SEC Form 20-F filed by Turbo Energy S.A.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report _________________________

For the transition period from ___________ to ___________

Commission file number: 001-40848

TURBO ENERGY, S.A.

(Exact Name of Registrant as Specified in Its Charter)

Not Applicable

(Translation of Registrant’s Name Into English)

Kingdom of Spain

(Jurisdiction of Incorporation or Organization)

Street Isabel la Católica, 8, Door 51,

Valencia, Spain 46004

(Address of Principal Executive Offices)

Alejandro Moragues, CFO

+34 961 196 250

[email protected]

Street Isabel la Católica, 8, Door 51,

Valencia, Spain 46004

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report (December 31, 2023): There were 55,085,700 shares of the registrant’s ordinary shares outstanding, par value €0.05 per share.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. 

Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

☐ Item 17 ☐ Item 18

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Annual Report on Form 20-F

Year Ended December 31, 2023

TABLE OF CONTENTS

INTRODUCTORY NOTES

Use of Certain Defined Terms

Except as otherwise indicated by the context and for the purposes of this report only, references in this report to:

Forward-Looking Information

In addition to historical information, this annual report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; and any statements regarding future economic conditions or performance, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements. Potential risks and uncertainties include, among other things, the possibility that third parties hold proprietary rights that preclude us from marketing our products, the emergence of additional competing technologies, changes in domestic and foreign laws, regulations and taxes, changes in economic conditions, uncertainties related to legal system and economic, political and social events in Spain, a general economic downturn, a downturn in the securities markets, and other risks and uncertainties which are generally set forth under Item 3 “Key information—D. Risk Factors” and elsewhere in this annual report.

Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable for annual reports on Form 20-F.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable for annual reports on Form 20-F.

ITEM 3. KEY INFORMATION

A. [RESERVED]

Not applicable.

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors 

An investment in our ADSs involves a high degree of risk. The following risk factors describe circumstances or events that could have a negative effect on our business, financial condition or operating results. You should carefully consider the risks described below, together with all of the other information included in this annual report, before making an investment decision. If any of the following risks actually occur, our business, financial condition or results of operations could suffer. In that case, the trading price of our ADSs could decline, and you may lose all or part of your investment. Additional risks and uncertainties not currently known to us or that we currently believe are not material could also impair our business, financial condition or operating results. Some statements in this annual report, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section titled “Cautionary Statement Regarding Forward-Looking Statements”.

Summary of Risk Factors

Investing in our company involves significant risks. These risks include the following:

Risks Relating to Our Business and Industry

Our products may experience quality problems from time to time that could result in negative publicity, litigation, product recalls and warranty claims, which could result in decreased revenues and harm to our brands.

A catastrophic failure of our products could cause personal or property damages for which we would be potentially liable. Damage to or the failure of our products to perform to customer specifications could result in unexpected warranty expenses or result in a product recall, which would be time consuming and expensive. Any product recall in the future, whether it involves our or a competitor’s product, may result in negative publicity, damage our brand and materially and adversely affect our business, financial condition and results of operations. In the future, we may voluntarily or involuntarily initiate a recall if any of our products are proven to be or possibly could be defective or noncompliant with applicable environmental laws and regulations, including health and safety standards. Such recalls involve significant expense and diversion of management attention and other resources, which could adversely affect our brand image, as well as our business, financial condition and operating results.

Our solution, by making use of energy monitoring and management software, is susceptible to cyberattacks that could cause the management system to malfunction or even stop, without preventing the photovoltaic generation of the installation.

We may be subject to product liability claims.

If one of our products were to cause injury to someone or cause property damage, including as a result of product malfunctions, defects, or improper installation, then we could be exposed to product liability claims. We could incur significant costs and liabilities if we are sued and if damages are awarded against us. Further, any product liability claim we face could be expensive to defend and could divert management’s attention. The successful assertion of a product liability claim against us could result in potentially significant monetary damages, penalties or fines, subject us to adverse publicity, damage our reputation and competitive position, and adversely affect sales of our products. In addition, product liability claims, injuries, defects, or other problems experienced by other companies in similar industry could lead to unfavorable market conditions for the industry as a whole, and may have an adverse effect on our ability to attract new customers, thus harming our growth and financial performance.

We expect to incur research and development costs and devote significant resources to developing new products, which could significantly reduce our profitability and may never result in revenue to the Company.

Our future growth depends on penetrating new markets, adapting existing products to new applications and customer requirements, and introducing new products that achieve market acceptance. We plan to incur significant research and development costs in the future as part of our efforts to design, develop, manufacture and introduce new products and enhance existing products. Our research and development expenses were €361,420 (approximately $399,803), €169,435 and €106,786 during the fiscal year ended December 31, 2023, 2022 and 2021 and are likely to grow in the future. Further, our research and development program may not produce successful results, and our new products may not achieve market acceptance, create additional revenue or become profitable.

Our success depends on our ability to develop new products and capabilities that respond to customer demand, industry trends or actions by our competitors and failure to do so may cause us to lose our competitiveness in the battery industry and may cause our profits to decline.

Our success will depend on our ability to develop new products and capabilities that respond to customer demand, industry trends or actions by our competitors. There is no assurance that we will be able to successfully develop new products and capabilities that adequately respond to these forces. In addition, changes in legislative, regulatory or industry requirements or in competitive technologies may render certain of our products obsolete or less attractive. If we are unable to offer products and capabilities that satisfy customer demand, respond adequately to changes in industry trends or legislative changes and maintain our competitive position in our markets, our financial condition and results of operations would be materially and adversely affected.

The research and development of new products and technologies is costly and time consuming, and there are no assurances that our research and development of new products will be either successful or completed within anticipated timeframes, if at all. Our failure to technologically evolve and/or develop new or enhanced products may cause us to lose competitiveness in the renewable energy storage market. In addition, in order to compete effectively in the renewable energy storage industry, we must be able to launch new products to meet our customers’ demands in a timely manner. However, we cannot provide assurance that we will be able to install and certify any equipment needed to produce new products in a timely manner, or that the transitioning of our manufacturing facility and resources to full production under any new product programs will not impact production rates or other operational efficiency measures at our manufacturing facility. In addition, new product introductions and applications are risky, and may suffer from a lack of market acceptance, delays in related product development and failure of new products to operate properly. Any failure by us to successfully launch new products, or a failure by our customers to accept such products, could adversely affect our results. 

The markets in which we operate are in their infancy and highly competitive, and we may not be successful in competing in these industries as the industry further develops. We currently face competition from new and established domestic and international competitors and expect to face competition from others in the future, including competition from companies with new technology.

The worldwide energy storage market is in its infancy, and we expect it will become more competitive in the future. We also expect more regulatory burden as customers adopt this new technology. There is no assurance that our energy storage systems will be successful in the respective markets in which they compete. A significant and growing number of established and new companies, as well as other companies, have entered or are reported to have plans to enter the energy storage market. Most of our current and potential competitors have significantly greater financial, technical, manufacturing, marketing, sales networks and other resources than we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products. Increased competition could result in lower unit sales, price reductions, revenue shortfalls, loss of customers and loss of market share, which could harm our business, prospects, financial condition and operating results. The energy storage industry is highly competitive.

We face competition from other manufacturers, developers and installers of energy storage systems, as well as from large utilities. Decreases in the retail prices of electricity from utilities or other renewable energy sources could make our products less attractive to customers.

Events that negatively impact the growth of renewable energy will have a negative impact on our business and financial condition.

The growth and profitability of our business is dependent upon the future growth of renewable energy, such as wind and solar. The growth of renewable energy and an increase in the number of renewable energy projects are dependent upon a number of factors, including governmental policies offering incentives that encourage the building of renewable energy projects and offset the cost of alternative energy sources, including new technologies. Any events or change in the regulatory framework or electricity energy market that negatively impact the growth and development of renewable energy, particularly wind and solar energy, will have a negative impact on our business and financial condition.

If the estimates and assumptions we use to determine the size of our total addressable market are inaccurate, our future growth rate may be affected and the potential growth of our business may be limited.

Market estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may prove to be inaccurate. Even if the market in which we compete meets our size estimates and forecasted growth, our business could fail to grow at similar rates, if at all. Our market opportunity is also based on the assumption that our existing and future offerings will be more attractive to our customers and potential customers than competing products and services. If these assumptions prove inaccurate, our business, financial condition and results of operations could be adversely affected.

We are dependent on a few customers for a significant amount of our net revenues.

Historically a significant amount of our product sales has been generated from a small number of customers. For example, our top 10 customers, on an aggregate basis, accounted for approximately €5,004,061 (approximately $5,535,492) in revenue or 37.5% of our revenue for the fiscal year ended December 31, 2023. For the fiscal year ended December 31, 2022, revenues from our top 10 customers accounted for approximately €11,206,474 or 35.9% of our revenue. For the fiscal year ended December 31, 2021, Sonepar Iberica Spain accounted for 12% of our total revenue. The next largest client, Grupo Electro Stocks, accounted for 7.1% of our revenue for the fiscal year ended December 31, 2021.

There are inherent risks whenever a large percentage of total revenues are concentrated with a limited number of customers. It is not possible for us to predict the future level of demand for our services that will be generated by these customers. In addition, revenues from these larger customers may fluctuate from time to time based on the commencement and completion of projects, the timing of which may be affected by market conditions or other facts, some of which may be outside of our control. If any of these customers experience declining or delayed sales due to market, economic or competitive conditions, we could be pressured to reduce the prices we charge for our services and products which could have an adverse effect on our margins and financial position, and could negatively affect our revenues and results of operations and/or trading price of our ordinary shares. If any of these largest customers terminates our services, such termination would negatively affect our revenues and results of operations and/or trading price of our ordinary shares. There is no assurance that we will be successful in our efforts to convince customers to accept our products. Our failure to sell our products could have a material adverse effect on our financial condition and results of operations.

For most of our sales and customers, we do not have long-term contracts. Future agreements with respect to pricing, returns, promotions, among other things, are subject to periodic negotiation with such customers. No assurance can be given that our customers will continue to do business with us. The loss of any of our significant customers will have a material adverse effect on our business, results of operations, financial condition and liquidity. In addition, the uncertainty of product orders can make it difficult to forecast our sales and allocate our resources in a manner consistent with actual sales, and our expense levels are based in part on our expectations of future sales. If our expectations regarding future sales are inaccurate, we may be unable to reduce costs in a timely manner to adjust for sales shortfalls.

Real or perceived hazards associated with Lithium-ion battery technology may affect demand for our products.

Press reports have highlighted situations in which lithium-ion batteries have caught fire or exploded. For instance, in 2020, LG Chem recalled several residential solar battery storage products because of concerns about fire safety. Five fires involving these battery systems have been reported, including an explosion at an energy storage facility in Arizona that caused several injuries. Such publicity has resulted in a public perception that lithium-ion batteries are dangerous and unpredictable. Although we believe our battery packs are safe, these perceived hazards may result in customer reluctance to adopt our lithium-ion based technology. 

Economic conditions may adversely affect consumer spending and the overall general health of our retail customers, which, in turn, may adversely affect our financial condition, results of operations and cash resources.

Uncertainty about the existing and future global economic conditions may cause our customers to defer purchases or cancel purchase orders for our products in response to tighter credit, decreased cash availability and weakened consumer confidence. Our financial success is sensitive to changes in general economic conditions, both globally and nationally. Recessionary economic cycles, higher interest borrowing rates, higher fuel and other energy costs, inflation, increases in commodity prices, higher levels of unemployment, higher consumer debt levels, higher tax rates and other changes in tax laws or other economic factors that may affect consumer spending or buying habits could continue to adversely affect the demand for our products. If credit pressures or other financial difficulties result in insolvency for our customers it could adversely impact our financial results. There can be no assurances that government and consumer responses to the disruptions in the financial markets will restore consumer confidence.

Spanish inflation has increased by 6.0% since 2020. However, recent inflationary pressures have not had a significant impact on our operations. While inflation is recognized as a potential risk, the company does not believe that the impact of inflation on their operations is material. It is possible, however, that future inflationary pressures could have a greater impact on our operations, and we will monitor this risk closely.

We are dependent on a limited number of suppliers for our batteries, inverters, and photovoltaic modules and the inability of these suppliers to continue to deliver, or their refusal to deliver, these products at prices and volumes acceptable to us would have a material adverse effect on our business, prospects and operating results.

We source batteries, inverters, and photovoltaic modules from a limited number of manufacturers located in China. For batteries, while we obtain components for our products and systems from multiple sources whenever possible, we have spent a great deal of time in developing and testing our batteries that we receive from our suppliers. We currently have five different battery suppliers who are all located in China. For our inverters, we import them from a single supplier based in China. The current reliance on suppliers from China for Turbo’s main products has not, to date, posed any drawbacks, despite the contraction in the worldwide supply of products caused by the COVID, which effects continued to be felt in 2023. Even in these circumstances, the constraint did not reduce supply but allowed for a 40% growth in purchases. The large number of suppliers in that country means that Turbo can change suppliers with some ease. A geopolitical conflict with China on a global level would be a potential supply problem, although the economic impact on a large scale in all sectors and in all markets would be even more serious than the lack of supplies.

As to the photovoltaic modules and the structures that support them, they are purchased from different suppliers in the market. We generally do not maintain long-term agreements with our source suppliers. While we believe that we will be able to establish additional supplier relationships, we may be unable to do so in the short term or at all at prices, quality or costs that are favorable to us.

In addition, for our star product, SunBox, the conception, design, manufacture of the exterior and structural part, and assembly of components, are all completed in Spain. While we are working on certifying a second supplier, the assembly of SunBox is provided by a single supplier located in Spain. Any disruption between our relationship with the supplier, or if the supplier is unable to meet our demands, our business and results of operations could be adversely affected.

Changes in business conditions, wars, regulatory requirements, economic conditions and cycles, governmental changes and other factors beyond our control could also affect our suppliers’ ability to deliver components to us on a timely basis or cause us to terminate our relationship with them and require us to find replacements, which we may have difficulty doing. Furthermore, if we experience significant increased demand, or need to replace our existing suppliers, there can be no assurance that additional supplies of component parts will be available when required on terms that are favorable to us, at all, or that any supplier would allocate sufficient supplies to us in order to meet our requirements or fill our orders in a timely manner. The loss of any limited source supplier or the disruption in the supply of components from these suppliers could lead to delays in the deliveries of our battery products and systems to our customers, which could hurt our relationships with our customers and also materially adversely affect our business, prospects and operating results.

Tariffs imposed on lithium-ion batteries by the United States government or a resulting trade war could have a material adverse effect on our results of operations.

In 2018, the United States government announced tariffs on certain steel and aluminum products imported into the United States, which has led to reciprocal tariffs being imposed by the European Union and other governments on products imported from the United States. The United States government has implemented tariffs on goods imported from China, and additional tariffs on goods imported from China are under consideration.

The lithium-ion battery industry has been subjected to tariffs implemented by the United States government on goods imported from China. Although we are currently not conducting business in the United States, we plan to enter the U.S. market in the near future. Given that all of our lithium-ion batteries are manufactured in China, potential tariffs on lithium-ion batteries imported from China would increase our costs, require us to increase prices to our customers or, if we are unable to do so, result in lower gross margins on the products sold by us.

The trade war could have a significant adverse effect on world trade and the world economy, as well as on our results of operations. If governments in the jurisdictions where we conduct business impose tariffs on components imported by us from China, such tariffs could have a material adverse effect on our business and results of operations. 

Increases in costs, disruption of supply or shortage of raw materials, in particular lithium-ion phosphate cells, could harm our business.

We may experience increases in the costs or a sustained interruption in the supply or shortage of raw materials. Any such increase or supply interruption could materially negatively impact our business, prospects, financial condition and operating results. For instance, we are exposed to multiple risks relating to price fluctuations for lithium-iron phosphate cells.

These risks include:

The economic benefit of our energy storage systems to our customers depends on the cost of electricity available from alternative sources, including local electric utility companies, which cost structure is subject to change.

The economic benefit of our energy storage systems to our customers includes, among other things, the benefit of reducing such customer’s payments to the local electric utility company. The rates at which electricity is available from a customer’s local electric utility company is subject to change and any changes in such rates may affect the relative benefits of our energy storage systems. Further, the local electric utility may impose “departing load,” “standby” or other charges on our customers in connection with their acquisition of our energy storage systems, the amounts of which are outside of our control and which may have a material impact on the economic benefit of our energy storage systems to our customers. Changes in the rates offered by local electric utilities and/or in the applicability or amounts of charges and other fees imposed by such utilities on customers acquiring our energy storage systems could adversely affect the demand for our energy storage systems.

Additionally, the electricity produced by our energy storage systems is currently not cost competitive in some geographic markets, and we may be unable to reduce our costs to a level at which our energy storage systems would be competitive in such markets. As such, unless the cost of electricity in these markets rises or we are able to generate demand for our energy storage systems based on benefits other than electricity cost savings, our potential for growth may be limited.

If we fail to scale our business operations and otherwise manage future growth and adapt to new conditions effectively as we grow our company, we may not be able to produce, market, sell and service our products successfully.

Any failure to manage our growth effectively could materially and adversely affect our business, prospects, operating results and financial condition. Our future operating results depend to a large extent on our ability to manage our expansion and growth successfully. We may not be successful in undertaking this expansion if we are unable to control expenses and avoid cost overruns and other unexpected operating costs; adapt our products and conduct our operations to meet local requirements; implement the required infrastructure, systems and processes; and find and hire the right skills to make our growth successful.

If we are unable to achieve our targeted manufacturing costs for our energy storage products, our financial condition and operating results will suffer.

There is no guarantee we will be able to achieve sufficient cost savings to reach our gross margin and profitability goals. We may also incur substantial costs or cost overruns in utilizing and increasing the production capability of our energy storage system facilities.

If we are unable to achieve production cost targets on our products pursuant to our plans, we may not be able to meet our gross margin and other financial targets. Many of the factors that impact our manufacturing costs are beyond our control, such as potential increases in the costs of our materials and components, such as lithium iron phosphate, nickel and other components of our battery cells. If we are unable to continue to control and reduce our manufacturing costs, our operating results, business and prospects will be harmed.

