The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
1. DESCRIPTION OF BUSINESS
Overview
Imperalis Holding Corp. d/b/a TurnOnGreen, Inc.
(“IMHC” or “Imperalis”), through its wholly owned subsidiaries Digital Power Corporation (“Digital Power”)
and TOG Technologies (collectively, the “Company”), is an emerging electric vehicle (“EV”) electrification infrastructure
solutions and premium custom power products company. The Company designs, develops, manufactures and sells highly engineered, feature-rich,
high-grade power conversion systems and power system solutions for mission-critical applications and processes electronic products as
well as EV charging solutions to diverse industries, markets and sectors including e-Mobility, medical, military, telecommunications,
and industrial.
IMHC was incorporated in Nevada on April 5, 2005
and is a subsidiary of Ault Alliance, Inc., a Delaware corporation (the “Parent” or “Ault”) and currently operates
as a reporting segment of Ault.
2. LIQUIDITY AND GOING CONCERN
The accompanying condensed consolidated financial
statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred recurring net losses
and operations have not provided sufficient cash flows. Management believes that the Company will continue to incur operating and net
losses each quarter until at least the time it begins significant deliveries of its products. The Company’s inability to continue as
a going concern could have a negative impact on the Company, including its ability to obtain needed financing.
In view of these matters, there is substantial doubt about the Company’s ability to continue as a going concern.
The Company intends to finance its future development
activities and its working capital needs largely through the sale of equity securities with some additional funding from other sources,
including term notes until such time as funds provided by operations are sufficient to fund working capital requirements. The condensed
consolidated financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded
assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going
concern.
3. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United
States of America (“GAAP”), the instructions to Form 10-Q and Regulation S-X and
do not include all the information and disclosures required by GAAP. The Company has made estimates and judgments affecting
the amounts reported in the Company’s condensed consolidated financial statements and the accompanying notes. The
actual results experienced by the Company may differ materially from the Company’s estimates. The condensed
consolidated financial information is unaudited and reflects all normal adjustments that are, in the opinion of management,
necessary to provide a fair statement of results for interim periods presented. These
condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K filed
with the SEC on April 5, 2023.
Significant Accounting Policies
Other than as noted below,
there have been no material changes to the Company’s significant accounting policies previously disclosed in the 2022 Annual Report.
Leases
The Company acts as sublessor in a leasing arrangement related to a sublease of one of the Company's leased office spaces. Fixed sublease payments received are recognized on a straight-line basis over the sublease term.
Capitalized Software Development Costs - Cloud Computing Arrangements
The Company enters into cloud computing arrangements which comprise
of hosting arrangements which are service contracts, whereby the Company gains access to use enterprise software hosted by the vendor
on an as-needed basis for a period of time in exchange for a subscription fee. Implementation costs for cloud computing arrangements are
capitalized if certain criteria are met and consist of internal and external costs directly attributable to developing and configuring
cloud computing software for its intended use. These capitalized implementation costs are presented within property and equipment on the
balance sheets and are amortized over the term of the associated hosting arrangement on a straight-line basis. The monthly access fee
is recognized within general and administrative expenses.
New Accounting Guidance – Recently Adopted
In October 2021, the Financial Accounting Standards
Board (“FASB”) issued accounting standards update 2021-08, “Business Combinations (Topic 805), Accounting for Contract
Assets and Contract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities acquired
in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue
from Contracts with Customers. The guidance will result in the acquirer recognizing contract assets and contract liabilities at the
same amounts recorded by the acquiree. The guidance should be applied prospectively to acquisitions occurring on or after the effective
date. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.
Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. We adopted ASU
2021-08 as of January 1, 2023, and the adoption had no impact on our condensed consolidated financial statements as we have not had any
business combinations in 2023.
The FASB issued ASU No. 2016-13, Financial
Instruments - Credit Losses (Topic 326) in 2016. The new guidance replaces the incurred loss impairment approach in legacy U.S. GAAP
with a methodology that reflects future credit losses and requires consideration of a broader range of reasonable and supportable information
to inform credit loss estimates. For trade and other receivables, loans and other financial instruments, we are required to use a forward-looking
expected loss model rather than the incurred loss model for recognizing credit losses, which reflects losses that are probable. The guidance
is effective for fiscal years beginning after December 15, 2019. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit
Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which pushes back the effective date for public business
entities that are smaller reporting companies, as defined by the SEC, to fiscal years beginning after December 15, 2022. We adopted ASC
326 as of January 1, 2023, and the adoption had no impact on our condensed consolidated financial statements.
