NeoVolta Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA NeoVolta Inc. Index to Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID: 206 ) 26 Balance Sheets as of June 30, 2023 and 2022 27 Statements of Operations for the years ended June 30, 2023 and 2022 28 Statements of Stockholders’ Equity for the years ended June 30, 2023 and 2022 29 Statements of Cash Flows for the years ended June 30, 2023 and 2022 30 Notes to the Financial Statements 31 25 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of NeoVolta, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of NeoVolta, Inc. (the “Company”) as of June 30, 2023 and 2022, and the related statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ MaloneBailey, LLP www.malonebailey.com We have served as the Company’s auditor since 2018. Houston, Texas September 22, 2023 26 NEOVOLTA INC. Balance Sheets June 30, 2023 2022 Assets Current assets: Cash and cash equivalents $ 2,002,789 $ 330,385 Accounts receivable, net 1,826,385 1,317,738 Inventory 2,580,571 2,238,208 Prepaid insurance and other current assets 96,119 239,001 Total current assets 6,505,864 4,125,332 Total assets $ 6,505,864 $ 4,125,332 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ – $ 205,600 Accrued interest payable – 53,436 Other accrued liabilities 39,491 127,356 Convertible notes payable – 1,068,000 Total current liabilities 39,491 1,454,392 Convertible notes payable – 53,716 Total liabilities 39,491 1,508,108 Commitments and contingencies (Note 5) – – Stockholders' equity: Common stock, $ 0.001 par value, 100,000,000 shares authorized, 33,155,127 and 21,977,251 shares issued and outstanding 33,155 21,978 Additional paid-in capital 24,872,446 18,394,641 Accumulated deficit ( 18,439,228 ) ( 15,799,395 ) Total stockholders' equity 6,466,373 2,617,224 Total liabilities and stockholders' equity $ 6,505,864 $ 4,125,332 See Accompanying Notes to Financial Statements. 27 NEOVOLTA INC. Statements of Operations Year Ended June 30, 2023 2022 Revenues from contracts with customers $ 3,455,813 $ 4,473,514 Cost of goods sold 2,767,818 3,806,381 Gross profit 687,995 667,133 Operating expenses: General and administrative 3,293,758 6,353,920 Research and development 29,936 68,503 Total operating expenses 3,323,694 6,422,423 Loss from operations ( 2,635,699 ) ( 5,755,290 ) Other expense: Interest expense ( 4,134 ) ( 49,544 ) Total other expense ( 4,134 ) ( 49,544 ) Net loss $ ( 2,639,833 ) $ ( 5,804,834 ) Weighted average shares outstanding - basic and diluted 32,025,620 20,554,985 Net loss per share - basic and diluted $ ( 0.08 ) $ ( 0.28 ) See Accompanying Notes to Financial Statements. 28 NEOVOLTA INC. Statements of Stockholders' Equity Years Ended June 30, 2023 and 2022 Additional Total Common Stock Paid-in Accumulated Stockholders' Shares Amount Capital Deficit Equity Balance at June 30, 2021 19,640,888 $ 19,641 $ 13,169,363 $ ( 10,040,370 ) $ 3,148,634 Issuance of common stock for conversion of debt and accrued interest 1,098,630 1,099 5,823 – 6,922 Stock compensation expense 1,237,733 1,238 5,306,571 – 5,307,809 Adjustment for change in accounting principle – – ( 87,116 ) 45,809 ( 41,307 ) Net loss – – – ( 5,804,834 ) ( 5,804,834 ) Balance at June 30, 2022 21,977,251 21,978 18,394,641 ( 15,799,395 ) 2,617,224 Issuance of common stock in underwritten public offering 1,121,250 1,121 3,779,284 – 3,780,405 Issuance of common stock for conversion of debt and accrued interest 9,671,867 9,672 1,169,614 – 1,179,286 Stock compensation expense 384,759 384 1,528,907 – 1,529,291 Net loss – – – ( 2,639,833 ) ( 2,639,833 ) Balance at June 30, 2023 33,155,127 $ 33,155 $ 24,872,446 $ ( 18,439,228 ) $ 6,466,373 See Accompanying Notes to Financial Statements. 29 NEOVOLTA INC. Statements of Cash Flows Year Ended June 30, 2023 2022 Cash flows from operating activities: Net loss $ ( 2,639,833 ) $ ( 5,804,834 ) Adjustments to reconcile net loss to net cash used in operations: Stock compensation expense 1,529,291 5,307,809 Bad debt expense 490,000 – Changes in current assets and liabilities Accounts receivable ( 998,647 ) ( 189,294 ) Inventory ( 342,363 ) ( 576,068 ) Prepaid expenses and other current assets 142,882 ( 193,075 ) Accounts payable - others ( 205,600 ) 152,090 Accrued expenses ( 83,731 ) 140,076 Net cash flows used in operating activities ( 2,108,001 ) ( 1,163,296 ) Cash flows from financing activities: Underwritten public offering of common stock 3,780,405 – Proceeds from convertible notes payable – 1,068,000 Net cash flows from financing activities 3,780,405 1,068,000 Net increase (decrease) in cash and cash equivalents 1,672,404 ( 95,296 ) Cash and cash equivalents at beginning of period 330,385 425,681 Cash and cash equivalents at end of period $ 2,002,789 $ 330,385 Supplemental disclosures of cash flow information: Cash paid for interest $ – $ – Cash paid for income taxes $ – $ – Supplemental non-cash financing activities: Convertible notes payable and accrued interest converted to common stock $ 1,179,286 $ 6,922 Adjustment of debt discount related to adoption of new accounting principle $ – $ 87,116 See Accompanying Notes to Financial Statements. 