Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |
| (Do not check if a smaller reporting company) |
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
The aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant as of December 31, 20172020 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $3,055,816.
As of September 27, 2021, there were 15,987,502 shares of registrant’s common stock outstanding as of September 24, 2018 was 31,072,815.
Documents incorporated by reference: None.
FLUX POWER HOLDINGS, INC.
FORM 10-K ANNUAL REPORT
For the Fiscal Year Ended June 30, 2018
Table of Contents
| 2 |
SPECIAL NOTE REGARDING FORWARD LOOKINGFORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Description of Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the factors described in the section captioned “Risk Factors” below. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would,” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. You should read these factors and the other cautionary statements made in this report and in the documents we incorporate by reference into this report as being applicable to all related forward-looking statements wherever they appear in this report or the documents we incorporate by reference into this report. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements.
Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements include, among other things, statements relating to:
| ● | our ability to continue as a going concern; |
| ● | our ability to secure sufficient funding to support our current and proposed operations, which could be more difficult in light of the negative impact of the COVID-19 pandemic on our operations, customer demand and supply chain as well as investor sentiment regarding our industry and our stock; |
| ● | our anticipated growth strategies and our ability to manage the expansion of our business operations effectively; |
| ● | our ability to maintain or increase our market share in the competitive markets in which we do business; |
| ● | our ability to grow net revenue and increase our gross profit margin; |
| ● | our ability to keep up with rapidly changing technologies and evolving industry standards, including our ability to achieve technological advances; |
| ● | our dependence on the growth in demand for our products; |
| ● | our ability to compete with larger companies with far greater resources than we have; |
| ● | our continued ability to obtain raw materials and other supplies for our products at competitive prices and on a timely basis, particularly in light of the potential impact of the COVID-19 pandemic on our suppliers and supply chain; |
| ● | our ability to shift to new suppliers and incorporate new components in a manner that is not disruptive to our business; |
| ● | our ability to obtain and maintain UL Listings and OEM approvals for our energy storage solutions; |
| ● | our ability to diversify our product offerings and capture new market opportunities; |
| ● | our ability to source our needs for skilled labor, machinery, parts, and raw materials economically; |
| ● | our ability to retain key members of our senior management; |
| ● | our ability to continue to operate safely and effectively during the COVID-19 pandemic; and |
| ● | our dependence on our major customers. |
Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference, and file as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
Use of Certain Defined Terms
Except where the context otherwise requires and for the purposes of this report only:
| ● | the “Company,” “Flux,” “we,” “us,” and “our” refer to the combined business of Flux Power Holdings, Inc., a Nevada corporation and its wholly-owned subsidiary, Flux Power, Inc., a California corporation (Flux Power). | |
| ● | “Exchange Act” refers the Securities Exchange Act of 1934, as amended; | |
| ● | “SEC” refers to the Securities and Exchange Commission; and | |
| ● | “Securities Act” refers to the Securities Act of 1933, as amended. |
| 3 |
Overview
We design, develop, manufacture, and sell rechargeable advanced lithium-ion batteriesenergy storage solutions for the material handling sector which includes lift trucks, airport ground support equipment (“GSE”), and other industrial uses, includingand commercial applications. We believe our first-ever UL 2771 Listedmobile and stationary energy storage solutions provide customers with a reliable, high performing, cost effective, and more environmentally friendly alternative as compared to traditional lead acid and propane-based solutions. Our modular and scalable design allows different configurations of lithium-ion “LiFT Pack” forklift batteries. We have developed an innovative high power battery cellpacks to be paired with our proprietary wireless battery management system (“BMS”SkyBMS”) to provide the level of energy storage required and have structured our business around this core technology. Our proprietary BMS provides three critical functions to our battery systems:
Our Strategy
Our business strategy is performed by way of a physical connection to individual cellsmeet the rapidly growing demand for monitoring voltage and performing calculations from basic metrics to determine remaining capacity and internal impedance. This monitoring assures accurate measurements to best manage the system and assure longevity.
Within our industrial market segments, we believe that our lithium-ion LiFT Pack solutions provide cost, performance and environmental benefits over existing lead acid batteries and propane-based power solutions including:
| ● | longer operation and multiple shifts with fewer batteries; | |
| ● | reduced energy and maintenance costs; | |
| ● | faster recharging; and | |
| ● | longer lifespan. |
Additionally, the toxic nature of lead acid batteries presents significant safety and environmental issues as they are subject to Environmental Protection Agency lead acid battery reporting requirements, may create an environmental hazard in the event of a cell breach, and emit combustible gases during charging.
As a result of the advantages lithium-ion battery technology provide over lead acid batteries, we have experienced significant growth in our business. We believe the industry is gaining strong momentum of a trend toward the adoption of lithium-ion technology to displace lead acid and propane-based energy storage solutions, and based on North American sales data from the Industrial Truck Association (“ITA”), we estimate the market to be a multi-billion dollar per year opportunity.
Critical to our clients.success is our innovative and proprietary versatile BMS that optimizes the performance of our lithium-ion energy solutions and provides a platform for adding new battery pack features, including customized telemetry (pack data and reports available anytime, anywhere) for customers. The BMS serves as the brain of the battery pack, managing cell balancing, charging, discharging, monitoring and communication between the pack and the forklift.
Our engineers design, develop, test, and service our products. We source our battery cells from limited number of suppliers in China and the remainder of the components primarily from vendors in the United States. Final assembly, testing and shipping of our products is done from our ISO 9001 certified facility in Vista, California, which includes three assembly lines.
Recent Developments
On September 22, 2021, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with several institutional and accredited investors (the “Purchasers”), pursuant to which the Company agreed to sell in a registered direct offering an aggregate of 2,142,860 shares of Common Stock of the Company (the “Shares”) and warrants to purchase up to 1,071,430 shares of its common stock (the “Warrants”), at a combined purchase price of $7.00 per share and related Warrant, for aggregate gross proceeds to the Company of approximately $15 million, before deducting placement agent fees and offering expenses payable by the Company (the “Registered Offering”). Subject to certain ownership limitations, the Warrants will be exercisable immediately from the date of issuance, will expire on the five (5) year anniversary of the date of issuance and will have an exercise price of $7.00 per share. The exercise price of the Warrants is subject to certain adjustments, including stock dividends, stock splits, combinations and reclassifications of the Company’s common stock.
The Registered Offering closed on September 27, 2021.
Pursuant to an engagement letter, dated as of September 22, 2021, we have engaged H.C. Wainwright & Co., LLC (“HCW” or the “Placement Agent”) to act as our exclusive Placement Agent in connection with the Registered Offering. As compensation in connection with the Registered Offering, the Company paid HCW a cash fee equal to 6.0% of the gross proceeds of the Registered Offering.
The net proceeds from the Registered Offering, after deducting placement agent fees and offering expenses, are approximately $14 million.
The Shares and the Warrants and the shares issuable upon exercise of the Warrants were offered and are being sold by the Company pursuant to an effective shelf registration statements on Form S-3 (File No. 333-249521), which was originally filed with the SEC on October 16, 2020 and declared effective on October 26, 2020.
DESCRIPTION OF OUR BUSINESS
Our Business
We have leveraged our experience in lithium-ion technology to design and develop a suite of LiFT Pack and related industrial and commercial product lines that we believe provide attractive solutions to customers seeking an alternative to lead acid and propane-based power products. We believe that the following attributes are significant contributors to our success:
Engineering and integration experience in lithium-ion for motive applications: We have been developing lithium-ion applications for the advanced energy storage market since 2010, starting with products for automotive electric vehicle manufacturers. We believe our experience enables us to develop superior solutions as we have sold over 10,000 packs in the field to customers.
UL Listing: We launched our Class 3 Walkie LiFT Pack product line in 2014 and obtained UL Listing for all three different power configurations. We have also obtained UL Listing for our Class 1 LiFT Packs and our Class 2 LiFT Packs, and our Class 3 End Rider. In addition, we have also developedrecently completed the process for obtaining UL Listings for our new source of battery cells. We believe this UL Listing provides us a suitesignificant competitive advantage and provides assurance to customers that our technology has been rigorously tested by an independent third party and determined to be safe, durable and reliable.
Original equipment manufacturer (OEM) approvals: Many of complementary technologies and products that accompany and enhance the abilities of our core BMS products to meet the needs of the growing advanced energy storage market.
Broad product offering and battery distributors to bring our advanced energy storage systems to the lift equipment market. These multiple channels provide a range of customers flexibility in evaluating and purchasing Flux packs.
Significant advantages over lead acid and propane-based solutions: We believe wethat lithium-ion battery systems have emerged from this effort with a substantially enhanced product line, particularlysignificant advantages over existing technologies and will displace lead acid batteries and propane-based solutions, in most applications. Relative to lead acid batteries, such advantages include environmental benefits, no water maintenance, faster charge times, greater cycle life, longer run times, and less energy used that provide operational and financial benefits to customers. When compared to lead acid solutions, our energy storage solutions do not discharge carbon dioxide in the areasatmosphere due to lithium chemistry efficiencies In addition, when compared to propane-based solutions, lithium-ion systems avoid the generation of overall designexhaust emissions and durability,associated odor and environmental contaminates, and maintenance of an internal combustion engine, which has substantially more parts subject to wear than an electric motor.
Proprietary Battery Management System: We have developed our “next generation” versatile BMS that is currently being rolled out into our full product lines and which provides significant product features for improved customer productivity. Our BMS serves as well as, features that improve our LiFT Packs’ value and performance for customers. We shipped our first UL certified LiFT Pack to our customers beginning in May 2016. Our LiFT Packs are now the first and only UL Listed lithium-ion batteries available across the brandsbrain of the major OEMs.
Our Products
We have since developed, field tested, our evaluation units, and sold units ofour LiFT Packs for use in a broad range of lift trucks, including Class 3 end riders,Walkie and End Riders, Class 2 reach trucks,Narrow Aisle, and Class 1 counterbalance forklifts. The evaluation units have provided us with crucial information on the further development of the battery packs in order to better serve this market.
Our battery pack system design is modular with three core design modules used in our entire family of small, medium, and large pack forklift products. The design of each core module is driven by power requirements and physical space sizing. We utilize our three core design modules to develop packs for devices with small power needsother industrial and short life spans but are generally not popular in forklifts due to initial capital cost for hydrogen generation or purchase.
We also offer 24-volt onboard chargers for our Class 3 Walkie LiFT Packs, and smart “wall mounted” chargers for larger applications. Our smart charging solutions are designed to interface with our BMS and integrate easily into most all major chargers in the market.
Industry Overview
Historically, lithium-ion battery management system.solutions were unable to compete with lead acid and propane-based solutions in industrial applications on the basis of cost. However, the supply of lithium-ion batteries has rapidly expanded, leading to price declines of eighty-five percent (85%) since 2010 according to BloombergNEF. BloombergNEF also estimates that lithium-ion battery prices, which averaged $1,160 per kilowatt hour in 2010, were $156 per kWh in 2019 and could drop below $100 per kWh in 2024.
The sharp decline in the price of lithium-ion batteries has made these energy solutions more cost competitive. Affordability has in turn enabled customers to shift away from lead acid and propane-based solutions for power lift equipment to lithium-ion based solutions with more favorable environmental and performance characteristics. We offer 24-volt onboard chargersbelieve our position as a pioneer in the field and our extensive experience providing lithium-ion based energy storage solutions makes us uniquely positioned to take advantage of this shift in customer preferences.
Lift Equipment - Material Handling Equipment
We focus on energy storage solutions for our Class 3 products, and smart “wall mounted” chargers for large applications.
According to Modern Materials Handling, worldwide new lift truck orders reached approximately 1.4 million units in 2017. The technology complexityIndustrial Truck Association has estimated that approximately 200,000 lift trucks had been sold yearly since 2013 in North America (Canada, the United States and Mexico), with sales relatively evenly distributed between electric rider (Class 1 and Class 2), motorized hand (Class 3), and internal combustion engine powered lift trucks (Class 4 and Class 5). The ITA estimates that electric products represented approximately sixty-nine percent (69%) of lithium requires knowledgeable engineeringthe North American shipments in 2020, reflecting the long term trend of increasing mix of electric products versus internal combustion (propane) engines. Driven by growth in global manufacturing, e-commerce and testing.
Customers
Our customers throughinclude OEMs, lift equipment dealers, battery distributors and the ultimate end-user.end users. Our direct customers vary from small companies to Fortune 500 companies.
During the year ended June 30, 2018,2021, we had twothree (3) major customers that each represented more than 10% of our revenues on an individual basis, and together represented approximately $16,004,000 or approximately $3,181,000 or 77%61% of our total revenues.
Shift Toward Lithium-ion Battery Technologies
The lithium-ion battery value proposition of higher performance, environmental benefit, and lower life cycle cost is driving an increase in demand for safe and efficient alternatives to lead acid and propane-based power products. The lithium-ion value proposition includes a number of factors impacting customer preferences:
Duration of Charge/Run Times: Lithium-based energy storage systems can perform for a longer duration compared to lead acid batteries. Lithium-ion batteries provide up to 50% longer run times than lead acid batteries of comparable capacity, or amps-per-hour rating, allowing equipment to be operated over a long period of time between charges.
High/Sustained Power: Lithium-ion batteries are better suited to deliver high power versus legacy lead acid. For example, a 100Ah lead acid battery will only deliver 80Ah if discharged over a four-hour period. In contrast, a 100Ah lithium-ion system will achieve over 92Ah even during a 30-minute discharge. Additionally, during discharge, the LiFT Pack sustains its initial voltage, maximizing the performance of the forklift truck, whereas, lead acid voltages, and hence power, decline over the working shift.
Charging Time: Lead acid batteries are limited to one shift a day, as they discharge for eight hours, need eight hours for charging, and another eight hours for cooling. For multi-shift operations, this typically requires battery changeout for the equipment. Because lithium batteries can be recharged in as little as one hour and do not degrade when subjected to opportunity charging, hence, battery changeout is unnecessary.
Safe Operation: The toxic nature of lead acid batteries presents significant safety and environmental issues in the event of a cell breach. During charging, lead acid batteries emit combustible gases and increase in temperature. Lithium-ion (particularly LFP) batteries do not get as hot and avoid many of the safety and environmental issues associated with lead acid batteries.
Extended Life: The performance of lead acid batteries degrades after approximately 500 charging cycles in industrial equipment applications. In comparison, lithium-ion batteries last up to five times longer in the same application.
Size and Weight: Lithium is about one-third the weight of lead acid for comparable power ratings. Lower weight enables forklift OEMs the ability to optimize the design of the truck based on a smaller footprint for lithium-ion instead of lead acid.
Lower Cost: Lithium-ion batteries provide power dense solutions with extended cycle life, reduced maintenance and improved operational performance, resulting in lower total cost of ownership.
Less Energy Used: we believe our cell managementlithium-ion batteries use 20-50% less energy based on our internal studies comparing lithium-ion to lead acid.
Marketing and communication tools extend battery system life and improve system performance by managing individual cells inSales
We sell our products through a system, communicating individual cell conditions to ancillary devices, and communicating individual cell conditions to other devices which either require or supply power. Whether it isnumber of different channels including OEMs, lift equipment or related industrial equipment, we provide capable systems that meet cost and performance targets which we believe, in many cases and based on the life cycle data of the lead-acid batteries provided by the manufacturers; outperform traditional lead-acid technologies on both metrics. Our systems use lithium-ion cells that are denser in energy than traditional lead-acid batteries, which allow our batteries to hold more charge over the same weight. In addition, our BMS protects the lithium-ion batteries enabling the lithium-ion batteries to reach their full life and cycle potential and outlasting lead-acid based batteries which would have to be replaced and thereby adding additional costs over the same time period. Our systems manage individual cells and their charge cycles, which generally allow for more consistent discharge capability and ease of maintenance over an unmanaged battery by:
Our direct sales staff is assigned to major geographies throughout North America to collaborate with our sales partners who have an established customer base. We plan to hire additional sales staff to support our expected sales growth. In addition, we have developed a nation-wide sales network of relationships with equipment OEMs, their dealers, and battery distributors. To support our products, we have a nation-wide network of service providers, typically forklift equipment dealers and battery distributors, who provide local customer service to large customers. We also maintain a call center and provide Tech Bulletins and training to our service and sales network out of our corporate headquarters. We have partnered with an experienced GSE distributor, to market our lithium-ion battery packs for airport GSE. We have typically experienced seasonality in our customers’ needs. During this past year, we haveorders, often with lower sales in July, August and December.
Manufacturing and Assembly
Rather than manufacture our own battery cells and be limited to a single chemistry, our battery cells are sourced our batteries from several suppliers, all having manufacturing operationsa limited number of manufacturers located in China, with some having wholesale warehousesChina. We source the remainder of the components primarily from vendors in the United States.
We design our BMS modules/boards and have two granted patents. We source manufacturingpatents: (i) a 12-volt battery design; and (ii) a battery display design. Component acquisition and assembly of the BMS modules/boards are outsourced to two local, Southern California board houses. houses, both of whom meet our quality and other specifications.
We buy chargers from several sources, including a U.S. based supplier. Additionally, we are currently developing further technology enhancements to this BMS technology, including the usea qualified dealer for a well-known manufacturer of more efficient board components,“high capacity, modular, smart chargers” which support our larger packs.
Research and are planning to file related patents.Development
Our engineers design, develop, test, and CAN Current Sensors
Research and development expenses for the fiscal years ended June 30, 20182021 and 20172020 were approximately $1,956,000$6.7 million and $1,052,000,$5.0 million, respectively. Such expenses consistconsisted primarily of materials, supplies, salaries and personnel related expenses, stock-based compensation expense, consulting costs and other expenses. Research and development expenses in fiscalthe year ended June 30, 2018 (“Fiscal 2018”)2021 were higher than fiscalthe year ended June 30, 2017 (“Fiscal 2017”)2020, primarily due to thenew product development and implementation of the higher capacity packs for Class 1, 2, and 3 forklifts. activities.
As we continue to develop and expand our product line,offerings, we anticipate that research and development expenses will continue to be a substantial part of our focus. We currently perform our research and development at our facilitystrategic priorities in Vista, California.the future. We seek to develop innovative new and improved products for cell and system management along with associated communication, display, current sensing and charging tools.
Competition
Our competitors in the lift equipment sectormarket are primarily major lead acid battery manufacturers, including but not limited to: GNB, Hawker, Deka, Enersys,Stryten Energy, East Penn Manufacturing Company, EnerSys Corporation, and Crown Battery Douglas and Interstate. We areCorporation. Although several of these competitors offer a lithium-ion battery, we do not awarebelieve that these suppliers currently offer lithium-based products for lift equipment in any significant volume to end users, equipment dealers, OEMs or battery distributors. In addition, there are severalSeveral OEMs who offer a lithiumlithium-ion battery packs on Class 3 forklifts for sale only with their own new forklifts. There are a growing number ofSome OEMs also offer forklift models designed with an integrated lithium-ion battery. As the demand for lithium-ion battery packs has increased, several small lithium battery pack providers enteringhave entered the market, small in volume sales, most of whom we believe are addingsuppliers of other power products and have simply added a lithium product to existing power products. These competitors enteringtheir product lines.
The key competitive factors in this market are performance, reliability, durability, safety and price. We believe we compete effectively in all of these categories in light of our experience with lithium-ion technology, including our development capabilities and the market typically do not have ties to the major battery companies or OEM lift equipment manufacturers. We do expect more entrants to the lithium market, especially from the major battery companies over time. Given the multi-billion dollar addressable market, we believe more entrants into lithium showcase the advantages over lead acid.
Ground Support Equipment: Our products’ telematics, modularity, longevity and low-cost solutions fit with airport equipment solutions, commonly known as ground support equipment, operated by all airlines to transport baggage and related cargo. These applications are well suited to our modular and scalable pack designs and benefit from our pack innovation derived from LiFT Packs and the related harsh environments. We have conducted successful pilot programs and plan to continue introduction of these packs to a variety of customers, with expectations of significant revenue opportunity in the coming year.
Our success depends, at least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination of patents pending, patent applications, trade secrets, including know-how, employee and third partythird-party nondisclosure agreements, copyright laws, trademarks, intellectual property licenses and other contractual rights to establish and protect our proprietary rights in our technology. In addition to such factors as innovation, technological expertise and experienced personnel, we believe that a strong patent position is important to remain competitive.
As of June 30, 2018,2021, we have onetwo issued patentpatents and three trademark registrations protecting the Flux Power name and logo. We intendare currently working to file three additional patent applications with respect to our technology, and to seek protection ofincluding our intellectual property internationally in a broad range of areas.next generation BMS 2.0, which is now being rolled into production. We do not know whether any of our efforts will result in the issuance of patents or whether the examination process will require us to narrow our claims. Even if granted, there can be no assurance that these pending patent applications will provide us with protection.
Suppliers
We obtain a limited number of components and supplies included in our products from a small group of suppliers. During the year ended June 30, 2021, we had two (2) suppliers who accounted for more than 10% of our total purchases, on an individual basis, and together represented approximately $9,260,000 or 27% of our total purchases.
During the year ended June 30, 2020, we had two (2) suppliers who accounted for more than 10% of our total purchases, on an individual basis, and together represented approximately $6,598,000 or 35% of our total purchases.
Government Regulations
Product Safety Regulations. Our products are subject to product safety regulations by Federal, state, and local organizations. Accordingly, we may be required, or may voluntarily determine to obtain approval of our products from one or more of the organizations engaged in regulating product safety. These approvals could require significant time and resources from our technical staff and, if redesign were necessary, could result in a delay in the introduction of our products in various markets and applications.
Environmental Regulations. Federal, state, and local regulations impose significant environmental requirements on the manufacture, storage, transportation, and disposal of various components of advanced energy storage systems. Although we believe that our operations are in material compliance with current applicable environmental regulations, there can be no assurance that changes in such laws and regulations will not impose costly compliance requirements on us or otherwise subject us to future liabilities.
Moreover, Federal, state, and local governments may enact additional regulations relating to the manufacture, storage, transportation, and disposal of components of advanced energy storage systems. Compliance with such additional regulations could require us to devote significant time and resources and could adversely affect demand for our products. There can be no assurance that additional or modified regulations relating to the manufacture, storage, transportation, and disposal of components of advanced energy systems will not be imposed.
Occupational Safety and Health Regulations. The California Division of Occupational Safety and Health (“Cal/OSHA”)(Cal/OSHA) and other regulatory agencies have jurisdiction over the operations of our Vista, California facility. Because of the risks generally associated with the assembly of advanced energy storage systems we expect rigorous enforcement of applicable health and safety regulations. Frequent audits by, or changes, in the regulations issued by Cal/OSHA, or other regulatory agencies with jurisdiction over our operations, may cause unforeseen delays and require significant time and resources from our technical staff.
Employees
As of June 30, 2018,2021, we had fifty-three (53) full-time121 employees. We engage outside consultants for business development, and operations orand other functions from time to time. None of our employees areis currently represented by a trade union.
Other Information
Our Internet address is www.fluxpwr.com.www.fluxpower.com. We make available free of charge on our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”)(SEC). Other than the information expressly set forth in this annual report, the information contained, or referred to, on our website is not part of this annual report.
The public may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, such as us, that file electronically with the SEC.
Our principal executive officecorporate headquarters and production facility totals approximately 63,200 square feet and is located at 985 Poinsettia Avenue, Suite A,in Vista, CA 92081.California. Our production facility is ISO 9001 certified. The telephone number at our principal executive office is (760) 741-3589 (FLUX).-741-FLUX or (760)-741-3589. In June 2019 we moved to our current facility, noted above, where we initially leased approximately 45,600 square feet of industrial space, and in April 2020, we leased an additional 17,600 rentable space under a lease which terminates concurrently with the term of the original lease, which expires on November 20, 2026. Rent for the corporate headquarters and production facility is approximately $60,500 per month and escalates approximately 3% per year through the end of the lease term. Total rent expense was approximately $841,000 and $673,000 for the years ended June 30, 2021 and 2020, respectively.
| 10 |
An investment in our common stock involves a high degree of risk. You should carefully consider the riskssummary of risk factors described below, together with all of the other information included in this report, before making an investment decision. If any of the following risks actually occur, our business, financial condition or results of operations could suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. You also should read the section entitled “Special Note Regarding Forward Looking Statements” above for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this report.
Risk Factors Relating to Our Business
We have a history of losses and negative working capitalcapital.
For the fiscal years ended June 30, 2021 and currently our lender has2020, we had net losses of $12,793,000 and $14,336,000, respectively. We have historically experienced net losses and until we generate sufficient revenue, we anticipate to continue to experience losses in the right not to advance funds under our credit facilities, and we will require additional funding to support operations and provide working capital.
As of June 30, 2018,2021 and 2020, we had a cash balance of $2,706,000$4,713,000 and an accumulated deficit of $26,662,000.$726,000, respectively. We have a history of lossesexpect that our existing cash balances, credit facilities, and have experienced a lack of revenue due to the time to launchnet proceeds from our revised business strategy. Despite an increase in our revenues of $3,216,000 or 357%, our net loss of $6,965,000 represented an increase of $2,530,000 or 57% in comparison to the year ended June 30, 2017. Based on our current and planned level of expenditures, we estimate that total financing proceeds of approximately $7,800,000recent public offering will be requiredsufficient to fund currentour existing and planned operations for the twelve months following the date of this Annual Report on Form 10-K, September 26, 2018. The Company does not currently believe that its existing cash resources are sufficient to meet its anticipated needs during the next twelve months. OurUntil such time as we generate sufficient cash to fund our operations, we will need additional capital to continue our operations thereafter.
