Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion
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
Statements” and “Risk Factors” sections in this report.
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. We are also pursuing agreements with residential developers,
commercial developers, and other commercial opportunities. Because we are purely dedicated to energy solar systems, virtually all of our
current resources and efforts go into further developing our flagship NV14 and NV 24 products, while focusing on specific industry needs
for our next generation of products. We believe we are unique in the marketplace due to our low cost, our innovative battery chemistry,
our product versatility and our commitment to installer service. Because of these factors, we believe NeoVolta is uniquely equipped to
establish itself as a major player in the energy storage market.
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In May 2019, we completed
a public offering of shares of our common stock pursuant to Regulation A of the Securities Act (the “IPO”). The IPO was for
a total of 3,500,000 shares of our common stock at an offering price of $1.00 per share. We used the proceeds of the IPO to ramp up production,
marketing, and sales of our NV14 product line. In that regard, we have used the proceeds from the offering to fund the marketing, production
and distribution of our products, which commenced in July 2019 through a group of wholesale customers in California, as well as to provide
additional working capital for other corporate purposes. We have expanded to include one wholesale distribution customer in Nevada.
As further discussed below
under “Liquidity and Capital Resources,” we completed an underwritten public offering of our equity securities in the form
of Units in August 2022. We sold a total of 1,121,250 Units in the offering at an offering price to the public of $4.00 per Unit. The
gross proceeds of the offering were $4,485,000 and the net proceeds, after deduction of underwriting discounts and other offering costs,
were approximately $3,780,000. We are using the proceeds of this public offering to increase our current production capacity, expand our
product portfolio, enlarge our product marketing and sales efforts, and for other general corporate purposes.
Results of Operations
Comparison of the Years
Ended June 30, 2024 and 2023
Revenues - Revenues
from contracts with customers for the year ended June 30, 2024 were $2,645,072 compared to $3,455,813 for the year ended June 30, 2023.
Such decrease was primarily due to various macroeconomic and regulatory factors including the negative impact of new utility regulations
in the State of California that we believe has caused an extended economic disincentive for residential utility customers to acquire our
energy storage systems since the December 2022 enactment date and continuing through the year ended June 30, 2024.
Cost of Goods Sold
- Cost of goods sold for the year ended June 30, 2024 were $2,134,725 compared to $2,767,818 for the year ended June 30, 2023. The cost
of goods sold in both periods reflected the cost of procuring and assembling the component parts of the energy storage systems that were
sold in each fiscal year and resulted in gross profits on such sales of approximately 19% and 20%, respectively, with such decrease largely
being due to a partial reserve for obsolescence on component parts of our NV-14K’s of $90,000 in the year ended June 30, 2024, which
was offset in part by efficiencies that we have realized from taking over responsibility for manufacturing of our products from a contract
operator since last year.
General and Administrative
Expense - General and administrative expenses for the year ended June 30, 2024 were $2,828,147 compared to $3,293,758 for the year
ended June 30, 2023. Such decrease was primarily due to the reduction in the expense recorded for the fair value of incentive shares of
common stock earned by our executive officers under their current employment contracts.
Research and Development
Expense - Research and development expenses for the year ended June 30, 2024 were $19,154 compared to $29,936 for the year ended June
30, 2023. Such fluctuation was due to a modest decrease in the level of our product development efforts.
Other Income and Expense
- Interest income for the year ended June 30, 2024 was $33,644 compared to zero for the year ended June 30, 2023. This increase was due
to rising money market rates which have enabled the Company to earn interest on its investable cash in the year ended June 30, 2024. Interest
expense for the year ended June 30, 2024 was zero compared to $4,134 for the year ended June 30, 2023, reflecting the conversion of our
2018 and 2021 convertible notes in conjunction with the closing of our public equity offering in August 2022.
Net Loss - Net loss
for the year ended June 30, 2024 was $2,303,310 compared to $2,639,833 for the year ended June 30, 2023, representing the aggregate of
the various revenue and expense categories indicated above. We have not recognized any income tax benefit for these net losses due to
the uncertainty of our ultimate realization.
