UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the Quarterly Period Ended
or
For the transition period from ________________ to ______________
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation) |
(I.R.S. Employer Identification No.) | |
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(Address of principal executive offices) |
(zip code) |
Registrant’s telephone number, including
area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol (s) | Name of each exchange on which registered |
| The Stock Market LLC | ||
| The Stock Market LLC |
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.
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 (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller reporting company | ||
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Emerging growth company
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If an emerging growth company, 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
is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐
The number of shares outstanding of Common Stock, par value $0.001 per share, as of February 9, 2024, was shares.
NEOVOLTA, INC.
FORM 10-Q
DECEMBER 31, 2023
INDEX
| 2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We make forward-looking statements under the “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in other sections of this Report. In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this Report.
You should read the matters described in, and incorporated by reference in, “Risk Factors” and the other cautionary statements made in this Report, as being applicable to all related forward-looking statements wherever they appear in this Report. We cannot assure you that the forward-looking statements in this Report will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements.
All forward-looking statements speak only at the date of the filing of this Quarterly Report. You should not rely upon forward-looking statements as predictions of future events. The reader should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report are reasonable, we provide no assurance that these plans, intentions or expectations will be achieved. We disclose important factors that could cause our actual results to differ materially from our expectations under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report and our Annual Report on Form 10-K for the year ended June 30, 2023, as filed with the SEC on September 22, 2023. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf. We do not undertake any obligation to update or revise publicly any forward-looking statements except as required by law, including the securities laws of the United States and the rules and regulations of the SEC.
| 3 |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEOVOLTA, INC.
Balance Sheets
(Unaudited)
| December 31, | June 30, | |||||||
| 2023 | 2023 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Prepaid insurance and other current assets | ||||||||
| Total current assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Accrued liabilities | $ | $ | ||||||
| Total current liabilities | ||||||||
| Commitments and contingencies (Note 3) | ||||||||
| Stockholders' equity: | ||||||||
| Common stock, $ par value, shares authorized, shares and shares issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
See accompanying notes to unaudited financial statements.
| 4 |
NEOVOLTA, INC.
Statements of Operations
(Unaudited)
| Three Months Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenues from contracts with customers | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| General and administrative | ||||||||
| Research and development | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income: | ||||||||
| Interest income | ||||||||
| Total other income | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding - basic and diluted | ||||||||
| Net loss per share - basic and diluted | $ | ) | $ | ) | ||||
See accompanying notes to unaudited financial statements.
| 5 |
NEOVOLTA, INC.
Statements of Operations
(Unaudited)
| Six Months Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenues from contracts with customers | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| General and administrative | ||||||||
| Research and development | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ||||||
| Total other income (expense) | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding - basic and diluted | ||||||||
| Net loss per share - basic and diluted | $ | ) | $ | ) | ||||
See accompanying notes to unaudited financial statements.
| 6 |
NEOVOLTA, INC.
Statements of Stockholders' Equity
Six Months Ended December 31, 2023 and 2022
(Unaudited)
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Stockholders' | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock compensation expense | – | |||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance at September 30, 2023 | ( | ) | ||||||||||||||||||
| Stock compensation expense | ||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Stockholders' | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common stock in underwritten public offering | ||||||||||||||||||||
| Issuance of common stock for conversion of debt and accrued interest | ||||||||||||||||||||
| Stock compensation expense | – | |||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance at September 30, 2022 | ( | ) | ||||||||||||||||||
| Stock compensation expense | ||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See accompanying notes to unaudited financial statements.
| 7 |
NEOVOLTA, INC.
Statements of Cash Flows
(Unaudited)
| Six Months Ended | ||||||||
| December 31, 2023 | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operations: | ||||||||
| Stock compensation expense | ||||||||
| Provision for expected credit losses/bad debt expense | ||||||||
| Changes in current assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ||||||||
| Prepaid insurance and other current assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Net cash flows used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Underwritten public offering of common stock | ||||||||
| Net cash flows provided by financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | ||||||||
| Supplemental non-cash financing activities | ||||||||
| Conversion of convertible debt and accrued interest into common stock | $ | $ | ||||||
See accompanying notes to unaudited financial statements.
| 8 |
NEOVOLTA, INC.
