UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 1-SA
[X] Semi-annual Report Pursuant to Regulation A
Or
[ ] Special Financial Report Pursuant to Regulation A
For the fiscal semi-annual period ended December 31, 2019
NEOVOLTA, INC.
(Exact Name of Registrant as specified in its charter)
|
Nevada
|
|
82-5299263
|
|
(State or other jurisdiction
of incorporation)
|
|
(IRS Employer Identification Number)
|
|
13370 Kirkham Way
Poway, CA
|
|
92064
|
|
(Address of principal
executive offices)
|
|
(zip code)
|
(858) 265-9347
(Registrant’s telephone number, including area code)
Item 1. Management's Discussion and Analysis of Financial Condition and Results of Operations
This is the Semi-annual Report of NeoVolta, Inc. (“we”, “our” or the "Company"), pursuant to Regulation A, for the six month period ended December 31, 2019. The Company is a Nevada corporation, which was formed on March 5, 2018. The following discussion of our financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by, the financial statements and notes thereto included in Item 3 in this Semi-annual Report on Form 1-SA.
This report contains forward-looking statements, which reflect our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this report and are subject to a number of risks, uncertainties and assumptions described under the section entitled “Item 1. Business - Risk Factors” in our annual report on Form 1-K filed October 15, 2019, which can be found at:
https://www.sec.gov/Archives/edgar/data/1748137/000139390519000286/neov_1k.htm
Forward-looking statements are identified by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on the information available to management at this time and which speak only as of this date. Examples of our forward-looking statements include:
·our ability to obtain additional funding to develop and market our products;
·the need to obtain regulatory approval of our products;
·our ability to market our products;
·market acceptance of our product;
·competition from existing products or new products that may emerge;
·potential product liability claims;
·our dependency on third-party manufacturers to supply or manufacture our products, including manufacturers located in China;
·the impact of tariffs on the costs of the materials we use to make our products;
·our ability to establish or maintain collaborations, licensing or other arrangements;
·our ability and third parties’ abilities to protect intellectual property rights;
·our ability to adequately support future growth; and
·our ability to attract and retain key personnel to manage our business effectively.
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment.
Overview; Recent Developments
We are a designer, manufacturer, and seller of high-end Energy Storage Systems (or ESS), which can store and use energy via batteries and an inverter at a residential site. Our market place is the solar industry, installers, new construction homebuilders, home remodelers, and homeowners. Our NV14 ESS provides hybrid (120V / 240V) inverter and battery power, efficiency, and operating options, using Lithium Iron Phosphate (LiFe(PO4)) batteries that have high Depth of Discharge (DoD) cycles (4,000 cycles at 80% DoD) and a high thermal range (heat and cold tolerances), all contained in one integrated indoor/outdoor rated cabinet.
2
With respect to the supply of materials used in our ESS, we do source a significant amount of materials directly from China, and the recent coronavirus outbreak may have an impact on the availability of certain components for our ESS. We believe our near-term supply needs will not be materially disrupted given our current inventory of materials already on hand. If, however, the impact of the coronavirus on the availability of materials sourced from China is prolonged, this could have an adverse longer-term impact on our ability to produce our products.
Effective March 22, 2020, California is adopting new Common Smart Inverter Profile (CSIP) regulations. Although the NV14 is capable of meeting these regulations, it does not currently meet the regulations. However, we believe that because the NV14 connects to other solar devices that do meet the regulations, regulators in California may allow for an exemption and we are actively in discussions regarding a potential exemption. Notwithstanding these efforts, we have begun working on modifications to the NV14 to meet the new regulations, and we expect such work to be completed in the middle of this year. To the extent our NV14 is not exempted from the new CSIP regulations, we will not be able to perform installations in California until such time as we meet the new regulations. During such period of time, we will only be able to sell our products in other States. Although we have begun to increase our sales efforts outside of California, our sales to date have predominantly been in California.
