Item 1. Business
ITEM 1. BUSINESS
Overview
We are a designer, manufacturer,
and seller of high-end Energy Storage Systems (or ESS), primarily our NeoVolta NV14 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. In the future, we intend to pursue residential developers, commercial developers, and other
commercial opportunities. Because we are purely dedicated to energy solar systems, virtually all of our current resources and efforts
go into further developing our flagship NV14 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 ourselves as
a major player in the energy storage market.
Our NV14 ESS contains a 7,680
W hybrid 120V / 240V and 208V inverter and a 14.4 kWh battery system power. The NV14 is energy efficient, has a variety of operating options,
and uses Lithium Iron Phosphate (LiFe (PO4)) batteries. The batteries we utilize are capable of 6,000 cycles at a Depth of Discharge (DoD)
of 90% and have a high thermal range (heat and cold tolerances). Our NV14 ESS integrates all components and is NEMA Type 3R rated (indoor/outdoor).
Our NV24 provides additional energy storage capacity raising the NV14 from 14.4 KW to 24.0 KW. Our newest update of the NV14 ESS allows
for commercial 208V 3-phase installations adding significantly to our potential customer base.
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History
We completed the initial design
work and completed testing and certification of our first offering, the NeoVolta NV14, in August 2018. In September 2018, we completed
our first production prototype. By March 2019, we completed all certifications and were granted approval by the California Energy Commission
(CEC) for off-grid and on-grid installation. Since our headquarters are located in San Diego County, a county with more than 160,000 solar
customers, we chose San Diego for our initial rollout. In May 2019, the NV14 was approved throughout San Diego County and City areas by
San Diego Gas & Electric (SDG&E) for connection to its grid system and customer installations began. In June 2019, we moved our
contracted manufacturing to a facility in Poway, California. In June 2019, we began marketing to San Diego based solar installers. In
early 2020, we expanded our certified installer network to the greater Los Angeles, San Francisco, and Sacramento areas, and, importantly,
out of California to Arizona, Nevada, and Georgia. In January 2021, we moved to a larger production facility in Poway, California to facilitate
growth. In 2021, we increased our national distribution, which we conduct through certified wholesale dealers, and now have installs in
Utah, Florida, Puerto Rico, Oklahoma, Texas, Colorado, Wyoming, Tennessee, and Missouri.
Our Products - NeoVolta NV14 and NV24
The NV14 is a complete ESS
with 7,680-Watt 120V / 240V hybrid inverter (one of the largest in the industry) which is also capable of 208V 3-phase commercial power
with a 14.4 kWh lithium iron phosphate (LiFe (PO4)) battery system. This is all incorporated in one National Electrical Manufacturer Association
(NEMA) Type 3R rated indoor/outdoor cabinet system with all United Laboratories (UL) compliant electrical certifications, and fire code
requirements. The NV14 is capable of storing and using inverted (AC) photovoltaic, non-inverted (DC) photovoltaic, or both AC and DC photovoltaic
solar sources. It can also accept utility grid AC power as a charging source for the integrated 14.4 kWh battery system. The NV14 system
will charge the batteries with excess solar photovoltaic (AC, DC or both AC and DC) power during daylight conditions - a unique functionality
in the ESS industry. The inverter will invert DC battery power into AC power during periods of darkness or higher use periods. Once discharged,
the batteries will be idle until excess solar photovoltaic is available and will subsequently begin to recharge. The NV14 is designed
to primarily charge from solar but can be programmed to charge from other sources of power (solar, wind turbine, generator, and grid).
It can be easily programmed by our certified installers to customer-specific use profiles, including for “rate arbitrage,”
(graph below) which allows charging from the grid during the lowest rate periods (A) if the utility company allows this activity. Once
recharged, the batteries will discharge once solar photovoltaic begins to wane or when the customer needs more power than available from
solar photovoltaic (B). By doing this, customers will be consuming their own solar photovoltaic production instead of sending excess photovoltaic
power to the grid and then buying this power back later in the evening from the utility at an often significantly higher retail rate,
thereby potentially lowering their monthly electric bill depending on their local utility’s rate plan. Our NV14 is also capable
of multi-tasking by recharging via solar photovoltaic power while also supplying power.