30 NEOVOLTA INC. Notes to Financial Statements June 30, 2023 (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 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 3). Basis of Presentation – The accompanying financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). 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 $250,000. At June 30, 2023, the Company maintained accounts at two different banks, of which the balance at the first bank was within the FDIC insurance limit while the balance at the second bank was in excess of the FDIC insurance limit by $ 1,408,060 . 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 closed a bulk purchase of raw materials consisting of assembly parts from our former contract manufacturer in April 2023, for a gross amount of $ 1.4 million . Inventory is stated at the lower of cost or net realizable value, cost being determined using the first-in, first out (FIFO) method. The Company periodically reviews the value of items in inventory and records an allowance to reduce the carrying value of inventory to the lower of cost or net realizable value based on its assessment of market conditions, inventory turnover and current stock levels. Inventory write-downs are charged to cost of goods sold. No inventory reserve was required as of June 30, 2023 and 2022. The following table presents the components of inventory as of June 30, 2023 and 2022: Schedule of inventory June 30, 2023 2022 Raw materials, consisting of assembly parts, batteries and inverters $ 2,353,055 $ 1,844,049 Work in process – 22,768 Finished goods 227,516 371,391 Total $ 2,580,571 $ 2,238,208 Revenue Recognition – The Company recognizes revenue in accordance with Accounting Standard 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 contact 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 31 The Company generates revenues from contracts with customers, consisting of a relatively small number of wholesale dealers and installers, primarily in California. In the year ended June 30, 2023, three such dealers represented approximately 25 %, 15 % and 13 % of the Company’s revenues, however, no other dealers accounted for more than 10% of the revenues in such period. Those same three dealers plus one other one represented an aggregate of approximately 94 % of the Company’s accounts receivable as of June 30, 2023 (net of allowance), however, no other dealers accounted for more than 10% of the accounts receivable as of June 30, 2023. In the year ended June 30, 2022, two such dealers represented approximately 20 % each of the Company’s revenues. Under its present contracts with customers, the Company’s sole performance obligation is the delivery of products to the customer. Since all of the Company’s revenue is currently generated from the sales of similar products delivered to customers in domestic locations, no further disaggregation of revenue information for the years ended June 30, 2023 and 2022 is provided. Allowance for Doubtful Accounts – The Company recognizes an allowance for doubtful accounts whenever a loss is expected to be incurred in the realization of a customer’s account. As of June 30, 2023 and 2022, our allowance for doubtful accounts was $ 490,000 and zero, respectively. 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. Loss Per Common Share – Basic loss per common share is computed by dividing net loss available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. As of June 30, 2023, the Company had total outstanding common stock equivalents of 1,229,750 shares as follows: (i) 1,121,250 shares related to warrants issued to investors in the public offering completed in August 2022; (ii) 58,500 shares related to warrants issued to the underwriters in that same offering; and (iii) 50,000 shares related to restricted stock units granted to an officer in March 2022 (see Note 3). 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 (“Related Party Disclosures”). 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. 32 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, accounts payable, and long-term debt. The carrying value of long-term debt approximates fair value since the related rate of interest approximates current market rates. At June 30, 2023 and 2022, the Company did no t 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, including the new provisions of ASC 326 (“Financial Instruments – Credit Losses”) pertaining to “current expected credit losses,” and does not believe the adoption of such pronouncements will have a material impact on its financial statements. Effective as of July 1, 2021, the Company early adopted the provisions of ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ). As a result of the adoption of this new accounting principle, using the modified retrospective method, the Company no longer recognized a beneficial conversion feature associated with the issuance of any convertible debt. Accordingly, the Company adjusted the beneficial conversion feature associated with the convertible notes issued in 2018 as of July 1, 2021 by reversing the previously recorded cumulative amortization expense of $45,809 and the remaining unamortized balance of the debt discount of $41,307, with an offsetting adjustment to reduce additional paid-in capital, in the amount of $87,116 (see Note 2). 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 3, we completed a public offering of our equity securities in August 2022 that raised total net proceeds of approximately $3,780,000. We anticipate that we will have sufficient cash resources in order to operate our business for at least the next 12 months from the date these financial statements are issued. (2) Notes Payable In conjunction with the closing of our underwritten public offering in August 2022 (see Note 3), all holders of the Company’s two outstanding series of convertible notes payable, which were originally issued to various accredited investors in May 2018 and October 2021, agreed to convert their debt into a total of 9,671,867 shares of our common stock at the respective conversion rates. Each of these two series of our converted notes payable is further described below. 33 In May 2018, we entered into convertible note payable agreements with a group of accredited investors for aggregate proceeds of $104,688. Each unsecured note originally bore interest at a rate of 12% per annum, which was later reduced by mutual agreement to 3.99% per annum in May 2019. Subsequently, the holders of certain of these notes elected to convert or exchange certain portions of their convertible notes payable into shares of our common stock, based upon the stated conversion rate of $0.0063 per share. As of the closing of our underwritten public offering in August 2022, the holders of the remaining balance of such unconverted notes in the total amount of $ 59,251 , including accrued interest, agreed to convert their debt into a total of 9,404,867 shares of our common stock at the stated conversion rate of $0.0063 per share. In October 2021, we entered into convertible note payable agreements with a group of accredited investors for aggregate proceeds of $ 1,068,000 . Each unsecured note bore interest at a rate of 6% per annum. As of the closing of our underwritten public offering in August 2022, pursuant to the terms of such convertible notes, the notes in the total amount of $1,120,035, including accrued interest, were automatically converted into a total of 267,000 shares of our common stock at the stated conversion rate of $4.00 of principal per share. (3) 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 1,121,250 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 $ 4,485,000 and the net proceeds, after deduction of underwriting discounts and other offering costs were approximately $ 3,780,000 . The Company also granted the underwriter non-tradeable warrants to purchase a total of 58,500 shares of common stock at an exercise price of $4.40 per share for a period of five years. In conjunction with the public offering, all holders of the Company’s 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 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 2). In the year ended June 30, 2022, the holders of the 2018 convertible notes payable having total principal and accrued interest balances in the aggregate amount of $ 6,922 elected to convert their notes. Based upon the stated conversion price of $0.0063 per share, these holders converted their notes payable into a total of 1,098,630 shares of common stock (see