ITEM 1. BUSINESS
Overview
Imperalis Holding Corp.
(“IMHC”), through its wholly owned subsidiaries Digital Power Corporation (“Digital Power”) and TOG Technologies
(collectively, the “Company” or “TurnOnGreen”), 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 power 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 and telecommunications equipment to medical instrumentation. Our power products are highly adaptive and features digital
power management and soft configurations to allow achieving the highest power efficiency and the best agility to meet the requirements
of both our customers and our original equipment manufacturers (“OEMs”). In addition to our custom power system solutions,
we also provide a wide range of industry-standard power products. These products include our AC/DC Open-Frame product series which are
among the industry’s leading power switchers in terms of power efficiency deployed in highly compact form-factor, modular power
series that supports configurable multiple DC outputs, high-power and high-voltage laser power supply designed to meet unique requirements
of medical and dental and industrial pulsed energy systems, high-performance and high-power of data-center power supplies, semiconductor
fab equipment power source supplies, wide-range of desktop power supplies and a full range of value added customized AC/DC and DC/DC ruggedized
power supplies and system solutions.
Prior to the acquisition and related transactions
described below, IMHC was deemed to be a shell company having previously engaged in diverse industries through three subsidiaries whose
businesses were discontinued in 2020, and having no continuing operating business or revenues. TurnOnGreen, Inc., a Nevada corporation
(“TOGI”), a then wholly owned subsidiary of Ault Alliance, Inc. (formerly known as BitNile Holdings, Inc.), a Delaware corporation
(the “Parent” or “Ault”), which became a wholly owned subsidiary of IMHC on September 6, 2022, subsequently merged
with and into IMHC, although we continue to refer to the Company as TurnOnGreen.
IMHC was incorporated in Nevada on April 5, 2005
and is a subsidiary of Ault and currently operates as a reporting segment of Ault. The principal executive offices of TurnOnGreen are
located at 1421 McCarthy Blvd., Milpitas, California 95035, its telephone number is (510) 657-2635 and its corporate website is at www.turnongreen.com.
Recapitalization and Reorganization
On March 20, 2022, Ault and IMHC entered into
a Securities Purchase Agreement (the “Agreement”) with TOGI. Pursuant to the Agreement, at the Closing, which occurred on
September 6, 2022, 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. On September 5, 2022, Ault, 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 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”).
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.
As of September 6, 2022, we were no longer a shell
company under Rule 405 of the Securities Act. However, because we have been a shell company, a person selling restricted or controlled
securities may not use Rule 144 unless certain conditions have been met. Rule 144(i) provides that Rule 144 may only become
available for the resale of securities by a person selling restricted or control securities that were originally issued by a shell company
if certain conditions are met. These conditions are: (a) that the issuer is no longer a shell company; (b) that the issuer is
an SEC reporting company; (c) that the issuer has filed all required reports during the preceding 12 months; and (d) has
filed current Form 10 information with the SEC reflecting that it is no longer a shell company.
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 consolidated financial statements have not been adjusted until the date of the Acquisition
as a part of the net assets acquired.
As part of the Acquisition, the Company acquired
a convertible note from Ault Lending, LLC (“Ault Lending”), a wholly owned subsidiary of the Parent, in the principal amount
of $102,000. The convertible note accrued interest at 10% per annum, was due on December 15, 2023, and the principal, together with any
accrued but unpaid interest on the amount of principal, was convertible into shares of the Company’s common stock at Ault Lending’s
option at a conversion price of $0.01 per share. On October 12, 2022, Ault Lending converted the principal and accrued interest on the
note into 10,990,142 shares of the Company's common stock, in the aggregate amount of $109,901.
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 solutions. TOGT offers Level 2 AC charging infrastructure for use in single family homes, multi-family
unit developments, parking garages and lots, 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 250-mile range battery in approximately 30 minutes. We provide a wide
range of EV charging solutions, including a Level 2 AC charging product line compatible with the SAE J1772
standard, and a Level 3 DC fast charging product line compatible with the Combined Charging System (“CCS”)
standard and the CHArge de MOve (“CHAdeMO”) standard.
Our network is capable
of natively charging (i.e., charging without an adapter) all EV models and supports all charging standards currently available in the
United States. Our network can serve a wide variety of private, retail, commercial and fleet customers. Our charging systems maintain
the highest standards in the market and are backed by an internationally recognized certificate of safety and performance. We anticipate
rapid growth in the number of EVs in North America, and we intend to expand our network of charging stations to accommodate this growth
while prioritizing development of locations with favorable traffic and utilization characteristics.
Below are renderings
of our EV charging products and related services:
Our strategy is to be
the supplier of choice across numerous markets that require high-quality power system solutions where custom design, superior product,
high quality, time to market and competitive prices are critical to business success. We believe that we provide advanced custom product
design services to deliver high-grade products that reach a high level of efficiency and density and can meet rigorous environmental
requirements. Our customers benefit from a direct relationship with us that supports all their needs for designing and manufacturing
power solutions and products. By implementing our proprietary core technology, including process implementation in integrated circuits,
we can provide cost reductions to our customers by replacing their existing power sources with our custom design cost-effective products.
Our Products and
Markets
Power System Products
and Technology
Power System Solutions.
At Digital Power, we provide a comprehensive range of highly integrated power systems designed to meet the diverse and precise needs of
our customers. We offer high-performance power systems to achieve the highest levels of efficiency, flexibility, and scalability for customers
that require innovative technologies and customized solutions for critical applications and life-saving services. We design, develop,
and manufacture custom power systems to meet performance and/or form factor requirements that cannot be met with standard products. These
power system solutions are designed to function reliably in the harsh environments associated with defense and aerospace applications,
while also being utilized for applications ranging from industrial equipment to medical instrumentation. We use integrated circuits and
digital signal processor technology in our products, including with respect to our customized firmware. Our products are highly adaptive
and feature soft configurations that in order to meet the requirements of both our customers and our OEMs.
Our power system solutions
include wide range of power switchers and power conversions products including but not limited to open-frame, Compact PCI, board-mount,
rackmount, desktop, capacity charger, modular and custom power series. Our power conversion technology produces the highest industry power
conversion efficiency result in the smallest form-factor and high-performance AC/DC power switchers and DC/DC power conversion products.
These power switching products incorporate active power factor correction (“PFC”) and universal AC input, making them ideal
for a range of global applications. Our products are being used in mission critical applications, lifesaving services in diverse markets
including defense & aerospace, medical, telecommunications and industrial where high reliability, high efficiency and advance features
are required while operating in harsh environment.
In most cases, when our
customers contract with us to develop custom power solutions, these contracts will include two folds; non-recurring engineering (“NRE”)
to charge our customers for custom product development and ii, multi-year, high-volume production and product sale contract of such custom
developed product. These contracts result with high-margin, low competition and multi-years accurate sales plan while reducing our manufacturing
costs. Although our customers pay for NRE, we maintain our intellectual property (“IP”) of the product we designed to allow
us to secure the sale of such custom products through the lifetime of our customers customized application. We believe that this business
model provides an incentive to our customers to be committed for long lifetime, ongoing and high-volume products’ orders.
Power Technology for
High-Grade Power Products. We offer our feature rich based power rectifiers that support flexible configuration and high-grade design
implementation. This includes innovative designs and implementation of digital power management improving power efficiently and customization
of the product. It includes digital signal processor (“DSP”) controls for the power factor correction (“PFC”)
and DC to DC conversing. The advanced power technology used in our products includes synchronous rectifiers, two-phase PFC, power management
integrated circuits (“ICs”) and features such as hot plug capacity and intelligent current sharing. While some of our customers
have special requirements that include a full custom design, other customers may require only certain electrical changes to standard power
supply products, such as modified output voltages, unique status and control signals and mechanical repackaging tailored to fit the specific
application. We offer a wide range of standard and modified standard products that can be easily integrated with any platform across our
diversified market segments.
For example, our board
mount converters are ideal for a range of consumer electronics, medical applications and industrial control applications. These AC/DC
and DC/DC power supplies range from 10 to 9,000 watts, with operating temperatures from -40 to +85 degrees Celsius and include universal
AC input and/or wide range of DC inputs that are widely used by our defense and aerospace customers and for uninterruptible power supplies
(“UPS”) applications.
Value-Added Services.
We also offer a range of AC/DC and DC/DC products that provide value to our customers due to the configuration we provide to fit each
customer’s specific needs, which often require multiple voltage outputs. These custom products illustrate the benefits and flexibility
of our modular approach to offer higher performance, higher power densities, lower costs and faster delivery than many competitive offerings.
Our configurable products typically are used in a wide range of distributed power architecture implementations in defense and aerospace
electronic systems, industrial and telecommunication applications, as well as medical and healthcare instrumentation and equipment. Such
configurable products include our capacitor charger supplies, which support out powers from 50 watts to 9,000 watts, with configurable
voltages from 500 volts to 3,000 volts.
Power System Markets
We sell our power systems
as integrated solutions to our diverse customers for a wide range of applications in the global markets and sectors we serve, including
medical and healthcare, defense and aerospace, and industrial and telecommunications. We also sell our products as stand-alone products
to our commercial customers and, most recently, we have started to roll out our EV charger products to consumers. Our current commercial
customer base consists of approximately 220 companies, which are served through our direct sales groups and our strategic partner channels.
