UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 20222023

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 001-31543

 

FLUX POWER HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada 86-093133292-3550089
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

 

2685 S. Melrose Drive, Vista, California 92081
(Address of principal executive offices) (Zip Code)

 

877-505-3589

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Title of Each Class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.001 per share FLUX Nasdaq Capital Market

Securities registered pursuant to Section 12(g) of the Act: None

 

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 every Interactive Data File required to be submitted 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 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.

 

Large accelerated filer Accelerated filer
Non-accelerated filer 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No

 

The number of shares of registrant’s common stock outstanding as of May 10, 20228, 2023 was 15,996,65816,316,229.

 

 

 

 

FLUX POWER HOLDINGS, INC.

 

FORM 10-Q

For the Quarterly Period Ended March 31, 20222023

Table of Contents

 

PART I - Financial Information 
   
ITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)45
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS1920
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK2628
ITEM 4.CONTROLS AND PROCEDURES2628
   
PART II - Other Information 
   
ITEM 1.LEGAL PROCEEDINGS2297
ITEM 1A.RISK FACTORS2729
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS2729
ITEM 3.DEFAULTS UPON SENIOR SECURITIES2729
ITEM 4.MINE SAFETY DISCLOSURES2729
ITEM 5.OTHER INFORMATION2729
ITEM 6.EXHIBITS2729
   
SIGNATURES2830

Page 2

 

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

 

This report contains forward-looking statements. The forward-looking statements are contained principally in the section captioned “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” in our Annual Report on Form 10-K for the fiscal year ended June 30, 20212022 filed with the SEC on September 27, 2021.28, 2022. 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:

 

to date we have not generated sufficient cash to fund our operations. At March 31, 2023, we had a cash balance of $790,000, $10.5 million outstanding under a revolving line of credit, and an accumulated deficit of $87.1 million. Our operating plan and forecast include a number of estimates and assumptions including our ability to execute our proposed plans, to generate revenue from our current backlog, to increase both revenue and gross profit, to implement cost reductions and to maintain access to cash funder our existing two credit facilities. If we are not successful in executing our plans as expected, our ability to continue as a going concern will be adversely affected;
our ability to secure sufficient funding to support our current and proposed operations, which could be more difficult in light ofconsidering the negative impact of the COVID-19 pandemic on our operations, customer demand and supply chain, difficult stock market conditions as well as investor sentiment regarding our industry and our stock;
  
our ability to manage our working capital requirements efficiently;
our ability to obtain the necessary funds from our credit facilities;
  
our ability to maintain our credit facilities and obtain the necessary funds as needed;
our ability to maintain effective internal controls, our ability to record, process and report financial information timely and accurately could be adversely affected and could result in a material misstatement in our financial statements, which could subject us to litigation or investigations, require management resources, increase our expenses, negatively affect investor confidence in our financial statements and adversely impact the trading price of our common stock.
our ability to grow our revenue, increase our gross profit margin and become a profitable business;
our ability to realize revenue from the current backlog is dependent on among other things, the delivery of key parts from our vendors in a timely manner. Backlog may not be indicative of future operating results, and existing orders may be cancelled, modified or otherwise altered by customers. We can provide no assurance as to the profitability of the contracts reflected in our backlog;
our ability to fulfill our backlog of open sales orders given delays in the receipt of key component parts and other potential manufacturing disruptions posed by the ongoing COVID-19 pandemic and general supply chain issues;
our ability to obtain raw materials and other supplies for our products at existing or competitive prices and on a timely basis, particularly in light ofconsidering the impact of COVID-19 pandemic and inflation on our suppliers and supply chain;
  
our anticipated growth strategies and our ability to manage the expansion of our business operations effectively;

Page 3 

 
our ability to maintain or increase our market share in the competitive markets in which we do business;
  
our ability to grow our revenue, increase our gross profit margin and become a profitable business;
 
our ability to fulfill our backlog of open sales orders due to delays in the receipt of key component parts and other potential manufacturing disruptions posed by the ongoing COVID-19 pandemic;
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 ability to shift to new suppliers and incorporate new components into our products 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 attract and 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 ourfew 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.

 

3Page 4

 

 

PART I - Financial Information

 

Item 1. Financial Statements

 

FLUX POWER HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 March 31, 2022  June 30, 2021  

March 31,

2023

 

June 30,

2022

 
 (Unaudited)      (Unaudited)    
ASSETS                
                
Current assets:                
Cash $3,804,000  $4,713,000  $790,000  $485,000 
Accounts receivable  9,508,000   6,097,000   9,853,000   8,609,000 
Inventories, net  20,934,000   10,513,000   20,959,000   16,262,000 
Other current assets  577,000   417,000   775,000   1,261,000 
Total current assets  34,823,000   21,740,000   32,377,000   26,617,000 
Right of use asset  2,711,000   3,035,000 
Right of use assets  3,035,000   2,597,000 
Property, plant and equipment, net  1,588,000   1,356,000   1,724,000   1,578,000 
Other assets  89,000   131,000   119,000   89,000 
                
Total assets $39,211,000  $26,262,000  $37,255,000  $30,881,000 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                
Current liabilities:                
Accounts payable $13,361,000  $7,175,000  $10,827,000  $6,645,000 
Accrued expenses  2,142,000   2,583,000   2,604,000   2,209,000 
Line of credit  3,500,000   -   10,491,000   4,889,000 
Deferred revenue  313,000   24,000   -   163,000 
Customer deposits  690,000   171,000   135,000   175,000 
Finance lease payable, current portion  140,000   - 
Office lease payable, current portion  486,000   435,000   616,000   504,000 
Accrued interest  2,000   2,000   3,000   1,000 
Total current liabilities  20,494,000   10,390,000   24,816,000   14,586,000 
                
Office lease payable, less current portion  2,493,000   2,866,000   2,223,000   2,361,000 
Finance lease payable, less current portion  311,000   - 
                
Total liabilities  22,987,000   13,256,000   27,350,000   16,947,000 
                
Stockholders’ equity:                
                
Preferred stock, $0.001 par value; 500,000 shares authorized; NaN issued and outstanding  -   - 
Common stock, $0.001 par value; 30,000,000 shares authorized; 15,992,080 and 13,652,164 shares issued and outstanding at March 31, 2022 and June 30, 2021, respectively  16,000   14,000 
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; 16,156,432 and 15,996,658 shares issued and outstanding at March 31, 2023 and June 30, 2022, respectively  16,000   16,000 
Additional paid-in capital  95,369,000   79,197,000   96,968,000   95,732,000 
Accumulated deficit  (79,161,000)  (66,205,000)  (87,079,000)  (81,814,000)
                
Total stockholders’ equity  16,224,000   13,006,000   9,905,000   13,934,000 
                
Total liabilities and stockholders’ equity $39,211,000  $26,262,000  $37,255,000  $30,881,000 

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 5

FLUX POWER HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

  2023  2022  2023  2022 
  Three Months Ended March 31,  Nine Months Ended March 31, 
  2023  2022  2023  2022 
Revenues $15,087,000  $13,177,000  $50,085,000  $27,138,000 
Cost of sales  10,368,000   11,257,000   37,310,000   22,838,000 
                 
Gross profit  4,719,000   1,920,000   12,775,000   4,300,000 
                 
Operating expenses:                
Selling and administrative  4,724,000   3,904,000   13,510,000   11,402,000 
Research and development  1,182,000   1,713,000   3,567,000   5,768,000 
Total operating expenses  5,906,000   5,617,000   17,077,000   17,170,000 
                 
Operating loss  (1,187,000)  (3,697,000)  (4,302,000)  (12,870,000)
                 
Other income  -   -   8,000   - 
Interest expense  (258,000)  (52,000)  (971,000)  (86,000)
                 
Net loss $(1,445,000) $(3,749,000) $(5,265,000) $(12,956,000)
                 
Net loss per share - basic and diluted $(0.09) $(0.23) $(0.33) $(0.85)
                 
Weighted average number of common shares outstanding - basic and diluted  16,048,054   15,988,926   16,021,653   15,254,983 

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 6

FLUX POWER HOLDING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

  Shares  Capital Stock Amount  Additional Paid-in Capital  Accumulated Deficit  Total 
  Common Stock          
  Shares  Capital Stock Amount  Additional Paid-in Capital  Accumulated Deficit  Total 
Balance at June 30, 2022  15,996,658  $16,000  $95,732,000  $(81,814,000) $13,934,000 
                     
Issuance of common stock – exercised options and RSU settlement  1,678   -   -   -   - 
Stock based compensation  -   -   95,000   -   95,000 
Net loss  -   -   -   (2,139,000)  (2,139,000)
Balance at September 30, 2022  15,998,336   16,000   95,827,000   (83,953,000)  11,890,000 
                     
Issuance of common stock – exercised options and RSU settlement  31,142   -   -   -   - 
Stock based compensation  -   -   209,000   -   209,000 
Net loss  -   -   -   (1,681,000)  (1,681,000)
Balance at December 31, 2022  16,029,478   16,000   96,036,000   (85,634,000)  10,418,000 
                     
Issuance of common stock – public offering, net of costs  126,954   -   697,000   -   697,000 
Stock based compensation  -   -   235,000   -   235,000 
Net loss  -   -   -   (1,445,000)  (1,445,000)
Balance at March 31, 2023  16,156,432  $16,000  $96,968,000  $(87,079,000) $9,905,000 