Notes to Financial Statements
(Unaudited)
| (1) | Business and Summary of Significant Accounting Policies |
Description of Business– NeoVolta Inc. (“we”, “our” or the "Company") is a Nevada corporation, which was formed on March 5, 2018. The Company is a designer, seller and manufacturer of Energy Storage Systems (ESS) which can store and use energy via batteries and an inverter at residential and commercial sites. The Company sells its proprietary ESS units through wholesale customers, primarily in California, and in an expanding number of other states. In August 2022, the Company completed an underwritten public offering of its equity securities resulting in its common stock and warrants becoming listed on a national exchange (see Note 2).
Interim Financial Information – The Company has prepared the accompanying financial statements, without audit, in accordance with accounting principles generally accepted in the Unites States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, these financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the Company’s financial position as of December 31, 2023, the results of its operations for the three and six month periods ended December 31, 2023 and 2022, the changes in its stockholders’ equity for the six month periods ended December 31, 2023 and 2022, and cash flows for the six month periods ended December 31, 2023 and 2022. The balance sheet as of June 30, 2023 has been derived from the Company’s June 30, 2023 financial statements that were audited by an independent registered public accounting firm but does not include all of the information and footnotes required for complete annual financial statements. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended June 30, 2023, as filed with the SEC on September 22, 2023.
Cash and Cash Equivalents
– The Company considers all highly liquid accounts with original maturities of three months or less at the date of acquisition to
be cash equivalents. Periodically, the Company may carry cash balances at financial institutions in excess of the federally insured
limit of $
Inventory – Inventory
consists of batteries and inverters purchased from Asian suppliers and delivered to a location near the Company’s offices, for assembly
into ESS units. Additionally, we made a bulk purchase of raw materials consisting of assembly parts from our former contract manufacturer
in April 2023, for a gross amount of $
| Schedule of inventory | December 31, | June 30, | ||||||
| 2023 | 2023 | |||||||
| Raw materials, consisting of assembly parts, batteries and inverters | $ | $ | ||||||
| Finished goods | ||||||||
| Total | $ | $ | ||||||
Revenue Recognition – The Company recognizes revenue in accordance with Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). Revenues are recognized when control of the promised goods is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for transferring those goods or services. Revenue is recognized based on the following five step model:
| · | Identification of the contract with a customer | |
| · | Identification of the performance obligations in the contract | |
| · | Determination of the transaction price | |
| · | Allocation of the transaction price to the performance obligations in the contract | |
| · | Recognition of revenue when, or as, the Company satisfies a performance obligation |
| 9 |
The Company generates revenues
from contracts with customers, consisting of a relatively small number of wholesale dealers and installers, primarily in California. Three
such dealers represented approximately
Allowance
for Expected Credit Losses – The Company recognizes an allowance for expected credit losses whenever a loss is
expected to be incurred in the realization of a customer’s account. As of December 31, 2023 and June 30, 2023, our allowance
for expected credit losses was $
Income Taxes – The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of reported assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company must then assess the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.
The Company accounts for uncertain tax positions in accordance with the provisions of Accounting Standards Codification (“ASC”) 740-10 which prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken, or expected to be taken, on its tax return. The Company evaluates and records any uncertain tax positions based on the amount that management deems is more likely than not to be sustained upon examination and ultimate settlement with the tax authorities in the tax jurisdictions in which it operates.
Stock Compensation Expense – Employee and non-employee share-based payment compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period.
Research and Development Costs – Research and development costs are expensed as incurred.
Use of Estimates – Management has made a number of estimates and assumptions in preparing these financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates. As a result of the continued spread of the COVID-19 coronavirus since early 2020, economic uncertainties have arisen which could impact business operations, supply chains, energy demand, and commodity prices that are beyond our control. Overall, we have not experienced a material adverse impact to our economic performance or ability to continue our business operations as a result of COVID-19. We continue to monitor COVID-19, but do not believe it will have a material unfavorable impact to our future financial performance at this time.
