NeoVolta Inc.

Notes to Financial Statements

(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, initially in California, and in an expanding number of other states. In August 2022, the Company completed an underwritten public offering of its equity securities resulting in its common stock and warrants becoming listed on a national exchange (see Note 3).

*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, 2025, the results of its operations for the three and nine month periods ended March 31, 2025 and 2024, the changes in its stockholders’ equity for the three and nine month periods ended March 31, 2025 and 2024, and cash flows for the nine month periods ended March 31, 2025 and 2024. The balance sheet as of June 30, 2024 has been derived from the Company’s June 30, 2024 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, 2024, as filed with the SEC on September 27, 2024.

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, per bank. At March 31, 2025, the Company maintained all of its accounts at one bank and the combined balances of all accounts at this bank was in excess of the FDIC insurance limit by $285,966.

Inventory – Inventory consists of batteries and inverters purchased from Asian suppliers and delivered to a location near the Company’s offices, for assembly into ESS units. Inventory is stated at the lower of cost or net realizable value, cost being determined using the first-in, first out (FIFO) method. The Company periodically reviews the value of items in inventory and records an allowance to reduce the carrying value of inventory to the lower of cost or net realizable value based on its assessment of market conditions, inventory turnover and current stock levels. Inventory write-downs are charged to cost of goods sold. The following table presents the components of inventory (net of prior year reserve for obsolescence on assembly parts of $90,000) as of March 31, 2025 and June 30, 2024:

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, in California and several other states. Two such dealers represented approximately 48% and 15% of the Company’s revenues in the three months ended March 31, 2025, however, no other dealers accounted for more than 10% of the revenues in such period. Three such dealers represented approximately 26%,24% and 15% of the Company’s revenues in the nine months ended March 31, 2025. Four dealers represented approximately 23%,22%,18% and 11% of the Company’s accounts receivable as of March 31, 2025. Four dealers represented approximately 21%,16%,13% and 11% of the Company’s revenues in the three months ended March 31, 2024. Three dealers represented approximately 25%,17% and 11% of the Company’s revenues in the nine months ended March 31, 2024. 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 and nine months ended March 31, 2025 and 2024 is provided.

Allowance for Expected Credit Losses – The Company recognizes an allowance for expected credit losses whenever a loss is expected to be incurred in the realization of a customer’s account. As of March 31, 2025 and June 30, 2024, our allowance for expected credit losses was $660,000 and $1,030,000, respectively.

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, 2025, the Company had total outstanding common stock equivalents of 2,937,512 shares as follows: (i)1,806,362 shares related to restricted stock units granted to an officer and two other employees since April 2024; (ii)1,081,150 shares related to warrants issued to investors in the public offering completed in August 2022; and (iii)50,000 shares related to restricted stock units granted to an officer in March 2022 (see Note 3).

Research and Development Costs – Research and development costs are expensed as incurred.

Use of Estimates – Management has made a number of estimates and assumptions in preparing these financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates.

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 and prospective standards that are not yet effective, including ASU 2024-03,Income Statement – Reporting Comprehensive Income – Expense disaggregation disclosures (Topic 220-40): Disaggregation of Income Statement Expenses, will not have a material impact on the Company’s financial position or results of operations upon adoption. The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its financial statements.

Liquidity – These financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern has been dependent upon the ability of the Company to obtain necessary debt and equity financing to continue operations and the attainment of profitable operations.

As disclosed in Note 2, we entered into an agreement with a financing entity in September 2024 whereby we have obtained a line of credit for borrowings of up to $5,000,000, in order to meet any near-term borrowing needs. As a result, we believe that we will have sufficient financial resources available to us in order to operate our business for at least the next 12 months from the date these financial statements are issued.