  Common Stock          
  Shares  Capital Stock Amount  Additional Paid-in Capital  Accumulated Deficit  Total 
Balance at June 30, 2021  13,652,164  $14,000  $79,197,000  $(66,205,000) $13,006,000 
                     
Issuance of common stock and warrants – registered direct offering, net of costs  2,142,860   2,000   14,074,000   -   14,076,000 
Issuance of common stock – public offering, net of costs  190,782   -   1,602,000   -   1,602,000 
Issuance of common stock – exercised options  1,696   -   -   -   - 
Stock based compensation  -   -   200,000   -   200,000 
Net loss  -   -   -   (4,130,000)  (4,130,000)
Balance at September 30, 2021  15,987,502   16,000   95,073,000   (70,335,000)  24,754,000 
                     
Additional offering costs related to the registered direct offering  -   -   (105,000)  -   (105,000)
Stock based compensation  -   -   249,000   -   249,000 
Net loss  -   -   -   (5,077,000)  (5,077,000)
Balance at December 31, 2021  15,987,502   16,000   95,217,000   (75,411,000)  19,822,000 
Balance  15,987,502  $16,000  $95,217,000  $(75,411,000) $19,822,000 
                     
Issuance of common stock – RSU settlement  4,578   -   -   -   - 
Stock based compensation  -   -   152,000   -   152,000 
Net loss  -   -   -   (3,749,000)  (3,749,000)
Balance at March 31, 2022  15,992,080  $16,000  $95,369,000  $(79,161,000) $16,224,000 
Balance  15,992,080  $16,000  $95,369,000  $(79,161,000) $16,224,000 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4Page 7

 

FLUX POWER HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCASH FLOWS

(Unaudited)

 

  2022  2021  2022  2021 
  

Three Months Ended

March 31,

  

Nine Months Ended

March 31,

 
  2022  2021  2022  2021 
Revenues $13,177,000  $6,964,000  $27,138,000  $17,932,000 
Cost of sales  11,257,000   5,287,000   22,838,000   13,893,000 
                 
Gross profit  1,920,000   1,677,000   4,300,000   4,039,000 
                 
Operating expenses:                
Selling and administrative  3,904,000   3,122,000   11,402,000   9,177,000 
Research and development  1,713,000   1,523,000   5,768,000   4,624,000 
Total operating expenses  5,617,000   4,645,000   17,170,000   13,801,000 
                 
Operating loss  (3,697,000)  (2,968,000)  (12,870,000)  (9,762,000)
                 
Other income (expense):                
Other income  -   1,307,000   -   1,307,000 
Interest expense  (52,000)  (64,000)  (86,000)  (618,000)
                 
Net loss $(3,749,000) $(1,725,000) $(12,956,000) $(9,073,000)
                 
Net loss per share - basic and diluted $(0.23) $(0.14) $(0.85) $(0.80)
                 
Weighted average number of common shares outstanding - basic and diluted  15,988,926   12,499,870   15,254,983   11,300,229 
  2023  2022 
  Nine Months Ended March 31, 
  2023  2022 
Cash flows from operating activities:        
Net loss $(5,265,000) $(12,956,000)
Adjustments to reconcile net loss to net cash used in operating activities        
Depreciation  647,000   412,000 
Stock-based compensation  539,000   601,000 
Amortization of debt issuance costs  445,000   - 
Noncash lease expense  370,000   324,000 
Allowance for inventory reserve  214,000   109,000 
Changes in operating assets and liabilities:        
Accounts receivable  (1,244,000)  (3,411,000)
Inventories  (4,911,000)  (10,530,000)
Other current assets  11,000   (118,000)
Accounts payable  4,182,000   6,186,000 
Accrued expenses  395,000   (441,000)
Accrued interest  2,000   - 
Office lease payable  (379,000)  (322,000)
Deferred revenue  (163,000)  289,000 
Customer deposits  (40,000)  519,000 
Net cash used in operating activities  (5,197,000)  (19,338,000)
         
Cash flows from investing activities        
Purchases of equipment  (753,000)  (644,000)
Proceeds from sale of fixed assets  8,000   - 
Net cash used in investing activities  (745,000)  (644,000)
         
Cash flows from financing activities:        
Proceeds from issuance of common stock in registered direct offering, net of offering costs  -   13,971,000 
Proceeds from issuance of common stock in public offering, net of offering costs  697,000   1,602,000 
Proceeds from revolving line of credit  48,800,000   3,500,000 
Payment of revolving line of credit  (43,198,000)  - 
Payment of financed leases  (52,000)  - 
Net cash provided by financing activities  6,247,000   19,073,000 
         
Net change in cash  305,000   (909,000)
Cash, beginning of period  485,000   4,713,000 
         
Cash, end of period $790,000  $3,804,000 
         
Supplemental Disclosures of Non-Cash Investing and Financing Activities:        
Initial right of use asset recognition $855,000  $- 
Common stock issued for vested RSUs $114,000  $10,000 
Supplemental cash flow information:        
Interest paid $524,000  $86,000 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5Page 8

 

FLUX POWER HOLDING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

  Shares  Capital Stock Amount  Additional Paid-in Capital  Accumulated Deficit  Total 
  Common Stock          
  Shares  Capital Stock Amount  Additional Paid-in Capital  Accumulated Deficit  Total 
Balance at June 30, 2021  13,652,164  $14,000  $79,197,000  $(66,205,000) $13,006,000 
Issuance of common stock and warrants – registered direct offering, net of costs  2,142,860   2,000   14,074,000   -   14,076,000 
Issuance of common stock – public offering, net of costs  190,782   -   1,602,000   -   1,602,000 
Issuance of common stock – exercised options  1,696   -   -   -   - 
Stock based compensation  -   -   200,000   -   200,000 
Net loss  -   -   -   (4,130,000)  (4,130,000)
Balance at September 30, 2021  15,987,502   16,000   95,073,000   (70,335,000)  24,754,000 
                     
Additional offering costs related to the registered direct offering  -   -   (105,000)  -   (105,000)
Stock based compensation  -   -   249,000   -   249,000 
Net loss  -   -   -   (5,077,000)  (5,077,000)
Balance at December 31, 2021  15,987,502   16,000   95,217,000   (75,412,000)  19,821,000 
Issuance of common stock – RSU settlement  4,578   -   -   -   - 
Stock based compensation  -   -   152,000   -   152,000 
Net loss  -   -   -   (3,749,000)  (3,749,000)
Balance at March 31, 2022  15,992,080  $16,000  $95,369,000  $(79,161,000) $16,224,000 

  Common Stock          
  Shares  Capital Stock Amount  Additional 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 – private placement transactions, net  800,000   1,000   3,199,000   -   3,200,000 
Issuance of common stock – debt conversion  100,000   -   400,000   -   400,000 
Issuance of common stock – public offering, net of costs  3,099,250   3,000   10,695,000   -   10,698,000 
Fair value of warrants issued  -   -   174,000   -   174,000 
Stock based compensation  -   -   225,000   -   225,000 
Net loss  -   -   -   (3,984,000)  (3,984,000)
Balance at September 30, 2020  11,419,737   11,000   61,678,000   (57,396,000)  4,293,000 
Issuance of common stock – exercised options  6,289   -   -   -   - 
Issuance of common stock – debt conversion  540,347   1,000   2,160,000   -   2,161,000 
Issuance of common stock, net of costs  226,737   -   3,336,000   -   3,336,000 
Stock based compensation  -   -   197,000   -   197,000 
Net loss  -   -   -   (3,364,000)  (3,364,000)
Balance at December 31, 2020  12,193,110   12,000   67,371,000   (60,760,000)  6,623,000 
Issuance of common stock – exercised options and warrants  37,676   -   29,000   -   29,000 
Issuance of common stock – debt conversion  658,103   1,000   2,631,000   -   2,632,000 
Issuance of common stock, net of costs  114,906   -   1,743,000   -   1,743,000 
Stock based compensation  -   -   228,000   -   228,000 
Net loss  -   -   -   (1,725,000)  (1,725,000)
Balance at March 31, 2021  13,003,795  $13,000  $72,002,000  $(62,485,000) $9,530,000 

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

FLUX POWER HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

  2022  2021 
  Nine Months Ended March 31, 
  2022  2021 
Cash flows from operating activities:        
Net loss $(12,956,000) $(9,073,000)
Adjustments to reconcile net loss to net cash used in operating activities        
Depreciation  412,000   176,000 
Stock-based compensation  601,000   650,000 
PPP Loan principal and accrued interest forgiveness  -   (1,307,000)
Fair value of warrant issued as debt issuance cost  -   174,000 
Noncash interest expense  -   426,000 
Noncash rent expense  324,000   297,000 
Allowance for inventory reserve  109,000   (217,000)
Amortization of prepaid offering costs  -   547,000 
Changes in operating assets and liabilities:        
Accounts receivable  (3,411,000)  (1,795,000)
Inventories  (10,530,000)  (3,138,000)
Other current assets  (118,000)  (498,000)
Accounts payable  6,186,000   1,402,000 
Accrued expenses  (441,000)  350,000 
Due to Factor  -   (469,000)
Accrued interest  -   (37,000)
Office lease payable  (322,000)  (191,000)
Deferred revenue  289,000   111,000 
Customer deposits  519,000   (1,408,000)
Net cash used in operating activities  (19,338,000)  (14,000,000)
         