We may need to raise additional capital or financing after our initial public offering to continue to execute and expand our business.

While we expect that our available cash, credit facilities, and the expected net proceeds from our initial public offering will be sufficient to sustain our operations for the next twelve months from the date of this report, we may need to raise additional capital after our initial public offering to support our operations and execute on our business plan. We may be required to pursue sources of additional capital through various means, including joint venture projects, sale and leasing arrangements, and debt or equity financings. Any new securities that we may issue in the future may be sold on terms more favorable for our new investors than the terms of our initial public offering. Newly issued securities may include preferences, superior voting rights, and the issuance of warrants or other convertible securities that will have additional dilutive effects. We cannot assure that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition and results of operations. Our ability to obtain needed financing may be impaired by such factors as the weakness of capital markets, and the fact that we have not been profitable, which could impact the availability and cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, we may have to reduce our operations accordingly. 

While we have not made material acquisitions to date, should we pursue acquisitions in the future, we would be subject to risks associated with acquisitions.

We may acquire additional assets, products, technologies or businesses that are complementary to our existing business. The process of identifying and consummating acquisitions and the subsequent integration of new assets and businesses into our own business would require attention from management and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on its operations. Acquired assets or businesses may not generate the expected financial results. Acquisitions could also result in the use of cash, potentially dilutive issuances of equity securities, the occurrence of goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential unknown liabilities of the acquired business.

Our business will be adversely affected if we are unable to protect our intellectual property rights from unauthorized use or infringement by third parties.

Any failure to protect our proprietary rights adequately could result in our competitors offering similar products, potentially resulting in the loss of some of our competitive advantage and a decrease in our revenue, which would adversely affect our business, prospects, financial condition and operating results. Our success depends, at least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination of patents, patent applications, trade secrets, including know-how, employee and third-party nondisclosure agreements, copyright laws, trademarks, intellectual property licenses and other contractual rights to establish and protect our proprietary rights in our technology.

The protection provided by the patent laws is and will be important to our future opportunities. However, such patents and agreements and various other measures we take to protect our intellectual property from use by others may not be effective for various reasons, including the following:

Our patent application may not result in issued patents, which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours.

Turbo Energy, was granted with a patent in October 2023, for one of its software developments that allows it to position its product, SunBox, among the most innovative residential photovoltaic equipment on the market. We have filed another two patent applications before the Spanish Patent and Trademark Office. Our patent applications may not result in issued patents, which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours.

We cannot be certain that we are the first creator of inventions covered by pending patent applications or the first to file patent applications on these inventions, nor can we be certain that our pending patent applications will result in issued patents or that any of our issued patents will afford protection against a competitor. In addition, patent applications that we intend to file in different countries are subject to different laws, rules and procedures, and thus we cannot be certain that our patent applications will be issued. In addition, some countries provide significantly less effective patent enforcement than others, such as the United States.

The status of patents involves complex legal and factual questions and the breadth of claims allowed is uncertain. As a result, we cannot be certain that the patent applications that we file will result in patents being issued, or that our patents and any patents that may be issued to us in the near future will afford protection against competitors with similar technology. In addition, patents issued to us may be infringed upon or designed around by others and others may obtain patents that we need to license or design around, either of which would increase costs and may adversely affect our business, prospects, financial condition and operating results.  

We rely on trade secret protections through confidentiality agreements with our employees, customers and other parties; the breach of such agreements could adversely affect our business and results of operations.

We rely on trade secrets, which we seek to protect, in part, through confidentiality and non-disclosure agreements with our employees, customers and other parties. There can be no assurance that these agreements will not be breached, that we would have adequate remedies for any such breach or that our trade secrets will not otherwise become known to or independently developed by competitors. To the extent that consultants, key employees or other third parties apply technological information independently developed by them or by others to our proposed projects, disputes may arise as to the proprietary rights to such information that may not be resolved in our favor. We may be involved from time to time in litigation to determine the enforceability, scope and validity of our proprietary rights. Any such litigation could result in substantial cost and diversion of effort by our management and technical personnel.

If we are unable to recruit and retain key management, technical and sales personnel, our business would be negatively affected.

For our business to be successful, we need to attract and retain highly qualified technical, management and sales personnel. The failure to recruit additional key personnel when needed with specific qualifications and on acceptable terms or to retain good relationships with our partners might impede our ability to continue to develop, commercialize and sell our products. To the extent the demand for skilled personnel exceeds supply, we could experience higher labor, recruiting and training costs in order to attract and retain such employees. We face competition for qualified personnel from other companies with significantly more resources available to them and thus may not be able to attract the level of personnel needed for our business to succeed.

We may be required to obtain the approval of various government agencies to market our products.

Our products are subject to product safety regulations by numerus governmental organizations. Accordingly, we may be required, or may voluntarily determine to, obtain approval of our products from one or more of the organizations engaged in regulating product safety. These approvals could require significant time and resources from our technical staff, and, if redesign were necessary, could result in a delay in the introduction of our products in various markets and applications. There can be no assurance that we will obtain any or all of the approvals that may be required to market our products.

We may face significant costs relating to environmental regulations for the storage and shipment of our lithium-ion batteries and inverters.

We operate our business globally. Various governmental regulations impose significant environmental requirements on the manufacture, storage, transportation, and disposal of various components of advanced energy storage systems. Although we believe that our operations are in material compliance with applicable environmental regulations, there can be no assurance that changes in such laws and regulations will not impose costly compliance requirements on us or otherwise subject us to future liabilities. Moreover, governments may enact additional regulations relating to the manufacture, storage, transportation, and disposal of components of advanced energy storage systems. Compliance with such additional regulations could require us to devote significant time and resources and could adversely affect demand for our products. There can be no assurance that additional or modified regulations relating to the manufacture, storage, transportation, and disposal of components of advanced energy systems will not be imposed.

Natural disasters, public health crises, political crises and other catastrophic events or other events outside of our control may adversely affect our business.

Any natural disaster related disruptions or other events outside of our control could affect our business negatively, harming our operating results. In addition, if our facilities, or the facilities of our suppliers, third-party service providers or customers, is affected by natural disasters, such as earthquakes, tsunamis, power shortages or outages, floods or monsoons, public health crises, such as pandemics and epidemics, political crises, such as terrorism, war, political instability or other conflict, or other events outside of our control, our business and operating results could suffer. Moreover, these types of events could negatively impact consumer spending in the impacted regions or, depending upon the severity, globally, which could adversely impact our operating results. Similar disasters occurring at our vendors’ manufacturing facilities could impact our reputation and our consumers’ perception of our brands.  

If the current effective income tax rate payable by us in any country in which we operate is increased or if we lose any country-specific tax benefits, then our financial condition and results of operations may be adversely affected.

We conduct business in Andorra, Switzerland, Germany, Spain, France, UK, Greece, Croatia, Italy, Macau, Norway, Poland, Portugal, Romania, Slovakia, Uruguay and Morocco, and we file income tax returns in multiple jurisdictions. Our consolidated effective income tax rate could be materially adversely affected by several factors, including changes in the amount of income taxed by or allocated to the various jurisdictions in which we operate that have differing statutory tax rates; changing tax laws, regulations and interpretations of such tax laws in multiple jurisdictions; and the resolution of issues arising from tax audits or examinations and any related interest or penalties.

Any compromise of the cybersecurity of our platform could materially and adversely affect our business, operations and reputation.

Our products use cutting-edge technology through our proprietary software developments. Our existing software system and any new software systems we utilize may not perform as expected. If we experience a problem with the functioning of an important software system or a security breach of our information technology (IT) systems, including during system upgrades or new system implementations, the resulting disruptions could adversely affect the operation of our Turbo Energy App and our business,

Despite our implementation of reasonable security measures, our IT systems, like those of other companies, are vulnerable to damages from computer viruses, natural disasters, fire, power loss, telecommunications failures, personnel misconduct, human error, unauthorized access, physical or electronic security breaches, cyber-attacks (including malicious and destructive code, phishing attacks, ransomware, and denial of service attacks), and other similar disruptions. Such attacks or security breaches may be perpetrated by bad actors internally or externally (including computer hackers, persons involved with organized crime, or foreign state or foreign state-supported actors).

Cybersecurity is a risk that Umbrella Solar’s Board of Directors has identified as a key area to be addressed through collaboration with consulting firm at the group level. To this end, Turbo Energy has assigned responsibility for cybersecurity oversight to the IT manager, who works closely with an internal team and trusted local vendors. All parties with access to the management software suite have signed a corresponding confidentiality agreement, and information is not shared or accessible to any hardware supplier.

Furthermore, we are actively working to eliminate remote access to hardware data of suppliers involved in the manufacture of our products. We recognize the importance of ensuring the security and privacy of our systems and customer data, and we remain committed to implementing robust cybersecurity measures to mitigate potential risks.

Cybersecurity threat actors employ a wide variety of methods and techniques that are constantly evolving, increasingly sophisticated, and difficult to detect and successfully defend against. Any future incidents could expose us to claims, litigation, regulatory or other governmental investigations, administrative fines and potential liability. Any system failure, accident or security breach could result in disruptions to our operations. A material network breach in the security of our IT systems could include the theft of our trade secrets, customer information, human resources information or other confidential data, including but not limited to personally identifiable information. To the extent that any disruptions or security breach results in a loss or damage to our data, or an inappropriate disclosure of confidential, proprietary or customer information, it could cause significant damage to our reputation, affect our relationships with our customers and strategic partners, lead to claims against us from governments and private plaintiffs, and adversely affect our business. We cannot guarantee that future cyberattacks, if successful, will not have a material effect on our business or financial results.

Many governments have enacted laws requiring companies to provide notice of cyber incidents involving certain types of data, including personal data. If an actual or perceived cybersecurity breach of security measures, unauthorized access to our system or the systems of the third-party vendors that we rely upon, or any other cybersecurity threat occurs, we may incur liability, costs, or damages, contract termination, our reputation may be compromised, our ability to attract new customers could be negatively affected, and our business, financial condition, and results of operations could be materially and adversely affected. Any compromise of our security could also result in a violation of applicable security, privacy or data protection, consumer and other laws, regulatory or other governmental investigations, enforcement actions, and legal and financial exposure, including potential contractual liability. In addition, we may be required to incur significant costs to protect against and remediate damage caused by these disruptions or security breaches in the future. 

The ongoing military conflict in Ukraine and geopolitical instability globally may negatively affect our business and financial condition.

We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine. Our business may be materially adversely affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine or any other geopolitical tensions.

U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine. On February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported. Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions. We are continuing to monitor the situation in Ukraine and globally and assessing its potential impact on our business.

Governments in the United States and many other countries, or the Sanctioning Bodies, have imposed economic sanctions on certain Russian individuals, including politicians, and Russian corporate and banking entities. The Sanctioning Bodies, or others, could also institute broader sanctions on Russia. These sanctions, or even the threat of further sanctions, may result in the decline of the value and liquidity of Russian securities, a weakening of the ruble or other adverse consequences to the global economy.

The current war in Ukraine, and geopolitical events stemming from such conflicts, could cause consumer confidence and spending to decrease or result in increased volatility in the worldwide financial markets and economy. The extent and duration of the military action, resulting sanctions and resulting future market disruptions in the region are impossible to predict, but could be significant and have a severe adverse effect worldwide financial markets and economy.

Any of the abovementioned factors could adversely affect consumer demand, our business, financial condition, results of operations, liquidity and cash flows. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions may also magnify the impact of other risks described in this Item.

There has been no prior market for our ADSs and an active and liquid market for our ADSs may fail to develop, which could harm the market price of our ADSs.

Prior to our initial public offering, there has been no public market on a U.S. national securities exchange for our ADSs or ordinary shares. Although our ADSs have started trading on the Nasdaq Capital Market, a liquid public market for our ADSs may not develop. The initial public offering price for our ADSs has been determined by negotiation between us and the underwriters based upon several factors, including prevailing market conditions, our historical performance, estimates of our business potential and earnings prospects, and the market valuations of similar companies. The price at which the ADSs are traded after the initial public offering may decline below the initial public offering price, meaning that you may experience a decrease in the value of your ADSs regardless of our operating performance or prospects.  

We are a Spanish corporation, and it may be difficult to enforce judgments against us in U.S. domestic courts.

We are a corporation organized under the laws of the Kingdom of Spain and substantially all of our assets are located outside the United States. Virtually all of our assets and a substantial portion of our current business operations are conducted in Spain. In addition, almost all of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for U.S. shareholders to serve process within the United States upon us or to enforce judgment upon us for civil liabilities in U.S. courts. In addition, you should not assume that courts in the countries in which we are incorporated or where our assets are located (1) would enforce judgments of U.S. courts obtained in actions against us based upon the civil liability provisions of applicable U.S. federal and state securities laws or (2) would enforce, in original actions, liabilities against us based upon these laws.

The deposit agreement provides that any legal action may only be instituted in a state or federal court in the city of New York, which may result in holders of our ADSs or ordinary shares having limited choice of forum and limited ability to obtain a favorable judicial forum for complaints against us or our respective directors, officers or employees.

The deposit agreement, the ADRs and the ADSs will be interpreted in accordance with the laws of the State of New York. The rights of holders of ordinary shares (including ordinary shares represented by ADSs) are governed by the laws of the Kingdom of Spain. As an owner of ADSs, you irrevocably agree that any legal action arising out of the Deposit Agreement, the ADSs or the ADRs, involving the Company or the Depositary, may only be instituted in a state or federal court in the city of New York.

This choice of forum provision may increase cost for the holders of our ADSs or ordinary shares and limit their ability to bring a claim in a judicial forum that they find favorable for disputes with us, the depositary or the depositary’s respective directors, officers or employees, which may discourage such lawsuits against us, the depositary and the depositary’s respective directors, officers or employees. However, it is possible that a court could find either choice of forum provision to be inapplicable or unenforceable. The enforceability of similar choice of forum provisions has been challenged in legal proceedings. It is possible that a court could find this type of provision to be inapplicable or unenforceable.

To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, actions by holders of our ADSs or ordinary shares to enforce any duty or liability created by the Exchange Act, the Securities Act or the respective rules and regulations thereunder must be brought in a federal court in the city of New York. Holders of our ADSs or ordinary shares will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder. In addition, because substantially all of our assets are located outside the United States and almost all of our directors and officers are nationals and residents of countries other than the United States, courts in the countries in which we are incorporated or where our assets are located may not enforce judgments of U.S. courts obtained in actions against us based upon the civil liability provisions of applicable U.S. federal and state securities laws.

The deposit agreement waives holders of our ADSs’ right to jury trial in any legal proceeding arising out of the deposit agreement or the ADRs against us and/or the depository, which could result in less favorable outcomes to the plaintiffs in any of such actions.

The deposit agreement provides that, to the extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our ordinary shares, the ADSs or the deposit agreement, including any claim under U.S. federal securities laws. If we or the depositary oppose a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable on the facts and circumstances of that case in accordance with applicable case law. However, you will not be deemed, by agreeing to the terms of the deposit agreement, to have waived our or the depositary’s compliance with U.S. federal securities laws and the rules and regulations promulgated thereunder.

To our knowledge, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, by a federal or state court in the City of New York, which has exclusive jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial.

This jury trial waiver provision can discourage claims or limit shareholders’ ability to bring a claim in a judicial forum that they find favorable. If any holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, such holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and the depositary. If a lawsuit is brought against either or both of us and the depositary under the deposit agreement in New York, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in increasing costs of bringing a claim and having limited access to information and other imbalances of resources between us and the depositary and the claimant. A case that is only heard by a judge or justice of the applicable trial court may result in different outcomes than a trial heard by jury would have. Nevertheless, if this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with U.S. federal securities laws and the rules and regulations promulgated thereunder.

The form of Representative’s Warrant provides that any legal action may only be instituted in a state or federal court in the city of New York, New York, which may result in holders of the Representative’s Warrant having limited choice of forum and limited ability to obtain a favorable judicial forum for complaints against us or our respective directors, officers or employees.

The form of Representative’s Warrant will be interpreted in accordance with the laws of the State of New York. Holders of the Representative’s Warrant are irrevocably agreeing that any legal action arising out of the Representative’s Warrant involving the Company may only be instituted in a state or federal court in the city of New York.

This choice of forum provision may increase costs for the holders of the Representative’s Warrant and limit their ability to bring a claim in a judicial forum that they find favorable for disputes with us, which may discourage such lawsuits against us. However, it is possible that a court could find the choice of forum provision to be inapplicable or unenforceable. To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, actions by holders of the Representative’s Warrant to enforce any duty or liability created by the Exchange Act, the Securities Act or the respective rules and regulations thereunder must be brought in a federal court in the city of New York. Holders of the Representative’s Warrant will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder. In addition, because substantially all of our assets are located outside the United States and almost all of our directors and officers are nationals and residents of countries other than the United States, courts in the countries in which we are incorporated or where our assets are located may not enforce judgments of U.S. courts obtained in actions against us based upon the civil liability provisions of applicable U.S. federal and state securities laws.

We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.

Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:

We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our financial results on a semi-annual basis as press releases, distributed pursuant to the rules and regulations of Nasdaq Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.

As a foreign private issuer, we are permitted to rely on exemptions from certain Nasdaq corporate governance standards applicable to domestic U.S. issuers. This may afford less protection to holders of our shares.

We are exempted from certain corporate governance requirements of Nasdaq by virtue of being a foreign private issuer. As a foreign private issuer, we are permitted to follow the governance practices of our home country in lieu of certain corporate governance requirements of Nasdaq. As result, the standards applicable to us are considerably different than the standards applied to domestic U.S. issuers. For instance, we are not required to:

Although we do not currently intend to rely these “home country” exemptions, we may rely on some of these exemptions in the future. As a result, our shareholders may not be provided with the benefits of certain corporate governance requirements of Nasdaq.

Mr. Enrique Selva Bellvis, our Chairman of the Board, currently owns a majority of our outstanding ordinary shares. As a result, he has the ability to approve all matters submitted to our shareholders for approval.

