See accompanying notes to unaudited financial statements.

NEOVOLTA, INC.

Statements of Cash Flows

(Unaudited)

See accompanying notes to unaudited financial statements.

NEOVOLTA, INC.

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 and commercial 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)2).

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 March 31,September 30, 2023, the results of its operations for the three and nine month periods ended March 31,September 30, 2023 and 2022, the changes in its stockholders’ equity for the ninethree month periods ended March 31,September 30, 2023 and 2022, and cash flows for the ninethree month periods ended March 31,September 30, 2023 and 2022. The balance sheet as of June 30, 20222023 has been derived from the Company’s June 30, 20222023 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, 2022,2023, as filed with the SEC on September 27, 2022.22, 2023.

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,$250,000, per bank. At March 31,September 30, 2023, the Company maintained accounts at two different banks, of which the balancecombined balances of the accounts at the first bank was within the FDIC insurance limit while the balance at the second bank wastwo banks were in excess of the combined FDIC insurance limitlimits by $3,028,4741,323,700.

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. Additionally, we made a bulk purchase of raw materials consisting of assembly parts from our former contract manufacturer in April 2023, for a gross amount of $1.4 million. 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 March 31, 2023 and June 30, 2022:

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 March 31,September 30, 2023 and June 30, 2022.2023. The following table presents the components of inventory as of September 30, 2023 and June 30, 2023:

Revenue Recognition – The Company recognizes revenue in accordance with Accounting Standards 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:

The Company generates revenues from contracts with customers, consisting of a relatively small number of wholesale dealers and installers, primarily in California. ThreeTwo such dealers represented approximately 21%, 1847% and 1619% of the Company’s revenues in the ninethree months ended March 31,September 30, 2023, however, no other dealers accounted for more than 10% of the revenues in such period. Those same two dealers plus three other dealers represented an aggregate of approximately 83100% of the Company’s accounts receivable as of March 31,September 30, 2023 (net of allowance), however, no other dealers accounted for more than 10% of the accounts receivable as of March 31, 2023.. Two such dealers represented approximately 2236%, and 1617% of the Company’s revenues in the ninethree months ended March 31,September 30, 2022. Since all of the Company’s revenue is currently generated from the sales of similar products, no further disaggregation of revenue information for the ninethree months ended March 31,September 30, 2023 and 2022 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 March 31,September 30, 2023 and June 30, 2022,2023, our allowance for doubtful accounts was $380,000600,000 and zero,$490,000, 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 March 31,September 30, 2023, the Company had total outstanding common stock equivalents of 1,229,750 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) 50,000 shares related to restricted stock units granted to an officertwo officers in March 2022 (see Note 3)2).

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 March 31,September 30, 2023 and June 30, 2022,2023, 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, 2023, the Company adopted the provisions of ASC 326 (Financial Instruments – Credit Losses) pertaining to “current expected credit losses,” which had no material impact on the Company’s 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 the ability of the Company to obtain necessary equity financing to continue operations and the attainment of profitable operations. As disclosed in Note 3,2, we completed a public offering of our equity securities in August 2022 that raised total net proceeds of approximately $3,780,000. As of September 30, 2023, we had a cash balance of $1,823,700 and net working capital of $6,122,375. 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.issued, without new sources of capital.

(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$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 1,121,250Units, including exercise of the underwriter’s overallotment option, were sold at an offering price to the public of $4.00$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$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$1,120,035, including accrued interest, automatically converted their debt into a total of 267,000 shares of common stock at the stated conversion rate (see Note 2).

In the nine months ended March 31, 2022, the holders of the 2018 convertible notes payable having total principal and accrued interest balances in the aggregate amount of $6,922 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 1,098,630 shares of common stock (see Note 2).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.

The following table presents activity with respect to the Company’s warrants for the ninethree months ended March 31,September 30, 2023:

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 was 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. As of January 1, 2023, Milestone 1 was achieved, however, Milestone 2 was not achieved. The underlying 50,000 shares of common stock earned under Milestone 1 were issued to theour CEO as of that date.