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We believe our NV14 is unique
among its competitors in that the cabinet is rated for indoor/outdoor installation (NEMA Type 3R) allowing for more installation configurations
and the ability to fit more residential customer use cases. With measurements of 50.5” H x 38” W x 10” D it can be installed
either inside the garage or outside (preferable near existing utility connections) of the residence or facility.
No solar system can provide
power to a home without a system capable of “Islanding,” due to safety regulations put in place for utility workers during
outages. “Islanding” is when a PV generator or other electrical source continues to power a location or residence even though
electrical grid power is no longer present. According to Bloomenergy.com, power outages are on the rise in California. There were 25,281
blackout events in 2019, a 23% increase from 20,598 in 2018. The number of utility customers affected jumped to 28.4 million in 2019,
up 50% from 19 million in 2018. Our NV14 is capable of “Islanding” when used with AC or DC photovoltaic (PV) systems. As islanding
can be dangerous to utility workers, who may not realize that a circuit is still powered, an ESS capable of “islanding” must
be capable of physically disconnecting from the grid power when it senses that grid supply is not present, has an over current, or an
undercurrent condition. The NV14 includes “islanding” relays that are approved to perform this function. Islanding also allows
solar production to function and power the residence or facility thereby decreasing the impact of a grid outage.
Our NV14 currently includes
a commercially available encrypted WiFi logger and associated smart phone application that allows customers to visualize the state of
the system in 8-minute intervals (battery, home, grid, photovoltaic, and/or generator). Settings adjustments for how the system works
can be made remotely by the installer if/when utilities make changes to Time-of-Use billing rates/times. Our remote management system
is included with the product and allows NeoVolta 24/7 system health monitoring, malfunction diagnosis, and the ability to push firmware
and software updates. This allows NeoVolta, installers, and their customers, insight into system health 24/7. Remote monitoring and programming
is accomplished using AWS Key Management encryption and cloud storage ensuring customer privacy and security.
Our NV24 has additional battery
capability that raises NV14 energy storage from 14.4 KW to 24.0 KW. As the NV24 has add-on battery capacity, additional inverters are
not required. This enables customers to achieve a 67% increase in storage for a fraction of the typical cost of adding more storage. Most
competitive systems require an additional inverter for any additional storage.
New ESS fire code regulations
have been significant and are ongoing, especially in California. ESSs can no longer be installed inside the living areas of a home. ESSs
can be installed inside the garage but require smoke and heat detectors and may also require bollards or caging to protect the ESS from
being accidentally struck by a vehicle. This is a particularly detrimental code to ESS that cannot be installed outside. Both requirements
are directly related to fire risk from certain battery chemistries. Lithium Ion, a very popular chemistry in the ESS industry, has demonstrated
fire and thermal runaway characteristics in certain circumstances. Our batteries were UL 9540 certified at the cell and modular level
in July 2021 certifying that they will not catch on fire and exhibit no thermal runaway characteristics.
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We are aware of additional
regulatory requirements being planned in various jurisdictions for 2022 and 2023. We expect such changes in regulatory code to be a routine
requirement as ESS is a new field that warrants scrutiny and is a major focus of our management team. We also see the complex regulatory
environment as a significant barrier to new market entry.
Market Characteristics
Our market can be looked at
two ways: the solar installer market and the ESS market.
Solar Installer Market .