Our power supply products and related services sold through Digital Power accounted for all of our revenues in the years ended December
31, 2022, and 2021. During these time periods, approximately 87.3% and 87.6% of our revenues, respectively, were generated from customers
located in North America. During the year ended December 31, 2022, revenues from Europe accounted for approximately 2.0% 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 22% and 32% of all revenues received from
our power supply products for the years ended December 31, 2022, and 2021, 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
30% and 22% of all revenues received from our power supply products for the years ended December 31, 2022, and 2021, respectively.
Industrial and Telecommunications.
We build products for custom and standard applications used in industrial and telecommunication markets and set the standard in flexibility,
efficiency and reliability. Our compact, high-density and flexible power supplies and power converters allow optimal performance, boost
functionality and decrease costs. Due to the breadth of our experience, our products have proven to easily meet stringent design requirements.
Our industrial power solutions are designed to stand up to the extreme temperatures, input surges, vibration and shock found through uses
such as industrial automation, material handling, industrial lasers, robotics, agriculture, oil, and gas, mining and outdoor applications.
Our technology is designed for superior thermal management, reliability, EMI/EMC specifications and power density, with rugged performance
that is typically unavailable in standard power supplies. The typical applications for our power products in the industrial and telecommunications
industry include packaging equipment, laboratory and diagnostic equipment, industrial laser drivers, datacenter computing and turbomachinery
control solutions. Revenues from the industrial and telecommunications industry accounted for approximately 48% and 46% of all
revenues received from our power supply products for the years ended December 31, 2022 and 2021, respectively.
The EV Charging Industry
and Trends
The market
for BEVs and HEVs has experienced significant growth in the past five years, and we believe that growth will increase dramatically over
the next five years. As the economic and environmental costs of fossil fuel burning automobiles increases each year, consumer demand for
vehicles with greater fuel efficiency, greater performance and with lower or no environmental emissions has also increased. With a variety
of federal, state and municipal incentive programs for both EV drivers and electric vehicle supply equipment (“EVSE”) infrastructure
construction, we anticipate a significant increase in the demand for BEVs and HEV charging solutions at home, work and in public.
We believe
that the industry trends for sustained growth are favorable for us. Multiple states and municipalities have set ambitious Zero Emission
Vehicle goals for the next ten years. In order to meet these goals, mandates for EV sales have been established by states like California,
New York, Oregon, Washington and others. While at the same time, oil and gas prices continue to rise, EV battery technology continues
to improve and become more affordable. The average consumer cost to acquire an EV declined 13.5% from 2018 to 2019 and continues
to fall as more automobile manufacturers introduce new EV models to the market each year, notwithstanding the fact that EVs are generally
remain more expensive than ICE automobiles.
Automobile and battery
manufacturers have substantially increased their efforts to offer EVs at a wider range of price points and to develop batteries with higher
efficiencies and lower costs. According to Reuters, more than $300 billion has been invested or is committed for investment in the next
five to ten years by global automobile OEMs. These investments will expand and put into mass production the EV offerings and associated
technologies from such OEMs and optimize the global EV supply chain. Efforts to date by OEMs have already lowered the upfront costs of
EVs, and we expect further price reductions over the next several model years. Bloomberg New Energy Finance estimates that most EVs will
reach upfront cost parity with ICE vehicles by 2023 on an unsubsidized basis. As measured in terms of total cost of ownership (“TCO”),
certain classes of EVs already are at or below parity with their ICE counterparts. As overall EV costs decline, more car makes, and models
will reach TCO parity with their ICE equivalents and the TCO advantage for other types of EVs will expand. According
to the Electric Drive Transportation Association, sales of plug-in vehicles since introduction to the market in 2010 is over 500,000 and
according to a third-party research firm, sales are expected to grow by a factor of 12 to over 4,000,000 in 2025. The cost to
maintain an EV is half of what it costs to maintain an ICE automobile. The cost to add 200 miles of range to an ICE car is roughly twice
the cost of its all-electric counterpart. As multiple market conditions are favorable for growth, we believe that the number of EVs on
the road in 2025 will exceed 4,000,000.
EV charging demand is
a direct result of the number of EVs operating during a given period, miles traveled by such EVs and the efficiency of such EVs. The current
market for fulfilling charging demand is bifurcated between Level 1 and Level 2 charging and high-powered Level 3 DC fast charging (“DCFC”)
devices. The demand for different charging types is a function of the EV mix, owner demographics, locational factors, charger availability,
pricing and EV use cases (i.e., private ownership, rideshare, delivery and municipally owned fleets). Lower-powered Level 1 and Level
2 charging are primarily used by EV owners with access to home, workplace and “play” charging, and currently account for the
majority of personal EV charging. Level 2 charging is also used by certain fleets that have the ability to charge overnight, have a low
daily mileage requirement and return to a centralized location daily. Current DCFC users primarily are drivers who need to charge away
from home in central business districts, drivers who do not have access to home or workplace charging and high-mileage fleets that seek
to minimize downtime and maximize miles traveled.
EV Charging Products
We formed TOGT in August
2021, following more than two years of engineering design and product prototypes, to provide EV drivers of all types with easy access
to convenient, reliable and high-speed charging. We offer a Level 2 AC charging infrastructure for use in single family homes, multi-family
unit developments, commercial retail properties and fleet environments. TOGT provides Level 3 DC fast charger infrastructure for high
traffic, high density urban, suburban, exurban locations, and portable microgrid charging infrastructure. Our EV charging solutions are designed
to address the expected rapid expansion of infrastructure required to support broad adoption of EVs globally. With more than 50
years of expertise in power technology, we provide EV charging solutions to enable the eMobility of tomorrow. Our innovative
charging solutions produce a full charge for an EV with a 250-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
including charging for used energy, 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 five 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 less than 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:
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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. |
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Savings with Every Charge. SMART features allow users to schedule charging an EV during off-peak hours using the EV700 Application on their iPhone or Android Phone. The EV700 can add more than 200 miles of range overnight at an optimal cost. |
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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. |
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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. |
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All-Weather Design. The rugged metal, all-weather enclosure of the EV700 makes it the ideal smart charger for year-round, indoor and outdoor use. |
Level 2 EV Charging
Solutions for Businesses
We offer the TOG EVP700
and EVP1100 series of Level 2 EV SMART charging stations for deployment on public, commercial and private properties such as the workplace,
multifamily units, hospitality, retail and municipalities. Our Level 2 commercial EV charging solutions support multiple users at the
same time and offer operators the flexibility to set rates, send push notifications to drivers, and manage power settings. These networked
charging units, which are eligible for city, state, federal and utility rebate programs, are built to last and provide businesses with
an edge in attracting EV drivers. Our chargers are also tested and certified by Occupational Safety and Health Administration nationally
recognized testing laboratories TÜV Rheinland and Underwriters Laboratories according to ANSI/UL standards and add up to 200 miles
of range in 6 to 8 hours of charge time. Additional key features with respect to these products include:
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Charging Speed. Our Level 2 chargers provide charging speeds up to nine times faster than Level 1 chargers. |
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Safety and Quality. These chargers are both durable and compact for usage in indoor and outdoor installations. |
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Compatibility. We provide a built-in SAE J1772 connector for compatibility with virtually all EVs. |
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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 250 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 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:
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All-Weather Design. The rugged metal all-weather enclosure makes the Level 3 DC Fast Chargers ideal for year-round use. |
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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 16x faster than a 7kW Level 2 charger. |
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Dual Charging Ports. The Level 3 DC Fast chargers allow up to two EVs to be charged simultaneously with up to 180kW per charging port. |
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Open Charge Point Protocol. Our customers can view earnings and manage machines using the TurnOnGreen Dashboard that is accessible upon purchase. |
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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
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:
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All-Weather Design. The rugged metal all-weather enclosure of the AC/DC Hybrid chargers makes the products ideal for year-round outdoor use. |
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Dual Charging Formats. The AC/DC Hybrid chargers enable customers simultaneously to charge electrical vehicles utilizing the high power Level 3 DC fast charging ports as well as the Level 2 AC charging port. |
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Charging Speeds. The DC fast charging port can add 150 miles of range or even more in less than 30 minutes and the Level 2 charging port can add up to 40 of range miles in one hour on average. |
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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.
Subscription Plans. We
offer network subscription plans that provide end-users with access to a variety of network features, including an interactive online
dashboard, remote charger management, end-user fee setting, energy consumption and revenue collection metrics, 24/7 monitoring, 4G cellular
network or WIFI connectivity, power management and over-the-air firmware updates. Our subscription plans vary in length and cost based
on the location and the type of EV chargers being installed at the particular location. The length of our subscriptions range from one
year to ten years. Our end-users are billed on an annual basis, and the cost of our subscriptions range from $200 to $420 per year per
charging port.
