.
2. LIQUIDITY AND GOING CONCERN
As of September
30, 2022, the Company had cash and cash equivalents of $0.1
million and working capital of $2.6
million. The accompanying unaudited condensed consolidated financial statements have
been prepared assuming that the Company will continue as a going concern. The Company has incurred recurring net losses and operations
have not provided cash flows. In view of these matters, there is substantial doubt about our ability to continue as a going concern.
The Company intends to finance its future development activities and its working capital needs largely through the sale of equity securities
with some additional funding from other sources, including term notes until such time as funds provided by operations are sufficient
to fund working capital requirements. The consolidated financial statements of the Company do not include any adjustments relating to
the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should
the Company be unable to continue as a going concern.
3. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”),
the instructions to Form 10-Q and Regulation S-X and do not include all the information and disclosures
required by GAAP. The Company has made estimates and judgments affecting the amounts reported in the Company’s condensed
consolidated financial statements and the accompanying notes. The condensed consolidated financial information is unaudited and reflects
all normal adjustments that are, in the opinion of management, necessary to provide a fair statement of results for interim periods presented.
These condensed consolidated financial statements should be read in conjunction with IMHC’s
Current Report on Form 8-K relating to the Acquisition filed with the SEC on September 6, 2022.
The condensed consolidated balance
sheets as of December 31, 2021 were derived from TOGI’s 2021 financial statements. Results of the three and nine months ended September
30, 2022, are not necessarily indicative of the results to be expected for the full year ending December 31, 2022.
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 valuation allowance related to deferred tax assets.
Unaudited
Interim Condensed Consolidated Financial Statements
The interim condensed consolidated balance sheet as of September 30,
2022, the interim condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021, the
statement of cash flows for the nine months ended September 30, 2022 and 2021, and the interim condensed consolidated statement of changes
in stockholders’ deficit for the three and nine months ended September 30, 2022 and 2021 are unaudited. The financial data and the
other financial information disclosed in the notes to these condensed consolidated financial statements related to the three and nine
month periods are also unaudited. The results of operations for the three and nine months ended September 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 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 or considered material, 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.
Cash and Cash Equivalents
The Company’s cash is maintained in checking
accounts with reputable financial institutions. These balances may, at times, exceed the U.S. Federal Deposit Insurance Corporation insurance limits.
As of September 30, 2022 and December 31, 2021, the Company had cash of $65,000 and $112,000, 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 September 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.
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 rates:
Schedule of property and equipment net
|
|
Useful Lives |
Asset |
|
(In Years) |
Computer software and office and computer equipment |
|
3 - 5 |
Machinery and equipment, automobiles, furniture, and fixtures |
|
3 - 15 |
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 years for rugged power products for the defense and aerospace markets. For the Company’s electric vehicle supply equipment product line, the Company offers up
to a three year extended warranty beyond the manufacturing warranty period, although not considered material to its revenue
stream. The Company also provides end user technical support for up to fifteen (15) years on many of its products that 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 September 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 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 September 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.
Impairment of Long-lived Assets
The Company analyzes its long-lived assets
for potential impairment. Impairment losses are recorded on long-lived assets when indicators of impairment are present. When
the carrying value of an asset exceeds the associated undiscounted expected future cash flows, it is considered to be impaired and is
written down to fair value. During the nine months ended September 30, 2022 and 2021, the Company recognized no impairment of long-lived
assets.
Segments
The Company determined that its two primary brands
constitute its 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. At September 30, 2022, receivables from three customers made up 47% of the current
receivables but the majority of the balances were outstanding for less than 90 days. Greater than 90 day receivables balance was less
than 1%. At December 31, 2021 four customers made up 49% of the outstanding receivables with only one customer being the same customer
as referred to with respect to the September 30, 2022 concentration.
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 September 30,
2022 and December 31, 2021, there were no allowances for doubtful accounts.
The following table provides the percentage of
total revenue attributable to a single customer from which 10% or more of total revenue is derived:
| |
For the Three Months Ended | | |
For the Nine Months Ended | |
| |
September 30, 2022 | | |
September 30, 2022 | |
| |
Total Revenue | | |
Percentage of | | |
Total Revenue | | |
Percentage of | |
| |
by Major | | |
Total Company | | |
by Major | | |
Total Company | |
| |
Customers | | |
Revenue | | |
Customer | | |
Revenue | |
Customer A | |
$ | 300,000 | | |
| 27 | % | |
$ | 563,000 | | |
| 14 | % |
| |
For the Three Months Ended | | |
For the Nine Months Ended | |
| |
September 30, 2021 | | |
September 30, 2021 | |
| |
Total Revenue | | |
Percentage of | | |
Total Revenue | | |
Percentage of | |
| |
by Major | | |
Total Company | | |
by Major | | |
Total Company | |
| |
Customer | | |
Revenue | | |
Customer | | |
Revenue | |
Customer A | |
$ | 279,000 | | |
| 25 | % | |
$ | 933,000 | | |
| 22 | % |
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 condensed 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 ASC 842 and does not separate lease and non-lease components for its leases.