Related Parties - The Company accounts for related party transactions in accordance with ASC 850. A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that it might be prevented from fully pursuing its own separate interests is also a related party.
| 10 |
Fair Value Measurements and Financial Instruments - ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 - Inputs that are both significant to the fair value measurement and unobservable. The carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include cash and cash equivalents, accounts receivable, and accounts payable.
At December 31, 2023 and June 30, 2023, the Company did not have any financial assets or liabilities measured and recorded at fair value on the Company’s balance sheets on a recurring basis.
Recent Accounting Pronouncements – From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, (“FASB”), or other standard setting bodies and adopted by us as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption. The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its financial statements. Effective July 1, 2023, the Company adopted the provisions of ASC 326 (Financial Instruments – Credit Losses) pertaining to “current expected credit losses,” which had no material impact on the Company’s financial statements.
Liquidity – These
financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge
its liabilities in the normal course of business. The continuation of the Company as a going concern has been dependent upon the ability
of the Company to obtain necessary equity financing to continue operations and the attainment of profitable operations. As disclosed in
Note 2, we completed a public offering of our equity securities in August 2022 that raised total net proceeds of approximately $3,780,000.
As of December 31, 2023, we had a cash balance of $
| (2) | Equity |
Common Stock – In August 2022, the Company completed an underwritten public offering of its equity securities in the form of Units with each Unit consisting of one share of common stock and one warrant (each, a “Warrant” and collectively, the “Warrants”) to purchase one share of common stock at an exercise price of $4.00 per share. The shares of common stock and the Warrants comprising the Units were immediately separated at closing of the offering and each is now independently listed on the NASDAQ Capital Market. Each Warrant became exercisable on the date of issuance and will expire five years from the date of issuance.
In the underwritten public
offering, a total of Units, including exercise of the underwriter’s overallotment option, were sold at an offering price
to the public of $4.00 per Unit. The gross proceeds of the offering were $
| 11 |
In conjunction with the public
offering, all holders of the Company’s 2018 convertible notes in the total amount of $
Warrants – The
Warrants for a total of
The following table presents activity with respect to the Company’s warrants for the six months ended December 31, 2023:
| Schedule of warrant activity | ||||||||||||||||
| Number | Wtd. Avg. | Wtd. Avg. | Aggregate | |||||||||||||
| of | Exercise | Remaining | Intrinsic | |||||||||||||
| Shares | Price | Term (Yrs.) | Value | |||||||||||||
| Outstanding at June 30, 2023 | $ | |||||||||||||||
| Warrants issued | – | |||||||||||||||
| Warrants exercised/forfeited | – | |||||||||||||||
| Outstanding at December 31, 2023 | $ | $ | ||||||||||||||
| Exercisable at December 31, 2023 | $ | $ | ||||||||||||||
These warrants were issued in conjunction with an underwritten public equity offering, therefore, there was no employee or non-employee compensation expense recognized.
Stock Compensation Expense – In February 2022, we entered into a new employment agreement with our Chief Executive Officer (“CEO”), effective April 1, 2022. The initial term of the employment agreement was one year and is automatically renewable for additional one-year terms unless either party chooses not to renew the agreement. The agreement provides for an initial annual salary of $165,000. Pursuant to the agreement, we issued our CEO a restricted stock unit (“RSU”) award for up to 150,000 shares of our common stock upon achieving the following milestones (which achievements shall be determined by the Board): (i) Milestone 1 - Successfully complete an uplisting of our common stock in 2022 and continue his employment with our company until January 1, 2023: 50,000 shares; and (ii) Milestone 2 - Produce 2,000 ESSs in 2022 and continue his employment with our company until January 1, 2023: 100,000 shares. As of December 31, 2023, Milestone 1 was achieved, however, Milestone 2 was not achieved. The underlying shares of common stock earned under Milestone 1 were issued to our CEO as of January 1, 2023.