Cash flows from investing activities        
Purchases of equipment  (644,000)  (692,000)
Net cash used in investing activities  (644,000)  (692,000)
         
Cash flows from financing activities:        
Proceeds from issuance of common stock in private placement  -   3,200,000 
Proceeds from issuance of common stock in registered direct offering, net of offering costs  13,971,000   - 
Proceeds from issuance of common stock in public offering, net of offering costs  1,602,000   15,806,000 
Proceeds from revolving line of credit  3,500,000   - 
Payment of short-term loan – related party  -   (1,178,000)
Payment of line of credit – related party  -   (1,402,000)
Principal payments on financing lease payable  -   (28,000)
Net cash provided by financing activities  19,073,000   16,398,000 
         
Net change in cash  (909,000)  1,706,000 
Cash, beginning of period  4,713,000   726,000 
         
Cash, end of period $3,804,000  $2,432,000 
         
Supplemental Disclosures of Non-Cash Investing and Financing Activities:        
Common stock issued for conversion of related party debt $-  $5,193,000 
Accrued interest converted into principal $-  $358,000 
Common stock issued for vested RSUs  9,700   - 
Supplemental cash flow information:        
Interest paid $86,000  $55,000 

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

FLUX POWER HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 20222023

(Unaudited)

 

NOTE 1 - NATURE OF BUSINESS

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) applicable to interim reports of companies filing as a smaller reporting company. These financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 20212022 filed with the SEC on September 27, 2021.28, 2022. In the opinion of management, the accompanying condensed consolidated interim financial statements include all adjustments necessary in order to make the financial statements not misleading. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year or any other future period. Certain notes to the financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year as reported in the Company’s Annual Report on Form 10-K have been omitted. The accompanying condensed consolidated balance sheet at June 30, 20212022 has been derived from the audited balance sheet at June 30, 20212022 contained in such Form 10-K.

 

Nature of Business

 

Flux Power Holdings, Inc. (“Flux”) was incorporated in 20082009 in the State of Nevada, and Flux’s operations are conducted through its wholly owned subsidiary, Flux Power, Inc. (“Flux Power”), a California corporation (collectively, the “Company”).

 

We design, develop, manufacture, and sell a portfolio of advanced lithium-ion energy storage solutions for electrification of a range of industrial commercial sectors which include material handling, airport ground support equipment (“GSE”), and stationary energy storage. We believe our mobile 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 battery packs to be paired with our proprietary wireless battery management system 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 and more environmentally friendly energy storage solutions in the material handling sector should continue to drive our revenue growth.

 

As used herein, the terms “we,” “us,” “our,” “Flux,” and “Company” mean Flux Power Holdings, Inc., unless otherwise indicated. All dollar amounts herein are in U.S. dollars unless otherwise stated.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021.2022. There have been no material changes in these policies or their application.

 

Management has considered all recent accounting pronouncements issued since the last audit of the Company’s consolidated financial statements and believes that these recent pronouncements will not have a material effect on the Company’s condensed consolidated financial statements.

8

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 three months ended March 31, 20222023 and 2021,2022, basic and diluted weighted-average common shares outstanding were 15,988,92616,048,054 and 12,499,87015,988,926, respectively. For the nine months ended March 31, 20222023 and 2021,2022, basic and diluted weighted-average common shares outstanding were 15,254,98316,021,653 and 11,300,22915,254,983, respectively. The Company incurred a net loss for the three and nine months ended March 31, 20222023 and 2021,2022, and therefore, basic and diluted loss per share for the periods were the same because potential common share equivalent would have been anti-dilutive. The total potentially dilutive common shares outstanding at March 31, 20222023 and 20212022 that were excluded from diluted weighted-average common shares outstanding represent shares underlying outstanding convertible debt, stock options, RSUs, and warrants, and totaled 2,070,6522,661,220 and 897,6462,070,652, respectively.

At March 31, 2023 and 2022 potentially dilutive common shares outstanding that were excluded from diluted weighted-average common shares outstanding were as follows:

SCHEDULE OF DILUTIVE COMMON SHARES OUTSTANDING EXCLUDED FROM DILUTIVE WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

  

March 31,

2023

  

March 31,

2022

 
Stock options  992,710   512,193 
RSUs  213,388   272,146 
Warrants  1,455,122   1,286,313 
         
Total  2,661,220   2,070,652 

Page 9

Liquidity Considerations

The accompanying financial statements and notes have been prepared assuming the Company will continue as a going concern. For the nine months ended March 31, 2023 and the year ended June 30, 2022, the Company generated negative cash flows from operations of $5.2 million and $23.9 million, respectively, and had an accumulated deficit of $87.1 million and $81.8 million, respectively. Management has evaluated the Company’s expected cash requirements over the next twelve (12) months, including investments in additional sales and marketing and research and development, capital expenditures, and working capital requirements. Management believes the Company’s existing cash, funding available under the SVB Credit Facility and the subordinated line of credit (“Subordinated LOC”), expected improvements in the gross margin and lower cash requirements will enable the Company to fund planned operations for the next twelve (12) months.

Historically, the Company has not generated sufficient cash to fund its operations. The Company is continuing efforts to improve operational efficiencies and to generate revenue from its existing backlog. Management currently anticipates increased revenues as well as improvements in the Company’s gross margin over the next twelve (12) months. The Company has received new orders in the twelve-month period ended March 31, 2023 of approximately $51.7 million.

As of May 10, 2023, the Company had a cash balance of $1.4 million, $3.8 million remained available for future borrowings under the $14 million SVB Credit Facility and $4.0 million available for future draws under the Subordinated LOC. As of May 10, 2023, $4.6 million remained available under the Company’s ATM agreement. In addition, to support our operations and anticipated growth, we intend to explore additional sources of capital as needed. We also continue to execute our cost reduction, sourcing, pricing recovery initiatives in efforts to increase our gross margins and improve cash flow from operations. Any unforeseen factors in the general economy beyond management’s control could potentially have negative impact on the planned gross margin improvement plan.

 

NOTE 3 – ACCRUED EXPENSES

 

Accrued expenses consist of the following:

SCHEDULE OF ACCRUED EXPENSES 

 

March 31,

2022

 

June 30,

2021

  

March 31,

2023

 

June 30,

2022

 
Payroll and bonus accrual $784,000  $1,271,000  $1,073,000  $767,000 
PTO accrual  438,000   417,000   431,000   430,000 
Warranty liability  920,000   895,000   1,096,000   1,012,000 
Other  4,000   - 
                
Total Accrued expenses $2,142,000  $2,583,000  $2,604,000  $2,209,000 

 

NOTE 4 – 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 was 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 bore 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 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 March 31, 2022, 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.

9

 

Revolving Line of Credit

 

On November 9, 2020, the Company entered into a Loan and Security Agreement (“Loan Agreement”) with Silicon Valley Bank (“SVB”).

On October 29, 2021, the Company entered into a First Amendment to Loan and Security Agreement (“First Amendment” and together with the Loan Agreement, the “Amended Loan“Loan Agreement”) with SVB which amended certain terms of the Loan Agreement including, but not limited to, increasing the amount of the revolving line of credit from $4.0 million to $6.0 million, and extending the maturity date to November 7, 2022. The Amended Loan Agreement providesFirst Amendment provided the Company with a senior secured credit facility for up to $6.0 million available on a revolving basis (“Revolving LOC”). Outstanding principal under the Revolving LOC accruesaccrued interest at a floating rate per annum equal to the greater of (i) Prime Rate plus two and a half percent (2.50%), currently 6.00%, or (ii) five and three-quarters percent (5.75%). Interest payments are due on the last day of the month. Should an event of default occur, the interest rate per annum will be increased to five percent (5.0%) above the rate that otherwise would have been applicable to such amounts owed. The Company paid a non-refundable commitment fee of $15,000 upon execution of the Loan Agreement and an additional non-refundable commitment fee of $22,500 in connection with the First Amendment.Amendment.

Page 10

On June 23, 2022, the Company entered into a Second Amendment to Loan and Security Agreement (“Second Amendment” and together with the Loan Agreement,, the “Second Amended Loan Agreement”) with SVB, which amended certain terms of the Loan Agreement , including but not limited to, (i) increasing the amount of the revolving line of credit to $8.0 million, (ii) changing the financial covenants of the Company from one based on tangible net worth to another based on adjusted EBITDA (as defined in the Second Amendment) on a trailing six (6) month basis and liquidity ratio certified as of the end of each month pursuant to the calculations set forth therein, and (iii) allowing for the assignment and transfer by SVB of all of its obligations, rights and benefits under the Agreement and Loan Documents (as defined in the Agreement and except for the Warrants).

In addition, under the Second Amendment, the interest rate terms for the outstanding principal under the Revolving LOC were amended to accrue interest at a floating per annum rate equal to the greater of either (A) Prime Rate plus three and one-half of one percent (3.50%) or (B) seven and one-half of one percent (7.50%). Interest payments are due monthly on the last day of the month. In addition, the Company is required to pay a quarterly unused facility fee equal to one-quarter of one percent (0.25%) per annum of the average daily unused portion of the $6.0$8.0 million commitment under the Revolving LOC,SVB Credit Facility, depending upon availability of borrowings under the Revolving LOC. Pursuant to the Second Amendment, the Company paid SVB a non-refundable amendment fee of $5,000 and SVB’s legal fees and expenses incurred in connection with the Second Amendment.