Plan of Operations
In May 2019, we completed our Initial Public Offering (IPO) of 3,500,000 shares of our common stock at an offering price of $1.00 per share. Our plan of operations is primarily focused on using the proceeds of the IPO to ramp up production, marketing, and sales of our NV14 product line. In that regard, we intend to use the proceeds from the offering to fund the marketing, production and distribution of our products, which recently commenced through a group of wholesale customers in California, as well as to provide additional working capital for other corporate purposes.
Results of Operations
The following discussion pertains to our revenues and expenses for the comparative six month periods ended December 31, 2019 and 2018, as reported in our financial statements and notes thereto as shown in the Index to Financial Statements on page 5.
Revenues - Revenues from contracts with customers for the six months ended December 31, 2019 were $812,954 compared to zero for the six months ended December 31, 2018. Such revenues in the 2019 period represented the Company’s initial sales of approximately 97 assembled energy storage systems that were made through a group of wholesale customers in California.
Cost of Goods Sold - Cost of goods sold for the six months ended December 31, 2019 were $664,076 compared to zero for the six months ended December 31, 2018. The cost of goods sold in the 2019 period reflected the cost of procuring and assembling the component parts of the energy storage systems that were sold in this period and resulted in a gross profit on such sales of approximately 18%
General and Administrative Expense - General and administrative expenses for the six months ended December 31, 2019 were $1,071,089 compared to $303,152 for the six months ended December 31, 2018. Such increase was due to the additional costs of product advertising and marketing associated with the commencement of the Company’s product sales as well as the incremental professional fees and related costs that were incurred as a result of the responsibilities of becoming a public reporting company beginning in May 2019. Included in such amounts were non-cash stock compensation expenses in the amounts of $566,667 and $87,675, respectively.
3
Research and Development Expense - Research and development expenses for the six months ended December 31, 2019 were $1,955 compared to $174,855 for the six months ended December 31, 2018. Such decrease was due to the completion of the Company’s initial product development efforts in conjunction with the recent commencement of product sales.
Interest Expense - Interest expense for the six months ended December 31, 2019 was $12,622 compared to $6,333 for the six months ended December 31, 2018. This increase was due to the amortization of a beneficial conversion feature arising from a debt modification in May 2019.
Net Loss - Net loss for the six months ended December 31, 2019 was $936,788 compared to $484,340 for the six months ended December 31, 2018, representing the net amounts of the various revenue and expense categories indicated above. The Company has not recognized any income tax benefits for these initial losses due to the uncertainty of their ultimate realization.
Liquidity and Capital Resources
Operating activities. Net cash used in operating activities for the six months ended December 31, 2019 was $581,127 compared to $634,444 for the six months ended December 31, 2018. Such decrease was largely due to a modest reduction in net loss, before non-cash stock compensation expense, partially offset by increasing working capital requirements.
Financing activities. Net cash provided by financing activities for the six months ended December 31, 2019 was zero compared to $1,470,000 for the six months ended December 31, 2018. This difference was due to the closing of the Company’s initial two private equity offerings in July 2018 in the amount of $750,000 (of which $30,000 was received prior to June 30, 2018) and in December 2018 in the amount of an additional $750,000.
As noted above, we completed the first private offering of our common stock in July 2018 that raised equity capital in the total amount of $750,000 and we completed a second private placement offering in December 2018 that raised an additional $750,000 of equity capital for our near-term funding needs. On May 9, 2019, we closed a public equity offering, pursuant to Regulation A, resulting in gross proceeds to the Company of $3,500,000. We believe our cash and cash equivalents, will be sufficient to meet our cash, operational and liquidity requirements for at least 12 months. We recently began selling and installing our proprietary Energy Storage System units through wholesale customers in Southern California, however, we are not currently generating a positive level of operating cash flow.
Until such time that we are able to generate sufficient operating cash flow from operations, if ever, we expect to finance our operating activities through a combination of equity offerings and debt financings and we may seek to raise additional capital through strategic collaborations. However, we may be unable to raise additional funds or enter into such arrangements when needed on favorable terms, or at all, which would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our operations. Failure to receive additional funding could cause us to cease operations, in part or in full. Furthermore, even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital due to favorable market conditions or strategic considerations, which may cause dilution to our existing and future stockholders.