Mr. Enrique Selva Bellvis, our Chairman of the Board, currently owns approximately 71.22% of our outstanding ordinary shares as date of this annual report. He therefore may have the ability to approve all matters submitted to our shareholders for approval including:

In addition, this concentration of ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our share price or prevent our shareholders from realizing a premium over our share price.

We qualify as a “controlled company” under Nasdaq corporate governance rules and we may be exempt from certain corporate governance requirements that could adversely affect our public shareholders.

Since Mr. Enrique Selva Bellvis, our Chairman of the Board, is the beneficial owner of a majority of the voting power of our issued and outstanding share capital following, we qualify as a “controlled company” under the Nasdaq Stock Market Rules. Under these rules a company of which more than 50% of the voting power is held by an individual, group or another company is a controlled company and may elect not to comply with certain corporate governance requirements, including the requirement that a majority of our directors be independent, as defined in the Nasdaq Stock Market Rules, and the requirement that our compensation and nominating and corporate governance committees consist entirely of independent directors. A “controlled company” may elect not to comply with certain corporate governance requirements, including, without limitation (i) the requirement that a majority of the board of directors consist of independent directors, (ii) the requirement that the compensation of our officers be determined or recommended to our board of directors by a Compensation Committee that is comprised solely of independent directors, and (iii) the requirement that director nominees be selected or recommended to the board of directors by a majority of independent directors or a Nominating and Corporate Governance Committee comprised solely of independent directors. Currently, we rely on the “controlled company” exemption. Since we elect to rely on the “controlled company” exemption, a majority of the members of our board of directors are not independent directors and our Nominating and Corporate Governance Committee and Compensation Committees do not consist entirely of independent directors. Our status as a controlled company could cause our Securities to look less attractive to certain investors or otherwise harm our trading price.

We will be subject to ongoing public reporting requirements that are less rigorous than Exchange Act rules for companies that are not emerging growth companies and our shareholders could receive less information than they might expect to receive from more mature public companies.

We qualify as an “emerging growth company” under the JOBS Act. As a result, we will be permitted to, and intend to, rely on exemptions from certain disclosure requirements. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company’s internal control over financial reporting. In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year during which we have total annual gross revenues of at least $1.235 billion; (ii) the last day of our fiscal year following the fifth anniversary of the completion of our initial public offering; (iii) the date on which we have, during the preceding three year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act, which could occur if the market value of our securities that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.

Because we will be subject to ongoing public reporting requirements that are less rigorous than Exchange Act rules for companies that are not emerging growth companies, our shareholders could receive less information than they might expect to receive from more mature public companies. We cannot predict if investors will find our securities less attractive if we elect to rely on these exemptions, or if taking advantage of these exemptions would result in less active trading or more volatility in the price of our securities.  

Future issuances of our ADSs or ordinary shares or securities convertible into, or exercisable or exchangeable for, our ordinary shares, or the expiration of lock-up agreements that restrict the issuance of new ADSs or ordinary shares or the trading of outstanding ADSs or ordinary shares, could cause the market price of our ADS to decline and would result in the dilution of your holdings.

Future issuances of our ADSs or ordinary shares or securities convertible into, or exercisable or exchangeable for, our ordinary shares, or the expiration of lock-up agreements that restrict the issuance of new ADSs or ordinary shares or the trading of outstanding ADS or ordinary shares, could cause the market price of our ADSs to decline. We cannot predict the effect, if any, of future issuances of our securities, or the future expirations of lock-up agreements, on the price of our ADSs. In all events, future issuances of our ADSs or ordinary shares would result in the dilution of your holdings. In addition, the perception that new issuances of our securities could occur, or the perception that locked-up parties will sell their securities when the lock-ups expire, could adversely affect the market price of our ADSs. In connection with our initial public offering, we, all of our directors and officers and certain of our shareholders have entered into lock-up agreements with the underwriters, pursuant to which we and they have agreed with the underwriters, subject to certain exceptions, not to sell, transfer or dispose of, directly or indirectly, any of our ADSs or ordinary shares or securities convertible into or exercisable or exchangeable for our ordinary shares for a period of (i) 180 days after the closing of our initial public offering in the case of our company, (ii) 12 months after the closing of our initial public offering in the case of our directors and officers, and (iii) 180 days after the closing of our initial public offering in the case of our shareholders, as further described in the section titled “Underwriting.” In addition to any adverse effects that may arise upon the expiration of these lock-up agreements, the lock-up provisions in these agreements may be waived, at any time and without notice. If the restrictions under the lock-up agreements are waived, our ordinary shares may become available for resale, subject to applicable law, including without notice, which could reduce the market price for our ADSs.

Future issuances of debt securities, which would rank senior to our ADSs and ordinary shares upon our bankruptcy or liquidation, and future issuances of preferred shares, which could rank senior to our ADSs and ordinary shares for the purposes of dividends and liquidating distributions, may adversely affect the level of return you may be able to achieve from an investment in our ADSs.

In the future, we may attempt to increase our capital resources by offering debt securities. Upon bankruptcy or liquidation, holders of our debt securities, and lenders with respect to other borrowings we may make, would receive distributions of our available assets prior to any distributions being made to holders of our ADSs or ordinary shares. Moreover, if we issue preferred shares, the holders of such preferred shares could be entitled to preferences over holders of ADSs and ordinary shares in respect of the payment of dividends and the payment of liquidating distributions. Because our decision to issue debt or preferred shares in any future offering, or borrow money from lenders, will depend in part on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any such future offerings or borrowings. Holders of our ADSs must bear the risk that any future offerings we conduct or borrowings we make may adversely affect the level of return, if any, they may be able to achieve from an investment in our ADSs.

There is a risk that we will be a passive foreign investment company for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. investors in our shares.

In general, a non-U.S. corporation is a passive foreign investment company, or PFIC, for any taxable year in which (i) 75% or more of its gross income consists of passive income or (ii) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income. For purposes of the above calculations, a non-U.S. corporation that owns at least 25% by value of the shares of another corporation is treated as if it held its proportionate share of the assets of the other corporation and received directly its proportionate share of the income of the other corporation. Passive income generally includes dividends, interest, rents, royalties and certain gains. Cash is a passive asset for these purposes.

Based on the expected composition of our income and assets and the value of our assets, including goodwill, which is based on the expected price of the shares in our initial public offering, we do not expect to be a PFIC for our current taxable year. However, the proper application of the PFIC rules to a company with a business such as ours is not entirely clear. Because the proper characterization of certain components of our income and assets is not entirely clear, because we will hold a substantial amount of cash following our initial public offering, and because our PFIC status for any taxable year will depend on the composition of our income and assets and the value of our assets from time to time (which may be determined, in part, by reference to the market price of our shares, which could be volatile), there can be no assurance that we will not be a PFIC for our current taxable year or any future taxable year.

If we were a PFIC for any taxable year during which a U.S. investor holds shares, certain adverse U.S. federal income tax consequences could apply to such U.S. investor. See “Material Income Tax Considerations—U.S. Federal Income Taxation Considerations—Passive Foreign Investment Company Consequences” for additional information.

We have broad discretion in the use of our cash and cash equivalents, including the net proceeds we received in our initial public offering, and may not use them effectively.

We intend to use the proceeds from our initial public offering for our international growth, which will include staffing, marketing, new product development and necessary working capital. Our management has broad discretion to use our cash and cash equivalents, including the net proceeds we received from our initial public offering, to fund our operations and could spend these funds in ways that do not improve our results of operations or enhance the value of our ordinary shares. You will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of our initial public offering.

The net proceeds may be used for corporate or other purposes with which you do not agree or that do not improve our profitability or increase our share price. The net proceeds from our initial public offering may also be placed in investments that do not produce income or that lose value. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our ordinary shares to decline.

The market price of our ADSs may fluctuate, and you could lose all or part of your investment.

The market price for our ADSs is likely to be volatile, in part because our shares have not been traded on a U.S. national securities exchange. In addition, the market price of our ADSs may fluctuate significantly in response to several factors, most of which we cannot control, including:

The public offering price of our ADSs has been determined by negotiations between us and the underwriters based upon many factors and may not be indicative of prices that will prevail following the closing of our initial public offering. Volatility in the market price of our ADSs may prevent investors from being able to sell their ADSs at or above the initial public offering price. As a result, you may suffer a loss on your investment.

If securities analysts do not publish research or reports about the our business or if they downgrade the our stock or our sector, our stock price and trading volume could decline.

The trading market for our American Depositary Share relies in part on the research and reports that industry or financial analysts publish about our Company or our business. We do not control these analysts. In addition, some financial analysts may have limited expertise with our model and operations. Furthermore, if one or more of the analysts who do cover the Company downgrade its stock or industry, or the stock of any of its competitors, or publish inaccurate or unfavorable research about its business, the price of our ordinary shares could decline. If one or more of these analysts ceases coverage of the Company or fails to publish reports on it regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.  

We may not be able to satisfy listing requirements of the Nasdaq Capital Market to maintain the listing of our ADSs.

We must meet certain financial and liquidity criteria to maintain the listing of our ADSs. If we violate Nasdaq listing requirements, our ADSs may be delisted. If we fail to meet any of Nasdaq’s listing standards, our ADSs may be delisted. In addition, our board of directors may determine that the cost of maintaining our listing on a U.S. national securities exchange outweighs the benefits of such listing. A delisting of our ADSs may materially impair our shareholders’ ability to buy and sell our ADSs and could have an adverse effect on the market price of, and the efficiency of the trading market for, our ADSs. The delisting of our ADSs could significantly impair our ability to raise capital and the value of your investment.

Purchasers of ADSs will not be directly holding our ordinary shares.

A holder of ADSs will not be treated as one of our shareholders and will not have direct shareholder rights. Our constitution and Spanish law govern our shareholder rights. The depositary, through the custodian or the custodian’s nominee, will be the holder of the ordinary shares underlying ADSs held by purchasers of ADSs in our initial public offering. Purchasers of ADSs in our initial public offering have ADS holder rights. The deposit agreement among us, the depositary and purchasers of ADSs in our initial public offering, as an ADS holder, and all other persons directly and indirectly holding ADSs, sets out ADS holder rights, as well as the rights and obligations of us and the depositary.

Your right as a holder of ADSs to participate in any future preferential subscription rights offering or to elect to receive dividends in ordinary shares may be limited, which may cause dilution to your holdings.

The deposit agreement provides that the depositary will not make rights available to you unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act or exempted from registration under the Securities Act. If we offer holders of our ordinary shares the option to receive dividends in either cash or shares, under the deposit agreement the depositary may require satisfactory assurances from us that extending the offer to holders of ADSs does not require registration of any securities under the Securities Act before making the option available to holders of ADSs. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, ADS holders may be unable to participate in our rights offerings or to elect to receive dividends in shares and may experience dilution in their holdings. In addition, if the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case you will receive no value for these rights.

You may not be able to exercise your right to vote the ordinary shares underlying your ADSs.

Holders of ADSs may exercise voting rights with respect to the ordinary shares represented by the ADSs only in accordance with the provisions of the deposit agreement. The deposit agreement provides that, upon receipt of notice of any meeting of holders of our ordinary shares, the depositary will fix a record date for the determination of ADS holders who shall be entitled to give instructions for the exercise of voting rights. Upon timely receipt of notice from us, if we so request, the depositary shall distribute to the holders as of the record date (i) the notice of the meeting or solicitation of consent or proxy sent by us and (ii) a statement as to the manner in which instructions may be given by the holders.

You may instruct the depositary to vote the ordinary shares underlying your ADSs. Otherwise, you will not be able to exercise your right to vote, unless you withdraw the ordinary shares underlying the ADSs you hold. However, you may not know about the meeting far enough in advance to withdraw those ordinary shares. If we ask for your instructions, the depositary, upon timely notice from us, will notify you of the upcoming vote and arrange to deliver our voting materials to you and will try to vote ordinary shares as you instruct. We cannot guarantee you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your ordinary shares or to withdraw your ordinary shares so that you can vote them yourself. If we do not ask for your instructions, you can still send voting instructions to the depository and the depository may try to carry out those instructions, but it is not required to do so.

You may be subject to limitations on the transfer of your ADSs and the withdrawal of the underlying ordinary shares.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of your ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary think it is advisable to do so because of any requirement of law, government or governmental body, or under any provision of the deposit agreement, or for any other reason subject to your right to surrender your ADSs and receive the underlying ordinary shares. Temporary delays in the surrendering of your ADSs and receipt of the underlying ordinary shares may arise because the depositary has closed its transfer books or we have closed our transfer books, the transfer of ordinary shares is blocked to permit voting at a shareholders’ meeting or we are paying a dividend on our ordinary shares. In addition, you may not be able to surrender your ADSs and receive the underlying ordinary shares when you owe money for fees, taxes and similar charges and when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of ordinary shares or other deposited securities. See “Description of American Depositary Shares” for more information. 

Holders of ADSs are not treated as holders of our ordinary shares. 

By participating in our initial public offering, you will become a holder of ADSs with underlying ordinary shares in a Spanish company. Holders of ADSs are not treated as holders of our ordinary shares, unless they surrender the ADSs to receive the ordinary shares underlying their ADSs in accordance with the deposit agreement and applicable laws and regulations. The depositary is the holder of the ordinary shares underlying the ADSs. Holders of ADSs therefore do not have any rights as holders of our ordinary shares, other than the rights that they have pursuant to the deposit agreement. See Exhibit 2.1 Description of American Depositary Shares for more information. 

We do not expect to declare or pay dividends in the foreseeable future.

We do not expect to declare or pay dividends in the foreseeable future, as we anticipate that we will invest future earnings in the development and growth of our business. Therefore, holders of our ADSs will not receive any return on their investment unless they sell their securities, and holders may be unable to sell their securities on favorable terms or at all.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the price of the ADSs and their trading volume could decline.

The trading market for the ADSs depends in part on the research and reports that securities or industry analysts publish about us or our business. If fewer securities or industry analysts cover our company, the trading price for the ADSs could be negatively impacted. If one or more of the analysts who cover us downgrades our equity securities or publishes incorrect or unfavorable research about our business, the price of the ADSs would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, or downgrades our securities, demand for the ADSs could decrease, which could cause the price of the ADSs or their trading volume to decline.

U.S. investors may have difficulty enforcing civil liabilities against our company, our directors or members of senior management and the experts.

Certain members of our senior management and board of directors are non-residents of the United States, and a substantial portion of the assets of such persons are located outside the United States. As a result, it may be impracticable to serve process on such persons in the United States or to enforce judgments obtained in U.S. courts against them based on civil liability provisions of the securities laws of the United States. Even if you are successful in bringing such an action, there is doubt as to whether Spanish courts would enforce certain civil liabilities under U.S. securities laws in original actions or judgments of U.S. courts based upon these civil liability provisions. In addition, awards of punitive damages in actions brought in the United States or elsewhere may be unenforceable in Spain or elsewhere outside the United States. An award for monetary damages under U.S. securities laws would be considered punitive if it does not seek to compensate the claimant for loss or damage suffered and is intended to punish the defendant. The enforceability of any judgment in Spain will depend on the particular facts of the case as well as the laws and treaties in effect at the time. The United States and Spain do not currently have a treaty or statute providing for recognition and enforcement of the judgments of the other country (other than arbitration awards) in civil and commercial matters.

As a result, our U.S. public shareholders may have more difficulty in protecting their interests through actions against us, our management or our directors than would shareholders of a corporation incorporated in a jurisdiction in the United States.

There is a risk that we will be a passive foreign investment company for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. investors in our securities.

In general, a non-U.S. corporation is a passive foreign investment company, or PFIC, for any taxable year in which (i) 75% or more of its gross income consists of passive income or (ii) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income. For purposes of the above calculations, a non-U.S. corporation that owns at least 25% by value of the shares of another corporation is treated as if it held its proportionate share of the assets of the other corporation and received directly its proportionate share of the income of the other corporation. Passive income generally includes dividends, interest, rents, royalties and certain gains. Cash is a passive asset for these purposes.

Based on the expected composition of our income and assets and the value of our assets, including goodwill, and the price of the ADSs in our initial public offering, we do not expect to be a PFIC for our current taxable year. However, the proper application of the PFIC rules to a company with a business such as ours is not entirely clear. Because the proper characterization of certain components of our income and assets is not entirely clear, because we hold a substantial amount of cash following our initial public offering, and because our PFIC status for any taxable year will depend on the composition of our income and assets and the value of our assets from time to time (which may be determined, in part, by reference to the market price of our shares, which could be volatile), there can be no assurance that we will not be a PFIC for our current taxable year or any future taxable year.

If we were a PFIC for any taxable year during which a U.S. investor holds ADSs, certain adverse U.S. federal income tax consequences could apply to such U.S. investor.

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

General Information

Our business operations are located in Spain. Our registered office and principal executive office is located at Street Isabel la Católica, 8, Door 51, Valencia, Spain, 46004.

Our agent for service of process in the United States is Cogency Global Inc., located at 122 East 42nd Street, 18th Floor, New York, N.Y. 10168.

Our website can be found at https://www.turbo-e.com/language/en/. The information contained on our website is not a part of this report, nor is such content incorporated by reference herein, and should not be relied upon in determining whether to make an investment in our Securities. 

Corporate History

Turbo Energy, S.A. was incorporated under the name of Distritech Solutions S.L. on September 18, 2013 under the laws of the Kingdom of Spain. The company then changed its name to Solar Rocket S.L. on October 7, 2013. On April 8, 2021, Solar Rocket S.L. merged with a Spanish corporation Turbo Energy S.L.U. Turbo Energy S.L.U then became a wholly owned subsidiary of Solar Rocket S.L. This merger was approved by the Board of Directors of both companies. Following the merger, the company changed its name to Turbo Energy S.L. on April 8, 2021. On February 8, 2023, we transformed the company from a Spanish unipersonal limited company to a Spanish limited stock company. As such, our company’s name was changed to Turbo Energy S.A. During December 2022, we issued 50,000,000 shares (pre-stock split: 2,500,000 shares) of common stock for proceed of €2,500,000, to our parent company, who is also our sole shareholder. Pursuant to the deed of transformation and a concurrent forward stock split of the issued and outstanding ordinary shares on a 20-for-1 basis, we increased our authorized share capital from 2,504,285 ordinary shares to 50,085,700 ordinary shares.