Recent Accounting Pronouncements not yet Adopted
The Company does not expect that any recently issued accounting guidance
will have a significant effect on its consolidated financial statements.
4. REVENUE DISAGGREGATION
The Company’s disaggregated revenues consisted
of the following:
Schedule of disaggregated revenues | |
| | | |
| | |
| |
For the Three Months Ended March 31, | |
| |
2023 | | |
2022 | |
Primary Geographical Markets | |
| | | |
| | |
North America | |
$ | 784,000 | | |
$ | 1,012,000 | |
Europe | |
| - | | |
| 19,000 | |
Other | |
| 92,000 | | |
| 98,000 | |
Total Revenue | |
$ | 876,000 | | |
$ | 1,129,000 | |
| |
| | | |
| | |
Major Goods | |
| | | |
| | |
Power supply units | |
$ | 825,000 | | |
$ | 1,096,000 | |
EV chargers | |
| 51,000 | | |
| 33,000 | |
Total Revenue | |
$ | 876,000 | | |
$ | 1,129,000 | |
| |
| | | |
| | |
Timing of Revenue Recognition | |
| | | |
| | |
Revenue recognized over time | |
$ | 3,000 | | |
$ | - | |
Goods transferred at a point in time | |
| 873,000 | | |
| 1,129,000 | |
Total Revenue | |
$ | 876,000 | | |
$ | 1,129,000 | |
The following table provides the percentage of
total revenue attributable to a single customer from which 10% or more of total revenue is derived:
Schedule of concentration | |
| | | |
| | | |
| | | |
| | |
| |
For the Three Months Ended | | |
For the Three Months Ended | |
| |
March 31, 2023 | | |
March 31, 2022 | |
| |
Total Revenue | | |
Percentage of | | |
Total Revenue | | |
Percentage of | |
| |
by Major | | |
Total Company | | |
by Major | | |
Total Company | |
| |
Customers | | |
Revenue | | |
Customer | | |
Revenue | |
Customer A | |
$ | 142,000 | | |
| 16 | % | |
$ | 261,000 | | |
| 23 | % |
Customer B | |
$ | 97,000 | | |
| 11 | % | |
$ | 165,000 | | |
| 12 | % |
5. TRADE RECEIVABLES
As of March 31, 2023 and December 31, 2022, the
Company had related party receivables of $0 and $25,000, respectively.
The following table provides the percentage of
total trade receivables attributable to a single customer that accounts for 10% or more of the Company’s outstanding receivables:
Schedule percentage of total trade receivables | |
| | | |
| | |
| |
As of | | |
As of | |
| |
March 31, 2023 | | |
December 31, 2022 | |
Customer A | |
| 17.2 | % | |
| 10.9 | % |
Customer B | |
| 12.9 | % | |
| 9.9 | % |
Customer C | |
| 10.5 | % | |
| - | % |
Customer D | |
| 10.1 | % | |
| 3.8 | % |
Customer E | |
| 1.0 | % | |
| 19.5 | % |
Customer F | |
| 2.2 | % | |
| 16.6 | % |
6. PROPERTY AND EQUIPMENT
As of March 31, 2023 and December 31, 2022, property and equipment consisted of the following:
Schedule of property and equipment | |
| | | |
| | |
| |
March 31, 2023 | | |
December 31, 2022 | |
Machinery and equipment | |
$ | 559,000 | | |
$ | 667,000 | |
Computers and software | |
| 89,000 | | |
| - | |
Leasehold improvements, furniture and equipment | |
| 208,000 | | |
| 207,000 | |
EV chargers | |
| 118,000 | | |
| 115,000 | |
Gross property and equipment | |
| 974,000 | | |
| 989,000 | |
Less: accumulated depreciation and amortization | |
| (577,000 | ) | |
| (663,000 | ) |
Property and equipment, net | |
$ | 397,000 | | |
$ | 326,000 | |
Depreciation and amortization expense related
to property and equipment was $22,000 and $6,000 for the three months ended March 31, 2023 and 2022, respectively.
Asset retirement obligations as of each March
31, 2023 and December 31, 2022, were $3,000.
