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Item 7. Management’s Discussion and Analysis

2023-09-22 compared with 2022-09-27 · 88 added, 95 removed, 116 unchanged (61% of the section changed)

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The following discussion

should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report.

statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking

statements that are based on current expectations and involve various risks and uncertainties that could cause our actual results to differ

materially from those expressed in these forward-looking statements.

should be read in conjunction with the financial statements and notes thereto included elsewhere in this report.

Certain statements in

this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements

that are based on current expectations and involve various risks and uncertainties that could cause our actual results to differ materially

from those expressed in these forward-looking statements.

We encourage you to review the “Cautionary Note Regarding Forward-Looking

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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.

We also are also pursuing agreements with residential developers, commercial developers,

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 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

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.

Because we are purely dedicated to energy solar systems, virtually all of 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

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were approximately $3,780,000.

We are planning to use 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.

Underwritten Public Offering

In early August 2022, we completed

an underwritten public offering of our equity securities in the form of Units with each Unit consisting of one share of common stock and

one warrant (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 under the symbols “NEOV” and “NEOVW,” respectively.

Each Warrant became exercisable

on the date of issuance and will expire five years from the date of issuance.

Between the initial closing

of the offering and the underwriters’ exercise of the overallotment option, 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

We are planning to use 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.

In conjunction with the public

offering, all holders of the Company’s 2018 convertible notes in the total amount of $53,716 converted their debt into a total of

9,404,867 shares of common stock at the stated conversion rate, and all holders of the Company’s 2021 convertible notes in the total

amount of $1,068,000 converted their debt into a total of 267,000 shares of common stock at the stated conversion rate (see Note 3 “Equity”

of the notes to our financial statements for the fiscal year ended June 30, 2022, set forth below under, “Index to Financial Statements”).

As a result of the closing of the public offering and the conversion of both sets of convertible notes, the Company has a total of 32,770,368

shares of common stock outstanding and has fully eliminated its convertible debt.

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.

Results of Operations

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from contracts with customers for the year ended June 30, 2023 were $3,455,813 compared to $4,473,514 for the year ended June 30, 2022.

Such decrease partially reflected the negative impact of the COVID-19 pandemic on sales of our assembled energy storage systems as well

as timing differences in receiving installation orders from our major wholesale dealers and installers operating in California and other

states in the two quarters ended June 30, 2022.

Such decrease was primarily due to the pendency of the April 2023 effective date of new utility

regulations in the State of California that we believe caused an economic disincentive for residential utility customers to acquire our

energy storage systems prior to the effective date of those regulations (see “Item 1.

Business - Regulatory Environment”

for a discussion of the new utility regulations).

Cost of Goods Sold

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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 year and resulted in gross profits on such sales of approximately 15% and 13%, respectively, with the comparative

increase largely due to differences with regard to the impact of temporary tariffs on materials we source from China.

sold in each fiscal year and resulted in gross profits on such sales of approximately 20% and 15%, respectively, with such increase largely

being due to transitional factors related to the recent assumption of manufacturing operations from our contract operator which are not

expected to be recurring in the future.

General and Administrative

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Such decrease was primarily due to the reduction in the expense recorded for the fair value of incentive shares of

common stock earned by the Company’s executive officers under their Board approved contracts, largely resulting from a lesser number

of shares being earned in the year ended June 30, 2022 compared to the year ended June 30, 2021.

common stock earned by our executive officers under their new employment contracts, effective in March 2022.

Research and Development

Expense - Research and development expenses for year ended June 30, 2023 were $29,936 compared to $68,503 for year ended June 30,

Such fluctuation was due to a modest increase in the level of the Company’s product development efforts.

We expect research

and development expense to increase in the future as we improve and expand upon our product portfolio.

Such fluctuation was due to a modest decrease in the level of our product development efforts.

Interest Expense -

Interest expense for the year ended June 30, 2022 was $49,544 compared to $24,521 for the year ended June 30, 2021, reflecting an increase

resulting from the interest expense accrued on new convertible notes issued in October 2021, partially offset by discontinuing the amortization

of a previously recorded debt discount to interest expense, which was associated with convertible notes issued in May 2018, due to the

adoption of a new accounting principle on July 1, 2021.

