See accompanying notes to unaudited financial statements.
See accompanying notes to unaudited financial statements.
See accompanying notes to unaudited financial statements.
See accompanying notes to unaudited financial statements.
Notes to Financial Statements
(Unaudited)
(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, primarily 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).
Interim Financial Information
– The Company has prepared the accompanying financial statements, without audit, in accordance with accounting principles generally
accepted in the Unites States of America for interim financial information and pursuant to the rules and regulations of the Securities
and Exchange Commission (“SEC”). In the opinion of management, these financial statements contain all adjustments, consisting
only of normal recurring adjustments, necessary to fairly state the Company’s financial position as of September 30, 2022, the results
of its operations for the three month periods ended September 30, 2022 and 2021, the changes in its stockholders’ equity for the
three month periods ended September 30, 2022 and 2021, and cash flows for the three month periods ended September 30, 2022 and 2021. The balance sheet as of June 30, 2022 has been derived from the Company’s June 30, 2022
financial statements that were audited by an independent registered public accounting firm but does not include all of the information
and footnotes required for complete annual financial statements. The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year. These
financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended June 30, 2022, as filed with
the SEC on September 27, 2022.
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. The amount in excess of the FDIC insurance at September 30, 2022 was $3,742,651.
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 following table presents the components of inventory as of September 30, 2022 and June
30, 2022:
Schedule of inventory | |
| | | |
| | |
| |
September 30, |
|
|
June 30, | |
| |
2022 | | |
2022 | |
| |
| | |
| |
Raw materials | |
$ | 1,548,113 | | |
$ | 1,844,049 | |
Work in process | |
| 88,538 | | |
| 22,768 | |
Finished goods | |
| – | | |
| 371,391 | |
| |
| | | |
| | |
Total | |
$ | 1,636,651 | | |
$ | 2,238,208 | |
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. No inventory reserve was required as of September 30, 2022 and June 30, 2022.
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 |
The Company generates revenues
from contracts with customers, consisting of a relatively small number of wholesale dealers and installers, primarily in California. Two
such dealers represented approximately 36% and 17% of the Company’s revenues in the three months ended September 30, 2022, however,
no other dealers accounted for more than 10% of the revenues in such period. Those same two dealers plus another dealer represented an
aggregate of approximately 62% of the Company’s accounts receivable as of September 30, 2022. Three dealers represented approximately
15%, 14% and 12% of the Company’s revenues in the three months ended September 30, 2021. Since all of the Company’s revenue
is currently generated from the sales of similar products, no further disaggregation of revenue information for the three months ended
September 30, 2022 and 2021 is provided.
Allowance for Doubtful
Accounts – The Company recognizes an allowance for doubtful accounts whenever a loss is expected to be incurred in the
realization of a customer’s account. As of September 30, 2022 and June 30, 2022, no allowance for doubtful accounts has been recorded.
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 September 30, 2022, the Company had total outstanding common stock equivalents of 1,629,750 shares as follows: (i) 1,121,250 shares
related to warrants issued to investors in the public offering completed in August 2022; (ii) 58,500 shares related to warrants issued
to the underwriters in that same offering; and (iii) 450,000 shares related to restricted stock units granted to two officers 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. As a result of the continued spread
of the COVID-19 coronavirus since early 2020, economic uncertainties have arisen which could impact business operations, supply chains,
energy demand, and commodity prices that are beyond our control. Overall, we have not experienced a material adverse impact to our economic
performance or ability to continue our business operations as a result of COVID-19. We continue to monitor COVID-19, but do not believe
it will have a material unfavorable impact to our future financial performance at this time.
Related Parties - The
Company accounts for related party transactions in accordance with ASC 850 . A party is considered to be related to the Company if the
party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company.
Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of
the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence
the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing
its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties
or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that it might
be prevented from fully pursuing its own separate interests is also a related party.
Fair
Value Measurements and Financial Instruments - ASC 820 defines fair value as the exchange price that would be received for an asset
or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between
(1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an
entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances
(unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The
three levels of the fair value hierarchy are described below:
Level
1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level
2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly,
including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities
in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates);
and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level
3 - Inputs that are both significant to the fair value measurement and unobservable. The carrying value of certain on-balance-sheet
financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include
cash and cash equivalents, accounts receivable, accounts payable, and long-term debt. The carrying value of long-term debt approximates
fair value since the related rate of interest approximates current market rates.