Net Loss per Share
In accordance with ASC 260, Earnings Per
Share, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average
number of common stock outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the
denominator is increased to include the number of additional shares of common stock that would have been outstanding if the
potential common shares had been issued and if the additional common shares were dilutive. As of September 30, 2022 and December 31,
2021, the Company had 161,704,695
and 0 shares issued and outstanding, respectively. In addition, the Company has 21,478,923
and 0
of potential Common Stock equivalents outstanding as of September 30, 2022 and 2021, respectively, related to convertible notes
payable and accrued interest which were excluded from the diluted EPS calculation as they are antidilutive.
Recent Accounting Pronouncements
Certain new accounting pronouncements that have
been issued are not expected to have a significant effect on the Company’s condensed consolidated financial statements.
In October 2021, the Financial Accountings Standards
Board (“FASB”) issued accounting standards update 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 does
not expect this guidance to have a material impact on its condensed consolidated financial statements.
4. REVENUE DISAGGREGATION
The Company’s disaggregated revenues consist
of the following for the three and nine months ended September 30, 2022 and 2021.
| |
For the Three Months Ended September 30, | | |
For the Nine Months Ended September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Primary Geographical Markets | |
| | |
| | |
| | |
| |
North America | |
$ | 1,593,000 | | |
$ | 967,000 | | |
$ | 3,427,000 | | |
$ | 3,463,000 | |
Europe | |
| 32,000 | | |
| 1,000 | | |
| 79,000 | | |
| 416,000 | |
Other | |
| 202,000 | | |
| 127,000 | | |
| 512,000 | | |
| 429,000 | |
Total Revenue | |
$ | 1,827,000 | | |
$ | 1,095,000 | | |
$ | 4,018,000 | | |
$ | 4,308,000 | |
| |
| | | |
| | | |
| | | |
| | |
Major Goods | |
| | | |
| | | |
| | | |
| | |
Power supply units | |
$ | 1,645,000 | | |
$ | 1,095,000 | | |
$ | 3,757,000 | | |
$ | 4,308,000 | |
EV chargers | |
| 182,000 | | |
| - | | |
| 261,000 | | |
| - | |
Total Revenue | |
$ | 1,827,000 | | |
$ | 1,095,000 | | |
$ | 4,018,000 | | |
$ | 4,308,000 | |
| |
| | | |
| | | |
| | | |
| | |
Timing of Revenue Recognition | |
| | | |
| | | |
| | | |
| | |
Goods transferred at a point in time | |
$ | 1,827,000 | | |
$ | 1,095,000 | | |
$ | 4,018,000 | | |
$ | 4,308,000 | |
5. PROPERTY AND EQUIPMENT
As of September 30, 2022 and December 31, 2021,
property and equipment consist of the following:
| |
September 30, 2022 | | |
December 31, 2021 | |
Machinery and equipment | |
$ | 667,000 | | |
$ | 680,000 | |
Computers | |
| - | | |
| 483,000 | |
Office furniture and equipment | |
| 97,000 | | |
| 160,000 | |
Leasehold improvements | |
| 72,000 | | |
| 89,000 | |
EV chargers | |
| 64,000 | | |
| - | |
| |
| 900,000 | | |
| 1,412,000 | |
Less: accumulated depreciation and amortization | |
| (652,000 | ) | |
| (1,301,000 | ) |
Property and equipment, net | |
$ | 248,000 | | |
$ | 111,000 | |
Depreciation and amortization expense related
to property and equipment was $10,000 and $6,000 for the three months ended September 30, 2022 and 2021, respectively, and $40,000 and
$18,000 for the nine months ended September 30, 2022 and 2021, respectively.