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Liquidity and Capital Resources
Operating activities .
Net cash used in operating activities in the year ended June 30, 2024 was $1,016,362, compared to $2,108,001 in the year ended June 30,
2023, reflecting a significant decrease in net working capital requirements in the current fiscal year period.
Financing activities .
Net cash provided by financing activities in the year ended June 30, 2024 was zero compared to $3,780,405 in the year ended June 30, 2023.
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.
We completed an underwritten
public offering of our equity securities in the form of Units in early August 2022. Each Unit consisted of one share of common stock and
one warrant to purchase one share of common stock at an exercise price of $4.00 per share. We sold a total of 1,121,250 Units in the offering
at an offering price to the public of $4.00 per Unit. The gross proceeds of the offering, including the underwriters’ exercise of
the overallotment option, were $4,485,000 and the net proceeds, after deduction of underwriting discounts and other offering costs, were
approximately $3,780,000.
In conjunction with the public
offering, all holders of our 2018 convertible notes in the total amount of $59,251, including accrued interest, converted their debt into
a total of 9,404,867 shares of common stock at the stated conversion rate, and all holders of our 2021 convertible notes in the total
amount of $1,068,000 converted their debt into a total of 267,000 shares of common stock at the stated conversion rate. As a result of
the simultaneous conversion of both sets of convertible notes, we fully eliminated our convertible debt.
As of June 30, 2024, we had
a cash balance of approximately $1.0 million and net working capital of approximately $4.6 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.
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”)
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 additional
“assemblers” as necessary. All of our manufacturing certifications are listed under NeoVolta. The amended agreement in April
2023 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
We continue to monitor current
international developments occurring in Ukraine and Israel. However, we do not believe that they will have a significant impact on either
the domestic markets for our products or the international supply chains for our product components, which are largely sourced from Asia.
Off-Balance Sheet Arrangements
We have no obligations, assets
or liabilities which would be considered off-balance sheet arrangements as defined in Item 303 of Regulation S-K.
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Critical Accounting Policies
The financial statements have
been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. 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
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. Actual results may differ from these estimates under different assumptions or conditions.
We believe that certain accounting
policies, particularly those related to the recognition of revenues arising from the sales of our ESS products to customers of our business,
affect our more significant judgments and estimates used in the preparation of our financial statements. With regard to revenue recognition,
the Company recognizes revenue in accordance with Accounting Standard Update ("ASU") 2014-09, Revenue from Contracts with Customers
(Topic 606), which was adopted on July 1, 2019 using the modified retrospective method, with no impact to the Company’s comparative
financial statements. 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
See “Note 1. Business
and Summary of Significant Accounting Policies” of the notes to our financial statements for the fiscal year ended June 30, 2024,
set forth below under, “Index to Financial Statements”, for a further description of our critical accounting policies and
estimates.
Emerging Growth Company and Smaller Reporting
Company Status
We are an emerging growth
company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards
issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We elected to use this
extended transition period for complying with new or revised accounting standards that have different effective dates for public and private
companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt
out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies
that comply with the new or revised accounting pronouncements as of public company effective dates. We are using the extended transition
period for any other new or revised accounting standards during the period in which we remain an emerging growth company.
We will remain an emerging
growth company until the earliest of (i) the last day of our first fiscal year (a) following the fifth anniversary of the completion of
our August 2022 offering, (b) in which we have total annual gross revenues of at least $1.235 billion or (c) in which we are deemed to
be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as
of the prior June 30th and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the
prior three-year period.
We are also a “smaller
reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700.0 million and our annual
revenue is less than $100.0 million during the most recently completed fiscal year. We may continue to be a smaller reporting company
if either (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue is less than
$100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0
million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions
from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we
may choose to present only the two most recent fiscal years of audited financial statements in our Annual Reports on Form 10-K and, similar
to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISKS
We are a smaller reporting
company as defined by Rule 12b-2 of the Exchange Act and are not required to provide information required under this item.
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