We have been primarily funded through the sale of our securities andrelied on equity financings, borrowings under our credit facilities. Our continued operations and growth are dependent on our ability to complete equity financings, make borrowings undershort-term loans with related parties, our credit facilities and/or generate positiveprevious cash flows from operating activities. We initiated a private placement in March 2018 and May 2018activities to raise $4,000,000. As of June 28, 2018, a total of $4,000,000 had been raised of which $3,700,000 was received in cash by June 30, 2018 and the remaining $300,000 was received on July 2, 2018. Additionally, during fiscal 2018 we borrowed $2,790,000 underfund our existing related party credit facility with Esenjay. The credit facility with Esenjay has a maximum borrowing amount of $10,000,000, matures on January 31, 2019, is convertible at $0.60 per share of common stock and accrues interest at 8% (the “Unrestricted Line of Credit”). Pursuant to a side letter, Esenjay has agreed to limit its right of conversion under the Unrestricted Line of Credit to such number of shares so that upon conversion, if any, it will not cause the Company to exceed its authorized number of shares of common stock. As of June 30, 2018, there was $2,025,000 available for future draws, subject to the prior approval by Esenjay. Also, on March 20, 2018, Flux Power entered into a credit facility agreement with Esenjay with a maximum borrowing amount of $5,000,000. Proceeds from this May 20, 2018 credit facility are to be used to purchase inventory and related operational expenses and accrue interest at a rate of 15% per annum and matures on March 31, 2019 (the “Inventory Line of Credit”). Funds totaling $2,405,000 were borrowed from Esenjay since December 5, 2017 under the Inventory Line of Credit resulting in an outstanding balance of $2,405,000 with $2,595,000 available for future draws subject to the prior approval by Esenjay. We are pursuing additional sources of funding which could include another private placement or additional debt funding. We expect to cover our anticipated operating expenses through cash on hand, collections on additional customer billings, borrowings under our line of credit, and proceeds from the private placement of equity securities.operations. However, there is no guarantee we will be able to obtain additional funds in the future if required or that funds will be available on terms acceptable to us, or that shareholders will not experienceif at all.
Any future financing may result in dilution as a result of funds raised through the saleownership interests of securities.our stockholders. If such funds are not available management willon acceptable terms, we may be required to curtail its investments in additional sales and marketing and product development resources and capital expenditures,our operations or take other actions to preserve our cash, which may have a material adverse effect on our future cash flows and results of operations, and its abilityoperations.
We will need to raise additional capital or financing to continue operating as a going concern.
While we expect that our available cash, the existing credit facility could adversely affect our business, financial condition, results of operations or liquidity.
| 11 |
Economic conditions may adversely affect consumer spending and the overall general health of our retail customers, which, in turn, may adversely affect our financial condition, results of operations and cash resources.
Uncertainty about the current and future global economic conditions may cause our customers to defer purchases or cancel purchase orders for our products in response to tighter credit, decreased cash availability and weakened consumer confidence. Our financial success is sensitive to changes in general economic conditions, both globally and nationally. Recessionary economic cycles, higher interest borrowing rates, higher fuel and other energy costs, inflation, increases in commodity prices, higher levels of unemployment, higher consumer debt levels, higher tax rates and other changes in tax laws or other economic factors that may affect consumer spending or buying habits could continue to adversely affect the demand for our products. In addition, a number of our customers may be impacted by the significant decrease in available credit that has resulted from the current financial crisis. If credit pressures or other financial difficulties result in insolvency for our customers, it could adversely impact our financial results. There can be no assurances that government and consumer responses to the disruptions in the financial markets will restore consumer confidence.
We are dependent on a few customers for the majority of our net revenues, and our success depends on demand from OEMs and other users of our battery products.
Historically a majority of our product sales have been generated from a small number of OEMs and customers, including three (3) customers who, on an aggregate basis, made up 61% of our sales for the year ended June 30, 2021, and three (3) customers who, on an aggregate basis, made up 60% of our sales for the year ended June 30, 2020. As a result, our success depends on continued demand from this small group of customers and their willingness to incorporate our battery products in their equipment. The loss of a significant customer would have an adverse effect on our revenues. There is no assurance that we will be successful in our efforts to convince end users to accept our products. Our failure to gain acceptance of our products could have a material adverse effect on our financial condition and results of operations.
Additionally, OEMs, their dealers and battery distributors may be subject to changes in demand for their equipment which could significantly affect our business, financial condition and results of operations.
Our business is vulnerable to a near-term severe impact from the COVID-19 outbreak, and the continuation of the pandemic could have a material adverse impact on our operations and financial condition.
The COVID-19 pandemic has spread across the globe and is impacting worldwide economic activity. COVID-19 and another public health epidemic/pandemic could pose the risk that we or our employees, contractors, customers, suppliers, third party shipping carriers, government and other partners may be prevented from or limited in their ability to conduct business activities for an indefinite period of time, including due to the spread of the disease within these groups or due to shutdowns that may be requested or mandated by governmental authorities. While it is not possible at this time to estimate the impact that COVID-19 could have on our business, the continued spread of COVID-19 and the measures taken by the governments of states and countries affected could disrupt, among other things, the supply chain and the manufacture or shipment of our products. On March 19, 2020, the governor of California, the state where our facility is located, issued state-wide stay-at-home orders for non-essential workers to help combat the spread of COVID-19. The Company was deemed to be an essential business consistent with announcements by Forklift OEMs and related supply chain, who support the logistics industry, critical to delivering food and supplies during COVID-19 crisis and we have instituted processes, policies and workplace procedures in an effort to keep our workers safe while productive. However, in the future, our manufacturing operations may be subject to closure or shut down for a variety of reasons. While the Company implemented COVID-19 measures in March 2020 as recommended by the CDC and governmental authorities, since the start of the pandemic the Company has been notified that a few employees had tested positive for COVID-19. While manufacturing operations were not materially impacted, future operations could be affected by the COVID-19 pandemic. Any substantial disruption in our manufacturing operations from COVID-19, or its related impacts, would have a material adverse effect on our business and would impede our ability to manufacture and ship products to our customers in a timely manner, or at all.
The effect of the COVID-19 pandemic and its associated restrictions may adversely impact many aspects of our business, including customer demand, the length of our sales cycles, disruptions in our supply chain, lower the operating efficiencies at our facility, worker shortages and declining staff morale, and other unforeseen disruptions. The demand for our products may significantly decline if the COVID-19 pandemic continues, restrictions are implemented or re-implemented, or the virus resurges and spreads and our customers suffer losses in their businesses. The supply of our raw materials and our supply chain may be disrupted and adversely impacted by the pandemic. The occurrence of any of the foregoing events and their adverse effect on capital markets and investor sentiment may adversely impact our ability to raise capital when needed or on terms favourable to us and our stockholders to fund our operations, which could have a material adverse effect on our business, financial condition and results of operations. The extent to which the COVID-19 outbreak impacts our results, its effect on near or long-term value of our share price will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.
We do not have long term contracts with our customers.
We do not have long-term contracts with our customers. Future agreements with respect to pricing, returns, promotions, among other things, are subject to periodic negotiation with each customer. No assurance can be given that our customers will continue to do business with us. The loss of any of our significant customers will have a material adverse effect on our business, results of operations, financial condition and liquidity. In addition, the uncertainty of product orders can make it difficult to forecast our sales and allocate our resources in a manner consistent with actual sales, and our expense levels are based in part on our expectations of future sales. If our expectations regarding future sales are inaccurate, we may be unable to reduce costs in a timely manner to adjust for sales shortfalls.
Real or perceived hazards associated with Lithium-ion battery technology may affect demand for our products.
Press reports have highlighted situations in which lithium-ion batteries in automobiles and consumer products have caught fire or exploded. In response, the use and transportation of lithium-ion batteries has been prohibited or restricted in certain circumstances. This publicity has resulted in a public perception that lithium-ion batteries are dangerous and unpredictable. Although we believe our battery packs are safe, these perceived hazards may result in customer reluctance to adopt our lithium-ion based technology.
Our products may experience quality problems from time to time that could result in negative publicity, litigation, product recalls and warranty claims, which could result in decreased revenues and harm to our brands.
A catastrophic failure of our battery modules could cause personal or property damages for which we would be potentially liable. Damage to or the failure of our battery packs to perform to customer specifications could result in unexpected warranty expenses or result in a product recall, which would be time consuming and expensive. Such circumstances could result in negative publicity or lawsuits filed against us related to the perceived quality of our products which could harm our brand and decrease demand for our products.
We may be subject to product liability claims.
If one of our products were to cause injury to someone or cause property damage, including as a result of product malfunctions, defects, or improper installation, then we could be exposed to product liability claims. We could incur significant costs and liabilities if we are sued and if damages are awarded against us. Further, any product liability claim we face could be expensive to defend and could divert management’s attention. The successful assertion of a product liability claim against us could result in potentially significant monetary damages, penalties or fines, subject us to adverse publicity, damage our reputation and competitive position, and adversely affect sales of our products. In addition, product liability claims, injuries, defects, or other problems experienced by other companies in the solar industry could lead to unfavorable market conditions for the industry as a whole, and may have an adverse effect on our ability to attract new customers, thus harming our growth and financial performance. Although we carry product liability insurance, it may be insufficient in amount to cover our claims.
Tariffs could be imposed on lithium-ion batteries or on any other component parts by the United States government or a resulting trade war could have a material adverse effect on our results of operations.
In 2018, the United States government announced tariffs on certain steel and aluminum products imported into the United States, which led to reciprocal tariffs being imposed by the European Union and other governments on products imported from the United States. The United States government has implemented tariffs on goods imported from China, and additional tariffs on goods imported from China are under consideration.
The lithium-ion battery industry has been subjected to tariffs implemented by the United States government on goods imported from China. There is an ongoing risk of new or additional tariffs being put in place on lithium-ion batteries or related part. Since all of our lithium-ion batteries are manufactured in China, current and potential tariffs on lithium-ion batteries imported by us from China could increase our costs, require us to increase prices to our customers or, if we are unable to do so, result in lower gross margins on the products sold by us. China has already imposed tariffs on a wide range of American products in retaliation for the American tariffs on steel and aluminum. Additional tariffs could be imposed by China in response to actual or threatened tariffs on products imported from China. The imposition of additional tariffs by the United States could trigger the adoption of tariffs by other countries as well. Any resulting escalation of trade tensions, including a “trade war,” could have a significant adverse effect on world trade and the world economy, as well as on our results of operations. At this time, we cannot predict how such enacted tariffs will impact our business. Tariffs on components imported by us from China could have a material adverse effect on our business and results of operations.
We are dependent on a limited number of suppliers for our battery cells, and the inability of these suppliers to continue to deliver, or their refusal to deliver, our battery cells at prices and volumes acceptable to us would have a material adverse effect on our business, prospects and operating results.
We do not manufacture the battery cells used in our LiFT Packs. Our battery cells, which are an integral part of our battery products and systems, are currently sourced from one manufacturer, which isa limited number of manufacturers located in China and has distribution in the United States.China. While we obtain components for our products and systems from multiple sources whenever possible, we have spent a great deal of time in developing and testing our battery cells that we receive from this manufacturer.our suppliers. We refer to the battery cell suppliersuppliers as our limited“limited source supplier. suppliers.” Additionally, our operations are materially dependent upon the continued market acceptance and quality of these manufacturers’ products and their ability to continue to manufacture products that are competitive and that comply with laws relating to environmental and efficiency standards. Our inability to obtain products from one or more of these suppliers or a decline in market acceptance of these suppliers’ products could have a material adverse effect on our business, results of operations and financial condition. From time to time we have experienced shortages, allocations and discontinuances of certain components and products, resulting in delays in filling orders. Qualifying new suppliers to compensate for such shortages may be time-consuming and costly. In addition, we may have to recertify our UL Listings for the battery cells from new suppliers, which in turn has led to delays in product acceptance. Similar delays may occur in the future. Furthermore, the performance of the components from our suppliers as incorporated in our products may not meet the quality requirements of our customers.
To date, we have no qualified alternative sources for our battery cells although we research and assess cells from other suppliers on an ongoing basis. We generally do not maintain long-term agreements with our limited source suppliers. While we believe that we will be able to establish an additional supplier relationshiprelationships for our battery cells, we may be unable to do so in the short term or at all at prices, quality or costs that are favorable to us.
Changes in business conditions, wars, regulatory requirements, economic conditions and cycles, governmental changes, pandemic, and other factors beyond our control or which we do not presently anticipate, could also affect our suppliers’ ability to deliver components to us on a timely basis.basis or cause us to terminate our relationship with them and require us to find replacements, which we may have difficulty doing. Furthermore, if we experience significant increased demand, or need to replace our existing suppliers, there can be no assurance that additional supplies of component parts will be available when required on terms that are favorable to us, at all, or that any supplier would allocate sufficient supplies to us in order to meet our requirements or fill our orders in a timely manner. In the past, we have replaced certain suppliers because of their failure to provide components that met our quality control standards. The loss of any limited source supplier or the disruption in the supply of components from these suppliers could lead to delays in the deliveries of our battery products and systems to our customers, which could hurt our relationships with our customers and also materially adversely affect our business, prospects and operating results.
Increases in costs, disruption of supply or shortage of raw materials, in particular lithium-ironlithium-ion phosphate cells, could harm our business.
We may experience increases in the costs, or a sustained interruption in the supply or shortage, of raw materials. Any such cost increase or supply interruption could materially negatively impact our business, prospects, financial condition and operating results. For instance, we are exposed to multiple risks relating to price fluctuations for lithium-iron phosphate cells.
These risks include:
| ● | the inability or unwillingness of battery manufacturers to supply the number of lithium-iron phosphate cells required to support our sales as demand for such rechargeable battery cells increases; |
| ● | disruption in the supply of cells due to quality issues or recalls by the battery cell manufacturers; and | |
| ● | an increase in the cost of raw materials, such as iron and phosphate, used in lithium-iron phosphate cells. |
Our ability to maintain our revenue levels or to grow in the futuresuccess depends upon, among other things, adequate capital to support current operations and the continued success of our efforts to maintain our brand image and bring new products to market andon our ability to expand withindevelop new products and capabilities that respond to customer demand, industry trends or actions by our current distribution channels.
Our success will depend on our ability to continually develop new products and advanced products, technologies, and processes.capabilities that respond to customer demand, industry trends or actions by our competitors. There is no assurance that competitors’we will be able to successfully develop new products technologies, and processes will not render our existing products obsolete or non-competitive. Alternately,capabilities that adequately respond to these forces. In addition, changes in legislative, regulatory or industry requirements or in competitive technologies may render certain of our products obsolete or less attractive. Our competitiveness in the renewable battery market therefore relies upon our abilityIf we are unable to enhance our current products, introduce newoffer products and developcapabilities that satisfy customer demand, respond adequately to changes in industry trends or legislative changes and implement new technologies and processes. Our battery system predominately uses lithium-iron phosphate cells. Ifmaintain our competitors develop alternative products with more enhanced features thancompetitive position in our battery system,markets, our financial condition and results of operations would be materially and adversely affected.
The research and development of new products and technologies is costly and time consuming, and there are no assurances that our research and development of new productsefforts will be either successful or completed within anticipated timeframes, if at all. Our failure to technologically evolve and/or develop new or enhanced products may cause us to lose competitiveness in the battery market. In addition, in order to compete effectively in the renewable battery industry, we must be able to launch new products to meet our customers’ demands in a timely manner. However, we cannot provide assurance that we will be able to install and certify any equipment needed to produce new products in a timely manner, or that the transitioning of our manufacturing facility and resources to full production under any new product programs will not impact production rates or other operational efficiency measures at our manufacturing facility. In addition, new product introductions and applications are risky, and may suffer from a lack of market acceptance, delays in related product development and failure of new products to operate properly. Any failure by us to successfully launch new products, or a failure by us to meet our customers criteria in order to accept such products, could adversely affect our results.
Our business will be adversely affected if we are unable to protect our intellectual property rights from unauthorized use or infringement by third parties.
Any failure to protect our intellectual proprietary rights adequately could result in our competitors offering similar products, potentially resulting in the loss of some of our competitive advantage and a decrease in our revenue, which would adversely affect our business, prospects, financial condition and operating results. Our success depends, at least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination of patents (two issued patents), patent applications, trade secrets, including know-how, employee and third partythird-party nondisclosure agreements, copyright laws, trademarks, intellectual property licenses and other contractual rights to establish and protect our proprietary rights in our technology.
The protectionprotections provided by the patent laws is and will be important to our future opportunities. However, such patents and agreements and various other measures we take to protect our intellectual property from use by others may not be effective for various reasons, including the following:
| ● | the patents we have been granted may be challenged, invalidated or circumvented because of the pre-existence of similar patented or unpatented intellectual property rights or for other reasons; | |
| ● | the costs associated with enforcing patents, confidentiality and invention agreements or other intellectual property rights may make aggressive enforcement impracticable; and | |
| ● | existing and future competitors may independently develop similar technology and/or duplicate our systems in a way that circumvents our patents. |
Our patent applications may not result in issued patents, which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours.
We cannot be certain that we are the first creator of inventions covered by pending patent applications or the first to file patent applications on these inventions, nor can we be certain that our pending patent applications will result in issued patents or that any of our issued patents will afford protection against a competitor. In addition, patent applications that we intend to file in foreign countries are subject to laws, rules and procedures that differ from those of the United States, and thus we cannot be certain that foreign patent applications related to issue United States patents will be issued. Furthermore, if these patent applications issue, some foreign countries provide significantly less effective patent enforcement than in the United States.
The status of patents involves complex legal and factual questions and the breadth of claims allowed is uncertain. As a result, we cannot be certain that the patent applications that we file will result in patents being issued, or that our patents and any patents that may be issued to us in the near future will afford protection against competitors with similar technology. In addition, patents issued to us may be infringed upon or designed around by others and others may obtain patents that we need to license or design around, either of which would increase costs and may adversely affect our business, prospects, financial condition and operating results.
We rely on trade secret protections through confidentiality agreements with our employees, customers and other parties; the breach of such agreements could adversely affect our business and results of operations.
We rely on trade secrets, which we seek to protect, in part, through confidentiality and non-disclosure agreements with our employees, customers and other parties. There can be no assurance that these agreements will not be breached, that we would have adequate remedies for any such breach or that our trade secrets will not otherwise become known to or independently developed by competitors. To the extent that consultants, key employees or other third parties apply technological information independently developed by them or by others to our proposed projects, disputes may arise as to the proprietary rights to such information that may not be resolved in our favor. We may be involved from time to time in litigation to determine the enforceability, scope and validity of our proprietary rights. Any such litigation could result in substantial cost and diversion of effort by our management and technical personnel.
Our business depends substantially on the continuing efforts of the members of our senior management team, and our business may be severely disrupted if we lose their services.
We believe that our success is largely dependent upon the continued service of the members of our senior management team, who are critical to establishing our corporate strategies and focus, overseeing the execution of our business strategy and ensuring our continued growth. Our continued success will depend on our ability to attract and retain a qualified and competent management team in order to manage our existing operations and support our expansion plans. Although we are not aware of any change, if any of the members of our senior management team are unable or unwilling to continue in their present positions, we may not be able to replace them readily. Therefore, our business may be severely disrupted, and we may incur additional expenses to recruit and retain their replacement. In addition, if any of the members of our senior management team joins a competitor or forms a competing company, we may lose some of our customers.
If we are forced to implement workforce reductions, may impairour staff resources will be stretched making our ability to comply with legal and regulatory requirements as a Public Company.
There can be no assurance that our management team will be able to implement and affect programs and policies in an effective and timely manner especially if subject to workforce reductions, that adequately respond to increased legal, regulatory compliance and reporting requirements imposed by such laws and regulations. Our failure to comply with such laws and regulations could lead to the imposition of fines and penalties and further result in the deterioration of our business.
Compliance with changing regulations concerning corporate governance and public disclosure may result in additional expenses.
There have been changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley(Sarbanes-Oxley) Act of 2002, (“Sarbanes-Oxley”), new regulations promulgated by the SEC and rules promulgated by the national securities exchanges. These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. As a result, our efforts to comply with evolving laws, regulations and standards are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. Members of our Board of Directors and our chief executive officer and chief financial officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified directors and executive officers, which could harm our business. If the actions we take in our efforts to comply with new or changed laws, regulations and standards differ from the actions intended by regulatory or governing bodies, we could be subject to liability under applicable laws or our reputation may be harmed.
In addition, Sarbanes-Oxley specifically requires, among other things, that we maintain effective internal controls for financial reporting and disclosure of controls and procedures. In particular, we must perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of Sarbanes-Oxley. Our testing, or the subsequent testing by our independent registered public accounting firm, when required, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we willmay need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.
We may face significant costs relating to environmental regulations.
Federal, state, and local regulations impose significant environmental requirements on the manufacture, storage, transportation, and disposal of various components of advanced energy storage systems. Although we believe that our operations are in material compliance with current applicable environmental regulations, there can be no assurance that changes in such laws and regulations will not impose costly compliance requirements on us or otherwise subject us to future liabilities. Moreover, Federal, state, and local governments may enact additional regulations relating to the manufacture, storage, transportation, and disposal of components of advanced energy storage systems. Compliance with such additional regulations could require us to devote significant time and resources and could adversely affect demand for our products. There can be no assurance that additional or modified regulations relating to the manufacture, storage, transportation, and disposal of components of advanced energy systems will not be imposed.
Natural disasters, public health crises, political crises and other regulatory agencies have jurisdiction over the operationscatastrophic events or other events outside of our Vista,control may damage our sole facility or the facilities of third parties on which we depend, and could impact consumer spending.
Our sole production facility is located in southern California facility. Becausenear major geologic faults that have experienced earthquakes in the past. An earthquake or other natural disaster or power shortages or outages could disrupt our operations or impair critical systems. Any of these disruptions or other events outside of our control could affect our business negatively, harming our operating results. In addition, if our sole facility, or the facilities of our suppliers, third-party service providers or customers, is affected by natural disasters, such as earthquakes, tsunamis, power shortages or outages, floods or monsoons, public health crises, such as pandemics and epidemics, political crises, such as terrorism, war, political instability or other conflict, or other events outside of our control, our business and operating results could suffer. Moreover, these types of events could negatively impact consumer spending in the impacted regions or, depending upon the severity, globally, which could adversely impact our operating results. Similar disasters occurring at our vendors’ manufacturing facilities could impact our reputation and our consumers’ perception of our brands.
Security breaches, loss of data and other disruptions could compromise sensitive information related to our business, prevent us from accessing critical information or expose us to liability, which could adversely affect our business and our reputation.
We utilize information technology systems and networks to process, transmit and store electronic information in connection with our business activities. As the use of digital technologies has increased, cyber incidents, including deliberate attacks and attempts to gain unauthorized access to computer systems and networks and divert financial resources, have increased in frequency and sophistication. These threats pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data, all of which are vital to our operations and business strategy. There can be no assurance we will succeed in preventing cyber-attacks or successfully mitigating their effects.
Despite implementing security measures, any of the risks generally associated withinternal computer systems belonging to us or our suppliers are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war, and telecommunication and electrical failure. Any system failure, accident, security breach or data breach that causes interruptions could result in a material disruption of our product development programs. Further, our information technology and other internal infrastructure systems, including firewalls, servers, leased lines and connection to the assemblyInternet, face the risk of advanced energy storage systems,systemic failure, which could disrupt our operations. If any disruption or security breach results in a loss or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we expect rigorous enforcementmay incur resulting liability, and competitive position may be adversely affected, and the further development of applicable health and safety regulations. Frequent auditsour products may be delayed. Furthermore, we may incur additional costs to remedy the damage caused by these disruptions or changes in the regulations issued by Cal/OSHA, or other regulatory agencies with jurisdiction over our operations, may cause unforeseen delays and require significant time and resources from our technical staff.
Risks Related to Our Common Stock and Market
The market price of our common stock cancould become volatile leadingor our trading volume become weak, either of which could lead to the possibilityprice of its valueour stock being depressed at a time when you may want to sell your holdings.
On August 14, 2020, our common stock commenced trading on The NASDAQ Capital Market under the symbol “FLUX.” We cannot predict the extent to which investor interest in our common stock will lead to the development of an active trading market on that stock exchange or any other exchange in the future. An active market for our common stock may never develop. We cannot assure you that the volume of trading in shares of our common stock will increase in the future. The trading price of our common stock can become volatile. Numeroushas experienced volatility and is likely to continue to be highly volatile in response to numerous factors, many of which are beyond our control, may causeincluding, without limitation, the following:
| ● | our earnings releases, actual or anticipated changes in our earnings, fluctuations in our operating results or our failure to meet the expectations of financial market analysts and investors; | |
| ● | changes in financial estimates by securities analysts, if any, who might cover our stock; | |
| ● | speculation about our business in the press or the investment community; | |
| ● | significant developments relating to our relationships with our customers or suppliers; | |
| ● | stock market price and volume fluctuations of other publicly traded companies and, in particular, those that are in our industry; | |
| ● | customer demand for our products; | |
| ● | investor perceptions of our industry in general and our Company in particular; | |
| ● | general economic conditions and trends; | |
| ● | announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures; | |
| ● | changes in accounting standards, policies, guidance, interpretation or principles; | |
| ● | loss of external funding sources; | |
| ● | sales of our common stock, including sales by our directors, officers or significant stockholders; and | |
| ● | additions or departures of key personnel. |
The volatility of the trading price of our common stock may impact your ability to fluctuate significantly. These factors include:
The ownership of our stock is highly concentrated in our management, and we have one controlling stockholder.
As of September 26, 2018,10, 2021, our present directors and executive officers, and their respective affiliates beneficially owned approximately 75.0%34.8% of our outstanding common stock, including common sharesstock underlying options, warrants and convertible debtwarrants that were exercisable or convertible or which would become exercisable or convertible within 60 days. More specifically, Michael Johnson, our director and beneficial owner of Esenjay, beneficially owns approximately 67.5%32.5% of such outstanding common stock. As a result of their ownership, our directors and executive officers and their respective affiliates collectively, and Esenjay, individually, are able to significantly influence all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may also have the effect of delaying or preventing a change in control.
We do not intend to pay dividends on shares of our common stock for the foreseeable future.
We have never declared or paid any cash dividends on shares of our common stock. We intend to retain any future earnings to fund the operation and expansion of our business and, therefore, we do not anticipate paying cash dividends on shares of our common stock in the foreseeable future.
Although our common stock is illiquidlisted on The NASDAQ Capital Market, there can be no assurance that we will be able to comply with continued listing standards of The NASDAQ Capital Market.
Although our common stock is listed on The NASDAQ Capital Market, we cannot assure you that we will be able to continue to comply with the minimum bid price requirement, stockholder equity requirement and this low trading volume may adversely affect the priceother standards that we are required to meet in order to maintain a listing of our common stock.
Preferred Stock may be issued under our Articles of Incorporation.
Our Articles of Incorporation authorize the issuance of up to 5,000,000500,000 shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance. These terms may include voting rights including the right to vote as a series on particular matters, preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. In addition, these voting, conversion and exchange rights of preferred stock could negatively affect the voting power or other rights of our common stockholders. The issuance of any preferred stock could diminish the rights of holders of our common stock, or delay or prevent a change of control of our Company, and therefore could reduce the value of such common stock.
| 19 |
None.