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:
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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. |
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Simplification of Operations. Our management system simplifies the deployment, management and optimization of charging for fleet operations. |
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Usage Tracking. Through our management system, customers can consolidate transaction history, including mobile app sessions, Text & Go sessions, RFID sessions, near field communication (NFC) sessions and a cloud-based payment gateway sessions. |
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Dynamic load balancing. Hardware-agnostic electric vehicle energy management system (“EVEMS”) based on group of chargers, and vehicle priority. The EVEMS allows installation of group of chargers on a limited electrical service feature automatic current adjustment based on the number of vehicles plugged into a group of chargers. |
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EV chargers Deployment. Control all deployed networked EV chargers from central hub enabling integrate essential EV charging data into our ERP system, managing revenue, users and energy outputs. |
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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:
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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. |
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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. |
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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. |
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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. |
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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. |
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Cooperative Partnerships with Site Hosts. Partnering with commercial property owners to expand public charging infrastructure is a key driver of revenue for the company. Working with select hotels, golf courses, museums, hospitals, universities, and other high volume long dwell time EV destinations through revenue sharing agreements, we offer to fund and build the EV charging infrastructure while operating the EV chargers and retaining the majority of the revenue generated through energy use sales for a contracted period of time. Under the cooperative model, the company can recoup infrastructure costs through grant and rebate programs, energy sales, and or the sale of carbon credits generated through the use of accredited machines. |
Sales and Markets
We sell and market our
products through a variety of sales channels. Our direct sales groups are dedicated to developing commercial and fleet sales in well-defined
customer segments in specific geographic regions. Our channel partners, which include independent manufacturer representatives and distributors
focus on e-commerce and business-to-business sales. Our sales and marketing efforts target specific verticals and territories that
we believe will have the highest demand for EVSE over the forthcoming 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
$5.2 million and $5.3 million or 94% and 99.7%, of total revenues were attributable to power electronics products under various OEM agreements
for the years ended December 31, 2022, and 2021, respectively. One customer accounted for more than 10% of our total revenues for the
year ended 2022 and two customers accounted for more than 10% for the year ended 2021.
Manufacturing and
Supplies
Consistent with our strategy
of focusing on custom designed, high-grade, flexible and configurable products to support our diverse applications in the markets we serve,
we aim to maintain a high degree of flexibility in our manufacturing through the use of strategically focused contract manufacturer partners.
These partnerships give us access to new markets and benefit our production processes, which are designed for high-mix and fast-line-charge
and take advantage of technologies such as electronically controlled operating instructions, automated pick and place, automatic optical
inspection and automatic testing. To achieve our high-quality and low-cost manufacturing goals with labor-intensive products, we have
entered into strategic manufacturing agreements with certain contract manufacturers in the United States and Asia.
We strive to bring low
cost and fast delivery production to our customers in a way that limits the impact on the natural environment. Our Asia manufacturing
capabilities have provided the opportunity to not only sell but also manufacture high quality, energy efficient power systems for our
global customers, with recognized standards, that we control and audit. We demonstrate through our manufacturing partners our attitude
to the environment by holding our partners accountable for certain environmental-friendly standards for their manufacturing facilities.
We are also continually improving our internal processes and monitoring the processes of our contract manufacturers to ensure the highest
quality and consistent manufacturing of our power product solutions so that our customers can use our products right out of the box. Customer
specific testing services are offered with custom designed test standards to simulate operation within our customer applications.
We are in compliance
with international safety standards, which is critical for every application. By obtaining the ISO 9001 quality management system, we
seek to offer total quality at every stage, from in-house design to manufacturing facilities around the world. Our contract manufacturing
partners are also in compliance with such international safety standards and maintain the same ISO 9001 quality management system, as
well as the ISO 14001 environmental management system, the ISO 13485 medical management system and the AS&D AS9100 quality management
system. Such standards are the cornerstones of our integrated management system to drive continuous improvement of our product quality.
We maintain multiple
sources of supply on all critical items and manage our purchasing commitments on a worldwide basis to leverage our purchasing strength.
However, the Covid-19 pandemic could impact our supply chain for components we need for the products we sell, particularly as a result
of mandatory shutdowns in locations where such components are manufactured or held for distribution.
Product Design
and Development
Our product design and
development efforts are primarily directed toward developing new products in conjunction with our strategy of continuing to introduce
advanced product solutions for the markets we serve and to expand our business into emerging markets based on our disruptive power technology.
Our engineering groups
are strategically located around the world to facilitate communication with, and access to, our worldwide customer base and manufacturing
facilities. This collaborative approach facilitates partnerships with customers for technical development efforts and enables us to develop
technological products that support complex and evolving markets such as eMobility, cloud computing, military and aerospace. On occasion,
we execute non-disclosure agreements with customers to help develop proprietary, next generation products designed for rapid deployment.
We also sponsor memberships in technical organizations that allow our engineers to participate in developing standards for emerging technologies.
We believe that this participation is critical in establishing credibility and a reputable level of expertise in the marketplace, as well
as to position us among industry leaders in new product development.
Our internal product
design and development programs have also been augmented by third party development programs with engineering partners to achieve the
best technological and product design results for specific customer product applications. In June 2021, we entered into a partnership
agreement with ChargeLab, Inc. to design, build and publish cross-platform mobile experiences for residential and commercial end-users
of our EV chargers. Under this agreement, ChargeLab will support us in the pre-production stage of our EV charging products by performing
testing sessions to ensure and validate solid firmware compliance with the Open Charge Point Protocol.
When required, we modify
standard products to meet specific customer requirements. Such modifications include, but are not limited to, redesigning commercial products
to meet MIL-STD requirements for military applications based on COTS products and to meet other customized product requirements. We continually
seek to improve our product power density, adaptability and efficiency, while attempting to anticipate changing market demands for increased
functionality, such as PFC controlled digital signal processors, customized firmware and improved electromagnetic interference (“EMI”)
filtering. We also continue to attempt to differentiate all of our products from commodity-type products by enhancing, modifying and customizing
our existing product portfolio through our engineering integrating laboratory located in California.
The development of our
new custom and emerging product solutions is driven by our ability to provide our customers with advanced technologies that meet their
product needs within a short turnaround time at a competitive price point. We believe that we are successfully executing our strategic
account focus, as evidenced by the award of second and third generation product development contracts from some of our customers. In addition,
our standard contract for custom power solutions includes a multi-year high-volume production forecast that could allow us to secure long-term
production guarantees while providing an environment that promotes the development of our IP portfolio.
Product design and development
expenditures were approximately $0.7 million and $0.5 million for the years ended December 31, 2022 and 2021, 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:
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UL 2202 - Electric Vehicle Charging System Equipment (AC to DC) |
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UL 2594 - Electric Vehicle Supply Equipment (AC to AC) |
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UL 9741 - Bidirectional Electric Vehicle (EV) Charging System Equipment |
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UL 2231-1 - Personnel Protection Systems for Electric Vehicle Supply Circuits – General Requirements |
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UL 2231-2 - Personnel Protection Systems for Electric Vehicle Supply Circuits – Protective Devices for Use in Charging Systems |
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UL 2251 - Electric Vehicle Plugs, Receptacles and Couplers |
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Electromagnetic compatibility (EMC) - Requirements FCC part 15 subpart B |
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National Electrical Code (NEC) Article 625 - Vehicle Charging System |
Electric shock hazard,
fire hazard and injury hazard are three major concerns for all EV charging systems address by the various standards. TOG corresponding
design of our EVSE product considering these standard requirements to prevent above-mentioned hazards. To assure we design and manufacture
safe charging equipment, we compliance with the major standards and we have implemented crucial design rules to meet these requirements
for the different element of our EVSE product include construction of exterior and interior, personal protection against electric shock,
insulation coordination, electromagnetic compatibility, charging control, and the like.
Competitive Strengths
and Competition
We offer highly engineered,
feature-rich, high-grade power conversion and power system solutions on a global scale. We believe that we differentiate ourselves from
our competition and have been able to grow our business as a result of the following key competitive strengths:
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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. |
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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. |
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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. |
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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. |
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Emphasis on Product Design Development Efforts. We have strategically deployed engineering groups around the world to facilitate communication with and access to our global customer base and manufacturing facilities. This enables us to develop cutting-edge products to support highly complex and evolving markets such as eMobility, cloud computing, military and aerospace. |
We compete in two operating
segments, power solutions and EV charging solutions.
Power Electronic Segment. Our
competition in the power solutions industry includes many companies located throughout the world. Many of our competitors, including Bel
Fuse, Artesyn Embedded Technologies, TDK-Lambda, Delta Electronics, Murata and Mean-Well Power Supplies, have greater fiscal and marketing
resources and a more expansive geographic presence than we do. We also face competition from current and prospective customers who may
decide to internally design and manufacture power supplies needed for their products. Further, certain larger OEMs tend to contract
only with larger power supply manufacturers. We believe that our power system solutions and advanced technology are superior to our competitors’
power supplies based in part on our use of the latest power technology processing and controls, which make our power supplies highly customized
and efficient. In addition, we believe the power-to-volume ratio makes our power solutions more compact compared to what is offered by
our competitors and is suitable for custom infrastructures to meet our customers’ requirements.
Notably, the flexibility
of our power system products provides us with another advantage by employing an adjustable power range and a selectable number of output
product design platforms. We believe that we are in a competitive position with our targeted customers that need a high-quality, compact
product that can be readily modified to meet specific requirements. We have also designed the base model power system platform so
that it can be quickly and economically modified and adapted to the specific power needs of any hosting platform or OEM. This emphasis
on flexibility has allowed us to provide samples of modified power systems to OEM customers only a few days after initial consultation.
This is an important capability given the emphasis placed by OEMs on “time to market.” It also results in very low NRE expenses,
which allow us generally not to charge our OEM customers for NRE expenses related to tailoring a power system to a customer’s specific
requirements. We believe that this approach gives us an additional advantage over our competitors, many of which charge their customers
for NRE expenses.