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. Milestone 1 was achieved as of January 1, 2023, and the underlying 250,000 shares of common stock earned under Milestone 1 were issued to theour CFO as of that date. As of September 30, 2023, Milestone 2 has not yet been achieved.

Based upon the Company’sManagement’s assessment of the probability of theour CEO and CFO ultimately achieving each milestone specified under the RSU awards indicated above, the Company haswe calculated the grant date value of such awards and isare amortizing it as stock compensation expense over the underlying performance periods. The Company hasWe have recognized stock compensation expense applicable to such RSU awards in the ninethree months ended March 31,September 30, 2023 and 2022 in the amountamounts of $1,200,723.$40,842 and $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 March 31,September 30, 2023, we booked an initial accrual of $146,25048,750 of compensation expense (of which $131,625$43,875 will be settled through the issuance of shares) for our three independent directors under this plan. At the same time, we also granted 26,000 shares, with a grant date value of $97,500, to various advisors pursuant to annual contracts for their services.

In the ninethree months ended March 31,September 30, 2023, we recognized total non-cash stock compensation expense of $1,420,201 84,717as follows: (i) $1,200,723 40,842for the amortized value of the RSUs granted to our two executive officers, as previously described; and (ii) $131,625 43,875for the amortized value of the portion of the new compensation plan for our independent directors that is attributable to stock; (iii) $60,625 for the amortized value of the shares granted to various advisors under their annual service contracts; and (iv) $27,228 for the fair value of incentive shares earned by two wholesale dealers as of December 31, 2022 (see Note 4).stock. There was a total of 384,759 were no shares of common stock that were issued to variousany grantees including our two executive officers, in the ninethree months ended March 31, 2023, of which 75,000 shares were previously expensed in the year ended JuneSeptember 30, 2022.2023.

In the ninethree months ended March 31,September 30, 2022, we recognized total non-cash stock compensation expense of $4,361,370591,816 as follows: (i) $3,505,000579,941 for the fair value of 500,000 incentive shares earned as of December 31, 2021 by a company controlled by the Company’s CEO under a previous compensation plan (which were not issued until early 2022); (ii) $193,314 for the initial amortized value of the RSUs granted to our two executive officers, as previously described; (iii) $175,250and (ii) $11,875 for the fair value of 25,000 bonus shares earned as of December 31, 2021 by an outside attorney (which were not issued until early 2022); (iv) $236,619 for thenet amortized value of 50,000the shares granted to an attorney and a consultant pursuant to one yearvarious advisors under their annual service agreements in mid 2021; (v) $191,125 for the amortized value of 50,000 shares attributable to a new independent director in early 2021; and (vi) $60,062 for the fair value of 8,568 incentive shares earned by a wholesale dealer as of December 31, 2021 (see Note 4).contracts. There was a total of 1,237,733were no shares of common stock that were issued to variousany grantees primarily advisors, attorneys and consultants, in the ninethree months ended March 31,September 30, 2022.

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 March 31,September 30, 2023, the Company has made awards under the Plan totaling 537,822 shares as follows: (i) 450,000 shares for the RSUs granted to our two executives,executive officers, as noted above,above; (ii) 54,964 shares for the initial services of our three independent directors in the year ended June 30, 2023, pursuant to the new compensation plan adopted in August 2022 for independent directors (see Note 4); and (iii) 32,858 shares under the Plan.incentive plan for wholesale dealers who achieve quarterly sales above targeted levels, determined as of the calendar year end, subject to defined maximums (see Note 3).