(2)Debt Financing Transactions

On September 3, 2024, we entered into an agreement with a newly formed financing entity whereby we obtained a line of credit for borrowings of up to $5,000,000. Under this agreement, we are obligated to make periodic payments to the lender of accrued interest, at the rate of 16% per annum, on any outstanding borrowings that we make, with the principal and any unpaid accrued interest being due at maturity on September 3, 2026. In order to secure such borrowings, we have granted a security interest in all of our assets to the lender. As a condition of receiving this line of credit from the lender, we have agreed not to issue any securities pursuant to the Company’s Form S-3 (file number 333-280400), without the lender’s consent, so long as any borrowings remain outstanding. As of March 31, 2025, we had made net borrowings under this credit agreement in the amount of $383,538, leaving an available balance of $4,616,462. Accrued interest as of March 31, 2025 was $15,468, after considering a payment of accrued interest of $18,292.

On October 4, 2024, we made an initial borrowing of $250,000 under this line of credit largely in order to fund a short-term loan in the same amount to a new customer which has a government-backed contract to install a large number of our units in Puerto Rico over a two year period. The purpose of the loan was to provide working capital to the customer in conjunction with the startup of the contract in Puerto Rico. The loan was structured to be non-interest bearing, if repaid prior to December 31, 2024. The loan was fully repaid in December 2024.

In the month of November 2024, we initiated short-term borrowings from a commercial accounts receivable lender under a loan agreement allowing for borrowings, secured by certain property interests, of up to $2,000,000. As of March 31, 2025, we had made borrowings from this lender to finance customer shipments and related costs in the total amount of $2,081,845. The lender charges a placement fee of 1% on each borrowing and assesses interest at the rate of 2.5% per month on the outstanding borrowings. Borrowings are to be repaid upon the earlier of: (i) 120 days from the borrowing date; or (ii) receipt of payment from the customer. In the event of default, interest is assessed at the default rate of 1% per 7 days. Through March 31, 2025, we had repaid $661,729 of such borrowings, including accrued interest and fees, leaving an outstanding balance as of that date, including accrued interest and fees, of $1,420,116.

(3)Equity

Common Stock – In February 2025, the Company closed a private equity offering under which the Company issued a total of 543,500 shares of its common stock to the investors at an offering price of $2.00 per share resulting in gross proceeds to the Company in the amount of $1,087,000. The Company is using the proceeds of this private offering to meet working capital needs and for other general corporate purposes.

In August 2022, the Company completed an underwritten public offering of its equity securities in the form of Units with each Unit consisting of one share of common stock and one warrant (each, a “Warrant” and collectively, the “Warrants”) to purchase one share of common stock at an exercise price of $4.00 per share. The shares of common stock and the Warrants comprising the Units were immediately separated at closing of the offering and each is now independently listed on the NASDAQ Capital Market. Each Warrant became exercisable on the date of issuance and will expire five years from the date of issuance.

In the underwritten public offering, a total of 1,121,250 Units, including exercise of the underwriter’s overallotment option, were sold at an offering price to the public of $4.00 per Unit. The gross proceeds of the offering were $4,485,000 and the net proceeds, after deduction of underwriting discounts and other offering costs were approximately $3,780,000. The Company also granted the underwriter non-tradeable warrants to purchase a total of 58,500 shares of common stock at an exercise price of $4.40 per share for a period of five years.

In conjunction with the public offering, all holders of the Company’s 2018 convertible notes in the total amount of $59,251, including accrued interest, converted their debt into a total of 9,404,867 shares of common stock at the stated conversion rate, and all holders of the Company’s 2021 convertible notes in the total amount of $1,120,035, including accrued interest, automatically converted their debt into a total of 267,000 shares of common stock at the stated conversion rate.

Warrants – The Warrants for a total of 1,179,750 shares of common stock issued to investors and the underwriters are exercisable at any time after their original issuance and at any time up to the date that is five years after their original issuance, or August 1, 2027. The Warrants may be exercised upon payment of the exercise price in cash on or prior to the expiration date. Under the terms of the Warrant Agreement, we must use our best efforts to maintain the effectiveness of the registration statement and current prospectus relating to common stock issuable upon exercise of the Warrants until the expiration of the Warrants. If we fail to maintain the effectiveness of the registration statement and current prospectus relating to the common stock issuable upon exercise of the Warrants, the holders of the Warrants shall have the right to exercise the Warrants solely via a cashless exercise feature provided for in the Warrants, until such time as there is an effective registration statement and current prospectus.