Electrical Vehicle
Supply Equipment and Network Segment. Our EVSE business segment competes directly with several companies in the North American
market. We expect to face competition across multiple verticals in the future as demand for EVSE increases. The EV charging market has
grown significantly over the past five years and can be divided into the three following macro segments:
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Public open network Level 2 and Level 3 charging; |
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Commercial fleet closed network charging; and |
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Residential single and multi-family home charging. |
Growth in the North American
market has primarily been driven by a subset of companies including Tesla, ChargePoint, Blink Charging, EVGO, Electrify America, and Sema
Connect. These companies primarily focus on the growth of public open network charging solutions but are increasingly diversifying into
commercial and residential closed network sales. The EVSE competitive market is fragmented, and not necessarily aligned with the EV needs
of tomorrow. As EVSE charging standards are established and the market is consolidated, we expect that the competitive landscape will
favor our approach to market segmentation, strategic partnerships and product development. EV driver charging behavior indicates that
residential and commercial closed network charging are the areas with the most potential for growth, as an estimated of 85% of EV drivers
charge at home or at work.
The competitive landscape
for closed network residential EVSE sales can be found in the ecommerce segment, where there are several product and class competitors
that vary in size and market reach. This segment is primarily driven by purchasing decisions that are dictated by price, consumer reviews
and product features. Competitors will likely consolidate in the future to establish larger open charging networks, cooperative relationships
with OEM’s, and other EVSE product-based companies. As new alliances emerge in the market, EVSE manufactures that have greater market
share, access to more dynamic and user-friendly software and hardware will put us at a competitive disadvantage. If we are slow to adapt
to changing market conditions and EV innovations our growth will be limited, which would negatively affect our ability to scale business
and operations.
Intellectual Property
and Proprietary Technology
We rely on a combination
of trade secrets, industry expertise, confidential procedures and contractual provisions to protect our intellectual property. Given the
continuous updates and revisions that we are making to our products, we believe that the cost of obtaining patents would outweigh the
benefits of doing so. However, we may seek to obtain patents in the future as we continue to develop unique core technologies.
We do not patent technology
developed by us and we cannot be sure that others will not independently develop the same or similar technology or otherwise obtain access
to our technology. To protect our rights in these areas, we require all employees, consultants and others who work for or with us to enter
into confidentiality agreements. We cannot be sure, however, that these agreements will provide meaningful protection for our trade secrets,
know-how or other information in the event of any unauthorized use, misappropriation or disclosure.
We have a registered
trademark with the United States Patent and Trademark Office and the International Register of Marks maintained under the Madrid Agreement
and Protocol for “DP Digital Power Flexible Power”. In February 2021, we submitted an application for the trademark “TurnOnGreen,
Inc.” to the United States Patent and Trademark Office. This application remains pending.
Currently we are not
planning to apply for a protected patent for some of the products we have developed for EV charging supply equipment. However, we will
maintain the IP of the proprietary products and solutions we developed for the eMobility market and some other adjacent markets. We periodically
monitor for infringements on our intellectual property and have never encountered such an infringement. We do not believe that our lack
of patents is material to our ongoing business.
Environmental Matters
and Other Government Regulations
Our businesses are heavily
regulated in most of our markets. We handle power electronics products mainly in the form of power conversion. We must take into account
several standards for electronic safety to protect the health of humans and animals. We serve diverse markets including automotive, medical
and healthcare, defense and aerospace, and industrial and telecommunications, each of which has its own set of their safety regulations
and standards with which we must comply. Compliance with these laws has not been a material cost to us and has not had a material effect
upon our capital expenditures, earnings or competitive position.
Environmental Matters. We
are subject to various federal, state local and non-U.S. laws and regulations relating to environmental protection, including the discharge,
treatment, storage, disposal and remediation of hazardous substances and wastes. We continually assess our compliance status and management
of environmental matters to ensure that our operations are in compliance with all applicable environmental laws and regulations. Investigation,
remediation and operation and maintenance costs associated with environmental compliance and management of sites are a normal, recurring
part of our operations. Because we typically use third party manufacturing sources for our products, compliance with these laws has not
been a material cost to us and has not had a material effect upon our capital expenditures, earnings or competitive position.
Government Contracts. The
U.S. government and foreign governments may terminate any of our government contracts at their convenience, as well as for default based
on our failure to meet specified performance requirements. If any of our U.S. government contracts were to be terminated for convenience,
we would generally be entitled to receive payment for work completed and allowable termination or cancellation costs. If any of our government
contracts were to be terminated for default, generally the U.S. government would pay only for the work that has been accepted and could
require us to pay the difference between the original contract price and the cost to re-procure the contract items, net of the work accepted
from the original contract. The U.S. government can also hold us liable for damages resulting from the default.
Medical Device Power
Supplies. Our medical power supplies must incorporate one or more means of protection (“MOP”) to avoid electrocution.
A MOP can be safety insulation, a protective earth, a defined creepage distance, an air gap (clearance) or other protective impedance.
These can be used in various combinations – having two MOPs means if one fails, there is another in place. We must comply with a
standard that treats operators and patients, resulting in the classifications “means of operator protection” and “means
of patient protection.” The latter requirements are more stringent because the patient may be physically connected via an AP and
unconscious when the fault occurs.
Non-U.S. Sales. Our
non-U.S. sales are subject to both U.S. and non-U.S. governmental regulations and procurement policies and practices, including regulations
relating to import-export control, tariffs, investment, exchange controls, anti-corruption and repatriation of earnings. Non-U.S. sales
are also subject to varying currency, political and economic risks.
Human Resources
As of March 20, 2023
we have approximately 20 full-time employees and two part-time employees, of whom two were in engineering, five in production, eight in
customer support, sales and marketing and seven 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 Ault 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 December 31, 2022,
and December 31, 2021, our backlog was approximately $4.4 million and $4.0 million, respectively, compared with $2.9 million as of December
31, 2020. 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.
ITEM 1A. RISK FACTORS
Stockholders should be aware of certain risks related to the ownership
of shares of our common stock including those set forth below.
Risks Related to the Company and Financial Condition
We have a history of annual net losses which may continue
and which may negatively impact our ability to achieve our business objectives.
As of December 31, 2022, we had cash of $0.1 million and working capital
of $0.7 million. We have incurred recurring losses, anticipate continuing losses, and reported losses available to common stockholders
for the years ended December 31, 2022 and December 31, 2021 of $4.9 million and $1.8 million, respectively. In the past, we have financed
our operations principally through investment by Ault, 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. These factors raise substantial doubt regarding
the Company’s ability to continue as a going concern for the 12 months following the issuance of these financial statements.
Our 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 following
the Distribution 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 Ault 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 the value of our shares that will be distributed to you.
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.
Whenever we make acquisitions, 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:
| · | The possibility that senior management and/or management of future acquired companies terminate their
employment prior to or shortly following 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 any acquisition,
many of which cannot be presently identified. If we fail to satisfactorily address them, these risks and problems could disrupt our ongoing
business, distract our management and employees, increase our expenses and adversely affect our results of operations.
Our business and operations are growing, and if we fail to
effectively manage our growth, our business and operating results could be harmed.
We have experienced, and may continue to experience, growth
in our operations. This has placed, and may continue to place, significant demands on our management, operational and financial infrastructure.
If we do not manage our growth effectively, the quality of our products and services could suffer, which could negatively affect our operating
results. To effectively manage our growth, we must continue to improve our operational, financial and management controls and reporting
systems and procedures. These systems improvements may require significant capital expenditures and management resources. Failure to implement
these improvements could hurt our ability to manage our growth and our financial position.
There is no assurance of successful expansion of operations.
Our significant increase in the scope and the scale of our operations,
including the hiring of additional personnel, has resulted in significantly higher operating expenses. We anticipate that our operating
expenses will continue to increase. Expansion of our operations may also make significant demands on our management, finances and other
resources. Our ability to manage the anticipated future growth, should it occur, will depend upon a significant expansion of our accounting
and other internal management systems and the implementation and subsequent improvement of a variety of systems, procedures and controls.
We cannot assure that significant problems in these areas will not occur. Failure to expand these areas and implement and improve such
systems, procedures and controls in an efficient manner at a pace consistent with our business could have a material adverse effect on
our business, financial condition and results of operations. We cannot assure that attempts to expand our marketing, sales, manufacturing
and customer support efforts will succeed or generate additional sales or profits in any future period. As a result of the expansion of
our operations and the anticipated increase in our operating expenses, along with the difficulty in forecasting revenue levels, we expect
to continue to experience significant fluctuations in its results of operations.
We may be unable to successfully expand our production capacity,
which could result in material delays, quality issues, increased costs and loss of business opportunities, which may negatively impact
our product margins and profitability.
Part of our future growth strategy is to increase our production capacity
to meet increasing demand for our goods. Assuming we obtain sufficient funding to increase our production capacity, any projects to increase
such capacity may not be constructed on the anticipated timetable or within budget. We may also experience quality control issues as we
implement any production upgrades. Any material delay in completing these projects, or any substantial cost increases or quality issues
in connection with these projects could materially delay our ability to bring our products to market and adversely affect our business,
reduce our revenue, income and available cash, all of which could harm our financial condition.
If we fail to anticipate and adequately respond to rapid
technological changes in our industry, including evolving industry-wide standards, in a timely and cost-effective manner, our business,
financial condition and results of operations would be materially and adversely affected.
The markets in which we operate are characterized by technological
changes. Such changes, including evolving industry standards, changes in customer requirements and new product introductions and enhancements,
could render our products obsolete. Accordingly, we are required to constantly monitor and anticipate technological changes in our industry
and develop new product offerings and technologies or adapt or modify our existing offerings and technologies to keep pace with technological
advances in our industry and remain competitive.
