NeoVolta Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction This information should be read in conjunction with the interim unaudited financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the audited financial statements and notes thereto and “Part II. Other Information - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”, contained in our Annual Report on Form 10-K for the year ended June 30, 2024, filed with the Securities and Exchange Commission on September 27, 2024 (the “Annual Report”). Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our unaudited financial statements included above under “Part I - Financial Information” - “Item 1. Financial Statements”. Unless the context requires otherwise, references to the “Company , ” “we , ” “us,” “our , ” “NEOV”, refer specifically to NeoVolta, Inc. In addition, unless the context otherwise requires and for the purposes of this Report only: · “Exchange Act” refers to the Securities Exchange Act of 1934, as amended; · “SEC” or the “Commission” refers to the United States Securities and Exchange Commission; and · “Securities Act” refers to the Securities Act of 1933, as amended. Overview We are a designer, manufacturer, 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 all 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 a public offering of 3,500,000 shares of our common stock at an offering price of $1.00 per share for gross proceeds of $3.5 million pursuant to Regulation A of the Securities Act. We used the proceeds of the offering 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 of the current date, we have had successful installations of our products in the additional States of Arizona, Utah, Colorado, Wyoming, Texas, Oklahoma, Missouri, Tennessee, Alabama, Georgia, Florida, and Puerto Rico. 16 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 have used 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. 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 complimentary battery system such as ours. We believe that the anticipation of the passage of NEM3 in California, as well as the timing of its post-effective implementation, has had an erratic and temporary impact on the sales of our products in that state, beginning in December 2022. Results of Operations The following discussion reflects the Company’s revenues and expenses for the three-month and six-month periods ended December 31, 2024 and 2023, as reported in our financial statements included in Item 1. Three months ended December 31, 2024 versus three months ended December 31, 2023 Revenues - Revenues from contracts with customers for the three months ended December 31, 2024 were $1,071,581 compared to $1,017,828 for the three months ended December 31, 2023. Such relatively modest increase in revenues was primarily due to the impact of opening various new sales channels since the engagement of our new chief executive officer in April 2024 . Cost of Goods Sold - Cost of goods sold for the three months ended December 31, 2024 were $747,670 compared to $811,955 for the three months ended December 31, 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 30% and 20%, respectively, with the increase largely being due to the reversal in December 2024 of a prior year reserve for obsolescence on component parts of our NV-14Ks of $90,000. General and Administrative Expense - General and administrative expenses for the three months ended December 31, 2024 were $1,228,517 compared to $774,698 for the three months ended December 31, 2023. Such increase was mainly due to our engagement of a new chief executive officer, who was engaged at an annual salary of $350,000 and also received a 4 year amortizing equity award of $2,854,000, as well as the hiring of several other employees since April 2024. The addition of these personnel resulted in a higher level of both cash compensation expense and other associated expenses, such as marketing and travel, as well as non-cash stock compensation expenses related to the Company’s equity incentive programs. Research and Development Expense - Research and development expenses for the three months ended December 31, 2024 were $42,324 compared to zero for the three months ended December 31, 2023. Such fluctuation was largely due to timing differences in the level of the Company’s recent product development efforts. 17 Other Income and Expense - Interest expense for the three months ended December 31, 2024 was $24,546 compared to zero for the three months ended December 31, 2023, reflecting interest attributable to borrowings made under our line of credit and borrowing arrangements obtained since June 30, 2024. Interest income for the three months ended December 31, 2024 was $339 compared to $12,781 for the three months ended December 31, 2023. This decrease was due to our lower level of investable cash in the three months ended December 31, 2024. Net Loss - Net loss for the three months ended December 31, 2024 was $971,137 compared to $556,044 for the three months ended December 31, 2023, representing the aggregate of 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. Six months ended December 31, 2024 versus six months ended December 31, 2023 Revenues - Revenues from contracts with customers for the six months ended December 31, 2024 were $1,661,817 compared to $1,781,958 for the six months ended December 31, 2023. Such decrease was primarily due to the impact of various macroeconomic factors, such as relatively high interest rates, and regulatory factors, such as utility regulations in the State of California, partially offset by the impact of opening various new sales channels since the engagement of our new chief executive officer in April 2024 . Cost of Goods Sold - Cost of goods sold for the six months ended December 31, 2024 were $1,245,059 compared to $1,454,913 for the six months ended December 31, 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 25% and 