Item 2. Other Information
None
4
Item 3. Financial Statements
Index to Unaudited Financial Statements
5
NEOVOLTA, INC.
Balance Sheets
|
|
December 31,
2019
|
|
June 30,
2019
|
|
|
(Unaudited)
|
|
|
|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
2,556,770
|
|
$
|
3,137,897
|
|
Accounts receivable
|
|
202,871
|
|
|
-
|
|
Inventory
|
|
1,375,796
|
|
|
993,913
|
|
Prepaid insurance
|
|
29,496
|
|
|
71,137
|
|
Total current assets
|
|
4,164,933
|
|
|
4,202,947
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
4,164,933
|
|
$
|
4,202,947
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts payable - others
|
$
|
292,860
|
|
$
|
32,059
|
|
Accrued interest payable
|
|
12,611
|
|
|
10,880
|
|
Other accrued liabilities
|
|
58,848
|
|
|
163
|
|
Total current liabilities
|
|
364,319
|
|
|
43,102
|
|
|
|
|
|
|
|
|
Convertible notes payable (net of unamortized discount of
$73,720 and $84,610 as of December 31 and June 30, 2019,
respectively)
|
|
7,411
|
|
|
2,506
|
|
Total liabilities
|
|
371,730
|
|
|
45,608
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
Common stock, $0.001 par value, 100,000,000 shares
authorized, 12,671,528 and 11,521,528 shares issued
and outstanding
|
|
12,672
|
|
|
11,522
|
|
Additional paid-in capital
|
|
5,655,207
|
|
|
5,083,705
|
|
Accumulated deficit
|
|
(1,874,676)
|
|
|
(937,888)
|
|
Total stockholders' equity
|
|
3,793,203
|
|
|
4,157,339
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders 'equity
|
$
|
4,164,933
|
|
$
|
4,202,947
|
See Accompanying Notes to Financial Statements.
6
NEOVOLTA, INC.
Statement of Operations
(Unaudited)
|
|
Six Months Ended
December 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Revenues from contracts with customers
|
$
|
812,954
|
|
$
|
-
|
|
Cost of goods sold
|
|
664,076
|
|
|
-
|
|
Gross profit
|
|
148,878
|
|
|
-
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
General and administrative
|
|
1,071,089
|
|
|
303,152
|
|
Research and development
|
|
1,955
|
|
|
174,855
|
|
Total operating expenses
|
|
1,073,044
|
|
|
478,007
|
|
|
|
|
|
|
|
|
Income from operations
|
|
(924,166)
|
|
|
(478,007)
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
Interest expense
|
|
(12,622)
|
|
|
(6,333)
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(936,788)
|
|
$
|
(484,340)
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and diluted
|
|
11,660,115
|
|
|
1,598,261
|
|
|
|
|
|
|
|
|
Net loss per share
|
$
|
(0.08)
|
|
$
|
(0.30)
|
See Accompanying Notes to Financial Statements.
7
NEOVOLTA, INC.
