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 ) 28 Balance Sheets as of June 30, 2025 and 2024 29 Statements of Operations for the years ended June 30, 2025 and 2024 30 Statements of Stockholders’ Equity for the years ended June 30, 2025 and 2024 31 Statements of Cash Flows for the years ended June 30, 2025 and 2024 32 Notes to the Financial Statements 33 27 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, 2025 and 2024, 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, 2025 and 2024, 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 29, 2025 28 NEOVOLTA INC. Balance Sheets June 30, June 30, 2025 2024 Assets Current assets: Cash and cash equivalents $ 794,836 $ 986,427 Accounts receivable, net 2,983,841 1,805,980 Inventory, net 2,137,912 1,787,308 Prepaid expenses and other current assets (including prepaid inventory in amount of $ 535,938 and - 0 - as of June 30, 2025 and 2024, respectively) 748,044 76,815 Total current assets 6,664,633 4,656,530 Other asset: Lease right-of-use asset, net 140,540 – Total assets $ 6,805,173 $ 4,656,530 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 689,216 $ 5,316 Accrued liabilities 78,934 55,784 Lease liability 140,540 – Short-term notes payable 2,603,223 – Total current liabilities 3,511,913 61,100 Payable to line of credit lender 383,538 – Total liabilities 3,895,451 61,100 Commitments and contingencies (Note 5) – – Stockholders' equity: Common stock, $ 0.001 par value, 100,000,000 shares authorized, 34,124,873 shares and 33,236,091 shares issued and outstanding, respectively 34,125 33,236 Additional paid-in capital 28,652,731 25,304,732 Accumulated deficit ( 25,777,134 ) ( 20,742,538 ) Total stockholders' equity 2,909,722 4,595,430 Total liabilities and stockholders' equity $ 6,805,173 $ 4,656,530 See Accompanying Notes to Financial Statements. 29 NEOVOLTA INC. Statements of Operations Year Ended June 30, 2025 2024 Revenues from contracts with customers $ 8,426,835 $ 2,645,072 Cost of goods sold 6,920,130 2,134,725 Gross profit 1,506,705 510,347 Operating expenses: General and administrative 6,065,590 2,828,147 Research and development 157,305 19,154 Total operating expenses 6,222,895 2,847,301 Loss from operations ( 4,716,190 ) ( 2,336,954 ) Other income (expense): Interest income 2,011 33,644 Interest expense ( 320,417 ) – Total other income (expense) ( 318,406 ) 33,644 Net loss $ ( 5,034,596 ) $ ( 2,303,310 ) Weighted average shares outstanding - basic and diluted 33,589,818 33,213,306 Net loss per share - basic and diluted $ ( 0.15 ) $ ( 0.07 ) See Accompanying Notes to Financial Statements. 30 NEOVOLTA INC. Statements of Stockholders' Equity Years Ended June 30, 2025 and 2024 Additional Total Common Stock Paid-in Accumulated Stockholders' Shares Amount Capital Deficit Equity Balance at June 30, 2023 33,155,127 $ 33,155 $ 24,872,446 $ ( 18,439,228 ) $ 6,466,373 Stock compensation expense 80,964 81 432,286 – 432,367 Net loss – – – ( 2,303,310 ) ( 2,303,310 ) Balance at June 30, 2024 33,236,091 33,236 25,304,732 ( 20,742,538 ) 4,595,430 Stock compensation expense 289,870 290 2,101,198 – 2,101,488 Exercise of common stock warrants 55,412 55 160,345 – 160,400 Issuance of common stock in private offering 543,500 544 1,086,456 – 1,087,000 Net loss – – – ( 5,034,596 ) ( 5,034,596 ) Balance at June 30, 2025 34,124,873 $ 34,125 $ 28,652,731 $ ( 25,777,134 ) $ 2,909,722 See Accompanying Notes to Financial Statements. 31 NEOVOLTA INC. Statements of Cash Flows Year Ended June 30, 2025 2024 Cash flows from operating activities: Net loss $ ( 5,034,596 ) $ ( 2,303,310 ) Adjustments to reconcile net loss to net cash used in operations: Stock compensation expense 2,101,488 432,367 Amortization of ROU asset 80,570 – Provision for expected credit losses/bad debt expense ( 4,253 ) 540,000 Reserve for obsolete inventory ( 90,000 ) 90,000 Changes in current assets and liabilities Accounts receivable ( 1,630,876 ) ( 519,595 ) Inventory 131,864 703,263 Prepaid expenses and other current assets ( 606,429 ) 19,304 Accounts payable 683,900 5,316 Accrued expenses 23,150 16,293 Operating lease obligation ( 80,570 ) – Net cash flows used in operating activities ( 4,425,752 ) ( 1,016,362 ) Cash flows from financing activities: Proceeds of private equity offering 1,087,000 – Borrowings under line of credit 500,000 – Repayments of line of credit ( 116,462 ) – Borrowings under short-term nots payable 5,106,343 – Repayments of short-term nots payable ( 2,503,120 ) – Proceeds from exercise of common stock warrants 160,400 – Net cash flows from financing activities 4,234,161 – Net decrease in cash and cash equivalents ( 191,591 ) ( 1,016,362 ) Cash and cash equivalents at beginning of period 986,427 2,002,789 Cash and cash equivalents at end of period $ 794,836 $ 986,427 Supplemental disclosures of cash flow information: Cash paid for interest $ 136,580 $ – Cash paid for income taxes – – Supplemental investing and financing activities: ROU asset recognized from operating lease $ 221,110 $ – See Accompanying Notes to Financial Statements. 