18%, respectively, with the increase largely being due to the reversal in December 2024 of a prior year reserve for obsolescence on component parts of our NV-14Ks of $90,000. General and Administrative Expense - General and administrative expenses for the six months ended December 31, 2024 were $2,278,636 compared to $1,329,858 for the six months ended December 31, 2023. Such increase was mainly due to our engagement of a new chief executive officer, who was engaged at an annual salary of $350,000 and also received a 4 year amortizing equity award of $2,854,000, as well as the hiring of several other employees since April 2024. The addition of these personnel resulted in a higher level of both cash compensation expense and other associated expenses, such as marketing and travel, as well as non-cash stock compensation expenses related to the Company’s equity incentive programs. Research and Development Expense - Research and development expenses for the six months ended December 31, 2024 were $50,941 compared to zero for the six months ended December 31, 2023. Such fluctuation was largely due to timing differences in the level of the Company’s recent product development efforts. Other Income and Expense - Interest expense for the six months ended December 31, 2024 was $24,546 compared to zero for the six months ended December 31, 2023, reflecting interest attributable to borrowings made under our line of credit and borrowing arrangements obtained since June 30, 2024. Interest income for the six months ended December 31, 2024 was $1,734 compared to $18,054 for the six months ended December 31, 2023. This decrease was due to our lower level of investable cash in the six months ended December 31, 2024. Net Loss - Net loss for the six months ended December 31, 2024 was $1,935,631 compared to $984,759 for the six months ended December 31, 2023, representing the aggregate of 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. 18 Liquidity and Capital Resources Operating activities. Net cash used in operating activities in the six months ended December 31, 2024 was $1,451,330 compared to $503,497 in the six months ended December 31, 2023. This increase was largely due to the current period increase in our comparative net loss, primarily resulting from an increase in our previously noted cash operating expenses, as well as relatively higher changes in our net working capital needs on a comparative basis. Financing activities. Net cash provided by financing activities in the six months ended December 31, 2024 was $793,649, compared to zero in the six months ended December 31, 2023. In September 2024, we entered into an agreement with a newly formed financing entity whereby we obtained a line of credit for borrowings of up to $5,000,000. As of December 31, 2024, we had made net borrowings under this credit agreement in the total amount of $383,538 initially to fund a short-term loan that we made to a customer in October 2024, in the amount of $250,000, which was fully repaid in December 2024. In November and December 2024, we made short-term borrowings from an accounts receivable lender in the total amount of $371,997, of which a portion had been repaid, leaving an outstanding balance as of December 31, 2024 of $249,711. In December 2024, we also received proceeds from the exercise of warrants issued in our August 2022 public offering in the amount of $160,400. On February 4, 2025, the Company entered into an agreement with an accredited investor group under which the Company issued a total of 500,000 shares of its common stock to the investor group at an offering price of $2.00 per share resulting in gross proceeds to the Company in the amount of $1,000,000. As of December 31, 2024, we had a cash balance of approximately $0.3 million and net working capital of approximately $3.7 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, in conjunction with our recently obtained line of credit noted above and the completion of the February 2025 private offering, we will have sufficient cash to operate for at least the next 12 months. 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. Presently, our two main raw material components, batteries and inverters, are imported from different Asian suppliers and are subject to fairly low tariff rates that have been in effect for several years. The newly inaugurated Trump Administration has indicated that it may propose a significant increase in such tariff rates on various types of goods imported from Asia that could apply to our two main components. In the event that any such possible tariff increases recently proposed by President Trump on China and two North American countries become enacted, which are applicable to our two main components, they would significantly increase the cost of our two main imported components whenever the increased rates become effective. In that case, we would be faced with a decision as to whether we should attempt to pass along such tariff increases to our customers through higher prices for our products or absorbing them internally, or some combination of those two alternatives. 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. 19 Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based on financial statements which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We believe that certain accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements. See “Note 1. Business and Summary of Significant Accounting Policies” of the Notes to Financial Statements set forth above and under “Item 8. Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the year ended June 30, 2024, as filed with the SEC on September 27, 2024, for a further description of our critical accounting policies and estimates. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information for this Item is not required as the Registrant is a “smaller reporting company” as defined in Rule 12b-2 of the Exchange Act.