The following table presents activity with respect to the Company’s warrants for the nine months ended March 31, 2025:

These warrants were issued in conjunction with an underwritten public equity offering, therefore, there was no employee or non-employee compensation expense recognized. In November 2024, the underwriter elected to exercise all 58,500 Warrants at an exercise price of $4.40 per share, via a cashless exercise, as permitted under the warrant agreement, resulting in the issuance of 15,312 shares of our common stock. Additionally, the holders of publicly issued Warrants to purchase an aggregate of 40,100 shares of our common stock elected to exercise their Warrants by a cash payment of a total of $160,400 resulting in the issuance of the underlying shares of our common stock in December 2024.

Stock Compensation Expense – In April 2024, we entered into an employment agreement with a new Chief Executive Officer (“CEO”), providing for an initial term extending through June 30, 2027, which will be automatically renewed for additional one-year terms unless either party chooses not to renew it. Pursuant to the agreement, our new CEO received an initial equity grant equal to 1,280,000 restricted stock units (“RSU’s”), with a grant date value of $2,854,000, which will vest over a four-year period, subject to his continued employment with the Company, and will be entitled to earn additional RSU’s on each anniversary in the form of three annual performance-based equity grants, beginning in the year ending June 30, 2025, with a target value of up to $660,000 each. However, our Compensation Committee has not set any definitive targets, therefore, no additional grants have been made as of March 31, 2025.

In February 2025, we entered into an amended and restated employment agreement with our Chief Financial Officer (“CFO”). The initial term of the employment agreement ends on December 31, 2027 and will be automatically renewable for additional one-year terms unless either party chooses not to renew the agreement. Pursuant to the agreement, we issued our CFO an award of 240,000 RSUs vesting in four annual installments.

In February 2022, we entered into an earlier amended and restated employment agreement with our CFO, pursuant to which we issued him an RSU award for up to 300,000 shares of our common stock upon achieving two defined milestones. The first milestone was achieved as of January 1, 2023, and the underlying 250,000 shares of common stock were issued to our CFO as of that date. The second milestone was achieved as of January 1, 2024, and the underlying 50,000 shares of common stock are expected to be issued to our CFO at a later date.

In January 2025, we entered into an employment agreement with our new Chief Operating Officer (“COO”). The initial term of the employment agreement ends on December 31, 2027 and will be automatically renewable for additional one-year terms unless either party chooses not to renew the agreement. Pursuant to the agreement, we issued our COO an award of 150,000 RSUs vesting in three annual installments. Additionally, we entered into employment agreements with two other individuals in June 2024 and October 2024, and we granted them a total of 136,362 RSUs vesting in four annual installments. As a result, we presently have a total of 1,806,362 RSUs that have been granted to our three officers and two other individuals. For all of these awards, we have calculated the grant date value of such awards and are amortizing it as stock compensation expense over the underlying vesting periods. We have recognized stock compensation expense applicable to such RSU awards in the nine months ended March 31, 2025 and 2024 in the amounts of $693,622 and $81,683, respectively.

In February 2025, we entered into a referral agreement with a marketing company to market our products to qualified solar and energy storage system installers. The term of the referral agreement ends on December 31, 2026. Pursuant to the agreement, the only compensation that the marketing company will be entitled to receive will be through the issuance of shares of our common stock in exchange for reaching specified target levels of product sales, up to a maximum total of 2,000,000 shares for reaching a total of 2,500 units sold and paid for. In accordance with ASC 718, we are accounting for this agreement based on our periodic assessments of the probability of reaching such target levels. Based on that approach, we have recognized stock compensation expense in the three months ended March 31, 2025, in the amount of $62,158.

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 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, 2025, we booked an accrual of $146,250 of compensation expense (of which $131,625 will be settled through the issuance of shares) for our three independent directors under this plan.