At September 30, 2022
and June 30, 2022, the Company did not
have any financial assets or liabilities measured and recorded at fair value on the Company’s balance sheets on a recurring
basis.
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 that are not yet effective 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.
Effective July 1, 2021, the
Company early adopted the provisions of ASU 2020-06, Debt with Conversion and Other Options (Subtopic
470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity’s Own Equity). As a result of the adoption of this accounting principle, using the modified
retrospective method, the Company no longer recognized a beneficial conversion feature associated with the issuance of any convertible
debt. Accordingly, the Company adjusted the beneficial conversion feature associated with the convertible notes issued in 2018 as of
July 1, 2021.
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 the ability
of the Company to obtain necessary equity financing to continue operations and the attainment of profitable operations. As disclosed in
Note 3, we completed a public offering of our equity securities in August 2022 that raised total net proceeds of approximately $3,780,000.
With the proceeds of this equity offering, we anticipate that we will have sufficient cash resources in order to operate our business
for at least the next 12 months from the date these financial statements are issued.
(2) Notes
Payable
In conjunction with the closing
of our underwritten public offering in August 2022 (see Note 3), all holders of the Company’s two outstanding series of convertible
notes payable, which were originally issued to various accredited investors in May 2018 and October 2021, agreed to convert their debt
into a total of 9,671,867 shares of our common stock at the respective conversion rates. Each of these two series of our converted notes
payable is further described below.
In May 2018, we entered into
convertible note payable agreements with a group of accredited investors for aggregate proceeds of $104,688. Each unsecured note originally
bore interest at a rate of 12% per annum, which was later reduced by mutual agreement to 3.99% per annum in May 2019. Subsequently, the
holders of certain of these notes elected to convert or exchange certain portions of their convertible notes payable into shares of our
common stock, based upon the stated conversion rate of $0.0063 per share. As of the closing of our underwritten public offering in August
2022, the holders of the remaining balance of such unconverted notes in the total amount of $59,251, including accrued interest, agreed
to convert their debt into a total of 9,404,867 shares of our common stock at the stated conversion rate of $0.0063 per share.
In October 2021, we entered
into convertible note payable agreements with a group of accredited investors for aggregate proceeds of $1,068,000. Each unsecured note
bore interest at a rate of 6% per annum. As of the closing of our underwritten public offering in August 2022, pursuant to the terms of
such convertible notes, the notes were automatically converted into a total of 267,000 shares of our common stock at the stated conversion
rate of $4.00 of principal per share.
(3) Equity
Common Stock –
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 (see Note 2).
In the three months ended
September 30, 2021, the holders of the 2018 convertible notes payable having total principal and accrued interest balances in the aggregate
amount of $1,283 elected to convert their notes. Based upon the stated conversion price of $0.0063 per share, these holders converted
their notes payable into a total of 203,630 shares of common stock (see Note 2).
Warrants – The
Warrants for a total of 1,121,250 shares of common stock 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.
The following table presents
activity with respect to the Company’s warrants for the three months ended September 30, 2022:
Schedule of warrants activity | |
| | | |
| | | |
| | | |
| | |
| |
Number | | |
Wtd. Avg. | | |
Wtd. Avg. | | |
Aggregate | |
| |
of | | |
Exercise | | |
Remaining | | |
Intrinsic | |
| |
Shares | | |
Price | | |
Term (Yrs.) | | |
Value | |
Outstanding at July 1, 2022 | |
| – | | |
$ | – | | |
| | | |
| | |
Warrants issued to Public Investors | |
| 1,121,250 | | |
| 4.00 | | |
| | | |
| | |
Warrants issued to Underwriters | |
| 58,500 | | |
| 4.40 | | |
| | | |
| | |
Outstanding at September 30, 2022 | |
| 1,179,750 | | |
$ | 4.02 | | |
| 4.8 | | |
$ | 1,191,548 | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable at September 30, 2022 | |
| 1,179,750 | | |
$ | 4.02 | | |
| 4.8 | | |
$ | 1,191,548 | |
These warrants were issued
in conjunction with an underwritten public equity offering, therefore, there was no employee or non-employee compensation expense recognized.
