ITEM 1A. RISK FACTORS
An investment in our common stock involves significant risks. You should carefully consider the following risks and all other information set forth in this Annual Report before deciding to invest in our common stock. If any of the events or developments described below occurs, our business, financial condition and results of operations may suffer. In that case, the value of our common stock may decline, and you could lose all or part of your investment.
You should consider each of the following risk factors and any other information set forth in this Annual Report and the other reports filed by the Company with the SEC, including the Company’s financial statements and related notes, in evaluating the Company’s business and prospects. The risks and uncertainties described below are not the only ones that impact on the Company’s operations and business. Additional risks and uncertainties not presently known to the Company, or that the Company currently considers immaterial, may also impair its business or operations. If any of the following risks actually occurs, the Company’s business and financial condition, results or prospects could be harmed. Please also read carefully the section entitled “Special Note Regarding Forward-Looking Statements” at the beginning of this Annual Report.
Risks Related to the Company and Its 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, 2025, we had cash of $0.1 million and negative working capital of $8.2 million. We have incurred recurring losses, anticipated continuing losses, and reported losses available to common shareholders for the years ended December 31, 2025, and December 31, 2024, of $2.1 million and $4.0 million, respectively. In the past, we have financed our operations principally through investment by Hyperscale, our parent company; however, there can be no assurance that Hyperscale will continue to support us. 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 . The prices we charge for our products may decrease, which would reduce our revenues and gross margins and our business. If we are to sell our products at acceptable prices relative to our costs, or if we to develop and introduce, on a timely basis, new products from which we can derive additional revenues, our financial results will . These factors raise substantial regarding the Company’s ability to continue as a going for the 12 months following the issuance of the financial statements included within this Annual Report.
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 on satisfactory terms, or at all; any financing we do obtain would dilute our shareholders and investors and could also impose burdensome financial restrictions on our business.
While we have historically relied upon cash from financing activities, we hope to generate sufficient revenues from operations to fund all of the cash requirements we need to support our business. 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 or dividend payments if the funds we raise arise from the sale of preferred equity, 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 Hyperscale 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 the entirety of the value of your shares.
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 assuming we are able to make one, 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.
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 can be no assurance of successful expansion of operations.
Our increase in the scope and scale of our operations, including the hiring of additional personnel, has resulted in substantially higher operating expenses, and we expect our operating expenses to continue to increase. Expansion of our operations may place significant demands on our management, financial resources, and internal systems. Our ability to manage anticipated future growth will depend on the expansion of its accounting and internal management systems and the implementation and improvement of systems, procedures, and controls. We cannot assure you that significant problems will not arise in these areas. Failure to expand and improve these systems, procedures, and controls efficiently and at a pace consistent with our business growth could have a material adverse effect on our business, financial condition, and results of operations. Additionally, we cannot assure you that our efforts to expand marketing, sales, manufacturing, and customer support will generate additional sales or profitability in future periods.
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.
A relatively small number of commercial customers and OEM partners account for a substantial portion of our revenue. Our operating results and projections are therefore dependent on our performance under commercial agreements with customers in the defense and aerospace, medical and healthcare, industrial, and telecommunications sectors. We expect that a majority of our revenue, excluding our eMobility market, will continue to be derived from a concentrated group of customers and OEM partners. In addition, we do not expect a significant portion of our near-term revenue to be generated from our eMobility market. As a result, our business remains subject to risks associated with customer concentration, including the loss of, or reduction in demand from, any of these key customers or partners, as well as risks related to the industries and markets in which they operate. Furthermore, our growth strategy depends, in part, on our ability to diversify and expand our customer and OEM partner base. If we are unable to attract a broader range of customers and partners, our business, results of operations, and financial condition could be adversely affected.
If our major OEM customers reduce or cancel their orders or scale back their operations, our revenues could be significantly reduced. In addition, shifts in the capital spending priorities of certain of these customers toward new network elements have resulted, and may continue to result, in reduced demand for our products, which could have a material adverse effect on our business and results of operations. If the financial condition of one or more of our major customers deteriorates, or if they experience difficulty obtaining financing or investment capital, our revenues could decline substantially. Because we are dependent on the electronic equipment industry, our business is also subject to the impact of general economic conditions affecting that industry.