Statement of Stockholders' Equity
Six Months Ended December 31, 2019 and 2018
(Unaudited)
|
|
|
|
|
Additional
|
|
|
|
Total
|
|
|
Common Stock
|
|
Paid-in
|
|
Accumulated
|
|
Stockholders'
|
|
|
Shares
|
Amount
|
|
Capital
|
|
Deficit
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2019
|
11,521,528
|
$
|
11,522
|
|
$
|
5,083,705
|
|
$
|
(937,888)
|
|
$
|
4,157,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
for convertible debt
|
200,000
|
|
200
|
|
|
1,060
|
|
|
-
|
|
|
1,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange of convertible debt
into common stock
|
750,000
|
|
750
|
|
|
3,975
|
|
|
-
|
|
|
4,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense
|
200,000
|
|
200
|
|
|
566,467
|
|
|
-
|
|
|
566,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
-
|
|
-
|
|
|
-
|
|
|
(936,788)
|
|
|
(936,788)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
12,671,528
|
$
|
12,672
|
|
$
|
5,655,207
|
|
$
|
(1,874,676)
|
|
$
|
3,793,203
|
|
|
|
|
|
Additional
|
|
|
|
Total
|
|
|
Common Stock
|
|
Paid-in
|
|
Accumulated
|
|
Stockholders'
|
|
|
Shares
|
Amount
|
|
Capital
|
|
Deficit
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2018
|
260,000
|
$
|
260
|
|
$
|
31,395
|
|
$
|
(101,791)
|
|
$
|
(70,136)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
2,440,003
|
|
2,440
|
|
|
1,467,560
|
|
|
-
|
|
|
1,470,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense
|
2,200,000
|
|
2,200
|
|
|
85,475
|
|
|
-
|
|
|
87,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
-
|
|
-
|
|
|
-
|
|
|
(484,340)
|
|
|
(484,340)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
4,900,003
|
$
|
4,900
|
|
$
|
1,584,430
|
|
$
|
(586,131)
|
|
$
|
1,003,199
|
See Accompanying Notes to Financial Statements.
8
NEOVOLTA, INC.
Statement of Cash Flows
(Unaudited)
|
|
Six Months Ended
December 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
Net loss
|
$
|
(936,788)
|
|
$
|
(484,340)
|
|
Adjustments to reconcile net loss to net
cash provided by (used in) operations:
|
|
|
|
|
|
|
Stock compensation expense
|
|
566,667
|
|
|
87,675
|
|
Changes in current assets and liabilities
|
|
|
|
|
|
|
Accounts receivable
|
|
(202,871)
|
|
|
-
|
|
Inventory
|
|
(381,883)
|
|
|
(200,000)
|
|
Prepaid insurance and other
|
|
41,641
|
|
|
-
|
|
Prepaid deposit for inverters
|
|
-
|
|
|
(25,290)
|
|
Accounts payable
|
|
262,532
|
|
|
(18,812)
|
|
Accrued expenses
|
|
58,685
|
|
|
6,323
|
|
Amortization of debt discount
|
|
10,890
|
|
|
-
|
|
Net cash flows used in operating activities
|
|
(581,127)
|
|
|
(634,444)
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Issuance of common stock
|
|
-
|
|
|
1,470,000
|
|
Net cash flows from financing activities
|
|
-
|
|
|
1,470,000
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
(581,127)
|
|
|
835,556
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
3,137,897
|
|
|
55,070
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
$
|
2,556,770
|
|
$
|
890,626
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
Cash paid for interest
|
$
|
-
|
|
$
|
-
|
|
Cash paid for income taxes
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Supplemental non-cash financing activities
|
|
|
|
|
|
|
Conversion of common stock for debt
|
$
|
1,260
|
|
$
|
-
|
|
Exchange of common stock for debt
|
|
4,725
|
|
|
-
|
See Accompanying Notes to Financial Statements.
9
NEOVOLTA, INC.
Notes to Unaudited Financial Statements
December 31, 2019
(1) Business and Summary of Significant Accounting Policies
Description of Business - NeoVolta Inc. (“we”, “our” or the "Company") is a Nevada corporation, which was formed on March 5, 2018. The Company is a designer, seller and manufacturer of Energy Storage Systems (ESS) which can store and use energy via batteries and an inverter at residential sites. The Company completed a public offering of shares of its common stock pursuant to Regulation A on May 9, 2019 (see Note 4), and recently began assembling and selling its proprietary ESS units through wholesale customers, primarily in California.
Basis of Presentation - The accompanying financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). The Company’s fiscal year end is June 30. Accordingly, such interim financial statements do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete annual financial statements. The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The balance sheet as of June 30, 2019 has been derived from the Company’s June 30, 2019 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 unaudited financial statements included in this report should be read in conjunction with the financial statements and the notes thereto included in the Form 1-K annual report for the year ended June 30, 2019, filed by the Company with the SEC on October 15, 2019.