Stock Compensation Expense – In
February 2022, we entered into a new employment agreement with our Chief Executive Officer (“CEO”), effective April 1, 2022.
The initial term of the employment agreement is one year and is automatically renewable for additional one-year terms unless either party
chooses not to renew the agreement. The agreement provides for an initial annual salary of $165,000. Pursuant to the agreement, we issued
our CEO a restricted stock unit (“RSU”) award for up to 150,000 shares of our common stock upon achieving the following milestones
(which achievements shall be determined by the Board): (i) Milestone 1 - Successfully complete an uplisting of our common stock in 2022
and continue his employment with our company until January 1, 2023: 50,000 shares; and (ii) Milestone 2 - Produce 2,000 ESSs in 2022
and continue his employment with our company until January 1, 2023: 100,000 shares.
In February 2022, we entered
into a new employment agreement with our Chief Financial Officer (“CFO”), effective March 1, 2022. The initial term of the
employment agreement is one year and is automatically renewable for additional one-year terms unless either party chooses not to renew
the agreement. The agreement provides for an initial annual salary of $125,000. Pursuant to the agreement, we issued our CFO an RSU award
for up to 300,000 shares of our common stock upon achieving the following milestones (which achievements shall be determined by the Board):
(i) Milestone 1 - Successfully complete an uplisting of our common stock in 2022 and continue his employment with our company until January
1, 2023: 250,000 shares; and (ii) Milestone 2 - successfully complete and file the Company’s Form 10-K for the year ended June 30,
2023 no later than September 29, 2023 and continue his employment with our company until January 1, 2024: 50,000 shares.
Based upon the Company’s
assessment of the probability of the CEO and CFO ultimately achieving each milestone specified under the RSU awards indicated above, the
Company has calculated the grant date value of such awards and is amortizing it as stock compensation expense over the underlying performance
periods. The Company has recognized stock compensation expense applicable to such RSU awards in the three months ended September 30, 2022
in the amount of $579,941.
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 September 30, 2022, we booked an initial quarterly accrual of $48,750 of compensation expense
for our three independent directors under this plan. At the same time, we also agreed to make share grants totaling 26,000 shares, with
a grant date value of $97,500, to various advisors pursuant to annual contracts for their services. In the three months ended September
30, 2022, we recognized total non-cash stock compensation expense of $591,816 as follows: (i) $11,875 for the net amortized value of the
shares granted to such advisors; and (ii) $579,941 for the amortized value of the RSUs granted to our two executive officers, as previously
described.
During the three months ended
September 30, 2021, the Company issued 25,000 shares of common stock to an attorney and 25,000 shares of common stock to a consultant,
with both awards pursuant to one year service agreements, effective July 1, 2021. In the three months ended September 30, 2021, the Company
recognized non-cash stock compensation expense, representing one-fourth of the fair value of such shares, in the amount of $78,873, plus
non-cash stock compensation expense for periodic vesting of a prior year award to a director in the amount of $51,750.
Other Matters –
In February 2019, the Company’s Board of Directors approved the establishment of a new 2019 Stock Plan (“Plan”) with
an authorization for the issuance of up to 2,500,000 shares of common stock. The Plan is designed to provide for future discretionary
grants of stock options, stock awards and stock unit awards to key employees, consultants, advisors, and non-employee directors. As of
September 30, 2022, the Company has made awards totaling 450,000 shares for the RSUs granted to two executives, as noted above, under
the Plan.
(4) Commitments
and Contingencies
Effective January 1, 2021,
the Company secured new corporate and manufacturing office space under a sublease agreement with its contract manufacturer. Under the
terms of the sublease agreement, the Company is required to make rental payments of $10,350 per month during the initial one-year term
of the agreement. The sublease agreement is renewable upon mutual agreement of both parties for up to four additional years at a modest
increase in the monthly rent, however, the Company is under is no obligation to renew it. Management has determined that the exercise
of the renewal option is not reasonably certain and, as such, the Company has accounted for it as a short-term lease under ASC 842, Leases.
Effective January 1, 2022, the Company elected to renew the agreement for another one year period.
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.
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.
(5) Subsequent Events
On October 28, 2022, the Company
issued a total of 75,000 shares of common stock to an independent director and two advisors for their services rendered in the year ended
June 30. 2022. The Company had previously recognized the expense attributable to these stock issuances in the year ended June 30. 2022.