8-K: TurnOnGreen Secures $1.5M Convertible Note with Steep Terms

TurnOnGreen, Inc. has secured up to $1.5 million in financing through convertible promissory notes from SJC Lending LLC, featuring significant dilution potential and restrictive covenants.

Summary

• TurnOnGreen, Inc. (the Company) entered into a Securities Purchase Agreement with SJC Lending LLC (SJC) for secured convertible promissory notes totaling up to $1,650,000 in principal amount.
• The total purchase price for these notes is up to $1,500,000, implying an original issuance discount.
• The initial tranche, closed on October 29, 2025, involved a note with a $440,000 principal amount for a $400,000 purchase price, representing a 10% original issuance discount.
• The notes accrue interest at 12% per annum, compounded daily, and mature on the first anniversary of their respective issuance dates.
• Upon an Event of Default, the interest rate on outstanding principal in excess of $300,000 automatically increases to 20% per annum.
• The notes are convertible into common stock at a conversion price equal to the greater of (i) $0.035 per share (Floor Price) or (ii) a 20% discount to the Company's lowest volume-weighted average price (VWAP) during the ten trading days prior to conversion.
• The Company has reserved 47,142,858 shares of common stock for conversion.
• The notes are secured by substantially all of the Company's and its subsidiaries' (Digital Power Corporation and TOG Technologies, Inc.) assets, including intellectual property rights and 100% of the capital stock of its subsidiaries.
• The Company is restricted by various covenants, including limitations on incurring additional indebtedness, granting liens, declaring dividends, engaging in M&A, selling material assets, or issuing additional equity/convertible securities (with certain exceptions).
• The Company is prohibited from entering into variable rate transactions for one year from the execution date.
• SJC Lending LLC has a right of first refusal for any future public or private equity offerings by the Company for one year from the execution date.
• The Company will use the proceeds for working capital and operations.

Sentiment

Score: 3

Explanation: While the Company secured financing, the terms are highly unfavorable, indicating significant financial strain or high perceived risk. The substantial dilution potential, high interest rates, original issuance discount, and extensive collateralization with restrictive covenants suggest a challenging capital structure and limited future flexibility, which is negative for existing shareholders.

Positives

• Secured up to $1.5 million in financing, providing necessary capital for working capital and operations.
• The financing is structured in tranches, allowing for phased funding as conditions are met.
• The 12% annual interest rate, while high, is within the range for convertible debt from private lenders for companies on OTC markets.

Negatives

• The initial tranche of notes was issued with a 10% original issuance discount, reducing the immediate cash inflow to the Company.
• The conversion price mechanism, which includes a 20% discount to VWAP, poses a significant risk of substantial dilution for existing shareholders.
• A high default interest rate of 20% per annum applies to outstanding principal over $300,000 upon an Event of Default.
• Extensive collateralization of substantially all company and subsidiary assets, including intellectual property and capital stock, severely limits future financing flexibility and increases risk for unsecured creditors.
• Restrictive covenants limit the Company's ability to incur additional debt, grant liens, declare dividends, engage in M&A, sell material assets, or issue additional equity/convertible securities.
• The Company is prohibited from entering into variable rate transactions for one year, restricting certain future capital raising strategies.
• SJC Lending LLC has a right of first refusal for future equity offerings for one year, potentially limiting the Company's options for other investors.

Risks

• Significant equity dilution for existing shareholders due to the convertible nature of the notes and the aggressive conversion price terms (20% discount to VWAP).
• Increased debt burden and high interest expense (12% per annum, 20% upon default) could strain financial performance.
• Restrictive covenants limit the Company's operational and financial flexibility, potentially hindering strategic initiatives, M&A, or other capital raises.
• The comprehensive security interest granted over all assets, including intellectual property and subsidiary stock, increases risk for other creditors and could complicate future asset-backed financing.
• Failure to meet payment obligations or other covenants could trigger an Event of Default, leading to acceleration of debt at a higher rate (115% of principal) and potential foreclosure on collateral.
• The requirement to file and achieve effectiveness of a resale registration statement for future tranches introduces regulatory and timing risks.
• Potential downward pressure on the stock price from future conversions and sales of common stock by SJC Lending LLC.

Future Outlook

The Company plans to use the proceeds from this financing for working capital and general operations. Future tranches of the financing are contingent upon the timely filing and effectiveness of a resale registration statement with the SEC. The Company is subject to restrictive covenants that will limit its financial and operational flexibility for the foreseeable future.