Our corporate headquarters totals 22,054and production facility consist of approximately 63,200 square feet and is located in Vista, California. Effective February 25, 2014,Our production facility is ISO 9001 certified . We lease the Company entered into a two-year lease agreementproperty. Monthly rent for this facility with average monthly rent payments ofthe total space is approximately $12,000$60,500 per month and paid a security depositescalates approximately 3% per year through the end of $25,000, or approximately 2 months of rent. Our lease was subsequently amended resulting in average rent expense of $14,000 per month and expiring on May 31, 2018. A third amendment to the lease in May 2018 extended the lease to May 31, 2019 with an average rent expense of approximately $15,000 per month.
We believe that our leased property is in good condition and suitable for the conduct of sublease income.
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. To the best knowledge of management, there are no material legal proceedings pending against the Company.
Not applicable.
ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Data
Our common stock is quotedtraded on the OTCQBThe NASDAQ Capital Market under the stock symbol “FLUX.” The following table sets forth the range
Holders of the high and low pricesRecord of Common Stock
As of September 10, 2021, we had approximately 1,454 stockholders of record for our common stock during each quarter for the period July 1, 2016 through June 30, 2018, as set forth below, which has been adjusted retroactively to reflect the 1 for 10 reverse stock split, effective August 10, 2017. Such prices do not represent actual transactions, and do not include retail mark-ups, mark-downs or commissions.
High | Low | |
| Fiscal year ended June 30, 2018 | ||
| First quarter | $1.00 | $0.39 |
| Second quarter | $0.63 | $0.14 |
| Third quarter | $0.52 | $0.35 |
| Fourth quarter | $3.35 | $0.44 |
| Fiscal year ended June 30, 2017 | ||
| First quarter | $0.50 | $0.38 |
| Second quarter | $0.42 | $0.15 |
| Third quarter | $0.55 | $0.33 |
| Fourth quarter | $0.50 | $0.24 |
Dividend Policy
We have never repurchased any of our equity securities.
Recent Sales of Unregistered Securities
Unregistered securities sold by the Company during the period covered by this report have been previously reported in a Quarterly Report on Form 10-Q or Current Report on Form 8-K.
Purchases of Equity Securities
None.
Equity Compensation Plan Information
The following table provides certain information with respect to our equity compensation plans in effect as of June 30, 2018 is as follows:
(a) | (b) | (c) | |
Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column a) | |
Equity compensation plans approved by security holders(1) | 3,165,000 | 0.76 | 6,835,000 |
Equity compensation plans not approved by security holders(2) | 379,000 | 1.43 | - |
| Total | 3,544,000 | 0.74 | 6,835,000 |
Number of securities to be issued upon exercise of outstanding options, and settlement of RSUs (a) | Weighted-average exercise price of outstanding options, and issuance price of RSUs (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column a) (c) | ||||||||||
| Equity compensation plans approved by security holders(1) | 508,669 | $ | 11.04 | 328,670 | ||||||||
| Equity compensation plans approved by security holders(2) | - | - | 2,000,000 | |||||||||
| Equity compensation plans not approved by security holders(3) | 22,536 | $ | 10.55 | - | ||||||||
| Total | 531,205 | $ | 11.02 | 2,328,670 | ||||||||
| (1) | 211,800 incentive stock options (“ISO”) and 80,700 non-qualified stock options (“NQSO”) of our common stock were granted under the 2014 Option Plan during the year ended June 30, 2018. We granted 147,411 incentive stock options and 97,616 non-qualified stock options under the 2014 Option Plan during Fiscal 2019. We granted 15,324 incentive stock options and 3,948 non-qualified stock options under the 2014 Option Plan during Fiscal 2020. We granted 153,177 restricted stock units under the 2014 Option Plan during Fiscal 2021. The 2014 Option Plan was approved February 17, 2015, and was amended on October 25, 2017. |
| (2) | Consists of 2,000,000 shares of common stock reserved for issuance under the 2021 Equity Incentive Plan which was approved by our shareholders on April 29, 2021. |
| (3) | Consists of 7,200 options granted under the 2010 Stock Option Plan (“2010 Option Plan”) and assumed by us in the reverse acquisition. An additional 30,700 non-qualified options were issued. At June 30, 2021, there was 22 ,536 options outstanding. |
As a Smaller Reporting Companysmaller reporting company as defined by Rule12b-2 of the Exchange Act and in item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.
The discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in this Annual Report on Form 10-K.
Business Overview
We design, develop, manufacture, and sell rechargeablea portfolio of advanced lithium-ion energy storage systemssolutions for industrial applications, such as, electric fork lifts andthe material handling sector which includes lift trucks, airport ground support equipment.equipment (“GSE”), and other industrial and commercial applications. We have structuredbelieve our business around our BMS which provides three critical functions to our battery systems: cell balancing, monitoringmobile and error reporting. Using our proprietary management technology, we are able to offer complete integratedstationary energy storage solutions or customprovide customers with a reliable, high performing, cost effective, and more environmentally friendly alternative as compared to traditional lead acid and propane-based solutions. Our modular standalone systemsand scalable design allows different configurations of lithium-ion battery packs to be paired with our proprietary wireless battery management system (“SkyBMS”) to provide the level of energy storage required and “state of the art” real time monitoring of pack performance. We believe that the increasing demand for lithium-ion battery packs in the material handling sector continues to drive our current revenue growth.
Our long-term strategy is to meet the rapidly growing demand for lithium-ion energy solutions and to be the supplier of choice, targeting large fleets of forklifts and GSEs as a priority. We intend to reach this goal by investing in research and development to expand our product mix, and by expanding our sales and marketing efforts, improving our customer support efforts and continuing our efforts to improve production capacity and efficiencies. Our research and development efforts will continue to focus on providing adaptable, reliable and cost effective energy storage solutions for customers. We recently filed three new patents on advanced technology related to lithium-ion battery packs. The technology behind these pending patents are designed to:
| ● | increase battery life by optimizing the charging cycle, | |
| ● | give users a better understanding of the health of their battery in use, and | |
| ● | apply artificial intelligence (“AI”) to predictively balance the cells for optimal performance. |
We currently focus on the material handling sector which we believe is a multi-billion dollar addressable market. We believe the sector will provide us with an opportunity to grow our business as we enhance our product mix and service levels, and grow our sales to large fleets. Applications of our modular packs for other industrial and commercial uses, such as solar energy storage, provide further growth opportunities. We intend to continue to expand our supply chain and customer partnerships and seek further partnerships and/or acquisitions that provide synergy to meeting our growth and “building scale” objectives. Our recent business growth reflects our expanded product line, additional OEM relationships and supply contracts, production capacity increases, and an expanded nation-wide service footprint. Our strategy for sales growth places a high priority on growing relationships with the national account sales forces of the equipment OEMs, expanding relationships with major equipment dealers and distributors, and leveraging our brand reputation of trust and reliability.
To achieve our long-term strategy, we will need to manage our growth in a thoughtful manner, improve the profitability of our business and continue to take steps to enhance our financial strength.
| 22 |
Financing Activities
During fiscal 2021, we directed our efforts to reduce our outstanding debt through a combination of debt service and debt conversion to equity. During the quarter ended March 31, 2021, the remaining outstanding balance of approximately $2,632,000 in principal and accrued interest under the Credit Facility was converted into 658,103 shares of common stock, which resulted in elimination of the entire outstanding debt by end of Fiscal 2021.Accordingly, on June 10, 2021, the Third Amended and Restated Credit Facility Agreement and the related Second Amended and Restated Security Agreement dated August 31, 2020 by and among the Company and the Lenders (the “Security Agreement”) were terminated. Under the Credit Facility, the Company could borrow up to $12 million under a revolving line of credit, with such advance subject to discretion of the Lenders. Pursuant to the Security Agreement, advances and obligations under the Credit Facility were secured by a security interest in collateral of the Company. As of the termination date, all payments due under the related notes have been made in full and all obligations under such notes and the Credit Facility have been paid or discharged in full. In addition, the Company did not incur any early termination penalties in connection with the termination of the Third Amended and Restated Credit Agreement or Security Agreement.
On August 18, 2020, we closed an underwritten public offering of our common stock at a public offering and issued 3,099,250 shares of our common stock at $4.00 per share for gross proceeds of approximately $12.4 million, which included the full exercise of the underwriters’ over-allotment option to purchase additional shares, prior to deducting underwriting discounts and commissions and offering expenses. Concurrent with the announcement of our public offering, on August 14, 2020, our common stock commenced trading on The NASDAQ Capital Market under the symbol “FLUX.”
At-The-Market Offering
On October 16, 2020, we filed a shelf registration on Form S-3 for up to $50 million to support our ability to raise capital to support our business growth. In connection with the shelf registration statement, in December 2020, we entered into a Sales Agreement with H.C. Wainwright & Co., LLC enabling us to sell shares of our common stock in “At-The-Market” offerings from time to time. On May 27, 2021 we filed an amendment to the prospectus supplement dated December 21, 2020 allowing us to sell up to $20 million of shares under the “at-the-market offering” program (“ATM Offering”). From December 2020 to June 30, 2021, we sold an aggregate of 978,782 shares of common stock at an average price of $12.93 per share for gross proceeds of approximately $12.7 million in the ATM Offering, prior to deducting commissions and other offering related expenses.
Borrowing under the Revolving Line of Credit
We also developedput in place a suiterevolving line of complementary technologiescredit for up to $4 million with Silicon Valley Bank (“SVB”). On November 9, 2020, we entered into a certain Loan and productsSecurity Agreement (“Agreement”) with SVB for a senior secured revolving credit facility for up to $4.0 million available on a revolving basis (“SVB Credit Facility”). The Company has utilized the SVB Credit Facility from-time-to-time, however as of June 30, 2021, the outstanding balance of the line of credit was $0 and the entire $4.0 million of the facility is available for future draws through November 8, 2021, unless the credit facility is renewed and its term is extended prior to its expiration.
Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements issued since the last audit of the Company’s consolidated financial statements, and believes that accompany our core products.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and the related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates based on its historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies and estimates affect the preparation of our financial statements:
Accounts Receivable
Accounts receivable are carried at their estimated collectible amounts. The Company has not experienced collections issues related to its accounts receivable and has not recorded an allowance for doubtful accounts during the fiscal years ended June 30, 20182021 and 2017.
Inventories
Inventories consist primarily of battery management systems and the related subcomponents, and are stated at the lower of cost (first-in, first-out) or net realizable value. The Company evaluates inventories to determine if write-downs are necessary due to obsolescence or if the inventory levels are in excess of anticipated demand at market value based on consideration of historical sales and product development plans. The Company recorded an adjustment related to obsolete inventory in the amount of approximately $27,000 and $56,000$15,000 during the years ended June 30, 2018 and 2017, respectively.
Revenue Recognition
The Company recognizes revenue in accordance to the Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”) for all contracts. The Company derives its revenue from the sale of products to customers. The Company sells its products primarily through a distribution network of equipment dealers, OEMs and battery distributors in primarily North America. The Company recognizes revenue for the products when persuasive evidence of an arrangement exists, delivery has occurred, price is fixed or determinable,all significant risks and collectability of the selling price is reasonably assured. Delivery occurs when risk of loss is passedrewards have been transferred to the customer, as specified by the termsthere is no continuing managerial involvement associated with ownership of the applicable customer agreements. When a productgoods sold is retained, no effective control over the goods sold on consignment,is retained, the item remains in our inventoryamount of revenue can be measured reliably, it is probable that the economic benefits associated with the transactions will flow to the Company and the costs incurred or to be incurred with respect to the transaction can be measured reliably.
Product revenue is not recognized untilas a distinct single performance obligation which represents the product is ultimately sold topoint in time that our customer receives delivery of the end user. Whenproducts. Our customers do have a right ofto return exists, contractually or implied, the Company recognizes revenue when the product is sold through to the end user. As of June 30, 2018 and 2017, the Company did notbut our returns have any deferred revenue.
Product Warranties
The Company evaluates its exposure to product warranty obligations based on historical experience. Our products, primarily lift equipment packs, are warrantied for five years unless modified by a separate agreement. As of June 30, 20182021 and 2017,2020, the Company carried warranty liability of approximately $158,000$895,000 and $85,000,$726,000, respectively, which is included in accrued expenses on the Company’s consolidated balance sheets.
Stock-based Compensation
Pursuant to the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 718-10, Compensation-Stock Compensation, which establishes accounting for equity instruments exchanged for employee service, we utilize the Black-Scholes option pricing model to estimate the fair value of employee stock option awards at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected life. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our share-based compensation. These assumptions are subjective and generally require significant analysis and judgment to develop. When estimating fair value, some of the assumptions will be based on, or determined from, external data and other assumptions may be derived from our historical experience with stock-based payment arrangements. The appropriate weight to place on historical experience is a matter of judgment, based on relevant facts and circumstances.
Common stock or equity instruments such as warrants issued for services to non-employees are valued at their estimated fair value at the measurement date (the date when a firm commitment for performance of the services is reached, typically the date of issuance, or when performance is complete). If the total value exceeds the par value of the stock issued, the value in excess of the par value is added to the additional paid-in-capital.
Segment and Related Information
We operate as a single reportable segment.
Comparison of Results of Operations
The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this Annual Report.
The following table represents our statement of operations for the years ended June 30, 20182021 (“Fiscal 2018”2021”) and June 30, 20172020 (“Fiscal 2017”2020”).
Fiscal 2018 | Fiscal 2017 | |||
$ | % of Revenues | $ | % of Revenues | |
| Revenues | $4,118,000 | 100% | $902,000 | 100% |
| Cost of goods sold | 4,913,000 | 119% | 1,622,000 | 180% |
| Gross loss | (795,000) | -19% | (720,000) | -80% |
| Operating expenses: | ||||
| Selling and administrative expenses | 3,462,000 | 84% | 2,404,000 | 267% |
| Research and development | 1,956,000 | 47% | 1,052,000 | 117% |
| Total operating expenses | 5,418,000 | 132% | 3,456,000 | 384% |
| Operating loss | (6,213,000) | -151% | (4,176,000) | -464% |
| Other income (expense): | ||||
| Change in fair value of derivative liabilities | - | 0% | 14,000 | 2% |
| Interest expense, net | (752,000) | -18% | (273,000) | -30% |
| Net loss | $(6,965,000) | -169% | $(4,435,000) | -492% |
Year Ended June 30, 2021 | Year Ended June 30, 2020 | |||||||||||||||
| $ | % of Revenues | $ | % of Revenues | |||||||||||||
| Revenues | $ | 26,257,000 | 100 | % | $ | 16,842,000 | 100 | % | ||||||||
| Cost of sales | 20,467,000 | 78 | % | 14,656,000 | 87 | % | ||||||||||
| Gross profit | 5,790,000 | 22 | % | 2,186,000 | 13 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and administrative | 12,599,000 | 48 | % | 9,761,000 | 58 | % | ||||||||||
| Research and development | 6,669,000 | 25 | % | 4,973,000 | 29 | % | ||||||||||
| Total operating expenses | 19,268,000 | 73 | % | 14,734,000 | 87 | % | ||||||||||
| Operating loss | (13,478,000 | ) | -51 | % | (12,548,000 | ) | -74 | % | ||||||||
| Other income (expense): | ||||||||||||||||
| Other income | 1,307,000 | 4 | % | - | - | % | ||||||||||
| Interest expense | (622,000 | ) | -2 | % | (1,788,000 | ) | -11 | % | ||||||||
| Net loss | $ | (12,793,000 | ) | -49 | % | $ | (14,336,000 | ) | -85 | % | ||||||
Revenues
Historically our product focus is primarilyhas been on lift equipment, reflecting our current products fora mix of walkie pallet jacks and we have started introducing higher capacity packs in the latter half of Fiscal 2018 for Class 1, 2, and 3 forklifts. We also are implementing a strategy to expand on an opportunistic basis toOver the past two years, we expanded our product offering into adjacent applications, including airport ground support equipment (“GSE”).GSE,stationary energy storage and other solutions for industrial and commercial applications. We feelbelieve that we are well positioned to address these markets, which would utilizethe needs of many segments within the material handling sector in light of our modular and scalable battery pack design and technology.
We currently sell our products primarily through a distribution networknumber of different channels including OEMs, lift equipment dealers and battery distributors as well as directly to end users, primarily in North America. This distribution network mostly sellsThe channels sell principally to large company, national accounts. However, we doWe sell certain battery packs directly to other accounts including industrial equipment manufacturers and the ultimate end-user.
Revenues for Fiscal 20182021 increased $3,216,000$9,415,000 or 357%56%, to $26,257,000, compared to $16,842,000 for Fiscal 2017. This2020. The increase in revenues during Fiscal 2018 was primarily attributabledue to an increase in our average selling price and a major national account for orders beginninghigher number of energy solutions sold. The launch of larger packs over the past two years has shifted our portfolio mix to include packs with higher selling prices as compared to our historical mix. The increase in November 2017. Revenue increases also reflected a smaller mix of airport ground support equipment for initial purchases by a large international airport service company.
Cost of Sales
Cost of sales for Fiscal 20182021 increased $3,291,000$5,811,000 or 203%40%, to $20,467,000, compared to $14,656,000 for Fiscal 2017.2020. The increase in cost of sales was directlydue to higher sales of energy solutions, partially offset by improved cost of sales efficiencies. Cost of sales as a percentage of revenues for Fiscal 2021 was 78%, an improvement of 9% over 87% for the Fiscal 2020. The principal drivers of improved cost of sales efficiencies were simplified component designs, reduced material costs, reduced warranty related expenses, and lower personnel related costs.
Gross Profit
Gross profit for Fiscal 2021 increased $3,604,000 or 165%, to $5,790,000, compared to $2,186,000 for the Fiscal 2020. Gross profit as a percentage of revenues increased to 22% for Fiscal 2021 as compared to 13% for Fiscal 2020. Improvement in the gross profit margin was primarily attributable to the increase in revenues during Fiscal 2018. Thehigher sales to both new and existing customers, and cost of materials per LiFT Pack in Fiscal 2018 decreased compared to Fiscal 2017 as higher purchase quantities resulted in lower costs of materials per pack. Despite the improvement in lower costs per pack, we have continued to recognize a gross loss during Fiscal 2018 as we remain subject to low volume purchases, early higher cost designs and limited sourcing related to our inventory purchases. Warranty expense for Fiscal 2018 increased as a result of the higher sales volume. As of June 30, 2018, we had approximately $158,000 accrued for product warranty liability. efficiencies.
Selling and Administrative Expenses
Selling and administrative expenses consist primarily of salaries and personnel related expenses, stock-based compensation expense, public company costs, consulting costs, professional fees and other expenses. Such expenses for Fiscal 20182021 increased $1,058,000$2,838,000 or 44%29%, to $12,599,000, compared to $9,761,000 for Fiscal 2017.2020. The increase was for marketingprimarily attributable to promote the new products, additional payroll costs and stock based compensationincreases in personnel expenses of $1,911,000 related to new employees,hires and additionaltemporary labor, an increase in insurance premiums of $498,000, and higher accounting and legal fees for capital raises.
Research and Development
Research and development expenses for Fiscal 20182021 increased $904,000$1,696,000 or 86%34%, to $6,669,000, compared to $4,973,000 for Fiscal 2017.2020. Such expenses consistconsisted primarily of materials, supplies, salaries and personnel related expenses, product testing, costs, consulting, costs, and other expenses associated with the continued development of our LiFT pack, as well as, research into new product opportunities.development. The increase in research and development expenses in Fiscal 2018 was primarily due to new product development activities including expenses related to UL certifications of $1,113,000, staff/labor related expenses including temporary labor of $506,000, and facility costs including equipment rental of $110,000.
Other Income
Other income for Fiscal 2021 represented the development and implementationforgiveness of the higher capacity packs for Class 1, 2,entire PPP Loan of approximately $1,297,000 in principal, together with all accrued interest of approximately $10,000. The Small Business Administration notified us that our loan and 3 forklifts. We anticipate research and development expenses continuing to be a significant portion of our expenses as we continue to develop and add new and improved products to our product line-up. accrued interest had been forgiven on February 9, 2021.
Interest expense for Fiscal 2018 increased $479,0002021 decreased $1,166,000 or 175%65%, to $622,000, compared to $1,788,000 for Fiscal 2017 and2020. During Fiscal 2021, interest expense was primarily of interest expense related to our outstanding lines of credit. On December 29, 2015, we entered into the Second Amendment of our Unrestricted Line of Credit (see Note 6 to the audited consolidated financial statements) which included, among other provisions, the reduction in the conversion price of the Unrestricted Line of Credit from $3.00 to $0.60 per share. The estimated change in fair value of the conversion price of approximately $310,000 was recorded as a deferred financing cost at the date of the Second Amendment and was amortized over the then remaining seven-month term of the amended Unrestricted Line of Credit agreement. During Fiscal 2017 we recorded approximately $44,000 of deferred financing amortization cost, which is included in interest expense in the accompanying consolidated statements of operations. Also included in Fiscal 2018 and Fiscal 2017 was interest expense of approximately $752,000 and $228,000, respectively, related to our outstanding lines of credit and deferred discount amortization (see Notes 6convertible promissory note and 7also included approximately $174,000 related to the audited consolidated financial statements).
Net Loss
Net loss during Fiscal 2018 increased $2,530,0002021 decreased $1,543,000 or 57%11%, to $12,793,000 compared to $14,336,000 for Fiscal 2017.2020. The decrease was primarily attributable to an increase in gross profit and other income, and lower interest expense, partially offset by an increase in operating expenses.
Adjusted EBITDA
Earnings or loss before interest, income taxes, depreciation and amortization (“EBITDA”) as adjusted to remove the effect of stock-based compensation expense is due primarilyreferred to increased selling, administrative,as Adjusted EBITDA. For the years ended June 30, 2021 and research2020, Adjusted EBITDA was a loss of approximately $11,100,000 and development$10,604,000, respectively.
Management believes that Adjusted EBITDA, when viewed with our results under GAAP and the accompanying reconciliations, provides useful information about our period-over-period results. Adjusted EBITDA is presented because management believes it provides an additional metric to assess the performance of our business.
Adjusted EBITDA is a non-GAAP financial measure. We calculate adjusted EBITDA by taking net income, and adding back the expenses related to interest, income taxes, depreciation, amortization, and stock-based compensation expense, and as discussed above.
A reconciliation of our adjusted EBITDA to net loss is included in the table below:
| Years Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Net loss | $ | (12,793,000 | ) | $ | (14,336,000 | ) | ||
| Interest, net | 622,000 | 1,788,000 | ||||||
| Income tax provision | - | - | ||||||
| Depreciation and amortization | 274,000 | 141,000 | ||||||
| EBITDA | (11,897,000 | ) | (12,407,000 | ) | ||||
| Stock-based compensation | 797,000 | 1,803,000 | ||||||
| Adjusted EBITDA | $ | (11,100,000 | ) | $ | (10,604,000 | ) | ||
Liquidity and Capital Resources
Overview
As of June 30, 2018,2021, we had a cash balance of $2,706,000$4,713,000 and an accumulated deficit of $26,662,000.$66,205,000. Our business has not generated sufficient cash to fund our planned operations, and we will need to raise additional cash and capital resources. We do not havebelieve our existing cash, additional funding available under our revolving line of credit for up to $4.0 million with Silicon Valley Bank, net proceeds of approximately $14.0 million raised during September 2021 through a registered direct offering, and potential sales of our common stock under our ATM Offering, will be sufficient liquidity andto meet our anticipated capital resources to fund planned operations for the next twelve months following the date of this Annual Report.months. See “Future Liquidity Needs” below.
Cash Flows
| Year Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Net cash used in operating activities | $ | (18,358,000 | ) | $ | (8,344,000 | ) | ||
| Net cash used in investing activities | (1,102,000 | ) | (323,000 | ) | ||||
| Net cash provided by financing activities | 23,447,000 | 9,291,000 | ||||||
| Net change in cash | $ | 3,987,000 | $ | 624,000 | ||||
Operating Activities
Net cash used in operations of $6,500,000operating activities was $18,358,000 for Fiscal 2018,2021, compared to net cash used in operationsoperating activities of $5,698,000$8,344,000 for Fiscal 2017.
Net cash used in operating activities for Fiscal 20172020 reflects the net loss of $4,435,000$14,336,000 for the period offset primarily by non-cash items including depreciation, stock basedstock-based compensation, non-cash interest expense, non-cash facility lease expense, allowance for inventory reserve, and stock issued for services, as well as an increaseincreases in accounts payable and accrued expense, customer deposits, and drawdowns from factoring facility, partially offset by increases in accounts receivable, inventory, other current assets, and accrued interest.
Investing Activities
Net cash used in investing activities for Fiscal 20182021 was $1,102,000 and Fiscal 2017 totaled $85,000 and $53,000, respectively, which consisted primarily of officethe costs of internally developed software and purchase of furniture and equipment and warehouse equipment purchases.
Net cash used in investing activities for Fiscal 2020 was $323,000 and consisted primarily of the purchase of leasehold improvements and warehouse equipment.
Financing Activities
Net cash provided by financing activities was $23,447,000 for Fiscal 2021, which primarily consisted of $26,000,000 in net proceeds from the issuance of common stock in a public offering, a private placement of common stock, sales of common stock under our ATM Offering, and $55,000 from stock and warrant exercises, which were partially offset by $2,580,000 used to repay outstanding debt, and $28,000 in payment of financing lease payable. We occasionally used our bank revolving line of credit during Fiscals 2018 and 2017the Fiscal 2021, but the balance was $9,170,000 and $5,745,000, respectively. The increase inzero at June 30, 2021.
Net cash provided by financing activities was $9,291,000 for Fiscal 2020, which primarily resultsconsisted of proceeds from the issuance of common stock in a private placement of common stock, borrowings from our lines of credit with Esenjay totaling $5,195,000, as well as,under the Company’s Amended and Restated Credit Facility Agreement, proceeds from a $4,000,000 private placement salethe Paycheck Protection Program loan, and short-term loans.
As of June 30, 2021, approximately $7.3 million remained available under our $20.0 million ATM Offering for future sales of our common stock.