In connection with the Second Amendment, the Company issued a twelve-year warrant to SVB and its designee, SVB Financial Group, to purchase up to 40,806 shares of common stock of the Company at an exercise price of $2.23 per share pursuant to the terms set forth therein.

On November 7, 2022, we entered into a Third Amendment to Loan and Security Agreement (“Third Amendment”) with SVB, which amended certain terms of the Second Amended Loan Agreement (together with the Third Amendment, the “Third Amended Loan Agreement”), including but not limited to, (i) extending the maturity date from November 7, 2022 to May 7, 2023 (the “Extension Period”), (ii) amending the financial covenants of the Company to cover the Extension Period and to include a liquidity ratio financial covenant, and (iii) amending the definition of Permitted Liens (as defined in the Third Amendment). Pursuant to the Third Amendment, the Company paid SVB a non-refundable amendment fee of $12,500 and SVB’s legal fees and expenses incurred in connection with the Third Amendment.

On January 10, 2023, the Company entered into a Fourth Amendment to Loan and Security Agreement (the “Fourth Amendment”) with SVB, which amended certain terms of the Third Amended Loan Agreement including but not limited to, (i) increasing the amount of the SVB Credit Facility from $8.0 million to $14.0 million, (ii) removing the liquidity ratio financial covenant of the Company under Section 6.9 of the Third Amended Loan Agreement, (iii) amending the definition of Borrowing Base (as defined in the Fourth Amendment), which includes a new defined term for Net Orderly Liquidation Value (as defined in the Fourth Amendment), and (iv) removing certain defined liquidity terms under Section 13.1 of the Third Amended Loan Agreement. Pursuant to the Fourth Amendment, the Company paid SVB a non-refundable amendment fee of $10,000 and SVB’s legal fees and expenses incurred in connection with the Fourth Amendment.

The Company has used the SVB Credit Facility to fund its operations and working capital requirements. Amounts outstanding under the Revolving LOC 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 Fourth Amended Loan Agreement, and the Intellectual Property Security Agreement dated as of October 29, 2021. During the nine months ended March 31, 2023, the Company had multiple Revolving LOC drawdowns totaling $48.8 million and multiple Revolving LOC payments totaling $43.2 million. As of March 31, 20222023, the outstanding balance under the Revolving LOC was approximately $3,500,00010.5 million.

On April 27, 2023, the Company entered into a Fifth Amendment to Loan and Security Agreement (the “Fifth Amendment”) with SVB which further amended certain terms of the remainingcredit facility (together with the Fifth Amendment, the “Agreement”), including but not limited to, (i) extending the maturity date from May 7, 2023 to December 31, 2023 (the “2023 Extension Period”), (ii) amending the EBITDA financial covenant of the Company to cover the 2023 Extension Period, and (iii) amending the definition of EBITDA (as defined in the Fifth Amendment). Pursuant to the Fifth Amendment, the Company agreed to pay SVB a non-refundable amendment fee of Thirty Thousand Dollars ($30,000) and SVB’s legal fees and expenses incurred in connection with the Fifth Amendment. In addition, SVB also agreed to waive compliance by the Company of the former EBIDTA financial covenant as of the month ended March 31, 2023.

As of May 10, 2023, $3.8 million remained available balance was $2,500,000.for future borrowings under the SVB Credit Facility through December 31, 2023, unless the credit facility is renewed and its term is extended prior to such expiration. (See Note 9 – Subsequent Events)

Page 11

 

NOTE 5 - RELATED PARTY DEBT AGREEMENTS

 

As of March 31, 20222023 and June 30, 2021,2022, the Company had no outstanding related party debt agreements. Relatedbalance outstanding. Below are the activities for the Company’s related party debt agreements that existed during the 2021 periods ended March 31, 2023 and 2022 covered by the accompanying unaudited condensed consolidated financial statements are described below.statements.

 

Esenjay Loan

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 amountSubordinated Line 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 30, 2020, and (ii) to increase the principal amount outstanding under the Original Esenjay Note to $1,400,000 (the “Esenjay Note”).

Between June 26, 2020 and July 22, 2020, Esenjay assigned a total of $900,000 of the Esenjay Note to three (3) accredited investors and the $900,000 note balance was converted into shares of common stock at $4.00 per share, which was the cash price per share, and resulted in the issuance of 225,000 shares of common stock.

On August 31, 2020, the Company entered into the Third Amended and Restated Credit Facility Agreement and pursuant to which the Company further amended the Esenjay Note to, among other items, transfer all remaining principal and accrued interest outstanding of approximately $564,000 into the amended Credit Facility Agreement. (See “Credit Facility” below).

Credit Facility

 

On March 22, 2018, Flux PowerMay 11, 2022, the Company entered into a credit facility agreementCredit Facility Agreement (the “Subordinated LOC”) with EsenjayCleveland Capital, L.P., a Delaware limited partnership (“Cleveland”), Herndon Plant Oakley, Ltd., (“HPO”), and other lenders (together with Cleveland and HPO, the “Lenders”). The Subordinated LOC provides the Company with a maximum borrowing amount of $5,000,000 (the “Original Agreement”). The Original Agreement was amended multiple times to allow for, among other things, an increase in the maximum principal amount available undershort-term line of credit (“LOC”) tonot less than $12,000,0003,000,000 and not more than $5,000,000, the inclusionproceeds of additional lenders and extensionwhich shall be used by the Company for working capital purposes. In connection with the Subordinated LOC, the Company issued a separate subordinated unsecured promissory note in favor of each respective Lender (each promissory note, a “Note”) for each Lender’s commitment amount (each such commitment amount, a “Commitment Amount”). As of March 31, 2023, the maturity dateLenders committed to an aggregate commitment of $September 30, 20214,000,000.

 

In August 2020,Pursuant to the terms of the Subordinated LOC, each Lender severally agrees to make loans (each such loan, an “Advance”) up to such Lender’s Commitment Amount to the Company paid down an aggregate principal amountfrom time to time, until December 31, 2022 (the “Due Date”). On December 15, 2022, the Board of approximately $1,402,000Directors 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”) pursuant to which the Company (i) extended the maturity date to September 30, 2021, and (ii) allowed for the transfer of outstanding obligations under the Esenjay Note of approximately $564,000 into the LOC as noted above. In November 2020, lenders holding an aggregate of approximately $2,161,000 in principal and accrued interest elected to convert their notes into 540,347 sharesextend the Due Date to December 31, 2023. The Company may, from time to time, prior to the Due Date, draw down, repay, and re-borrow on the Note, by giving notice to the Lenders of common stock at a price of $4.00 per share. In January and March 2021, the lenders holding an aggregate of approximately $2,632,000 in principal and accrued interest electedamount to convert their notes into 658,103 shares of common stock at a price of $4.00 per share of which approximately $1,045,000 was held by Esenjay and convertedbe requested to 261,133 shares of common stock.

10

On June 10, 2021, the Company repaid all obligations in full and without additional fees or termination penalties, and the Third Amended and Restated Credit Facility Agreement and the related Second Amended and Restated Security Agreement were terminated.be drawn down.

 

Cleveland Loan

On July 3, 2019, the Company entered into a loan agreement with Cleveland, pursuant to which Cleveland agreed to loan the Company $1,000,000 (the “Cleveland Loan”) and issued Cleveland an unsecured short-term promissory note in the amount of $1,000,000 (the “Unsecured Promissory Note”). The Unsecured PromissoryEach Note hadbears an interest rate of 15.0% per annum on each Advance from and was originally dueafter the date of disbursement of such Advance and is payable on September 1, 2019, unless repaid earlier from a percentage of proceeds from certain identified accounts receivable. In connection with(i) the Cleveland Loan, the Company issued Cleveland a three-year warrant (the “Cleveland Warrant”) to purchase the Company’s common stockDue Date in a number equal to 0.5% of the number ofcash or shares of common stock outstanding after giving effectof the Company (the “Common Stock”) at the sole election of the Company, unless such Due Date extended pursuant to the sharesNote, or (ii) on occurrence of common stock soldan event of Default (as defined in the Note). The Due Date may be extended (i) at the sole election of the Company for one (1) additional year period from the Due Date upon the payment of a contemplated public offering and with an exercise pricecommitment fee equal to the per share pricetwo percent (2%) of the common stock soldCommitment Amount to the Lender within thirty (30) days prior to the original Due Date, or (ii) by the Lender in writing. In addition, each Lender signed a Subordination Agreement by and between the Lenders and SVB dated as of May 11, 2022 (the “Subordination Agreement”) for the purposes of subordinating the right to payment under the Note to SVB’s indebtedness by the Company now outstanding or hereinafter incurred. On December 15, 2022, the Board of Directors of the Company elected to extend the Due Date to December 31, 2023 and the Company paid the Lenders an extension fee in the public offering.

On September 1, 2019, the Company entered into the First Amendment to the Unsecured Promissory Note pursuant to which the maturity date was extended to December 1, 2019 (the “First Amendment”) and the Cleveland Warrant terms were amended (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 shares of common stock sold in the next private or public offering and with an exercise price equal to the per share price of common stock sold in such private or public offering, as the case may be.