32 NEOVOLTA INC. Notes to Financial Statements June 30, 2025 (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, initially 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. As of June 30, 2025, the Company maintained all of its accounts at one bank and the combined balances of all accounts at this bank were in excess of the FDIC insurance limit by $ 544,836 . 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. 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. The following table presents the components of inventory (net of reserve for obsolescence on assembly parts of zero and $90,000, respectively) as of June 30, 2025 and 2024: Schedule of inventory June 30, 2025 2024 Raw materials, consisting of assembly parts, batteries and inverters $ 2,014,252 $ 1,076,479 Work in process – 89,386 Finished goods 123,660 621,443 Total $ 2,137,912 $ 1,787,308 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 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 33 The Company generates revenues from contracts with customers, consisting of a relatively small number of wholesale dealers and installers, in California and several other states. In the year ended June 30, 2025, two such dealers represented approximately 41 % and 23 % of the Company’s revenues, however, no other dealers accounted for more than 10% of the revenues in such period. Those same two dealers plus one other one represented approximately 39 %, 12 % and 12 % of the Company’s net accounts receivable as of June 30, 2025, however, no other dealers accounted for more than 10% of the accounts receivable as of June 30, 2025. In the year ended June 30, 2024, two such dealers represented approximately 20 % and 14 % 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, 2025 and 2024 is provided. Allowance for Expected Credit Losses – The Company recognizes an allowance for expected credit losses whenever a loss is expected to be incurred in the realization of a customer’s account. As of June 30, 2025 and 2024, our allowance for expected credit losses was $ 314,200 and $ 1,030,000 , 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, 2025, the Company had total outstanding common stock equivalents of 2,937,512 shares as follows: (i) 1,806,362 shares related to restricted stock units granted to an officer and another employee in April 2024; (ii) 1,081,150 shares related to warrants issued to investors in the public offering completed in August 2022; 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. 34 Segment Information – Management has determined that the Company operates in one reportable segment, which is the development and commercialization of energy storage products. The Company's chief operating decision maker (CODM) is its Chief Executive Officer, who reviews financial information presented on a company-wide basis. The CODM primarily uses net loss, which is reported in the Statements of Operations, to assess financial performance and allocate resources. These financial metrics are used by the CODM to make key operating decisions, such as the assessment of segment performance and allocation of resources. The significant categories within net loss that the CODM regularly reviews are revenues from customers, cost of goods sold, and general and administrative expenses. Other expenses reported in the Company’s net loss include interest expense and research and development expenses. 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, including ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, and prospective standards that are not yet effective, including ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense disaggregation disclosures (Topic 220-40): Disaggregation of Income Statement Expenses, 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 and does not believe the adoption of such pronouncements will have a material impact on its financial statements. 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 our ability to obtain the necessary debt and equity financing to continue operations and the attainment of profitable operations. As disclosed in Note 2, we entered into an agreement with a financing entity in September 2024 whereby we have obtained a line of credit for borrowings of up to $ 5,000,000 , in order to meet any near-term borrowing needs. As a result, we believe that we will have sufficient financial resources available to us in order to operate our business for at least the next 12 months from the date these financial statements are issued. (2) Debt On September 3, 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 . Under this agreement, we are obligated to make periodic payments to the lender of accrued interest, at the rate of 16 % per annum, on any outstanding borrowings that we make, with the principal and any unpaid accrued interest being due at maturity, which was subsequently extended to September 3, 2028 (see Note 6). In order to secure