Future Liquidity Needs
We have evaluated our expected cash requirements over the next twelve months, which include, but are not limited to, investments in additional sales and marketing and productresearch and development, resources, capital expenditures, and working capital requirements and have determined thatrequirements. We believe our existing cash, resources are notadditional funding available under our revolving line of credit for up to $4.0 million with Silicon Valley Bank, net proceeds of approximately $14.0 million raised during September 2021 through a registered direct offering, and potential sales of our common stock under our ATM Offering, will be sufficient to meet our anticipated needs during the next twelve months, and that additional financing is requiredcapital resources to support current operations. Based on our current and planned levels of expenditure, we estimate that total financing proceeds of approximately $7,800,000 will be required to fund current and planned operations for the next twelve months following the date of this Annual Report on Form 10-K, September 26, 2018.months.. In addition, we anticipate that further additional financing may be required to fund our business plan subsequent to that date, until such time as revenues and related cash flows become sufficient to support our operating costs.
To the extent that we raise additional funds by issuing equity or convertible debt securities, our shareholdersstockholders may experience additional significant dilution and such financing may involve restrictive covenants. ToIn the extent that we raiseevent the Company required to obtain additional funds, through collaboration and licensing arrangements, it maythere is no guarantee that the Company will be necessary to relinquish some rights to our technologies or our product candidates, or grant licenses on terms that may not be favorable to us. Such actions may have a material adverse effect on our business.
Off-Balance Sheet Arrangements
As of June 30, 2018,2021, we did not have any other relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitatinghad no off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
The standard requires all companies to evaluate if conditions or events raise substantial doubt about an entity’s ability to continue as a going concern and requires different disclosure of items that raise substantial doubt that are, or areCompany did not alleviated as a result of consideration of management’s plans. Theadopt any new guidance is effective for annual periods ending after December 15, 2016. We adopted ASU No 2014-15 for Fiscal 2017 and have reflected the required disclosures in the accompanying audited consolidated financial statements.
The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.
The financial statements required by this item begin on page F-1 with the index to financial statements followed by the financial statements.
None
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, as of the end of the period covered by this report, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Act of 1934. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be included in our Securities and Exchange Commission (“SEC”)SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, relating to the Company, including our consolidated subsidiaries, and was made known to them by others within those entities, particularly during the period when this report was being prepared. Based on the management's assessmentupon that evaluation, our Chief Executive Officer and review of our financial statements and results for the fiscal year ended June 30, 2018, weChief Financial Officer have concluded that our disclosure controls and procedures were effective for purposes stated above.
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurances with respect to financial statement preparation and presentation. Additionally, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management’s Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. As of June 30, 20182021, management assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control - Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria)“COSO criteria”). Based on thesuch assessment, management determined that the Company maintained effective internal control over financial reporting as of June 30, 20182021, based on the COSO criteria.
This Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding the effectiveness of the Company’s internal control over financial reporting, as such report is not required due to the Company’s status as a smaller reporting company.
Change in Internal Control over Financial Reporting
There have been no changes in the Company’s internal controls over financial reporting during the fiscal year ended June 30, 20182021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
None.
ITEM 9C - DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENTS INSPECTIONS
Not Applicable.
| 29 |
Directors, Executive Officers and Significant Employees
The following table and text set forth the names and ages of our current directors, executive officers and significant employees as of the date of this report.September 10, 2021. Our Board of Directors is comprised of only one class. All of the directors will serve until the next annual meeting of stockholders or until their successors are elected and qualified, or until their earlier death, retirement, resignation or removal. There are no family relationships among any of the directors and executive officers. Our BoardFrom time to time, our directors have received compensation in the form of Directors are not paidcash and equity grant for their service.
| Name | Age | Position | ||
| Ronald F. Dutt | Director, Chief Executive Officer and President | |||
| Charles A. Scheiwe | 55 | Chief Financial Officer and | ||
| Jonathan A. Berry | Chief Operating Officer | |||
| Michael Johnson | Director | |||
| Director | ||||
| Dale Robinette(1)(3) | 57 | Director | ||
| John A. Cosentino, Jr.(1)(4) | 71 | Director |
| (1) | Independent Director |
| (2) | Chairperson of the Audit Committee, Member of Compensation Committee and Governance Committee |
| (3) | Lead Independent Director, Chairperson of the Compensation Committee, Member of Audit Committee and Governance Committee |
| (4) | Mr. Cosentino was appointed to the Board on May 7, 2020 to fill a vacancy. Mr. Cosentino is the chairperson of the Nominating and Corporate Governance Committee (“Governance Committee”) and a member of the Audit Committee and Compensation Committee. |
There are no arrangements or understandings between our directors and executive officers and any other person pursuant to which any director or officer was or is to be selected as a director or officer.
Business Experience
Christopher L. Anthony, Chairman. Mr. Anthony was appointed as chairman on September 3, 2015 and has been a board member since June 14, 2012. Mr. Anthony was also the Company’s former chief executive officer from June 14, 2012 to June 28, 2013. Prior to the Company’s reverse acquisition of Flux Power Holdings, Inc., in June 2012 Mr. Anthony served as chairman and chief executive officer of Flux Power since it was incorporated in 2009. Mr. Anthony is the founder and a majority owner of Epic Boats, LLC (“Epic Boats”) a Delaware Corporation and has served as an R&D advisor since it was founded in 2002 and also served as chief executive officer though October 2010. On June 28, 2013 Mr. Anthony resigned as Flux Power’s chief executive officer to return full time to his position as chief executive officer of Epic Boats to manage the day to day operations. Epic Boats is primarily engaged in the business of providing recreational and competitive watercrafts, including an electric wake boarding boat. From 2005 to 2009 Mr. Anthony served as the chief operating officer of Aptera Motors, Inc., a Delaware company engaged in the business of manufacturing a three-wheel electric car (“Aptera Motors”) and was a director of that company from 2005 to 2010. Aptera Motors and Epic Boats are not affiliates of the Company. Mr. Anthony is an expert in energy storage, electric propulsion systems, and advanced composite manufacturing processes. He has significant experience building advanced products in the marine and commuter vehicle industries. Mr. Anthony has a Bachelor’s of Science degree in finance from the Cameron School of Business.
Charles A. Scheiwe, Chief Financial Officer and Secretary. Mr. Scheiwe joined the Company in July of 2018 and has been acting as the Company’s Controller since July 9, 2018. He was appointed as our chief financial officer and secretary on December 17, 2018. Prior to joining the Company, Mr. Scheiwe was the controller of Senstay, Inc. and provided financial and accounting consulting services to start-up companies from 2016 to 2018. From 2006 to 2016, Mr. Scheiwe was the vice president of finance and controller for GreatCall, Inc. Mr. Scheiwe’s experience in accounting, financial planning and analysis, business intelligence, cash management, and equity management has prepared and qualified him for the position of chief financial officer and secretary of the Company. Mr. Scheiwe has a Bachelor of Science degree in Business Management, with emphasis in Accounting, from the University of Colorado. Mr. Scheiwe also holds a CPA certificate.
| 30 |
Jonathan A. Berry, Chief Operating Officer. Mr. Berry joined the Company in 2016 and has been our director of operations since 2016. On June 29, 2018, he was appointed as our chief operating officer. Prior to joining the Company in 2016, Mr. Berry was Clean Air Power, Inc.’s group operations director and general manager of the USA operations from 2014 to 2016, and operations director of the UK, Australia, and USA market from 2012 to 2014. Mr. Berry’s experience in the development, implementation, and management of all aspects of supply chain, production, and sales has prepared and qualified him for the position of Chief Operating Officer.chief operating officer. Mr. Berry has an MBA from Ashfordattended the Senior Executive Program at Hult Ashridge Business School in London, England, and has an undergraduate degree in electrical engineeringElectrical Engineering from Leeds University.the University of Leeds.
Michael Johnson, Director. Mr. Johnson has been our director since July 12, 2012. Mr. Johnson has been a director of Flux Power since it was incorporated. Since 2002, Mr. Johnson has been a director and the chief executive officer of Esenjay Petroleum Corporation (“Esenjay Petroleum”)(Esenjay Petroleum), a Delaware company located in Corpus Christi, Texas, which is engaged in the business oil exploration and production. Mr. Johnson’s primary responsibility at Esenjay Petroleum is to manage the business and company as chief executive officer. Mr. Johnson is a director and beneficial owner of Esenjay Investments LLC, a Delaware limited liability company engaged in the business of investing in companies, and an affiliate of the Company owning approximately 67.5%32.5% of our outstanding shares, including common sharesstock underlying options, warrants and convertible debtwarrants that were exercisable or convertible or which would become exercisable or convertible within 60sixty (60) days. As a result of Mr. Johnson’s leadership and business experience, he is an industry expert in the natural gas exploration industry and brings a wealth of management and successful company building experience to the board. Mr. Johnson received a BSBachelor of Science degree in mechanical engineering from the University of Southwestern Louisiana.
James Gevarges,Lisa Walters-Hoffert, Director. Mr. Gevarges served on Ms. Walters-Hoffert was appointed to our Board on June 28, 2019. Ms. Walters-Hoffert was a co-founder of Daré Bioscience, Inc. and following the company’s merger with Cerulean Pharma, Inc. in July of 2017, became Chief Financial Officer of the surviving public company (NASDAQ: DARE). For over twenty-five (25) years, Ms. Walters-Hoffert was an investment banker focused on small-cap public companies in the technology and life science sectors. From 2003 to 2015, Ms. Walters-Hoffert worked at Roth Capital Partners as director from July 14, 2012 to October 24, 2014 at which time he resigned. On September 30, 2015, Mr. Gevarges was reinstatedManaging Director in the Investment Banking Division. Ms. Walters-Hoffert has held various positions in the corporate finance and investment banking divisions of Citicorp Securities in San José, Costa Rica and Oppenheimer & Co, Inc. in New York City, New York. Ms. Walters-Hoffert has served as a director.member of the Board of Directors of the San Diego Venture Group, as Past Chair of the UCSD Librarian’s Advisory Board, and as Past Chair of the Board of Directors of Planned Parenthood of the Pacific Southwest. Ms. Walters-Hoffert currently serves as a member of the Board of Directors of The Elementary Institute of Science in San Diego. Ms. Walters-Hoffert graduated magna cum laude from Duke University with a B.S. in Management Sciences. As a senior financial executive with over twenty-five years of experience in investment banking and corporate finance and based on Ms. Walters-Hoffert’s expertise in audit, compliance, valuation, equity finance, mergers, and corporate strategy, the Company believes Ms. Walters-Hoffert is qualified to be on the Board.
Dale T. Robinette, Director. Mr. Gevarges isRobinette was appointed to our Board on June 28, 2019 and our lead independent director on September 10, 2021. Mr. Robinette has been a CEO Coach and Master Chair since 2013 as an independent contractor to Vistage Worldwide, Inc., an executive coaching company. In addition, since 2013 Mr. Robinette has been providing business consulting related to top-line growth and bottom-line improvement through his company EPIQ Development. From 2013 to 2019, Mr. Robinette was the President, Chief Executive Officer,Founder and CEO of EPIQ Space, a majority ownermarketing website for the satellite industry, a member-based community of Current Ways,suppliers promoting their offerings. Mr. Robinette was with Peregrine Semiconductor, Inc., a California company engagedmanufacturer of high-performance RF CMOS integrated circuits, from 2007 to 2013 in two roles as a Director of Worldwide Sales as well as the business of manufacturing chargers and other components for electric vehicles, which he founded in 2010. Current Ways, Inc. is not an affiliateDirector of the Company. SinceHigh Reliability Business Unit. Mr. Robinette started his career from 1991 Mr. Gevarges has also been a Director and the Chief Executive Officer of LHV Power Corporation (formerly knownto 2007 at Tyco Electronics Ltd. (known today as HiTek Power, Corp) (“LHV Power”TE Connectivity Ltd.), a California company locatedpassive electronics manufacturer, in Santee, California which is engaged in the business of designing, manufacturingvarious sales, sales leadership and marketing of power supply systems.product development leadership roles. Mr. Gevarges is the sole owner of LHV Power. LHV Power is not an affiliate of the Company. Mr. Gevarges’ primary responsibilities at LHV Power are to manage the company and business as Chief Executive Officer and President. AsRobinette received a result of Mr. Gevarges’ management and industry experience he is a power supply industry expert and brings an enormous amount of manufacturing and successful company management experience to the Company. Mr. Gevarges has a Bachelor’sBachelor of Science degree in electrical engineeringBusiness Administration, Marketing from LouisianaSan Diego State University. Based on the above qualifications, the Company believes Mr. Robinette is qualified to be on the Board.
John A. Cosentino, Jr., Director. Mr. Cosentino was appointed to our Board on May 7, 2020. Mr. Cosentino has been a director of Sturm, Ruger & Company, Inc. (NYSE: RGR), a firearm manufacturing company listed on the NYSE, since 2005 to the present, a partner of Ironwood Manufacturing Fund, LP, a private equity fund, since 2002, a director of Simonds International, Inc., a cutting tools manufacturer, since 2001, the Chairman of the Board of Habco Industries LLC, an aerospace equipment and services supplier, since 2012, and Senior Advisor of Ironwood Capital Holdings LLC, a private equity firm, since 2012. He was a director of Addaero LLC, Whitcraft LLC, Bilco Company, Chairman of North American Specialty Glass LLC, Vice-Chairman of Primary Steel LLC, and a director of the Wiremold Company. Mr. Cosentino was a partner of Capital Resource Partners, LP, a private capital firm, from 1999 to 2000, and served as a director in a number of its portfolio companies. Mr. Cosentino was the Vice President-Operations of the Stanley Works (NYSE:SWK), President and Co-owner of PCI Group, Inc., CEO and Co-owner of Rau Fastener, LLC, President of the Otis Elevator-North America division of United Technologies Corporation (NYSE:UTX), and Group Executive of the Danaher Corporation (NYSE:DHR). Mr. Cosentino received an undergraduate degree from Harvard University and an MBA from the University of Pennsylvania. The Board believes that Mr. Cosentino’s extensive executive management, investment management and board experience qualify him to serve on the Board of Directors.
Involvement in Certain Legal Proceedings
To the best of our knowledge, during the past ten years, none of our directors or executive officers were involved in any of the following: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Board Leadership Structure and Role in Risk Oversight
Our Board of Directors (“Board”) recognizes that one of its key responsibilities is to evaluate and determine its optimal leadership structure to provide independent oversight of management. Our Board is currently led by a Chairman of the Board who also serves as our Chief Executive Officer. The Board doesunderstands that the right Board leadership structure may vary depending on the circumstances, and our independent directors periodically assess these roles and the Board leadership to ensure the leadership structure best serves the interests of the Company and stockholders.
On September 10, 2021, the Board adopted the Lead Independent Director Guidelines (“Guidelines.). The Guidelines provide that when the positions of Chief Executive Officer and Chairman of the Board are combined or the Chairman is not havean independent director, the independent directors will appoint a policylead independent director to serve with the authority and responsibility described in these Guidelines, and as the Board and/or the independent directors may determine from time to time. The Guidelines are available on our website at www.fluxpower.com.
Mr. Dutt currently holds the Chairman and Chief Executive Officer roles. Mr. Robinette currently serves as the Lead Independent Director elected by the majority of the Board on September 10, 2021.
The responsibilities of the Lead Independent Director include, among others: (i) serving as primary intermediary between non-employee directors and management; (ii) working with the Chairman of the Board to approve the agenda and meeting schedules for the Board; (iii) working with the Chairman of the Board as to whether the quality, quantity and timeliness of the information provided to directors; (iv) in consultation with the Nominating and Governance Committee, reviewing and reporting on the results of the Board and Committee performance self-evaluations; (v) calling additional meetings of independent directors; and (vi) serving as liaison for consultation and communication with stockholders.
We believe the current leadership structure, with combined Chairman and Chief Executive Officer roles and a Lead Independent Director, best serves the Company and its stockholders at this time. Mr. Robinette possesses understanding and knowledge of the business and affairs of the Company and has the ability to devote a substantial amount of time to serve in this capacity. In addition, we believe having one leader serving as both the Chairman and Chief Executive Officer provides decisive, consistent and effective leadership, as well as clear accountability to our stockholders and customers. This enhances our ability to communicate our message and strategy clearly and consistently to our stockholders, employees, customers and suppliers. The Board believes the appointment of a strong Lead Independent Director and the use of regular executive sessions of the non-management directors, along with a majority the Board being composed of independent directors, allow it to maintain effective oversight of management. We believe that the combination of the Chairman and Chief Executive Officer roles is appropriate in the current circumstances and, based on the relevant facts and circumstances, separation of these offices would not serve our best interests and the best interests of our chairmanstockholders at this time.
In addition, our Board as a whole has responsibility for risk oversight. Our Board exercises this risk oversight responsibility directly and chief executive officer should be separate. Instead,through its committees. The risk oversight responsibility of our Board and its committees is informed by reports from our management teams to provide visibility to our Board about the identification, assessment and management of key risks, and our management’s risk mitigation strategies. Our Board makes this determination basedhas primary responsibility for evaluating strategic and operational risk, including related to significant transactions. Our audit committee has primary responsibility for overseeing our major financial and accounting risk exposures, and, among other things, discusses guidelines and policies with respect to assessing and managing risk with management and our independent auditor. Our compensation committee has responsibility for evaluating risks arising from our compensation and people policies and practices. Our nominating and corporate governance committee has responsibility for evaluating risks relating to our corporate governance practices. Our committees and management provide reports to our Board on what best serves our Company’s needs at any given time.
In its governance role, and particularly in exercising its duty of care and diligence, theour Board is responsible for ensuring that appropriate risk management policies and procedures are in place to protect the company’sCompany’s assets and business. Our Board has broad and ultimate oversight responsibility for our risk management processes and programs and executive management is responsible for the day-to-day evaluation and management of risks to the Company.
Board Composition, Committees and Independence
Under the rules of NASDAQ, “independent” directors must make up a majority of a listed company’s Board of Directors serves the functionDirectors. In addition, applicable NASDAQ rules require that, subject to specified exceptions, each member of thea listed company’s audit committee. The Board of Directors intends to establish an audit committee in the future.
Our Board has undertaken a review of the Securities Exchange Actindependence of 1934,each director and considered whether any director has a material relationship with us that could compromise the director’s ability to exercise independent judgment in carrying out his or her responsibilities. As a result of this review, our Board determined that Ms. Walters-Hoffert, Mr. Cosentino and Mr. Robinette are independent directors as amended (the “Exchange Act”)defined in the listing standards of NASDAQ and SEC rules and regulations. A majority of our directors are independent, as required under applicable NASDAQ rules. As required under applicable NASDAQ rules, our independent directors will meet in regularly scheduled executive sessions at which only independent directors are present.
Board Committees
Our Board has established an Audit Committee, a Compensation Committee, and a Nominating and Governance Committee. The composition and responsibilities of each of the committees is described below.
Audit Committee
Audit Committee. Instead, our entireThe Audit Committee of the Board of Directors acts ascurrently consists of three independent directors of which at least one, the audit committee within the meaning of Section 3(a)(58)(B)Chairman of the Exchange Act. In addition,Audit Committee, qualifies as a qualified financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Ms. Walters-Hoffert is the Chairperson of the Audit Committee and financial expert, and Mr. Robinette and Mr. Cosentino are the other directors who are members of the Audit Committee. The Audit Committee’s duties are to recommend to our Board of Directors has not madethe engagement of the independent registered public accounting firm to audit our consolidated financial statements and to review our accounting and auditing principles. The Audit Committee reviews the scope, timing and fees for the annual audit and the results of audit examinations performed by any internal auditors and independent public accountants, including their recommendations to improve the system of accounting and internal controls. The Audit Committee will at all times be composed exclusively of directors who are, in the opinion of our Board of Directors, free from any relationship that would interfere with the exercise of independent judgment as a determination ascommittee member and who possess an understanding of consolidated financial statements and generally accepted accounting principles. Our Audit Committee operates under a written charter, which is available on our website at www.fluxpower.com.
Compensation Committee
Compensation Committee. The Compensation Committee establishes our executive compensation policy, determines the salary and bonuses of our executive officers and recommends to whetherthe Board stock option grants or other incentive equity awards for our executive officers. Mr. Robinette is the Chairperson of the Compensation Committee, and Ms. Walters-Hoffert and Mr. Cosentino are members of the Compensation Committee. Each of the members of our Compensation Committee are independent under NASDAQ’s independence standards for compensation committee members. Our chief executive officer often makes recommendations to the Compensation Committee and the Board concerning compensation of other executive officers. The Compensation Committee seeks input on certain compensation policies from the chief executive officer. Our Compensation Committee operates under a directorwritten charter, which is available on our website at www.fluxpower.com.
Nominating and Governance Committee
Nominating and Governance Committee. The Nominating and Governance Committee is responsible for matters relating to the corporate governance of our Company and the nomination of members of the Board and committees of the Board. Mr. Cosentino is Chairperson of the Nominating and Governance Committee, and Ms. Walters-Hoffert and Mr. Robinette are members. Each of the members of our Nominating and Governance Committee is independent under NASDAQ’s independence standards. The Nominating and Governance Committee operates under a written charter, which is available on our website at www.fluxpower.com.
We seek directors with established strong professional reputations and experience in areas relevant to the strategy and operations of our business. We seek directors who possess the qualities of integrity and candor, who have strong analytical skills and who are willing to engage management and each other in a constructive and collaborative fashion. We also seek directors who have the ability and commitment to devote significant time and energy to serve on the Board meetsand its committees. We believe that all of our directors meet the definitionforegoing qualifications. We do not have a formal policy with respect to diversity.
Code of an “audit committee financial expert” within the meaning of Item 407(d)(5) of Regulation S-K. We continue to seek candidates for outside directors and for a financial expert to serve on a separate audit committee when we establish one.
Our Board has adopted a Code of Business Conduct and Ethics (the “Code”) that applies to all of our directors, officers, and employees. Any waivers of any provision of this Code for our seniordirectors or officers may be granted only by the Board or a committee appointed by the Board. Any waivers of any provisions of this Code for an employee or a representative may be granted only by our chief executive officers.
Indemnification Agreements
We executed a standard form of indemnification agreement (“Indemnification Agreement”) with each of our Board members and executive officers (each, an “Indemnitee”).
Pursuant to and subject to the terms, conditions and limitations set forth in the Indemnification Agreement, we agreed to indemnify each Indemnitee, against any and all expenses incurred in connection with the Indemnitee’s service as our officer, director and or agent, or is or was serving at our request as a director, officer, employee, agent or advisor of another corporation, partnership, joint venture, trust, limited liability company, or other entity or enterprise but only if the Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to our best interest, and in the case of a criminal proceeding, had no reasonable cause to believe that his conduct was unlawful. In addition, the indemnification provided in the indemnification agreement is applicable whether or not negligence or gross negligence of the Indemnitee is alleged or proven. Additionally, the Indemnification Agreement establishes processes and procedures for indemnification claims, advancement of expenses and costs and contribution obligations.
Delinquent Section 16 of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities, to file with the Securities and Exchange Commission (hereinafter referred to as the “Commission”)SEC initial statements of beneficial ownership, reports of changes in ownership and Annual Reports concerning their ownership, of Common Stock and other of our equity securities on Forms 3, 4, and 5, respectively. Executive officers, directors and greater than 10% stockholders are required by CommissionSEC regulations to furnish us with copies of all Section 16(a) reports they file. Based solely on information available to us in public filings,our review of Forms 3, 4 and 5 and amendments thereto filed electronically with the SEC during the most recent fiscal year, we believe that all reports required by Section 16(a) for transactions in the fiscal year ended June 30, 2018,2021, were timely filed except as follows:
Compensation for our Named Executive Officers
The following table sets forth information concerning all forms of compensation earned by our named executive officers during the fiscal years ended June 30, 2018Fiscal 2021 and 2017Fiscal 2020 for services provided to the Company and its subsidiaries.
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($)(1) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) | Total ($) | |
| Ronald F. Dutt, Chief Executive | 2018 | $170,000 | $- | $- | $677,538 | $- | $- | $847,538 | |
| Officer, President, Chief Financial Officer, Director and Corporate Secretary | 2017 | $170,000 | $- | $- | $- | $- | $- | $170,000 | |
Jonathan Berry, Chief Operating Officer(2) | 2018 | $145,000 | $- | $- | $541,741 | $- | $- | 686,741 | |
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards(1) ($) | Option Awards(2) ($) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||||||||||
| Ronald F. Dutt, Chief Executive | 2021 | $ | 242,288 | $ | 133,525 | $ | 234,681 | $ | - | $ | - | $ | - | $ | 610,494 | |||||||||||||||||
| Officer, President, and Chairman | 2020 | $ | 195,000 | $ | 34,047 | $ | - | $ | - | $ | - | $ | - | $ | 229,047 | |||||||||||||||||
| Charles A. Scheiwe | 2021 | $ | 187,635 | $ | 77,055 | $ | 124,853 | $ | - | $ | - | $ | - | $ | 389,543 | |||||||||||||||||
| Chief Financial Officer and Corporate Secretary | 2020 | $ | 155,000 | $ | 27,063 | $ | - | $ | - | $ | - | $ | - | $ | 182,063 | |||||||||||||||||
| Jonathan Berry, Chief Operating Officer | 2021 | $ | 188,077 | $ | 77,055 | $ | 124,853 | $ | - | $ | - | $ | - | $ | 389,985 | |||||||||||||||||
| 2020 | $ | 160,000 | $ | 27,936 | $ | - | $ | - | $ | - | $ | - | $ | 187,936 | ||||||||||||||||||
| (1) | Represent the fair value of the RSUs granted on grant date. |
| (2) | The grant date fair value was determined in accordance with the provisions of FASB ASC Topic No. 718 using the Black-Scholes valuation model with assumptions described in more detail in the notes to our audited financial statements included in this report. |
Benefit Plans
We do not have any profit sharing plan or similar plans for the benefit of our officers, directors or employees. However, we may establish such plan in the future.
Equity Compensation Plan Information
In connection with the reverse acquisition of Flux Power, IncInc. in 2012, we assumed the 2010 Option Plan. As of June 30, 2018,2021, the number of options outstanding to purchase common stock under the 2010 Option Plan was 379,000.22,536. No additional options to purchase common stock may be granted under the 2010 Option Plan.