In February 2022, we entered into a new employment agreement with our Chief Financial Officer (“CFO”), effective March 1, 2022. The initial term of the employment agreement is one year and is automatically renewable for additional one-year terms unless either party chooses not to renew the agreement. The agreement provides for an initial annual salary of $125,000. Pursuant to the agreement, we issued our CFO an RSU award for up to 300,000 shares of our common stock upon achieving the following milestones (which achievements shall be determined by the Board): (i) Milestone 1 - Successfully complete an uplisting of our common stock in 2022 and continue his employment with our company until January 1, 2023: 250,000 shares; and (ii) Milestone 2 - successfully complete and file the Company’s Form 10-K for the year ended June 30, 2023 no later than September 29, 2023 and continue his employment with our company until January 1, 2024: 50,000 shares. Milestone 1 was achieved as of January 1, 2023, and the underlying shares of common stock earned under Milestone 1 were issued to our CFO as of that date. As of December 31, 2023, Milestone 2 has not yet been achieved, but was subsequently achieved on January 1, 2024, and the underlying 50,000 shares of common stock will be issued to our CFO as of that date (see Note 4).
| 12 |
Based upon management’s assessment of the probability of our CEO and CFO ultimately achieving each milestone specified under the RSU awards indicated above, we calculated the grant date value of such awards and are amortizing it as stock compensation expense over the underlying performance periods. We have recognized stock compensation expense applicable to such RSU awards in the six months ended December 31, 2023 and 2022 in the amounts of $ and $, respectively.
In conjunction with our public
offering in August 2022, we appointed two new independent directors and adopted a new compensation plan for all independent directors
based on an annual compensation amount of $65,000 with not less than 70% of such amount paid in shares of our common stock, calculated
based on the share price at the end of such prior fiscal quarter, and up to 30% paid in cash, with such final amounts to be determined
by each director. As of December 31, 2023, we booked an accrual of $
In the six months ended December 31, 2023, we recognized total non-cash stock compensation expense of $ as follows: (i) $ for the amortized value of the RSUs granted to our two executive officers, as previously described; (ii) $ for the amortized value of the portion of the new compensation plan for our independent directors that is attributable to stock; and (iii) $ for the fair value of incentive shares earned by a wholesale dealer as of December 31, 2023 (see Note 3). There was a total of 80,964 shares of common stock that were issued to independent directors and advisors in the six months ended December 31, 2023, which were previously expensed in the year ended June 30, 2023.
In the six months ended December 31, 2022, we recognized total non-cash stock compensation expense of $ as follows: (i) $ for the amortized value of the RSUs granted to our two executive officers, as previously described; (ii) $ for the amortized value of the portion of the new compensation plan for our independent directors that is attributable to stock; (iii) $ for the net amortized value of the shares granted to various advisors under their annual service contracts; and (iv) $ for the fair value of incentive shares earned by a wholesale dealer as of December 31, 2022 (see Note 3). There was a total of 75,000 shares of common stock that were issued to three grantees, a director and two advisory board members, in the six months ended December 31, 2022, which were previously expensed in the year ended June 30, 2022.
Other Matters – In February 2019, the Company’s Board of Directors approved the establishment of a new 2019 Stock Plan (“Plan”) with an authorization for the issuance of up to shares of common stock. The Plan is designed to provide for future discretionary grants of stock options, stock awards and stock unit awards to key employees, consultants, advisors, and non-employee directors. As of December 31, 2023, the Company has made awards under the Plan as follows: (i) shares for the RSUs granted to our two executive officers, as noted above; (ii) shares for the initial services of our three independent directors in the year ended June 30, 2023, pursuant to the new compensation plan adopted in August 2022 for independent directors; and (iii) a smaller number of shares granted to various other advisors under their annual service contracts.