Our ability to implement our business strategy and continue
to grow our revenues will depend on a number of factors, including our continuing ability to:
| · | identify emerging technological trends in our current and target markets; |
| · | identify additional uses for our existing technology to address customer needs in our current and future
markets; |
| · | enhance our offerings by adding innovative features that differentiate our offerings from those of our
competitors; and |
| · | design, develop, manufacture, assemble, test, market and support new products and enhancements in a timely
and cost-effective manner. |
We believe that, to remain competitive in the future, we will
need to continue to invest significant financial resources in developing new offerings and technologies or to adapt or modify our existing
offerings and technologies, including through internal product design and development, strategic acquisitions and joint ventures or other
arrangements. However, these efforts may be more costly than we anticipate and there can be no assurance that they will be successful.
To the extent our customers adopt such new technology in place
of our products, the sales of our products may be adversely affected. Such competition may also increase pricing pressure for our products
and adversely affect the revenues from such products.
Our future success depends upon our ability to develop, and
market differentiated, leading-edge power conversion products for larger customers as well as off-grid power generation and distribution
technologies, potentially contributing to lengthy product development and sales cycles that may result in significant expenditures before
revenues are generated.
The power system industry and the industries in which many of
our customers operate are characterized by intense competition, rapid technological change, quickened product obsolescence, and price
erosion for mature products, each of which could have an adverse effect on our results of operations. The development of new, innovative
products is often a complex, time-consuming and costly process involving significant investment in research and development, with no assurance
of return on investment. Although we have introduced many products over recent years, there can be no assurance we will be able to continue
to develop and introduce new and improved products and power system concepts in a timely or efficient manner. Similarly, there can be
no assurance that recently introduced or to be developed products will achieve customer acceptance.
Our future 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 future 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 us, for increased
product performance and lower prices. Such demands may adversely affect our ability to successfully compete in certain markets or our
ability to sustain our gross margins.
We anticipate growing international sales for a portion of our revenues, for which
there can be no assurance.
Sales to customers outside of North America accounted for 20.3%,
and 19.1% of revenues for the years ended December 31, 2022, and 2021, 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 orders for canceled backlog or replace decreased backlog could negatively impact our revenues
and results of operations. Further, disruption in the 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,
increase unit sales volumes of these products and 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 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 employment agreements with Mr. Kohn and we may enter into employment agreements with
Mr. Charuvastra and 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 a 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 our products. We may be unable to protect our IP that competitors could
restrict or replicate, of which may have a material adverse effect on our competitive position. In addition, the intellectual property
laws of foreign countries may not protect our rights to the same extent as those of the United States.
We generally do not patent technology developed by us and we
cannot be sure that others will not independently develop the same or similar technology or otherwise obtain access to our technology.
To protect our rights in these areas, we require all employees, consultants and others who work for or with us to enter into confidentiality
agreements. We cannot be sure, however, that these agreements will provide meaningful protection for our trade secrets, know-how or other
information in the event of any unauthorized use, misappropriation or disclosure.
Failure of our information technology infrastructure to operate
effectively could adversely affect our business.
We depend heavily on information technology infrastructure to
achieve our business objectives. If a problem occurs that impairs this infrastructure, the resulting disruption could impede our ability
to record or process orders, manufacture and ship in a timely manner, or otherwise carry on business in the normal course. Any such events
could cause us to lose customers or revenue and could require us to incur significant expenses 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 defense systems and products we develop
are inherently dangerous. Failures of satellites, missile systems, air traffic control systems, homeland security applications and aircraft
have the potential to cause loss of life and extensive property damage. In most circumstances, we may receive indemnification from the
government end users of our defense offerings in the United States, the United Kingdom and Israel. In addition, failures of products and
systems that we manufacture or distribute for medical devices, transportation controls or industrial systems also have the potential to
result in loss of life, personal injury and/or extensive property damage.
While we maintain insurance for certain risks, the amount of
our insurance coverage may not be adequate to cover all claims or liabilities, and we may be forced to bear substantial costs from an
accident or incident. It also is not possible for us to obtain insurance to protect against all operational risks and liabilities. Substantial
claims resulting from an incident in excess of government indemnity and our insurance coverage would harm our financial condition, results
of operations and cash flows. Moreover, any accident or incident for which we are liable, even if fully insured, could negatively affect
our standing with our customers and the public, thereby making it more difficult for us to compete effectively, and could significantly
impact the cost and availability of adequate insurance in the future.
Risks Related to Our EV Charging Business and the EV Charging
Industry
We are dependent upon our and our contract manufacturers’
ability to timely procure electronic components.
Because of the global economy, many raw material vendors have
reduced capacities, closed production lines and, in some cases, even discontinued their operations. As a result, there is a global shortage
of certain electronic or mineral components, which may extend our production lead-time and our production costs. Some materials are no
longer available to support some of our products, thereby requiring us to search for cross materials or, even worse, redesign some of
our products to support currently available materials. Such redesign efforts may require certain regulatory and safety agency re-submittals,
which may cause further production delays. While we have initiated actions that we believe will limit our exposure to such problems, the
dynamic business conditions in many of our markets may challenge the solutions that have been put in place, and issues may recur in the
future.
In addition, most of our products are manufactured, assembled
and tested by third party subcontractors and contract manufacturers located in Asia, and particularly China. While we have had relationships
with many of these third parties in the past, we cannot predict how or whether these relationships will continue in the future. In addition,
changes in management, financial viability, manufacturing demand or capacity, or other factors, at these third parties could hurt our
ability to manufacture our products.
We may not be able to procure necessary key components or
raw materials, or we may purchase excess raw material inventory or unusable inventory, which increases the risk of reserve charges to
reduce the value of any inventory deemed excess or obsolete, thereby reducing our profitability.
The power systems industry, and the electronics industry as
a whole, can be subject to pronounced, lengthy business cycles and otherwise subject to sudden and sharp changes in demand. Our success
is, in part, 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
(i.e., unusable), 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.
Although no assurance can be given that future disruptions will
not occur, to date, we have not experienced any disruptions due to our reliance on foreign manufacturers. In the future, if any one of
our foreign manufacturers experiences an extensive disruption in the production of the products that we need, we will have to pursue alternative
plans of production, such as finding an alternative manufacturer to produce those products affected by such disruption. Alternative manufacturers
that produce the products that we need do exist. Nonetheless, having to locate an alternative supplier may cause a material disruption
in our ability to produce and supply products to our customers. If we have to pursue alternative plans of production, it could have a
materially adverse effect on our business, financial condition, and 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 form 10-K, tariffs have not materially 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 renewable 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 causes or contributes to consumers or businesses to no longer purchase EVs or purchase them at a lower rate,
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 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. For example, on August 16, 2022, President Biden signed the Inflation Reduction Act, which includes thousands of dollars in tax
credits and rebates for consumers who buy electric vehicles, install solar panels or make other energy-efficient upgrades to their homes.
However, makers of EV’s may well increase their prices for such vehicles by an equal amount, thereby removing any benefit that a
prospective customer may have been eligible to receive.
We also derive other revenue from regulatory credits. If government
support of these credits declines, our ability to generate this other 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. On August 25, 2022, the California Air Resources Board issued the Advanced
Clean Cars II, a rule that establishes a year-by-year roadmap so that by 2035 100% of new cars and light trucks sold in California will
be zero-emission vehicles, including plug-in hybrid electric vehicles. The regulation codifies the light-duty vehicle goals set out in
the EO.
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 install charging stations
at customer sites or manage contractors, primarily 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, it may not be possible to supplement or replace them on acceptable
terms, which may undermine our ability to deliver products to customers in a timely manner. For example, it may take a significant amount
of time to identify a manufacturer that has the capability and resources to build charging stations in sufficient volume. Identifying
suitable suppliers and manufacturers could be an extensive process that requires us to become satisfied with their quality control, technical
capabilities, responsiveness and service, financial stability, regulatory compliance, and labor and other ethical practices. Accordingly,
a loss of any significant suppliers or manufacturers, or an interruption in their production, could have an adverse effect on our business,
financial condition and operating results.
Moreover, the bi-directional EV charging station market
as a whole is relatively new and charging station manufacturers are even more limited and requirements are evolving. Though we work with
multiple vendors, it is likely that at the time a new product is launched, and new requirements are rolled out, we may rely on a single
vendor. Certifications might also be delayed, as tests are not always available at the time of commercial launch. Certain of these requirements
might at times apply to technology inside the vehicles, in which case such risks could also be pushed on the vehicle OEMs. To the extent
we rely on a single supplier, the risks to us would be intensified.
Our future results are dependent on our ability to establish,
maintain and expand our manufacturers’ representative OEM relationships and our other relationships.
We market and sell our products through domestic and international
OEM relationships and other distribution channels, such as manufacturers’ representatives and distributors. Our future results are
dependent on our ability to establish, maintain and expand our relationships with OEMs as well as with manufacturers’ representatives
and distributors to sell our products. If, however, the third parties with whom we have entered into such OEM and other arrangements should
fail to meet their contractual obligations, cease doing, or reduce the amount of their, 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. Any interruptions in goods provided by these third parties may impair our ability to support our customers.
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 supplant 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.
We rely on a third-party partner to provide certain manufacturing steps
associated with some of our proprietary processes 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 a 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.
In the event one of our third-party vendors experiences a cybersecurity
incident, we have taken steps to mitigate potential damages to our operations by diversifying our sources of supply to such an extent
that we have the ability to move production of a product impacted by such cybersecurity incident to an alternative third-party vendor.