such borrowings, we have granted a security interest in all of our assets to the lender. As a condition of receiving this line of credit from the lender, we have agreed not to issue any securities pursuant to the Company’s Form S-3 (file number 333-280400), without the lender’s consent, so long as any borrowings remain outstanding. As of June 30, 2025, we had made net borrowings under this credit agreement in the amount of $ 383,538 , leaving an available balance of $ 4,616,462 . Accrued interest as of June 30, 2025 was $ 30,767 . On October 4, 2024, we made an initial borrowing of $ 250,000 under this line of credit largely in order to fund a short-term loan in the same amount to a new customer which has a government-backed contract to install a large number of our units in Puerto Rico over a two year period. The purpose of the loan was to provide working capital to the customer in conjunction with the startup of the contract in Puerto Rico. The loan was structured to be non-interest bearing, if repaid prior to December 31, 2024. The loan was fully repaid in December 2024. In the month of November 2024, we initiated short-term borrowings from a commercial accounts receivable lender under a loan agreement allowing for borrowings, secured by certain property interests, of up to $ 4,000,000 . As of June 30, 2025, we had made borrowings from this lender to finance customer shipments and related costs in the total amount of $ 5,106,343 . The lender charges a placement fee of 1% on each borrowing and assesses interest at the rate of 2.5% per month on the outstanding borrowings. Borrowings are to be repaid upon the earlier of: (i) 120 days from the borrowing date; or (ii) receipt of payment from the customer. In the event of default, interest is assessed at the default rate of 1% per 7 days. Through June 30, 2025, we had repaid $ 2,503,120 of such borrowings, including accrued interest and fees, leaving an outstanding balance as of that date, including accrued interest and fees, of $ 2,603,223 . 35 (3) Equity Common Stock – In February 2025, the Company closed a private equity offering under which the Company issued a total of 543,500 shares of its common stock to the investors at an offering price of $ 2.00 per share resulting in gross proceeds to the Company in the amount of $ 1,087,000 . The Company is using the proceeds of this private offering to meet working capital needs and for other general corporate purposes. 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. 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. In June 2024, the Company filed an updated registration statement applicable to the exercise of the Warrants. The following table presents activity with respect to the Company’s warrants for the years ended June 30, 2025 and 2024: Schedule of warrant activity Number Wtd. Avg. Wtd. Avg. Aggregate of Exercise Remaining Intrinsic Shares Price Term (Yrs.) Value Outstanding at July 1, 2023 1,179,750 $ 4.02 4.1 $ – Warrants issued – – Warrants exercised/forfeited – – Outstanding at June 30, 2024 1,179,750 4.02 3.1 – Warrants issued – – Warrants exercised/forfeited ( 98,600 ) ( 4.24 ) Outstanding at June 30, 2025 1,081,150 $ 4.00 2.1 $ – Exercisable at June 30, 2025 1,081,150 $ 4.00 2.1 $ – 36 These warrants were issued in conjunction with an underwritten public equity offering, therefore, there was no employee or non-employee compensation expense recognized. In November 2024, the underwriter elected to exercise all 58,500 Warrants at an exercise price of $4.40 per share, via a cashless exercise, as permitted under the warrant agreement, resulting in the issuance of 15,312 shares of our common stock. Additionally, the holders of publicly issued Warrants to purchase an aggregate of 40,100 shares of our common stock elected to exercise their Warrants by a cash payment of a total of $ 160,400 resulting in the issuance of the underlying shares of our common stock in December 2024. Stock Compensation Expense – In April 2024, we entered into an employment agreement with a new Chief Executive Officer (“CEO”), providing for an initial term extending through June 30, 2027, which will be automatically renewed for additional one-year terms unless either party chooses not to renew it. Pursuant to the agreement, our new CEO received an initial equity grant equal to 1,280,000 restricted stock units (“RSUs”), with a grant date value of $ 2,854,000 , which will vest over a four-year period, subject to his continued employment with the Company, and will be entitled to earn additional RSUs on each anniversary in the form of three annual performance-based equity grants. However, our Compensation Committee has not set any definitive targets, therefore, no additional grants have been made as of June 30, 2025. In February 2025, we entered into an amended and restated employment agreement with our Chief Financial Officer (“CFO”). The initial term of the employment agreement ends on December 31, 2027 and will be automatically