(4)       Commitments and Contingencies

Effective January 1, 2021, the Companywe secured new corporate and manufacturing office space under a sublease agreement with itsa company that served as our contract manufacturer.manufacturer at that time. Under the terms of the sublease agreement, the Company iswe were required to make rental payments of $10,350 per month during the initial one-year term of the agreement. TheFurther, under the terms of the sublease agreement, is renewablewe 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 up to four additional yearseach subsequent term, at a modest increase in the monthly rent, however, the Company isthrough February 28, 2025. However, we were under no obligation to renew it. At inception of the sublease, Management has determined that the exercise of the renewal option iswas not reasonably certain and, as such,notwithstanding that the Company haselected to renew the agreement for additional one year periods as of January 1, 2022 and 2023, continues to believe that is the case. Accordingly, we have accounted for it as a short-term lease under ASC 842, Leases. Effective JanuaryUnder an amendment to our supply agreement with our former contract manufacturer in April 2023, we took over direct responsibility for the manufacturing process surrounding our ESS units on June 1, 2023, however, that amendment had no effect on the Company elected to renew thesublease agreement for another one year period (see Note 5).with our former contract manufacturer.

As indicated in Note 1, the Company sells itswe sell our proprietary ESS units through wholesale dealers, primarily in California. In that regard, the Company haswe have entered into agreements with several wholesale dealers operating in California and other states under which the Company haswe have incentivized the dealers to achieve quarterly sales above targeted levels by agreeing to grant them shares of the Company’sour common stock for exceeding such quarterly sales targets, determined as of the calendar year end, 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.

(4)	(5)        Subsequent Events

On October 11, 2023, we issued a total of 80,964 shares of our common stock to certain Board members and various advisors, pursuant to annual contracts for their services. Included in this issuance were 54,964 shares attributable to our three independent directors and 26,000 shares attributable to various other advisors. We issued all of these shares to the recipients as consideration for their services rendered in the year ended June 30, 2023, and we have recognized the underlying expense for such services in the year ended June 30, 2023.

In April 2023, we amended the agreement with our contract manufacturer (see Note 4) to provide for the purchase by us of all of the contract manufacturer’s existing inventory used to assemble our ESS units and to also provide for the eventual assumption by us of full responsibility for the manufacturing of our ESS units. Pursuant to the amended agreement, we completed the purchase of our contract manufacturer’s assembly inventory by making a cash payment of $1.3 million to this company and have now recorded such purchased inventory on our balance sheet. We presently expect to assume full responsibility for the manufacturing process surrounding our ESS units from the contract manufacturer by June 1, 2023. All of our manufacturing certifications are listed under NeoVolta. This amended agreement has no effect on the present sublease agreement with our contract manufacturer.

Introduction

This information should be read in conjunction with the interim unaudited financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the audited financial statements and notes thereto and “Part II. Other Information - 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, 2022,2023, filed with the Securities and Exchange Commission on September 27, 202222, 2023 (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 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:

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,NV-24, which can store and use energy via batteries and an inverter at residential or commercial sites. We were founded to identify new ways to leverage emerging technologies with the dynamic changes that are taking place in the energy delivery space. We primarily market and sell our products directly to our certified solar installers and solar equipment distributors. We are also pursuing agreements with residential developers, commercial developers, and other commercial opportunities. Because we are purely dedicated to energy solar systems, virtually all of our current resources and efforts go into further developing our flagship NV14, NV14-K, and NV 24NV-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 3,500,000 shares of our common stock at an offering price of $1.00 per share for gross proceeds of $3.5 million pursuant to Regulation A of the Securities Act. We used the proceeds of the offering 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 of the current date, we have had successful installations of our products in the additional States of Arizona, Nevada, Georgia, Utah, Florida, Puerto Rico, Oklahoma, Texas, Colorado, Wyoming, Texas, Oklahoma, Missouri, Tennessee, Alabama, Georgia, Florida, and Missouri.Puerto Rico.

As further discussed below under “Underwritten Public Offering,“Liquidity and Capital Resources,” we completed an underwritten public offering of our equity securities in the form of Units in August 2022. We sold a total of 1,121,250 Units in the offering at an offering price to the public of $4.00 per Unit. The gross proceeds of the offering were $4,485,000 and the net proceeds, after deduction of underwriting discounts and other offering costs, were approximately $3,780,000. We are using the proceeds of this public offering to increase our current production capacity, expand our product portfolio, enlarge our product marketing and sales efforts, and for other general corporate purposes.