On July 9, 2020, the Company made a payment to Cleveland in theaggregate amount of $200,000 as a partial payment of the Cleveland Loan. On July 27, 2020, in connection with the outstanding loan from Cleveland to the Company in the principal amount of $957,000, the Company entered into the Eighth Amendment to the Unsecured Promissory Note which extended the maturity date from July 31, 2020 to August 31, 2020, and capitalized all accrued and unpaid interest as of July 27, 2020 to the principal amount. On August 19, 2020, the Company 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 $978,00080,000.

 

NOTE 6 – The Subordinated LOC includes customary representations, warranties and covenants by the Company and the Lenders. The Company has also agreed to pay the legal fees of Cleveland’s counsel in an amount up to $FACTORING ARRANGEMENT10,000. In addition, each Note also provides that, upon the occurrence of a Default, at the option of the Lender, the entire outstanding principal balance, all accrued but unpaid interest and/or Late Charges (as defined in the Note) at once will become due and payable upon written notice to the Company by the Lender.

 

On August 23, 2019,In connection with entry into the Subordinated LOC, the Company entered intopaid to each Lender a Factoring Agreement (“Factoring Agreement”one-time commitment fee in cash equal to 3.5% of such Lender’s Commitment Amount. In addition, in consideration of the Lenders’ commitment to provide the Advances to the Company, the Company issued the Lenders five-year warrants to purchase an aggregate of 128,000 shares of common stock at an exercise price of $2.53 per share that are, subject to certain ownership limitations, exercisable immediately (the “Warrants”) (the number of warrants issued to each Lender is equal to the product of (i) 160,000 shares of common stock multiplied by (ii) the ratio represented by each Lender’s Commitment Amount divided by the $5,000,000).

Pursuant to a selling agreement, dated as of May 11, 2022, the Company retained HPO as its placement agent in connection with CSNK Working Capital Finance Corp. d/b/the Subordinated LOC. As compensation for services rendered in conjunction with the Subordinated LOC, the Company paid HPO a Bay View Funding (“CSNK”) for a factoring facility under which CSNK would,finder fee equal to 3% of the Commitment Amount from time to time, buy approved receivables from the Company. The Company gave termination notice to CSNK and accordingly, effective August 30, 2020 terminated the Factoring Agreement.each such Lender placed by HPO in cash.

Page 12

 

NOTE 76 - STOCKHOLDERS’ EQUITY

 

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”).

 

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 Sales 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.

 

11

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 (the “Shares”) (which amount includes the value of shares we havethe Company has already sold prior to the date of the Amendment) pursuant to the base prospectus dated October 26, 2020, the Prospectus Supplement, and the Amendment (collectively, the “Prospectus”).

 

From December 21, 2020 through March 31, 2022,2023, the Company sold an aggregate of 1,169,5641,296,518 shares of common stock at an average price of $12.2411.60 per share for gross proceeds of approximately $14.315.0 million under the ATM Offering. The Company received net proceeds of approximately $13.714.4 million, net of commissions and other offering related expenses.

 

The Shares werewas registered under the Securities 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 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 Offerings

2020 Public Offering and NASDAQ Capital Market uplisting

In August 2020, the Company closed an underwritten public offering of its common stock at a public offering price of $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 totaling approximately 1.7 million. A total of 3,099,250 shares of common stock were issued by the Company in the offering, including the full exercise of the over-allotment option. The securities were offered pursuant to a registration statement on Form S-1 (File No. 333-231766), which was declared effective by the SEC on August 12, 2020.

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 symbol “FLUX”.

At-the-Market Registered Direct Offering

 

On September 27, 2021, the Company closed a registered direct offering, priced at-the-market under Nasdaq rules (“RDO”) for the sale of 2,142,860 shares of common stock and warrants to purchase up to an aggregate of 1,071,430 shares of common stock, at an offering price of $7.00 per share and associated warrant for gross proceeds of approximately $15.0 million prior to deducting offering expenses totaling approximately $1.0 million. The associated warrants have an exercise price equal to $7.00 per share and are exercisable upon issuance and expire in five years. HCW acted as the exclusive placement agent for the registered direct offering.

 

The securities sold in the RDO were sold pursuant to a “shelf” registration statement on Form S-3 (File No. 333-249521), including a base prospectus, previously filed with the Securities and Exchange Commission (the “SEC”) on October 16, 2020 and declared effective by the SEC on October 26, 2020. The registered direct offering of the securities was made by means of a prospectus supplement dated September 22, 2021 and filed with the SEC, that forms a part of the effective registration statement.

 

12Page 13

 

 

Private Placements

2020 Private Placement

On April 22, 2020, the Company sold an aggregate of 66,250 shares of common stock, at $4.00 per share, for an aggregate purchase price of $265,000 in cash to two (2) accredited investors. On June 30, 2020, the Company sold an additional 275,000 shares of common stock at $4.00 per share in its June Closing of the offering, for an aggregate purchase price of $1,100,000 in cash to six (6) accredited investors (“June Closing”). Esenjay and Mr. Dutt, the Company’s president and chief executive officer, participated in the June Closing in the amount of $300,000 and $50,000, respectively. On July 24, 2020, the Company sold an additional 800,000 shares under the 2020 Private Placement at $4.00 per share, for an aggregate purchase price of $3,200,000 in cash to accredited investors, including Mr. Cosentino, one of our directors, who participated in the offering in the amount of $250,000.

The shares offered and sold in the private placement offerings described above were sold to accredited investors in reliance upon exemptions from registration pursuant to Rule 506(b) of Regulation D promulgated under Section 4(a)(2) under the Securities Act. Such shares were not registered under the Securities Act of 1933, as amended (“Securities Act”), and could not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act

Debt Conversion

LOC Conversion

On June 30, 2020, there was a partial conversion of $7,383,000 in principal and accrued interest outstanding under the secured promissory notes at a conversion price of $4.00 per share that resulted in the issuance of 1,845,830 shares of common stock.

On November 6, 2020, there was a partial conversion of $2,161,000 in principal and accrued interest outstanding under the secured promissory notes at $4.00 per share that resulted in the issuance of 540,347 shares of common stock.

In January and March 2021, there were conversions of the remaining balance of approximately $2,632,000 in principal and accrued interest outstanding under the secured promissory notes that resulted in the issuance of 658,103 shares of common stock.

All conversions were at the option of the lenders, and all outstanding secured promissory notes were converted into shares of common stock.

Esenjay Note Conversion

On June 30, 2020, two (2) accredited individuals, who had been assigned $500,000 of the Esenjay Note, converted all principal into 125,000 shares of common stock at $4.00 per share. On July 22, 2020, one accredited individual, who had been assigned $400,000 of the Esenjay Note converted all principal into 100,000 shares of common stock at $4.00 per share.

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 the Cleveland Warrant became determinable as the right to purchase up to 83,205 shares of common stock at $4.00 per share, and the Cleveland Warrant was estimated to have a fair value of approximately $174,000. As of September 30, 2021, all 83,205 warrants remained outstanding.

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 the Company’s common stock at an exercise price of $4.80 per share and were estimated to have a fair value of approximately $513,000. The underwriters’ warrants became exercisable on February 8, 2021.

13

 

In connection with the Company’s RDO, in September 2021 the Company issued five-year warrants to the RDO investors to purchase up to 1,071,430 shares of the Company’s common stock at an exercise price of $7.00 per share and were estimated to have a fair value of approximately $3,874,000. The warrants were exercisable immediately and are limited to beneficial ownership of 4.99% at any point in time in accordance with the warrant agreement.

 

In May 2022 and in conjunction with entry into a credit facility with Cleveland, HPO, and other lenders (together with Cleveland and HPO, the “Lenders”), the Company issued five-year warrants to the Lenders to purchase up to 128,000 shares of the Company’s common stock at an exercise price of $2.53 per share and had a fair value of approximately $173,000.

In June 2022 and in conjunction with the entry into the Second Amendment to Loan and Security Agreement with SVB, the Company issued twelve-year warrants to SVB and its designee, SVB Financial Group, to purchase up to 40,806 shares of the Company’s common stock at an exercise price of $2.23 per share and had a fair value of approximately $80,000.