renewable for additional one-year terms unless either party chooses not to renew the agreement. Pursuant to the agreement, we issued our CFO an award of 240,000 RSUs vesting in four annual installments on each anniversary. In February 2022, we entered into a new employment agreement with our CFO pursuant to which we issued him an RSU award for up to 300,000 shares of our common stock upon achieving two defined milestones. The first milestone was achieved as of January 1, 2023, and the underlying 250,000 shares of common stock were issued to our CFO as of that date. The second milestone was achieved as of January 1, 2024, and the underlying 50,000 shares of common stock are expected to be issued to our CFO at a later date. In January 2025, we entered into an employment agreement with our new Chief Operating Officer (“COO”). The initial term of the employment agreement ends on December 31, 2027 and will be automatically renewable for additional one-year terms unless either party chooses not to renew the agreement. Pursuant to the agreement, we issued our COO an award of 150,000 RSUs vesting in three annual installments. Additionally, we entered into employment agreements with two other individuals in June 2024 and October 2024, and we issued them a total of 136,362 RSUs vesting in four annual installments. As a result, we presently have a total of 1,806,362 RSUs that have been issued to our three officers and two other individuals. For all of these awards, we have calculated the grant date value of such awards and are amortizing it as stock compensation expense over the underlying vesting periods. We have recognized stock compensation expense applicable to such RSU awards in the years ended June 30, 2025 and 2024 in the amounts of $ 1,011,405 and $ 214,992 , respectively. In February 2025, we entered into a referral agreement with a marketing company to market our products to qualified solar and energy storage system installers. The term of the referral agreement ends on December 31, 2026. Pursuant to the agreement, the only compensation that the marketing company will be entitled to receive will be through the issuance of shares of our common stock in exchange for reaching specified target levels of product sales, up to a maximum total of 2,000,000 shares for reaching a total of 2,500 units sold and paid for. In accordance with ASC 718, we are accounting for this agreement based on our periodic assessments of the probability of reaching such target levels. Based on that approach, we have recognized stock compensation expense as of June 30, 2025, in the amount of $165,000. 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, 2025 and 2024, 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. 37 In the year ended June 30, 2025, we recognized total non-cash stock compensation expense of $ 2,101,488 as follows: (i) $ 1,011,405 for the amortized value of the RSUs granted to our three officers and two other individuals; (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) $ 515,498 for the fair value of the issuance of 174,650 shares of our common stock to two consultants for their advisory services in the area of energy regulatory and marketing matters; (iv) $ 234,085 for the grant date value of 78,565 shares of common stock to be issued to a distributor as a sales incentive pursuant to a February 2025 distribution agreement; and (v) $ 165,000 for the amortized value of the shares potentially issuable to a marketing company pursuant to a February 2025 referral agreement. There was a total of 289,870 shares of our common stock that were issued to various grantees for services in the year ended June 30, 2025, of which 125,620 shares were previously expensed in the year ended June 30, 2024. In the year ended June 30, 2024, we recognized total non-cash stock compensation expense of $ 432,367 as follows: (i) $ 214,992 for the amortized value of the RSUs granted to our three executive officers and a non-executive recipient, 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) $ 29,450 for the net amortized value of the shares granted to various advisors under their annual service contracts; and (iv) $ 12,425 for the fair value of incentive shares earned by a wholesale dealer as of December 31, 2023 (see Note 5). There was a total of 80,964 shares of common stock that were issued to our independent directors in the year ended June 30, 2024, which were previously expensed in the year ended June 30, 2023. 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. In December 2024, the Plan was amended to increase the number of shares of common stock authorized for issuance by 5,000,000 shares. 