Underwritten Public Offering

In early August 2022, we completed an underwritten public offeringOn April 14, 2023, California implemented Net Energy Metering 3 (NEM3) for subsequent new solar installations. NEM3 reduces the amount of our equity securities in the formNEM credit for each kilowatt (KW) 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.

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 pricesolar power sent to the publicutility from a rate of $4.00approximately $0.20 per Unit. The gross proceedsKW to $0.09 per KW (each Utility varies). NEM3 effectively increases the average solar Return 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 $3,780,000. We are using the proceeds of this public offeringInvestment (ROI) from 5-6 years 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 $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. As a result of the simultaneous conversion of both sets of convertible notes,10-12 years (each Utility varies). Effectively, the Company has fully eliminated its convertible debt.believes that solar installation in California currently makes little financial sense without also including a battery system. Installing NeoVolta nets a ROI of 4-6 years. NEM3 reduced our sales from December 2022 until very recently as solar installers worked off their permitted NEM2 installs. We expect our sales to gradually increase going forward.

Results of Operations

The following discussion reflects the Company’s revenues and expenses for the three and nine month periods ended March 31,September 30, 2023 and 2022, as reported in our financial statements included in Item 1.

Three months ended March 31, 2023 versus three months ended March 31, 2022

Revenues - Revenues from contracts with customers for the three months ended March 31,September 30, 2023 were $629,010$764,130 compared to $932,903$1,537,836 for the three months ended March 31,September 30, 2022. Such decrease was primarily due to the pendencyimpact of the April 2023 effective date ofvarious macroeconomic and regulatory factors including new utility regulations in the State of California that we believe have caused an economic disincentive for residential utility customers to acquire our energy storage systems both prior to as well as subsequent to the April 2023 effective date of those regulations (see “Item 1A. Risk Factors” for a discussion of the new utility regulations).regulations.

Cost of Goods Sold - Cost of goods sold for the three months ended March 31,September 30, 2023 were $537,261$642,958 compared to $810,563$1,291,960 for the three months ended March 31, 2022. 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.

General and Administrative Expense - General and administrative expenses for the three months ended March 31, 2023 were $723,271 compared to $620,214 for the three months ended March 31, 2022. Such increase was due to the recognition of an allowance for bad debts of $380,000, partially offset by a decrease in stock compensation expense related the Company’s equity incentive programs.

Research and Development Expense - Research and development expenses for the three months ended March 31, 2023 were $1,290 compared to zero for the three months ended March 31, 2022. Such fluctuation was due to a modest increase in the level of the Company’s recent product development efforts.

Interest Expense - Interest expense for the three months ended March 31, 2023 was zero compared to $21,829 for the three months ended March 31, 2022. This decrease resulted from the conversion of our 2018 and 2021 convertible notes in conjunction with the closing of our public equity offering in August 2022.

Net Loss - Net loss for the three months ended March 31, 2023 was $632,812 compared to $519,703 for the three months ended March 31, 2022, 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.

Nine months ended March 31, 2023 versus nine months ended March 31, 2022

Revenues - Revenues from contracts with customers for the nine months ended March 31, 2023 were $2,733,951 compared to $3,567,634 for the nine months ended March 31, 2022. Such decrease was primarily due to the pendency of the April 2023 effective date of new utility regulations in the State of California that we believe caused an economic disincentive for residential utility customers to acquire our energy storage systems prior to the effective date of those regulations (see “Item 1A. Risk Factors” for a discussion of the new utility regulations).

Cost of Goods Sold - Cost of goods sold for the nine months ended March 31, 2023 were $2,302,380 compared to $3,033,263 for the nine months ended March 31,September 30, 2022. 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 16% and 15%, respectively.in both periods.