Warrant detail for the nine months ended March 31, 2023 is reflected below:

SCHEDULE OF STOCK WARRANT ACTIVITY

  Number of Warrants  

Weighted

Average

Exercise Price

Per Warrant

  

Weighted

Average
Remaining
Contract

Term

(# years)

 
Warrants outstanding and exercisable at June 30, 2022  1,455,119  $6.10     
Warrants issued  1,071,430  $7.00     
Warrants cancelled  -  $     
Warrants outstanding and exercisable at March 31, 2023  1,455,119  $6.10   3.48 

Warrant detail for the nine months ended March 31, 2022 is reflected below:

SCHEDULE OF STOCK WARRANT ACTIVITY 

  Number of Warrants  Weighted Average Exercise Price Per Warrant  Weighted Average Remaining Contract Term (# years) 
Warrants outstanding and exercisable at June 30, 2021  214,883  $4.49     
Warrants issued  1,071,430  $7.00     
Warrants outstanding and exercisable at March 31, 2022  1,286,313  $6.58   4.11 

Warrant detail for the nine months ended March 31, 2021 is reflected below:

  Number of Warrants  Weighted Average Exercise Price Per Warrant  

Weighted Average

Remaining Contract Term (# years)

 
Warrants outstanding and exercisable at June 30, 2020  83,205  $4.00     
Warrants issued  185,955  $4.80     
Warrants exercised  (32,977) $4.80     
Warrants forfeited  (11,700) $4.80     
Warrants outstanding at March 31, 2021  224,483  $4.50   3.22 
  Number of Warrants  Weighted
Average
Exercise Price
Per Warrant
  

Remaining
Contract

Term (#

years)

 
Warrants outstanding and exercisable at June 30, 2021  214,883  $4.49     
Warrants issued  1,071,430  $7.00     
Warrants outstanding and exercisable at March 31, 2022  1,286,313  $6.58   4.11 

 

Stock Options

 

In connection with the reverse acquisition of Flux Power, Inc. in 2012, the Company assumed the 2010 Option Plan. As of June 30, 2021,March 31, 2023, there were 22,53621,944 options to purchase common stock outstanding under the 2010 Option Plan. No additional options may be granted under the 2010 Option Plan.

 

On February 17, 2015 the Company’s stockholders approved the 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan offers certain employees, directors, and consultants the opportunity to acquire the Company’s common stock subject to vesting requirements and serves to encourage such persons to remain employed by the Company and to attract new employees. The 2014 Plan allows for the award of the Company’s common stock and stock options, up to 1,000,000 shares of the Company’s common stock. As of March 31, 2022,2023, 170,810137,967 shares of the Company’s common stock were available for grantfuture grants under the 2014 Plan.

 

On April 29, 2021, the Company’s stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan authorizes the issuance of awards for up to 2,000,000 shares of common 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. As of March 31, 2022, no awards had been granted2023, 1,579,566 shares of the Company’s common stock were available for future grants under the 2021 Plan.

 

Page 14

 

On October 31, 2022, the Board of Directors authorized a total of 624,441 stock options to be granted under the Company’s 2014 Plan and 2021 Plan.

Activity in the Company’s stock options during the nine months ended March 31, 2023 and related balances outstanding as of that date are reflected below:

SCHEDULE OF STOCK OPTIONS ACTIVITY

  Number of
Shares
  Weighted Average
Exercise Price
  

Weighted
Average
Remaining
Contract

Term
(# years)

 
Outstanding at June 30, 2022  503,433  $11.03     
Granted  624,441  $3.43     
Exercised  (22,500) $4.60     
Forfeited and cancelled  (112,664) $11.07     
Outstanding at March 31, 2023  992,710  $6.39   7.68 
Exercisable at March 31, 2023  399,922  $10.79   4.84 

 

Activity in the Company’s stock options during the nine months ended March 31, 2022 and related balances outstanding as of that date are reflected below:

SCHEDULE OF STOCK OPTIONS ACTIVITY

  Number of Shares  Weighted Average Exercise Price  

Weighted Average Remaining Contract Term

(# years)

 
Outstanding at June 30, 2021  531,205  $11.02     
Granted  -  $-     
Exercised  (3,400) $4.65     
Forfeited and cancelled  (15,612) $14.28     
Outstanding and exercisable at March 31, 2022  512,193  $10.97   5.91 

 

Activity in the Company’s stock options during the nine months ended March 31, 2021 and related balances outstanding as of that date are reflected below:

 Number of Shares  Weighted Average Exercise Price  

Weighted Average Remaining Contract Term

(# years)

  Number of
Shares
  Weighted Average
Exercise Price
  

Weighted
Average
Remaining
Contract

Term

(# years)

 
Outstanding at June 30, 2020  579,584  $11.00     
Outstanding at June 30, 2021  531,205  $11.02     
Granted  -  $-       -  $-     
Exercised  (15,812) $5.77       (3,400) $4.65     
Forfeited and cancelled  (18,932) $12.45       (15,612) $14.28     
Outstanding at March 31, 2021  544,840  $11.10   6.81 
Exercisable at March 31, 2021  490,493  $10.91   6.67 
Outstanding and exercisable at March 31, 2022  512,193  $10.97   5.91 

 

Restricted Stock Units

 

On November 5, 2020, the Company’s Board of Directors approved an amendment to the 2014 Plan, to allow for 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. On October 29, 2021, the Board of Directors authorized the following RSUs to be granted under the amended 2014 Option Plan: (i) a total of 97,828 RSUs to certain executive officers of which 48,914 were performance-based RSUs and 48,914 were time-based RSUs, and (ii) a total of 81,786 time-based RSUs to certain other key employees. The RSUs are subject to the terms and conditions provided in (i) the Restricted Stock Unit Award Agreement for time-based awards (“Time-based Award Agreement”), and (ii) the Performance Restricted Stock Unit Award Agreement for performance-based awards (“Performance-based Award Agreement”).

 

Page 15

Activity in RSUs during the nine months ended March 31, 2023 and related balances outstanding as of that date are reflected below:

SCHEDULE OF RESTRICTED STOCK UNITS ACTIVITY

  Number of Shares  

Weighted Average

Grant date

Fair Value

  

Weighted
Average
Remaining
Contract

Term

(# years)

 
Outstanding at June 30, 2022  304,221  $6.06     
Granted  5,034  $2.70     
Vested and settled  (32,248) $3.49     
Forfeited and cancelled  (63,619) $6.53     
Outstanding at March 31, 2023  213,388  $5.90   0.89 

Activity in RSUs during the nine months ended March 31, 2022 and related balances outstanding as of that date are reflected below:

SCHEDULE OF RESTRICTED STOCK UNITS ACTIVITY

  Number of Shares  Weighted Average Grant date Fair Value  

Weighted Average Remaining Contract Term

(# years)

 
Outstanding at June 30, 2021  131,652  $9.25     
Granted  179,614  $5.75     
Settled  (4.578) $11.56     
Forfeited and cancelled  (35,542) $6.95     
Outstanding at March 31, 2022  271,146  $7.19   2.34 

15

Activity in RSUs during the nine months ended March 31, 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)

  Number of Shares  

Weighted Average

Grant date

Fair Value

 

Weighted
Average
Remaining Contract
Term

(# years)

 
Outstanding at June 30, 2020  -  $-     
Outstanding at June 30, 2021  131,652  $9.25     
Granted  134,865  $8.88       179,614  $5.75     
Vested and settled  (4,578) $11.56     
Forfeited and cancelled  (6,542) $8.88       (35,542) $6.95     
Outstanding at March 31, 2021  128,323  $8.88   2.91 
Outstanding at March 31, 2022  271,146  $7.19   2.34 

 

Stock-based Compensation

 

Stock-based compensation expense for the three and nine months ended March 31, 20222023 and 20212022 represents the estimated fair value of stock options and RSUs at the time of grant amortized under the straight-line method over the expected vesting period and reduced for estimated forfeitures of options and RSUs. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from original estimates. At March 31, 2022,2023, the aggregate intrinsic value of exercisable stock options was approximately $1,686,000878,000.

 

The following table summarizes stock-based compensation expense for employee and non-employee stock option and RSU grants:

SCHEDULE OF STOCK-BASED COMPENSATION EXPENSES

  2023  2022  2023  2022 
  Three Months Ended
March 31,
  Nine Months Ended
March 31,
 
  2023  2022  2023  2022 
Research and development $48,000  $32,000  $117,000  $122,000 
Selling and administrative  187,000   120,000   422,000   479,000 
Total stock-based compensation expense $235,000  $152,000  $539,000  $601,000 

  2022  2021  2022  2021 
  Three Months Ended
March 31,
  Nine Months Ended
March 31,
 
  2022  2021  2022  2021 
Research and development $32,000  $48,000  $122,000  $146,000 
Selling and administrative  120,000   180,000   479,000   504,000 
Total stock-based compensation expense $152,000  $228,000  $601,000  $650,000 
Page 16

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:

SCHEDULE OF FAIR VALUE ASSUMPTIONS OF STOCK OPTIONS

20232022(1)
Nine Months Ended March 31,
20232022(1)
Expected volatility90.12%-
Risk free interest rate4.21%-
Forfeiture rate20%-
Dividend yield0%-
Expected term (years)6.25-

(1)No stock options were granted during the nine months ended March 31, 2022.

 

At March 31, 2022,2023, the unamortized stock-based compensation expense related to outstanding stock options and RSUs was approximately $1,085,000948,000 and $395,000, respectively, and it isthese amounts are expected to be expensed over the weighted-average remaining recognition period of 2.343.58 years.years and 0.81 years, respectively.

 

NOTE 87 - CONCENTRATIONS

 

Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and unsecured trade accounts receivable. The Company maintains cash balances in non-interest bearing bank deposit accounts at a California commercial bank. The Company’s cash balance at this institution is secured by the Federal Deposit Insurance Corporation up to $250,000. As of March 31, 20222023 and June 30, 2021,2022, cash was approximately $3,804,000790,000 and $4,713,000485,000, respectively.