Substantially all of our customers operate in the electronic equipment industry, which is characterized by rapid technological change, product obsolescence, and significant fluctuations in demand. This industry is also highly competitive and subject to volatility. OEMs serving this industry face ongoing pressure to improve product performance while reducing costs. These pressures are often passed on to suppliers, including us, resulting in demands for enhanced product performance and lower pricing. Such demands may adversely affect our ability to compete effectively in certain markets and may negatively impact 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 6%, and 2% of revenues for the years ended December 31, 2025, and 2024, 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 and Chief Financial Officer, Marcus Charuvastra, our President 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. We may enter into employment agreements new employment agreement with Mr. Kohn, 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.
Furthermore, competition for employees can be intense, particularly in Silicon Valley where TurnOnGreen is headquartered, and the ability to attract, hire and retain them depends on TurnOnGreen’s ability to provide competitive compensation. In addition, job market dynamics have been impacted by the “great resignation,” with a significant number of people leaving the workforce, and future challenges related to TurnOnGreen’s “return-to-office” plans, hybrid work model or workplace practices could lead to attrition and difficulty attracting high-quality employees. TurnOnGreen may not be able to attract, assimilate, develop, or retain qualified personnel in the future, and failure to do so could adversely affect its business, including the execution of its global business strategy.
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 depend 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 event 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.
We may face significant risks and operational disruptions in transitioning to a new contract manufacturer, which could adversely affect our business, results of operations, and customer relationships.
Shifting production to a new contract manufacturer (“CM”) involves numerous challenges and introduces substantial risks that could materially impact our operations. The transition may result in technical and engineering setbacks, including the loss of specialized expertise and difficulties in re-qualifying manufacturing processes and replicating established workflows at the new facility. We may also face quality and reliability issues as the new CM ramps up production, potentially resulting in increased product defects or variability in quality standards. The change could disrupt our supply chain due to uncertainty in sourcing raw materials and components, extended lead times, or diminished supplier reliability.
Additionally, the transition may require significant capital expenditures related to new equipment, tooling, and inventory adjustments, as well as increased operational costs during the ramp-up period. We may experience delays in production output and reduced capacity during this time, which could impair our ability to meet customer demand. There is also a heightened risk of intellectual property leakage or confidentiality breaches associated with onboarding a new CM, along with potential compliance and regulatory hurdles that could delay necessary certifications.
Such disruptions may negatively impact customer satisfaction and damage our brand reputation, especially if product delivery timelines or quality expectations are not met.
Collectively, these risks could impair our ability to deliver products reliably, fulfill contractual obligations, and maintain our competitive position in the market.
Changes in U.S. and international trade policies, particularly with respect to China, and key trading countries, may adversely impact our business and operating results.
We rely a on foreign third-party manufacturers and component suppliers located in China, Taiwan, Israel, and other countries. The U.S. government has taken actions that may result in changes to U.S. and international trade policies. In April 2025, the U.S. government announced tariffs on imports from China that may reach a combined total rate of up to at least 145%, including the 20% tariff implemented in February 2025. Tariffs of 10% were also imposed on imports from Taiwan and Israel. If maintained or expanded to additional countries, tariffs and potential trade disputes with China or other countries could increase our costs of revenue and operating expenses. The extent and duration of tariffs, and their impact on economic conditions and our business, remain uncertain.
Disruption of our manufacturing facilities or other operations or those of our suppliers, or in the operations of our customers, due to climate change, earthquake, flood, other natural catastrophic events, public health crises or terrorism could result in cancellation of orders, delays in deliveries or other business activities, or loss of customers and could seriously harm our business.