| (3) | Commitments and Contingencies |
Effective January 1, 2021, we secured new corporate and manufacturing office space under a sublease agreement with a company that served as our contract manufacturer at that time. Under the terms of the sublease agreement, we were required to make rental payments of $10,350 per month during the initial one-year term of the agreement. Further, under the terms of the sublease agreement, we were granted the right to renew the sublease for additional terms of 12 months each upon mutual agreement of both parties, provided thirty days’ notice is given for each subsequent term, at a modest increase in the monthly rent, through February 28, 2025. However, we were under no obligation to renew it. At inception of the sublease, Management determined that exercise of the renewal option was not reasonably certain and, notwithstanding that the Company elected to renew the agreement for additional one year periods as of January 1, 2022, 2023 and 2024, continues to believe that is the case. Accordingly, we have accounted for it as a short-term lease under ASC 842, Leases. Under an amendment to our supply agreement with our former contract manufacturer in April 2023, we took over direct responsibility for the manufacturing process surrounding our ESS units on June 1, 2023, however, that amendment had no effect on the sublease agreement with our former contract manufacturer.
As indicated in Note 1, we sell our proprietary ESS units through wholesale dealers, primarily in California. In that regard, we have entered into agreements with several wholesale dealers operating in California and other states under which we have incentivized the dealers to achieve quarterly sales above targeted levels by agreeing to grant them shares of our common stock for exceeding such quarterly sales targets, determined as of the calendar year end, subject to defined maximums.
| 13 |
From time to time in the ordinary course of our business, the Company may be involved in legal proceedings, the outcomes of which may not be determinable. The Company is not involved in any legal proceedings at this time. The results of litigation are inherently unpredictable. Any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in diversion of significant resources. We are not able to estimate an aggregate amount or range of reasonably possible losses for those legal matters for which losses are not probable and estimable.
| (4) | Subsequent Events |
On February 5, 2024, our Board of Directors approved the following two equity transactions: (i) the issuance of 50,000 shares of common stock to one of our executive officers in recognition of the officer having achieved Milestone 2 under his Board approved RSU awards (see Note 2); and (ii) the granting of 7,746 shares of common stock to a wholesale dealer for an incentive award earned in the calendar year ended December 31, 2023 (see Note 3). Both of these tranches of our common stock were fully expensed as of December 31, 2023.
| 14 |
| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Introduction
This information should be read in conjunction with the interim unaudited financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the audited financial statements and notes thereto and “Part II. Other Information - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”, contained in our Annual Report on Form 10-K for the year ended June 30, 2023, filed with the Securities and Exchange Commission on September 22, 2023 (the “Annual Report”).
Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our unaudited financial statements included above under “Part I - Financial Information” - “Item 1. Financial Statements”.
Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” “NEOV”, refer specifically to NeoVolta, Inc.
In addition, unless the context otherwise requires and for the purposes of this Report only:
| · | “Exchange Act” refers to the Securities Exchange Act of 1934, as amended; |
| · | “SEC” or the “Commission” refers to the United States Securities and Exchange Commission; and |
| · | “Securities Act” refers to the Securities Act of 1933, as amended. |
Overview
We are a designer, manufacturer, and seller of high-end Energy Storage Systems (or ESS), primarily our NeoVolta NV14, NV14-K, and NV-24, which can store and use energy via batteries and an inverter at residential or commercial sites. We were founded to identify new ways to leverage emerging technologies with the dynamic changes that are taking place in the energy delivery space. We primarily market and sell our products directly to our certified solar installers and solar equipment distributors. We are also pursuing agreements with residential developers, commercial developers, and other commercial opportunities. Because we are purely dedicated to energy solar systems, virtually all our current resources and efforts go into further developing our flagship NV14, NV14-K, and NV-24 products, while focusing on specific industry needs for our next generation of products. We believe we are unique in the marketplace due to our low cost, our innovative battery chemistry, our product versatility and our commitment to installer service. Because of these factors, we believe NeoVolta is uniquely equipped to establish itself as a major player in the energy storage market.