Cash and Cash Equivalents - The Company considers all highly liquid accounts with original maturities of three months or less at the date of acquisition to be cash equivalents. Periodically, the Company may carry cash balances at financial institutions in excess of the federally insured limit of $250,000. The amount in excess of the FDIC insurance at December 31, 2019 was $2,306,770.
Inventory - Inventory as of December 31, 2019 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 weighted average cost or market. Inventory of raw materials and work in process amounted to $1,375,796 and $993,913, respectively, as of December 31, 2019 and June 30, 2019.
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
Under its present contracts with customers, the Company’s sole performance obligation is the delivery of products to the customer. Since all of the Company’s revenue is currently generated from the sales of similar products, no further disaggregation of revenue information is provided.
10
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.
Beneficial Conversion Feature - The Company has issued convertible notes that have conversion prices that create an embedded beneficial conversion feature on the issuance date. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of any attached equity instruments, if any related equity instruments were granted with the debt. The Company estimated the fair value of its common stock on the dates issued. The intrinsic value of the beneficial conversion feature, if any, is recorded as a debt discount and amortized to interest expense over the life of the note (see Note 3).
Stock Compensation Expense - 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. Share-based awards to non-employees are expensed over the period in which the related services are rendered at their fair value. Effective July 1, 2018, the Company adopted ASU No. 2018-07, Compensation - Stock Based Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-7”), which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. The adoption of ASU 2018-07 did not have a material impact on the Company’s financial statements.
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 December 31, 2019, the Company had outstanding common stock equivalents in the amount of 12,271,528 shares.
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.
Related Parties - The Company accounts for related party transactions in accordance with ASC 850 (“Related Party Disclosures”). 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
11
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.
Recent Accounting Pronouncements - In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606), which will replace numerous requirements in U.S. GAAP, including industry-specific requirements, and provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company initially began generating revenues from contracts with customers in the six months ended December 31, 2019, however, such revenues have thus far been concentrated within a relatively small number of wholesale dealers, primarily in California. One such dealer represented approximately 72% of the of the Company’s revenues in the six month period ended December 31, 2019, however, no other dealer accounted for more than 10% of the revenues in such period. The Company adopted ASC 606, effective July 1, 2019, using the modified retrospective method. The Company determined that the adoption of this standard did not have a significant impact on the Company’s financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under ASU 2016-02, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company currently has no outstanding leases, however, it is evaluating the impact that this standard could have on its financial statements.
(2) Going Concern
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 is dependent upon the ability of the Company to obtain continued financial support from its stockholders, necessary equity financing to continue operations and the attainment of profitable operations. As of December 31, 2019, the Company has incurred an accumulated deficit of $1,874.676, and had generated only minimal revenue from operations. These circumstances raise substantial doubt about its ability to continue as a going concern.
These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company may seek additional funding through a combination of equity offerings, debt financings, third-party funding, collaborations, strategic alliances and licensing arrangements or a combination thereof. Management cannot be certain that such events can be achieved.
(3) Convertible Notes Payable
On various dates beginning in May 2018, the Company entered into six unsecured convertible notes payable for aggregate proceeds of $104,688. Each note bears interest at 12% per annum and both principal and accrued interest are due at maturity five years from the date of issuance. These notes are convertible at any time, at the option of the holder, into shares of the Company’s common stock at a conversion price of $0.0063 per share. The Company performed an analysis to determine whether there was a beneficial conversion feature and noted none.
The notes are structured to be automatically converted into shares of the Company’s common stock at the conversion price, upon a successful completion of an initial public offering (“IPO”) of the Company’s securities, provided that no holder of these notes will be permitted to convert such notes to the extent that the holder or any of its affiliates would beneficially own in excess of 4.99% of the Company’s common stock after such conversion. In conjunction with the closing of an IPO on May 9, 2019, holders of the convertible notes in the principal amount of
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$17,572, plus an additional accrued interest amount of $2,094, automatically converted their notes into 3,121,525 shares of common stock, taking into consideration the shareholder ownership limitations under the terms of the convertible notes payable (see Note 4). This conversion resulted in the full repayment of the notes payable owed to two such note holders and left the four remaining note holders with a total outstanding principal balance of $87,116.