Upon incorporation in September 2013, Turbo Energy, then known as Distritech Solutions S.L., issued 3,000 ordinary shares to Mr. Enrique Selva Bellvís. On November 29, 2013, Mr. Bellvís sold his 3,000 ordinary shares to Crocodile Investment S.L. through a public deed with protocol number 2,522. Crocodile Investment then sold 300 ordinary shares to Don Francisco de Borja Pellicer Lopez on March 06, 2015, and then Don Francisco de Borja Pellicer Lopez sold back the 300 ordinary shares to Crocodile Investment S.L. on June 08, 2015.

Crocodile Investment S.L. then sold 300 ordinary shares to Don Manuel Cercós D´Aversa on July 16, 2015 and 300 shares to Don Jose Jorge Alemany Monzó on the same day. On May 05, 2016, Don Jose Jorge Alemany Monzó sold his 300 shares back to Crocodile Investment S.L. through a public deed with protocol number 472.

On March 20, 2018, Crocodile Investment S.L. transferred 2,700 ordinary shares of Turbo Energy (previously named Solar Rocket S.L.) as a non-monetary contribution to the share capital of a newly formed company called Umbrella Solar Investment S.A. (previously named Umbrella Capital S.L.).

On February 11, 2021, Turbo Energy (previously Solar Rocket S.L.) increased its share capital by 1,285 ordinary shares through a public deed with protocol number 346. These new shares were subscribed by means of a non-monetary contribution of 3,000 shares of Turbo Energy S.L.U. by the shareholder, Umbrella Solar Investment S.A. (previously named Umbrella Capital S.L.).

On April 8, 2021, Solar Rocket S.L. (now Turbo Energy) absorbed Turbo Energy S.L.U, through a public deed of Notary of Valencia Vicente Tomas Bernat with protocol number 946.

On May 31, 2022, Don Manuel Cercós D´Aversa sold 300 ordinary shares to Umbrella Solar Investment S.A. through a public deed with protocol number 2.150. This made Turbo Energy a wholly owned subsidiary of Umbrella Solar Investment S.A.

On November 8, 2022, Turbo Energy S.A. with the purpose to develop a new business in the field of self-consumption of electricity, acquired the 100% of the ordinary shares of IM2 Energía Solar Proyecto 35 S.L.U., a company established under the laws of the Kingdom of Spain on August 1, 2019. Following the transaction, IM2 Energía Solar Proyecto 35 S.L.U. became our wholly owned subsidiary. On November 29, 2022, changed its name to Turbo Energy Solutions S.L.U. Since its incorporation this company has not had any activity.

On September 21, 2023, Turbo Energy, S.A. entered into an Underwriting Agreement with Titan Partners Group, a division of American Capital Partners, LLC, and Boustead Securities, LLC as the as the representative (“Representative”) of the underwriters named on Schedule 1 thereto, relating to the Company’s firm commitment underwritten initial public offering (the “Offering”) of ADSs, each representing five ordinary shares of the Company, par value five cents of euro per share, of the Company. Pursuant to the Underwriting Agreement, the Company agreed to sell 1,000,000 ADSs to the underwriters at a public offering price of $5.00 per ADS (the “Offering Price”), before underwriting discounts and commissions, and granted the Representative a 45-day over-allotment option to purchase up to an additional 150,000 ADSs, equivalent to 15% of the ADSs sold in the Offering, at the Offering Price per ADS, pursuant to the Company’s registration statement on Form F-1, as amended (File No. 333-273198), that was filed with the SEC and became effective on September 21, 2023, under the Securities Act of 1933, as amended (the “Securities Act”). The Offering was closed on September 26, 2023.

Corporate Structure   

The chart below presents our current corporate structure, as of the date of this report:

B. Business Overview

General

We design, develop, and distribute equipment for the generation, management, and storage of photovoltaic (PV) energy. Our energy storage products are managed, from the cloud and through the inverter of the installation, by an advanced software system which is optimized by artificial intelligence (“AI”). The key advantage is that our products, compared to conventional battery storage systems, reduce electricity bills and protect the installation from power outages.

We recently launched our flagship product, the Sunbox, an all-in-one device that integrates most of the equipment for a domestic photovoltaic installation. The Sunbox is powered by AI and features a software system that monitors the generation, use, and management of photovoltaic energy through the analysis of large amounts of data related to energy generation, consumption, market prices, and weather forecasts. This AI system optimizes battery usage, reducing electricity bills and providing peak shaving and uninterruptible power supply functions.

Currently, we primarily sell inverters, batteries, and photovoltaic modules to installers and other distributors for residential consumers located in Spain. In recent years, the company has started the sales process in several European countries, which has allowed, on the one hand, to improve detailed knowledge of the needs of those markets, and, on the other hand, to complete the product certification process in those countries. Likewise, in 2023 Turbo Energy launched the commercial and industrial (C&I) product range in Spain, significantly increasing the potential sales market. All this experience allows the company, currently, to embark on a rapid path of international commercial expansion. 

Turbo Energy is part of the Umbrella Solar Investment Group, whose main shareholder is Crocodile Investment, S.L.U, (hereinafter, the ultimate partner), with a registered office in Valencia. The majority shareholder of Turbo Energy, S.A is Umbrella Solar Investment, S.A (hereinafter, the majority shareholder), which is part of the Umbrella Solar Investment Group.

For the years ended December 31, 2023, 2022 and 2021, our total revenues were € 13,140,771 (approximately $ 14,536,321), € 31,148,676 and €17,154,621, respectively. Our total revenues decreased by € 18,007,905, or 58%, to € 13,140,771 (approximately $14,536,321) for the fiscal year ended December 31, 2023, compared to € 31,148,376 for the fiscal year ended December 31, 2022. Our total revenues increased by €13,994,055, or 82%, to €31,148,676 for the fiscal year ended December 31, 2022, compared to €17,154,621 for the fiscal year ended December 31, 2021.

For the years ended December 31, 2023, 2022 and 2021, our net income (loss) were €(2,013,788) (approximately $(2,227,651)), € 1,028,578 and € 267,222, respectively. Our net income (loss) increased by €(3,042,366), or 296% to €(2,013,788) (approximately $(2,227,651)) for the year ended December 31, 2023, compared to €1,028,578 for the year ended December 31, 2022.

Our net income increased by €761,356, or 285% to €1,028,578 for the year ended December 31, 2022, compared to €267,222 for the year ended December 31, 2021. The principal activities of the Company for the years ended December 31, 2023, 2022 and 2021 were acquisition, distribution and sale of electrical and electronic material for the development of renewable energy projects, such as solar panels, inverters, chargers, regulators, batteries and structures, among others. The Company designs, develops, and distributes equipment for the generation, management, and storage of photovoltaic energy. For additional information regarding our financial performance, see “Operating and Financial Review and Prospects.”

Industry

The renewable energy section will likely experience tremendous growth in the near future. The International Renewable Energy Agency (IRENA), analyzing the effects of the energy transition until 2050 in a recent study for the G20, found that over 80% of the world’s electricity could derive from renewable sources by that date. Solar photovoltaic (“PV”) and wind power would at that point account for 52% of total electricity generation.

Electricity storage will play a crucial role in transitioning to renewable energy by providing services throughout the electricity system value chain and into the end-use sectors, thus achieving sharp decarbonization in key segments of the energy market. Electricity storage capacity can reduce constraints on the transmission network and can defer the need for major infrastructure investment. This also applies to distribution, regardless of whether constraints reflect growth in renewables or a change in demand patterns. Behind-the-meter applications allow consumers to manage their bills, reduce peak demand charges and increase self-consumption from rooftop PV panels. Along with providing multiple services and user benefits, an electricity storage project can unlock multiple revenue streams from the provision of a range of services.

Solar and wind power still have limited impact on grid operations in today’s power system. However, as the share of variable renewable energy (“VRE”) rises, electricity systems will need not only more flexibility services, but also potentially a different mix that favors the rapid response capabilities of electricity storage. This key shift in system operation needs to be part of the energy planning process. Electricity systems already require a range of ancillary services to ensure smooth and reliable operation (Figure 1). Supply and demand need to be balanced in real time in order to ensure supply quality (e.g., maintaining constant voltage and frequency), avoid damage to electrical appliances and maintain supply to all users. All electricity systems require a degree of flexibility services, which allow grid operators to react to unexpected changes in demand or to the loss of large chunks of supply (e.g. large stations tripping offline, loss of an interconnection). Flexibility gives operators the tools to rapidly restore system equilibrium.

Figure 1: The range of services that can be provided by electricity storage:

As VRE grows to substantial level, electricity systems will require greater flexibility. When there is a significant amount of VRE, electricity will need to be stored over days, weeks or months. Electricity storage, therefore, can drive serious electricity decarbonization and help transform the whole energy sector by providing these essential services.

In the European and American solar energy storage battery market, QY Research Group identified a few market trends. First, the distribution of lithium ore as an important raw material for energy storage batteries is relative concentrated and is greatly affected by international trade situation and international relations. Recently, geopolitical tension has caused the cost to fluctuate violently. Second, the recent rapid growth of the energy storage battery market has drawn many other players to join the competition. Large companies such as Tesla and Sonnen have joined the race, and it is expected that market competition will become more intense. Third, industrial and commerce companies are significant consumers of electricity and solar energy storage batteries. Renewable Energy can help companies to reduce electricity cost and also help companies obtain environmental protection credits and tax relief. According to QY Research Group, the following three factors (Figure 2) are the main market drivers of the solar energy storage battery sector:

Figure 2. Solar Energy Storage Battery Market Drivers

Moreover, QY Research Group estimates that the European and American market size of Solar Energy Storage Battery will reach US$49.09 billion in 2028, with a CAGR of 46.12% from 2022 to 2028 (See Figure 3), and that all-in-one photovoltaic energy storage equipment will make up to 45.65% and 65.57% of the market share in Europe and America, respectively (See Figure 4).

Figure 3: Europe and America Solar Energy storage Battery Market 2023-2028

Figure 4: Europe and America Solar Energy Battery Market Share by Type in 2028

Our Products and Services

Turbo Energy sells products to carry out photovoltaic installations on a residential, commercial and industrial scale, dealing with the power and voltage needs.

Lithium-ion Batteries

As one of the leading companies that introduced lithium-ion batteries for photovoltaic energy storage in Spain, company’s batteries, primarily for the home energy storage market, have the capacities of 2.24 kWh, 2.4 kWh and 5.1 kWh in voltages of 24V and 48V. In 2022, a 3.6 kWh 48V version has been introduced and a substantial improvement in size of the 5.1 kWh 48V version, occupying half the volume of its predecessor and being one of the first companies on the market offering these dimensions and, to date, with the thinnest 2.4 kWh Lithium-Ion battery on the market. In addition, the 48V and 5.1 kWh also offer a dual battery system, the only proposal on the market that works in low and high voltage at the same time and is compatible with industrial scale projects.

For the years ended December 31, 2023, 2022 and 2021, revenues from Lithium-ion Batteries were €6,578,530 (approximately US$7,277,170), 17,703,487 and €8,967,620, respectively. Revenue from Batteries accounted for 50% of our total revenue for the year ended December 31, 2023, 57% of our total revenue for the year ended December 31, 2022, and 51% for the year ended December 31, 2021. We started to provide such services in September 2013.

The revenue from batteries decreased by €11,125,092, or 62,4%, to €6,578,530 (approximately US$7,277,170) for the year ended December 31, 2023, from €17,703,487 for the year ended December 31, 2022. Such decrease was primarily due to several factors, which are general causes of sales decline of Turbo, as in 2023, the Company’s sales growth path was halted due to the behavior of the global consumer market and, regarding Turbo Energy, particularly in the Spanish market, where Turbo is very dependent. In this country, sales in photovoltaic installations have decreased by 54% compared to the previous year due to various macroeconomic causes: the increase in the cost of money set by the European Central Bank, from negative or zero values up to 4.5%; The average drop in energy prices by 58%; and the high inflation of 8.4% in 2022, not accompanied by a wage update, which has reduced the purchasing power of citizens.

Our revenue from batteries increases by €8,967,620, or 103%, to €17,703,487 for the year ended December 31, 2022 from €8,735,867 for the year ended December 31, 2021. Such increase was primarily because we are mainly storage specialists. Due to the significant increase in the price of energy, as well as a greater consciousness of the people, storage through batteries has been one of our most demanded products.

Inverter

The inverter is the most crucial component in a photovoltaic system. It converts the direct current produced by the photovoltaic panels into alternating current that can be used by household appliances. The inverter also regulates the battery charging and discharging based on energy needs and optimizes the utilization of generated renewable energy. We are currently offering a 5-kW single-phase inverter and 10 kW three-phase versions that cover most household installations, especially when combined with the microinverters that complete the range (1.6 kW and 2 kW). Our proposal offers two unique features in the inverter market: First, an additional port that allows you to connect an external generator, microinverters to increase the nominal power of the installation, or a special household appliance; and Second, a back-up power for the home in the event of a power outage equivalent to the total nominal power of the inverter (the competition does not exceed 60% of the nominal power). 

For the years ended December 31, 2023, 2022 and 2021, our revenue from inverters were € 3,133,825 (approximately US$3,466,637), €7,902,258 and €2,911,950, respectively. Revenue from inverters accounted for 23.8% of our total revenue for the year ended December 31, 2023, 25% of our total revenue for the year ended December 31, 2022, and 17% for the year ended December 31, 2021. We started to provide such services in September 2013.

Our revenue from inverters decreased by €4,768,432, or 60.3%, to € 3,133,825 (approximately US$3,466,647) for the year ended December 31, 2023 from €7,902,258 for the year ended December 31, 2022. Such decrease was primarily due to the reduction in demand in Spain, caused by a series of external factors previously explained. Our revenue from inverters increases by €4,990,308, or 171%, to €7,902,258 for the year ended December 31, 2022 from €2,911,950 for the year ended December 31, 2021. Such increase was primarily due because we have been able to maintain a constant supply throughout the year while other competitors had problems. with stock-outs due to high demand. These are essential products for domestic photovoltaic installations.

All-in-one Sunbox Solutions

Our most innovative equipment is the all-in-one Sunbox, which incorporates the inverters and batteries and the rest of the components necessary to operate and protect the photovoltaic installation (not counting the photovoltaic modules that are housed on the roof of the home). This plug&play value proposition, which Turbo Energy launched on the market when there were still few alternatives, saves installation assembly and configuration time and avoids errors, even if the staff has less technical training, protecting installers and users from possible electrical accidents, while offering a more aesthetic finish than conventional battery solutions. Sunbox solutions have been designed so that their modularity offers simplicity and cost efficiency, both on a residential, commercial and industrial scale compared to the competition. Given the innovative nature of this product, the conception, design, manufacture of the exterior and structural part, and assembly of components are all completed in Spain, in order to protect the know-how. .  In 2023, Turbo Energy obtained the international patent it applied for its Sunbox version with an electric vehicle charger, and launched the commercial and industrial version, offering the market highly competitive features across a broad range of all-in-one photovoltaic products.

December 31, 2023, 2022 and 2021, our revenue from Sunbox were € 804,244 (approximately US$889,655), €939,578 and €160,488, respectively. Revenue from Sunbox home accounted for 6% of our total revenue for the year ended December 31, 2023, 3% of our total revenue for the year ended December 31, 2022, and 1% for the year ended December 31, 2021. We started to provide such services, in a very first versions, in 2021.

Our revenue from Sunbox decreased by €135,334, or 16%, to €804,244 (approximately US$889,655) for the year ended December 31, 2023 from € for the year ended December 31, 2022. Such decrease was primarily due to the reduction in demand in Spain as a result of the external factors mentioned previously. At the end of 2023 we have launched new versions of Sunbox, such as C&I, and expanded the sales channels and countries, an aspect that we expect to be noticed in the next months, as can be seen in the ongoing orders. Our revenue from Sunbox home increased by 779,090€, or 485%, to 939,578€ for the year ended December 31, 2022 from 160,488€ for the year ended December 31, 2021.

Photovoltaic Modules

For the years ended December 31, 2023, 2022 and 2021, our revenue from photovoltaic modules were €633,398 (approximately US$700,665), €3,439,980 and €4,623,197, respectively. Revenue from PV Modules accounted for 5% of our total revenue for the year ended December 31, 2023, 11% of our total revenue for the year ended December 31, 2022, and 27% for the year ended December 31, 2021. We started to provide such services in September 2013.

Our revenue from photovoltaic modules decreased by €2,806,582, or 443%, to €633,398 (approximately US$700,665) for the year ended December 31, 2023 from €3,439,980 for the year ended December 31, 2022. Such decrease was primarily due to several factors, as the sale of modules is no longer among the main products in Turbo Energy’s portfolio, and Turbo Energy intends to leave their sale as something marginal or complementary for the coming years. . Our revenue from photovoltaic modules decreases by €1,183,217, or 26%, to €3,439,980 for the year ended December 31, 2022 from €4,623,197 for the year ended December 31, 2021. Such decrease was primarily because in 2021 two projects were closed with the main supermarket chain and gas station company in Spain for photovoltaic installations in their stations. This resulted in a very significant sale of PV modules in 2021.

Portable Solution: Go Solar

The company launched in the last quarter of 2023, the smallest photovoltaic product. For the years ended December 31, 2023, 2022 and 2021, our revenue generated from Go Solar were €273,000 (approximately US$ 302,547), and 0 € for 2022 and 2021.Through the first sales agreement in the major retailers channel, It represent 2% of the company’s total sales this year.

Software System

The software system of our products is essential to the success of our business. The combination of state-of-the-art equipment, its integration into an all-in-one product, together with an AI that optimizes its operation, turns Turbo’s value proposition into a global energy solution with leadership potential in the solar self-consumption sector. In communication with our inverter, our software system monitors the energy flows between the photovoltaic modules, household consumption, storage and the electric vehicle (if an all-in-one EV charger is used). The software allows users to customize an automatic backup mode based on the prediction of a storm, or manually select which part of the battery will be reserved for possible power outages. It also allows the battery to be used as a peak shaving function, which allows savings to be generated by reducing the contracted power of the home or the industry.

The customization modes allow changes between maximum self-consumption and maximum savings and thereby reduce the electricity bill using the stored energy only when it offers the best economic profitability, as if the user had an energy financial advisor who manages all the technical and economic variables of the business. The software achieves its objective through machine learning algorithms and the analysis of thousands of data that lead to the generation of hourly patterns of consumer behavior and the solar generation plant. These results are crossed with weather forecasts and hourly energy prices to achieve optimization. It is the only system that can, through these forecasts, seek economical energy in the grid at any time of the day to top up the batteries when solar energy does not generate as many surpluses. Further, our software system gives users the option to charge their vehicles with clean energy only, or at the lowest price possible, or at maximum speed.

We believe that our energy management software, which governs the inverters and the Sunbox, is the most notable differentiating factor of our products compared to those of our competitors. While we co-design the hardware with our suppliers, we develop the management software entirely in-house. Specifically, the software is designed 100% in our offices and programmed with 75% internal personnel and 25% external Spanish personnel.

The software consists of a back-end that is hosted on Amazon cloud servers and communicates with applications installed on the user’s cell phones. Both the app and back-end communicate via Wi-Fi with the inverters or Sunbox installed in the house. All optimization algorithms and artificial intelligence are thus protected on our servers. By utilizing our own internal resources to develop and program the energy management software, we are able to offer a highly differentiated product to our customers.

Our software is currently free for users of Turbo Energy products. With the new functionalities that will be introduced, recurring revenues are expected from end users or the Major Retailers channel.

Our Operations

The operations of the company, exclusive of Product/Software Development and Marketing, encompass the various processes associated with individual PV system equipment. These processes include procurement, sea transportation from China to Valencia/Spain, storage at an external logistics warehouse in Valencia/Spain, and transportation from the logistics warehouse to the customer’s warehouse in Europe. These operations are integral to ensuring the timely and efficient delivery of equipment to customers.

As for the Sunbox product, which represents the company’s flagship offering, the processes differ somewhat from those described above. Initially, the components are transported from the enclosure supplier, located in Spain, to the logistics warehouse. From there, the components are transported to the assembly center in Valencia/Spain, where they are assembled into the final product. Finally, the fully assembled Sunbox is transported to the customer’s warehouse. Throughout each stage of the process, every effort is made to ensure the product is delivered to the customer in optimal condition and within the designated timeframe.

Turbo Energy’s operations have been developing for a long time, which has allowed for a good understanding of the processes and suppliers, their costs, and their alternatives. These are robust and scalable processes that currently provide good service and reduce costs as the company’s billing increases.

Our Product Markets

Until 2023, Turbo Energy was focused on the sale of residential products mainly in Spain through the distribution channel. After the successful launch of Sunbox, both the residential line in the Major retailers’ channel (large company with B2C sales), and the new C&I range, the company begins investing in resources that will increase sales in these new channels, both nationally and internationally.

Our Distribution Methods

Until 2023, Turbo Energy has focused on selling its products through Distributors who have an extensive reach to a large list of installers and marketers. The final contact with the end user is typically made by installers who handle sales, or by marketers who rely solely on installers for assembly and configuration.

This year, the company begins the work of selling through the major retailers channel (large companies with the capacity to invest in marketing and mass B2C contact), reaching agreements with several of them. It also initiates the first contacts with the industrial photovoltaic channel of EPC contractors (main channel for Sunbox C&I), and makes the first investments to sell B2C in Spain.

The goal for 2024 is to significantly increase sales through these new channels, both nationally and internationally.

Growth Strategy

Turbo Energy was founded with the purpose of improving storage technology for residential use. After developing its first product as a startup in the emerging lithium-ion technology in Spain, the company decided to develop an inverter (electronic equipment that transforms the electricity from the photovoltaic modules and controls the charging and discharging of the batteries associated with the installation) to technically complete the proposal.

This successful experience motivated Turbo Energy to keep on working to offer the end customer a complete energy solution. The company has added photovoltaic modules and other accessories, as well as software specifically designed for end-users. This software monitors energy consumption and adjusts the batteries intelligently to meet the needs of the home. A powerful AI system tracks photovoltaic generation, weather patterns, and energy market prices, using this information to minimize energy costs for the customer.

As energy plays a critical role in many aspects of daily life, such as electric vehicles, smart home devices, and air conditioning, Turbo Energy continues to invest in research and development to develop equipment, software, energy services, and untapped market niches to create a global energy platform centered around the customer’s needs.

SKN leverages vast amounts of data on home energy consumption, electric mobility needs, photovoltaic generation, weather forecasts, and energy market prices to provide customers with an advanced energy management service. With AI-powered capabilities, SKN helps reduce electricity bills and provides options for saving modes and protection against storms, power outages, and excessive energy consumption.

As the core business of the company, substantial investments will be made in SKN to maintain its market leadership. The software will offer even more detailed analysis of consumption, suggest improvements or expansions to renewable installations, maintenance actions, alternative energy contracts, energy-efficient appliances, and intelligent consumption planning. SKN provides simple and remote analysis of each installation and the ability to adjust and update it anytime. 2023 will be a year dedicated to creating a new software platform that multiplies the capabilities of the current one by 10 and allows the integration of, among others, the development of these business lines:

Competition

Competition in the photovoltaic battery storage market is intense and the technology in the sector is ever evolving. In the current market, many companies manufacture batteries and photovoltaic inverters on a residential scale.

Notably, we observed that only a few of them are developing all-in-one equipment that integrates both the battery and inverter, which along with electrical protections, significantly reduce assembly time and complex technical knowledge required. Further, we believe practically none of these companies integrate sophisticated software systems that allow the use of storage to be adapted to the needs of the client, nor do these companies have the automatic optimization of energy use by artificial intelligence. If we add a competitive price, modular storage, LPF technology and an attractive design, we believe we can be competitive in the photovoltaic battery storage market (see table 2 below).

Table 2:

Source: Internal. Based on public information.

However, our success depends, in part, on our ability to be efficient in all aspects of the business and achieve the appropriate cost structure. Some of our competitors have economic resources greater than ours and may have lower cost structures allowing them to better withstand volatility within the industry.

Competitive Strengths

We believe our innovative product already tested in the market, experienced management team, and advanced business plan provide us several advantages in the photovoltaic battery storage market, contribute to our success and differentiate us from our competitors:

Furthermore, the company benefits from the expertise of specialists from the holding, Umbrella Solar Investment that specializes, among others, in industrial photovoltaics and Power Purchase Agreements.

The inverters and batteries listed in our catalog have been thoughtfully designed to be among the market leaders in terms of quality and affordability. These products come with top-notch technical support for our valued customers.

Manufacturing and Supply

We source our inverters, batteries, and photovoltaic modules from suppliers located in China. For the manufacture of batteries, we currently have five suppliers as a result of our effort to diversify our supply chain. However, no single supplier is capable of manufacturing all the batteries that we need in a timely manner. We have been working with our main suppliers for many years, and we represent a significant part of their business. This puts us in a good bargaining position and allows us to receive important collaboration from them in terms of new product development and supply chain assurance.

Our battery suppliers include: Soundon New Energy Technology Co., Ltd. located in Xiangtan, Hunan; Shenzhen LC Hi-tech Co. in Pudong, Xinqu, Shanghai; Daqin New Energy Tech (Taizhou) Co., Ltd. in Taizhou, Jiangsu; Aobo Environmental New Energy (Wuxi) Co Ltd in Wuxi, Jiangsu; and Alpha Ess Co., Ltd. in Nantong, Jiangsu.

In addition, our inverter supplier is Ningbo Deye Inverter Technology Co. Ltd located in Ningbo, Zhejiang, China. For the Sunbox enclosure, we rely on Talleres Metálicos Roku located in Orozko, Vizcaya, Spain, and for the Sunbox assembly, we work with Cuadros Electricos Patraix, Coop.V located in Aldaya, Valencia, Spain.

For our inverters, we purchase all of them from a single supplier.

The photovoltaic modules and the structures that support our final products are purchased from different suppliers in the market. Our profit margin from the photovoltaic modules and the structures is small, but the products are necessary for us to propose a complete offer to our clients.

We currently do not have any written contracts signed with suppliers for our products, including SunBox and battery products. However, we have established working conditions with its suppliers through mail and/or verbal agreements. Compliance with these conditions is ensured solely by the parties’ interest in maintaining the business relationship. If any provider fails to comply, we will switch providers.

The main elements of the manufacturing arrangements include the price, which is subject to the evolution of market prices, particularly raw material costs used for manufacturing. Additionally, the arrangements include the manufacturing and supply period, acceptance by the supplier in the co-design of the equipment, guarantee against manufacturing defects, supply of spare parts to facilitate local repairs, co-certification of products in the markets where Turbo intends to sell them, and payment terms.

While we do not have formal contracts with our suppliers, the company has established key terms for manufacturing arrangements. Our ability to switch providers if necessary helps to mitigate the risk of non-compliance by suppliers, and the inclusion of guarantee and spare parts provisions aims to ensure product quality and support customer service needs.

The purchased products in China have a standard quality and functionality in the market that does not have a competitive advantage against our final products. Part of our product development work is focused on the customization of the equipment, which allows us to customize and improve the imported products to ensure our brand of products are unique. This process gives us the option to change suppliers if they do not meet our requirements or because we have found others with better conditions. In addition, all of our final products are certified in Spain.

In order to protect our intellectual property and know-how of our key product, SunBox, the manufacture and assembly process is different. The conception, design, manufacture of the exterior and structural part, and assembly of components, are all completed in Spain. Currently, we are only working with one supplier for assembly. The supplier has been selected for its expertise in related technology and its ability to grow to accommodate ours. Relatedly, we are diligently working on the certification of a second assembler to protect our supply chain. Similarly, our software application that interface with the end user are also designed and programmed in Spain and are subject to continuous improvement, given that our software application differentiates from other competitors in the market.

The logistical management of components is coordinated with a logistics warehouse in Spain with the experience and capacity to support the company’s growth. This flexible system can be replicated in other countries, and in turn bring our products closer to the local customers and improve costs and delivery times, which could be advantageous for our plan to expand internationally.

Seasonality

Seasonality does not materially affect our business or operating results. Due to our business diversification, we have not experienced significant seasonal fluctuations in market demands or sales.

Customers

For the fiscal year ended December 31, 2023, there was no customer that accounted for 10% or more of our total revenue. We do not have formal contracts with our major customers.

For the fiscal year ended December 31, 2022, Sonepar Iberica Spain accounted for 10.7% of our total revenue. The next largest client, Grupo Electro Stocks, accounted for 7.8% of our revenue for the fiscal year ended December 31, 2022. We do not have formal contracts with our major customers.

For the fiscal year ended December 31, 2021, Sonepar Iberica Spain accounted for 12% of our total revenue. The next largest client, Grupo Electro Stocks, accounted for 7.1% of our revenue for the fiscal year ended December 31, 2021.

Sonepar is a large distributor of electrical equipment not specialized in photovoltaic energy. Its size allows it to be present in a very widespread way throughout the territory, getting very close to the installer. It has great purchasing power directly with manufacturers.

C. Organizational Structure

See “Corporate History and Structure—History and Development of the Company—Corporate History and Structure” above for details of our current organizational structure.

D. Property, Plants and Equipment

Intellectual Property

Our success depends mainly on offering unique value in equipment for photovoltaic generation installations. This implies properly reading the trends and needs of the market and never stop being innovative and making new proposals. We rely on a combination of patent, copyright, trademark, and trade secret laws in Spain and other jurisdictions, as well as license agreements, confidentiality procedures, non-disclosure agreements, and other contractual protections, to establish and protect our intellectual property and proprietary rights, including our proprietary technology, software, know-how, and brand. Currently, all of our employees and consultants have signed a nondisclosure agreement, and in some cases, a limitation to work for competitors.

As of the date of this report, Turbo has been granted with a patent in October 2023, for one of its software developments that allows it to position its product, SunBox, among the most innovative residential photovoltaic equipment on the market. Turbo Energy believes that this solution marks a milestone in the electric power industry by offering a comprehensive smart management experience for home photovoltaic installations, combining an algorithm powered by Artificial Intelligence (AI) with an electric vehicle charger, all in one.

We intend to file additional patent applications as we continue to innovate through our research and development efforts, and to pursue additional patent protection to the extent we deem it beneficial and cost-effective.

Although we take steps to protect our intellectual property and proprietary rights, we cannot be certain that the steps we have taken will be sufficient or effective to prevent the unauthorized access, use, copying, or the reverse engineering of our technology and other proprietary information, including by third parties who may use our technology or other proprietary information to develop services that compete with ours. Moreover, others may independently develop technologies or services that are competitive with ours or that infringe on, misappropriate, or otherwise violate our intellectual property and proprietary rights. Policing the unauthorized use of our intellectual property and proprietary rights can be difficult. The enforcement of our intellectual property and proprietary rights also depends on any legal actions we may bring against any such parties being successful, but these actions are costly, time-consuming, and may not be successful, even when our rights have been infringed, misappropriated, or otherwise violated.

Facilities

We rent, for a term of 2 years from June 1, 2022 with a renewal right of 3 years, offices in Valencia, Spain, a few meters from the offices of our parent company (Umbrella Solar Investment S.A.) located at Street Isabel la Católica, 8, 46004, Valencia, Spain.

We subcontract merchandise logistics as well as productive assembly to different suppliers in order to avoid the need to own industrial spaces. This allows us to be flexible in terms of growth, supplier diversification and expansion to other countries.

GOVERNMENT REGULATION

This section sets forth a summary of the significant regulations or requirements in the jurisdictions where we conduct our material business operations, namely Spain and as a member of the European Union, also the regulations applicable to all the European members. The primary Spanish laws and regulations, which do not purport to be complete, to which we are subject relate to intellectual property rights, Data Protection, Competition or Antitrust, Information and electronic commerce and employment and labor. This section also sets forth a summary of regulatory requirements of electric products (Inverters and batteries) for the relevant jurisdictions and a summary of the relevant laws, regulations and government policies that are relevant to Turbo Energy.

Regulations on Intellectual Property Rights

For the design of equipment for the generation, management, and storage of photovoltaic energy Turbo Energy shall fulfil the Spanish and European regulations on Intellectual Property Rights.

In Spain these regulations are content in the Spanish Royal Legislative Decree 1/1996, of April 12, 1996, approving the revised text of the Intellectual Property Law, regularizing, clarifying and harmonizing the legal provisions in force on the subject, the Spanish Royal Decree of July 24, 1889, publishing the Civil Code and the Spanish Act 24/2015, of July 24, of Patents.

In the European Union the regulations are content in the Regulation (EU) 2017/1001 of the European Parliament and of the Council of 14 June 2017 on the European Union trademark and the Directive (EU) 2015/2436 of the European Parliament and of the Council of 16 December 2015 to approximate the laws of the Member States relating to trademarks.

The regulatory bodies in this field are the Spanish Patent and Trademark Office and the European Union Intellectual Property Office.

Regulations on Data Protection

On April, 27, 2016 the European Parliament and the Council issued the Regulation (EU) 2016/679 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation), consequently, the Spanish Act 3/2018, of December 5, on Personal Data Protection and guarantee of digital rights was issued.

By virtue of the abovementioned regulations, we shall adapt all our procedures and products which involves processing of personal data.

The main regulatory body in this field is the Spanish Agency of Data Protection.

Regulations on Competition or Antitrust laws

The Spanish National Markets and Competition Commission (CNMC) is the body that promotes and ensures the proper operation of all markets in the interest of consumers and corporations. To operate in the Spanish market we shall compliance with Spanish Act 15/2007, of July 3, 2007, on Antitrust, Spanish Act 3/1991, of January 10, 1991, on Unfair Competition, Spanish Act 1/2019, of February 20, 2019, on Business Secrets and the European regulations on Restrictive Practices and Dominant Positions (Commission Regulation (Eu) 2022/720, May 10, 2022) and regulation on the control of concentrations between undertakings (Council Regulation (Eec) No 4064/89 , December, 21, 1989).

Regulations on Information Society Services and Electronic Commerce

The digital activity, website and social media, of Turbo Energy shall compliance with the requirements of the Spanish Act 34/2002, of July 11, 2002, on information society services and electronic commerce.

Regulations on Labor and employment

The Royal Legislative Decree 2/2015, of October 23, 2015, approving the revised text of the Workers’ Statute Law, generally extends to all employees.  

Summary of Regulations of the products

Sunbox

SUNBOX SERIES 5.0 and SUNBOX SERIES 10.0 photovoltaic units are designed and tested in accordance with the standards established in the Electromagnetic Compatibility Directive (EMC) and the Low Voltage Directive of the Council of the European Union and comply with the limit values required in these directives, as well as in the Royal Decrees.

Directive 2014/30/EU.

EC 61000-6-1:2016, IEC 61000-6-3-3:2006+AMD1:2010, IEC 61000-3-11:2017, IEC 61000-3-12:2011.

Directive 2014/3S/EU.

EN 62109-1:2010

EN 62109-2:2011

Royal Decree 1699 of 2011

UNE 206006 IN:2011

UNE 206007-1 IN:2013

The battery included in the equipment has been manufactured in compliance with the requirements of Electromagnetic Compatibility CE-EMC EM 61000-6-3 and EM 61000-6-1, the International Safety Standard IEC 62619 CD and Safe Transport UN 38.3.

They bear the CE marking in compliance with the requirements for the safety of persons and goods required by the aforementioned Community Directives.

They have protection against island operation, complying with the UNE EN 50438, IEC 62116 and UNE 206006:2011 IN standards.

Batteries

Rechargeable Lithium-Ion Battery (Turbo Energy) Models TEST 2200, Lithium series 2.4 kWh, and Lithium series 5.1 kWh have been manufactured meeting the requirements of:

Inverters

HYBRID INVERTER SERIES HIS5000, THREE PHASE HYBRID INVERTER SERIES 48V 10.0 and MICROINVERTER SERIES (MIS1600) are designed and tested in accordance with the standards established in the Electromagnetic Compatibility Directive (EMC) and the Low Voltage Directive of the Council of the European Union and comply with the limit values required in these directives, as well as in the Royal Decrees.