Note 2). Warrants – The Warrants for a total of 1,179,750 shares of common stock issued to investors and the underwriters are exercisable at any time after their original issuance and at any time up to the date that is five years after their original issuance, or August 1, 2027. The Warrants may be exercised upon payment of the exercise price in cash on or prior to the expiration date. Under the terms of the Warrant Agreement, we must use our best efforts to maintain the effectiveness of the registration statement and current prospectus relating to common stock issuable upon exercise of the Warrants until the expiration of the Warrants. If we fail to maintain the effectiveness of the registration statement and current prospectus relating to the common stock issuable upon exercise of the Warrants, the holders of the Warrants shall have the right to exercise the Warrants solely via a cashless exercise feature provided for in the Warrants, until such time as there is an effective registration statement and current prospectus. The following table presents activity with respect to the Company’s warrants for the year ended June 30, 2023: Schedule of warrants activity Number Wtd. Avg. Wtd. Avg. Aggregate of Exercise Remaining Intrinsic Shares Price Term (Yrs.) Value Outstanding at July 1, 2022 – $ – Warrants issued to Public Investors 1,121,250 4.00 Warrants issued to Underwriters 58,500 4.40 Outstanding at June 30, 2023 1,179,750 $ 4.02 4.1 $ – Exercisable at June 30, 2023 1,179,750 $ 4.02 4.1 $ – 34 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 January 1, 2023, Milestone 1 was achieved, however, Milestone 2 was not achieved. The underlying 50,000 shares of common stock earned under Milestone 1 were issued to the CEO as of that date. 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 250,000 shares of common stock earned under Milestone 1 were issued to the CFO as of that date. Based upon the Company’s assessment of the probability of the CEO and CFO ultimately achieving each milestone specified under the RSU awards indicated above, the Company has calculated the grant date value of such awards and is amortizing it as stock compensation expense over the underlying performance periods. The Company has recognized stock compensation expense applicable to such RSU awards in the years ended June 30, 2023 and 2022 in the amounts of $ 1,241,563 and $ 773,255 , 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 to be paid quarterly 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 June 30, 2023, we booked an annual accrual of $ 195,000 of compensation expense (of which $175,500 will be settled through the issuance of shares) for our three independent directors under this plan. At the same time, we also granted 26,000 shares, with a grant date value of $ 97,500 , to various advisors pursuant to annual contracts for their services. In the year ended June 30, 2023, we recognized total non-cash stock compensation expense of $ 1,529,291 as follows: (i) $ 1,241,563 for the amortized value of the RSUs granted to our two executive officers, as previously described; (ii) $ 175,500 for the amortized value of the portion of the new compensation plan for our independent directors that is attributable to stock; (iii) $ 85,000 for the net amortized value of the shares granted to various advisors under their annual service contracts; and (iv) $ 27,228 for the fair value of incentive shares earned by two wholesale dealers as of December 31, 2022 (see Note 5). There was a total of 384,759 shares of common stock that were issued to various grantees, including our two executive officers, in the year ended June 30, 2023, of which 75,000 shares were previously expensed in the year ended June 30, 2022. In the year ended June 30, 2022, we recognized total non-cash stock compensation expense of $ 5,307,809 as follows: (i) $ 3,505,000 for the fair value of 500,000 incentive shares earned as of December 31, 2021 by a company controlled by the Company’s CEO under a previous compensation plan (which were not issued until early 2022); (ii) $ 773,255 for the initial amortized value of the RSUs granted to our two executive officers, as previously described; and (iii) $ 1,029,554 for the fair value of earned shares issued to several other grantees, including $ 278,750 for the amortized value of 50,000 shares attributable to a new independent director and $ 60,062 for 8,568 incentive shares earned by a wholesale dealer as of December 31, 2021 (see Note 5). There was a total of 1,237,733 shares of common stock that were