Effective May 19, 2019, the remaining holders of the convertible notes payable agreed to prospectively amend the terms of the outstanding balance of their notes to reduce the interest rate from 12% per annum to 3.99% per annum and to change the interest accrual method from a compound to a simple basis. Due to this amendment, the Company was required to perform an updated debt modification analysis under ASC 470 and determined that the amendment qualified as an extinguishment of debt and therefore a beneficial conversion feature was required to be evaluated as of the date of the modification. Since the fair value of the Company’s common stock at the time of the amendment was sufficiently higher than the conversion price, it was determined that a beneficial conversion feature in the amount of $87,116 existed as of that date. Accordingly, the Company recorded a debt discount, offset by a credit to additional paid-in capital, in the amount of $87,116 as of May 19, 2019, and is amortizing the debt discount to interest expense over the remaining term of the notes. As of December 31, 2019, cumulative amortization of the debt discount had been recorded in the amount of $13,396.
Effective November 6, 2019, one of the remaining holders reached an agreement to sell $1,260 of his convertible note payable to a consultant for the Company. Based upon the above-noted conversion price of $0.0063 per share, the consultant elected to convert such purchased convertible note payable into 200,000 shares of common stock.
Effective November 27, 2019, two of the remaining holders reached an agreement to sell a total of $4,725 of their convertible notes payable to a third party investor. Based upon the above-noted conversion price of $0.0063 per share, such purchased amount of convertible notes payable was ultimately convertible into a total of 750,000 shares of common stock. In order to immediately extinguish the purchased convertible notes payable, the Company entered into an agreement with the investor to exchange such notes for the issuance of 750,000 shares of common stock, subject to a one year lock-up period and agreed upon trading volume limitations following expiration of the lock-up period.
As of December 31, 2019, the future maturities of convertible notes payable, after considering the above-noted partial sales but without taking into account the debt discount noted above, are as follows:
|
Year ending December 31, 2020
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$
|
-
|
|
Year ending December 31, 2021
|
|
-
|
|
Year ending December 31, 2022
|
|
-
|
|
Year ending December 31, 2023
|
|
81,131
|
|
|
$
|
81,131
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(4) Equity
Common Stock - In March 2018, the Company issued 100,000 shares of its common stock to its chief executive officer in exchange for his founding capital contribution in the amount of $500, which equates to a price of $0.005 per share. In June 2018, the Company issued 100,000 shares of its common stock to a consultant in exchange for his agreement to provide certain marketing and information technology services to the Company. Such shares were valued at a price of $0.0063 per share for a total amount of $630 which was treated as non-cash stock compensation expense.
In July 2018, the Company completed a private placement offering of shares of its common stock to a group of accredited investors. This offering was for a total of 1,500,000 shares at an offering price of $0.50 per share resulting in gross proceeds to the Company of $750,000. The subscription agreement includes, among other things, certain “lockup” provisions in the event of a successful IPO of the Company’s securities.
In December 2018, the Company completed a second private placement offering of shares of common stock to a group of accredited investors. This offering was for a total of 1,000,003 shares at an offering price of $0.75 per share resulting in gross proceeds to the Company of $750,000. The subscription agreement includes,
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among other things, certain “lockup” provisions in the event of a successful IPO of the Company’s securities.
On May 9, 2019, the Company completed a public offering of shares of its common stock pursuant to Regulation A. This offering was for a total of 3,500,000 shares at an offering price of $1.00 per share resulting in gross proceeds to the Company of $3,500,000 (the net proceeds were $3,399,115). In conjunction with the closing of the public offering, holders of the Company’s convertible notes payable in the principal amount of $17,572, plus an additional accrued interest amount of $2,094, automatically converted their notes into 3,121,525 shares of common stock, taking into consideration the shareholder ownership limitations under the terms of the convertible notes payable (see Note 3).