In May 2019, we completed a public offering of 3,500,000 shares of our common stock at an offering price of $1.00 per share for gross proceeds of $3.5 million pursuant to Regulation A of the Securities Act. We used the proceeds of the offering to ramp up production, marketing, and sales of our NV14 product line. In that regard, we used the proceeds from the offering to fund the marketing, production and distribution of our products, which commenced in July 2019 through a group of wholesale customers in California, as well as to provide additional working capital for other corporate purposes. We have expanded to include one wholesale distribution customer in Nevada. As of the current date, we have had successful installations of our products in the additional States of Arizona, Utah, Colorado, Wyoming, Texas, Oklahoma, Missouri, Tennessee, Alabama, Georgia, Florida, and Puerto Rico.
As further discussed below under “Liquidity and Capital Resources,” we completed an underwritten public offering of our equity securities in the form of Units in August 2022. We sold a total of 1,121,250 Units in the offering at an offering price to the public of $4.00 per Unit. The gross proceeds of the offering were $4,485,000 and the net proceeds, after deduction of underwriting discounts and other offering costs, were approximately $3,780,000. We are using the proceeds of this public offering to increase our current production capacity, expand our product portfolio, enlarge our product marketing and sales efforts, and for other general corporate purposes.
On April 14, 2023, California implemented Net Energy Metering 3 (NEM3) for subsequent new solar installations. NEM3 reduces the amount of NEM credit for each kilowatt (KW) of solar power sent to the utility from a rate of approximately $0.20 per KW to $0.09 per KW (each Utility varies). NEM3 effectively increases the average solar Return of Investment (ROI) from 5-6 years to 10-12 years (each Utility varies). Effectively, the Company believes that solar installation in California currently makes little financial sense without also including a battery system. Installing NeoVolta nets a ROI of 4-6 years. NEM3 reduced our sales from December 2022 until fairly recently as solar installers worked off their permitted NEM2 installs. We expect our sales to gradually increase going forward.
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Results of Operations
The following discussion reflects the Company’s revenues and expenses for the three and six month month periods ended December 31, 2023 and 2022, as reported in our financial statements included in Item 1.
Three months ended December 31, 2023 versus three months ended December 31, 2022
Revenues - Revenues from contracts with customers for the three months ended December 31, 2023 were $1,017,828 compared to $567,105 for the three months ended December 31, 2022. Such increase was primarily due to various macroeconomic and regulatory factors including an anticipated reversal of the previous negative impact of the new utility regulations in the State of California that we believe had temporarily caused an earlier economic disincentive for residential utility customers to acquire our energy storage systems from the December 2022 enactment date through roughly the end of last quarter.
Cost of Goods Sold - Cost of goods sold for the three months ended December 31, 2023 were $811,955 compared to $473,159 for the three months ended December 31, 2022. The cost of goods sold in both periods reflected the cost of procuring and assembling the component parts of the energy storage systems that were sold in each fiscal period and resulted in gross profits on such sales of approximately 20% and 17%, respectively, in each period.
General and Administrative Expense - General and administrative expenses for the three months ended December 31, 2023 were $774,698 compared to $1,073,729 for the three months ended December 31, 2022. Such decrease was due to a reduction in stock compensation expense related to the Company’s equity incentive programs, partially offset by the recognition of an allowance for expected credit losses in the three months ended December 31, 2023 in the amount of $220,000.
Research and Development Expense - Research and development expenses for the three months ended December 31, 2023 were zero compared to $7,746 for the three months ended December 31, 2022. Such fluctuation was largely due to timing differences in the level of the Company’s recent product development efforts.
Other Income and Expense - Interest income for the three months ended December 31, 2023 was $12,781 compared to zero for the three months ended December 31, 2022. This increase was due to rising money market rates which have enabled the Company to earn interest on its investable cash in the three months ended December 31, 2023.
Net Loss - Net loss for the three months ended December 31, 2023 was $556,044 compared to $987,529 for the three months ended December 31, 2022, representing the aggregate of the various revenue and expense categories indicated above. The Company has not recognized any income tax benefit for these net losses due to the uncertainty of its ultimate realization.