Due to our diverse sources of supply, we do not believe that cybersecurity incidents at the third-party vendor level of our supply chain
will have a material impact on our business. However, if our third-party partner experiences a cybersecurity incident, our operations
related to manufacturing associated with some of our proprietary processes supporting our power products and solutions could be disrupted,
or otherwise negatively affected. If we are unable to procure alternatives in a timely and efficient manner and on acceptable terms, or
at all, third-party supply unavailability could result in customer dissatisfaction, regulatory scrutiny and damage to our reputation and
brand, and other consequences that could adversely affect our business.
We are dependent on information technology in our operations
and the failure of such technology may adversely affect our business. Potential security breaches of our information technology systems,
including cyber-attacks, could lead to liability or could damage our reputation and financial results.
Although no assurance can be given that future disruptions will
not occur, to date we have not experienced problems with the operations of our current technology systems or the technology systems of
third parties on which we rely. In the future, we may experience such problems, as well as with the development and deployment of new
information technology systems, which could adversely affect, or even temporarily disrupt, all or a portion of our operations until resolved.
Inabilities and delays in implementing new systems can also affect our ability to realize projected or expected cost savings. Any systems
failures could impede our ability to timely collect and report financial results in accordance with applicable laws.
Information technology system and/or network disruptions could
harm the company’s operations. Failure to effectively prevent, detect and recover from security breaches, including cyber-attacks,
could result in the misuse of company assets, unauthorized use or publication of our trade secrets and confidential business information,
disruption to the company, diversion of management resources, regulatory inquiries, legal claims or proceedings, reputational damage,
loss of sales, reduction in value of our investment in research and development, among other costs to the company. Although we have not
experienced any attempts to gain unauthorized access to our information technology systems on which we maintain proprietary and confidential
information, in the future, we may experience such attempts. The risk of a security breach or disruption, particularly through cyber-attacks,
or cyber intrusion, including by computer hackers, and cyber terrorists, has generally increased as cyber-attacks have become more prevalent
and harder to detect and fight against. Additionally, outside parties may attempt to access our confidential information through other
means, for example by fraudulently inducing our employees to disclose confidential information. We actively seek to prevent and detect
any unauthorized access. These threats are also continually evolving and, as a result, might become increasingly difficult to detect.
In addition, as a result of the Covid-19 pandemic, the increased prevalence of employees working from home may exacerbate any cybersecurity
risks. Despite the implementation of network security measures and our efforts, it is possible that our information technology system
could be penetrated by outside parties.
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, could reduce our profitability.
Similarly, price erosion can reduce our profitability 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 occur, relating to our product quality, performance and reliability. From time to time,
our customers also require us to implement specific changes to our products to allow these products to operate within their specific network
configurations. If we are unable to remedy these failures or defects or if we cannot effect such required product modifications, we could
experience lost revenues, increased costs, including inventory write-offs, warranty expense and costs associated with customer support,
delays in, or cancellations or rescheduling of, orders or shipments and product returns or discounts, any of which would harm our business.
Risks Related to Our Relationship with Ault
As long as Ault controls us, your ability to influence matters
requiring stockholder approval will be limited.
After the Distribution, Ault will own approximately 379,000 shares
of our common stock and 25,000 shares of our series A convertible redeemable preferred stock, representing approximately 69.8% of the
combined voting power of our outstanding common stock. For so long as Ault 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, Ault will be able to elect all of the members of our board of directors. For so long as any
of the shares of Series A Preferred Stock remains issued and outstanding, Ault will have the ability to appoint a majority of our board
of directors.
In addition, until such time as Ault 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, Ault
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, Ault 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 Ault; |
| • | 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 Ault 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 stockholders would not attend,
whether in person or not, any of our stockholder meetings(s). If Ault 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. Ault’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. Ault 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 Ault did not maintain voting control over us or have the additional rights described above.
Ault’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, Ault 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 Ault
as a company, independent of us. In such instances, Ault may exercise its control over us in a way that is beneficial to Ault, and you
will not be able to affect the outcome so long as Ault continues to hold a majority of the outstanding shares entitled to vote. Even if
Ault 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 Ault 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 Ault and may do so in
a manner that could vary significantly from what Ault would have done or not done.
Our historical financial information as a subsidiary of Ault
may not be representative of our results as an independent public company.
The historical financial information we have included in this Annual
Report does not necessarily reflect what our financial position, results of operations or cash flows would have been had we been an independent
entity during the historical periods presented. The historical costs and expenses reflected in our consolidated financial statements include
an allocation for certain corporate functions historically provided by Ault, including tax, accounting, treasury, legal, human resources,
compliance, insurance, sales and marketing services. The historical financial information is not necessarily indicative of what our results
of operations, financial position, cash flows or costs and expenses will be in the future. We have not made pro forma adjustments to reflect
many significant changes that will occur in our cost structure, funding and operations as a result of our transition to becoming a public
company, including changes in our employee base, potential increased costs associated with reduced economies of scale and increased costs
associated with being a publicly traded, stand-alone company. For additional information, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and our historical consolidated financial statements and notes thereto.
After the Distribution, we will be a much smaller company
than Ault, which could result in increased costs because of a decrease in our purchasing power and difficulty maintaining existing customer
relationships and obtaining new customers.
Prior to the Distribution, we were able to take advantage of
Ault’s size and purchasing power in procuring goods, technology and services, including insurance, employee benefit support and
audit and other professional services. While this may continue in some ways with Ault as a significant stockholder, we are a much smaller
company than Ault, and we cannot assure you that once we become independent, we will have access to financial and other resources comparable
to those available to us prior to the Distribution. As a stand-alone company, we may be unable to obtain office space, goods, technology
and services at prices or on terms as favorable as those available to us prior to the Distribution, which could increase our costs and
reduce our profitability. Likewise, we may find it more difficult to attract and retain high quality employees as a smaller company than
we could as a wholly owned subsidiary of Ault, which could impact our results of operations. Our future success also depends on our ability
to develop and maintain relationships with customers. Our reduced relationship with Ault and our smaller relative size after the Distribution
may make it more difficult to develop and maintain relationships with customers, which could adversely affect our prospects.
Risks Relating to the Distribution and Ownership of Our Common
stock
We may not achieve the benefits expected from the Distribution
and may be more susceptible to adverse events.
We expect that, as a company independent from Ault, we will
be able to grow organically and through acquisitions. Nonetheless, we may not be able to achieve any of these benefits. Further, by separating
from Ault, there is a risk that we may be more susceptible to adverse events than we would have otherwise experienced as a subsidiary
of Ault. As a subsidiary of Ault, we enjoyed certain benefits, including economies of scope and scale in costs, employees and business
relationships. These benefits may not be as readily achievable as a smaller, stand-alone company.
There is a limited public market for our common stock, and there may
be a large number of sales after the Distribution.
Although our common stock has been publicly traded since 2007, due
to the relatively few number of shares held in the “public float,” the relatively few number of stockholders and the infrequency
of trading, there is currently only a limited trading market for our common stock and there can be no assurance as to the extent of the
trading market that will develop following the Distribution.
Immediately after the Distribution, it is possible that there may be
a larger number of sellers than purchasers of our common stock, as new stockholders may not be interested in owning an interest in our
company attempt to sell their shares of our common stock. If such a situation exists, the price of our common stock would likely be adversely
affected.
An active, liquid trading market for our common stock does not currently
exist and may not develop after this report, and as a result, you may not be able to sell your common stock at or above the public offering
price, or at all.
A relatively inactive trading market exists for our common stock
on the Pink Open Market (Current Information). No assurance can be given as to the following:
| • | that we will be successful in causing our common stock to become listed on the OTCQB Market or, in the
future, any national securities exchange such as The Nasdaq Capital Market or NYSE American; |
| • | the likelihood that a more active trading market for shares of our common stock will develop or be sustained; |
| • | the liquidity of any such market; |
| • | the ability of our stockholders to sell their shares of common stock; or |
| • | the price that our stockholders may obtain for their shares of common stock. |
If an active market does not develop for our common stock or is not maintained, the
market price of our common stock may decline and you may not be able to sell your shares. The market price of our common stock may be
highly volatile and subject to wide fluctuations. Our financial performance, government regulatory action, tax laws, interest rates and
market conditions in general could have a significant impact on the future market price of our common stock.
The price of our common stock may have little or no relationship
to the historical bid prices of our common stock on the Pink Open Market (Current Information).
There has been no public market for our capital stock other than on the Pink Open
Market (Current Information). Given the limited history of sales and the lack of publicly available information about our business, financing
and financial results available, among other factors, this information may have little or no relation to broader market demand for our
common stock and thus the price of our common stock. As a result, you should not rely on these historical sales prices as they may differ
materially from subsequent prices of our common stock following the Distribution.
Future sales, or the perception of future sales, of a substantial
amount of our shares of common stock could depress the trading price of our common stock.
If we or our stockholders sell substantial amounts of our shares
of common stock in the public market following the Distribution or if the market perceives that these sales could occur, the market price
of shares of our common stock could decline. These sales may make it more difficult for us to sell equity or equity-linked securities
in the future at a time and price that we deem appropriate, or to use equity as consideration for future acquisitions.