We have operations, suppliers and customers located in the U.S., China and Israel. Operations at our manufacturing facilities and our assembly subcontractors and those of our suppliers, as well as our other operations and those of our customers, are subject to disruption for a variety of reasons, including work stoppages, acts of war such as the United States’ and Israeli military actions taken against Iran and its reverberations, Russia’s invasion of Ukraine, terrorism, public health crises, fire, earthquake, volcanic eruptions, drought, storms, sea-level rise, extreme temperatures, energy shortages, spikes in energy demand or power blackouts, disruptions in the availability of water necessary for our operations (including, but not limited to, in areas of relatively high water stress), flooding or other natural disasters; and certain of these events may become more frequent or intense as ma result of climate change. Such disruption could in the future cause inefficiencies in our workforce and in, among other things, shipments of products to our customers, our ability to perform services requested by our customers, the ability of our suppliers to supply us components for our products in a timely manner, or the timely installation and acceptance of our products at customer sites. Such could also induce for our customers and suppliers, further our supply chain and causing continued uncertainty in customers’ abilities to pay for the products they purchase and their demand for our products and services. In case of any in our supply chain, we may need to commit to increased purchases and provide longer lead times to secure components, which could increase inventory risk.
Changes in government incentives, emissions and fuel economy standards, and other regulatory policies may negatively impact the EV market and demand for our products and services.
The market for EVs is influenced by a range of regulatory and policy factors, including government rebates, tax credits, infrastructure incentives, emissions standards, fuel economy standards, and other measures intended to encourage the adoption of EVs and related charging infrastructure. Changes to, reductions in, or the elimination of such incentives, standards, mandates, or other supportive policies at the federal, state, or international level could reduce consumer demand for EVs and EV charging infrastructure. In addition, improvements in the fuel efficiency, cost, or performance of internal combustion engine vehicles or other alternative fuel technologies could reduce the relative attractiveness of EVs. The regulatory environment remains subject to change, including as a result of legislative, administrative, or political developments. If demand for EVs or EV charging infrastructure declines or grows more slowly than expected as a result of these factors, our business, results of operations, financial condition, and prospects could be materially adversely affected.
The EV market is influenced by government incentives, regulatory policies, and political priorities, and changes to such programs or policies could adversely affect demand for our products and services.
The market for electric vehicles (“EVs”) and EV charging infrastructure has historically benefited from government incentives, including tax credits, rebates, grants, and other financial support programs at the federal, state, and local levels, as well as from regulatory policies and mandates intended to encourage electrification. These incentives and policies have reduced the effective cost of EVs and charging infrastructure and have contributed to the growth of the EV market.
However, these programs and policies are subject to change, reduction, or elimination as a result of legislative, regulatory, or administrative actions, including changes in political priorities across administrations. For example, government authorities may reduce or eliminate tax credits, grants, or other incentives supporting EV adoption or charging infrastructure deployment, delay or weaken emissions or electrification mandates, or prioritize alternative technologies or energy policies. Any such changes could reduce consumer and commercial demand for EVs and related infrastructure.
In addition, certain of our revenues may be derived from regulatory credit programs or other government-supported mechanisms. Changes to, or the elimination of, such programs could adversely affect our ability to generate such revenue.
Because the EV market remains dependent, in part, on continued regulatory support and favorable policy environments, any reduction in incentives, changes in regulatory frameworks, or shifts in government priorities could slow the growth of the EV market. If demand for EVs or EV charging infrastructure declines or grows more slowly than expected, our business, results of operations, financial condition, and prospects could be materially adversely affected.
The growth of the EV charging market depends on the development of adequate charging infrastructure, which is subject to significant uncertainty and requires substantial investment.
The size, composition, and geographic distribution of the EV charging network will depend on a number of evolving factors, including the rate of EV adoption, consumer charging preferences, the availability of residential and workplace charging, and differences across urban, suburban, and rural markets. As a result, the development of charging infrastructure may not occur at the pace or scale required to support widespread EV adoption.
In addition, the buildout of charging infrastructure requires significant capital investment, including investment in publicly accessible fast charging, Level 2 charging, and private residential charging. The level and timing of such investment remain uncertain and may vary based on economic conditions, technology developments, and policy support.