In the nine months ended March 31, 2025, we recognized total non-cash stock compensation expense of $1,368,583 as follows: (i) $693,622 for the amortized value of the RSUs granted to our three officers and two other individuals; (ii) $131,625 for the amortized value of the portion of the new compensation plan for our independent directors that is attributable to stock; (iii) $438,000 for the March 2025 issuance of 150,000 shares of our common stock to a consultant for his advisory services in the area of energy regulatory matters; (iv) $62,158 for the amortized value of the shares potentially issuable to a marketing company pursuant to a February 2025 referral agreement; and (v) $43,178 for the March 2025 issuance of 14,250 shares of our common stock to a consultant for marketing services. There was a total of 289,870 shares of our common stock that were issued to various grantees for services in the nine months ended March 31, 2025, of which 125,620 shares were previously expensed in the year ended June 30, 2024.

In the nine months ended March 31, 2024, we recognized total non-cash stock compensation expense of $245,496 as follows: (i) $81,683 for the amortized value of the RSUs granted to our executive officers; (ii) $131,625 for the amortized value of the portion of the new compensation plan for our independent directors that is attributable to stock; (iii) $19,763 for the amortized value of the shares granted to various advisors under their annual service contracts; and (iv) $12,425 for the fair value of incentive shares earned by a wholesale dealer as of December 31, 2023 (see Note 4). There was a total of 80,964 shares of common stock that were issued to our independent directors in the nine months ended March 31, 2024, which were previously expensed in the year ended June 30, 2023.

Other Matters – In February 2019, the Company’s Board of Directors approved the establishment of a new 2019 Stock Plan (“Plan”) with an authorization for the issuance of up to 2,500,000 shares of common stock. In December 2024, the Plan was amended to increase the number of shares of common stock authorized for issuance by 5,000,000 shares. The Plan is designed to provide for future discretionary grants of stock options, stock awards and stock unit awards to key employees, consultants, advisors, and non-employee directors. As of March 31, 2025, we have made total awards of 2,450,804 shares under the Plan as follows: (i)2,256,362 shares for the RSUs granted to our three executive officers and two non-executive recipients, as noted above; (ii)153,808 shares for the initial services of our three independent directors in the years ended June 30, 2024 and 2023, pursuant to the new compensation plan adopted in August 2022 for independent directors; and (iii)40,634 shares granted to several wholesale dealers under an incentive sales program.

**(4)Commitments and Contingencies **

Effective January 1, 2021, we secured new corporate and manufacturing office space under a sublease agreement with a company that served as our contract manufacturer at that time. Under the terms of the sublease agreement, we were required to make rental payments of $10,350 per month during the initial one-year term of the agreement. Further, under the terms of the sublease agreement, we were granted the right to renew the sublease for additional terms of 12 months each upon mutual agreement of both parties, provided thirty days’ notice is given for each subsequent term, at a modest increase in the monthly rent, through December 31, 2024, with no obligation to renew it. At inception of the sublease, management determined that exercise of the renewal option was not reasonably certain and, notwithstanding that the Company elected to renew the agreement for additional one year periods as of January 1, 2022, 2023 and 2024. Accordingly, we have accounted for it as a short-term lease under ASC 842,Leases. Effective December 31, 2024, the parties mutually agreed to a short-term extension of the sublease agreement, on essentially the same terms, through February 28, 2025. Prior to expiration of the extended sublease, the Company relocated its corporate and manufacturing office space to another facility in the same vicinity under a one year sublease agreement with the sublandlord, at a base rental of $15,532 per month.

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

We are dependent on our two main component vendors in China for our suppliers of batteries, inverters and other raw materials and the inability of these single-source suppliers to deliver necessary components of our products according to our schedule and at prices, quality levels and volumes acceptable to us, or our inability to efficiently manage these components, could have a material adverse effect on our financial condition and operating results. Beginning in April 2025, the Trump Administration implemented a significant increase in tariff rates on all goods imported from China. However, we anticipated the likelihood of facing such a tariff increase and have been stockpiling our inventory of these two components. As a result, we do not anticipate having to purchase a significant level of such components at post-tariff prices for the next several months.

From time to time in the ordinary course of our business, the Company may be involved in legal proceedings, the outcomes of which may not be determinable. The Company is not involved in any legal proceedings at this time. The results of litigation are inherently unpredictable. Any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in diversion of significant resources. We are not able to estimate an aggregate amount or range of reasonably possible losses for those legal matters for which losses are not probable and estimable.