Directive 2014/30/EU.

EC 61000-6-1:2016, IEC 61000-6-3-3:2006+AMD1:2010, IEC 61000-3-11:2017, IEC 61000-3-12:2011.

Directive 2014/3S/EU.

EN 62109-1:2010

EN 62109-2:2011

Royal Decree 1699 of 2011

UNE 206006 IN:2011

UNE 206007-1 IN:2013

They bear the CE marking in compliance with the requirements for the safety of persons and goods required by the aforementioned Community Directives.

They have protection against island operation, complying with the UNE EN 50438, IEC 62116 and UNE 206006:2011 IN standards.

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements because of various factors, including those set forth under Item 3 “Key Information—D. Risk Factors” or in other parts of this annual report on Form 20-F. See also “Introductory Notes—Forward-looking Information.”

A. Operating Results

Introduction

The following discussion, which presents the results of Turbo Energy, S.A. and its consolidated subsidiaries, should be read in conjunction with the accompanying consolidated financial statements and notes thereto for the years ended December 31, 2023, 2022 and 2021, along with the risk factors discussed in Part I, Item 3D, “Risk Factors,” and the cautionary statement regarding forward-looking information.

As used in this Report, references to “Company,” “we,” “us,” and “our” refer to Turbo Energy, S.A. and its consolidated subsidiaries, unless the context requires otherwise.

This discussion is intended to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from period to period, and the primary factors that accounted for those changes, how operating results affect our financial condition and results of our operations of the Company as a whole, and how certain accounting principles and estimates affect our financial statements.

Recent Developments 

In April 2024, Turbo Energy announced that El Corte Inglés S.A., the biggest department store group in Europe and the third largest worldwide, has launched Turbo Energy’s GoSolar offering for sale this week.

On April 5, 2024, both the compensation committee and the board of directors of the Company approved the grant of 1,806,620 restricted share units under the Company’s equity incentive plan, which can be converted into 361,324 American Depositary Shares of the Company, representing 1,806,620 Ordinary Shares of the Company, to certain officers, directors, and employees.

On January 17, 2024, we announced that Solar360 and the Company are entering the new year with a disruptive proposition in the solar photovoltaic self-consumption sector.

On December 23, 2023, we announced a transition in the management structure of the Company, resulting from the governance policies of the holding company, Umbrella Solar Investment (USI) a public company on BME Growth market in Spain. Given the responsibilities of Enrique as CEO of USI, and the considerable growth and development the organization has experienced require a necessary transition from his role as CEO of Turbo Energy to Chairman of the Board.

Mariano Soria, a professional with more than 20 years of experience as CEO of companies across various sectors, who has been acting as Managing Director of Turbo Energy for the last year, assumed the role of CEO of the Company effective as of December 23, 2023 with the main objective of leading and completing the team with the talent required to lead the Company through the development and fulfillment of its business plan.

On December 11, 2023, we announced that Movistar has launched Turbo Energy’s GoSolar offering for sale through Movistar’s energy branch, Solar360.

On December 5, 2023, we announced that the Company has selected IBN, a multifaceted financial news and publishing company for private and public entities, to assist with its corporate communications initiatives.

On November 22, 2023, the Board of Directors of our Company adopted both a clawback policy and an insider trading policy

On November 21, 2023, the Company issued a press release announcing the release of the latest episode of The Bell2Bell Podcast as part of its sustained effort to provide specialized content distribution via widespread syndication channels.

On November 7, 2023, the Company issued a press release announcing a strategic alliance with a French multinational retailer Leroy Merlin to include the Company’s residential photovoltaic product, Sunbox, in Leroy Merlin’s range of photovoltaic products available in Spain.

On September 21, 2023, Turbo Energy, S.A. entered into an Underwriting Agreement with Titan Partners Group, a division of American Capital Partners, LLC, and Boustead Securities, LLC as the as the representative (“Representative”) of the underwriters named on Schedule 1 thereto, relating to the Company’s firm commitment underwritten initial public offering (the “Offering”) of ADSs, each representing five ordinary shares of the Company, par value five cents of euro per share, of the Company. Pursuant to the Underwriting Agreement, the Company agreed to sell 1,000,000 ADSs to the underwriters at a public offering price of $5.00 per ADS (the “Offering Price”), before underwriting discounts and commissions, and granted the Representative a 45-day over-allotment option to purchase up to an additional 150,000 ADSs, equivalent to 15% of the ADSs sold in the Offering, at the Offering Price per ADS, pursuant to the Company’s registration statement on Form F-1, as amended (File No. 333-273198), that was filed with the SEC and became effective on September 21, 2023, under the Securities Act of 1933, as amended (the “Securities Act”). The Offering was closed on September 26, 2023.

Overview

We design, develop, and distribute equipment for the generation, management, and storage of photovoltaic (PV) energy. Our energy storage products are managed, from the cloud and through the inverter of the installation, by an advanced software system which is optimized by artificial intelligence (“AI”). The key advantage is that our products, compared to conventional battery storage systems, reduce electricity bills and protect the installation from power outages.

We recently launched our flagship product, the Sunbox, an all-in-one device that integrates most of the equipment for a domestic photovoltaic installation. The Sunbox is powered by AI and features a software system that monitors the generation, use, and management of photovoltaic energy through the analysis of large amounts of data related to energy generation, consumption, market prices, and weather forecasts. This AI system optimizes battery usage, reducing electricity bills and providing peak shaving and uninterruptible power supply functions.

Currently, we primarily sell inverters, batteries, and photovoltaic modules to installers and other distributors for residential consumers located in Spain. With the experience gained from our subsidiary Turbo Energy Solutions, we possess the expertise and international perspective to expand the product portfolio towards industrial and commercial scales and purposes (“C&I”), as well as expand the internationalization process that we already started.

Turbo Energy is part of the Umbrella Solar Investment Group, whose main shareholder is Crocodile Investment, S.L.U, (hereinafter, the ultimate partner), with a registered office in Valencia. The majority shareholder of Turbo Energy, S.A is Umbrella Solar Investment, S.A (hereinafter, the majority shareholder), which is part of the Umbrella Solar Investment Group.

For the years ended December 31, 2023, 2022 and 2021, our total revenues were € 13,140,771 (approximately $14,536,321), € 31,148,676 and €17,154,621, respectively. Our total revenues decreased by € 18,007,905, or 58%, to € 13,140,771 (approximately $14,536,321) for the fiscal year ended December 31, 2023, compared to € 31,146,376 for the fiscal year ended December 31, 2022. Our total revenues increased by €13,994,055, or 82%, to €31,148,676 for the fiscal year ended December 31, 2022, compared to €17,154,621 for the fiscal year ended December 31, 2021.

For the years ended December 31, 2022 and 2021 our net income increased by €761,356, or 285% to €1,028,578 for the year ended December 31, 2022, compared to €267,222 for the year ended December 31, 2021. The principal activities of the Company for the years ended December 31, 2023, 2022 and 2021 were acquisition, distribution and sale of electrical and electronic material for the development of renewable energy projects, such as solar panels, inverters, chargers, regulators, batteries and structures, among others. The Company designs, develops, and distributes equipment for the generation, management, and storage of photovoltaic energy. For additional information regarding our financial performance, see “Operating and Financial Review and Prospects.”

Emerging Growth Company

Upon the completion of our initial public offering, we qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company’s internal control over financial reporting. In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year during which we have total annual gross revenues of at least US$1.235 billion; (ii) the last day of our fiscal year following the fifth anniversary of the completion of our initial public offering; (iii) the date on which we have, during the preceding three year period, issued more than US$1.0 billion in non-convertible debt; or (iv) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act, which could occur if the market value of our ordinary shares that are held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.

Principal Factors Affecting Our Financial Performance

Our operating results are primarily affected by the following factors:

Results of Operations

The following table sets forth a summary of our consolidated results of operations and the amounts as a percentage of total revenues for the periods indicated. This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report. Our historical results presented below are not necessarily indicative of the results that may be expected for any future period.   

Comparison of Years Ended December 31, 2023 and 2022 

Revenue. The principal activities of the Company for the years ended December 31, 2023 and 2022 were acquisition, distribution and sale of electrical and electronic material for the development of renewable energy projects, such as solar panels, inverters, chargers, regulators, batteries and structures, among others. The Company designs, develops, and distributes equipment for the generation, management, and storage of photovoltaic energy. Revenue for the years ended December 31, 2023 and 2022 was € 13,140,771 (approximately $ 14,536,321), and €31,148,676, respectively, representing a decrease of 58%. The increase was due to a variety of factors, which are broken down by product family as below. 

Revenue from Batteries decrease by € 11,124,957, or 62.8%, to € 6,578,530 (approximately US$ 7,277,170) for the year ended December 31, 2023 from €17,703,487 for the year ended December 31, 2022. Such decrease due to several factors, which are general causes of sales decline of Turbo, as in 2023, the Company’s sales growth path was halted due to the behavior of the global consumer market and, regarding Turbo Energy, particularly in the Spanish market, where Turbo is very dependent. In this country, sales in photovoltaic installations have decreased by 54% compared to the previous year due to various macroeconomic causes: the increase in the cost of money set by the European Central Bank, from negative or zero values up to 4.5%; The average drop in energy prices by 58%; and the high inflation of 8.4% in 2022, not accompanied by a wage update, which has reduced the purchasing power of citizens.

Revenue from Batteries accounted for 50% of our total revenue for the year ended December 31, 2023, as compared to 57% for the year ended December 31, 2022. We started to provide such services since September 2013.   

Revenue from Inverters decrease by €4,768,433, or 60.3%, to € 3,133,825 (approximately US$3,466,647) for the year ended December 31, 2023 from €7,902,258 for the year ended December 31, 2022. Such an decrease was primarily due to the reduction in demand in Spain, caused by a series of external factors explained above. These are essential products for domestic photovoltaic installations. Revenue from Inverters accounted for 24% of our total revenue for the year ended December 31, 2023, as compared to 25% for the year ended December 31, 2022. We started to provide such services since September 2013.

Revenue from E-Mobility increased by €1,139,828, or 100%, to €1,139,828 (approximately US$ 1,206,878) for the year ended December 31, 2023 from €0 for the year ended December 31, 2022. This great increase was primarily Turbo has discovered a niche in the market, where has a lot to contribute, and which in Spain is finding a strong demand through its need for smart charging installations. Revenue from E-Mobility accounted for 9% of our total revenue for the year ended December 31, 2023, as compared to 0% for the year ended December 31, 2022. We started to provide such services in September 2023.

Revenue from PV Modules decrease by €2,806,582, or 443%, to €633,398 (approximately US$700,665) for the year ended December 31, 2023 from €3,439,980 for the year ended December 31, 2022. Such decrease was primarily due to several factors, as the sale of modules is no longer among the main products in Turbo Energy’s portfolio, and Turbo Energy intends to leave their sale as something marginal or complementary for the coming years. This resulted in a very significant sale of PV modules in 2022. Revenue from PV Modules accounted for 11% of our total revenue for the year ended December 31, 2023, as compared to 11% for the year ended December 31, 2022. We have started to provide such services since September 2013.

Revenue from all-in-one Solutions increase by € 135,334, or 16.8%, to €804,244 (approximately US$889,655) for the year ended December 31, 2023, from €939,578 for the year ended December 31, 2022.Such decrease was primarily due to the reduction in demand in Spain as a result of the external factors mentioned previously. At the end of 2023 we have launched new versions of Sunbox, such as C&I, and expanded the sales channels and countries, an aspect that we expect to be noticed in the next months, as can be seen in the ongoing orders. . Revenue from Solutions accounted for 6% of our total revenue for the year ended December 31, 2023, as compared to 3% for the year ended December 31, 2022. We started to provide such services, in a very first versions, in 2021.

Revenue from Others decrease by €540,603, or 60.37%, to €354,815 (approximately US$392,496) for the year ended December 31, 2023 from €895,418 for the year ended December 31, 2022. Such an decrease was in line with the reduction in overall sales. Revenue from Accessories accounted for 3% of our total revenue for the year ended December 31, 2023, as compared to 3% for the year ended December 31, 2022. We started to provide such services in September 2013.

For the years ended December 31, 2023 and 2022, we had other operating income of €37,092 (approximately US$41,031) and €2,300, respectively.

Cost of revenue. Our cost of revenue includes purchase of finished goods, purchase of raw materials, outsourcing services and inventory adjustment. Our cost of revenue decreased by €14,501,814, or 55%, to €12,043,563 (approximately US$ 13,322,589) for the year ended December 31, 2023 from €26,545,377 for the year ended December 31, 2022. Such decrease was in line with our decreased revenue.  

Selling and administrative expenses Our selling and administrative expenses consist primarily of professional fees, shipping and handling, warehouse handling, marketing and advertising, leases and royalties, and amortization of right-of-use assets. Our selling and administrative expenses increased by €493,443, or 24% to €2,539,854 (approximately US$2,809,588) for the year ended December 31, 2023, from €2,046,411 for the year ended December 31, 2022. Such increase was in line with our strategy of continuing with the expansion process due mainly to the increase in outsourced professional services and growth process.

Salaries and benefits Our salaries and benefits increased by €238,494, or 28% to €1,105,128 (approximately US$ 1,222,493) for the year ended December 31, 2023 from €866,634 for the year ended December 31, 2022. Such increase was primarily due to an increase in the headcount of the Company during 2023, following the post-IPO strategy and objective to grow the team and carry out international expansion.

Bad debt expense Our bad debt expense increased by €64,940, or 334% to €84,394 (approximately US$93,357) for the year ended December 31, 2023, from €19,454 for the year ended December 31, 2022. Such increase was primarily due to the sharp reduction of business in the sector in Spain, producing critical situations and defaults for customers.

Interest expense Our interest expenses increased by €97,049, or 31% to €406,031 (approximately US$449,151) for the year ended December 31, 2023, from €308,982 for the year ended December 31, 2022. Such a significant increase is due to the significant increase in interest rates during 2023.

Foreign exchange net income (loss) Our foreign exchange net income (loss) increased by €(115,265), or 356 % to €(82,881) (approximately US$ (91,683)) for the year ended December 31, 2023 from €32,384 for the year ended December 31, 2022. Such significant increase was primarily due to the fluctuation between the USD/EUR during the year.

Income tax expense.  We recorded income tax (recovery) expenses of € (1,116,847) (approximately US$ (1,235,458)) for the year ended December 31, 2023, as compared to €364,085 for the year ended December 31, 2022, an decrease of €3,042,367 or 151%. The increase in the income tax expense mainly resulted from the decrease in net income before income tax.

Taxation

Corporate Income Tax. Corporate income tax reflects the amounts we estimate for taxes based upon income before taxes as calculated in accordance with applicable tax regulations. The statutory corporate income tax rate in Spain is currently 25%. We calculate our effective tax rate under IFRS as our corporate income tax over our income (loss) before tax.

Net income

Net income (loss) for the years ended December 31, 2023 and 2022 was €(2,013,789) (approximately US$(2,227,651)) and €1,028,578, respectively. The decrease in net income was attributed to the reduction of sales demand in the Spanish market due to the external factors describe previously.

Comparison of Years Ended December 31, 2022 and 2021

Revenue. The principal activities of the Company for the years ended December 31, 2022 and 2021 were acquisition, distribution and sale of electrical and electronic material for the development of renewable energy projects, such as solar panels, inverters, chargers, regulators, batteries and structures, among others. The Company designs, develops, and distributes equipment for the generation, management, and storage of photovoltaic energy. Revenue for the years ended December 31, 2022 and 2021 was €31,146,376 and €17,154,073, respectively, representing an increase of 82%. The increase was due to a variety of factors, which are broken down by product family as below.

Revenue from Batteries increase by €8,967,620, or 103%, to €17,703,487 for the year ended December 31, 2022 from €8,735,867 for the year ended December 31, 2021. Such increase was primarily due because we are mainly storage specialists. Due to the significant increase in the price of energy, as well as a greater consciousness of the people, storage through batteries has been one of our most demanded products. Revenue from Batteries accounted for 57% of our total revenue for the year ended December 31, 2022, as compared to 51% for the year ended December 31, 2021. We have started to provide such services since September 2013.  

Revenue from Inverters increase by €4,990,308, or 171%, to €7,902,258 for the year ended December 31, 2022 from €2,911,950 for the year ended December 31, 2021. Such an increase was primarily due because we have been able to maintain a constant supply throughout the year while other competitors had problems with stock-outs due to high demand. These are essential products for domestic photovoltaic installations. Revenue from Inverters accounted for 25% of our total revenue for the year ended December 31, 2022, as compared to 17% for the year ended December 31, 2021. We have started to provide such services since September 2013.

Revenue from PV Modules decrease by €1,183,217, or 26%, to €3,439,980 for the year ended December 31, 2022 from €4,623,197 for the year ended December 31, 2021. Such decrease was primarily because in 2021 two projects were closed with the main supermarket chain and gas station company in Spain for photovoltaic installations in their stations. This resulted in a very significant sale of PV modules in 2021. Revenue from PV Modules accounted for 11% of our total revenue for the year ended December 31, 2022, as compared to 27% for the year ended December 31, 2021. We have started to provide such services since September 2013.

Revenue from Solutions increase by €779,090, or 485%, to €939,578 for the year ended December 31, 2022, from €160,488 for the year ended December 31, 2021. Such increase was primarily due because it is our star product (Sunbox all-in-one). During the year the Company has focused a lot of development on it, as well as on commercial offers to introduce it to the market gradually. Revenue from Solutions accounted for 3% of our total revenue for the year ended December 31, 2022, as compared to 1% for the year ended December 31, 2021. We have started to provide such services since September 2018.

Revenue from Structure increased by €24,152, or 10%, to €265,655 for the year ended December 31, 2022 from €241,503 for the year ended December 31, 2021. This slight increase was primarily due as they are closely related to the modules. As module sales have declined, structures have hardly increased. Revenue from Structure accounted for 1% of our total revenue for the year ended December 31, 2022, as compared to 1% for the year ended December 31, 2021. We started to provide such services in September 2013.

