10-Q: TurnOnGreen Faces Going Concern Amid Rising Debt, Control Flaws

TurnOnGreen, Inc. reported increased revenue and reduced net losses for Q3 and the nine months ended September 30, 2025, but faces substantial doubt about its ability to continue as a going concern due to recurring losses, negative working capital, and material weaknesses in internal controls.

Summary

• Revenue for the three months ended September 30, 2025, increased by 35% to $1,742,000 compared to $1,290,000 in the prior year.
• Revenue for the nine months ended September 30, 2025, increased by 33% to $5,026,000 compared to $3,751,000 in the prior year.
• Net loss for the three months ended September 30, 2025, decreased by 23% to $(509,000) from $(660,000) in the prior year.
• Net loss for the nine months ended September 30, 2025, decreased by 22% to $(1,701,000) from $(2,193,000) in the prior year.
• Net loss available to common shareholders for the nine months ended September 30, 2025, significantly improved by 47% to $(1,701,000) from $(3,204,000) due to the waiver of preferred dividends by a related party.
• The company reported negative working capital of $7.9 million as of September 30, 2025.
• Related party notes and advances payable increased to $7,181,000 as of September 30, 2025, from $5,185,000 as of December 31, 2024.
• Management identified material weaknesses in internal control over financial reporting, including insufficient accounting resources, lack of segregation of duties, and deficiencies in revenue recognition and complex financial instrument accounting.
• On October 29, 2025, the company entered into a Securities Purchase Agreement for convertible promissory notes up to $1.65 million principal, with an initial tranche of $440,000 principal for $400,000 purchase price.

Sentiment

Score: 3

Explanation: While revenue growth and reduced net losses are positive, the company's severe liquidity issues, 'going concern' warning, heavy reliance on related-party debt, and material weaknesses in internal controls indicate a highly precarious financial position. The new capital raise is critical but comes with significant dilution potential, and the underlying operational challenges remain.

Positives

• Revenue increased by 35% for the three months ended September 30, 2025, and by 33% for the nine months ended September 30, 2025, indicating strong top-line growth.
• Net loss decreased by 23% for the three-month period and 22% for the nine-month period, showing an improvement in profitability.
• Operating loss improved by 38% for the three-month period and 34% for the nine-month period, reflecting better operational efficiency.
• Selling and marketing expenses decreased by 25% for the three-month period and 29% for the nine-month period, contributing to reduced operating expenses.
• The waiver of $1,011,000 in preferred dividends by a related party significantly reduced the net loss available to common shareholders for the nine-month period.
• Cash and cash equivalents increased to $67,000 as of September 30, 2025, from $27,000 as of December 31, 2024.

Negatives

• The company has incurred recurring operating and net losses, leading to substantial doubt about its ability to continue as a going concern.
• Working capital is significantly negative at $7.9 million as of September 30, 2025.
• Related party notes and advances payable increased by over $2 million to $7,181,000, indicating a growing reliance on related party financing.
• Cost of revenue increased by 67% for the three-month period and 49% for the nine-month period, negatively impacted by increased costs for components sourced from China and related tariffs.
• Interest expense, related party, increased by 52% for the three-month period and 61% for the nine-month period.
• Material weaknesses in internal control over financial reporting were identified, including insufficient accounting resources, lack of segregation of duties, and deficiencies in revenue recognition and complex financial instrument accounting.
• A lawsuit liability of $1,148,000 exists as of September 30, 2025, stemming from a $1.1 million arbitration award in May 2023.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern due to recurring operating and net losses and insufficient cash flows.
• The company's future development and working capital needs are largely dependent on advances from Hyperscale Data, Inc., with no assurance of continued financing or acceptable terms.
• Material weaknesses in internal control over financial reporting could lead to material misstatements in financial statements and impact the company's ability to report financial information accurately and timely.
• Increased costs for components sourced from China and related tariffs negatively impact gross profit and could continue to do so.
• Concentration of revenue with a few major customers (e.g., Customer A accounted for 20% of Q3 revenue and 26% of nine-month revenue) poses a risk if these relationships change.
• The company is involved in litigation, and while management believes the outcome will not have a material adverse effect, such matters are inherently unpredictable.

Future Outlook

Management expects to continue incurring operating and net losses each quarter until significant product deliveries commence. The company intends to finance future development activities and working capital needs primarily through equity sales and additional funding, including term notes, until operations generate sufficient cash. The company is committed to the continuous improvement of its internal control over financial reporting to remediate identified material weaknesses.