On November 26, 2014,February 17, 2015, our board of directorsshareholders approved our 2014 Equity Incentive Plan (the “2014(“2014 Option Plan”), which was approved by our shareholdersamended on February 17, 2015.July 23, 2018 and on November 5, 2020. The 2014 Option Plan was amended by our boardauthorizes the issuance of directors on October 26, 2017 and approved by our shareholders on July 23, 2018. The 2014 Option Plan offers selected employees, directors, and consultants the opportunity to acquire our common stock, and serves to encourage such persons to remain employed by us and to attract new employees. The 2014 Option Plan allowsawards for the award of stock and options, up to 10,000,0001,000,000 shares of our common stock.stock in the form of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock units, restricted stock awards and unrestricted stock awards to officers, directors and employees of, and consultants and advisors to, the Company or its affiliates. No options were granted during Fiscal 2021. We granted 438,000 incentive153,177 restricted stock optionsunits under the 2014 Option Plan during Fiscal 20162020.
On April 29, 2021, at the Company’s annual stockholders meeting, the 2021 Equity Incentive Plan (the “2021 Plan”) was approved by our stockholders. The 2021 Plan authorizes the issuance of which 320,000 remain outstanding at June 30, 2018. No options were granted during Fiscal 2017. We granted 2,118,000awards for up to 2,000,000 shares of our common stock in the form of incentive stock options, and 807,000 non-qualifiednon-statutory stock options, stock appreciation rights, restricted stock units, restricted stock awards and unrestricted stock awards to officers, directors and employees of, and consultants and advisors to, the Company or its affiliates. No awards were granted under the 2021 Plan during Fiscal 2021.”
As of June 30, 2021, we had 490,323 options exercisable and 531,205 options outstanding, under the 2014 Option Plan during Fiscal 2018.
The following table sets forth certain information concerning unexercised options, stock that has not vested, and equity compensation plan awards outstanding as of June 30, 20182021 for the named executive officers below:
Option Awards(1) | Stock Awards | ||||||||||
Name | Award Grant Date | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | |
| Ronald Dutt | 6/29/2018 | - | 500,000 | 500,000 | 1.44 | 6/29/2028 | - | $- | - | $- | |
| 10/26/2017 | 187,500 | 312,500 | 312,500 | 0.46 | 10/26/2027 | - | $- | - | $- | ||
| 12/22/2015 | 166,250 | 23,750 | 23,750 | 0.50 | 12/22/2025 | - | $- | - | $- | ||
| | |||||||||||
| 7/30/2013 | 175,000 | - | - | 1.0 | 7/29/2023 | - | $- | - | $- | ||
| Jonathan Berry | 6/29/2018 | - | 455,106 | 455,106 | 1.44 | 6/29/2028 | - | $- | - | $- | |
| 10/26/2017 | 84,375 | 140,625 | 140,625 | 0.46 | 10/26/2027 | - | $- | - | $- | ||
| Option Awards (1) | Stock Awards | |||||||||||||||||||||||||||||||||||||||
| Name | Award Grant Date | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | Equity Incentive Plan: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | ||||||||||||||||||||||||||||||
| Ronald Dutt | 3/15/2019 | 40,625 | 9,375 | 9,375 | $ | 13.60 | 3/15/2029 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||
| 7/25/2018 | 33,527 | - | - | 19.80 | 7/25/2028 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||
| 6/29/2018 | 50,000 | - | - | 14.40 | 6/29/2028 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||
| 10/26/2017 | 50,000 | - | - | 4.60 | 10/26/2027 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||
| 12/22/2015 | 19,000 | - | - | 5.00 | 12/22/2025 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||
| 7/30/2013 | 17,500 | - | - | 10.00 | 7/29/2023 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||
| 11/12/2020 | - | - | - | - | 11/11/2030 | 6,607 | $ | 58,670 | 6,607 | $ | 58,670 | |||||||||||||||||||||||||||||
| 11/12/2020 | - | - | - | - | 11/11/2030 | 6,607 | $ | 58,670 | 6,607 | $ | 58,670 | |||||||||||||||||||||||||||||
| 11/12/2020 | - | - | - | - | 11/11/2030 | 13,214 | $ | 117,340 | 13,214 | $ | 117,340 | |||||||||||||||||||||||||||||
| Charles Scheiwe | 3/15/2019 | 24,375 | 5,625 | 5,625 | 13.60 | 3/15/2029 | - | $ | - | - | $ | - | ||||||||||||||||||||||||||||
| 11/12/2020 | - | - | - | - | 11/11/2030 | 3,515 | $ | 31,213 | 3,515 | $ | 31,213 | |||||||||||||||||||||||||||||
| 11/12/2020 | - | - | - | - | 11/11/2030 | 3,515 | $ | 31,213 | 3,515 | $ | 31,213 | |||||||||||||||||||||||||||||
| 11/12/2020 | - | - | - | - | 11/11/2030 | 7,030 | $ | 62,426 | 7,030 | $ | 62,426 | |||||||||||||||||||||||||||||
| Jonathan Berry | 3/15/2019 | 24,375 | 5,625 | 5,625 | 13.60 | 3/15/2029 | - | $ | - | - | $ | - | ||||||||||||||||||||||||||||
| 6/29/2018 | 45,500 | - | - | 14.40 | 6/29/2028 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||
| 10/26/2017 | 22,500 | - | - | 4.60 | 10/26/2027 | - | $ | - | - | $ | - | |||||||||||||||||||||||||||||
| 11/12/2020 | - | - | - | - | 11/11/2030 | 3,515 | $ | 31,213 | 3,515 | $ | 31,213 | |||||||||||||||||||||||||||||
| 11/12/2020 | - | - | - | - | 11/11/2030 | 3,515 | $ | 31,213 | 3,515 | $ | 31,213 | |||||||||||||||||||||||||||||
| 11/12/2020 | - | - | - | - | 11/11/2030 | 7,030 | $ | 62,426 | 7,030 | $ | 62,426 | |||||||||||||||||||||||||||||
The fair value of each option grant is estimated at the date of grant using the Black-Scholes option pricing model. Expected volatility is calculated based on the historical volatility of the Company’s stock. The risk free interest rate is based on the U.S. Treasury yield for a term equal to the expected life of the options at the time of grant.
Aggregated Option/Stock Appreciation Right (“SAR”) exercised and Fiscal year-end Option/SAR value table
Neither our executive officers nor the other individuals listed in the tables above, exercised options or SARs during the last fiscal year.
Long-term incentive plans
No long term incentive awards were granted by us in the last fiscal year.
Employment Agreements with Executive Officers
On February 12, 2021, we entered into an Amended and Restated Employment Agreement with the Company’s president and chief executive officer, Ronald F. Dutt (the “Dutt Employment Agreement”), which amends and restates the Employment Agreement effective December 11, 2012, as amended (the “Prior Agreement”). In addition to the inclusion of terms relating to change in control, termination, severance, benefits and the acceleration of vesting of options and restricted stock units upon certain events, the Dutt Employment Agreement memorialized Mr. Dutt’s continued services as the president and chief executive officer of the Company and its wholly-owned subsidiary, Flux Power, Inc. (“Flux Power”), and the terms pursuant to which he would provide such services. Pursuant to the terms of the Dutt Employment Agreement, Mr. Dutt’s annual base salary is $250,000.
On February 12, 2021, we entered into an Employment Agreement with our currentthe Company’s chief executivefinancial officer, Ronald F. Dutt effective December 11, 2012.treasurer and secretary, Charles A. Scheiwe (the “Scheiwe Employment Agreement”). In addition to the inclusion of terms relating to change in control, termination, severance, benefits and the acceleration of vesting of options and restricted stock units upon certain events, the Employment Agreement memorialized Mr. Dutt is an “at-will” employeeScheiwe’s continued services as the chief financial officer and secretary of the Company, and as chief financial officer/treasurer and secretary of Flux Power Holdings, Inc. ThePower. Pursuant to the terms of the Scheiwe Employment Agreement, providesMr. Scheiwe’s annual base salary is $190,000.
On February 12, 2021, we entered into an Employment Agreement with its chief operating officer, Jonathan Berry (the “Berry Employment Agreement”). In addition to the inclusion of terms relating to change in control, termination, severance, benefits and the acceleration of vesting of options and restricted stock units upon certain events, the Berry Employment Agreement memorialized Mr. Berry’s continued services as the chief operating officer of Flux Power. Pursuant to the terms of the Berry Employment Agreement, Mr. Berry’s annual base salary is $190,000.
Under their respective employment agreement, Messrs. Dutt, Scheiwe and Berry, among other things, are (i) eligible for an annual salarytarget cash bonus and awards of $170,000.
2020 Gross Margin Bonus Plan
On December 4, 2019, the Board of Directors adopted a 2020 Gross Margin Plan (“GM Plan”) which provided its executives and key senior employees (“Key Executives”) with a cash bonus equal to 2% of base pay for every additional 1% profit margin achieved based on the increase gross profits for calendar year 2020 and to be paid in the first quarter of calendar year 2021. On August 4, 2020, the compensation committee amended the 2020 GM Plan to allow for the early payment of cash bonuses to Key Executives equal to 2% of base pay for every additional 1% profit margin achieved based on (1) the increase in profit margin first half of calendar year 2020, and (2) an adjustment to the bonuses to be paid in the first quarter of calendar year 2021 based on the profit margin achieved during the second half of calendar year 2020 (“Amended GM Plan”).
On August 7, 2020, the Company made cash bonus payments in the aggregate amount of $225,710 to certain Key Executives (the “Awards”) pursuant to the Amended GM Plan, which included payments of $34,047 to Mr. Dutt, $27,063 to Mr. Scheiwe, and $27,936 to Mr. Berry. The aggregate amount of such bonus payments was included in the accrued expenses in the accompanying balance sheet as of June 30, 2020. The Awards were calculated on the basis of increase in profit margins achieved during the first six (6) months of the calendar year 2020.
Annual Bonus Plan
On November 5, 2020, the Board approved an annual cash bonus plan (the “Annual Bonus Plan”) which allows the compensation committee and/or the Board of the Company to set the amount of bonus each fiscal year and the performance criteria. Executive officers and all employees (other than part-time employees and temporary employees) are eligible to participate in the Annual Bonus Plan (“Participants”) as long as the Chief Operating Officer. Participant remains an active regular employee of the Company. The Annual Bonus Plan is effective for Fiscal 2021 and each fiscal year thereafter (the “Plan Year”). For each Plan Year, the compensation committee will establish an aggregate amount of allocable Bonus under the Annual Bonus Plan and determine the performance goals applicable to a bonus during a Plan Year (the “Participation Criteria”). The Participation Criteria may differ from Participant to Participant and from bonus to bonus. The Participation Criteria for Fiscal 2021 is based on the Company achieving certain performance targets based on annual revenue, gross margin, operating expense and new business development. All of the Company’s executive officers are eligible to participate in the Annual Bonus Plan.
In connection with his appointmentaddition, on November 5, 2020, the Board approved an annual cash bonus plan (the “Annual Bonus Plan”) which allows the compensation committee and/or the Board of the Company to set the amount of bonus each fiscal year and the performance criteria. Executive officers and all employees (other than part-time employees and temporary employees) are eligible to participate in the Annual Bonus Plan (“Participants”) as long as the Participant remains an active regular employee of the Company. The Annual Bonus Plan is effective for fiscal year 2021 and each fiscal year thereafter (the “Plan Year”). For each Plan Year, the compensation committee will establish an aggregate amount of allocable Bonus under the Annual Bonus Plan and determine the performance goals applicable to a bonus during a Plan Year (the “Participation Criteria”). The Participation Criteria may differ from Participant to Participant and from bonus to bonus. The Participation Criteria for fiscal year 2021 is based on the Company achieving certain performance targets based on annual revenue, gross margin, operation expense and new business development. All of the Company’s Chief Operating Officer, Mr.executive officers are eligible to participate in the Annual Bonus Plan.
On November 5, 2020, the Board approved target cash bonuses under the Annual Bonus Plan for Fiscal 2021 (“2021 Bonus Grant”) to the following executive officers, which target bonus was calculated based on percentage of the executive’s current base salary:
| Name | Position | Current Base Salary | Percentage of Salary | Target Cash Bonus | ||||||||||
| Ronald F. Dutt | Chief Executive Officer | $ | 250,000 | 50 | % | $ | 125,000 | |||||||
| Charles Scheiwe | Chief Financial Officer | $ | 190,000 | 35 | % | $ | 66,500 | |||||||
| Jonathan Berry | Chief Operating Officer | $ | 190,000 | 35 | % | $ | 66,500 | |||||||
Under the 2021 Bonus Grant, the Company’s executives are eligible to receive cash incentive bonus payments based on the target cash bonus amount and on the achievement of financial targets and corporate objectives as follows:
| Achievements | Minimum | Target | Maximum | |||||||||
| Bonus payments based on Target Cash Bonus Amount | 70 | % | 100 | % | 150 | % | ||||||
On June 30, 2021, the Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of the Company amended the performance goals for the 2021 plan year (from July 1, 2020 through June 30, 2021) (the “2021 Plan Year”), under the Annual Cash Bonus Plan, which was previously approved by the Committee on November 5, 2020. The performance goals for the 2021 Plan Year were amended to the Company achieving certain performance targets measured by annual revenue, gross margin and new business development. The Committee made the equitable adjustment to better align the objectives and activities of the Company’s executives and employees with the goals of the Company during a very challenging 2021 Plan Year.
On June 30, 2021, the Committee approved an addendum to the Performance Restricted Stock Unit Award under the 2014 Equity Incentive Plan approved by the Committee on November 5, 2020 to provide clarification for the calculation of vesting
Amendment to 2014 Equity Incentive Plan
On November 5, 2020, the Board approved an amendment to the 2014 Option Plan as amended to include the right to grant Restricted Stock Units (“RSUs”). All of the Company’s executive officers are eligible to participate in the 2014 Option Plan.
Restricted Stock Unit Grants
On November 5, 2020, the Board approved the grant of RSUs under the 2014 Option Plan to certain employees of the Company. The RSUs are subject to the terms and conditions provided in (i) the form of Restricted Stock Unit Award Agreement which is time based (“Time Based Awards”), and (ii) the form of Performance Restricted Stock Unit Award Agreement which is performance based (“Performance Based Awards”). In addition, the Committee approved the grant of one-time retention based RSUs pursuant to the form of the Restricted Stock Unit Award Agreement (“Retention Awards”).
The following executive officers and key employees of the Company were granted RSUs under the 2014 Option Plan in the amounts and according to the vesting schedule indicated below:
Time Based Awards:
| Name | Position | No. of RSUs | Vesting Schedule | |||||
| Ronald F. Dutt | Chief Executive Officer | 6,607 | Three Years from Award’s grant date | |||||
| Charles Scheiwe | Chief Financial Officer | 3,515 | Three Years from Award’s grant date | |||||
| Jonathan Berry | Chief Operating Officer | 3,515 | Three Years from Award’s grant date | |||||
Performance Based Awards:
| Name | Position | No. of RSUs Maximum | Vesting Schedule | |||||
| Ronald F. Dutt | Chief Executive Officer | 9,910 | Vest in installments of up to one-third annually based on target performance goals | |||||
| Charles Scheiwe | Chief Financial Officer | 5,272 | Vest in installments of up to one-third annually based on target performance goals | |||||
| Jonathan Berry | Chief Operating Officer | 5,272 | Vest in installments of up to one-third annually based on target performance goals | |||||
Retention Awards:
| Name | Position | No. of RSUs | Vesting Schedule | |||||
| Ronald F. Dutt | Chief Executive Officer | 13,214 | Four Years from Award’s grant date | |||||
| Charles Scheiwe | Chief Financial Officer | 7,030 | Four Years from Award’s grant date | |||||
| Jonathan Berry | Chief Operating Officer | 7,030 | Four Years from Award’s grant date | |||||
Incentive Plans
Management, the Committee and the Board will continue to explore and evaluate different long-term and short-term incentives to help attract, retain and motivate our employees to align their interest to our business and financial success through the use of equity award and cash bonuses.
Compensation of Non-Executive Directors
In December 2019, our Board approved non-executive director compensation packages as recommended by the Committee. Below are the compensation packages for non-executive directors approved by the Board for 2020 calendar year:
Independent Non-Executive Director | Position | Base Retainer | Chair Fee | Committee Member | Stock Options | Total Comp | ||||||||||||||||||
| Lisa Walters-Hoffert | X | Audit Chair | $ | 35,000 | $ | 15,000 | $ | 8,750 | $ | 35,000 | $ | 93,750 | ||||||||||||
| Dale Robinette | X | Compensation Chair | $ | 35,000 | $ | 10,000 | $ | 11,250 | $ | 35,000 | $ | 91,250 | ||||||||||||
| John A. Cosentino Jr. | X | Governance Chair | $ | 35,000 | $ | 7,500 | $ | 12,500 | $ | 35,000 | $ | 90,000 | ||||||||||||
| Michael Johnson | Board Member | $ | 35,000 | $ | - | $ | - | $ | 35,000 | $ | 70,000 | |||||||||||||
In December 2020, pursuant to the recommendation and advice of the Committee, the Board approved the annual compensation package for non-executive directors of the Company for calendar year 2021 as follows:
Independent Non-Executive Director | Position | Base Retainer | Chair Fee | Committee Member | Total Comp | |||||||||||||||
| Lisa Walters-Hoffert | X | Audit Chair | $ | 50,000 | $ | 7,500 | $ | - | $ | 57,500 | ||||||||||
| Dale Robinette | X | Compensation Chair | $ | 50,000 | $ | 5,000 | $ | - | $ | 55,000 | ||||||||||
| John A. Cosentino Jr. | X | Governance Chair | $ | 50,000 | $ | 5,000 | $ | - | $ | 55,000 | ||||||||||
| Michael Johnson | Board Member | $ | 50,000 | $ | - | $ | - | $ | 50,000 | |||||||||||
Restricted Stock Units
In addition, our directors are eligible to receive an annual base salaryequity grant of $145,000.RSUs, which terms are determined at the time of grant.
Director Compensation
Director Compensation Table
Below is summary of compensation accrued or paid to our non-executive directors during Fiscal 2021 and Fiscal 2020. Mr. BerryDutt, our chief executive officer and president, received no compensation for his service as a director and is not included in the table. The compensation Mr. Dutt receives as an “at-will” employee of Flux Power Holdings, Inc.
| Name | Year | Fees Earned or Paid in Cash ($) | Stock Awards(2) ($) | Option Awards(3) ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||||
| Lisa Walters-Hoffert | 2021 | $ | 58,125 | 50,000 | $ | - | - | $ | 108,125 | |||||||||||||||
| 2020 | 29,375 | - | 28,287 | - | 57,662 | |||||||||||||||||||
| Dale Robinette | 2021 | $ | 55,625 | 50,000 | $ | - | - | $ | 105,625 | |||||||||||||||
| 2020 | 28,125 | - | 28,287 | - | 56,412 | |||||||||||||||||||
| John A. Cosentino Jr. | 2021 | $ | 55,000 | 50,000 | $ | - | - | $ | 105,000 | |||||||||||||||
| 2020 | 13,750 | - | 23,095 | - | 36,845 | |||||||||||||||||||
| Michael Johnson | 2021 | $ | 42,500 | 50,000 | $ | - | - | $ | 92,500 | |||||||||||||||
| 2020 | 17,500 | - | 28,287 | - | 45,787 | |||||||||||||||||||
| James Gevarges (1) | 2020 | $ | 13,750 | - | $ | 28,287 | - | $ | 42,037 | |||||||||||||||
| (1) | Mr. Gevarges resigned as our director on May 6, 2020. |
| (2) | Represent the fair value of the RSUs granted using the volume weighted average price of the ten days of trading prior to grant date. |
| (3) | The amounts shown in this column represent the full grant date fair value of the award granted, excluding any as computed in accordance with Financial Accounting Standards Board (“FASB”). |
The following table shows the aggregate number of stock options held by non-employee directors as of June 30, 20182021 and 2017.
| Name | Year | Vested Stock Options | ||||||
| Lisa Walters-Hoffert | 2021 | 2,467 | ||||||
| 2020 | 493 | |||||||
| Dale Robinette | 2021 | 2,467 | ||||||
| 2020 | 493 | |||||||
| John A. Cosentino Jr. | 2021 | 1,740 | ||||||
| 2020 | - | |||||||
| Michael Johnson | 2021 | 10,904 | ||||||
| 2020 | 8,180 | |||||||
| James Gevarges(1) | 2020 | 6,761 | ||||||
| (1) | Mr. Gevarges resigned as our director on May 6, 2020. |
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
BENEFICIAL OWNERSHIP
Security Ownership of Principal Stockholders and Management
As used in this section, the term beneficial ownership with respect to a security is defined by Rule 13d-3 under the Securities Exchange Act, of 1934, as amended, as consisting of sole or shared voting power (including the power to vote or direct the vote) and/or sole or shared investment power (including the power to dispose of or direct the disposition of) with respect to the security through any contract, arrangement, understanding, relationship or otherwise, subject to community property laws where applicable. As of September 26, 201810 , 2021, we had a total of 31,072,81513,844,642 shares of common stock issued and outstanding.
The following table sets forth, as of September 26, 2018,10, 2021, information concerning the beneficial ownership of shares of our common stock held by our directors, our named executive officers, our directors and executive officers as a group, and each person known by us to be a beneficial owner of more than 5%five percent (5%) of our outstanding common stock. Unless otherwise indicated, the business address of each of our directors, executive officers and beneficial owners of more than 5%five percent (5%) of our outstanding common stock is c/o Flux Power Holdings, Inc., 985 Poinsettia Avenue, Suite A,2685 S. Melrose Drive, Vista, California 92081. Each person has sole voting and investment power with respect to the shares of our common stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated. The amount of beneficial ownership set forth below has been adjusted to reflect the Reverse Stock Split.
| Name and Address of Beneficial Owner (1) | Shares Beneficially Owned | % of Ownership | ||||||
| Officers and Directors | ||||||||
| Michael Johnson, Director | 4,498,033 | (2) | 32.5 | % | ||||
| Ronald Dutt, Chief Executive Officer, President, and Director | 237,640 | (3) | 1.7 | % | ||||
| Charles A Scheiwe, Chief Financial Officer and Secretary | 32,422 | (4) | * | |||||
| Jonathan A. Berry, Chief Operating Officer | 97,308 | (5) | * | |||||
| John A. Cosentino, Director | 65,280 | (6) | * | |||||
| Lisa Walters-Hoffert, Director | 3,454 | (7) | * | |||||
| Dale Robinette, Director | 3,454 | (8) | * | |||||
| All Officers and Directors as a group (7 people) | 4,937,591 | 34.8 | % | |||||
| 5% Stockholders | ||||||||
| Cleveland Capital Management L.L.C. 1250 Linda Street, Suite 304 Rocky River, OH 44116 | 842,529 | (9) | 6.0 | % | ||||
| Invesco Ltd. 1555 Peachtree Street NE, Suite 1800 Atlanta, GA 30309 | 856,486 | (10) | 6.2 | % | ||||
Name and Address of Beneficial Owner (1) | Shares Beneficially Owned | % of Ownership |
| Officers and Directors | ||
| Michael Johnson, Director | 31,218,003(2) | 67.45% |
| Ron Dutt, Chief Executive Officer, President, Interim Chief Financial Officer and Director | 669,725(3) | 2.11% |
| Jonathan A. Berry, Chief Operating Officer | 98,438(4) | * |
| Christopher Anthony, Director | 926,882(5) | 2.98% |
| James Gevarges, Director | 665,488(6) | 2.14% |
| All Officers and Directors as a group (6 people) | 47,169,241 | 71.19% |
| 5% Stockholders | ||
Cleveland Capital, L.P. 1250 Linda Street, Suite 304 Rocky River, OH 44116 | 1,800,000(7) | 5.8% |
* Represents less than 1% of shares outstanding.
| (1) | All addresses above are 2685 S. Melrose Drive, Vista, California 92081, unless otherwise stated. |
| (2) | Includes 4,485,954 shares of common stock held by Esenjay Investments, LLC, of which Mr. Johnson is the sole director and beneficial owner, and (ii) 12,079 shares of common stock issuable to Mr. Johnson upon exercise of stock options. |
| (3) | Includes 21,660 shares of common stock and 215,980 shares of common stock issuable upon exercise of stock options and settlement of vested RSUs. |
| (4) | Includes 5,000 shares of common stock and 27,422 shares of common stock issuable upon exercise of stock options and settlement of vested RSUs. |
| (5) | Includes 1,875 shares of common stock and 95,433 shares of common stock issuable upon exercise of stock options and settlement of vested RSUs. |
| (6) | Includes 62,670 shares of common stock and 2,610 shares of common stock issuable upon exercise of stock options. |
| (7) | Includes 3,454 shares of common stock issuable upon exercise of stock options. |
| (8) | Includes 3,454 shares of common stock issuable upon exercise of stock options. |
| (9) | Based on Amendment No. 4 to Schedule 13G filed jointly by Cleveland, Wade Massad and Cleveland Capital Management, L.L.C. with the SEC on February 16, 2021. Reflects 842,529 shares of common stock beneficially owned by certain private funds managed by Cleveland Capital Management, L.L.C., or by its principals. |
| (10) | Based on Schedule 13G filed by Invesco Ltd. on February 16, 2021, Invesco Capital Management LLC is a subsidiary of Invesco Ltd. and it advises the Invesco WilderHill Clean Energy ETF which owns the common stock. However, no one individual has greater than 5% economic ownership. The stockholders of the fund have the right to receive or the power to direct the receipt of dividends and proceeds from the sale of securities. |
* Represents less than 1% of shares of Common Stock.
| 41 |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following includes a summary of certain relationships and Conversion into Common Stock
Pursuant to the Unrestricted LineAudit Committee’s written charter, our Audit Committee has the responsibility to review, approve and oversee transactions between the Company and any related person (as defined in Item 404 of Credit (“Second Amendment”), with Esenjay which modified certain termsRegulation S-K) and any potential conflict of the Unrestricted Line of Credit resulting in approximately $310,000 of debt issuance costs, and accordingly, was amortized over the remaining seven-month term through July 30, 2016, at which time it was fully amortized. During the year ended June 30, 2017 we recorded approximately $44,000 of deferred financing amortization costs, which is included in interest expense in the accompanying consolidated statements of operations.