The bulk of NeoVolta’s revenue and recurring customer base is residential and commercial solar system installers. According to IBIS
Worldwide, there are over 13,000 solar installers in the US employing almost 55,000 employees. With SunRun and Tesla Energy representing
approximately 20% of the market combined, and the top 10 companies representing about 38%. Most solar installers in the US are very small,
independently owned operators and are generally not serviced by the larger companies. These underserved installers have been NeoVolta’s
target market. Based on IBIS’ figures, we estimate this to be at least 13,000 installers with less than 25 employees. Our average
recurring installer customer purchases 1-2 systems a month. They generally sell their systems and install and pay for them within the
same month, and typically do not stock inventory, so we believe NeoVolta’s “just in time” product availability makes
us an ideal fit. Once these customers become certified NeoVolta installers, they become recurring customers. We built our company based
on servicing small installers and will continue to do so by focusing on product availability, installer service, and, most importantly,
the characteristics of our product while we capture market share. As we gain market acceptance, we expect larger installers to take notice.
This is especially true when considering repeated product availability challenges within the industry.
Installer storage installation
activity has grown over time, with 50% of all active residential installers in 2020 having completed at least one solar + storage system,
up from less than 20% in 2016 according to Berkeley Labs. The rate of attachment, or number of PV systems installed with storage, is growing
considerably. According to Wood Mackenzie, by 2025, nearly 29% of all behind-the-meter solar systems will be paired with storage, compared
to under 11% in 2021. Most of the growth will be powered by the smaller installers, as larger installers have already incorporated storage
into their standard new solar offerings. Although Tesla and LG Chem have dominated the market in the past few years, new market entries
continue to gain ground and new opportunities in the space continue to present themselves to those who can adapt to fill the need. Additionally,
our larger ESS competitors focus on energy storage as a component of their new solar installation, whereas NeoVolta focuses entirely on
ESSs, revealing what we believe to be a compelling market in existing solar system retrofits. According to Berkeley Lab’s Tracking
the Sun dataset, there are over 3 million solar systems installed in the US and only 6.8% of those have energy solar installed. This marketplace
scenario presents small installer customers almost 3 million households to revisit for a storage retrofit especially when their 10-15
year old inverter experiences end of life.
We believe that our 100% commitment
to ESS and our relatively small size allow us to navigate this nascent industry more nimbly, and we have been able to develop distinct
competitive advantages despite our relative resources.
ESS Market . This is
a relatively new market as solar attached storage systems have only become viable in the last decade. It is a subset of what the Solar
Energy Industries Association (SEIA) refers to as the $17 billion U.S. residential solar PV market. Wood Mackenzie forecasts that there
will be 3 million installations in 2021 growing to 4 million in 2023. According to Mordor Intelligence, the global residential energy
storage systems market is expected to register a compound annual growth rate (CAGR) of more than 19% during the forecast period of 2021
- 2026, reaching a market value of more than $8.5 billion by 2026 from $2.2 billion in 2019. The growth of the ESS market comes from a
combination of retrofits to existing solar installations and more widespread adoption of storage as part of new solar installations.
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According to Wood Mackenzie’s
U.S. Energy Storage Monitor, released in December 2020, the residential storage segment posted its best quarter ever in the third quarter
of 2020, during the height of the coronavirus pandemic with 52 megawatts and 119 megawatt-hours of new storage installed. The U.S. market
is expected to reach 7.5 gigawatts in 2025, which amounts to six-fold growth from 2020. The Q3 2021 US Energy Storage Monitor estimates
that the U.S. residential market will surpass $1 billion in 2022; a 14% share of the estimated $7 billion total US Energy Storage market.
The report added that Q2 surpassed Q1 2021 to become the second-largest quarter for storage deployment on record in MWh terms.