7. INVENTORIES
As of March 31, 2023 and December 31, 2022, inventories
consisted of:
Schedule of inventories | |
| | | |
| | |
| |
March 31, 2023 | | |
December 31, 2022 | |
Raw materials, parts and supplies | |
$ | 773,000 | | |
$ | 788,000 | |
Finished products | |
| 1,688,000 | | |
| 1,807,000 | |
Total inventories | |
$ | 2,461,000 | | |
$ | 2,595,000 | |
8. WARRANTY LIABILITY
As of March 31, 2023 and December 31, 2022, the
Company’s total accrued warranty liability was as follows:
Schedule of warranty liability | |
| | | |
| | |
| |
March 31, 2023 | | |
December 31, 2022 | |
Beginning warranty liability | |
$ | 59,000 | | |
$ | 54,000 | |
Warranty expenses incurred | |
| - | | |
| - | |
Additional liability accrued | |
| - | | |
| 5,000 | |
Total accrued warranty | |
| 59,000 | | |
| 59,000 | |
Less: accrued warranty - current | |
$ | 16,000 | | |
$ | 16,000 | |
Accrued warranty – non-current | |
$ | 43,000 | | |
$ | 43,000 | |
9. ACCRUED EXPENSESAND OTHER CURRENT LIABILITIES
As of March 31, 2023 and December 31, 2022, accrued
expenses, warranty and other current liabilities consisted of the following:
Schedule of accrued expenses | |
| | | |
| | |
| |
March 31, 2023 | | |
December 31, 2022 | |
Customer prepayments | |
$ | 202,000 | | |
$ | 276,000 | |
Accrued legal contingencies | |
| 681,000 | | |
| 681,000 | |
Dividends payable | |
| 1,139,000 | | |
| 639,000 | |
Warranty liability, current | |
| 16,000 | | |
| 17,000 | |
Other accrued liabilities | |
| 89,000 | | |
| 103,000 | |
Accrued payroll and payroll taxes | |
| 239,000 | | |
| 255,000 | |
Total other current liabilities | |
$ | 2,366,000 | | |
$ | 1,971,000 | |
10. LEASES
Office and Warehouse Leases and Sublease
During the three months ended March 31, 2023,
the Company was a lessee/sublessor for a certain office space lease. No residual value guarantees have been provided by the sublessee
and we recognized $11,000 of income related to the sublease. Fixed sublease payments received are recognized on a straight-line basis
over the sublease term and netted against operating lease expenses.
The components of net lease expenses, recorded
within operating expenses on the Company's Condensed Consolidated Statements of Operations for the three-month period ended March 31,
2023 and 2022, was as follows:
Schedule of lease cost | |
| | | |
| | |
| |
Three Months
Ended March 31, 2023 | | |
Three Months
Ended March 31, 2022 | |
Operating lease cost | |
$ | 162,000 | | |
$ | 162,000 | |
Short-term lease cost | |
| - | | |
| - | |
Variable lease cost | |
| - | | |
| - | |
Less: Sublease income | |
| (11,000 | ) | |
| - | |
Total | |
$ | 151,000 | | |
$ | 162,000 | |
11. RELATED PARTY TRANSACTIONS
Ault Lending, LLC (“Ault Lending”
or “AL”) and the Company are both subsidiaries of Ault. David Katzoff, who serves as the Company’s Chief Financial Officer,
is also the manager of Ault Lending. As a result, AL is deemed a related party.
Allocation of General Corporate Expenses
Ault provides human resources, accounting, and
other services to the Company. The Company obtains its business insurance under Ault. The accompanying financial statements include allocations
of these expenses. The allocation method calculates the appropriate share of overhead costs to the Company by using the Company’s
revenue as a percentage of total revenue of Ault. The Company believes the allocation methodology used is reasonable and has been consistently
applied, and results in an appropriate allocation of costs incurred. However, these allocations may not be indicative of the cost had
the Company been a stand-alone entity or of future services. Ault allocated $153,000 and $60,000 of costs for the three months ended March
31, 2023 and 2022, respectively. These costs were treated as additional paid-in capital.
Contributions From Parent
The Company previously received funding from Ault
to cover any shortfalls on operating cash requirements. In addition to the allocation of general corporate expenses, the Company received
$577,000 and $950,000 for the three months ended March 31, 2023 and 2022, respectively. These amounts are reflected in additional paid-in
capital.
Related Party Receivables
As of March 31, 2023 and December 31, 2022, the
Company had related party receivables of $0 and $25,000, respectively.
Related Party Advances
During the quarter ended March 31, 2023, our Officer,
Amos Kohn loaned to the Company $26,000. The note has no annual interest, matured on April 10, 2023, and was used for working capital
purposes. Upon an event of default, the interest rate on this Note will be 14% per annum. As of the date of this report we have not made
any payments and therefore the note is in default and is now accruing interest at 14% per annum.