Revenue from Others increase by €414,350, or 86%, to €895,418 for the year ended December 31, 2022 from €481,068 for the year ended December 31, 2021. Such an increase was primarily due to major sales of minor electronic products, such as monitors, regulators, displays, cables, etc. Revenue from Accessories accounted for 3% of our total revenue for the year ended December 31, 2022, as compared to 3% for the year ended December 31, 2021. We started to provide such services in September 2013.

For the years ended December 31, 2022 and 2021, we had other operating income of €2,300 and €548, respectively.

Cost of revenue. Our cost of revenue includes purchase of finished goods, purchase of raw materials, outsourcing services and inventory adjustment. Our cost of revenue increased by €11,646,032, or 78%, to €26,545,377 for the year ended December 31, 2022 from €14,899,345 for the year ended December 31, 2021. Such increase was in line with our increased revenue.  

Selling and administrative expenses Our selling and administrative expenses consist primarily of professional fees, shipping and handling, warehouse handling, marketing and advertising, leases and royalties, and amortization of right-of-use assets. Our selling and administrative expenses increased by €918,876, or 81% to €2,046,411 for the year ended December 31, 2022, from €1,127,535 for the year ended December 31, 2021. Such significant increase was in line with our increased revenue and it is due mainly to the increase in outsourced professional services, the change to a larger third-party warehouse, among others.

Salaries and benefits Our salaries and benefits increased by €319,354, or 58% to €866,634 for the year ended December 31, 2022 from €547,280 for the year ended December 31, 2021. Such significant increase was primarily due to an increase in the headcount of the Company during 2022.

Bad debt expense Our bad debt expense decreased by €83,512, or 81% to €19,454 for the year ended December 31, 2022, from €102,966 for the year ended December 31, 2021. Such significant decrease was primarily due to the increase in the collection rate among our customers.

Interest expense Our interest expenses increased by €170,770, or 124% to €308,982 for the year ended December 31, 2022, from €138,212 for the year ended December 31, 2021. Such significant increase was in line with our increased revenue and is due to the interest on loans, as well as the use of credit confirming lines.

Foreign exchange net income Our foreign exchange net income increased by €23,445, or 262% to €32,384 for the year ended December 31, 2022 from €8,939 for the year ended December 31, 2021. Such significant increase was primarily due to the increase in the volume of purchases in USD currency, as well as the fluctuation between the USD/EUR during the year.

Income tax expense.  We recorded income tax expenses of €364,085 for the year ended December 31, 2022, as compared to €81,000 for the year ended December 31, 2021, an increase of €283,085 or 349%. The increase in the income tax expense mainly resulted from the increase in net income before income tax.

Taxation

Corporate Income Tax. Corporate income tax reflects the amounts we estimate for taxes based upon income before taxes as calculated in accordance with applicable tax regulations. The statutory corporate income tax rate in Spain is currently 25%. We calculate our effective tax rate under IFRS as our corporate income tax over our income (loss) before tax.

Net income

Net income for the years ended December 31, 2022 and 2021 was €1,028,578 and €267,222, respectively. The increase in net income was attributed to the increase in revenue.

B. Liquidity and Capital Resources

As of December 31, 2023, 2022 and 2021, we had cash and cash equivalents of €620,531 (approximately US$ 686,431), €502,585, and € 616,445, respectively. To date, we have financed our operations primarily through capital contributions from our parent company and part of our net proceeds of the initial public offering. We expect to finance our operations and working capital needs in the near future from cash generated through operations. 

We believe that our current levels of cash and cash flows from operations, combined with the net proceeds from our initial public offering, will be sufficient to meet our anticipated cash needs for our operations and expansion plans for at least the next 12 months. We may, however, in the future require additional cash resources due to changing business conditions, implementation of our strategy to expand our business, or other investments or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.

The following table summarizes the key cash flow components from our consolidated statements of cash flows for the periods indicated.

Operating Activities 

Net cash used in operating activities was €182,845 (approximately $202,265) for the year ended December 31, 2023, as compared to net cash provided by operating activities of €5,647,033 for the year ended December 31, 2022 and net cash provided by operating activities of €71,604 for the year ended December 31, 2021.

For the year ended December 31, 2023, net cash used in operating activities related to net income (loss) before income tax of €(3,130,635) (approximately US$(3,463,108)), increased by bad debt expense of €84,394 (approximately $93,357), depreciation of property and equipment of €19,424 (approximately $21,487), provision for inventory reserve of €312,563 (approximately $354,757), amortization of right-of-use assets of €58,524 (approximately $64,739), accretion of lease liabilities of €2,177 (approximately $2,408) and net changes in non-cash working capital items of €2,786,414 (approximately $3,082,331).

For the year ended December 31, 2022, net cash used in operating activities related to net income before income tax of €1,395,092, increased by bad debt expense of €19,456, depreciation of property and equipment of €5,927, amortization of right-of-use assets of €36,353, accretion of lease liabilities of €1,514 and was offset by gain on lease modification of €891 and net changes in non-cash working capital items of €7,104,484.

For the year ended December 31, 2021, net cash used in operating activities was attributed to net income before income tax of €348,222, increased by bad debt expense of €102,966, depreciation of property and equipment of €2,998, amortization of right-of-use assets of €15,888, accretion of lease liabilities of €1,252 and provision for inventory reserves €53,434, offset by net change in non-cash working capital items of €431,156.

Investing Activities

Net cash used in investing activities was €(2,588,759) (approximately $(2,863,685)) for the year ended December 31, 2023, as compared to €395,056 for the year ended December 31, 2022 and €124,660 for the year ended December 31, 2021.

Net cash used in investing activities for the year ended December 31, 2023 consisted of short term investments in the amount of €2,044,050 (approximately US$2,261,128), in purchase of equipment in the amount of €28,025 (approximately US$31,001), and purchase of intangible assets related to software development in the amount of €516,684 (approximately $571,556). 

Net cash used in investing activities for the year ended December 31, 2022 consisted of purchase of equipment in the amount of €133,140, and purchase of intangible assets related to software development in the amount of €261,916.

Net cash used in investing activities for the year ended December 31, 2021 consisted of purchase of equipment in the amount of €17,871, and purchase of intangible assets related to software development in the amount of €106,789.

Financing Activities

Net cash provided by (used in) the financing activities was €2,523,860 (approximately $2,791,894) for the year ended December 31, 2023, as compared to net cash provided by financing activities of €5,928,229 for the year ended December 31, 2022 and €366,827 for the year ended December 31, 2021.

Net cash provided by financing activities for the year ended December 31, 2023 consisted of net proceed from Issuance of common stock through Initial public offering of €3,354,781 (approximately US$3,711,059), repayment of bank loans of €(158,150( (approximately $(174,946) ), net proceeds from lines of credit of €4,186,483 (approximately $4,631,088), repayment of lease liabilities of €60,523 (approximately $66,951),and proceeds from related parties of €4,214,576 (approximately US$4,662,154).

Net cash provided by financing activities for the year ended December 31, 2022 consisted of issuance of common stock to related party for cash of €2,500,000, repayment of bank loans of €248,531, net proceeds from lines of credit of €3,820,617, repayment of lease liabilities of €37,036, dividend paid to related party of €72,003, payments to related parties of €355,586 and proceeds from related parties of €320,769.

Net cash provided by financing activities for the year ended December 31, 2021 consisted of repayment of bank loans of €283,259, net proceeds from lines of credit of €1,004,523, repayment of lease liabilities of €16,240, dividend paid to related party of €250,000, payments to related parties of €1,015,222 and proceeds from related parties of €927,025.

Capital Expenditures

We made capital expenditures of €28,025 (approximately US$31,115), €133,140 and €17,871 in the years ended December 31, 2023, 2022 and 2021, respectively. In these periods, our capital expenditures were mainly used for purchase of equipment. We plan to continue to make capital expenditures to meet the needs that result from the expected growth of our business.

C. Research and Development, Patents and Licenses, Etc.

We incurred € 361,420 (approximately US$399,803), € 261,919 and € 106,786 research and development expense during the years ended December 31, 2023, 2022 and 2021 for mainly by the development of new product lines at hardware level, and especially by the bet through our increasingly strong IT department, which carries out software developments for our new application and database management.

D. Trend Information

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demand, commitments or events that are reasonably likely to have a material effect on our net revenues and income from operations, profitability, liquidity, capital resources, or would cause reported financial information not to be indicative of future operation results or financial condition.

E. Critical Accounting Estimates

The preparation of our financial information requires management to make estimates, judgments and assumptions concerning the future. Estimates, judgments and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results.

For a summary of all of our significant accounting policies, see Note 2 to our audited consolidated financial statements as of December 31, 2023, 2022 and 2021 and for the years ended December 31, 2023, 2022 and 2021 included elsewhere in this report.

Valuation of inventory

Management makes estimates of future customer demand for products when establishing appropriate provisions for inventory obsolescence. In making these estimates, management considers the shelf-life of inventory and profitability of recent sales.

Revenue Recognition

The Company designs, develops, and distributes equipment for the generation, management, and storage of photovoltaic energy. Our energy storage products are managed, from the cloud and through the inverter of the installation, by an advanced software system which is optimized by artificial intelligence (“AI”). The key advantage is that our products, comparing to conventional battery storage systems, reduce electricity bill and protect the installation from power outages.

The Company’s revenue is primarily generated from sales of the inverters, batteries, and photovoltaic modules to installers and other distributors for residential consumers under individual customer purchase orders, some of which have underlying master sales agreements that specify terms governing the product sales.

The Company recognizes such revenue at the point in time when control of the products is transferred to the customer at the estimated net consideration for which collection is probable, taking into account the customer’s rights to unit rebates, and rights to return unsold product.

Transfer of control occurs either when products are shipped to or received by the distributor or direct customer, based on the terms of the specific agreement with the customer, if the Company has a present right to payment and transfer of legal title and the risks and rewards of ownership to the customer has occurred. For most of the Company’s product sales, transfer of control occurs upon shipment to the distributor or direct customer. In assessing whether collection of consideration from a customer is probable, the Company considers the customer’s ability and intention to pay that amount of consideration when it is due. Payment of invoices is due as specified in the underlying customer agreement, typically 30 to 60 days from the invoice date, which occurs on the date of transfer of control of the products to the customer.

Since payment terms are less than a year, the Company has elected the practical expedient and does not assess whether a customer contract has a significant financing component.

A five-step approach is applied in the recognition of revenue: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when the Company satisfies a performance obligation. Customer purchase orders plus the underlying master sales agreements are considered to be contracts with the customer for purposes of applying the five-step approach.

Returns under the Company’s general assurance warranty of products have not been material historically and warranty-related services are not considered a separate performance obligation under the customer orders.

Each distinct promise to transfer products is considered to be an identified performance obligation for which revenue is recognized upon transfer of control of the products to the customer. The Company has also elected to record sales commissions when incurred, as the period over which the sales commission asset that would have been recognized is less than one year.

Liquidity

The Company has incurred, for the first time since its foundation, in losses and incurred a net loss of €2,013,788 during the year ended December 31, 2023. However, The Company successfully completed its IPO on the Nasdaq on September 2023, where it was able to raise up to €3.8M net of expenses related to the process, it still has a large portion of those funds as the day of this report. Also, the Company presents a €3.2 million positive working capital at the year ended December 31, 2023.

The Company finds itself in a sector where all studies and forecasts predict a very large exponential growth in the coming years. Also, is a consolidated company, with more than 10 years of experience, and in recent years has been making a very significant investment in development and research, which will allow it to position itself as a differentiating value compared to other companies in the sector.

The Company’s existing cash resources are expected to provide sufficient funds to carry out the Company’s planned operations and expansion plan for more than 12 months. Also, The Company is part of the Umbrella Solar Investment Group, where its principal Company, the majority shareholder of Turbo Energy, has explicitly expressed its full support to carry out its operational development, in case such support is needed.

G. Safe Harbor

See “Introductory Notes—Forward-Looking Information.”

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

The following table sets forth certain information regarding our current directors and executive officers.

Mr. Enrique Selva Bellvís. Mr. Bellvís is the Chairman and founder of the Umbrella Group and majority shareholder of Umbrella Solar.

Mr. Bellvís has been dedicated to the photovoltaic solar energy sector since 2003, both in Spain and Chile, where he has played a key role in the development and growth of the Umbrella Group. In addition to his work at Umbrella, Enrique serves as Vice-President of the Valencian Association of Energy Sector Companies. Before his career in the solar energy sector, Enrique was the founder and CEO of Innova Ingenieros Consultores from 2000 to 2003.

Enrique holds a degree in Industrial Engineering with a specialization in energy from the Polytechnic University of Valencia, which he earned in 2000. He also completed the Management Development Programme at the IESE Business School in 2006.

Mr. Mariano Soria. Mr. Soria has served as the Chief Innovation Officer for the Umbrella Group since March 2021. He has served as Turbo Energy’s General Manager since October 2022 and Chief Executive Officer since December 2023.

Mr. Soria has been the General Manager for Turbo Energy Since October 2022. From November 2012 to March 2021, Mr. Soria was Chief Executive Officer for Punt Moble XXI S.L., having initially participated in the rescue of this Spanish furniture iconic brand company, after a bankruptcy process, from the Board of Directors of a Venture Capital Company (V.I. II, Sociedad de Capital Riesgo), and until today on the Board of Directors and as a shareholder of Punt Mobles. Before joining Punt Moble XXI S.L., Mr. Soria was the General Manager of REJMAR SA, a land development company, from February 2003 to November 2012, where he was responsible for the development of residential and industrial properties. 

Mr. Soria received his degree in Industrial Engineering and Industrial Organization, both from the Polytechnic University of Valencia, and his Master’s in Business Administration from the European University of Madrid.

Mr. Alejandro Moragues. Mr. Moragues has served as our Chief Financial Officer since May 2023.

Mr. Moragues joined the Umbrella Group as the Financial Controller of Turbo Energy since October 2022. Before joining Umbrella, he held the position of Senior Corporate Auditor for the US Company Euronet Worldwide, Inc from 2020 to 2022 and as an external auditor for the services firm Pricewaterhouse Coopers from 2017 to 2020. He holds a Bachelor’s Degree in Business Administration and Management from the Polytechnic University of Valencia, which he obtained in 2017.

Mr. Manuel Cercos. Mr. Cercos has served as our Chief Commercial Officer since March 2015.

Since 2014, Mr. Cercos has been serving as the Business Development Director of Turbo Energy. Prior to joining Turbo Energy, Manuel gained valuable experience in sales and business development through his previous positions at Técnicas Aplicadas en Baterías S.L. where he served as Sales Director from 2013 to 2014 and Sales Manager from 2008 to 2012. Before that, he worked as a Sales Technician at DAISA from 2002 to 2007.

Mr. Rubén Sousa. Mr. Sousa has served as our Chief Technology Officer since September 2022.

Mr. Sousa has extensive knowledge in the field of information technology and significant experience in development team leadership, software architecture and technology product development. He has accumulated more than 30 years of experience. Throughout his career, Mr. Sousa has been chief information officer and chief technology officer of several companies such as Construcciones y Estudios, S.A. and Plásticos Mondragón S.A.U. and since 2007 he has continually acted as the CEO of Innovatrium, S.A.U. an IT consulting and digitalization services company.

Mr. Sousa holds a Technical Specialist Degree in Computer Management. He is certified as Scrum Master, Agile Foundation, Kanban and Product Owner from Scrum Manager. Knowledge in Business Administration and Management from the Luis Vives Business School and the CEEI. He was awarded the Bancaja Prize of the Year 2007.

Mr. Marcos Correal has been working as our Chief Operating Officer since January 2, 2024.

With nearly 25 years of professional experience, Mr. Correal has specialized in areas of operational excellence and supply chain management within the automotive sector at companies such as Zodiac Automotive and Forvia (formerly Faurecia), as well as in high-tech startups like Oncovision, where he served as Supply Chain Director for over five years. For the past decade, he has balanced his professional activities with academic roles, teaching at the university level in master’s programs and engineering degrees focusing on operations management and processes digitalization.

His most recent role was at REI, a company where he was a member of the executive committee, serving as Chief Procurement Officer for four years with a special emphasis on process automation and supply chain digitalization.

Marcos holds two degrees in Electronic Engineering and Industrial Management Engineering, an Executive MBA, and has completed studies in Industry 4.0 and Digital Transformation through Peaks Business School and MIT.

Mr. Pablo de la Cuadra. Mr. Cuadra has been our Chief Product Officer since October 2018.

Mr. Cuadra is tasked with overseeing the development and introduction of new products to our portfolio in line with the company’s roadmap. Prior to joining us, Pablo worked as an independent consultant, providing advice to companies in the cleantech industry. He also served as the Technical Director of the Mediterranean Consortium for Energy, Environment and Sustainability and as the Technical Director at 3S Soluciones y Sistemas Solares S.L., a solar energy company specializing in both thermal and photovoltaic systems. Pablo was responsible for leading the Engineering and Projects departments and played a key role in the development of the company’s OEM brand of solar thermal products, working closely with strategic suppliers.

Pablo holds a degree in Telecommunications Engineering from the UPC (Barcelona Tech University) and an Executive Master’s degree in Management and Business Administration from the Polytechnic University of Valencia, where he completed 900 hours of coursework.

Mr. Miguel Valldecabres. Mr. Valldecabres has been our Director since February 2023.

Mr. Valldecabres’ interest in racing and e-mobility enthusiasm began at a very young age. After completing his degree in Economics followed by an MsC at the University of Southampton (U.K.), he got involved with Campos Racing as a CFO where he acquired the knowledge about motorsports.

His next engagement for 5 years at PwC, in Spain and U.K., as Senior Auditor gave him business knowledge which he used to start his first entrepreneurship venture in the food industry in a company called Chic-Kles. where he was leading 180 people with a turnover of 25 million € a year.

He pioneered QEV Technologies - an engineering company specializing in the field of electro-mobility, which includes design, construction and homologation of electric vehicles, the potential and the use of electric vehicles in the racing world as well as the installation, control and maintenance of electric charging infrastructures. From December 2017 to October 2020 he served as the CEO of QEV Technologies.

Since October 2020 to the date of this report, Miguel is serving as the CEO for Ev Dynamics. Ev Dynamics is a listed company in Hong Kong and pioneer in the manufacturing of Electric Buses and Vans.