Market Drivers
Regulatory . The regulatory
drivers regarding ESS come in the form of an increasing number of mandates and incentives. On the mandate side, in August of 2021, California
became the first state in the country to require builders to install solar and battery storage on new commercial buildings and high-rise
multifamily buildings. This state approved Energy Code also includes requirements for builders to design single-family homes so battery
storage can be easily added to the already existing solar system in the future as well as incentives to eliminate natural gas from new
buildings. On the incentive side, the federal Investment Tax Credit, or ITC, has been the most impactful providing a 26% credit for the
cost of a unit if you pair the battery with an on-site renewable resource. For a typical ESS, the ITC can reduce the cost of the system
by $4,500 to $6,000. This will become even more beneficial with the enactment of The Inflation Reduction Act, increasing the credit to
30% for all ESS. Many states are also putting incentive systems in place. Beyond states taking steps to encourage greater adoption of
energy storage technologies, some utilities are now also offering incentives to home and business owners who install storage. To date,
most of these utility-specific storage incentives are in the Northeast. We anticipate more of these programs being put in place in the
future.
Utilities can also impact
battery storage adoption on the cost side of the equation. In certain circumstances, when state utilities change their billing profiles,
the market for ESS becomes more (or less) attractive. For example, Hawaii’s attachment rate rose to 80% after the state began transitioning
away from net energy metering (NEM) and reduced compensation for grid exports.
Resiliency . Energy
dependence has been a growing concern in the last few years as weather patterns have become more erratic. New findings from the U.S. Department
of Energy’s National Renewable Energy Laboratory (NREL) and Clean Energy Group (CEG) found that when the value of resilience is
considered - preventing power outages - several more integrated solar-plus-storage projects are economically viable.
Utilities are addressing this
matter in some cases through Public Safety Power Shut Off (PSPS) events (when power is purposefully turned off in the case of high winds
with very dry vegetation conditions that increase wildfire risks). The direct result of this was seen in California after the PSPS events
of late 2019 (below)
Consumer Perception .
Although both economics and resiliency have been impactful on ESS demand, researchers at Berkeley Labs concluded that a third category
of consumer perception may be adding to the trend. The feedback they received included the concept that consumers saw ESS as a “green”
investment and felt like it was a way to “stick it to the utilities”. These factors are obviously less measurable than the
more objective drivers above but are an additive factor in the market.
Growth Strategy
Our growth strategy is focused
on expanding our core business of distributing our products on a recurring basis to small and medium sized installers and to continue
expanding the application of our product into various commercial applications through development partnerships. We plan to do this through
an increase in targeted direct sales and marketing to installers in ripe regional markets, concentrating efforts on adding to our national
distributor partners, and marketing in ESS industry circles to identify new potential applications of our systems. Our growth thus far
has been through word of mouth and networking mainly in Southern California. We have been successful in consistently growing both our
installer base and our number of installs through these means, but recognize that to succeed in the national marketplace, we will need
to bring on a team of sales and marketing professionals to reach our goals. We have plans to start to build out this team utilizing the
proceeds from our recent offering.
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Non-Residential / Commercial
Growth : Our all-in-one system was engineered with the intent to be easily configurable to the needs of the client and easily serviced
and updated for our installers. Flexibility due to the close contact with the manufacturing process and the adaptability of the product,
along with our ability to handle commercial 208V 3-phse power, have opened up a number of new opportunities for us. These customers sought
us out to create an energy storage system for their unique needs specifically because others would not or could not accept the challenge.
NeoVolta was and continues to be open to customizing our products for energy storage contracts should they meet our volume, profitability,
and system requirements. This strategy of flexibility in R&D is affording NeoVolta access into markets that would normally be closed
to companies of our size. We will continue to leverage this customer-driven approach in the future.
New opportunities in this
sector are difficult to forecast, but are a core focus of our current sales and marketing plan. As these projects roll out and begin to
be publicized, we believe NeoVolta can establish itself as an energy storage system engineering firm for large projects in applications
globally. We intend to take advantage of our adaptability and the nascent industry to fill these diverse and complicated needs.
Competition
We compete with several large
competitors already successfully selling in the ESS space. Notable competitors include Tesla, LG Chem, Sonnen, and SMA America, among
others. Some of our competitors have significantly greater financial, product development, manufacturing, marketing resources, and name
recognition. In addition to competitors in the ESS space, we compete with companies in power generation equipment and other engine powered
products industries. We face competition from a variety of large diversified industrial companies as well as smaller generator manufacturers,
along with mobile equipment, engine powered tools, solar inverter, battery storage and grid services providers, both domestic and internationally.
