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, 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 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.
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, 2025 and 2024
Revenues - Revenues
from contracts with customers for the year ended June 30, 2025 were $8,426,835 compared to $2,645,072 for the year ended June 30, 2024.
Such increase in our revenues was primarily due to the rapid expansion of various new sales channels
outside of our traditional focus on the local installer market in the Southern California area since the engagement of our new chief executive
officer in April 2024 . As a result, we achieved the highest level of annual sales in our history.
Cost of Goods Sold
- Cost of goods sold for the year ended June 30, 2025 were $6,920,130 compared to $2,134,725 for the year ended June 30, 2024. 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 essentially comparable gross profits on such sales of approximately 18% and 19% in each year.
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General and Administrative
Expense - General and administrative expenses for the year ended June 30, 2025 were $6,065,590 compared to $2,828,147 for the year
ended June 30, 2024. Such increase was mainly due to our appointment 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 has 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 year ended June 30, 2025 were $157,305 compared to $19,154 for the year ended
June 30, 2024. Such increase was largely due to a higher level of focus by our new chief executive officer on product development efforts.
Other Income and Expense
– Interest expense for the year ended June 30, 2025 was $320,417 compared to zero for the year ended June 30, 2024, reflecting interest
attributable to borrowings made under our line of credit and another borrowing arrangement obtained since June 30, 2024. Interest income
for the year ended June 30, 2025 was $2,011 compared to $33,644 for the year ended June 30, 2024. This decrease was due to our lower level
of investable cash in the year ended June 30, 2025.
Net Loss - Net loss
for the year ended June 30, 2025 was $5,034,596 compared to $2,303,310 for the year ended June 30, 2024, 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.
Liquidity and Capital Resources
Operating activities .
Net cash used in operating activities for the year ended June 30, 2025 was $4,425,752 compared to $1,016,362 for the year ended June 30,
2024. 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 for personnel and related costs, as well as the relatively higher changes in our net working
capital needs, including recent stockpiling and prepayment of inventory, on a comparative basis.
Financing activities.
Net cash provided by financing activities for the year ended June 30, 2025 was $4,234,161 compared to zero for the year ended June 30,
2024. In February 2025, we completed a private equity offering under which we issued a total of 543,500 shares of our common stock to
investors at an offering price of $2.00 per share resulting in gross proceeds of $1,087,000. 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 June 30, 2025, we
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. Beginning in November 2024, we made short-term
borrowings from another lender in the total amount of $5,106,343, of which a portion had been repaid, leaving an outstanding balance as
of June 30, 2025 of $2,603,223. While our increasing level of short-term borrowings from this lender have been made at a relatively high
borrowing cost in terms of interest rate and fees, we have been able to meet our rising funding needs in this period in large part due
to the timely responsiveness of this lender. 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.
As of June 30, 2025, we had
a cash balance of approximately $0.8 million and net working capital of approximately $3.2 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, with our current credit sources, we will have sufficient cash to operate for at least the next 12 months.
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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 suppliers in China and, until recently, were subject to fairly
low tariff rates that had been in effect for several years. Beginning in April 2025, the new Trump Administration implemented a significant
increase in tariff rates on all goods imported from China, although it was temporarily suspended for 90 days in April 2025 and the suspension
has recently been extended to early November 2025. Prior to the tariff escalation in April 2025, we had anticipated the likelihood of
facing such a tariff increase and began stockpiling our inventory of these two components. As a result, we do not anticipate having to
purchase a significant level of such components at post-tariff prices for the next several months.
In the event, however, that
such a mutual trade agreement is not reached between the parties within the next several months and we find it necessary to begin purchasing
a significant level of our inventory components from China at post-tariff prices, 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. Either circumstance would likely materially adversely affect our sales and/or our profitability.
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.
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,
could potentially affect our 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 contract 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, 2025,
set forth below under, “Index to Financial Statements”, for a further description of our accounting policies and estimates.
None of those policies are deemed to be critical accounting policies nor critical accounting estimates. As reflected in Note 1, Management
has determined that the Company operates in only one reportable segment, which is the development and commercialization of energy
storage products.
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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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