Management Comments

• "Management believes that the Company will continue to incur operating and net losses each quarter until at least the time it begins significant deliveries of its products."
• "Although management believes that capital sources will be available, there can be no assurances that Hyperscale will continue providing financing to the Company when needed to allow the Company to continue its operations, or if available, on terms acceptable to the Company."
• "We are committed to the continuous improvement of our internal control over financial reporting."

Industry Context

TurnOnGreen operates in the dynamic power electronics and electric vehicle (EV) charging markets. Its focus on highly engineered power conversion systems for mission-critical applications (defense, medical) suggests a niche in high-reliability sectors, which typically demand specialized solutions. The EV charging infrastructure segment is experiencing rapid growth but is also highly competitive and capital-intensive. The company's mention of increased costs for components from China and related tariffs reflects broader global supply chain challenges and trade policy impacts affecting manufacturing industries.

Comparison to Industry Standards

• The company's recurring operating and net losses, coupled with a 'going concern' warning, indicate performance significantly below the standards of a financially healthy and growing company in its industry segments.
• The substantial negative working capital of $7.9 million suggests severe liquidity issues, which is atypical for well-managed companies in the power electronics or EV charging sectors that typically require significant capital for R&D and expansion.
• Heavy reliance on related-party financing, with related party notes and advances payable increasing to over $7 million, is generally viewed as a sign of difficulty in securing traditional, arm's-length financing, contrasting with industry peers that often access diverse capital markets.
• The identified material weaknesses in internal control over financial reporting are a significant governance concern, placing the company below best practices for financial transparency and operational integrity compared to established industry players.

Corporate Governance

Legal Proceedings

• Gordon v. Digital Power Corporation: A final arbitration award of $1.1 million (inclusive of interest, legal fees, administrative fees, and expenses) was entered against Digital Power Corporation in May 2023 for wrongful termination and disability discrimination. Interest accrues at 10% per annum, and a lawsuit liability of $1,148,000 is recorded as of September 30, 2025.
• The company is regularly subject to claims, suits, regulatory and government investigations in the ordinary course of business, but believes the amount or range of reasonably possible loss will not, individually or in aggregate, have a material adverse effect on its business, consolidated financial position, results of operations, or cash flows.

Related Party Transactions

• TurnOnGreen, Inc. is a controlled subsidiary of Hyperscale Data, Inc. (Hyperscale).
• Hyperscale provides human resources, accounting, and other services, with allocated expenses of $36,000 for the three months and $146,000 for the nine months ended September 30, 2025.
• Related party notes and advances payable from Hyperscale increased to $7,104,000 as of September 30, 2025, from $5,118,000 as of December 31, 2024.
• The credit limit with Hyperscale was increased to $8,000,000, and the credit extension date was extended to December 31, 2026.
• Interest expense, related party, was $152,000 for the three months and $414,000 for the nine months ended September 30, 2025.
• The holder of Series A Convertible Redeemable Preferred Stock (a related party) waived all accrued and future dividends in exchange for an increase in the liquidation preference to 125%, resulting in a $1,011,000 decrease in accrued preferred dividends for the nine months ended September 30, 2025.

Stakeholder Impact

• Shareholders face significant dilution risk from the new convertible notes and substantial risk to investment value due to the 'going concern' warning and precarious financial health.
• Creditors, particularly related parties, bear increased risk due to the company's recurring losses, negative working capital, and heavy reliance on debt financing.
• Employees may be impacted by the identified material weaknesses in internal controls, potentially affecting workload and the integrity of financial processes.
• Customers' confidence could be affected by the company's financial instability, although product deliveries are a key focus for future cash flow generation.

Next Steps

• Continue efforts to remediate identified material weaknesses in internal control over financial reporting.
• Seek additional financing through equity sales and other sources to fund future development activities and working capital needs.
• Focus on achieving significant product deliveries to generate sufficient cash flows from operations.

Key Dates

Recommendation

Despite revenue growth and a reduction in net losses, TurnOnGreen, Inc. faces severe financial distress, evidenced by a 'going concern' warning, substantial negative working capital ($7.9 million), and heavy reliance on related-party financing. The identified material weaknesses in internal controls over financial reporting raise serious concerns about the reliability of financial statements and operational integrity. While a new convertible note financing provides short-term liquidity, it introduces significant dilution risk for existing shareholders and does not fundamentally address the underlying profitability and cash flow generation issues. The overall risk profile is extremely high, making the stock a strong sell for any seasoned investor or institution.

Keywords

Power electronics, EV charging solutions, Electric vehicles, Power conversion systems, SEC filing, Quarterly report, Financial results, Going concern, Internal controls, Related party transactions, Convertible notes, Hyperscale Data Inc., Digital Power Corporation, TOG Technologies Inc.