Mr. Emilio Cañavate. Mr. Cañavate has been our Director since September 2023. 

Mr. Cañavate joined the Umbrella Group as its Chief Financial Officer in 2017. Before joining Umbrella, he held the position of CFO in the agro-industrial sector from 2010 to 2017. He holds a Bachelor’s Degree in Business Administration and Management from the University of Valencia, which he obtained in 2007, and a Master in Finance, Institutions and Markets from CUNEF, earned in 2009. Additionally, he completed an Executive MBA from EDEM Valencia in 2019.

Mr. Hector Dominguis. Mr. Dominguis has been our Director since September 2023.

Mr. Dominguis has been the Chief Executive Officer of GD Energy Services (GDES) since May 2012. During the period 2021-23 he held the presidency of the Spanish Nuclear Society (SNE) and is currently a member of the Steering Committee Member of Valencian Association of Entrepreneur, Vice President of LAB Mediterraneo Foundation, Independent Board member at Grupo Guzman SA. and Independent Board member at Umbrella Solar Investment SA.

Mr. Dominguis received a Materials Engineering degree from Imperial College, London with an MSc in Management from Surrey University, a master’s in business administration from ESADE and was part of the Management Development Programme (PDD) at IESE. Prior to GD Energy Services (GDES), Héctor worked as an Assistant to the Commercial Management at Plexi, SA (Röhm Group) and as a Consultant in Estrategia y Dirección, SL.

In 2010, he was awarded the Valencian Community Innovator of the Year award by the newspaper El Mundo and the Valencian Community and Murcia Region Business Executive of the Year Award by Ernst & Young.

Mr. Daniel Green. Mr. Green has been our Director since September 2023.

Mr. Green is an English businessman since 1994, he is a successful serial entrepreneur, known for conceiving and scaling profitable businesses. Early in his career, he founded the breakthrough retail concept YouMeTV, which sold to BSkyB. It is Daniel’s vision and customer focus which have driven the team’s success with HomeSun’s residential solar programme and then FlowGem, an IoT water leak detector sold to Centrica as part of the Hive proposition. Mr. Green is also a Crown Representative, working through the Cabinet Office to advise the UK Government.

Mr. Green currently holds the position of Chief Executive Officer of Electron Green since July 2022 and Chief Executive Officer of HomeSun since April 2010.

Ms. Mónika Micak. Ms. Micak has been our Director since September 2023.

Ms. Mikac currently holds the CEO position at NAD Capital since March 2022, an investment fund that focuses on a whole circle of electric mobility. Monika is also a Board member of QEV Technologies (since March 2022) where she previously held a CBO position (from March 2018 to March 2022) and member of the board advisors of XEnergy – Empowering Women in Energy Transition (since April 2023).  

Her recent success within QEV was closing of a 17M€ round with the European Investment Bank. Awarded as one of European Automotive Rising stars, she started an automotive career as COO in Rimac Automobili. She helped grow the company from 1 to 350 employees. As 1 of the first 5 employees within the company, Monika covered different scopes: from PR & marketing to financial & administrative. She actively participated in the fundraising process and helped the company to raise more than 50M€ of financing. After her success with Rimac Automobili, Monika started helping other companies develop and grow their businesses. She is an International Advisor in e-bus pioneer company EV Dynamics based in Hong Kong and a Board Advisor in logistics company Hubbig based in Croatia.

Monika holds a bachelor’s degree in political science and is a certified Project Manager. Additionally, she holds a degree in Venture Capital Executive Program from Berkley ExecEd, USA.

No family relationship exists between any of our directors and executive officers. There are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any person referred to above was selected as a director or member of senior management.

B. Compensation

Executive Compensation

For the fiscal year ended December 31, 2023, the aggregate cash compensation and benefits that we paid to our officers was approximately €371,364 (approximately $410,803). We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our executive and non-executive directors and officers.

Director Compensation

For the fiscal year ended December 31, 2023, the aggregate cash compensation and benefits that we paid to our executive directors was approximately €76,175 (approximately $84,266) and we paid €30,231 (approximately $33,442) to our non-executive directors.

We did not pay other compensation to our directors. Except as indicated below and in section E. Share Ownership relating to the shares issued to our directors and executive officers under our 2023 Equity Incentive Plan, none of our directors or executive officers received any equity awards, including, options, restricted shares or other equity incentives in the year ended December 31, 2023. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our non-employee directors.

The following table sets forth certain information regarding compensation paid to our directors and senior management for the full fiscal year ended December 31, 2023.

2023 Equity Incentive Plan

On August 23, 2023, the Board of Directors (the “Board”) of our company approved the Turbo Energy, S.A. 2023 Equity Incentive Plan (the “Plan”). The Plan provides for an aggregate of 1,900,000 Ordinary Shares, in the form of incentive share options, non-qualified share options, restricted shares, restricted share units, share appreciation rights, performance share awards and performance compensation awards to employees, directors, and consultants of the Company or any affiliates of the Company.

The purposes of the Plan are to (a) promote the long-term growth and profitability of the Company, and any affiliate to attract and retain the types of employees, consultants and directors who will contribute to the Company’s long-term success; (b) provide incentives that align the interests of employees, consultants and directors with those of the shareholders of the Company; and (c) promote the success of the Company’s business.

The following is a summarized description of the Plan. Capitalized terms not defined herein shall have the meaning given to them in the Plan.

Administration of the Plan: The Plan is currently administered by compensation committee of the Board, or the Committee. Among other things, the Committee has the authority to construe and interpret the Plan, to select persons who will receive awards, to determine the types of awards and the number of shares to be covered by awards, and to establish the terms, conditions, performance criteria, restrictions and other provisions of awards.

Participant: Persons eligible to receive awards under the Plan will be those employees, consultants, and directors of the Company and its affiliates who are selected by the Committee. 

Share Options:

General. Subject to the provisions of the Plan, the Committee has the authority to determine all grants of share options. That determination will include: (i) the number of shares subject to any option; (ii) the exercise price per share; (iii) the expiration date of the option; (iv) the manner, time and date of permitted exercise; (v) other restrictions, if any, on the option or the shares underlying the option; and (vi) any other terms and conditions as the Committee may determine. No fractional Ordinary Shares shall be issued or delivered pursuant to the Plan.

Option Price. The exercise price for share options will be determined at the time of grant. The exercise price will not be less than the fair market value on the date of grant. The exercise price for any incentive share option award may not be less than the fair market value of the shares on the date of grant. A ten percent shareholder shall not be granted an incentive share option unless the option exercise price is at least 110% of the fair market value of the Ordinary Share at the grant date and the option is not exercisable after the expiration of five years from the grant date.

Exercise of Options. An option may be exercised only in accordance with the terms and conditions for the option agreement as established by the Committee at the time of the grant. The option must be exercised by notice to the Company, accompanied by payment of the exercise price. Payments may be made in cash or, at the option of the Committee, by actual or constructive delivery of Ordinary Shares to the holder of the option based upon the fair market value of the shares on the date of exercise.

Expiration of Options. If not previously exercised, an option will expire on the expiration date established by the Committee at the time of grant. The term of a non-qualified share option granted under the Plan shall be determined by the Committee; provided, however, no non-qualified share option shall be exercisable after the expiration of 10 years from the grant date.Vesting Schedule. Awards shall vest as determined by the Committee.

Incentive and Non-Qualified Options. As described elsewhere in this summary, an incentive share option is an option that is intended to qualify under certain provisions of the Internal Revenue Code of 1986, or the Code, for more favorable tax treatment than applies to non-qualified share options. Any option that does not qualify as an incentive share option will be a non-qualified share option. Under the Code, certain restrictions apply to incentive share options. For example, the exercise price for incentive share options may not be less than the fair market value of the shares on the grant date and the term of the option may not exceed ten years. In addition, an incentive share option may not be transferred, other than by will or the laws of descent and distribution, and is exercisable during the holder’s lifetime only by the holder. In addition, no incentive share options may be granted to a holder that is first exercisable in a single year if that option, together with all incentive share options previously granted to the holder that also first become exercisable in that year, relate to shares having an aggregate fair market value in excess of $100,000, measured at the grant date.

Restricted Awards: Restricted awards are awards of Ordinary Shares or hypothetical Ordinary Shares units having a value equal to the fair market value of an identical number of Ordinary Shares. Restricted awards are forfeitable and non-transferable until the awards vest. The vesting date or dates and other conditions for vesting are established when the shares are awarded. Restricted shareholders generally have the rights of a shareholder with respect to the shares, including the right to receive dividends, the right to vote the shares of restricted share and, conditioned upon full vesting of shares of restricted share, the right to tender such shares, subject to the conditions and restrictions generally applicable to restricted share or specifically set forth in the recipient’s restricted share agreement. The Committee may determine at the time of award that the payment of dividends, if any, will be deferred until the expiration of the applicable restriction period. Restricted share unit holders will have no voting rights with respect to any restricted share units. Restricted share units may also be granted with a deferral feature, whereby settlement is deferred beyond the vesting date until the occurrence of a future payment date or event set forth in the award agreement. The Committee may provide that the restricted share units will be credited with cash and share dividends paid by the Company in respect of one share of Ordinary Shares, or Dividend Equivalents. Dividend Equivalents will be deferred until the expiration of the applicable restriction period.

Governing Law. The Plan, all award agreements, the grant and exercise of awards thereunder, and the sale, issuance and delivery of Ordinary Shares thereunder upon exercise of awards are governed by the laws of the State of New York without regard to the principles of conflicts of law thereof.

Other Material Provisions. Awards will be evidenced by a written agreement, in such form as may be approved by the Committee. In the event of various changes to Company capitalization, such as stock splits, stock dividends and similar re-capitalizations, an appropriate adjustment will be made by the Committee to the number of shares covered by outstanding awards or to the exercise price of such awards. The Committee is also permitted to include in the written agreement provisions that provide for certain changes in the award in the event of a change of control of the Company, including acceleration of vesting. Except as otherwise determined by the Committee at the date of grant, awards will not be transferable, other than by will or the laws of descent and distribution. The Committee also has the authority to alter or amend the Plan or any outstanding award or may terminate the Plan as to further grants, provided that no amendment will, to the extent that such approval is required by law or the rules of an applicable exchange, increase the number of shares available under the Plan, change the persons eligible for awards under the Plan, extend the time within which awards may be made, or amend the provisions of the Plan related to amendments. The Plan will terminate automatically on August 23, 2033. No amendment that would adversely affect any outstanding award made under the Plan can be made without the consent of the holder of such award.

As of the date of this report, a total of 1,806,620 Restricted Share Units (as defined in the Plan), which can be converted into 361,324 American Depositary Shares of the Company, representing 1,806,620 Ordinary Shares of the Company, were granted to certain officers, directors, and employees of the Company. On April 5, 2024, both the compensation committee and the board of directors of the Company approved the grant of such Restricted Share Units.

C. Board Practices

Board Composition and Committees

The Nasdaq Marketplace Rules generally require that a majority of an issuer’s board of directors must consist of independent directors. Our board of directors consists of seven (7) directors, three of whom are independent directors. Each director will serve for a one-year term until the election and qualification of successor directors at the annual meeting of shareholders, or until the director’s earlier resignation or removal.

A director is not required to hold any shares in our company to qualify to serve as a director. Our board of directors may exercise all the powers of our company to raise or borrow money, and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof, to issue debentures, debenture stock, bonds or other securities, whether outright or as collateral security for any debt, liability or obligation of the company or of any third-party.

A director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with our company is required to declare the nature of his interest at a meeting of our directors. A director may vote in respect of any contract, proposed contract, or arrangement notwithstanding that he may be interested therein, and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of our directors at which any such contract or proposed contract or arrangement is considered.

Director Independence

Subject to an exemption available to a “controlled company,” the Nasdaq Listing Rules (the “Listing Rules”), require that a majority of a listed company’s board of directors be composed of “independent directors,” as defined in those rules, and that such independent directors exercise oversight responsibilities with respect to director nominations and executive compensation. We currently qualify as a “controlled company” and are able to rely on the controlled company exemption from these provisions. The Listing Rules define a “controlled company” as “a company of which more than 50% of the voting power is held by an individual, a group or another company.” Mr. Enrique Selva Bellvis, our Chairman of the Board, beneficially owns our ordinary shares representing more than 50% of the combined voting power of our outstanding ordinary shares. Therefore, as a “controlled company,” we are not required to have a majority of independent directors on our board of directors, an entirely independent nominating and corporate governance committee, or an entirely independent compensation committee. Accordingly, you may not have the same protections afforded to shareholders of companies that are subject to all of these corporate governance requirements.

If we cease to be a controlled company, we will be required to comply with Nasdaq’s corporate governance requirements applicable to listed companies generally, subject to a phase-in period during the first year after we cease to be a controlled company. See “Risk Factors—We qualify as a “controlled company” under Nasdaq corporate governance rules and we may be exempt from certain corporate governance requirements that could adversely affect our public shareholders” for additional information. Even though we expect to be a controlled company for purposes of the Listing Rules, we will have to comply with the requirements of those rules relating to the membership, qualifications and operations of the audit committee of the board of directors, including the requirement that, within the first year after the closing of our initial public offering, the audit committee be composed of at least three directors who meet the independence requirements under the rules for membership on that committee.

Board Committees

We established an audit committee, a compensation committee and a nominating and corporate governance committee of our board of directors. We have adopted the audit committee charter, compensation committee charter and nominating and corporate governance committee charter. Each committee’s members and functions are described below.

Audit Committee

Our audit committee consists of three directors, namely, Monika Mikac, Daniel Green and Héctor Dominguis, each of whom satisfies the “independence” requirements of Rule 10A-3 under the Exchange Act and Section 5605 of the Nasdaq Marketplace Rules. Monika Mikac serves as the chairperson of our audit committee. The board of directors has also determined that her experience in accounting and financial matters qualifies as an “audit committee financial expert.” The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:

Compensation Committee

Our compensation committee consists of two directors, namely, Daniel Green, and Emilio Cañavate, Daniel Green satisfies the “independence” requirements of Rule 10A-3 under the Exchange Act and Section 5605 of the Nasdaq Marketplace Rules. Because we are a “controlled company” under the corporate governance rules of the Nasdaq Capital Market, our compensation committee is not required to be fully independent, although if such rules change in the future or we no longer meet the definition of a controlled company under the current rules, we will adjust the composition of the compensation committee accordingly in order to comply with such rules. Daniel Green is the chairperson of our compensation committee. The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee will be responsible for, among other things:

Nominating and Corporate Governance Committee

Our nominating and corporate governance committee consists of two directors, namely, Héctor Dominguis and Miguel Valldecabres, Héctor Dominguis satisfies the “independence” requirements of Rule 10A-3 under the Exchange Act and Section 5605 of the Nasdaq Marketplace Rules. Because we are a “controlled company” under the corporate governance rules of the Nasdaq Capital Market, our nominating and corporate governance committee is not required to be fully independent, although if such rules change in the future or we no longer meet the definition of a controlled company under the current rules, we will adjust the composition of the nominating and corporate governance committee accordingly in order to comply with such rules. Héctor Dominguis is the chairperson of our nominating and corporate governance committee. The nominating and corporate governance committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee is responsible for, among other things:

D. Employees

As of the date of this report, we have 38 workers to carry out commercial, logistical, administrative, purchasing and product development work. The table below sets forth the number of employees by function. They have an average age of 30 years and 53% have a university degree. Our parent company, Umbrella Solar, provides fiscal, legal and strategic support in exchange for a fee. We also have external consultants who are experts in electrical engineering, computer science and digitization.

We go to great length to ensure that we have a healthy work environment, and we believe that we have excellent relationships with our employees. None of our employees are represented by a labor union or covered by a collective bargaining agreement.

E. Share Ownership

The following table sets forth information with respect to beneficial ownership of our share capital as of the date of this report by:

None of the outstanding ordinary shares are held in the United States. None of the major shareholders have different voting rights from other shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

Please refer to Item 6 “Directors, Senior Management and Employees—E. Share Ownership.”

B. Related Party Transactions

In addition to the compensation arrangements discussed under “Executive Compensation” above, the following includes a description of those transactions with related parties to which we are a party and which we are required to disclose pursuant to the disclosure rules of the SEC. Specifically, the following includes summaries of transactions or agreements, during our last two fiscal years, to which we have been a party, in which the amount involved in the transaction exceeded $120,000, and in which any of our directors, executive officers or beneficial owners of more than 5% of our capital stock, affiliates of our directors, executive officers and holders of more than 5% of our voting securities, or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other similar arrangements, which are described under “Executive Compensation” and “Principal Shareholders.”

Transactions with Related Parties  

Our related party transactions during the fiscal years ended December 31, 2023, 2022 and 2021 include sales of products or services made to or purchases of products or services from affiliated group companies that are under common control and to associates of such group companies. These transactions include income accrued from the commercial activities of our company. The purchases relate to merchandise that we sell in its normal course of commercial operations.

Umbrella Solar, as the holding company of the group, assumes all structural costs such as those related to the financial team, executives, human resources, licenses, legal, tax, labor, marketing, and other generic structural costs. A margin of 15% is applied to these costs and the resulting amount is distributed to the four most significant companies in the group based on their estimated revenue in the monthly management fees.

During the years ended December 31, 2023, 2022 and 2021, the Company incurred management fees to Umbrella Solar Investment, S.A, of €995,435 (approximately $1,101,150), €547,912 and €226,222, respectively.

No compensation has been paid to the executives under Crocodile Investment SLU. The company expects to continue with the same allocation structure in the future.

The Amount due from (to) as of December 31, 2023 are summarized as follows:

Due from related parties:

Due to related parties:

Amount due to and from related parties are unsecured, non-interest bearing and due on demand, except for the loan agreement from Umbrella Solar of €3,800,000. This loan was formalized and signed on June 30 for a period of 5 years, with a market interest rate of 6.25% per year, payable bi-annually.

During the year ended December 31, 2023, a total amount of €118,750 has been paid for interest.

The Amount due from (to) as of December 31, 2022 are summarized as follows:

Due from related parties:

Due to related parties: