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, NV 24 and, to a lesser extent, our NV14-K, 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 expand multiple opportunities
with 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, 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 ourselves as a major player in the energy storage market.
Our NV14 ESS contains a 7,680
W hybrid 120V / 240V and 208V 3-phase 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 NV14-K variant is specifically designed for inclusion into EOS Linx Electric Vehicle charging and advertising products
named “Aurora Charge Station.” 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.
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. At present, we
have installs in the following 14 States and Territories: California, Nevada, Arizona, Utah, Colorado, Wyoming, Texas, Oklahoma, Missouri,
Tennessee, Alabama, Georgia, Florida, and Puerto Rico. In January 2021, we moved to a larger production facility in Poway, California
to facilitate growth.
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Our Products - NeoVolta NV14, NV14-K, 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. The NV14-K is a variant of the NV14 built to EOS Linx specifications.
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 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. 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.
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. Since then, the number of major power outages in California reached a peak in 2020 before declining slightly
thereafter. 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.
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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.
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 present revenue and recurring customer base is residential and commercial solar system installers. As of
January 2024, IBIS World estimates that there are approximately 11,100 solar panel installation companies operating in the US. With a
secure supply chain backed by tax incentives, this number is expected to rise as both the commercial and residential markets continue
to grow. The impact of the Inflation Reduction Act (see, “ Market Drivers – Regulation ”) on just residential solar
panel installation is expected to grow at a compound annual growth rate of 14.4% from 2024 to 2030. 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. 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.
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Installer storage installation
activity has grown over time, with approximately one-half of all active residential installers in recent years having completed at least
one solar + storage system, 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 a December 2023 report from
Berkeley Lab, there are over 3.4 million solar systems installed in the US with only a relatively small percentage of those having energy
storage 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. 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.
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 sixfold growth from 2020.
Market Drivers
Regulatory . At the federal level, the most
significant recent regulatory development regarding ESS has been, by far, the passage of the Inflation Reduction Act (“IRA”)
in August 2022. Due to its extensive investment-related incentives, the IRA is expected to have a wide-ranging impact
on both public and private investment in the clean energy space in the US, on a long-term basis. Additionally, there have been
a rapidly expanding number of mandates at the state and local level that have also been directed toward the solar industry in recent years.
On the incentive side, the IRA has increased the
federal Investment Tax Credit, or ITC, from 26% to 30% for qualifying investments, including energy storage. For a typical ESS, the ITC
can reduce the cost of the system by $4,500 to $6,000. In certain instances, the incentives of the ITC can be potentially increased up
to as much as 60% of the qualifying project cost. Finally, the IRA also expands the federal Production Tax Credit, which was first enacted
in 2007, primarily for the benefit of the wind industry, to the solar power industry.
On the mandate side, 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
in August of 2021. 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 related incentives to eliminate natural gas from new
buildings. Many other states are also implementing various measures in order to encourage greater adoption of energy storage technologies.
For example, 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.
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Of further note on the state regulatory level,
California implemented Net Energy Metering 3 (NEM3) for subsequent new solar installations on April 14, 2023. 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. We estimate that NEM3 reduced our sales from the enactment date in December
2022 continuing through our last fiscal quarter, as solar installers worked off their permitted NEM2 installs. We expect our sales to
gradually increase going forward.
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.
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
With the addition of Ardes
Johnson to NeoVolta’s management team as our CEO in April 2024, we have implemented an entirely new growth strategy that is designed
to greatly expand our market penetration and product sales. Mr. Johnson is a seasoned industry executive who most recently, served as
the President of the U.S. subsidiary of Meyer Burger, a major manufacturer of
solar cells and solar modules based in Switzerland, for three years. His previous experience includes high level sales positions with
both Tesla and General Electric.
Under
Mr. Johnson’s direction and leadership, we intend to vigorously pursue three major growth objectives as follows (i) Expanding revenue
through strategic sales channel development, (ii) Broadening financing options through partnerships with major industry players, and (iii)
Initiating development of the next generation of batteries. In furtherance of these key growth
objectives , Mr. Johnson has recently undertaken the following significant tactical initiatives:
· National
Sales Team Formation : NeoVolta has successfully assembled a national sales team targeting key renewable energy
distribution centers, ensuring a robust presence across the U.S.
· Strategic
Collaborations Initiated : We have begun collaborations with leading solar installers in California, Nevada, and
Florida, positioning ourselves to attempt to capture a larger market share.
· Advanced
Conversations for Next-Gen Systems : We have initiated discussions with entities to develop the next generation
of NeoVolta’s energy storage systems, setting the stage for future innovation.