Six months ended December 31, 2023 versus six months ended December 31, 2022
Revenues - Revenues from contracts with customers for the six months ended December 31, 2023 were $1,781,958 compared to $2,104,941 for the six months ended December 31, 2022. Such decrease was primarily due to the impact of various macroeconomic and regulatory factors including new utility regulations in the State of California that we believe had temporarily caused an earlier economic disincentive for residential utility customers to acquire our energy storage systems from the December 2022 enactment date through roughly the end of last quarter.
Cost of Goods Sold - Cost of goods sold for the six months ended December 31, 2023 were $1,454,913 compared to $1,765,119 for the six months ended December 31, 2022. The cost of goods sold in both periods reflected the cost of procuring and assembling the component parts of the energy storage systems that were sold in each fiscal period and resulted in gross profits on such sales of approximately 18% and 16%, respectively, in each period.
General and Administrative Expense - General and administrative expenses for the six months ended December 31, 2023 were $1,329,858 compared to $1,993,157 for the six months ended December 31, 2022. Such decrease was due to a reduction in stock compensation expense related to the Company’s equity incentive programs, partially offset by the recognition of an allowance for expected credit losses in the six months ended December 31, 2023 in the amount of $330,000.
Research and Development Expense - Research and development expenses for the six months ended December 31, 2023 were zero compared to $28,646 for the six months ended December 31, 2022. Such fluctuation was largely due to timing differences in the level of the Company’s recent product development efforts.
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Other Income and Expense - Interest income for the six months ended December 31, 2023 was $18,054 compared to zero for the six months ended December 31, 2022. This increase was due to rising money market rates which have enabled the Company to earn interest on its investable cash in the six months ended December 31, 2023. Interest expense for the six months ended December 31, 2023 was zero compared to $4,134 for the six months ended December 31, 2022. This decrease resulted from the conversion of our 2018 and 2021 convertible notes in conjunction with the closing of our public equity offering in August 2022.
Net Loss - Net loss for the six months ended December 31, 2023 was $984,759 compared to $1,686,115 for the six months ended December 31, 2022, representing the aggregate of the various revenue and expense categories indicated above. The Company has not recognized any income tax benefit for these net losses due to the uncertainty of its ultimate realization.
Liquidity and Capital Resources
Operating activities. Net cash used in operating activities in the six months ended December 31, 2023 was $503,497 compared to $688,093 in the six months ended, December 31, 2022, reflecting a modest decrease in the impact of changes in working capital on net operating cash flow in the current fiscal year period.
Financing activities. Net cash provided by financing activities in the six months ended December 31, 2023 was zero, compared to $3,780,405 in the six months ended December 31, 2022. As further discussed below, our net cash provided by financing activities in the six months ended December 31, 2022 was entirely attributable to the successful completion of an underwritten public offering of our equity securities in early August 2022.
We completed an underwritten public offering of our equity securities in the form of Units in early August 2022. Each Unit consisted of one share of common stock and one warrant to purchase one share of common stock at an exercise price of $4.00 per share. We sold a total of 1,121,250 Units in the offering at an offering price to the public of $4.00 per Unit. The gross proceeds of the offering, including the underwriters’ exercise of the overallotment option, were $4,485,000 and the net proceeds, after deduction of underwriting discounts and other offering costs, were approximately $3,780,000.
In conjunction with the public offering, all holders of our 2018 convertible notes in the total amount of $59,251, including accrued interest, converted their debt into a total of 9,404,867 shares of common stock at the stated conversion rate, and all holders of our 2021 convertible notes in the total amount of $1,120,035, including accrued interest, automatically converted their debt into a total of 267,000 shares of common stock at the stated conversion rate. As a result of the simultaneous conversion of both sets of convertible notes, the Company fully eliminated its convertible debt.
As of December 31, 2023, we had a cash balance of approximately $1.5 million and net working capital of approximately $5.7 million. Currently, we are not generating a break-even level of net operating cash flow from our net sales. However, we anticipate that demand for our products will ultimately increase over time and that we will have sufficient cash to operate for at least the next 12 months.