During the quarter ended March 31, 2023, a non-officer
employee of the Company advanced us $25,000. The advance is unsecured, interest-free and has no fixed terms of repayment. The loan was
used for working capital purposes and recorded as related party advances.
On December 9, 2022, our Officer, Amos Kohn loaned
the Company $25,000, which was recorded in related party advances and used for working capital purposes. The note carried no interest,
unless it goes into default, and was due and payable on the maturity date of March 9, 2023. As of the date of this report we have not
made any payments and therefor the note is in default and is now accruing interest at 14% per annum. During the quarter ended March 31,
2023, the Company incurred an interest expense of $1,000 in relation to this note.
During the quarter ended December 31, 2022, our
Officer Marcus Charuvastra advanced the Company $14,000, and a non-officer employee of the Company advanced us $13,000. The advances were
unsecured, interest-free and had no fixed terms of repayment. The loans were used for working capital purposes and recorded as related
party advances.
During the quarter ended March 31, 2023, the $14,000
advance from Marcus Charuvastra, the Company’s President, and the $13,000 advance from the non-officer employee were repaid in full.
As of March 31, 2023 and December 31, 2022, there
were balances due to the Company’s officers and non-officer employee of $76,000 and $52,000, respectively.
12. COMMITMENTS AND CONTINGENCIES
Litigation Matters
The Company is involved in litigation arising
from other matters in the ordinary course of business. The Company is regularly subject to claims, suits, regulatory and government investigations,
and other proceedings involving labor and employment, commercial disputes, and other matters. Such claims, suits, regulatory and government
investigations, and other proceedings could result in fines, civil penalties, or other adverse consequences.
Certain of these outstanding matters include speculative,
substantial or indeterminate monetary amounts. The Company records an undiscounted liability for contingent losses, including future legal
costs, settlements and judgments, when we consider it is probable that a liability has been incurred and the amount of the loss can be
reasonably estimated. If the Company determines that a loss is reasonably possible and the loss or range of loss can be estimated, the
Company discloses the reasonably possible loss. The Company evaluates developments in its legal matters that could affect the amount of
liability that has been previously accrued, and the matters and related reasonably possible losses disclosed, and makes adjustments as
additional information becomes available. Significant judgment is required to determine both the likelihood of there being, and the estimated
amount of a loss related to such matters.
Gordon v. Digital Power Corporation
On or about November 21, 2019, the plaintiff-William
Gordon, filed a complaint against defendant, DPC, alleging wrongful termination and disability discrimination. The arbitration was conducted
during October 2022. Aside from the opening and responding trial briefs, the arbitrator requested additional briefing on two subjects,
undisclosed principal liability, and disclosed principal liability, both of which were submitted. In February 2023 the arbitrator entered
an interim award against us and in favor of Mr. Gordon in the amount of $428,602 inclusive of interest. The award was based on Mr. Gordon’s
employment agreement with DPC, and Mr. Gordon’s promissory note with Coolisys. Mr. Gordon was deemed the prevailing party and will
be entitled to bring a motion for attorney’s fees in addition to the interim awarded amount.
The Company has accrued $681,000 in connection
with legal contingencies as of each March 31, 2023 and December 31, 2022.
With respect to the Company’s outstanding
litigation matters, based on the Company’s current knowledge, the Company believes that the amount or range of reasonably possible
loss will not, either individually or in aggregate, have a material adverse effect on the Company’s business, consolidated financial
position, results of operations, or cash flows. However, the outcome of such matters is inherently unpredictable and subject to significant
uncertainties.
Non-cancelable Obligations
In the normal course of business, we enter into non-cancelable obligations with certain parties to purchase services, such as technology equipment and subscription-based cloud service arrangements. As of March 31, 2023, we had outstanding non-cancelable purchase obligations with terms of two years or longer aggregating $60,000.
13. LOSS PER SHARE
In accordance with ASC 260, Earnings Per Share,
the basic loss per common share is computed by dividing the net loss available to common stockholders by the weighted average number of
common stock outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator
is increased to include the number of additional shares of common stock that would have been outstanding if the potential common shares
had been issued and if the additional common shares were dilutive.
The Company excluded the potential common stock equivalents outstanding from the calculation of diluted weighted average net loss per share for the three months ended March 31, 2023 and 2022, which would be anti-dilutive due to the net loss from continuing operations in those periods.