General and Administrative Expense - General and administrative expenses for the ninethree months ended March 31,September 30, 2023 were $2,716,428$555,160 compared to $5,114,267$919,428 for the ninethree months ended March 31,September 30, 2022. Such decrease was primarily due to thea reduction in stock compensation expense related to the expense recorded for the fair value ofCompany’s equity incentive shares of common stock earnedprograms, partially offset by the Company’s executive officers under their new employment contracts, effectiverecognition of an allowance for bad debts in March 2022.the three months ended September 30, 2023 in the amount of $110,000.

Research and Development Expense - Research and development expenses for the ninethree months ended March 31,September 30, 2023 were $29,936zero compared to $66,503$20,900 for the ninethree months ended March 31,September 30, 2022. Such fluctuation was largely due to a decreasetiming differences in the level of the Company’s recent product development efforts.

InterestOther Income and Expense - Interest income for the three months ended September 30, 2023 was $5,273 compared to zero for the three months ended September 30, 2022. This increase was due to rising money market rates which have enabled the Company to earn interest on its investable cash in the three months ended September 30, 2023. Interest expense for the ninethree months ended March 31,September 30, 2023 was $4,134zero compared to $31,365$4,134 for the ninethree months ended March 31,September 30, 2022. This decrease resulted from the conversion of our 2018 and 2021 convertible notes in conjunction with the closing of our public equity offering in August 2022.

Net Loss - Net loss for the ninethree months ended March 31,September 30, 2023 was $2,318,927$428,715 compared to $4,677,764$698,586 for the ninethree months ended March 31,September 30, 2022, 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 ninethree months ended March 31,September 30, 2023 was $650,600$179,089 compared to $707,692$118,139 in the ninethree months ended, March 31,September 30, 2022, reflecting a modest decrease in net working capital requirementsoperating cash flow in the current fiscal year period.

Financing activities. Net cash provided by financing activities in the ninethree months ended March 31,September 30, 2023 was $3,780,405,zero, compared to $1,068,000$3,780,405 in the ninethree months ended March 31,September 30, 2022. As further discussed below, our net cash provided by financing activities in the ninethree months ended March 31, 2023September 30, 2022 was entirely attributable to the successful completion of an underwritten public offering of our equity securities in early August 2022. Our net cash provided by financing activities in the nine months ended March 31, 2022 resulted from the issuance of our convertible notes payable to a group of accredited investors in October 2021 in the amount of $1,068,000. Such notes were ultimately converted into common stock in conjunction with the closing of our public offering in August 2022.

We completed an underwritten public offering of our equity securities in the form of Units in early August 2022. Each Unit consisted 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. 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 $3,780,000.

In conjunction with the public offering, all holders of our 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 our 2021 convertible notes in the total amount of $1,068,000$1,120,035, including accrued interest, automatically converted their debt into a total of 267,000 shares of common stock at the stated conversion rate. As a result of the simultaneous conversion of both sets of convertible notes, the Company has fully eliminated its convertible debt.

As of March 31,September 30, 2023, we had a cash balance of $3.5approximately $1.8 million and net working capital of approximately $6.7$6.1 million. Currently, we are not generating a break-even level of net operating cash flow from our net sales. However, we anticipate that demand for our products will ultimately increase over time and that we will have sufficient cash to operate for at least the next 12 months.

Recent Assembly Inventory Purchase

In April 2023, we closed themade a bulk purchase of raw materials inventory from our contract manufacturer by making a cash payment to that company in the net amount of approximately $1.3 million. This transaction was completed pursuant to an amendment of our Master Supply Agreement with our contract manufacturer. In addition to the purchase of the raw materials inventory from our contract manufacturer, this amendment providesprovided for the eventual assumption by us of full responsibility from our contract manufacturer for the manufacturing of our proprietary Energy Storage Systems (“ESS”) units. We presently expectPursuant to assumethe amendment, we assumed such responsibility for the manufacturing process surrounding our ESS units from our contract manufacturer byon June 1, 2023. In conjunction with assuming this responsibility, we will hirehired the fourtwo employees of our contract manufacturer who currently performpreviously performed contract manufacturing services for us. This amended agreement has no effect on our present Sublease Agreement with our contract manufacturer, pertainingWe are expecting to our existing manufacturing locationhire additional “assemblers” in Poway, CA.the fairly near future.