Furthermore, the expansion of EV infrastructure depends on the availability of sufficient electric grid capacity, energy generation, and distribution systems. If federal, state, or local governments, utilities, or private sector participants do not make adequate investments in these areas, the growth of EV adoption and charging infrastructure could be constrained.
If the development of EV charging infrastructure, grid capacity, or related investments does not meet market needs, demand for our products and services could be adversely affected, which could have a materially and adversely impact on our business, results of operations, and financial condition.
Our revenue growth ultimately depends on consumers’ willingness to adopt electric vehicles in a market that is still in its early stages.
Our growth is highly dependent upon the adoption by consumers of EVs, and we are subject to the risk of reduced demand for EVs. If the market for EVs does not gain broader market acceptance or develops slower than we expect, our business, prospects, financial condition and operating results will be harmed. The market for alternative fuel vehicles is relatively new, rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government regulation and industry standards, frequent new vehicle announcements, long development cycles for EV original equipment manufacturers, and changing consumer demands and behaviors.
We are in a highly competitive EV charging services industry and there can be no assurance that we will be able to compete with many of our competitors, which are larger and have greater financial resources.
We face strong competition from other EV charging providers, some of whom may be able to duplicate aspects of our business model. Many competitors have substantially greater financial, marketing, and development resources than us. In addition, barriers to entry in certain segments of the EV charging services market are relatively low. As a result, competitors may independently develop services that are substantially equivalent or superior to their services. Therefore, an investment in our company is very risky and speculative due to the competitive environment.
Our competitors may also provide customers with greater capabilities or benefits in areas such as technical qualifications, past contract performance, geographic presence, and pricing. Furthermore, competitors with greater resources may develop competing technologies, secure broader contracts, or recruit our employees by offering more attractive compensation packages.
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.
Risks Related to Our Relationship with Hyperscale
As long as Hyperscale controls us, your ability to influence matters requiring shareholder approval will be limited.
As of December 31, 2025, Hyperscale beneficially owned approximately 27 million shares of our common stock and approximately 33.5 million through its ownership of shares of our Series A Preferred Stock (the “Preferred Stock”). The Preferred Stock is subject to a 19.9% beneficial ownership limitation, representing approximately 17% of the combined voting power of our outstanding common stock. For so long as Hyperscale beneficially owns shares of our common stock representing a significant percentage of the votes entitled to be cast by the holders of outstanding common stock, Hyperscale may be able to elect all of the members of our board of directors. For so long as any of the shares of Preferred Stock remains issued and outstanding, Hyperscale has the ability to appoint a number of directors equal to its percentage of beneficial ownership of our common stock.
It should be noted that Hyperscale does not require beneficial ownership amounting to an outright majority to control or very strongly influence any of matter placed before our shareholders, in part because many shareholders would not attend, whether in person or not, any of our shareholder meetings(s). If Hyperscale 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. Hyperscale’s voting control 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. Hyperscale 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 Hyperscale did not maintain significant voting control over us.
Hyperscale’s interests and objectives as a shareholder may not align with, or may even directly conflict with, our or your interests and objectives as a shareholder. For example, Hyperscale 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 Hyperscale as a company, independent of us. In such instances, Hyperscale may exercise its significant control over us in a way that is beneficial to Hyperscale, and you will not be able to affect the outcome so long as Hyperscale continues to hold a controlling interest of our company, despite not beneficially owning a majority of the outstanding shares entitled to vote.
In the event Hyperscale 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 Hyperscale and may do so in a manner that could vary significantly from what Hyperscale would have done or not done.
Our historical financial information as a subsidiary of Hyperscale 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 Hyperscale, 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.
Risks Relating to Ownership of Our Common Stock
An active, liquid trading market for our common stock does not currently exist and may not develop after within the foreseeable future, if at all, and as a result, you may not be able to sell your common stock at a favorable price, or at all.
An extremely limited 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 shareholders to sell their shares of common stock; or
the price that our shareholders 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.