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, 2025, we have made total awards of 2,615,054 shares under the Plan as follows: (i) 2,256,362 shares for the RSUs granted to our three executive officers and two non-executive recipients, as noted above; (ii) 153,808 shares for the services of our three independent directors in the years ended June 30, 2024 and 2023, pursuant to the new compensation plan adopted for independent directors in August 2022; and (iii) 204,884 shares granted to various consultants for their services and to wholesale dealers under an incentive sales program. (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, 2025 2024 Income tax benefit computed at statutory rate $ 747,900 $ 279,400 Change in valuation allowance ( 747,900 ) ( 279,400 ) 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, 2025 June 30, 2024 Deferred income tax assets: Net operating losses $ 1,570,100 $ 824,300 Valuation allowance ( 1,570,000 ) ( 824,300 ) Net deferred income tax assets $ – $ – The Company has a cumulative tax operating loss carry forward as of June 30, 2025 of approximately $ 7,477,000 , with an indefinite expiration period. 38 (5) Commitments and Contingencies Effective January 1, 2021, we secured new corporate and manufacturing office space under a sublease agreement with a company that served as our contract manufacturer at that time. Under the terms of the sublease agreement, we were required to make rental payments of $ 10,350 per month during the initial one-year term of the agreement. Further, under the terms of the sublease agreement, we were granted the right to renew the sublease for additional terms of 12 months each 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 December 31, 2024. However, we were under no obligation to renew it. At inception of the sublease, management determined that exercise of the renewal option was not reasonably certain and, notwithstanding that the Company elected to renew the agreement for additional one year periods as of January 1, 2022, 2023 and 2024. Accordingly, we have accounted for it as a short-term lease under ASC 842, Leases . Effective December 31, 2024, the parties mutually agreed to a short-term extension of the sublease agreement, on essentially the same terms, through February 28, 2025. Prior to expiration of the extended sublease, the Company relocated its corporate and manufacturing office space to another facility in the same vicinity under a 13 month sublease agreement with the sublandlord, at a base rental of $ 18,638 per month. We are accounting for the lease agreement as an operating lease under ASU 2016-02, Leases (Topic 842) . Accordingly, the Company has capitalized the present value of the future lease obligations and is amortizing the related right-of-use asset on a straight-line basis each month over the term of the lease. 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, as determined annually on a calendar year basis. We are dependent on our two main component vendors for our suppliers of batteries, inverters and other raw materials and the inability of these single-source suppliers to deliver necessary components of our products according to our schedule and at prices, quality levels and volumes acceptable to us, or our inability to efficiently manage these components, could have a material adverse effect on our financial condition and operating results. Beginning in April 2025, the 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. 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. 39 (6) Subsequent Events On July 4, 2025, Congress passed, and the President signed into law the One Big Beautiful Bill Act (“OBBB”). Among other provisions, it extends many of the expiring provisions from the Tax Cuts and Jobs Act of 2017 and phases out a number of clean energy tax incentives, including credits for the installation of residential solar panels. Based on our preliminary analysis, however, we do not expect passage of the OBBB to have a material impact on our business. On July 23, 2025, we issued 78,565 shares of common stock to a wholesale distributor as a sales incentive pursuant to a February 2025 distribution agreement and 10,400 shares of common stock to a product marketing consultant pursuant to a February 2025 letter agreement, which were previously expensed in the year ended June 30, 2025 (see Note 3). On August 22, 2025, we issued Non-Qualified Stock Options to a group of our employees to purchase a total of 144,000 shares of our common stock at the current stock price of $3.60 per share, pursuant to the provisions of our 2019 Stock Option Plan. These options are exercisable for a period of 5 years from the date of issuance and will become vested on a ratable basis over a period of 3 years from the date of issuance. Using the Black-Scholes valuation model, we have calculated that the total fair value of these options as of the date of issuance was approximately $342,400, and we will amortize this total amount to stock compensation expense on a straight-line basis over the 3-year vesting period of the options. On September 5, 2025, we obtained a two year extension of the maturity date of our $5 million line of credit agreement from the lender to September 3, 2028 (see Note 2). 40 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.