Other 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 calendar year 2022, we have 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.

Additionally, we continue to monitor current international developments occurring in Ukraine and Israel. However, we do not believe that they will have a significant impact on either the domestic markets for our products or the international supply chains for our product components, which are largely sourced from Asis.

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 financial statements which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these 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 financial statements. See “Note 1. Business and Summary of Significant Accounting Policies” of the Notes to 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, 2022,2023, as filed with the SEC on September 27, 2022,22, 2023, for a further description of our critical accounting policies and estimates.

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.

Evaluation of disclosure controlsDisclosure Controls and proceduresProcedures

We have established and maintain a system of disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed with the Securities and Exchange Commission pursuant to the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Commission and that such information is accumulated and communicated to our management, including our Chief Executive Officer, who is our principal executive officer, and Chief Financial Officer, who is our principal financial and accounting officer, to allow timely decisions regarding required disclosures.

As of March 31,September 30, 2023, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as a result of the material weakness relating to the lack of segregation of duties, our disclosure controls and procedures as of the end of the period covered by this Quarterly Report were not effective. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. We will be required to hire additional personnel in order to remediate our material weakness.

Changes in internal controls over financial reporting

There was no change in our internal controls over financial reporting that occurred during the quarter ended March 31, 2023, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Changes in Internal Controls over Financial Reporting

There was no change in our internal controls over financial reporting that occurred during the quarter ended September 30, 2023, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

Although we may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business, we are not currently a party to any material legal proceeding. In addition, we are not aware of any material legal or governmental proceedings against us, or contemplated to be brought against us.

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended June 30, 2022,2023, as filed with the SEC on September 27, 202222, 2023 (the “Form 10-K”), under the heading “Risk Factors”, except as set forth below, which are incorporated by reference herein and investors should review the risks provided in the Form 10-K prior to making an investment in the Company. The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in the Form 10-K for the year ended June 30, 2022,2023, under “Risk Factors”, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.

The following are new risk factors which supplements the risk factors included in our Form 10-K:

Recent utility regulations enacted in the State of California in December 2022 have had a negative impact on the sales of our energy storage systems in that state.

On December 15, 2022, the California Public Utilities Commission (“CPUC”) unanimously passed a new statewide utility regulation known as Net Energy Metering 3.0 (“NEM 3.0”). This new regulation became effective 120 days after enactment, on April 14, 2023, and significantly alters the net billing rates for residential solar production in the State of California and ultimately impacts the monthly energy bill savings for homeowners. While this new regulation was pending, we believe that it caused a negative impact on the sales of our energy storage systems in the State of California during the recent periods ended March 31, 2023. Now that NEM 3.0 has become effective, however, we believe that it will provide an economic incentive for residential utility customers to acquire energy storage systems, such as those sold by NeoVolta, in the State of California.

An increase in mortgage interest rates may result in a decrease in demand by homeowners for our residential energy storage systems.

Sales volume in our homeowner channel is partially dependent on the construction of new homes and the sale of existing homes in our residential markets. Many customers of our installation partners rely on mortgage loans from banks and other lenders in order to finance a substantial portion of the purchase price for their home, including any related improvements. Increased mortgage interest rates may lead to lower demand for new homes and a reduced number of homes available for solar origination through our homeowner channel. Additionally, increased interest rates may result in fewer secondary home sales, a reduction in the number of customers refinancing their mortgages and uncertainty about the economy.

There have been no sales of unregistered securities during the three months ended March 31,September 30, 2023.

None.

Not applicable.

None.During the period covered by this Quarterly Report, none of the Company’s directors or executive officers has adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (each as defined in Item 408 of Regulation S-K under the Securities Exchange Act of 1934, as amended).

______________________

* Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NEOVOLTA, INC.