Anti-dilutive securities, which are convertible into or exercisable for the Company's common stock, consist of the following at March 31, 2023 and 2022:
Schedule of anti dilutive securities excluded from computation of earnings per share | |
March 31, | |
| |
2023 | | |
2022 | |
Convertible notes | |
| 10,961,000 | | |
| 20,367,000 | |
Convertible preferred stock | |
| 25,000,000 | | |
| 25,000,000 | |
Total | |
| 35,961,000 | | |
| 45,367,000 | |
14. STOCKHOLDERS’ DEFICIT
Authorized Capital
The Company is authorized to issue seven hundred
fifty million (750,000,000) shares of Common Stock, par value $0.001 per share and ten million (10,000,000) shares of preferred stock,
par value $0.001 per share, of which twenty-five thousand shares (25,000) have been designed as Series A Convertible Redeemable Preferred
Stock, par value $0.001 per share and the remaining authorized shares of preferred stock are “blank check” shares, which can
be issued with various rights as determined by the Board. The number of authorized shares of any class or classes of stock may be increased
or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of at least a majority
of the voting power of the issued and outstanding shares of Common Stock of the Corporation, voting together as a single class. As of
each March 31, 2023 and December 31, 2022, there were 172,694,837 shares of Common Stock issued and outstanding and as of each March 31,
2023 and December 31, 2022, there were 25,000 shares of series A preferred stock issued and outstanding.
Common Stock
The holders of the Company’s
Common Stock have equal ratable rights to dividends from funds legally available therefor, when, as and if declared by the Company’s
board of directors. Holders of Common Stock are also entitled to share ratably in all of the Company’s assets available for distribution
to holders of Common Stock upon liquidation, dissolution or winding up of the Company’s affairs.
Except as otherwise required by law
or as may be provided by the resolutions of the Board of Directors authorizing the issuance of Common Stock, all rights to vote and all
voting power shall be vested in the holders of Common Stock. Each share of Common Stock shall entitle the holder thereof to one vote.
Upon any liquidation, dissolution or
winding-up of the corporation, whether voluntary or involuntary, the remaining net assets of the Company shall be distributed pro rata
to the holders of the Common Stock.
15. CONVERTIBLE NOTES PAYABLE
Convertible notes payable at March 31, 2023 and
December 31, 2022, were comprised of the following:
Schedule of convertible notes payable | |
| | | |
| | | |
| |
| | | |
| | |
| |
Conversion price per share | | |
Interest rate | | |
Due date | |
March 31,
2023 | | |
December 31, 2022 | |
Opportunity fund convertible notes payable | |
$ | 0.005 | | |
| 10 | % | |
January 14, 2024 | |
$ | 45,000 | | |
$ | 45,000 | |
Total convertible notes payable | |
| | | |
| | | |
| |
$ | 45,000 | | |
$ | 45,000 | |
The Company has Convertible Promissory notes payable
to Opportunity Fund, LLC in the amount of $45,000 (the “Note”). The Note allows for advances up to maximum amount of $75,000.
The principal, together with any accrued but unpaid interest on the amount of principal, is convertible upon request by the noteholder
at a conversion price of $0.005 per share.
As of March 31, 2023 and December 31, 2022, the
outstanding convertible notes payable had accrued interest of $10,000 and $9,000, respectively.
16. SUBSEQUENT EVENTS
Entry into a Material Definitive Agreement
On April 6, 2023 (the "Closing Date"), the Company entered into a Purchase Agreement (the "Agreement") with FAR Holdings International, LLC (the "Investor") pursuant to which the Company borrowed $250,000 and issued a promissory note to the Investor in the principal face amount of $300,000. The Company also issued to the Investor warrants (the "Warrants") to purchase an aggregate of 1,000,000 shares of common stock, par value $0.001 per share of the Company (the "Warrant Shares").
The promissory note was issued with an original issuance discount of $50,000, and bears no interest. The Company is required to pay the Investor $100,000 on May 6, 2023, June 6, 2023, and the maturity date of July 6, 2023. The promissory note also allows prepayment without any penalty. The promissory note contains a single event of default if the Company fails to make payments within five business days when due, then the Company must pay the Investor a default fee of three percent (3%) of the amount due.
The Warrants entitle the holder to purchase shares of Common Stock for a period of five years at an exercise price of $0.044 per share, subject to adjustment. The exercise price of each Warrant is subject to adjustment for customary stock splits, stock dividends, combinations or similar events.
As of the date of this report we have not made any payments and therefore the promissory note is in default and a default fee of $3,000 is now due.