Gain on Forgiveness of

Debt - Gain on forgiveness of debt for the year ended June 30, 2022 was zero compared to $29,600 for the year ended June 30, 2021,

reflecting the forgiveness of a U.S.

government sponsored loan that was received in May 2020 and was subsequently forgiven in full in

February 2021.

Interest expense for the year ended June 30, 2023 was $4,134 compared to $49,544 for the year ended June 30, 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

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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.

We have not recognized any income tax benefit for these net losses due to

the uncertainty of our ultimate realization.

Liquidity and Capital Resources

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Net cash used in operating activities in the year ended June 30, 2023 was $2,108,001, compared to $1,163,296 in the year ended June 30,

2021, largely due to a somewhat higher net cash operating loss in the current fiscal year period.

2022, reflecting a significant increase in net working capital requirements for operations of approximately $800,000 in the current fiscal

Financing activities .

Net cash provided by financing activities in the year ended June 30, 2022 was $1,068,000, compared to zero in the year ended June 30,

This fluctuation was entirely attributable to the issuance of short-term convertible notes to a group of accredited investors in

October 2021 in the amount of $1,068,000.

As of June 30, 2022, we had a cash balance of $0.3 million and net working capital of $2.7 million.

However, in early August 2022, we completed an underwritten public offering of our equity securities in the form of Units with each Unit

consisting 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.

Between the initial closing of the offering and the underwriters’ exercise of the overallotment option, 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 $3,855,000.

Net cash provided by financing activities in the year ended June 30, 2023 was $3,780,405, compared to $1,068,000 in the year ended June

As further discussed below, our net cash provided by financing activities in the year ended June 30, 2023 was entirely attributable

to the successful completion of an underwritten public offering of our equity securities in early August 2022.

Our net cash provided by

financing activities in the year ended June 30, 2022 resulted from the issuance of our convertible notes payable to a group of accredited

investors in October 2021 in the amount of $1,068,000.

Such notes were ultimately converted into common stock in conjunction with the

closing of our public offering in 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 the Company’s 2018 convertible notes in the total amount of $53,716 converted their debt into a total of

9,404,867 shares of common stock at the stated conversion rate, and all holders of the Company’s 2021 convertible notes in the total

amount of $1,068,000 converted their debt into a total of 267,000 shares of common stock at the stated conversion rate.

As a result of

the closing of the public offering and the conversion of both sets of convertible notes, the Company has a total of 32,770,368 shares

of common stock outstanding and has fully eliminated its convertible debt.

Currently, we are generating

a roughly break-even level of net operating cash flow, excluding the higher corporate overhead expenses related to our recently completed

public offering, from our net sales.

However, we have not sustained such performance on a consistent basis for an extended period of time.

We anticipate that demand for our products will continue to increase and that we will have sufficient cash to operate for at least the

next 12 months, after taking into consideration the additional equity offering completed in August 2022, as noted above.

Recent Developments

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, converted their debt into a total of 267,000 shares of common stock at the stated conversion

As a result of the simultaneous conversion of both sets of convertible notes, we fully eliminated our convertible debt.

As of June 30, 2023, we had

a cash balance of $2.0 million and net working capital of approximately $6.5 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 closed the

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”)

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 plan to hire three additional

“assemblers” in the second half of 2023.

All of our manufacturing certifications are listed under NeoVolta.

This amended agreement

had no effect on our present Sublease Agreement with our contract manufacturer, pertaining to our existing manufacturing location in Poway,

CA (see “Item 2 – Properties”).

Other Developments

As a result of the continued

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been prepared in accordance with generally accepted accounting principles in the United States, or GAAP.

The preparation of these consolidated

financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the

disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during

the reporting periods.

Our estimates are based on our limited historical experience and on various other factors that we believe are reasonable

under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that

are not readily apparent from other sources.

The preparation of these financial

statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure

of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting

Our estimates are based on our limited historical experience and on various other factors that we believe are reasonable under

the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are

not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis