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 consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the audited financial statements and notes thereto and "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, 2025, filed with the Securities and Exchange Commission on September 29, 2025 (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 consolidated 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 storage 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. 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. In January 2026, we formed a joint venture with the U.S. affiliate of a foreign entity to jointly own and operate a new utility-scale battery manufacturing facility in the State of Georgia. We have an 80% ownership interest in the joint venture company, with the U.S. affiliate of the foreign entity having a 20% ownership interest (subject to service-based vesting and forfeiture provisions). In accordance with the joint venture agreements, as amended in April 2026, we made our initial capital contribution to the joint venture of $7,000,000 in January 2026 and expect to make an additional capital contribution of $8,000,000 in June 2026 as well as additional capital contributions of up to $25,000,000 through June 30, 2027, which will require us to secure significant future infusions of equity and/or debt financing. The plant will be constructed in phases with the initial phase expected to be completed in the summer of 2026 leading to the commencement of limited production of batteries for sale to customers. 19 Upon completion, this new facility is anticipated to provide the capacity for us to greatly expand our line of new energy storage products as an integrated energy solutions leader and generate substantial amounts of both customer revenues and net operating cash flows over an extended period of time. Results of Operations The following discussion reflects the Company’s revenues and expenses for the three and nine month periods ended March 31, 2026 and 2025, as reported in our consolidated financial statements included in Item 1. Comparison of three months ended March 31, 2026 versus three months ended March 31, 2025 Revenues - Revenues from contracts with customers for the three months ended March 31, 2026 were $2,023,718 compared to $2,014,105 for the three months ended March 31, 2025. Such static level of revenues was primarily due to expiration of the federal solar tax credit for individuals and various other macroeconomic factors arising in the current quarter impacting not only the domestic solar industry but the overall economy in general. Cost of Goods Sold - Cost of goods sold for the three months ended March 31, 2026 were $1,095,895 compared to $1,499,597 for the three months ended March 31, 2025. 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 period and resulted in gross profits on such sales of approximately 46% and 26%, respectively, with the increase being largely due to an upward out of period adjustment reflected in the current quarter related to higher inventory cost recognition in the immediately preceding quarter. General and Administrative Expense - General and administrative expenses for the three months ended March 31, 2026 were $3,021,127 compared to $1,857,531 for the three months ended March 31, 2025. Such increase was mainly due to our continuing rapid expansion of both our marketing and other product development expenses since the engagement of a new chief executive officer in April 2024, including the hiring of a significant number of new employees. The addition of these personnel has resulted in a higher level of both cash compensation expense and other associated expenses, such as promotion 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 March 31, 2026 were $403,887 compared to $27,947 for the three months ended March 31, 2025. Such fluctuation was largely due to the recent acceleration of our product development efforts. Depreciation and Amortization Expense - Depreciation and amortization expenses for the three months ended March 31, 2026 were $128,458 compared to zero for the three months ended March 31, 2025. Such fluctuation was primarily attributable to our closing of an acquisition of intangible and tangible assets from Neubau Energy Inc., which closed in October 2025. Other Income and Expense – Loss on debt exchanges for the three months ended March 31, 2026 was $408,028 compared to zero for the three months ended March 31, 2025, and resulted from an exchange agreement entered into with one of our lenders in January 2026. Interest expense for the three months ended March 31, 2026 was $51,810 compared to $78,499 for the three months ended March 31, 2025, reflecting interest attributable to a lower level of borrowings made under our lender credit arrangements obtained since September 30, 2024. Interest income for the three months ended March 31, 2026 was $57,085 compared to $138 for the three months ended March 31, 2025, due to a higher average level of investable cash in the three months ended March 31, 2026. Net Loss - Net loss for the three months ended March 31, 2026 was $3,028,402 compared to $1,449,331 for the three months ended March 31, 2025, 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. 20 Comparison of nine months ended March 31, 2026 versus nine months ended March 31, 2025 Revenues - Revenues from contracts with customers for the nine months ended March 31, 2026 were $13,319,493 compared to $3,675,922 for the nine months ended March 31, 2025. 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 while maintaining essentially the same price points since the engagement of our new chief executive officer in April 2024 . Cost of Goods Sold - Cost of goods sold for the nine months ended March 31, 2026 were $10,041,896 compared to $2,744,656 for the nine months ended March 31, 2025. 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% in each period, in accordance with our customary expectations. General and Administrative Expense - General and administrative expenses for the nine months ended March 31, 2026 were $10,474,212 compared to $4,136,167 for the nine months ended March 31, 2025. Such increase was mainly due to our continuing rapid expansion of both our marketing and other product development expenses since the engagement of a new chief executive officer in April 2024, including the hiring of a significant number of new employees. The addition of these personnel has resulted in a higher level of both cash compensation expense and other associated expenses, such as promotion 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 nine months ended March 31, 2026 were $519,594 compared to $78,888 for the nine months ended March 31, 2025. Such fluctuation was largely due to the recent acceleration of our product development efforts. Depreciation and Amortization Expense - Depreciation and amortization expenses for the nine months ended March 31, 2026 were $240,290 compared to zero for the nine months ended March 31, 2025. Such fluctuation was primarily attributable to our closing of an acquisition of intangible and tangible assets from Neubau Energy Inc., which closed in October 2025. Other Income and Expense – Loss on debt exchanges for the nine months ended March 31, 2026 was $1,266,030 compared to zero for the nine months ended March 31, 2025, and resulted from three exchange agreements entered into with one of our lenders since October 2025. Interest expense for the nine months ended March 31, 2026 was $645,644 compared to $103,045 for the nine months ended March 31, 2025, reflecting interest attributable to a higher level of borrowings made under our lender credit arrangements obtained since September 30, 2024. Interest income for the nine months ended March 31, 2026 was $57,650 compared to $1,872 for the nine months ended March 31, 2025, due to a higher average level of investable cash in the nine months ended March 31, 2026. Net Loss - Net loss for the nine months ended March 31, 2026 was $9,810,523 compared to $3,384,962 for the nine months ended March 31, 2025, 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. Liquidity and Capital Resources Operating activities. Net cash used in operating activities in the nine months ended March 31, 2026 was $8,156,853 compared to $3,501,515 in the nine months ended March 31, 2025. 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 a recent increase in our outstanding accounts receivable. Investing activities. Net cash used in investing activities in the nine months ended March 31, 2026 was $2,785,375, compared to zero in the nine months ended March 31, 2025. Such fluctuation was due to our initial capital expenditures on a jointly owned utility-scale battery manufacturing facility currently under construction in the State of Georgia (see “Other Developments” below) as well as the cash portion of our purchase price of an acquisition of intangible and tangible assets from Neubau Energy Inc., which closed in October 2025. 21 Financing activities. Net cash provided by financing activities in the nine months ended March 31, 2026 was $21,628,221 compared to $3,051,054 in the nine months ended March 31, 2025. In the nine months ended March 31, 2026, we completed the following equity financings: (i) in November 2025, we entered into a private equity offering with accredited investors group under which we issued a total of 5,200,000 shares of our common stock at an offering price of $2.50 per share for gross proceeds of $13,000,000, which closed in two tranches in December 2025 and February 2026; and (ii) in January 2026, we closed a registered direct offering of a total of 2,100,841 shares of our common stock at an offering price of $4.76 per share resulting in net proceeds of $9,301,844. Beginning in November 2024, we also made short-term borrowings from two private lenders, primarily to finance inventory purchases. In the nine months ended March 31, 2026, we made borrowings from these lenders in the total amount of $6,936,891 and repayments in the amount of $ 7,610,514. In the nine months ended March 31, 2025, we made borrowings from our two private lenders in the total amount of $2,581,845 and repayments in the amount of $778,191. In February 2025, we closed a private equity offering with accredited investors under which we issued a total of 543,500 shares of our common stock to the investors at an offering price of $2.00 per share resulting in gross proceeds of $1,087,000. 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 March 31, 2026, we had a consolidated cash balance of approximately $11.5 million and consolidated net working capital of approximately $19.5 million, an increase of approximately $15.4 million in the recent quarter. 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 and the proceeds of our three equity financings in the nine months ended March 31, 2026, we will have sufficient cash to operate for at least the next 12 months (see “Other Developments ” below). Other Developments In January 2026, we executed a series of joint venture agreements with the U.S. affiliate of a foreign entity for the formation of a new domestic limited liability company to jointly own and operate a planned utility-scale battery manufacturing facility in the State of Georgia. Pursuant to these agreements, the Company has an 80% ownership interest in the joint venture company, and the U.S. affiliate of the foreign entity has a 20% ownership interest. In accordance with the joint venture agreements, we made our initial capital contribution of $7,000,000 in January 2026 and expect to make an additional capital contribution of $8,000,000 in June 2026, which is primarily to fund the purchase of equipment. Further, we are expected to make additional capital contributions to the joint venture company through June 30, 2027 in total amounts of up to $25,000,000, pursuant to the joint venture agreements. We presently anticipate funding those additional capital contributions from the proceeds of one or more equity and/or debt financings, subject to market conditions. However, there can be no assurance that we will be successful in raising sufficient proceeds from such private offerings in order to fully satisfy our obligations for the additional capital contributions to the joint venture company. To the extent that we may be unable to raise sufficient proceeds in order to fully satisfy our obligations for the additional capital contributions to the joint venture company, the parent company of the same foreign entity will be permitted to bring in one or more new members of the joint venture company to fund such additional capital contributions which would dilute our present 80% majority ownership of the joint venture company. We continue to monitor current international developments occurring in Iran and Ukraine. 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 Trump Administration implemented a significant increase in tariff rates based on the authority of the International Emergency Economic Powers Act (“IEEPA”) on all goods imported from China, although it was temporarily suspended for 90 days in April 2025 and the tariff rate was lowered in November 2025, subject to judicial review. In February 2026, the Supreme Court declared the tariffs to be unconstitutional based on the authority of IEEPA, therefore, the Administration is considering alternative approaches to implementing tariffs that it believes would be sustained in a judicial review. 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 in order to reduce the impact of the tariffs. 22 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 and Estimates Our discussion and analysis of our financial condition and results of operations are based on consolidated financial statements which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these consolidated 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 consolidated financial statements. See “Note 1. Business and Summary of Significant Accounting Policies” of the Notes to Consolidated 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, 2025, as filed with the SEC on September 29, 2025, for a further description of our critical accounting policies and estimates. None of those policies are deemed to be critical accounting policies nor critical accounting 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.