2020 Private Placement
From April 2020 to July 2020, pursuant to private placement offerings, we sold and issued an aggregate of Credit as of June 30, 2018 was $7,975,000, convertible into 13,291,6671,141,250 shares of common stock, resultingat $4.00 per share, for an aggregate purchase price of $4,565,000 in a remaining $2,025,000 available for future draws under this agreement, subjectcash to lender’s approval. During the years ended June 30, 2018twenty-seven (27) accredited investors. Esenjay, our major stockholder and 2017, the Company recorded approximately $587,000 and $162,000, respectively of interest expensean entity controlled by our director, Mr. Johnson, participated in the accompanying consolidated statementsoffering in the amount of operations related to$300,000. In addition, Mr. Cosentino, one of our directors, also participated in the Unrestricted Lineoffering in the amount of Credit.
Credit Facility Agreement
On March 22, 2018, Flux Powerwe entered into a credit facility agreement with Esenjay with a maximum borrowing amount of $5,000,000. Proceeds from$5,000,000 (the “Original Credit Facility Agreement”). The Original Credit Facility Agreement and secured notes issued (the “LOC Notes”) to the lenders (the “Lenders”) in connection with the credit facility arewas subsequently amended and restated multiple times to allow for, among other things, an increase in the maximum principal amount available under line of credit (“LOC”) to $12,000,000, additional lenders (including Cleveland Capital, L.P., or Cleveland) and extensions of the maturity date to September 30, 2021. Advances and obligations under the LOC were secured by a security interest in collateral of the Company. As an inducement to the Lenders for entering into amended notes, on December 31, 2019, we granted the Lenders the right to convert, in whole or in parts, all of the outstanding principal amount and accrued and unpaid interest into shares of common stock, $0.001 par value, at the conversion price equal to the purchase price at the next financing of at least $1,000,000 on or after December 31, 2019. As of June 30, 2019, there was $6,405,00 outstanding under the LOC consisting of advances of $2,405,000 by Esenjay, $2,000,000 by Cleveland, and the balance of $2,000,000 by other Lenders.
In connection with our private placement of up to 2,000,000 shares of our common stock, par value $0.001 to accredited investors for an aggregate amount of up to approximately $8,000,000, or $4.00 per share of common stock (the “Offering”), we completed an initial closing of the Offering on June 30, 2020. As a result of the initial closing of the Offering, the conversion price under their respective LOC Notes became fixed at $4.00 per share, which was the price per share of common stock sold under the Offering. On June 30, 2020, Esenjay converted $4,400,000 of its LOC Note, which consisted of principal plus accrued interest, into 1,100,000 shares of common stock at $4.00 per share (“Conversion”). On June 26, 2020, Esenjay partially assigned $1,350,000 of its LOC Note to certain creditors of Esenjay as settlement of obligations owed by Esenjay to such creditors. As of June 30, 2020, there was approximately $5,290,000 in principal outstanding under the LOC, consisting of advances of $984,000 by Esenjay, $1,720,000 by Cleveland, and $2,586,000 by other Lenders. In August 2020, we made a payment of $1,000,000 to some of our lenders, including $600,000 to Esenjay, as partial repayment of outstanding principal under the LOC Notes.
On August 31, 2020, we entered into a certain Third Amended and Restated Credit Facility Agreement (“Third Amended and Restated Credit Facility Agreement”) to (i) extend the maturity date from December 31, 2020 to September 30, 2021, and (ii) to include outstanding obligations for an aggregate amount of approximately $564,000, consisting of $500,000 in principal and approximately $64,000 in accrued interest, under the Esenjay Note, into the LOC (“Notes Consolidation”). As of August 31, 2020, after the Notes Consolidation there was approximately $4,396,000 in principal outstanding.
In November 2020 and January 2021, six (6) note holders holding an aggregate of approximately $3,749,000 in principal and accrued interest outstanding under the LOC elected to convert their Notes into 937,317 shares of common stock, which included conversion of approximately $1,824,000 into 456,074 shares of common stock by Cleveland. As of March 1, 2021, there was approximately $884,000 in principal outstanding under Esenjay’s LOC Note, and $11,116,000 available for draw under the LOC. The Esenjay’s LOC Note had an interest rate of 15% per annum and a maturity date of September 30, 2021.
To secure the obligations under the LOC Notes, we entered into an Amended and Restated Security Agreement dated March 28, 2019 with the Lenders (the “Amended Security Agreement”). The Amended Security Agreement amended and restated the Guaranty and Security Agreement dated March 22, 2018, by and between the Company and Esenjay, to among other things, amend such agreement to include Cleveland and the other Lenders as additional secured parties to the Amended Security Agreement and appoint Esenjay as collateral agent.
On June 10, 2021, the Third Amended and Restated Credit Facility Agreement and the related Second Amended and Restated Security Agreement dated August 31, 2020 by and among the Company and the Lenders (the “Security Agreement”) were terminated.
Cleveland Loan
On July 3, 2019, we entered into a loan agreement with Cleveland for $1,000,000 (the “Cleveland Loan”). In connection with the Cleveland Loan, on July 3, 2019, we issued Cleveland an unsecured short-term promissory note in the amount of $1,000,000, bearing an interest rate of 15% (the “Unsecured Promissory Note”). In connection with the Cleveland Loan, we issued Cleveland a three-year warrant (the “Cleveland Warrant”) to purchase common stock in a number equal to 0.5% of the number of shares of common stock outstanding after giving effect to the total number of shares of common stock to be usedsold in a contemplated public offering and with an exercise price equal to purchase inventorythe per share public offering price.
On September 1, 2019, we entered into the First Amendment to the Unsecured Promissory Note pursuant to which the maturity date of the Unsecured Promissory Note was modified from September 1, 2019 to December 1, 2019 (the “First Amendment”). In connection with the First Amendment, we replaced the Cleveland Warrant with the Amended and related operational expensesRestated Warrant Certificate (the “Amended Warrant”). The Amended Warrant increased the warrant coverage from 0.5% to 1% of the number of shares of common stock outstanding after giving effect to the total number of shares of common stock sold in the next private or public offering. In addition, the exercise price was also changed to equal the per share price of common stock sold in such offering.
Subsequent to December 2019, we entered into seven (7) amendments pursuant to which the maturity date was extended from time to time (with the final amendment reflecting a maturity date of August 31, 2020), and accrueall accrued and unpaid interest atas of the time of the respective amendment was capitalized to the principal amount. As of June 30, 2020, there was $1,157,000 in principal outstanding under the Cleveland Note. On August 19, 2020, we paid Cleveland the entire remaining principal balance due under the Cleveland Loan, together with all accrued interest payable as of August 19, 2020, in an aggregate amount of approximately $978,000.
Esenjay Loan
On March 9, 2020, we entered into a convertible promissory note with Esenjay (“Original Esenjay Note”) pursuant to which Esenjay provided a loan in the principal amount of $750,000, bearing an interest rate of 15% per annum (the “Inventory Line of Credit”“Esenjay Loan”). On June 2, 2020, the Original Esenjay Note was amended and restated to (i) extend the maturity date from June 30, 2020 to September 30, 2020, and (ii) to increase the principal amount outstanding under the Esenjay Note from $750,000 to $1,400,000 (the “Esenjay Note”). The outstanding balanceobligations under the Esenjay Note were convertible into shares of common stock at the cash price per share of the Inventory Lineequity securities paid by purchasers in the offering at any time upon consummation of Creditan offering of equity securities of at least $1,000,000 before the maturity date.
On June 30, 2020, in connection with the completion of our initial closing of the Offering, the principal amount outstanding under the Esenjay Note became convertible into shares of common stock at $4.00 per share, which was the cash price per share of the Offering. On June 26, 2020 and allJuly 22, 2020, Esenjay assigned an aggregate of $900,000 of the Esenjay Note (“Esenjay Assignment”) to three (3) accredited investors, which were converted into an aggregate of 225,000 shares of common stock at $4.00 per share. On August 31, 2020, the outstanding obligations under the Esenjay Note of approximately $564,000, consisting of $500,000 in principal and approximately $64,000 in accrued interest, is due and payable on March 31, 2019. Funds received from Esenjay since December 5, 2017 were transferred towas consolidated into the Inventory Line ofLOC. See Credit resulting in $2,405,000 outstanding as of June 30, 2018 and $2,595,000 available for future draws, subject to the lender’s approval.Facility Agreement above.
| 43 |
Independent Auditor
For the years ended June 30, 20182021 and 2017,2020, the Company’s independent public accounting firm was Baker Tilly US, LLP (formerly Squar Milner LLP.
Fees Paid to Principal Independent Registered Public Accounting Firm
The aggregate fees billed by our Independent Registered Public Accounting Firm, for the years ended June 30, 20182021 and 20172020 are as follows:
2018 | 2017 | |
Audit fees(1) | $94,000 | $90,000 |
Audit related fees(2) | - | - |
Tax fees(3) | - | - |
All other fees(4) | - | - |
| Total | $94,000 | $90,000 |
| 2021 | 2020 | |||||||
| Audit fees(1) | $ | 107,000 | $ | 212,000 | ||||
| Audit related fees(2) | 103,000 | - | ||||||
| Tax fees(3) | - | - | ||||||
| All other fees(4) | - | - | ||||||
| Total | $ | 210,000 | $ | 212,000 | ||||
| (1) | Audit fees represent fees for professional services provided in connection with |
| (2) | Audit-related fees represent fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and not reported above under “Audit Fees.” No such fees were incurred during the fiscal years ended June 30, 2021 or 2020. |
| (3) | Baker Tilly US, LLP did not provide us with tax compliance, tax advice or tax planning services. |
| (4) | All other fees include fees billed by our independent auditors for products or services other than as described in the immediately preceding three categories. No such fees were incurred during the fiscal years ended June 30, 2021 or 2020. |
Policy on Audit Committee Pre-Approval of Audit and has unanimously approvedPermissible Non-Audit Services of Independent Registered Public Accounting Firm
Our audit committee’s policy is to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm, the scope of services provided by our independent auditors. Theregistered public accounting firm and the fees for the services to be performed. These services may include audit services, audit-related services, tax services and other services. Pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget.
Our independent accountantsregistered public accounting firm and management are required to periodically report to the Board of Directorsaudit committee regarding the extent of services provided by theour independent accountants,registered public accounting firm in accordance with this preapproval, and the fees for the services performed to date. The Company has not adopted a Charter for
All of the Audit Committee as of June 30, 2018.services relating to the fees described in the table above were approved by our audit committee.
| 44 |
(a) Financial Statements and Financial Statement Schedules.
The following financial statements of Flux Power Holdings, Inc., and Report of Squar MilnerBaker Tilly US, LLP, independent registered public accounting firm, are included in this report:
Financial Statement Schedules: All schedules have been omitted because the required information is included in the financial statements or notes thereto or because they are not required.
(b) Exhibits:
The following exhibits are filed as part of this Report
| 2014 Equity Incentive Plan. Incorporated by reference to Exhibit 10.23 on Form 10-Q filed with the SEC on May 15, 2015. | ||
| 10.8# | Amendment to the Flux Power Holdings Inc. 2014 Equity Incentive Plan. | |
| 10.9# | Amendment No. 2 to the Flux Power Holdings Inc. 2014 Equity Incentive Plan Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on | |
| 10.10# | Form of Restricted Stock Unit Award Agreement. Incorporated by reference to Exhibit 10.2 on Form 8-K filed with the SEC on November 9, 2020. |
| * | Filed herewith. |
| # | Indicates management contract or compensatory plan or arrangement. |
None.
| 46 |
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Flux Power Holdings, Inc. | ||
| Dated: September | By: | /s/ Ronald F. Dutt |
| Ronald F. Dutt | ||
Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Charles A. Scheiwe | |
| Charles A. Scheiwe | ||
| Chief Financial Officer | ||
| ( Principal Financial | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ | September | |||
President and Director (Principal Executive Officer) | ||||
| /s/ Charles A. Scheiwe | Chief Financial Officer | September 27, 2021 | ||
| Charles A. Scheiwe | (Principal Financial Officer) | |||
| /s/ Michael Johnson | Director | September 27, 2021 | ||
| Michael Johnson | ||||
| /s/ | Director | September | ||
| /s/ | Director | September | ||
| /s/ Dale Robinette | Director | September 27, 2021 | ||
| Dale Robinette |
| 47 |
To the Board of Directors and Stockholders
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Flux Power Holdings, Inc. and its subsidiary (the Company) as of June 30, 20182021 and 2017,2020, the related consolidated statements of operations, changes in stockholders' deficit,stockholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 20182021 and 2017,2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company'sCompany’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company'sCompany’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements. We determined that there are no critical audit matters.
BAKER TILLY US, LLP
/s/ SQUAR MILNERBAKER TILLY US, LLP
We have served as the Company'sCompany’s auditor since 2012.
San Diego, California
September 26, 2018
27, 2021
| F-1 |
June 30, 2018 | June 30, 2017 | |
| ASSETS | ||
| Current assets: | ||
| Cash | $2,706,000 | $121,000 |
| Accounts receivable | 946,000 | 80,000 |
| Inventories, net | 1,512,000 | 1,566,000 |
| Other current assets | 92,000 | 69,000 |
| Total current assets | 5,256,000 | 1,836,000 |
| Other assets | 26,000 | 26,000 |
| Property, plant and equipment, net | 87,000 | 59,000 |
| Total assets | $5,369,000 | $1,921,000 |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||
| Current liabilities: | ||
| Accounts payable | $417,000 | $367,000 |
| Accrued expenses | 474,000 | 259,000 |
| Line of credit - related party | 10,380,000 | 5,185,000 |
| Convertible promissory note - related party | 500,000 | 500,000 |
| Accrued interest | 931,000 | 239,000 |
| Total current liabilities | 12,702,000 | 6,550,000 |
| Long term liabilities: | ||
| Customer deposits from related party | 102,000 | 120,000 |
| Total liabilities | 12,804,000 | 6,670,000 |
| Commitments and contingencies (Note 14) | ||
| Stockholders’ deficit: | ||
| Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued and outstanding | - | - |
| Common stock, $0.001 par value; 300,000,000 shares authorized; 31,061,028 and 25,085,526 shares issued and outstanding at June 30, 2018 and 2017, respectively | 31,000 | 25,000 |
| Additional paid-in capital | 19,196,000 | 14,923,000 |
| Accumulated deficit | (26,662,000) | (19,697,000) |
| Total stockholders’ deficit | (7,435,000) | (4,749,000) |
| Total liabilities and stockholders’ deficit | $5,369,000 | $1,921,000 |
Years ended June 30, | ||
2018 | 2017 | |
| Net revenue | $4,118,000 | $902,000 |
| Cost of sales | 4,913,000 | 1,622,000 |
| Gross loss | (795,000) | (720,000) |
| Operating expenses: | ||
| Selling and administrative expenses | 3,462,000 | 2,404,000 |
| Research and development | 1,956,000 | 1,052,000 |
| Total operating expenses | 5,418,000 | 3,456,000 |
| Operating loss | (6,213,000) | (4,176,000) |
| Other income (expense): | ||
| Change in fair value of derivative liabilities | - | 14,000 |
| Interest expense | (752,000) | (273,000) |
| Net loss | $(6,965,000) | $(4,435,000) |
| Net loss per share - basic and diluted | $(0.27) | $(0.18) |
| Weighted average number of common shares outstanding - basic and diluted | 25,394,262 | 24,544,605 |
Common Stock | |||||
Shares | Capital Stock Amount | Additional Paid-in Capital | Accumulated Deficit | Total | |
| Balance at June 30, 2016 | 20,938,000 | $21,000 | $13,383,000 | $(15,262,000) | $(1,858,000) |
| Issuance of common stock – conversion of related party debt to equity | 1,000,000 | 1,000 | 399,000 | - | 400,000 |
| Issuance of common stock - services | 46,000 | - | 19,000 | - | 19,000 |
| Issuance of common stock - private placement transactions, net | 2,938,000 | 3,000 | 1,072,000 | - | 1,075,000 |
| Deferred financing costs related to debt modification | 163,000 | - | 10,000 | - | 10,000 |
| Stock based compensation | - | - | 40,000 | - | 40,000 |
| Net loss | - | - | - | (4,435,000) | (4,435,000) |
| Balance at June 30, 2017 | 25,085,000 | 25,000 | 14,923,000 | (19,697,000) | (4,749,000) |
| Issuance of common stock - services | 174,000 | - | 49,000 | - | 49,000 |
| Issuance of common stock - private placement transactions, net | 5,714,000 | 6,000 | 3,969,000 | - | 3,975,000 |
| Warrants exchanged for common stock | 88,000 | - | - | - | - |
| Stock based compensation | - | - | 255,000 | - | 255,000 |
| Net loss | - | - | - | (6,965,000) | (6,965,000) |
| Balance at June 30, 2018 | 31,061,000 | $31,000 | $19,196,000 | $(26,662,000) | $(7,435,000) |
CONSOLIDATED BALANCE SHEETS
June 30, 2021 | June 30, 2020 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 4,713,000 | $ | 726,000 | ||||
| Accounts receivable | 6,097,000 | 3,069,000 | ||||||
| Inventories | 10,513,000 | 5,256,000 | ||||||
| Other current assets | 417,000 | 787,000 | ||||||
| Total current assets | 21,740,000 | 9,838,000 | ||||||
| Right of use asset | 3,035,000 | 3,435,000 | ||||||
| Other assets | 131,000 | 174,000 | ||||||
| Property, plant and equipment, net | 1,356,000 | 528,000 | ||||||
| Total assets | $ | 26,262,000 | $ | 13,975,000 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 7,175,000 | $ | 4,648,000 | ||||
| Accrued expenses | 2,583,000 | 1,400,000 | ||||||
| Deferred revenue | 24,000 | 4,000 | ||||||
| Customer deposits | 171,000 | 1,563,000 | ||||||
| Due to factor | - | 469,000 | ||||||
| Short-term loans – related party | - | 2,057,000 | ||||||
| Line of credit - related party | - | 5,290,000 | ||||||
| Financing lease payable, current portion | - | 28,000 | ||||||
| Office lease payable, current portion | 435,000 | 288,000 | ||||||
| Accrued interest | 2,000 | 50,000 | ||||||
| Total current liabilities | 10,390,000 | 15,797,000 | ||||||
| Long term liabilities: | ||||||||
| Paycheck Protection Program loan payable | - | 1,297,000 | ||||||
| Office lease payable, less current portion | 2,866,000 | 3,301,000 | ||||||
| Total liabilities | 13,256,000 | 20,395,000 | ||||||
| Stockholders’ equity (deficit): | ||||||||
| Preferred stock, $0.001 par value; 500,000 shares authorized; none issued and outstanding | - | - | ||||||
| Common stock, $0.001 par value; 30,000,000 shares authorized; 13,652,164 and 7,420,487 shares issued and outstanding at June 30, 2021 and June 30, 2020, respectively | 14,000 | 7,000 | ||||||
| Additional paid-in capital | 79,197,000 | 46,985,000 | ||||||
| Accumulated deficit | (66,205,000 | ) | (53,412,000 | ) | ||||
| Total stockholders’ equity (deficit) | 13,006,000 | (6,420,000 | ) | |||||
| Total liabilities and stockholders’ equity (deficit) | $ | 26,262,000 | $ | 13,975,000 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-2 |
Years ended June 30, | ||
2018 | 2017 | |
| Cash flows from operating activities: | ||
| Net loss | $(6,965,000) | $(4,435,000) |
| Adjustments to reconcile net loss to net cash used in operating activities | ||
| Depreciation | 57,000 | 40,000 |
| Change in fair value of warrant liability | - | (14,000) |
| Stock-based compensation | 255,000 | 40,000 |
| Stock issuance for services | 49,000 | 19,000 |
| Amortization of deferred financing costs | - | 44,000 |
| Amortization of debt discount | - | 19,000 |
| Changes in operating assets and liabilities: | ||
| Accounts receivable | (866,000) | 2,000 |
| Inventories | 54,000 | (1,364,000) |
| Other current assets | (23,000) | (37,000) |
| Accounts payable | 51,000 | (159,000) |
| Accrued expenses | 214,000 | 30,000 |
| Accrued interest | 692,000 | 133,000 |
| Customer deposits | (18,000) | (16,000) |
| Net cash used in operating activities | (6,500,000) | (5,698,000) |
| Cash flows from investing activities | ||
| Purchases of equipment | (85,000) | (53,000) |
| Net cash used in investing activities | (85,000) | (53,000) |
| Cash flows from financing activities: | ||
| Repayment of line of credit | - | (215,000) |
| Proceeds from the sale of common stock, net | 3,975,000 | 1,075,000 |
| Borrowings from line of credit - related party | 5,195,000 | 4,385,000 |
| Borrowings from convertible promissory note - related party | - | 500,000 |
| Net cash provided by financing activities | 9,170,000 | 5,745,000 |
| Net change in cash | 2,585,000 | (6,000) |
| Cash, beginning of period | 121,000 | 127,000 |
| Cash, end of period | $2,706,000 | $121,000 |
| Supplemental Disclosures of Non-Cash Investing and Financing Activities: | ||
| Conversion of related party debt to equity | $- | $400,000 |
| Fair value of warrants exchanged for common stock | $- | $10,000 |
| Stock issuance for services | $49,000 | $19,000 |
CONSOLIDATED STATEMENTS OF OPERATIONS
| Years ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | $ | 26,257,000 | $ | 16,842,000 | ||||
| Cost of sales | 20,467,000 | 14,656,000 | ||||||
| Gross profit | 5,790,000 | 2,186,000 | ||||||
| Operating expenses: | ||||||||
| Selling and administrative | 12,599,000 | 9,761,000 | ||||||
| Research and development | 6,669,000 | 4,973,000 | ||||||
| Total operating expenses | 19,268,000 | 14,734,000 | ||||||
| Operating loss | (13,478,000 | ) | (12,548,000 | ) | ||||
| Other income (expense): | ||||||||
| Other income | 1,307,000 | - | ||||||
| Interest expense | (622,000 | ) | (1,788,000 | ) | ||||
| Net loss | $ | (12,793,000 | ) | $ | (14,336,000 | ) | ||
| Net loss per share - basic and diluted | $ | (1.08 | ) | $ | (2.80 | ) | ||
| Weighted average number of common shares outstanding - basic and diluted | 11,796,217 | 5,118,713 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
| Common Stock | Additional | |||||||||||||||||||
| Shares | Capital Stock Amount | Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||
| Balance at June 30, 2020 | 7,420,487 | $ | 7,000 | $ | 46,985,000 | $ | (53,412,000 | ) | $ | (6,420,000 | ) | |||||||||
| Issuance of common stock – exercised options and warrants | 55,195 | - | 55,000 | - | 55,000 | |||||||||||||||
| Fair value of warrants issued | - | - | 174,000 | - | 174,000 | |||||||||||||||
| Issuance of common stock, net of costs | 4,078,032 | 4,000 | 22,796,000 | - | 22,800,000 | |||||||||||||||
| Issuance of common stock - private placement transactions, net | 800,000 | 1,000 | 3,199,000 | - | 3,200,000 | |||||||||||||||
| Issuance of Common Stock - Debt Conversion | 1,298,450 | 2,000 | 5,191,000 | - | 5,193,000 | |||||||||||||||
| Stock-based compensation | - | - | 797,000 | - | 797,000 | |||||||||||||||
| Net loss | - | - | - | (12,793,000 | ) | (12,793,000 | ) | |||||||||||||
| Balance at June 30, 2021 | 13,652,164 | $ | 14,000 | $ | 79,197,000 | $ | (66,205,000 | ) | $ | 13,006,000 | ||||||||||
| Common Stock | Additional | |||||||||||||||||||
| Shares | Capital Stock Amount | Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||
| Balance at June 30, 2019 | 5,101,580 | $ | 5,000 | $ | 35,902,000 | $ | (39,076,000 | ) | $ | (3,169,000 | ) | |||||||||
| Issuance of common stock – services | 3,121 | - | 30,000 | - | 30,000 | |||||||||||||||
| Issuance of common stock – exercised options | 3,706 | - | 4,000 | - | 4,000 | |||||||||||||||
| Issuance of common stock - private placement transactions, net | 341,250 | - | 1,365,000 | - | 1,365,000 | |||||||||||||||
| Issuance of Common Stock - Loan Conversion | 1,970,830 | 2,000 | 7,881,000 | - | 7,883,000 | |||||||||||||||
| Stock based compensation | - | - | 1,803,000 | - | 1,803,000 | |||||||||||||||
| Net loss | - | - | - | (14,336,000 | ) | (14,336,000 | ) | |||||||||||||
| Balance at June 30, 2020 | 7,420,487 | $ | 7,000 | $ | 46,985,000 | $ | (53,412,000 | ) | $ | (6,420,000 | ) | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Year ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (12,793,000 | ) | $ | (14,336,000 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 274,000 | 141,000 | ||||||
| Stock-based compensation | 797,000 | 1,803,000 | ||||||
| Stock issuance for services | - | 30,000 | ||||||
| PPP Loan principal and accrued interest forgiveness | (1,307,000 | ) | - | |||||
| Fair value of warrants issued as debt discount cost | 174,000 | - | ||||||
| Noncash interest expense | 426,000 | 1,599,000 | ||||||
| Noncash rent expense | 400,000 | 323,000 | ||||||
| Allowance for inventory reserve | (195,000 | ) | 317,000 | |||||
| Amortization of prepaid offering costs | 547,000 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (3,028,000 | ) | (653,000 | ) | ||||
| Inventories | (5,062,000 | ) | (1,760,000 | ) | ||||
| Other current assets | (134,000 | ) | (432,000 | ) | ||||
| Accounts payable | 2,527,000 | 2,165,000 | ||||||
| Accrued expenses | 1,183,000 | 542,000 | ||||||
| Due to factor | (469,000 | ) | 469,000 | |||||
| Deferred revenue | 20,000 | 4,000 | ||||||
| Accrued interest | (38,000 | ) | 50,000 | |||||
| Office lease payable | (288,000 | ) | (169,000 | ) | ||||
| Customer deposits | (1,392,000 | ) | 1,563,000 | |||||
| Net cash used in operating activities | (18,358,000 | ) | (8,344,000 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchases of equipment | (1,102,000 | ) | (323,000 | ) | ||||
| Net cash used in investing activities | (1,102,000 | ) | (323,000 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from the issuance of common stock, net of costs | 22,855,000 | 1,369,000 | ||||||
| Proceeds from the issuance of common stock in private placement | 3,200,000 | - | ||||||
| Proceeds from Payment Protection Program | - | 1,297,000 | ||||||
| Borrowings from revolving line of credit | 700,000 | - | ||||||
| Payment of short-term loan - related party | (1,178,000 | ) | - | |||||
| Payment of line of credit - related party | (1,402,000 | ) | - | |||||
| Payment of revolving line of credit | (700,000 | ) | - | |||||
| Borrowings from short-term loan - related party debt | - | 2,400,000 | ||||||
| Borrowings from line of credit - related party debt | - | 4,255,000 | ||||||
| Principal payments of financing lease payable | (28,000 | ) | (30,000 | ) | ||||
| Net cash provided by financing activities | 23,447,000 | 9,291,000 | ||||||
| Net change in cash | 3,987,000 | 624,000 | ||||||
| Cash, beginning of period | 726,000 | 102,000 | ||||||
| Cash, end of period | $ | 4,713,000 | $ | 726,000 | ||||
| Supplemental Disclosures of Non-Cash Investing and Financing Activities: | ||||||||
| Initial recognition of right-of-use lease asset and lease liability | $ | - | $ | 2,706,000 | ||||
| Accrued interest converted into principal | $ | 358,000 | $ | 2,170,000 | ||||
| Interest paid | $ | 59,000 | $ | 137,000 | ||||
| Common stock issued for conversion of related party debt | $ | 5,193,000 | $ | 7,883,000 | ||||
| Stock issuance for services | $ | - | $ | 30,000 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 20182021 and 2017
NOTE 1 - NATURE OF BUSINESS AND REVERSE STOCK SPLIT
Nature of Business
Flux Power Holdings, Inc. ("Flux"(“Flux”) was incorporated in 1998 in the State of Nevada. On June 14, 2012, we changed our name to Flux Power Holdings, Inc. Flux'sFlux’s operations are conducted through its wholly owned subsidiary, Flux Power, Inc. (“Flux Power”), a California corporation (collectively, the "Company"“Company”).