Additionally, we are planning
to adopt a number of other near-term strategic moves that are designed to rapidly increase the growth of our product sales. For example,
NeoVolta is actively expanding into high-potential regions such as Hawaii, Texas, Florida, and Puerto Rico, with regionally based sales
teams to maximize reach and service. Also, another of our key initiatives is to make NeoVolta’s products more accessible and affordable,
driving increased adoption and sales in the residential energy storage market.
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With regard to the
expanding commercial market for our products, we are planning to enhance our existing R&D technology to create
complementary solutions tailored for the commercial sector, expanding NeoVolta’s market footprint, beginning in 2025. Further,
we will be launching our Virtual Peaker Solution in order to a ddress the growing demand for
storage-only solutions from utilities and aggregators, seeking to position NeoVolta at the forefront of energy storage
innovation.
Competition
We compete with several large
competitors already successfully selling in the ESS space. Notable competitors include Tesla, LG Chem, Sonnen, Enphase, SunPower, 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 recent years. 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 usually less than two weeks, very often the same
day. We achieve this by maintaining a high level of parts 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. Inability to secure reliable product delivery, fire risk, and recalls
have harmed reputations of our competitors.
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)
· Higher 6,000 cycle batteries
· Compatible with generators
· Can support off grid
· Capable of adding additional battery storage
capacity without need for additional inverter
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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 three issued
US utility patents. US Patent No. 10,998,730 B1 is directed to NeoVolta’s solar power inverter system. US Patent No. 11,502,618
B2 relates to NeoVolta’s generators. US Patent No. 11,605,952 B1. which is an expansion of our first Patent, relates to NeoVolta’s
solar power inverter system. We will continue to expand our Patent portfolio when appropriate.
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.
Regulatory Environment
Regulators are quickly getting
involved in the ESS space. In the past three 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
36-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.
In June 2022, California adopted
several requirements for inside garage installations and disallowed any installs inside residential living spaces to include most basements.
These changes affect where a system can be installed and may prevent installation in colder climates.
NeoVolta’s other certifications
include:
· Underwriters Laboratories (UL) 9540, 9540A, 1973, 1741SA, 1642, and 1699B Arc Fault Circuit Protection
Type
· UL 1741 third edition
(including UL 1741 Supplemental SB)
· UL 9540A Battery Energy Storage System (ANSI/CAN/UL
9540:2020)
· Institute of Electrical and Electronics Engineers
(IEEE) 1547 (2018 standard)
· International Electrotechnical Commission (IEC)
62897
· Electrical Codes: National Fire Protection Association’s NFPA 70 National Fire Codes (NEC) 2023
· 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): Grid Support Utility, Utility Interactive, Energy Storage System NV14
and NV24
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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.
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. We estimate that NEM3 reduced our sales from the enactment date in December 2022 continuing through our last
fiscal quarter, as solar installers worked off their permitted NEM2 installs. We expect our sales to gradually increase going forward.
Manufacturing
All of NeoVolta’s products
are manufactured in-house at our Poway, CA facility. We manufacture our products in an efficient build-to-order model, keeping very little
finished-goods inventory. We sublease and share our facility with our former contract manufacturer under a physical arrangement.
Pursuant to 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 from our contract manufacturer on June 1, 2023. Accordingly, we now issue customer build orders to our two new
employees that we hired from our former contract manufacturer, they pull the raw materials from the warehouse, assemble the final units
and prepare them for shipment or pick-up. Our timeline from order to delivery is usually less than two weeks.
The end-product is then picked
up or shipped from our docks, signed off by our installer and logged into our system when installed for system monitoring.
We run multiple quality checks
throughout the process and have systems to track components and end-units from Asia to San Diego to the end-user’s location. We
record all component serial numbers, all torque settings, and annotate all required item numbers and functionality prior to packaging.
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
$1.3 million, after considering credits for prepayments and other items of approximately $0.1 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 employees of our contract manufacturer who previously performed contract manufacturing
services for us. We plan to hire up to three additional “assemblers” in the future. 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”).
Employees
As of June 30, 2024, we have
10 full-time employees. Our CEO, who joined the Company in April 2024, manages all Company strategy, sales and R&D, our CFO manages
all finance and administration. Our manufacturing operations are performed by the new employees that we have hired from our former contract
operator, as noted above. 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, we enter into specific contracts for non-recurring R&D
projects, as needed.
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Access to Information
Our website is at www.neovolta.com.
We make available, free of charge, on our corporate website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), as soon as reasonably practicable after they are electronically filed with the Securities
and Exchange Commission (SEC). The SEC maintains an internet site that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC at www.sec.gov. Information contained on our website does not, and shall not be
deemed to, constitute part of this Annual Report on Form 10-K. Our reference to the URL for our website is intended to be an inactive
textual reference only.