On March 10, 2023, the Federal Deposit Insurance Corporation (the “FDIC”) issued a press release stating that Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. In a joint statement issued by the Department of the Treasury, Board of Governors of the Federal Reserve System and Federal Deposit Insurance Corporation on March 12, 2023, the Department of Treasury took actions to enable the FDIC to complete its resolution of SVB in a manner that fully protects all depositors. According to the joint statement (the “Statement”), depositors will have access to all of their money starting Monday, March 13, 2023. On March 13, 2023, Silicon Valley Bridge Bank, N.A., the new entity formed by the FDIC announced appointment of a new CEO, who provided assurance of immediate restoration of full banking services. On March 27, 2023, First Citizens BancShares, Inc. announced that it has entered into an agreement with the FDIC to purchase all of the assets and liabilities of Silicon Valley Bridge Bank, N.A.

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.

 

Customer Concentrations

16

 

Customer ConcentrationsDuring the three months ended March 31, 2023, the Company had three (3) major customers that each represented more than 10% of revenues on an individual basis, and together represented approximately $10,409,000 or 69% of total revenues. During the nine months ended March 31, 2023, the Company had three (3) major customers that each represented more than 10% of revenues on an individual basis, and together represented approximately $32,745,000 or 65% of total revenues.

 

During the three months ended March 31, 2022, the Company had four (4) major customers that each represented more than 10% of revenues on an individual basis, and together represented approximately $10,762,000 or 82% of total revenues. During the nine months ended March 31, 2022, the Company had three (3) major customers that each represented more than 10% of revenues on an individual basis, and together represented approximately $15,891,000 or 59% of total revenues.

 

During the three months ended March 31, 2021, the Company had four (4) major customers that each represented more than 10% of revenues on an individual basis, and together represented approximately $5,352,000 or 77% of total revenues. During the nine months ended March 31, 2021, the Company had three (3) major customers that each represented more than 10% of revenues on an individual basis, and together represented approximately $10,594,000 or 59% of total revenues.

Suppliers/Vendor Concentrations

 

The Company obtains a number ofseveral components and supplies included in its products from a group of suppliers. During the three months ended March 31, 2023, the Company had one (1) supplier who accounted for more than 10% of total purchases and represented approximately $5,290,000 or 37% of total purchases. During the nine months ended March 31, 2023, the Company had one (1) supplier who accounted for more than 10% of total purchases and represented approximately $14,439,000 or 32% of total purchases. The Company continues to assess its supplier base to ensure alignment with our expanding needs.

Page 17

During the three months ended March 31, 2022, the Company had three (3) suppliers who accounted for more than 10%10% of total purchases on an individual basis, and together represented approximately $5,556,000 or 48% of total purchases. During the nine months ended March 31, 2022, the Company had one (1) supplier who accounted for more than 10%10% of total purchases and represented approximately $12,722,000 or 32% of total purchases. We continue to assess our supplier base to ensure alignment with our expanding needs.

During the three months ended March 31, 2021, the Company had two (2) suppliers who accounted for more than 10% of total purchases on an individual basis, and together represented approximately $2,252,000 or 26% of total purchases. During the nine months ended March 31, 2021, the Company had two (2) suppliers who accounted for more than 10% of total purchases on an individual basis, and together represented approximately $6,229,000 or 27% of total purchases.

 

NOTE 98 - COMMITMENTS AND CONTINGENCIES

 

From time to time, the 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 the Company’s business. The Company is not aware of any material legal proceedings currently pending or expected 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 of industrial space at 2685 S. Melrose Drive, Vista, California. The Lease has an initial term of seven years and four months and commenced on or about June 28, 2019. The lease contains an option to extend the term for two periods of 24 months each, and the right of first refusal to lease an additional approximate 15,300 square feet.feet. The monthly rental rate iswas $42,400 for the first 12 months, escalating at 3% each year.

 

On February 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 residential unit of approximately 1,230 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 will terminate concurrently with the term of 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 3% annual increase). In connection with the Amendment, the Company purchased certain existing office furniture for a total purchase price of $8,300.

 

17

On December 16, 2022 the Company signed a Lease Agreement with MM Parker Court Associates, LLC to rent approximately 4,892 square feet of office space at Building 1959 Parker Court, Suite E, Atlanta, Georgia. The Lease has an initial term of five years and three months and commenced on or about February 1, 2023. The monthly rental rate was approximately $2,300 for the first 6 months, and $4,700 for months 7 to 12, escalating at 5% each year.

 

Total rent expense was approximately $219,000223,000 and $214,000219,000 for the three months ended March 31, 20222023 and 2021,2022, respectively. Total rent expense was approximately $648,000662,000 and $635,000648,000 for the nine months ended March 31, 2023 and 2022, respectively.

Capital Leases

On September 2, 2022 the Company leased a vehicle to be used for corporate transportation activities. The lease has a term of sixty (60) months and 2021,commenced on September 10, 2022. The monthly lease payment is approximately $1,100 excluding sales tax and other fees.

On October 17, 2022 the Company leased certain equipment to be used for manufacturing and testing our products. The lease has a term of thirty-six (36) months and commenced on October 17, 2022. The monthly lease payment is approximately $5,500.

On January 24, 2023, the Company leased certain equipment to be used for manufacturing and testing our products. The lease has a term of thirty-six (36) months. The monthly lease payment is approximately $6,700.

Page 18

On March 2, 2023, the Company leased certain equipment to be used for manufacturing and testing our products. The lease has a term of thirty-six (36) months. The monthly lease payment is approximately $1,000.

Lease costs are amortized on a straight-line basis over their respective lease terms. Depreciation expense related to leased assets was approximately $30,000 and $47,000 for the three and nine months ended March 31, 2023, respectively. Interest expense on leased liabilities was approximately $8,000 and $13,000 for the three and nine months ended March 31, 2023, respectively. The Company had no capital leases during the nine months ended March 31, 2022.

 

The Future Minimum Lease Payments as of March 31, 20222023 are as follows:

SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS

 

Operating

Leases

 

Finance

Leases

 
Year Ending June 30,           
2022 (remaining three months) $187,000 
2023  768,000 
2023 (remaining three months) $201,000  $43,000 
2024  791,000   854,000   173,000 
2025  815,000   883,000   173,000 
2026  840,000   910,000   85,000 
2027  433,000   15,000 
Thereafter  359,000   64,000   21,000 
Total Future Minimum Lease Payments  3,760,000   3,345,000   510,000 
            
Less: discount  (781,000)  (506,000)  (59,000)
Total lease liability $2,979,000  $2,839,000  $451,000 

 

NOTE 109 - SUBSEQUENT EVENTS

Flux Power Holdings, Inc. 2023 Employee Stock Purchase Plan

At the 2023 Annual Meeting of Stockholders of the Company held on April 20, 2023 (the “Annual Meeting”), the Company’s stockholders approved the Flux Power Holdings, Inc. 2023 Employee Stock Purchase Plan (the “2023 ESPP”). The 2023 ESPP was approved by the Board on March 6, 2023, subject to stockholder approval. The 2023 ESPP enables eligible employees of the Company and certain of its subsidiaries (a “Participating Subsidiary”) to use payroll deductions to purchase shares of the Company’s Common Stock and acquire an ownership interest in the Company. The maximum aggregate number of shares of the Company’s Common Stock that have been reserved as authorized for grant under the 2023 ESPP is 350,000 shares, subject to adjustment as provided for in the 2023 ESPP. Participation in the 2023 ESPP is voluntary and is limited to eligible employees (as such term is defined in the 2023 ESPP) of the Company or a Participating Subsidiary who (i) has been employed by the Company or a Participating Subsidiary for at least 90 days and (ii) is customarily employed for at least twenty (20) hours per week and more than five (5) months in any calendar year. Each eligible employee may authorize payroll deductions of 1-15% of the eligible employee’s compensation on each pay day to be used to purchase up to 1,500 shares of Common Stock for the employee’s account occurring during an offering period. The 2023 ESPP has a term of ten (10) years commencing on April 20, 2023, the date of approval by the Company’s stockholders, unless otherwise earlier terminated.

 

Grant of Restricted Stock Units to Non-Executive Directors

 

On April 28, 2022,20, 2023, the Company’s four non-executive directors were granted RSUs covering a total of 71,17267,532 shares of common stock under the 2014 Plan.Plan, with each receiving 16,883 RSUs based on aggregate grant date value of $65,000 divided by $3.85 per share. The RSUs will all vest on April 28, 202320, 2024 in accordance to the vesting service criteria. The awards are subject to the terms and conditions of the 2014 Plan and the terms and conditions of an applicable award agreement covering each grant. The awards were recommended by the compensation committee of the Company and approved by the Board of Directors prior to being granted.

Subordinated

SVB Revolving Line of Credit Modification

On May 11, 2022,April 27, 2023, the Company entered into a Credit FacilityFifth Amendment to Loan and Security Agreement (the “Credit Facility”“Fifth Amendment”) with Cleveland Capital, L.P., a Delaware limited partnership (“Cleveland”), Herndon Plant Oakley, Ltd., (“HPO”), and other lenders (together with Cleveland and HPO, the “Lenders”). The Credit Facility provides the Company with a short-term line of credit (the “LOC”) not less than $3,000,000 and not more than $5,000,000, the proceeds ofSVB which shall be used by the Company for working capital purposes. In connection with the LOC, the Company issued a separate subordinated unsecured promissory note in favor of each respective Lender (each promissory note, a “Note”) for each Lender’s commitment amount (each such commitment amount, a “Commitment Amount”). As of May 12, 2022, the Lenders committed an aggregate of $4,000,000.