We design, develop, manufacture, and sells rechargeablesell a portfolio of advanced lithium-ion energy storage systemssolutions for industrial applications, such as, electric fork lifts andthe material handling sector which includes lift trucks, airport ground support equipment. The Company has structured its business around its core technology, “The Battery Management System”equipment (“BMS”GSE”). The Company’s BMS provides three critical functions to their battery systems: cell balancing, monitoring, and error reporting. Using its proprietary management technology, the Company is able to offer complete integratedother industrial and commercial applications. We believe our mobile and stationary energy storage solutions or customprovide customers with a reliable, high performing, cost effective, and more environmentally friendly alternative as compared to traditional lead acid and propane-based solutions. Our modular standalone systemsand scalable design allows different configurations of lithium-ion battery packs to their customers. The Company has also developed a suitebe paired with our proprietary wireless battery management system (“SkyBMS”) to provide the level of complementary technologiesenergy storage required and products that accompany their core products. Sales during“state of the years ended June 30, 2018 and 2017 were primarily to customers located throughout the United States.
As used herein, the terms “we,” “us,” “our,”, “Flux” “Flux,” and “Company” mean Flux Power Holdings, Inc., unless otherwise indicated. All dollar amounts herein are in U.S. dollars unless otherwise stated.
NOTE 32 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company’s significant accounting policies which have been consistently applied in the preparation of the accompanying consolidated financial statements follows:
Principles of Consolidation
The consolidated financial statements include Flux Power Holdings, Inc. and its wholly-owned subsidiary Flux Power, Inc. after elimination of all intercompany accounts and transactions.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP"GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as certain financial statement disclosures. Significant estimates include valuation allowances relating to inventory and deferred tax assets. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from these estimates.
Cash and Cash Equivalents
As of June 30, 2018,2021 and June 30, 2020, cash totaledwas approximately $2,706,000$4,713,000 and consists$726,000, respectively. Cash consisted of funds held in a non-interest bearing bank deposit account. The Company considers all liquid short-term investments with maturities of less than three months when acquired to be cash equivalents. The Company had no cash equivalents at June 30, 20182021 and 2017.
Fair Values of Financial Instruments
The carrying amount of our cash, accounts payable, accounts receivable, and accrued liabilities approximates their estimated fair values due to the short-term maturities of those financial instruments. The carrying amount of the line of credit agreement approximates its fair values as interest approximates current market interest rates for similar instruments. Management has concluded that it is not practical to determine the estimated fair value of amounts due to related parties because the transactions cannot be assumed to have been consummated at arm’s length, the terms are not deemed to be market terms, there are no quoted values available for these instruments, and an independent valuation would not be practical due to the lack of data regarding similar instruments, if any, and the associated potential costs.
The Company does not have any other assets or liabilities that are measured at fair value on a recurring or non-recurring basis.
Accounts Receivable
Accounts receivable are carried at their estimated collectible amounts. The Company has not experienced collection issues related to its accounts receivable and has not recorded an allowance for doubtful accounts during the fiscal yearyears ended June 30, 20182021 and 2017.
Inventories
Inventories consist primarily of battery management systems and the related subcomponents and are stated at the lower of cost (first-in, first-out) or net realizable value. The Company evaluates inventories to determine if write-downs are necessary due to obsolescence or if the inventory levels are in excess of anticipated demand at market value based on consideration of historical sales and product development plans. The Company recorded an adjustmentadjustments to inventory reserve related to obsolete and slow moving inventory in the amount of approximately $27,000$195,000 and $56,000$317,000 during the years ended June 30, 20182021 and 2017,2020, respectively.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation and amortization are provided using the straight-line method over the estimated useful lives, of the related assets ranging from three to ten years, or, in the case of leasehold improvements, over the lesser of the useful life of the related asset or the lease term.
Stock-based Compensation
Pursuant to the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 718-10, Compensation-Stock Compensation, which establishes accounting for equity instruments exchanged for employee service, we utilize the Black-Scholes option pricing model to estimate the fair value of employee stock option awards at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected life. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our share-based compensation. These assumptions are subjective and generally require significant analysis and judgment to develop. When estimating fair value, some of the assumptions will be based on, or determined from, external data and other assumptions may be derived from our historical experience with stock-based payment arrangements. The appropriate weight to place on historical experience is a matter of judgment, based on relevant facts and circumstances.
Common stock or equity instruments such as warrants issued for services to non-employees are valued at their estimated fair value at the measurement date (the date when a firm commitment for performance of the services is reached, typically the date of issuance, or when performance is complete). If the total value exceeds the par value of the stock issued, the value in excess of the par value is added to the additional paid-in-capital.
Revenue Recognition
The Company recognizes revenue in accordance to the Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”) for all contracts. The Company derives its revenue from the sale of products to customers. The Company sells its products primarily through a distribution network of equipment dealers, OEMs and battery distributors in primarily North America. The Company recognizes revenue for the products when persuasive evidence of an arrangement exists, delivery has occurred, price is fixed or determinable,all significant risks and collectability of the selling price is reasonably assured. Delivery occurs when risk of loss is passedrewards have been transferred to the customer, as specified by the termsthere is no continuing managerial involvement associated with ownership of the applicable customer agreements. When a productgoods sold is retained, no effective control over the goods sold on consignment,is retained, the item remains in our inventoryamount of revenue can be measured reliably, it is probable that the economic benefits associated with the transactions will flow to the Company and the costs incurred or to be incurred with respect to the transaction can be measured reliably.
| F-7 |
Product revenue is not recognized untilas a distinct single performance obligation which for the product is ultimately sold toCompany’s three major customers represents the end user. Whenpoint in time that they receive delivery of the products, and for all other customers represents the point in time that the Company ships the products. Our customers do have a right ofto return exists, contractually or implied, the Company recognizes when the product is sold through to the end user. As of June 30, 2018 and 2017, the Company did notbut our returns have any deferred revenue.
Product Warranties
The Company evaluates its exposure to product warranty obligations based on historical experience. Our products, primarily lift equipment packs, are warrantied for five years unless modified by a separate agreement. As of June 30, 20182021 and 2017,2020, the Company carried warranty liability of approximately $158,000$895,000 and $85,000,$726,000, respectively, which is included in accrued expenses on the Company’s consolidated balance sheets.
Impairment of Long-lived Assets
In accordance with authoritative guidance for the impairment or disposal of long-lived assets, if indicators of impairment exist, the Company assesses the recoverability of the affected long-lived assets by determining whether the carrying value of such assets can be recovered through the undiscounted future operating cash flows.
If impairment is indicated, the Company measures the amount of such impairment by comparing the carrying value of the asset to the present value of the expected future cash flows associated with the use of the asset. The Company believes that no impairment indicators were present, and accordingly no impairment losses were recognized during the fiscal years ended June 30, 20182021 and 2017.
Research and Development
The Company is actively engaged in new product development efforts. Research and development cost relating to possible future products are expensed as incurred.
Income Taxes
Pursuant to FASB ASC Topic No. 740, Income Taxes, deferred tax assets or liabilities are recorded to reflect the future tax consequences of temporary differences between the financial reporting basis of assets and liabilities and their tax basis at each year-end. These amounts are adjusted, as appropriate, to reflect enacted changes in tax rates expected to be in effect when the temporary differences reverse. The Company has analyzed filing positions in all of the federal and state jurisdictions where the Company is required to file income tax returns, as well as all open tax years in these jurisdictions. As a result, no unrecognized tax benefits have been identified as of June 30, 20182021 or June 30, 2017,2020, and accordingly, no additional tax liabilities have been recorded.
The Company records deferred tax assets and liabilities based on the differences between the financial statement and tax bases of assets and liabilities and on operating loss carry forwards using enacted tax rates in effect for the year in which the differences are expected to reverse. 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.
Net Loss Per Common Share
The Company calculates basic loss per common share by dividing net loss by the weighted average number of common shares outstanding during the periods. Diluted loss per common share includes the impact from all dilutive potential common shares relating to outstanding convertible securities.
For the years ended June 30, 20182021 and 2017,2020, basic and diluted weighted-average common shares outstanding were 25,394,26211,796,217 and 24,544,605,5,118,713, respectively. The Company incurred a net loss for the years ended June 30, 20182021 and 2017,2020, and therefore, basic and diluted loss per share for each fiscal year are the same because the inclusion of potential common equivalent shares were excluded from diluted weighted-average common shares outstanding during the period, as the inclusion of such shares would be anti-dilutive. The total potentially dilutive common shares outstanding at June 30, 20182021 and 2017,2020, excluded from diluted weighted-average common shares outstanding, which include common shares underlying outstanding convertible debt, stock options, RSUs, and warrants, were 16,109,214891,659 and 12,607,853,2,210,216, respectively.
| F-8 |
New Accounting Standards
Recently Adopted Accounting Pronouncements
In August 2014, the FASB issued ASU No. 2014-15 regarding ASC topic No. 205, Presentation of Financial Statements - Going Concern. The standard requires all companies to evaluate if conditions or events raise substantial doubt about an entity’s ability to continue as a going concern and requires different disclosure of items that raise substantial doubt that are, or areCompany did not alleviated as a result of consideration of management’s plans. Theadopt any new guidance is effective for annual periods ending after December 15, 2016. We adopted ASU No 2014-15accounting pronouncements for the year ended June 30, 20172021. During the year ended June 30, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (“ASU 2016-02”) and have reflected the required disclosures in the accompanying consolidated financial statements.
Management has considered all recent accounting pronouncements issued since the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in this ASU change the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The guidance is effective forlast audit of the Company’s fiscal year beginning July 1, 2019. Early adoption is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The adoption of this ASU is not expected to have a material impact on our consolidated financial statements.
In 2014, the FASB issued Accounting Standards update 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 specifies a comprehensive model to be used in accounting for revenue arising from contracts with customers, and supersedes most of the current revenue recognition guidance, including industry-specific guidance. The FASB subsequently issued amendments to ASU No. 2014-09 that have the same effective date and transition date. It applies to all contracts with customers except those that are specifically within the scope of other FASB topics, and certain of its provisions also apply to transfers of nonfinancial assets, including in-substance nonfinancial assets that are not an output of an entity’s ordinary activities. The core principal of the model is that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the transferring entity expects to be entitled in exchange. To apply the revenue model, an entity will: 1) identify the contract(s) with a customer, 2) identify the performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation. For public companies, ASU 2014-09 is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017. Upon adoption, entities can choose to use either a full retrospective or modified approach, as outlined in ASU 2014-09. As compared with current GAAP, ASU 2014-09 requires significantly more disclosures about revenue recognition. These new standards became effective for us on July 1, 2018, and will be adopted using the modified retrospective method through a cumulative-effect adjustment directly to retained earnings as of that date, as applicable. Based on our assessment of the impact that these new standards will have on our consolidated results of operations, financial position and disclosures completed to date, we have not identified any accounting changes that would materially impact the amount of reported revenues with respect to our revenues, or the timing of such revenues; however, certain changes are required for financial statement disclosure purposes.
Inventories consist of the following:
June 30, 2018 | June 30, 2017 | |
| Raw materials | $807,000 | $445,000 |
| Work in process | 333,000 | 251,000 |
| Finished goods | 372,000 | 870,000 |
| Total Inventories | $1,512,000 | $1,566,000 |
June 30, 2021 | June 30, 2020 | |||||||
| Raw materials | $ | 8,185,000 | $ | 4,231,000 | ||||
| Work in process | 918,000 | 332,000 | ||||||
| Finished goods | 1,410,000 | 693,000 | ||||||
| Total Inventories | $ | 10,513,000 | $ | 5,256,000 | ||||
Inventories consist primarily of our energy storage systems and the related subcomponents, and are stated at the lower of cost or net realizable value. Inventory held at consignment locations is included in our finished goods inventory and totaled $14,000 and $32,000 as
NOTE 4 – OTHER CURRENT ASSETS
Other current assets consist of June 30, 2018 and June 30, 2017, respectively.
June 30, 2021 | June 30, 2020 | |||||||
| Prepaid insurance | $ | 249,000 | $ | 160,000 | ||||
| Prepaid inventory | 73,000 | 32,000 | ||||||
| Prepaid offering costs | - | 547,000 | ||||||
| Prepaid expenses | 95,000 | 48,000 | ||||||
| Total Other current assets | $ | 417,000 | $ | 787,000 | ||||
NOTE 5 – ACCRUED EXPENSES
Accrued expenses consist of the following:
June 30, 2021 | June 30, 2020 | |||||||
| Payroll and bonus accrual | $ | 1,271,000 | $ | 403,000 | ||||
| PTO accrual | 417,000 | 270,000 | ||||||
| Warranty liability | 895,000 | 726,000 | ||||||
| Garnishments | - | 1,000 | ||||||
| Total Accrued expenses | $ | 2,583,000 | $ | 1,400,000 | ||||
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT,
Property, plant and equipment, net consist of the following:
June 30, 2018 | June 30, 2017 | |
| Vehicles | $1,000 | $1,000 |
| Machinery and equipment | 112,000 | 84,000 |
| Office equipment | 162,000 | 133,000 |
| Furniture and Equipment | 39,000 | 36,000 |
| Leasehold improvements | 34,000 | 10,000 |
348,000 | 264,000 | |
| Less: Accumulated depreciation | (261,000) | (205,000) |
| Property, plant and equipment, net | $87,000 | $59,000 |
June 30, 2021 | June 30, 2020 | |||||||
| Vehicles | $ | 20,000 | $ | 20,000 | ||||
| Machinery and equipment | 593,000 | 323,000 | ||||||
| Office equipment | 1,027,000 | 290,000 | ||||||
| Furniture and Equipment | 220,000 | 154,000 | ||||||
| Leasehold improvements | 56,000 | 54,000 | ||||||
| 1,916,000 | 841,000 | |||||||
| Less: Accumulated depreciation | (560,000 | ) | (313,000 | ) | ||||
| Total property, plant and equipment, net | $ | 1,356,000 | $ | 528,000 | ||||
Depreciation expense was approximately $57,000$274,000 and $40,000,$141,000, for the years ended June 30, 20182021 and 2017,2020, respectively, and is included in selling and administrative expenses in the accompanying consolidated statements of operations.
| F-9 |
NOTE 7 – Notes Payable
Paycheck Protection Program Loan
On May 1, 2020, the Company applied for and received a loan from the Bank of America, NA (the “BOA”) in the aggregate principal amount of approximately $1,297,000 (the “PPP Loan”) pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan is evidenced by a promissory note dated May 1, 2020, issued by Flux Power to the BOA (the “PPP Note”). The PPP Loan had a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments were deferred for six months after the date of disbursement. The Company received the funds on May 4, 2020. On February 9, 2021, the Company was notified that the Small Business Administration (“SBA”) had forgiven repayment of the entire PPP Loan of approximately $1,297,000 in principal, together with all accrued interest of approximately $10,000. The Company has recorded the entire forgiven principal and accrued interest amount of approximately $1,307,000 as other income in its statement of operations on February 9, 2021. As of June 30, 2021, the outstanding balance of the PPP Loan was $0.
The SBA reserves the right to audit any PPP loan, regardless of size. These audits may occur after forgiveness has been granted. In accordance with the CARES Act, all borrowers are required to maintain their PPP loan documentation for six years after the PPP loan was forgiven or repaid in full and to provide that documentation to the SBA upon request.
Revolving Line of Credit
On November 9, 2020, the Company entered into a certain Loan and Security Agreement (“Agreement”) with Silicon Valley Bank (“SVB”). The Agreement provides the Company with a senior secured revolving credit facility for up to $4.0 million available on a revolving basis (“Credit Facility”). Outstanding principal under the Credit Facility accrues interest at a floating per annum rate equal to the greater of (i) prime rate plus two and a half percent (2.50%) or (ii) five and three-quarters percent (5.75%). Interest is due monthly on the last day of the month. In the event of default, the amounts due under the Agreement will bear interest at a rate per annum equal to five percent (5.0%) above the rate that is otherwise applicable to such amounts. The Company paid a non-refundable commitment fee of $15,000 upon execution of the Loan Agreement. In addition, the Company is required to pay a quarterly unused facility fee equal to one-quarter percent (0.25%) per annum of the average daily unused portion of the commitments under the Credit Facility, depending upon availability of borrowings under the Credit Facility. The loans and other obligations of the Company under the Credit Facility are secured by substantially all of the tangible and intangible assets of the Company (including, without limitation, intellectual property) pursuant to the terms of the Agreement and the Intellectual Property Security Agreement dated as of November 9, 2020. The Company has utilized the line of credit from-time-to-time, however as of June 30, 2021, the outstanding balance of the line of credit was $0 and the entire $4.0 million of the facility was available for future draws through November 8, 2021, unless the credit facility is renewed and its term is extended prior to its expiration.
NOTE 68 - RELATED PARTY DEBT AGREEMENTS
Esenjay Credit Facilities
On March 9, 2020, the Company and Esenjay Investments, LLC (“Esenjay”) entered into a certain convertible promissory note (“Original Esenjay Note”) pursuant to which Esenjay provided the Company with a loan in the principal amount of $750,000 (the “Esenjay Loan”). On June 2, 2020, the Original Esenjay Note was amended and restated to (i) extend the maturity date from June 30, 2020 to September 2012,30, 2020, and (ii) to increase the principal amount outstanding under the Original Esenjay Note from $750,000 to $1,400,000 (the “Esenjay Note”).
On June 26, 2020 and July 22, 2020, Esenjay assigned a total of $900,000 of the Esenjay Note to three (3) accredited investors. On June 30, 2020, in connection with the completion of the Company’s initial closing of its private placement offering, the principal amount outstanding under the Esenjay Note became convertible into shares of common stock at $4.00 per share, which was the cash price per share of such offering. The three note holders converted their notes into an aggregate 225,000 shares of common stock at $4.00 per share.
On August 31, 2020, the Company entered into three debtthe Third Amended and Restated Credit Facility Agreement and pursuant to which the Company further amended the Notes to, among other amended items, include outstanding obligations for an aggregate amount of approximately $564,000, consisting of $500,000 in principal and approximately $64,000 in accrued interest, under the Esenjay Note, into the Credit Facility Agreement. (See “Credit Facility” below).
Cleveland Loan
On July 3, 2019, the Company entered into a loan agreement with Esenjay. Esenjay is deemedCleveland, pursuant to be a related party as Mr. Michael Johnson, the beneficial owner and director of Esenjay is a current member of our board of directors and a major shareholder ofwhich Cleveland agreed to loan the Company (owning approximately 52%$1,000,000 (the “Cleveland Loan”). In connection with the Cleveland Loan, on July 3, 2019, the Company issued Cleveland an unsecured short-term promissory note in the amount of our outstanding common shares as of June 30, 2018)$1,000,000 (the “Unsecured Promissory Note”). The three debt agreements consisted of a Bridge LoanUnsecured Promissory Note a Secondary Revolving Promissory Note andbears an Unrestricted Line of Credit (collectively, the “Loan Agreements”). On December 31, 2015, the Bridge Loan Promissory Note and the Secondary Revolving Promissory Note expired leaving the Unrestricted Line of Credit, available for future draws.
On December 29, 2015, weSeptember 1, 2019, the Company entered into a Secondthe First Amendment to the Unrestricted Line of Credit (“Second Amendment”), with EsenjayUnsecured Promissory Note pursuant to which modified certain termsthe maturity date of the Unrestricted LineUnsecured Promissory Note was modified from September 1, 2019 to December 1, 2019 (the “First Amendment”). In connection with the First Amendment, the Company replaced the Cleveland Warrant with the Amended and Restated Warrant Certificate (the “Amended Warrant”). The Amended Warrant increased the warrant coverage from 0.5% to 1% of Credit resulting in approximately $310,000the number of debt issuance costs, and accordingly, was amortized overshares of common stock outstanding after giving effect to the remaining seven-month term through July 30, 2016, at which time it was fully amortized. During the year ended June 30, 2017 we recorded approximately $44,000total number of deferred financing amortization costs, which is included in interest expenseshares of common stock sold in the accompanying consolidated statementsnext private or public offering. In addition, the exercise price was also changed to equal the per share price of operations.
On July 9, 2020, the Company made a payment to Cleveland in the amount of $200,000 as a partial payment of the outstanding principal balance of the Unrestricted LineCleveland Loan. Subsequently, the Company entered into seven (7) additional amendments pursuant to which the maturity date was extended from time to time (with the final amendment reflecting a maturity date of CreditAugust 31, 2020), and all accrued and unpaid interest as of the time of the respective amendment was capitalized to the principal amount. As of June 30, 20182020, there was $7,975,000, convertible at $0.60 per share or 13,291,667 shares of common stock, resulting$1,157,000 in a remaining $2,025,000 available for future drawsprincipal outstanding under this agreement, subject to lender’s approval. During the years ended June 30, 2018 and 2017,Cleveland Note. On August 19, 2020, the Company recordedpaid Cleveland the entire remaining principal balance due under the Cleveland Loan, together with all accrued interest payable as of August 19, 2020, in an aggregate amount of approximately $587,000 and $162,000, respectively of interest expense in the accompanying consolidated statements of operations related to the Unrestricted Line of Credit.
Credit Facility
On March 22, 2018, Flux Power entered into a credit facility agreement with Esenjay with a maximum borrowing amount of $5,000,000. Proceeds from the credit facility are to be used to purchase inventory and related operational expenses and accrue interest at a rate of 15% per annum$5,000,000 (the “Inventory Line of Credit”“Original Agreement”). The Original Agreement was amended multiple times to allow for, among other things, an increase in the maximum principal amount available under line of credit (“LOC”) to $12,000,000, additional lenders and extensions of the maturity date to September 30, 2021.
In August 2020, the Company paid down an aggregate principal amount of approximately $1,402,000 of the outstanding balance under the LOC. On August 31, 2020, the Company entered into the Third Amended and Restated Credit Facility Agreement (“Third Amended and Restated Facility Agreement”) and pursuant to which the Company further amended the Notes to (i) extend the maturity date from December 31, 2020 to September 30, 2021, and (ii) include outstanding obligations under the Esenjay Note of the Inventory Lineapproximately $564,000, consisting of Credit$500,000 in principal and approximately $64,000 in accrued interest, is due and payable on March 31, 2019. Funds received from Esenjay since December 5, 2017 were transferred tointo the Inventory LineLOC. In November 2020, the Lenders holding an aggregate of Credit resultingapproximately $2,161,000 in $2,405,000 outstanding as of June 30, 2018 and $2,595,000 available for future draws, subject to the lender’s approval.
On June 10, 2021, the Third Amended and Restated Credit Facility Agreement by and among Flux Power, Inc. Esenjay, Cleveland Capital, L.P., Otto Candies, Jr., Paul Candies, Brett Candies, Winn Interest, Ltd., Tabone Family Partnership (as assignee to the interests, rights and obligations of Helen M. Tabone) and additional lenders who became a party to such agreement pursuant to Section 15 thereof (collectively, the “Lenders”); and the related Second Amended and Restated Security Agreement (“Security Agreement”) were terminated.
As of the termination date, all payments due under the related notes have been made in full and payable on October 27, 2018.all obligations under such notes and the Credit Facility have been paid or discharged in full. In addition, atthe Company did not incur any time commencing on or afterearly termination penalties in connection with the date that is six (6) months from the issue date, at the election of Shareholder, all or any portiontermination of the outstanding principal, accrued but unpaid interest and/Third Amended and Restated Credit Agreement or late chargesSecurity Agreement.
NOTE 9 - STOCKHOLDERS’ EQUITY (DEFICIT)
At-The-Market (“ATM”) Offering
On December 21, 2020 the Company entered into a Sales Agreement (the “Sales Agreement”) with H.C. Wainwright & Co., LLC (“HCW”) to sell shares of its common stock, par value $0.001 (the “Common Stock”) from time to time, through an “at-the-market offering” program (the “ATM Offering”) under which HCW will act as sales agent.
The Company agreed to pay HCW a commission in an amount equal to 3.0% of the gross sales proceeds of the shares sold under the Convertible Note may be converted intoSales Agreement. In addition, the Company agreed to reimburse HCW for certain legal and other expenses incurred up to a maximum of $50,000 to establish the ATM Offering, and $2,500 per quarter thereafter to maintain such program under the Sales Agreement. The Company has also agreed pursuant to the Sales Agreement to indemnify and provide contribution to HCW against certain liabilities, including liabilities under the Securities Act.
On May 27, 2021, the Company filed Amendment No. 1 (the “Amendment”) to the prospectus supplement dated December 21, 2020 (the “Prospectus Supplement”) to increase the size of the ATM Offering from an aggregate offering price of up to $10 million in the Prospectus Supplement to an amended maximum aggregate offering price of up to $20 million of shares of the Company’s common stock at a conversion price(the “Shares”) (which amount includes the value of $1.20 per share. As a result,shares we have already sold prior to the Convertible Note is convertible into 485,345date of the Amendment) pursuant to the base prospectus dated October 26, 2020, the Prospectus Supplement, and 416,667the Amendment (collectively, the “Prospectus”).