In addition, as energy storage becomes a necessary component for residential customers to realize better value/savings from their solar
PV installation, we believe new competitors will emerge in this field. There is no assurance that we will be able to successfully compete
in this market.
NeoVolta Competitive Advantages:
Availability . We believe
recent back-order times for competitive products have been as long as 9-months in 2021. Smaller installers rely on quick sales to install
to payment to keep their business going, and the lack of availability of competitive products is often the reason they are introduced
to NeoVolta. Since December 2021, NeoVolta has been delivering on orders in under two weeks, very often the same day. We achieve this
by maintaining a high level of inventory relative to projected sales, component consolidation prior to shipment, and a small lot, recurring
freight strategy, which we believe allows for more flexibility in getting through the supply chain. Our strategy of maintaining higher
levels of inventory based on projected sales means that to the extent our sales expectations in any periods are incorrect we may suffer
cash flow constraints for such periods. LG Chem recently experienced a large recall of their older systems due to fire risk and product
defects associated with their lithium-ion chemistry. Inability to secure reliable product delivery, fire risk, and recalls have harmed
reputations of our competitors.
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Installer Service .
NeoVolta considers its installer relationships to be the key to our growth. The relative newness of the industry requires a great deal
of education and support to ensure quality and efficient installations. With all energy storage, there is significant necessary electrical
work, which may be new to smaller solar installers. NeoVolta requires that every installer go through our Certified Installer Program
and we often walk them through early installations one-on-one to get them comfortable with the product either in-person or via smart phone
video. NeoVolta’s San Diego-based direct customer support is available throughout the install and for any ongoing service, as well
as through our remote system monitoring. This one-on-one philosophy has generated great customer loyalty and install success and we intend
to invest the resources necessary to keep this partnership culture a priority.
Superior Product . Some
of our competitors have significantly greater financial, product development, manufacturing, marketing resources, and name recognition
than we have. However, with the industry’s growth will come frequent and dramatic change. We believe that our 100% commitment to
ESS and our size allow us to navigate this nascent industry more nimbly, and we have been able to develop distinct competitive advantages
to appeal to smaller and regional independent installers. We designed the NeoVolta NV14 to be cost effective, easy to install and service,
and adaptable to customer needs. We are one of very few in the ESS industry to focus virtually all our resources on energy storage systems.
Key Product Advantages :
· Residential / Commercial: System adapts to either
application without the need for any additional equipment (transformers)
· Outdoor or Indoor installations: NEMA 3R rated
· Higher power than most competitive options (7,680
W inverter)
· Compatible with AC, DC or both AC and DC power
· UL certified to have no thermal runaway and no
thermal risk (UL 9540A)
· Compatible with generators
· Capable of adding additional battery storage
capacity without need for additional inverter
Our NV14 inverter can also
accept 208 Volt 3-phase commercial power by simply making a settings change. This feature allows small businesses to back up vital systems
such as refrigeration, servers, alarm systems, entry and exit security features, vaults, emergency lighting, etc. Some States are beginning
to require these capabilities as an emergency capability due to frequent grid outages.
IP & Product Development
We currently have one issued
utility patent (US Patent No. 10,998,730) that is directed to NeoVolta’s solar power inverter system. This patent expires on November
25, 2039. A continuing utility application was also filed directed to the ‘730 patent, which is currently pending. Furthermore,
another U.S. patent application was filed directed to supply circuitry that is implemented as part of NeoVolta’s solar power inverter
system (the “supply circuitry patent application”), which is also currently pending. A Patent Cooperation Treaty (PCT) application
has also been filed claiming priority to the supply circuitry patent application, which is also pending. The PCT application affords NeoVolta
the opportunity to file a foreign application in any PCT-member country by the deadline of August 12, 2023. We also intend to further
broaden our product portfolio to pursue new and diverse markets. We believe investment in our operations and engineering teams in the
first quarter will accelerate these improvements.