Stock Compensation Expense - In June 2018, the Company awarded a total of 2,100,000 shares of common stock to two executive officers and a consultant. The Company valued the stock awards at a total amount of $13,200, based on the $0.0063 per share conversion price of the convertible notes payable (see Note 3). Per the original vesting milestones, $525 of the value was initially amortized to stock compensation expense as of June 30, 2018. Effective December 31, 2018, the Company’s Board of Directors determined that the originally intended milestones associated with the awarding of these shares had been fully satisfied. Accordingly, the Company issued those shares to the recipients as of December 31, 2018. In conjunction with that issuance, the Company recorded the remaining unamortized cost of such awards as stock compensation expense in the amount $12,675 as of December 31, 2018.
In December 2018, the Company also issued 100,000 shares of common stock to an attorney for legal services. The Company recorded a charge to stock compensation expense for these shares in the amount $75,000, based on the same offering price of $0.75 per share, as was used in the second private placement offering, which was completed simultaneously with that issuance.
In December 2019, the Company awarded a total of 700,000 shares of common stock to an executive officer and a consultant. The Company valued the stock awards at a total amount of $700,000, based on the above-noted public offering price of $1.00 per share. For the 500,000 shares awarded to an officer, the Company immediately amortized $500,000 as a non-cash charge to expense as such shares were considered to have been earned by him under the Company’s milestone incentive compensation program, as of December 31, 2019, notwithstanding that issuance of the shares was deferred until 2020. For the 200,000 shares awarded to a consultant, the Company is amortizing $200,000 as a non-cash charge to expense over his 24 month services agreement. These shares were issued in 2019 and the Company has recognized expense in the year ended December 31, 2019 in the amount of $66,667.
Other Matters - In February 2019, the Company’s Board of Directors approved the establishment of a new 2019 Stock Option 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 and non-employee directors. The Company also increased the total number of shares of common stock authorized from 30,000,000 to 100,000,000.
(5) Commitments and Contingencies
The Company does not own or lease any property. In June 2019, the Company secured new corporate and executive office space in a production facility located in Poway, California, on a monthly basis with no long term commitment. We believe that our new office is sufficient to meet our current and future needs.
As indicated in Note 1, the Company recently began selling its proprietary ESS units through wholesale dealers, primarily in California. In that regard, the Company has entered into agreements with several wholesale dealers under which the Company has incentivized the dealers to achieve quarterly sales above targeted levels by agreeing to grant them shares of the Company’s common stock for exceeding such quarterly sales targets, subject to defined maximums. There were no such incentive shares of the Company’s common stock earned or issued in the six months ended December 31, 2019.
The Company is not involved in any legal proceedings at this time. 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 results of litigation are inherently unpredictable. Any claims against us, whether meritorious or
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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.
Item 4. Exhibits
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Exhibit
Number
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Description
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|
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2.1
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Amended and Restated Articles of Incorporation of NeoVolta, Inc.(1)
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2.2
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Amended and Restated Bylaws of NeoVolta, Inc.(1)
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3.1
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Form of convertible promissory note issued to debt holders(1)
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6.1
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Amended and Restated Independent Contractor Agreement between NeoVolta, Inc. and Canmore International Inc. dated January 1, 2019(1)
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6.2
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Amended and Restated Independent Contractor Agreement between NeoVolta, Inc. and Steve Bond dated January 1, 2019(1)
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6.3
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Employment Agreement between NeoVolta, Inc. and Brent Willson dated January 1, 2019(1)
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6.4
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NeoVolta, Inc. 2019 Stock Plan(1)
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(1) Incorporated by reference to Form 1-A Amendment filed on March 21, 2019.
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SIGNATURE
Pursuant to the requirements of Regulation A, the issuer has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NEOVOLTA, INC.
/s/ Brent Willson
Brent Willson
Chief Executive Officer
March 13, 2020
Pursuant to the requirements of Regulation A, this report has been signed below by the following persons on behalf of the issuer and in the capacities and on the dates indicated.
/s/ Brent Willson
Brent Willson
Director and Chief Executive Officer
(Principal Executive Officer)
March 13, 2020
/s/ Steve Bond
Steve Bond
Director and Chief Financial Officer
(Principal Financial and Accounting Officer)
March 13, 2020
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