Management Comments

• Amos Kohn, Chief Executive Officer and Chairman, signed the Securities Purchase Agreement and related security documents on behalf of TurnOnGreen, Inc.

Industry Context

This financing arrangement is characteristic of capital raises for smaller public companies, particularly those trading on OTC markets, which often face higher costs of capital and more stringent terms from private lenders compared to larger, more established firms. The extensive collateralization and dilutive conversion terms reflect the perceived risk associated with the Company, which operates in the capital-intensive EV charger and power solutions industry. Such terms can be a necessary but costly means for companies to secure funding when traditional avenues are less accessible.

Comparison to Industry Standards

• The 10% original issuance discount and 12% annual interest rate (20% default rate) are relatively high compared to traditional corporate debt, but common for secured convertible notes from private lenders in the microcap or high-growth sectors, reflecting higher perceived risk.
• The conversion price mechanism, allowing for a 20% discount to VWAP (subject to a $0.035 floor), is highly dilutive and more aggressive than typical convertible debt terms seen in larger, more liquid markets. This is often a feature in financings for companies with volatile stock prices or limited access to less dilutive capital.
• The comprehensive collateral package, including substantially all assets, intellectual property, and 100% of subsidiary capital stock, is a strong security measure for the lender (SJC Lending LLC). This level of collateralization is typically demanded when the lender perceives significant risk or when the borrower has limited other options, making it more restrictive than standard corporate financing.
• The restrictive covenants, such as limitations on additional indebtedness, equity issuance, M&A, and dividends, are more stringent than those found in investment-grade corporate debt and are common in private debt deals for companies with higher leverage or perceived financial vulnerability.
• The prohibition on variable rate transactions for one year and the right of first refusal for future equity offerings granted to SJC Lending LLC are significant limitations on the Company's future capital raising flexibility, which is a more restrictive term than typically seen in broader market financings.

Corporate Governance

Legal Proceedings

• The Company represents that there is no pending or threatened action, suit, inquiry, notice of violation, proceeding or investigation against it or its subsidiaries that would adversely affect the legality, validity or enforceability of the Transaction Documents or Conversion Shares, or result in a Material Adverse Effect, except as disclosed in the SEC Documents (no specific details provided in the filing text).

Related Party Transactions

• The Company is restricted from entering into any transactions with its officers, directors, employees, or any controlled affiliates (Related Parties), except for transactions in the ordinary course with employees that are approved by the Board of Directors, including unanimous approval of independent members.

Stakeholder Impact

• Shareholders: Face significant potential for dilution due to the convertible notes' terms, which could substantially reduce the value of their holdings. Restrictive covenants also limit potential for future dividends or strategic growth initiatives.
• Employees: The financing provides working capital for operations, which could support continued employment and business activities.
• Creditors: Unsecured creditors face increased risk as substantially all of the Company's and its subsidiaries' assets, including intellectual property, are pledged as collateral to SJC Lending LLC, subordinating other claims.
• Management: Operational and strategic flexibility is significantly constrained by the extensive restrictive covenants, requiring careful navigation of business decisions.

Next Steps

• TurnOnGreen, Inc. must file a resale registration statement on Form S-1 with the SEC within 15 days of October 29, 2025.
• The Company must use commercially reasonable efforts to cause the registration statement to be declared effective within 60 calendar days following the filing deadline.
• SJC Lending LLC will purchase additional tranches of convertible notes upon the satisfaction of certain conditions, including the filing and effectiveness of the registration statement.
• The Company will use the proceeds from the financing for working capital and operations.

Key Dates

Recommendation

The financing terms are highly unfavorable for existing shareholders, indicating a company in a precarious financial position or with limited access to less dilutive capital. The substantial dilution potential from the convertible notes (20% discount to VWAP, subject to a floor), coupled with a high interest rate (12%, 20% default) and a 10% original issuance discount, will severely impact shareholder value. The extensive collateralization of nearly all company and subsidiary assets, including intellectual property, and the restrictive covenants on future capital raises, M&A, and operations, severely limit the company's flexibility and future growth prospects. These factors suggest a high-risk investment with significant downside potential for current shareholders, warranting a 'sell' recommendation.

Keywords

TurnOnGreen, SJC Lending, Convertible Note, Debt Financing, Equity Dilution, Secured Debt, Corporate Governance, Risk Management, SEC Filing, 8-K, Intellectual Property Security, Pledge Agreement, VWAP, Original Issue Discount