We rely on a combination of
patent, trademark, copyright, trade secret, including federal, state and common law rights in the United States and other countries, nondisclosure
agreements, and other measures to protect our intellectual property. We require our employees, consultants, and advisors to execute confidentiality
agreements and to agree to disclose and assign to us all inventions conceived under their respective employment, consultant, or advisor
agreement, using our property, or which relate to our business. Despite any measures taken to protect our intellectual property, unauthorized
parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Our business is affected
by our ability to protect against misappropriation and infringement of our intellectual property, including our trademarks, service marks,
patents, domain names, copyrights and other proprietary rights.
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Regulatory Environment
Regulators are quickly getting
involved in the ESS space. In the past two years, California regulators have implemented major requirements, including CSIP and CPUC “rapid
shutdown,” garage safety, non-ferrous cabinet, and more are being planned. We have a track record of understanding, adapting, and
deploying our products in this ever-changing world.
California, via the California
Public Utilities Commission (CPUC), and Hawaii appear to be leading the United States when it comes to new ESS regulations. In the past
16-months, CPUC adopted Common Smart Inverter Profile (CSIP), solar rapid shutdown, and several fire standards both inside garages and
outside on residential dwellings. On June 22, 2020, with significant technical development and relationship building, NeoVolta received
all certifications necessary for California CSIP compliance. On August 5, 2020, the California Energy Commission (CEC) approved NeoVolta’s
CSIP application. CEC facilitates regulatory approvals for the CPUC.
In January 2021, CPUC adopted
solar “rapid shutdown” requirements, which means emergency responders needed to be able to quickly terminate all with a switch
or lever within a few feet of the Main Service Panel (MSP). NeoVolta already met this challenge with outside AC solar installations, and
quickly met the requirements for indoor installations and DC solar.
NeoVolta’s other certifications
include:
· Underwriters Laboratories (UL) 9540, 9540A, 1973, 1741SA, 1642, and 1699B Arc Fault Circuit Protection
Type
· UL 9540A Battery Energy Storage System (ANSI/CAN/UL
9540:2020)
· Institute of Electrical and Electronics Engineers
(IEEE) 1547 (2003 standard)
· International Electrotechnical Commission (IEC)
62897
· Electrical Codes: National Fire Codes (NEC) 2017
· California Public Utilities Commission (CPUC) Rule 21 Interconnection
· Hawaii Electric Companies Source Requirement Document Version 1.1 (SRD-UL-1741-SA-V1.1)
· CSA Group C22.2 No. 107.1:2001 Ed. 3
· Federal Communications Commission (FCC) 15 Class B
· National Electrical Manufacturers Association
(NEMA) Type 3R
· California Energy Commission (CEC) off-grid and on-grid R-F38
· California Energy Commission (CEC) on-grid R-F58
NeoVolta has established a
track record for quickly understanding and meeting regulatory hurdles. Although regulatory changes will cause an enduring need for increases
in Research and Development (R&D) and product constraints, we believe this will also raise the barrier of entry to new market entrants.
We believe NeoVolta is well positioned to face new regulatory requirements due to our battery chemistry and our product being developed
in California - where regulatory standards in energy are generally set. In fact, most states default their own regulations to California’s
standards for energy solar systems.
Employees
As of June 30, 2022, we have
five full-time employees. Our CEO manages all Company strategy, sales and R&D, our CFO manages all finance and administration. The
balance of the staff manages supply chain, technical support and marketing/sales support. We also contract for hire with four outside
consultants and contractors on an ongoing basis. Also, specific contracts for non-recurring R&D. Our intent is to hire up to three
executive level leaders early in the new fiscal year to head up sales & marketing, operations and product development and build out
their teams.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.