Recent Assembly Inventory Purchase
In April 2023, we made a bulk purchase of raw materials inventory from our contract manufacturer by making a cash payment to that company in the net amount of approximately $1.3 million. This transaction was completed pursuant to an amendment of our Master Supply Agreement with our contract manufacturer. In addition to the purchase of the raw materials inventory from our contract manufacturer, this amendment provided for the eventual assumption by us of full responsibility from our contract manufacturer for the manufacturing of our proprietary Energy Storage Systems (“ESS”) units. Pursuant to the amendment, we assumed such responsibility for the manufacturing process surrounding our ESS units from our contract manufacturer on June 1, 2023. In conjunction with assuming this responsibility, we hired the two employees of our contract manufacturer who previously performed contract manufacturing services for us. We are expecting to hire additional “assemblers” in the fairly near future.
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Other Developments
In calendar year 2022, we experienced some negative impact of the COVID-19 pandemic on the sales of our assembled energy storage systems, primarily through a group of wholesale dealers and installers located in California. We continue to monitor COVID-19, but do not believe it will have a material unfavorable impact to our future financial performance at this time.
Additionally, we continue to monitor current international developments occurring in Ukraine and Israel. However, we do not believe that they will have a significant impact on either the domestic markets for our products or the international supply chains for our product components, which are largely sourced from Asia.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements as defined in Item 303 of Regulation S-K.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on financial statements which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We believe that certain accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements. See “Note 1. Business and Summary of Significant Accounting Policies” of the Notes to Financial Statements set forth above and under “Item 8. Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the year ended June 30, 2023, as filed with the SEC on September 22, 2023, for a further description of our critical accounting policies and estimates.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Information for this Item is not required as the Registrant is a “smaller reporting company” as defined in Rule 12b-2 of the Exchange Act.
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
We have established and maintain a system of disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed with the Securities and Exchange Commission pursuant to the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Commission and that such information is accumulated and communicated to our management, including our Chief Executive Officer, who is our principal executive officer, and Chief Financial Officer, who is our principal financial and accounting officer, to allow timely decisions regarding required disclosures.
As of December 31, 2023, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as a result of the material weakness relating to the lack of segregation of duties, our disclosure controls and procedures as of the end of the period covered by this Quarterly Report were not effective. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. We will be required to hire additional personnel in order to remediate our material weakness.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Changes in Internal Controls over Financial Reporting
There was no change in our internal controls over financial reporting that occurred during the quarter ended December 31, 2023, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
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PART II. OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS |
Although we may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business, we are not currently a party to any material legal proceeding. In addition, we are not aware of any material legal or governmental proceedings against us, or contemplated to be brought against us.
| ITEM 1A. | RISK FACTORS |
There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended June 30, 2023, as filed with the SEC on September 22, 2023 (the “Form 10-K”), under the heading “Risk Factors”, and investors should review the risks provided in the Form 10-K prior to making an investment in the Company. The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in the Form 10-K for the year ended June 30, 2023, under “Risk Factors”, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
There were no sales of unregistered securities during the three months ended December 31, 2023.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
| ITEM 5. | OTHER INFORMATION |
During the period covered by this Quarterly Report, none of the Company’s directors or executive officers has adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (each as defined in Item 408 of Regulation S-K under the Securities Exchange Act of 1934, as amended).
| ITEM 6. | EXHIBITS |
| Exhibit No. | Exhibit Description | |
| 31.1* | Certification of Principal Executive Officer Pursuant to Section 302 of Sarbanes- Oxley Act of 2002 | |
| 31.2* | Certification of Principal Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 | |
| 32.1* | Certification of Principal Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2* | Certification of Principal Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS * | Inline XBRL Instance Document | |
| 101.SCH * | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL * | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF * | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB * | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE * | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
______________________
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NEOVOLTA, INC.
| February 9, 2024 | /s/ Brent S. Willson |
Brent S. Willson
Chief Executive Officer
(Principal Executive Officer)
| February 9, 2024 | /s/ Steve Bond |
Steve Bond
Chief Financial Officer
(Principal Financial/Accounting Officer)
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