issued to various grantees 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 Option Plan with an authorization for the issuance of up to 2,500,000 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 and non-employee directors. As of June 30, 2023, the Company has made awards totaling 450,000 shares for the RSU’s granted to two executives, as noted above, under the Plan. 35 (4) Income Taxes The Company is subject to United States federal income taxes at an approximate rate of 21%. The reconciliation of the provision for income taxes at the federal statutory rate, compared to the Company’s income tax expense as reported, is as follows (rounded to nearest $00): Schedule of income tax expense Year Ended June 30, 2023 2022 Income tax benefit computed at statutory rate $ 233,200 $ 104,400 Change in valuation allowance ( 233,200 ) ( 104,400 ) Provision for income taxes $ – $ – Significant components of the Company’s deferred tax assets at the currently enacted corporate income tax rate are as follows (rounded to nearest $00): Schedule of deferred taxes June 30, 2023 June 30, 2022 Deferred income tax assets: Net operating losses $ 647,800 $ 414,600 Valuation allowance ( 647,800 ) ( 414,600 ) Net deferred income tax assets $ – $ – The Company has a cumulative tax operating loss carry forward as of June 30, 2023 of approximately $ 3,085,000 , with an indefinite expiration period. (5) Commitments and Contingencies Effective January 1, 2021, the Company secured new corporate and manufacturing office space under a sublease agreement with its former contract manufacturer (see Note 6). Under the terms of the sublease agreement, the Company is required to make rental payments of $10,350 per month during the initial one-year term of the agreement. The sublease is renewable for additional terms of 12 months 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, the Company is under is no obligation to renew it. Management has determined that the exercise of the renewal option is not reasonably certain and, as such, the Company has accounted for it as a short-term lease under ASC 842, Leases . Effective January 1, 2023, the Company elected to renew the agreement for another one year period. 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, the Company sells its proprietary ESS units through wholesale dealers, primarily in California. In that regard, the Company has entered into agreements with several wholesale dealers operating in California and other states under which the Company has incentivized the dealers to achieve quarterly sales above targeted levels by agreeing to grant them shares of the Company’s common stock for exceeding such quarterly sales targets, subject to defined maximums. Pursuant to such agreements, two dealers met the necessary milestones to earn a total of 9,759 incentive shares of common stock in December 2022, which were issued in January 2023, and one dealer earned 8,568 incentive shares of common stock in December 2021, which were issued in March 2022. 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. 36 (6) Related Party Transactions In the year ended June 30, 2022, we appointed the former owner of our contract manufacturer (see Note 5) to become a director of the Company. At the time of his appointment, the former owner of our contract manufacturer still had significant related party influence over its operations in his capacity with the contract manufacturer’s new parent company. Pursuant to an agreement that we reached with our contract manufacturer prior to such appointment, we made payments to that company to assemble our energy storage systems during the year ended June 30, 2022 in the total amount of $ 857,025 . Additionally, we made contractual payments to that company for rental of our office space during the year ended June 30, 2022 in the total amount of approximately $ 126,000 . Effective April 1, 2023, we amended our agreement with our contract manufacturer resulting in our taking over direct responsibility for our manufacturing operations from that company, thus eliminating the related party relationship. Prior to the termination of such relationship, we made contractual payments to that company to assemble our energy storage systems during the period from July 1, 2022 to March 31, 2023 in the total amount of $ 669,424 . Additionally, we made contractual payments to that company for rental of our office space during the period from July 1, 2022 to March 31, 2023 in the total amount of $ 95,250 . 37 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.