As of the date of this filing, we have 750,000,000 shares of common
stock and 50,000,000 shares of “blank check” preferred stock authorized. As of March 30, 2023, we had 172,694,837 shares of
common stock outstanding. Of these shares, 32,315,939 shares of common stock are currently held by unaffiliated stockholders. However,
these figures do not take into account issuances of common stock that we may make between now and the Distribution Date, including those
subject to conversion of Ault’s preferred stock, nor does it account for any other shares that may be issued, including but not
limited to such shares awarded under a management incentive plan that we intend to establish before the Distribution.
The rights of the holders of common stock may be impaired
by the potential issuance of preferred stock.
Our articles of incorporation give our board of directors the right
to create new series of preferred stock. As a result, the board of directors may, without stockholder approval, issue preferred stock
with voting, dividend, conversion, liquidation or other rights which could adversely affect the voting power and equity interest of the
holders of common stock. Preferred stock, which could be issued with the right to more than one vote per share, could be utilized as a
method of discouraging, delaying or preventing a change of control. The possible impact on takeover attempts could adversely affect the
price of our common stock. Although we have no present intention to issue any shares of preferred stock in addition to those issued to
Ault in the Acquisition, we may issue such shares in the future.
Because we do not intend to pay dividends on our common stock, you must rely on
stock appreciation for any return on your investment.
We presently intend to retain any future earnings and do not
expect to pay any dividends in the foreseeable future. As a result, you must rely on stock appreciation and a liquid trading market for
any return on your investment. If an active and liquid trading market does not develop, you may be unable to sell your shares of common
stock at the time you would like to sell.
Anti-takeover provisions in our charter documents could discourage,
delay or prevent a change in control of our company and may affect the trading price of our common stock.
Our corporate documents and Nevada law contain provisions that
may enable our board of directors to resist a change in control of our company even if a change in control were to be considered favorable
by you and other stockholders. These provisions authorize the issuance of “blank check” preferred stock that could be issued
by our board of directors to help defend against a takeover attempt. Further, Nevada law prohibits large stockholders, in particular those
owning 10% or more of our outstanding voting stock, from merging or consolidating with us except under certain circumstances. These provisions
and other provisions under Nevada law could discourage, delay or prevent a transaction involving a change in control of our company. These
provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing
and cause us to take other corporate actions you desire.
The regulation of penny stocks by the SEC and FINRA may have an effect on the
tradability of our securities.
Our shares of common stock are currently quoted on the Pink
Open Market (Current Information). Our common stock is subject to a Securities and Exchange Commission rule that imposes special sales
practice requirements upon broker-dealers who sell such securities to persons other than established customers or accredited investors.
For purposes of the rule, the phrase “accredited investors” means, in general terms, institutions with assets in excess of
$5,000,000, or individuals having a net worth in excess of $1,000,000 or having an annual income that exceeds $200,000 for the past two
years (or that, when combined with a spouse’s income, exceeds $300,000).
For transactions covered by the rule, the broker-dealer must
make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior
to the sale. Consequently, the rule may affect the ability of broker-dealers to sell our securities and also may affect the ability of
sellers to sell their securities in any market that might therefore develop.
In addition, the Securities and Exchange Commission has adopted
a number of rules to regulate “penny stocks.” Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7,
and 15g-9 under the Exchange Act. Because our securities constitute “penny stocks” within the meaning of the rules, the rules
would apply to us and to our securities. The rules may further affect the ability of owners of our common stock to sell our securities
in any market that might develop for them.
Stockholders should be aware that, according to the Securities and
Exchange Commission, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include
(i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation
of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) “boiler room”
practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive
and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities
by promoters and broker-dealers after prices have been manipulated to a desired consequent investor losses. Our management is aware of
the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior
of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations
to prevent the described patterns from being established with respect to our securities.
The shares of our common stock may be thinly traded on the Pink
Open Market, meaning that the number of persons interested in purchasing our shares of common stock at or near ask prices at any given
time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a
small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community
that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would
be reluctant to follow an unproven, early stage company such as ours or purchase or recommend the purchase of our shares of common stock
until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity
in our shares of common stock is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading
activity that will generally support continuous sales without an adverse effect on the price of our common stock.
Until September 6, 2022, we were a shell company and, as such, stockholders cannot
rely on the provisions of Rule 144 for the resale of their shares until certain conditions are met.
We were a shell company as defined under Rule 405 of the Securities Act of 1933
until the Acquisition. As securities issued by a former shell company, the securities issued by us can only be resold pursuant to an effective
registration statement and not by utilizing the provisions of Rule 144 until certain conditions are met, including that: (i) we
are subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, (ii) we have filed all required reports
under the Exchange Act of the preceding 12 months and (iii) one year has elapsed since we filed “Form 10” information
(e.g. audited financial statements, management information and compensation, stockholder information, etc.).
Thus, a stockholder of ours is not able to sell its shares until such
time as a registration statement for those shares is filed or we have remained current on our Exchange Act filings for 12 months
and we have filed the information as would be required by a “Form 10” filing.
If securities analysts do not publish research or reports
about our business or if they publish negative evaluations of our stock, the price of our common stock could decline.
The trading market for our common stock will rely in part on
the research and reports that industry or financial analysts publish about us or our business. We do not currently have and may never
obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our common
stock could decrease. Even if we do obtain analyst coverage, if one or more of the analysts covering our business downgrade their evaluations
of our stock, the price of our common stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility
in the market for our common stock, which in turn could cause our stock price to decline.
Our charter provides for limitations of director liability
and indemnification of directors, officers and employees.
Our articles of incorporation limit the liability of directors
to the maximum extent permitted by Nevada law. Nevada law provides that directors of a corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except for liability for any:
| • | breach of their duty of loyalty to us or our stockholders; |
| • | act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
|
| • | unlawful payments of dividends or unlawful stock repurchases, or redemptions as provided in the Nevada
Revised Statutes; or |
| • | transaction from which the directors derived an improper personal benefit. |
These limitations of liability do not apply to liabilities arising
under the federal or state securities laws and do not affect the availability of equitable remedies such as injunctive relief or rescission.
Our bylaws provide that we will indemnify our directors, officers
and employees to the fullest extent permitted by law. Our bylaws also provide that we are obligated to advance expenses incurred by a
director or officer in advance of the final disposition of any action or proceeding. We believe that these provisions are necessary to
attract and retain qualified persons as directors and officers.
The limitation of liability in our articles of incorporation
and bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce
the likelihood of derivative litigation against directors and officers, even though an action, if successful, might provide a benefit
to us and our stockholders. Our results of operations and financial condition may be harmed to the extent we pay the costs of settlement
and damage awards against directors and officers pursuant to these indemnification provisions.
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 (“PCAOB”) Audit Standard No. 5, in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will
not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management
to conclude that as of December 31, 2022, our internal control over financial reporting (“ICFR”) was not effective at the
reasonable assurance level:
| · | We do not have sufficient resources in our accounting function, which restricts our ability to gather,
analyze and properly review information related to financial reporting, including fair value estimates, in a timely manner. Due to our
size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the
extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate
individuals. The company's primary user access controls to ensure appropriate authorization and segregation of duties that would adequately
restrict user and privileged access to the financially relevant systems and data to appropriate personnel were not designed and/or implemented
effectively. |
| · | The insufficient resources in our accounting function also resulted in a deficiency over design and implementation
of effective revenue recognition policies, procedures and controls with respect to the identification, timing and treatment of various
new contracts with customers. |
| · | Management also concluded that there was a deficiency in internal controls over financial reporting relating
to the accounting treatment for complex financial instruments which resulted in the failure to properly account for such instruments,
specifically with respect to the classification and proper accounting treatment of preferred shares. |
| · | We did not design and maintain effective controls associated with related party transactions and disclosures.
The controls in place were not designed at a sufficient level of precision or rigor to effectively prepare and review the complete customer
listing in such manner as to identify and properly disclose the nature and financial data of all our related party relationships. |
Management evaluated the impact of our failure to have segregation
of duties, inadequacy in design of revenue recognition policies and procedures, failure to properly account for and provide adequate disclosures
of complex financial instruments and deficiency in identification and a disclosure of related party transactions and concluded that the
multiple control deficiencies that resulted represented material weaknesses.
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 (“FINRA”). Any
such actions could affect investor perceptions of our 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.
We have begun to implement the actions noted below (including
appropriate staffing to execute such actions) in the following areas to strengthen our internal control over financial reporting in an
effort to remediate the material weaknesses.
Inventory. We have enhanced the design of existing controls
and implemented new controls over the accounting, processing and recording of inventory. Specifically, we have strengthened the design
of the management review control over inventory-in-transit. We have implemented processes to ensure timely identification and evaluation
of inventory cut-off, and we are requiring additional accountability from counterparties on the accuracy of incoming and outgoing shipment
documentation. We have deployed information system enhancements and have made better use of current system capabilities in order to improve
the accuracy of inventory cut-off, reporting and reconciliation. In addition, we have been creating an assembly bill of materials (“BOM”)
in our business software to facilitate efficient and accurate manufacturing and provide proper recording of raw materials inventory. The
BOM structure ultimately minimizes inventory inaccuracies and production delays, and we have been increasing cycle counting of inventory
used in production to improve accuracy. Lastly, we have recently hired a material specialist whose responsibility is to maintain inventory
records.
Revenue Recognition. We intend on enhancing the design
of existing controls and implement new controls over the review of the application and recording of revenue for customer contracts under
the guidance outlined in ASC 606. We also intend on implementing more thorough reviews of contracts by evaluating contractual terms and
determining whether certain contracts should be consolidated, involve related parties and the proper timing of revenue recognition. These
reviews will include more comprehensive contractual analysis from our legal team while ensuring qualified resources are involved and adequate
oversight is performed during the internal technical accounting review process.