6. INVENTORIES
As of September 30, 2022 and December 31, 2021,
inventories consisted of:
| |
September 30, 2022 | | |
December 31, 2021 | |
Raw materials, parts and supplies | |
$ | 959,000 | | |
$ | 594,000 | |
Finished products | |
| 1,824,000 | | |
| 652,000 | |
Total inventories | |
$ | 2,784,000 | | |
$ | 1,246,000 | |
7. OTHER CURRENT LIABILITIES
As of September 30, 2022 and December 31, 2021,
other current liabilities consisted of the following:
| |
September 30, 2022 | | |
December 31, 2021 | |
Customer prepayments | |
$ | 270,000 | | |
$ | 259,000 | |
Other accrued liabilities | |
| 128,000 | | |
| 46,000 | |
Accrued payroll and payroll taxes | |
| 224,000 | | |
| 214,000 | |
Total other current liabilities | |
$ | 622,000 | | |
$ | 519,000 | |
8. LEASES
The Company has operating leases for office space
and manufacturing locations. The Company’s leases have weighted average remaining lease terms of 1.3 years to 3.3 years,
some of which may include options to extend the leases perpetually, and some of which may include options to terminate the leases within
one year.
The following table provides a summary of leases
by balance sheet category as of September 30, 2022:
| |
September 30, 2022 | |
Operating right-of-use assets | |
$ | 1,786,000 | |
Operating lease liability – current | |
| 546,000 | |
Operating lease liability – non-current | |
| 1,396,000 | |
The components of lease expenses for the periods ended September
30, 2022 were as follows:
| |
Three Months Ended September 30, 2022 | | |
Nine Months Ended September 30, 2022 | |
Operating lease cost | |
$ | 162,000 | | |
$ | 486,000 | |
Short-term lease cost | |
| - | | |
| - | |
Variable lease cost | |
| - | | |
| - | |
The following tables provides a summary of other information related
to leases for the nine months ended September 30, 2022:
| |
September 30, 2022 | |
Cash paid for amounts included in the measurement of lease liabilities: | |
| | |
Operating cash flows related to operating leases | |
$ | 350,000 | |
Right-of-use assets obtained in exchange for new operating lease liabilities | |
| - | |
Weighted-average remaining lease term – operating leases | |
| 3.1 years | |
Weighted-average discount rate – operating leases | |
| 8 | % |
Payments due by period of lease liabilities under
the Company’s non-cancellable operating leases as of September 30, 2022, were as follows:
| |
| | |
2022 (remaining) | |
$ | 167,000 | |
2023 | |
| 682,000 | |
2024 | |
| 693,000 | |
2025 | |
| 609,000 | |
2026 | |
| 51,000 | |
2027 | |
| - | |
Total lease payments | |
| 2,202,000 | |
Less interest | |
| (260,000 | ) |
Present value of lease liabilities | |
$ | 1,942,000 | |
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 $90,000 and $240,000 of costs for the three and nine months
ended September 30, 2022, respectively. BitNile allocated $83,000 and $248,000
of costs for the three and nine months ended September 30, 2021, respectively. These costs were treated as additional paid-in capital.
Contributions From Parent
The Company previously received funding from BitNile to cover any shortfalls
on operating cash requirements. In addition to the allocation of general corporate expenses, the Company received $0.6 million and $2.8
million for the three and nine months ended September 30, 2022, respectively. The Company received $1.1 million and $2.9 million from
BitNile for the three and nine months ended September 30, 2021, respectively. These amounts are reflected in additional paid-in capital.
Sales to Related Party
The Company recognized $0
and $2,000 in
revenue for the three and nine months ended September 30, 2022, respectively, and $0
in the three and nine months ended September 30, 2021.
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.
11. STOCKHOLDERS’ DEFICIT
Authorized Capital
The Company is authorized to issue two
hundred million (200,000,000)
shares of Common Stock, par value $0.001
per share and ten million (10,000,000) shares of preferred stock, par value $0.001 per share, of which twenty-five thousand shares
(25,000)
have been designed as Series A Convertible Redeemable Preferred Stock, par value $0.001
per share and the remaining authorized shares of preferred stock are “blank check” shares and can be issued with various
rights as determined by the Board. 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
September 30, 2022 and December 31, 2021, there were 161,704,695
and nil shares of Common Stock issued and outstanding and as of September 30, 2022 and December 31, 2021, there were 25,000
shares of series A preferred stock issued and outstanding.
On September 5, 2022, the Company entered into
an amendment to the Agreement, pursuant to which the Company agreed to (i) use commercially reasonable efforts to effectuate a distribution
by the Parent of 140,000,000 shares of common stock beneficially owned by the Parent (the “Distribution”) and, (ii) to issue
to Parent warrants to purchase an equivalent number of shares of common stock to be issued in the Distribution (the “Warrants”).
