The following discussion should be read in conjunction with the consolidated
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 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 also are also pursuing agreements with residential
developers, commercial developers, and other commercial opportunities. Because
we are purely dedicated to energy solar systems, virtually 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.
In May 2019, we completed a public offering of shares of our common stock
pursuant to Regulation A of the Securities Act (the "IPO"). The IPO was for a
total of 3,500,000 shares of our common stock at an offering price of $1.00 per
share. We used the proceeds of the IPO to ramp up production, marketing, and
sales of our NV14 product line. In that regard, we have used the proceeds from
the offering to fund the marketing, production and distribution of our products,
which commenced in July 2019 through a group of wholesale customers in
California, as well as to provide additional working capital for other corporate
purposes. We have expanded to include one wholesale distribution customer in
Nevada.
As 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 $3,855,000. We are planning to use 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.
Underwritten Public Offering
In early August 2022, we completed an underwritten public offering of our equity
securities in the form of Units with each Unit consisting of one share of common
stock and one warrant (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 under
the symbols "NEOV" and "NEOVW," respectively. Each Warrant became exercisable on
the date of issuance and will expire five years from the date of issuance.
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Between the initial closing of the offering and the underwriters' exercise of
the overallotment option, 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, including the underwriters' exercise of the overallotment option, were
$4,485,000 and the net proceeds, after deduction of underwriting discounts and
other offering costs, were approximately $3,855,000. We are planning to use 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 conjunction with the public offering, all holders of the Company's 2018
convertible notes in the total amount of $53,716 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 3 "Equity" of the notes to our financial
statements for the fiscal year ended June 30, 2022, set forth below under,
"Index to Financial Statements"). As a result of the closing of the public
offering and the conversion of both sets of convertible notes, the Company has a
total of 32,770,368 shares of common stock outstanding and has fully eliminated
its convertible debt.
Results of Operations
Comparison of the Years Ended June 30, 2022 and 2021
Revenues - Revenues from contracts with customers for the year ended June 30,
2022 were $4,473,514 compared to $4,823,510 for the year ended June 30, 2021.
Such decrease partially reflected the negative impact of the COVID-19 pandemic
on sales of our assembled energy storage systems as well as timing differences
in receiving installation orders from our major wholesale dealers and installers
operating in California and other states in the two quarters ended June 30,
2022.
Cost of Goods Sold- Cost of goods sold for the year ended June 30, 2022 were
$3,806,381 compared to $4,175,795 for the year ended June 30, 2021. 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 15% and 13%,
respectively, with the comparative increase largely due to differences with
regard to the impact of temporary tariffs on materials we source from China.
General and Administrative Expense - General and administrative expenses for the
year ended June 30, 2022 were $6,353,920 compared to $8,255,865 for the year
ended June 30, 2021. Such decrease was primarily due to the reduction in the
expense recorded for the fair value of incentive shares of common stock earned
by the Company's executive officers under their Board approved contracts,
largely resulting from a lesser number of shares being earned in the year ended
June 30, 2022 compared to the year ended June 30, 2021.
Research and Development Expense - Research and development expenses for year
ended June 30, 2022 were $68,503 compared to $42,801 for year ended June 30,
2021. Such fluctuation was due to a modest increase in the level of the
Company's product development efforts. We expect research and development
expense to increase in the future as we improve and expand upon our product
portfolio.
Interest Expense - Interest expense for the year ended June 30, 2022 was $49,544
compared to $24,521 for the year ended June 30, 2021, reflecting an increase
resulting from the interest expense accrued on new convertible notes issued in
October 2021, partially offset by discontinuing the amortization of a previously
recorded debt discount to interest expense, which was associated with
convertible notes issued in May 2018, due to the adoption of a new accounting
principle on July 1, 2021.
Gain on Forgiveness of Debt - Gain on forgiveness of debt for the year ended
June 30, 2022 was zero compared to $29,600 for the year ended June 30, 2021,
reflecting the forgiveness of a U.S. government sponsored loan that was received
in May 2020 and was subsequently forgiven in full in February 2021.
Net Loss - Net loss for the year ended June 30, 2022 was $5,804,834 compared to
$7,645,872 for the year ended June 30, 2021, 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.
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Liquidity and Capital Resources
Operating activities. Net cash used in operating activities in the year ended
June 30, 2022 was $1,163,296, compared to $883,623 in the year ended June 30,
2021, largely due to a somewhat higher net cash operating loss in the current
fiscal year period.
Financing activities. Net cash provided by financing activities in the year
ended June 30, 2022 was $1,068,000, compared to zero in the year ended June 30,
2021. This fluctuation was entirely attributable to the issuance of short-term
convertible notes to a group of accredited investors in October 2021 in the
amount of $1,068,000.
As of June 30, 2022, we had a cash balance of $0.3 million and net working
capital of $2.7 million. However, in early August 2022, we completed an
underwritten public offering of our equity securities in the form of Units with
each Unit consisting of one share of common stock and one warrant to purchase
one share of common stock at an exercise price of $4.00 per share. Between the
initial closing of the offering and the underwriters' exercise of the
overallotment option, 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, including the underwriters' exercise of the overallotment option, were
$4,485,000 and the net proceeds, after deduction of underwriting discounts and
other offering costs, were approximately $3,855,000.
In conjunction with the public offering, all holders of the Company's 2018
convertible notes in the total amount of $53,716 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. As a result of the closing of the public offering
and the conversion of both sets of convertible notes, the Company has a total of
32,770,368 shares of common stock outstanding and has fully eliminated its
convertible debt.
Currently, we are generating a roughly break-even level of net operating cash
flow, excluding the higher corporate overhead expenses related to our recently
completed public offering, from our net sales. However, we have not sustained
such performance on a consistent basis for an extended period of time. We
anticipate that demand for our products will continue to increase and that we
will have sufficient cash to operate for at least the next 12 months, after
taking into consideration the additional equity offering completed in August
2022, as noted above.
Recent Developments
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.
In early 2022, we experienced some negative impact of the COVID-19 pandemic on
the sales of our assembled energy storage systems, primarily through a group of
wholesale dealers and installers located in California. 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.
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 consolidated 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.
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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, affect our more significant 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 contact 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, 2022, set
forth below under, "Index to Financial Statements", for a further description of
our critical accounting policies and estimates.
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 $1.07 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.
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