Accounts Receivable. We intend on enhancing the design
of existing controls and implement new controls over the processing and review of accounts receivable billings. We plan to supplement
our accounting staff with more experienced personnel. We will also evaluate information system capabilities in order to reduce the manual
calculations within this business process.
Complex Financial Instruments. We will design and implement
controls to properly identify and implement the proper accounting treatment and classifications of our complex financial instruments to
ensure our equity accounting and treatment is in accordance with U.S. generally accepted accounting principles. We intend to accomplish
this by implementing more thorough reviews of certain details regarding all rights, penalties, record holders and negative covenants of
the financial instruments in order to apply the correct accounting guidance (liabilities vs. equity vs. temporary equity).
While these actions and planned actions are subject to ongoing
management evaluation and will require validation and testing of the design and operating effectiveness of internal controls over a sustained
period of financial reporting cycles, we are committed to the continuous improvement of our internal control over financial reporting.
We will continue to diligently review our internal control over financial reporting.
Our operating results may vary from quarter to quarter.
Our operating results have in the past been subject to quarter-to-quarter
fluctuations, and we expect that these fluctuations will continue, and may increase in magnitude, in future periods. Demand for our products
is driven by many factors, including the availability of funding for our products in our customers’ capital budgets. There is a
trend for some of our customers to place large orders near the end of a quarter or fiscal year, in part to spend remaining available capital
budget funds. Seasonal fluctuations in customer demand for our products driven by budgetary and other concerns can create corresponding
fluctuations in period-to-period revenues, and we therefore cannot assure you that our results in one period are necessarily indicative
of our revenues in any future period. In addition, the number and timing of large individual sales and the ability to obtain acceptances
of those sales, where applicable, have been difficult for us to predict, and large individual sales have, in some cases, occurred in quarters
subsequent to those we anticipated, or have not occurred at all. The loss or deferral of one or more significant sales in a quarter could
harm our operating results for such quarter. It is possible that, in some quarters, our operating results will be below the expectations
of public market analysts or investors. In such events, or in the event adverse conditions prevail, the market price of our common stock
may decline significantly.
Many of our competitors are larger and have greater financial
and other resources than we do.
Our products compete and will compete with similar if not identical
products produced by our competitors. These competitive products could be marketed by well-established, successful companies that possess
greater financial, marketing, distribution personnel, and other resources than we do. Using said resources, these companies can implement
extensive advertising and promotional campaigns, both generally and in response to specific marketing efforts by competitors. They can
introduce new products to new markets more rapidly. In certain instances, competitors with greater financial resources may be able to
enter a market in direct competition with us, offering attractive marketing tools to encourage the sale of products that compete with
our products or present cost features that consumers may find attractive.
Existing or new competitors may develop products or technologies
that more effectively address the demands of our customers and markets with enhanced performance, features and functionality or lower
cost. Larger competitors frequently seek to maintain market share and protect customer relationships through heavily discounted pricing,
which we may not be able to match. If we fail to develop and commercialize leading-edge technologies and products that are cost effective
and maintain high standards of quality and introduce them to the market on a timely basis, our competitive position and results of operations
could be materially adversely affected.
Changes in the U.S. tax and other laws and regulations may adversely affect our
business.
The U.S. government may revise tax laws, regulations or official
interpretations in ways that could have a significant adverse effect on our business, including modifications that could reduce the profits
that we can effectively realize, or that could require costly changes to those operations, or the way in which they are structured. For
example, the effective tax rates for most U.S. companies reflect the fact that income earned and reinvested outside the U.S. is generally
taxed at local rates, which may be much lower than U.S. tax rates. If we expand abroad and there are changes in tax laws, regulations
or interpretations that significantly increase the tax rates on non-U.S. income, our effective tax rate could increase, and our profits
could be reduced. If such increases resulted from our status as a U.S. company, those changes could place us at a disadvantage to our
non-U.S. competitors if those competitors remain subject to lower local tax rates.
Our sales and profitability may be affected by changes in economic, business and
industry conditions.
If the economic climate in the United States or abroad deteriorates,
customers or potential customers could reduce or delay their technology investments. Reduced or delayed technology and entertainment investments
could decrease our sales and profitability. In this environment, our customers may experience financial difficulty, cease operations and
fail to budget or reduce budgets for the purchase of our products and professional services. This may lead to longer sales cycles, delays
in purchase decisions, payment and collection, and can also result in downward price pressures, causing our sales and profitability to
decline. In addition, general economic uncertainty and general declines in capital spending in the information technology sector make
it difficult to predict changes in the purchasing requirements of our customers and the markets we serve. There are many other factors
which could affect our business, including:
| • | the introduction and market acceptance of new technologies, products and services; |
| • | new competitors and new forms of competition; |
| • | the size and timing of customer orders (for retail distributed physical product); |
| • | the size and timing of capital expenditures by our customers; |
| • | adverse changes in the credit quality of our customers and suppliers; |
| • | changes in the pricing policies of, or the introduction of, new products and services by us or our competitors; |
| • | changes in the terms of our contracts with our customers or suppliers; |
| • | the availability of products from our suppliers; and |
| • | variations in product costs and the mix of products sold. |
These trends and factors could adversely affect our business, profitability and financial
condition and diminish our ability to achieve our strategic objectives.
Our limited ability to protect our proprietary information
and technology may adversely affect our ability to compete, and our products could infringe upon the intellectual property rights of others,
resulting in claims against us, the results of which could be costly.
Many of our products consist entirely or partly of proprietary
technology owned by us. Although we seek to protect our technology through a combination of copyrights, trade secret laws and contractual
obligations, these protections may not be sufficient to prevent the wrongful appropriation of our intellectual property, nor will they
prevent our competitors from independently developing technologies that are substantially equivalent or superior to our proprietary technology.
In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States.
In order to defend our proprietary rights in the technology utilized in our products from third party infringement, we may be required
to institute legal proceedings, which would be costly and would divert our resources from the development of our business. If we are unable
to successfully assert and defend our proprietary rights in the technology utilized in our products, our future results could be adversely
affected.
Although we attempt to avoid infringing known proprietary rights
of third parties in our product development efforts, we may become subject to legal proceedings and claims for alleged infringement from
time to time in the ordinary course of business. Any claims relating to the infringement of third-party proprietary rights, even if not
meritorious, could result in costly litigation, divert management’s attention and resources, require us to reengineer or cease sales
of our products or require us to enter into royalty or license agreements which are not advantageous to us. In addition, parties making
claims may be able to obtain an injunction, which could prevent us from selling our products in the United States or abroad.
If we ship products that contain defects, the market acceptance
of our products and our reputation will be harmed and our customers could seek to recover their damages from us.
Our products are complex, and despite extensive testing, may
contain defects or undetected errors or failures that may become apparent only after our products have been shipped to our customers and
installed in their network or after product features or new versions are released. Any such defect, error or failure could result in failure
of market acceptance of our products or damage to our reputation or relations with our customers, resulting in substantial costs for us
and our customers, as well as the cancellation of orders, warranty costs and product returns. In addition, any defects, errors, misuse
of our products or other potential problems within or out of our control that may arise from the use of our products could result in financial
or other damages to our customers. Our customers could seek to have us pay for these losses. Although we maintain product liability insurance,
it may not be adequate.
The elimination of monetary liability against our directors,
officers and employees under law and the existence of indemnification rights for or obligations to our directors, officers and employees
may result in substantial expenditures by us and may discourage lawsuits against our directors, officers and employees.
Our articles of incorporation contain a provision permitting
us to eliminate the personal liability of our directors to us and our stockholders for damages for the breach of a fiduciary duty as a
director or officer to the extent provided by Nevada law. We may also have contractual indemnification obligations under any future employment
agreements with our officers. The foregoing indemnification obligations could result in us incurring substantial expenditures to cover
the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and the resulting
costs may also discourage us from bringing a lawsuit against directors and officers for breaches of their fiduciary duties and may similarly
discourage the filing of derivative litigation by our stockholders against our directors and officers even though such actions, if successful,
might otherwise benefit us and our stockholders.
Failure to build our finance infrastructure and improve our
accounting systems and controls could impair our ability to comply with the financial reporting and internal controls requirements for
publicly traded companies.
As a public company, we will operate in an increasingly demanding
regulatory environment, which requires us to comply with SOX, the rules and regulations of the SEC, expanded disclosure requirements,
accelerated reporting 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. Commencing with our fiscal year
ending 2024, we must 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 that year, as required by
Section 404 of SOX. We have never been required to test our internal controls within a specified period and, as a result, we may experience
difficulty in meeting these reporting requirements in a timely manner.
We anticipate that the process of building our accounting and
financial functions and infrastructure will require significant additional professional fees, internal costs and management efforts. We
expect that we will need to implement a new internal system to combine and streamline the management of our financial, accounting, human
resources and other functions. However, such a system would likely require us to complete many processes and procedures for the effective
use of the system or to run our business using the system, which may result in substantial costs. Any disruptions or difficulties in implementing
or using such a system could adversely affect our controls and harm our business. Moreover, such disruption or difficulties could result
in unanticipated costs and diversion of management attention. In addition, we may discover weaknesses in our system of internal financial
and accounting controls and procedures that could result in a material misstatement of our financial statements. Our internal control
over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur
or that all control issues and instances of fraud will be detected.
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.”