The Distribution has not yet occurred.
On September
12, 2022, the Company’s board of directors and the holder of a majority of the voting power of the Company executed
written consents approving an amendment to the Company’s Articles of Incorporation to increase the amount of authorized shares
of Common Stock from 200,000,000
to
750,000,000. The increase in authorized shares will be effective upon the filing of a certificate of amendment to the
Articles of Incorporation, which, as of the date of this filing, has not been made. The additional shares of Common Stock, when effective, will have
the same rights as the previously authorized shares, including the right to cast one vote per share of Common Stock.
Common Stock
The holders of our Common Stock have equal ratable rights to dividends
from funds legally available therefor, when, as and if declared by our board of directors. Holders of Common Stock are also entitled to
share ratably in all of our assets available for distribution to holders of Common Stock upon liquidation, dissolution or winding up of
our affairs.
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% 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.
Except as otherwise required by law or as may be provided by the resolutions
of the Board of Directors authorizing the issuance of Common Stock, all rights to vote and all voting power shall be vested in the holders
of Common Stock. Each share of Common Stock shall entitle the holder thereof to one vote.
Upon any liquidation, dissolution or winding-up of the corporation,
whether voluntary or involuntary, the remaining net assets of the Company shall be distributed pro rata to the holders of the Common Stock.
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 the
Company is liquidated, dissolved or wound up, then before any distribution or payment is made to the holders of any Common Stock or any
other class or series of junior stock, the holders of Series A Preferred Stock are 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 accrue daily and are in cumulative form, 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 therefore, 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 our 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, provided, that the number of directors
that the holders are entitled to elect shall never be less than a majority of our board of directors.
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. In accordance with FASB
ASC Topic 480, “Distinguishing Liabilities from Equity” (“ASC 480”), paragraph 10-S99, redemption provisions
not solely within the control of a company require ordinary shares subject to redemption to be classified outside of permanent equity.
Accordingly, all of the shares of Series A Preferred Stock are presented as temporary equity, outside of the shareholders’ deficit
section of the Company’s condensed balance sheets.
12. ACCOUNTS PAYABLE - RELATED PARTY
The Company is a majority owned subsidiary of BitNile.
During the nine month period ended September 30, 2022, BitNile made vendor payments on behalf of IMHC amounting to $17,000. This intercompany balance due to BitNile is reflected in accounts payable.
13. CONVERTIBLE NOTES PAYABLE
Convertible notes payable at September 30, 2022
and December 31, 2021, were comprised of the following:
| |
Conversion
price per share | | |
Interest
rate | |
Due date | |
September
30, 2022 | | |
December
31, 2021 | |
Convertible promissory note, related party | |
$ | .01 | | |
10% | |
December, 15, 2023 | |
$ | 101,000 | | |
$ | - | |
Opportunity fund convertible notes payable | |
$ | 0.005 | | |
10% | |
January 14, 2024 | |
| 45,000 | | |
| - | |
Total convertible notes payable, net of financing cost | |
| | | |
| |
| |
$ | 146,000 | | |
| - | |
Less: current portion | |
| | | |
| |
| |
| (45,000 | ) | |
| - | |
Total convertible notes payable, net of financing cost, long term | |
| | | |
| |
| |
$ | 101,000 | | |
$ | - | |
Related Party
Ault Lending, LLC (“AL”) is a wholly owned subsidiary of
BitNile, AL and the Company are both subsidiaries of BitNile. David Katzoff, who serves as our Chief Financial Officer, is also the
manager of AL. As a result, AL is deemed a related party.
As part of the Acquisition, the Company
acquired a convertible note to AL, in the principal amount of $102,000.
The convertible note accrues interest at 10%
per annum, is due on December
15, 2023, and the principal, together with any accrued but unpaid interest on the amount of principal, is convertible into
shares of Common Stock at AL’s option at a conversion price of $0.01 per
share. Subsequent to September 30, 2022, AL elected to convert the outstanding principal and accrued interest of the convertible
note into 10,990,142 shares of Common Stock.
Convertible Notes Payable
As part of the Acquisition, the Company acquired
Convertible Promissory notes payable to Opportunity Fund, LLC in the amounts of $25,000
and $20,000,
respectively (collectively the”Note”). The Note allows for advances up to maximum amount of $75,000,
bears interest at ten percent (10%)
per annum, and is due January
14, 2024.