From December 21, 2020 to June 30, 2021, the Company sold an aggregate of 978,782 shares of common stock at June 30, 2018an average price of $12.93 per share for gross proceeds of approximately $12.7 million in the ATM Offering, prior to deducting commissions and June 30, 2017, respectively. Duringother offering related expenses.
The Shares have been registered under the year ended June 30, 2018Securities Act of 1933, as amended (the “Securities Act”), pursuant to the Company’s Registration Statement on Form S-3 (File No. 333-249521), declared effective by the Securities and 2017,Exchange Commission (the “Commission”) on October 26, 2020, and the Prospectus. Sales of the Shares, if any, may be made by any method permitted by law deemed to be an “at-the-market offering” as defined in Rule 415(a)(4) of the Securities Act. The Company or the HCW may, upon written notice to the other party in accordance with the terms of the Sales Agreement, suspend offers and sales of the Shares. The Company and HCW each have the right, in its sole discretion, to terminate the Sales Agreement at any time upon prior written notice pursuant to the terms and subject to the conditions set forth in the Sales Agreement.
Public Offering
2020 Public Offering and NASDAQ Capital Market Uplisting
In August 2020, the Company recordedclosed an underwritten public offering of its common stock at a public offering price of $4.00 per share for gross proceeds of approximately $60,000 and $22,000, respectively$12.4 million, which included the full exercise of interest expense in the accompanying consolidated statements of operations related to the Unrestricted Line of Credit.
Concurrent with the announcement of the public offering, on August 14, 2020, the Company’s common stock commenced trading on The NASDAQ Capital Market under the Linesymbol “FLUX.”
Private Placements
2020 Private Placement
On April 22, 2020, the Company sold and issued an aggregate of Credit divided by the conversion price of $1.20, for a term of five years, at an exercise price per share equal to $2.00. Accordingly, in connection with the advance of $215,000, Lender is entitled to purchase up to 179,16766,250 shares of common stock, upon exerciseat $4.00 per share, for an aggregate purchase price of $265,000 in cash to two (2) accredited investors (the “2020 Private Placement”). On June 30, 2020, the Company completed an initial closing of the warrant at $2.00 per share. The Lender has no other material relationship with the Company or its affiliates. The estimated relative fair value2020 Private Placement offering of warrants issued in connection with advances under the Line of Credit is recorded as a debt discount and is amortized as additional interest expense over the term of the underlying debt. The Company recorded debt discount of approximately $85,000 based on the relative fair value of these warrants. In addition, as the effective conversion price of the debt was less than the market price of the underlying common stock on the date of issuance, the Company recorded additional debt discount of approximately $80,000 relatedup to the beneficial conversion feature. As of June 30, 2017, the Line of Credit has been paid in full. During the year ended June 30, 2017 the Company recorded approximately $19,000 of debt discount amortization, which is included in interest expense in the accompanying consolidated statements of operations.
The securitiesshares offered and sold in the Offering have not been registered under the Securities Act. The securities2020 Private Placement described above were offered and sold to accredited investors in reliance upon exemptions from registration pursuant to Rule 506506(b) of Regulation D promulgated thereunder.
Debt Conversion
LOC Conversion
On June 30, 2020, there was a partial conversion of the debt underlying the secured promissory notes issued to lenders under the LOC at a conversion price of $0.40$4.00 per share triggered an anti-dilution provision for warrant holders under our 2012 Private Placement pursuant to which(the “Conversion”). At the option of the lenders, on June 30, 2020, an aggregate of 290,735approximately $7,383,000 in principal and accrued interest outstanding under the LOC was converted into 1,845,830 shares of common stock, may be purchased upon exercise. Aswhich consisted of (a) partial conversion of Principal plus interest under the Esenjay LOC Note in the amount of $4,400,000 into 1,100,000 shares of common stock at $4.00 per share, and (b) conversion of approximately $2,983,000 of the secured promissory notes issued in connection with the LOC, principal plus accrued interest, by other lenders, including certain assignees of the Esenjay LOC Note, into 745,830 shares of common stock.
On November 6, 2020, there was a result,partial conversion of the debt underlying the secured promissory notes issued to lenders under the LOC at a conversion price of $4.00 per share (the “November 2020 Conversion”). At the option of the lenders, on November 6, 2020, an aggregate of approximately $2,161,000 in principal and accrued interest outstanding under the LOC was converted into 540,347 shares of common stock.
In January and March 2021, there was a conversion of the remaining debt underlying the secured promissory notes issued to lenders under the LOC at a conversion price of $4.00 per share. At the option of the lenders, an aggregate of approximately $2,632,000 in principal and accrued interest outstanding under the LOC was converted into 658,103 shares of common stock.
Esenjay Note Conversion
On June 30, 2020, two (2) accredited individuals, who became note holders to the Esenjay Note pursuant to the assignment of such notes by Esenjay to the note holders, converted $500,000 in principal into 125,000 shares of common stock at $4.00 per share.
On July 22, 2020, one accredited individual, who became note holder to the Esenjay Note pursuant to the assignment of such note by Esenjay to the note holder, converted $400,000 in principal into 100,000 shares of common stock at $4.00 per share.
| F-13 |
Warrants
On July 3, 2019, the Company issued a three-year warrant to Cleveland Capital, L.P. (“Cleveland Warrant”) to purchase our common stock in a number equal to one-half percent (0.5%) of the number of shares of common stock outstanding after giving effect to the total number of shares of common stock sold in a public offering at an exercise price equal to the per share public offering price. On September 1, 2019, the Cleveland Warrant was amended and restated to change the warrant coverage from 0.5% to 1% of the number of shares of common stock outstanding after giving effect to the total number of shares of common stock sold in the next private or public offering (“Offering”) at an exercise price equal the per share price of common stock sold in the Offering. The closing of a private offering constituting the Offering occurred on July 24, 2020. Upon such closing, the number and the exercise price of such warrants was reduced from $2.69 to $1.55 per share. The remaining terms, including expiration dates, of all effected warrants remain unchanged. The modified exercise price of the warrants to $1.55 resulted in a repricing modification charge of $12,000 that was recordedCleveland Warrant became determinable, and represented as a cost of capital raised in connection with the offering.
In August 2020 and in conjunction with the Company’s public offering, the Company issued five-year warrants to the underwriters to purchase up to 185,955 shares of ourthe Company’s common stock were sold to accredited investors at $0.70an exercise price of $4.80 per share forand had a total gross proceedsfair value of $4,000,000.approximately $513,000. The securities in the Offering were offered and sold to accredited investors in reliance upon exemptions from registration pursuant to Section 4(a)(2) of the Securities Act and Rule 506 promulgated thereunder.
Warrant detail for the year ended June 30, 20182021 is reflected below:
Number of Warrants | Weighted Average Exercise Price Per Warrant | Remaining Contract Term (# years) | |
| Warrants outstanding and exercisable at June 30, 2017 | 2,342,590 | $1.97 | 0.12 - 1.55 |
Warrants issued | - | $- | - |
Warrants exchanged | (141,643) | $0.60 | - |
Warrants expired | (460,157) | $2.15 | - |
Warrants outstanding and exercisable at June 30, 2018 | 1,740,790 | $2.03 | 0.74 |
Number of Warrants | Weighted Average Exercise Price Per Warrant | Remaining Contract Term (# years) | ||||||||||
| Warrants outstanding and exercisable at June 30, 2020 | 83,205 | $ | 4.00 | 2.01 | ||||||||
| Warrants issued | 185,955 | $ | 4.80 | 5.00 | ||||||||
| Warrants exercised | (40,993 | ) | $ | 4.80 | - | |||||||
| Warrants forfeited | (13,284 | ) | $ | 4.80 | - | |||||||
| Warrants outstanding and exercisable at June 30, 2021 | 214,883 | $ | 4.49 | 2.92 | ||||||||
Warrant detail for the year ended June 30, 20172020 is reflected below:
Number of Warrants | Weighted Average Exercise Price Per Warrant | Remaining Contract Term (# years) | |||
| Warrants outstanding and exercisable at June 30, 2016 | 2,804,010 | $2.00 | 0.39 - 2.50 | ||
| Warrants exchanged | (271,420) | $1.40 | - | ||
| Warrants expired | (190,000) | $3.00 | - | ||
| Warrants outstanding and exercisable at June 30, 2017 | 2,342,590 | $1.97 | 0.12 - 1.55 | ||
Number of Warrants | Weighted Average Exercise Price Per Warrant | Remaining Contract Term (# years) | ||||||||||
| Warrants outstanding and exercisable at June 30, 2019 | 8,333 | $ | 20.00 | 0.25 | ||||||||
| Warrants issued | 83,205 | $ | 4.00 | 3.00 | ||||||||
| Warrants forfeited | (8,333 | ) | $ | 20.00 | - | |||||||
| Warrants outstanding and exercisable at June 30, 2020 | 83,205 | $ | 4.00 | 2.01 | ||||||||
Stock Options
In connection with the reverse acquisition of Flux Power, Inc in 2012, we assumed the 2010 Option Plan. As of June 30, 2021, the number of options outstanding to purchase common stock under the 2010 Option Plan was 22,536. No additional options to purchase common stock may be granted under the 2010 Option Plan.
On November 26, 2014, our boardthe Board of directorsDirectors approved ourthe 2014 Equity Incentive Plan (the “2014 Option Plan”), which was approved by our shareholdersthe Company’s stockholders on February 17, 2015. The 2014 Option Plan offers selected employees, directors, and consultants the opportunity to acquire our common stock subject to vesting requirements and serves to encourage such persons to remain employed by us and to attract new employees. The 2014 Option Plan allows for the award of stock and options, up to 10,000,0001,000,000 shares of our common stock.
Activity in stock options during the year ended June 30, 20182021 and related balances outstanding as of that date are reflected below:
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contract Term (# years) | |
| Outstanding at June 30, 2017 | 716,277 | $1.10 | 7.09 |
| Granted | 2,925,106 | 0.78 | |
| Exercised | - | ||
| Forfeited and cancelled | (96,910) | $0.57 | |
| Outstanding at June 30, 2018 | 3,544,473 | $0.83 | 8.87 |
| Exercisable at June 30, 2018 | 1,356,806 | $0.74 | 7.71 |
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contract Term (# years) | ||||||||||
| Outstanding at June 30, 2020 | 579,584 | $ | 11.00 | 7.55 | ||||||||
| Exercised | (22,760 | ) | $ | 6.16 | ||||||||
| Forfeited and cancelled | (25,619 | ) | $ | 14.62 | ||||||||
| Outstanding at June 30, 2021 | 531,205 | $ | 11.02 | 6.73 | ||||||||
| Exercisable at June 30, 2021 | 490,323 | $ | 10.87 | 6.64 | ||||||||
Activity in stock options during the year ended June 30, 20172020 and related balances outstanding as of that date are reflected below:
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contract Term (# years) | ||||||||||
| Outstanding at June 30, 2019 | 580,171 | $ | 11.05 | 8.59 | ||||||||
| Granted | 19,272 | $ | 8.45 | |||||||||
| Exercised | (5,249 | ) | $ | 4.68 | ||||||||
| Forfeited and cancelled | (14,610 | ) | $ | 11.86 | ||||||||
| Outstanding at June 30, 2020 | 579,584 | $ | 11.00 | 7.55 | ||||||||
| Exercisable at June 30, 2020 | 454,156 | $ | 10.77 | 7.27 | ||||||||
Restricted Stock Units
On November 5, 2020, the Company’s Board of Directors approved an amendment to the Company’s 2014 Option Plan, to allow grants of Restricted Stock Units (“RSUs”). Subject to vesting requirements set forth in the RSU Award Agreement, one share of common stock is issuable for one vested RSU. On November 5, 2020, the Board of Directors authorized the following RSUs to be granted under the amended 2014 Option Plan: (i) a total of 43,527 RSUs to certain executive officers as one-time retention incentive awards, and (ii) a total of 91,338 RSUs to certain key employees as annual equity compensation of which 45,652 were performance-based RSUs and 45,686 were time-based RSUs. On April 29, 2021, an additional 18,312 time-based RSUs were authorized by the Company’s Board of Directors to be granted under the amended 2014 Option Plan.
Activity in RSUs during the year ended June 30, 2021 and related balances outstanding as of that date are reflected below:
| Number of Shares | Weighted Average Grant date Fair Value | Weighted Average Remaining Contract Term (# years) | ||||||||||
| Outstanding at June 30, 2020 | - | $ | - | - | ||||||||
| Granted | 153,177 | $ | 9.20 | - | ||||||||
| Forfeited and cancelled | (21,525 | ) | $ | 8.88 | - | |||||||
| Outstanding at June 30, 2021 | 131,652 | $ | 9.25 | 2.72 | ||||||||
There were no RSUs granted or outstanding during the year ended June 30, 2020.
| F-15 |
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contract Term (# years) | |
| Outstanding at June 30, 2016 | 900,402 | $1.13 | |
| Granted | - | ||
| Exercised | - | ||
| Forfeited and cancelled | (184,125) | $1.63 | |
| Outstanding at June 30, 2017 | 716,277 | $1.10 | 7.09 |
| Exercisable at June 30, 2017 | 589,476 | $1.11 | 6.80 |
Stock-based Compensation
Stock-based compensation expense recognized in ourthe consolidated statements of operations for the year ended June 30, 20182021 and 2017,2020, includes compensation expense for stock-based options and awards granted based on the grant date fair value. For options and awards granted, expenses are amortized under the straight-line method over the expected vesting period. Stock-based compensation expense recognized in the consolidated statements of operations has been reduced for estimated forfeitures of options that are subject to vesting. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
At June 30, 2018, was $0.57, and as a result2021, the aggregate intrinsic value of the exercisable options at June 30, 2018, was $107,000.
We allocated stock-based compensation expense included in the consolidated statements of operations for employee option grants and non-employee option grants as follows:
| Years ended June 30, | 2018 | 2017 |
| Research and development | $96,000 | $13,000 |
| General and administrative | 159,000 | 27,000 |
| Total stock-based compensation expense | $255,000 | $40,000 |
| Years ended June 30, | 2021 | 2020 | ||||||
| Research and development | $ | 178,000 | $ | 215,000 | ||||
| Selling and administrative | 619,000 | 1,588,000 | ||||||
| Total stock-based compensation expense | $ | 797,000 | $ | 1,803,000 | ||||
The Company uses the Black-Scholes valuation model to calculate the fair value of stock options. The fair value of stock options was measured at the grant date using the assumptions (annualized percentages) in the table below:
2018 | 2017 | |
| Expected volatility | 138% -143% | 100% |
| Risk free interest rate | 1.76% - 2.63% | 1.31% |
| Forfeiture rate | 20% -2 3% | 17%-24% |
| Dividend yield | 0% | 0% |
| Expected term (years) | 5 | 3 |
| Years ended June 30, | 2021 | 2020 | ||||||
| Expected volatility | 0 | % | 100.6% - 119.6 | % | ||||
| Risk free interest rate | 0 | % | 0.35% - 2.00 | % | ||||
| Forfeiture rate | 20 | % | 20 | % | ||||
| Dividend yield | 0 | % | 0 | % | ||||
| Expected term (years) | 0 | 6.35 | ||||||
At June 30, 2021, the unamortized stock-based compensation expense at June 30, 2018 relating to outstanding stock options isand RSUs was approximately $1,338,000, which is$361,000 and $687,000, respectively, and these amounts are expected to be recognizedexpensed over the weighted averageweighted-average remaining recognition period of 2.10 years.
NOTE 910 - INCOME TAXES
Pursuant to the provisions of FASB ASC Topic No. 740 Income Taxes (“ASC 740”), deferred income taxes reflect the net effect of (a) temporary difference between carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating loss carryforwards. No net provision for refundable Federal income taxes has been made in the accompanying statement of operations because no recoverable taxes were paid previously. Significant components of the Company’s net deferred tax assets at June 30, 20182021 and 20172020 are shown below. A valuation allowance of approximately $8,589,000$18,839,000 and $9,927,000$15,174,000 has been established to offset the net deferred tax assets as of June 30, 20182021 and 2017,2020, respectively, due to uncertainties surrounding the Company’s ability to generate future taxable income to realize these assets.
The Company is subject to taxation in the United States and California. The Company’s tax years for 2010 and forward are subject to examination by the United States and California tax authorities due to the carry forward of unutilized net operating losses and research and development credits (if any).
The Company has incurred losses since inception, so no current income tax provision or benefit has been recorded. Significant components of ourthe Company’s net deferred tax assets are shown in the table below.
Year Ended June 30, | ||
2018 | 2017 | |
| Deferred Tax Assets: | ||
| Net operating loss carryforwards | $7,333,000 | $8,126,000 |
| Stock compensation | 1,160,000 | 1,646,000 |
| Other, net | 96,000 | 155,000 |
| Net deferred tax assets | 8,589,000 | 9,927,000 |
| Valuation allowance for deferred tax assets | (8,589,000) | (9,927,000) |
| Net deferred tax assets | $- | $- |
| Year Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Deferred Tax Assets: | ||||||||
| Net operating loss carryforwards | $ | 16,111,000 | $ | 12,865,000 | ||||
| Research & development credit carryforward | 27,000 | - | ||||||
| Stock compensation | 1,696,000 | 1,652,000 | ||||||
| Interest expense Sec. 163 | 366.000 | 261,000 | ||||||
| Lease liability | 924,000 | 1,004,000 | ||||||
| Other, net | 564,000 | 353,000 | ||||||
| Net deferred tax assets | 19,688,000 | 16,135,000 | ||||||
| Valuation allowance for deferred tax assets | (18,839,000 | ) | (15,174,000 | ) | ||||
| Total deferred tax assets | $ | 849,000 | $ | 961,000 | ||||
| Deferred Tax Liabilities: | ||||||||
| Right of use asset | $ | (849,000 | ) | $ | (961,000 | ) | ||
| Total deferred tax liabilities | (849,000 | ) | (961,000 | ) | ||||
| Net deferred tax liabilities | $ | - | $ | - | ||||
At June 30, 2018,2021, the Company had unused net operating loss (“NOL”) carryovers of approximately $26,837,000$57,472,000 and $26,794,000$57,871,000 that are available to offset future federal and state taxable income, respectively. These operating lossesFederal NOL carryforwards arising after 2017 of approximately $35,064,000 do not expire. Federal NOL carryforwards arrising before 2018 of approximately $22,408,000 and all of the state NOL carryforward begin to expire in 2030.
The provision for income taxes on earnings subject to income taxes differs from the statutory federal rate at June 30, 20182021 and 2017,2020, due to the following:
Year Ended June 30, | ||
2018 | 2017 | |
Federal income taxes at 21% and 34%, respectively | $(1,915,000) | $(1,508,000) |
| State income taxes, net | (446,000) | (392,000) |
| Permanent differences and other | 345,000 | 83,000 |
| Change in the estimated fair market value of derivatives | - | 6,000 |
| Other true ups, if any | (206,000) | (9,000) |
| Change in federal tax rate | 3,560,000 | - |
| Change in valuation allowance | (1,338,000) | 1,820,000 |
| Provision for income taxes | $- | $- |
| Year Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Federal income taxes at 21% | $ | (2,686,000 | ) | $ | (3,011,000 | ) | ||
| State income taxes, net | (894,000 | ) | (1,001,000 | ) | ||||
| Permanent differences and other | (58,000 | ) | 474,000 | |||||
| Other true ups, if any | (27,000 | ) | - | |||||
| Change in federal tax rate | - | - | ||||||
| Change in valuation allowance | (3,665,000 | ) | (3,538,000 | ) | ||||
| Provision for income taxes | $ | - | $ | - | ||||
Internal Revenue Code Sections 382 limits the use of our net operating loss carryforwards if there has been a cumulative change in ownership of more than 50% within a three-year period. The Company has not yet completed a Section 382 net operating loss analysis. In the event that such analysis determines there is a limitation on the use on net operating loss carryforwards to offset future taxable income, the recorded deferred tax asset relating to such net operating loss carryforwards will be reduced. However, as the Company has recorded a full valuation allowance against its net deferred tax assets, there is no impact on the Company’s consolidated financial statements as of June 30, 20182021 and 2017.
Under ASC 740, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
In accordance with ASC 740, there are no unrecognized tax benefits as of June 30, 20182021 or June 30, 2017.
Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and unsecured trade accounts receivable. The Company maintains cash balances at a financial institution in San Diego, California.California commercial bank. Our cash balance at this institution is secured by the Federal Deposit Insurance Corporation up to $250,000. As of June 30, 2018,2021 and 2020, cash totaledwas approximately $2,706,000,$4,713,000, and $726,000 respectively, which consistsconsisted of funds held in a non-interest bearing bank deposit account. The Company has not experienced any losses in such accounts. Management believes that the Company is not exposed to any significant credit risk with respect to its cash.
| F-17 |
Customer Concentrations
During the year ended June 30, 2018, we2021, the Company had twothree (3) major customers that each represented more than 10% of ourits revenues, on an individual basis, and together represented approximately $16,004,000 or approximately $3,181,000 or 77%61% of ourits total revenues.
During the year ended June 30, 2017, we2020, the Company had three (3) major customers that each represented more than 10% of ourits revenues, on an individual basis, and together represented approximately $10,045,000 or approximately $524,000 or 58%60% of ourits total revenues.
Suppliers/Vendor Concentrations
The Company obtains a limited number of components and supplies included in ourits products from a small group of suppliers. During the year ended June 30, 2018 we2021 the Company had threetwo (2) suppliers who accounted for more than 10% of ourits total purchases, on an individual basis. Purchases for these three suppliers totaled $2,285,000basis, and together represented approximately $9,260,000 or 50%27% of ourits total purchases.
During the year ended June 30, 2017 we2020, the Company had threetwo (2) suppliers who accounted for more than 10% of ourits total purchases, on an individual basis. Purchases for these three suppliers totaled $1,665,000basis, and together represented approximately $6,598,000 or 57%35% of ourits total purchases.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
From time to time, wethe Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. To the best knowledge of management, there are no material legal proceedings pending against the Company.
Operating Leases
On April 25, 2019 the Company signed a Standard Industrial/Commercial Multi-Tenant Lease (“Lease”) with Accutek to rent approximately 45,600 square feet and is located inof industrial space at 2685 S. Melrose Drive, Vista, California. EffectiveThe Lease has an initial term of seven years and four months, commencing on or about June 28, 2019. The lease contains an option to extend the term for two periods of 24 months, and the right of first refusal to lease an additional approximate 15,300 square feet. The monthly rental rate was $42,400 for the first 12 months, escalating at 3% each year.
On February 25, 2014,26, 2020, the Company entered into the First Amendment to Standard Industrial/Commercial Multi-Tenant Lease dated April 25, 2019 (the “Amendment”) with Accutek to rent an additional 16,309 rentable square feet of space plus a two-year lease agreement for this facility with average monthly rent paymentsresidential unit of approximately $12,000 per month1,230 rentable square feet (for a total of approximately 17,539 rentable square feet). The lease for the additional space commenced 30 days following the occupancy date of the additional space, and paid a security deposit of $25,000, or approximately 2 months of rent. Our lease was subsequently amended resulting in average rent expense of $14,000 per month and expiring on May 31, 2018. A third amendment toterminates concurrently with the term for the lease in May 2018 extendedof the original lease, which expires on November 20, 2026. The base rent for the additional space is the same rate as the space rented under the terms of the original lease, $0.93 per rentable square (subject to May 31, 20193% annual increase). In connection with an average rent expensethe Amendment, the Company purchased certain existing office furniture for a total purchase price of approximately $15,000 per month.
Total rent expense was $160,000approximately $841,000 and $140,000$673,000 for the years ended June 30, 20182021 and 2017,2020, respectively, net of sublease income.
The Future Minimum Lease Payments are:
| 2022 | $ | 746,000 | ||
| 2023 | 768,000 | |||
| 2024 | 791,000 | |||
| 2025 | 815,000 | |||
| 2026 | 840,000 | |||
| Thereafter | 359,000 | |||
| Total Future Minimum Lease Payments | 4,319,000 | |||
| Less: discount | (1,018,000 | ) | ||
| Total lease liability | $ | 3,301,000 |
NOTE 13 - SUBSEQUENT EVENTS
On July 25, 2018, our BoardSeptember 22, 2021, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with several institutional and accredited investors (the “Purchasers”), pursuant to which the Company agreed to sell in a registered direct offering an aggregate of Directors granted Ronald F. Dutt, our chief executive officer president, chief financial officer,2,142,860 shares of Common Stock of the Company (the “Shares”) and corporate secretary, optionswarrants to purchase 335,264up to 1,071,430 shares of ourits common stock with(the “Warrants”), at a combined purchase price of $7.00 per share and related Warrant, for aggregate gross proceeds to the Company of approximately $15 million, before deducting placement agent fees and offering expenses payable by the Company (the “Registered Offering”).
Subject to certain ownership limitations, the Warrants will be exercisable immediately from the date of issuance, will expire on the five (5) year anniversary of the date of issuance and will have an exercise price equal to $1.98of $7.00 per share and will vest quarterly over a two-year period following the date of grant and expire on July 25, 2028.share. The exercise price of the Warrants is subject to certain adjustments, including stock dividends, stock splits, combinations and reclassifications of the Company’s common stock.
The Registered Offering is anticipated to close on or about September 27, 2021.
Pursuant to an engagement letter, dated as of September 22, 2021, we have engaged H.C. Wainwright & Co., LLC (“HCW” or the “Placement Agent”) to act as our exclusive Placement Agent in connection with the Registered Offering. As compensation in connection with the Registered Offering, the Company paid HCW a cash fee equal to 6.0% of the fair market valuegross proceeds of our common stock,the Registered Offering.
The net proceeds from the Registered Offering, after deducting placement agent fees and offering expenses, are approximately $14 million.
The Shares and the Warrants and the shares issuable upon exercise of the Warrants were offered and are being sold by the Company pursuant to an effective shelf registration statements on Form S-3 (File No. 333-249521), which is $1.98 per share basedwas originally filed with the SEC on our 30 day volume-weighted average priceOctober 16, 2020 and declared effective on July 25, 2018. The options were issued under the 2014 Equity Incentive Plan.October 26, 2020.
| F-18 |