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 shareholders sell substantial amounts of our shares of common stock in the public market 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 Annual Report, we have 2,000,000,000 shares of common stock and 50,000,000 shares of “blank check” preferred stock authorized. As of March 30, 2026, we had 183,983,122 shares of common stock outstanding. Of these shares, 169,808,311 shares of common stock are currently held by unaffiliated shareholders. However, these figures do not take into account issuances of common stock that we may make upon conversion of Hyperscale’s preferred stock, nor does it account for any other shares that may be issued.
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 shareholder 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, we may issue such shares in the future.
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.
Shareholders 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 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 of practical 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.
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 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.
Based on the results of management’s testing, management concluded that the previously identified material weakness related to inventory, revenue recognition, accounts receivable, complex financial instruments and fair value estimates were remediated as of December 31, 2025.
Management has identified the following material weakness which caused management to conclude that as of December 31, 2025, our internal control over financial reporting (“ICFR”) was not effective at the reasonable assurance level:
We do not have sufficient resources in our accounting function, which restricts our ability to gather, analyze and properly review information related to financial reporting, including fair value estimates, in a timely manner. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. The company’s primary user access controls to ensure appropriate authorization and segregation of duties that would adequately restrict user and privileged access to the financially relevant systems and data to appropriate personnel were not designed and/or implemented effectively.
Management evaluated the impact of our failure to have segregation of duties and concluded that the control deficiency represented a material weakness.
While management evaluates the effectiveness of our internal controls on a regular basis, these controls may not always be effective. There are inherent limitations on the effectiveness of internal controls, including collusion, management override, and failure in human judgment. In addition, control procedures are designed to reduce rather than eliminate business risks. In the event our Chief Executive Officer or Chief Financial Officer, our certifying officers under the Sarbanes-Oxley Act of 2002 (the “SOX”), or our independent registered public accounting firm determines our internal controls over financial reporting are not effective as defined under Section 404 of SOX, we may be unable to produce reliable financial reports or prevent fraud, which could materially harm our business. In addition, we may be subject to sanctions or investigation by government authorities or self-regulatory organizations, such as the SEC or the Financial Industry Regulatory Authority (“FINRA”). Any such actions could affect investor perceptions of our company and result in an adverse reaction in the financial markets due to a of confidence in the reliability of our financial statements, which could cause the market price of our common stock to or limit our access to capital.
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 and to our reputation and brand, and other consequences that could 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 system’s 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 or , particularly through cyber-attacks, or cyber , including by computer hackers, and cyber terrorists, has generally increased as cyber-attacks have become more prevalent and harder to detect and fight . Additionally, outside parties may attempt to access our confidential information through other means, for example by inducing our employees to confidential information. We actively seek to prevent and detect any access. These are also continually evolving and, as a result, might become increasingly to detect.
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 their 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 affect 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.
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 shareholders. 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 shareholders, 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 shareholders to elect directors of your choosing and cause us to take other corporate actions you desire.
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 shareholders;
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 shareholders 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 shareholders. 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.
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 conditions prevail, the market price of our common stock may significantly.
Many of our competitors are larger and have greater financial and other resources than we do.
We compete with companies that may offer similar or competing products and that have significantly greater financial, technical, marketing, and distribution resources than we do. These competitors may be able to develop and introduce new products more quickly, expand into new markets more effectively, and devote greater resources to sales and marketing efforts. In addition, larger competitors may seek to maintain or expand market share through aggressive pricing strategies, including discounted pricing, which we may be unable to match. Existing or new competitors may also develop products or technologies with superior performance, features, or cost advantages.
If we are unable to compete effectively, including by developing and commercializing innovative, cost-effective products on a timely basis, our competitive position, revenues, 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 to our customers. Our customers could seek to have us pay for these . 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 shareholders 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 shareholders against our directors and officers even though such actions, if successful, might otherwise us and our shareholders.
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 and all . 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 in all control systems, no evaluation of controls can provide absolute assurance that due to or will not occur or that all control issues and instances of 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.
