Company: NEOV
Filing Date: 2025-09-29
Form Type: 10-K
Source: 0001683168-25-007304
Chunk: 52

Company: NeoVolta Inc.
Filing Date: 2025-09-29
Form: 10-K
Item: Item 1
Chunk 52
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)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. However, we were under 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 13 month sublease agreement
with the sublandlord, at a base rental of $18,638 per month. We are accounting for the lease agreement as an operating lease under ASU
2016-02, Leases (Topic 842). Accordingly, the Company has capitalized the present value of the future lease obligations and is
amortizing the related right-of-use asset on a straight-line basis each month over the term of the lease.

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

We are dependent on our two
main component vendors for our suppliers of batteries, inverters and