Pursuant to thefurther amended certain terms of the Credit Facility, each Lender severally agreescredit facility (together with the Fifth Amendment, the “Agreement”), including but not limited to, make loans (each such loan, an “Advance”) up(i) extending the maturity date from May 7, 2023 to such Lender’s Commitment Amount to the Company from time to time, until December 31, 20222023 (the “Due Date”“2023 Extension Period”). The Company may, from time to time, prior to, (ii) amending the Due Date, draw down, repay, and re-borrow on the Note, by giving notice to the Lenders of the amount to be requested to be drawn down.

Each Note bears an interest rate of 15.0% per annum on each Advance from and after the date of disbursement of such Advance and is payable on (i) the Due Date in cash or shares of common stockEBITDA financial covenant of the Company (the “Common Stock”) atto cover the sole election2023 Extension Period, and (iii) amending the definition of the Company, unless such Due Date extended pursuant to the Note, or (ii) on occurrence of an event of DefaultEBITDA (as defined in the Note)Fifth Amendment). The Due Date may be extended (i) at the sole election of the Company for one (1) additional year period from the Due Date upon the payment of a commitment fee equal to two percent (2%) of the Commitment AmountPursuant to the Lender within thirty (30) days prior to the original Due Date, or (ii) by the Lender in writing. In addition, each Lender signed a Subordination Agreement by and between the Lenders and Silicon Valley Bank, a California corporation (“SVB”), dated as of May 11, 2022 (the “Subordination Agreement”) for the purposes of subordinating the right to payment under the Note to SVB’s indebtedness by the Company and its wholly-owned subsidiary, Flux Power, Inc., now outstanding or hereinafter incurred.

The Credit Facility includes customary representations, warranties and covenants by the Company and the Lenders. The Company has also agreed to pay the legal fees of Cleveland’s counsel in an amount up to $10,000. In addition, each Note also provides that, upon the occurrence of a Default, at the option of the Lender, the entire outstanding principal balance, all accrued but unpaid interest and/or Late Charges (as defined in the Note) at once will become due and payable upon written notice to the Company by the Lender.

In connection with entry into the Credit Facility,Fifth Amendment, the Company agreed to pay to each LenderSVB a one-time committeenon-refundable amendment fee of Thirty Thousand Dollars ($30,000) and SVB’s legal fees and expenses incurred in cash equal to 3.5% of such Lender’s Commitment Amount.connection with the Fifth Amendment. In addition, in considerationSVB also agreed to waive compliance by the Company of the Lenders’ commitmentformer EBIDTA financial covenant as of the month ended March 31, 2023.

Additional Sales from ATM Offering

From April 1, 2023 to provide the Advances toMay 8, 2023, the Company the Company agreed to issue each Lender warrants to purchase the numbersold an aggregate of shares of common stock equal to the product of (i) 160,00082,369 shares of common stock multiplied by (ii) the ratio represented by each Lender’s Commitment Amount divided by the $5,000,000 (the “Warrants”).

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 haveat an exerciseaverage price of $2.534.24 per share. The exercise priceshare for gross proceeds of approximately $336,000 under the Warrants is subject to certain adjustments, including stock dividends, stock splits, combinations and reclassifications of the Company’s Common Stock. In the event of a Triggering Event, as described in the Warrant Certificate, each of the holders of the Warrants will be entitled to exercise its Warrant and receive the same amount and kind of securities, cash or property as such holder would have been entitled to receive upon the occurrence of such Triggering Event if such holder had exercised the rights represented by the Warrant Certificate immediately prior to the Triggering Event. Additionally, upon the holder’s request, the continuing or surviving corporation as a result of such Triggering Event will issue to such holder a new warrant of like tenor evidencing the right to purchase the adjusted amount of securities, cash or property and the adjusted warrant price.

Pursuant to a selling agreement, dated as of May 11, 2022, the Company retained HPO as its placement agent in connection with the Credit Facility. As compensation for services rendered in conjunction with the Credit Facility, the Company agreed to pay HPO a finder fee equal to 3% of the Commitment Amount from each such Lender placed by HPO in cash.

Financial Advisory Agreement

On May 11, 2022, the Company entered into a certain financial advisory agreement with Cleveland Capital Management, L.L.C., a related party (“Cleveland Management”) pursuant to which Cleveland Management agreed to provide the Company with financial consulting services.

ATM Offering.

 

18Page 19

 

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion provides information which management believes is relevant to an assessment and understanding of the Company’s results of operations and financial condition. The discussion should be read in conjunction with the unaudited interim condensed consolidated Financial Statements and Notes thereto and Part II, Item 7, Management’s Discussion and Analysis of Financial condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.2022.

 

Business Overview

 

We design, develop, manufacture, and sell a portfolio of advanced lithium-ion energy storage solutions for electrification of a range of industrial commercial sectors which include material handling, airport ground support equipment (“GSE”), and stationary energy storage.other commercial and industrial applications. We believe our mobile and stationary energy storage solutions provide our customers 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 battery packs to be paired with our proprietary wireless battery management system 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 and more environmentally friendly energy storage solutions in the material handling sector should continue to drive our 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 companies having demanding energy storage needs. We have established selling relationships equipment OEMs and customers with large fleets of forklifts and GSEs. We intend to reach this goal by investing in research and development to expand our product mix, 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 our customers. We have 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 to predictively balance the cells for optimal performance.

 

Our largest sector of penetration thus far has been 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 of forklifts and GSEs. Applications of our modular packs for other industrial and commercial uses, such as solar energy storage, are providing additional current growth and further 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.

 

The following table summarizes the new orders, shipments, and backlog activities for the last six (6) fiscal quarters:

 

Fiscal Quarter Ended Beginning Backlog  New Orders  Shipments  Ending Backlog 
December 31, 2020 $2,528,000  $6,561,000  $6,330,000  $2,759,000 
March 31, 2021 $2,759,000  $9,977,000  $6,826,000  $5,910,000 
June 30, 2021 $5,910,000  $15,053,000  $8,339,000  $12,624,000 
September 30, 2021 $12,624,000  $13,122,000  $6,313,000  $19,433,000 
December 31, 2021 $19,433,000  $19,819,000  $7,837,000  $31,415,000 
March 31, 2022 $31,415,000  $20,495,000  $13,317,000  $38,593,000 

Fiscal Quarter Ended

 Beginning Backlog  New Orders  Shipments  Ending Backlog 
December 31, 2021 $19,433,000  $19,819,000  $7,837,000  $31,415,000 
March 31, 2022 $31,415,000  $20,495,000  $13,317,000  $38,593,000 
June 30, 2022 $38,593,000  $11,622,000  $15,195,000  $35,020,000 
September 30, 2022 $35,020,000  $9,678,000  $17,840,000  $26,858,000 
December 31, 2022 $26,858,000  $20,652,000  $17,158,000  $30,352,000 
March 31, 2023 $30,352,000  $9,751,000  $15,087,000  $25,016,000 

Page 20

 

“Backlog” represents the amount of anticipated revenues we may recognize in the future from existing contractual orders with customers that are in progress and have not yet shipped. Backlog values may not be indicative of future operating results as orders may be cancelled, modified or otherwise altered by customers. In addition, our ability to realize revenue from our backlog will be dependent on the delivery of key parts from our suppliers and our ability to manufacture and ship our products to customers in a timely manner. There can be no assurance that outstanding customer orders will be fulfilled as expected and that our backlog will result in future revenues.

 

As of May 10, 2022,8, 2023, our order backlog was approximately $33.1$31.4 million.

 

Business Updates

 

Due to the growth in orders for our energy storage solutions and accessories, coupled withThe supply chain disruptions duerelated to the COVID-19 delayingpandemic continue to abate. The delivery delays of purchased components and the shortage of components to production timing have improved. The price increases during the pandemic for steel and domestic freight have lessened but still remain higher than pre-pandemic. Price recovery of increased pandemic-related costs have now begun to be realized in shipments during the quarter ended March 31, 2023.

Lead times for forklifts and GSE Equipment have been extended for certain model lines of major OEMs. These extended lead times have resulted in some shipment deferrals and delays in receiving anticipated orders. Not all product lines are impacted but the impact has required additional selling efforts to maintain our ability to fulfill such orders, we have experienced an increase in our backlog of open orders.sales trajectory.

Recent Corporate Developments

 

Supply Chain Issues and Higher Procurement CostsClosing of Silicon Valley Bank

 

DueOn March 10, 2023, the Federal Deposit Insurance Corporation (the “FDIC”) issued a press release stating that Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. In a joint statement issued by the Department of the Treasury, Board of Governors of the Federal Reserve System and Federal Deposit Insurance Corporation on March 12, 2023, the Department of Treasury took actions to COVID-19 pandemic, supply chain disruptions continue, notablyenable the FDIC to complete its resolution of SVB in a manner that fully protects all depositors. According to the joint statement (the “Statement”), depositors will have access to all of their money starting Monday, March 13, 2023. On March 13, 2023, Silicon Valley Bridge Bank, N.A., the new entity formed by the FDIC announced appointment of a new CEO, who provided assurance of immediate restoration of full banking services. On March 27, 2023, First Citizens BancShares, Inc. announced that it had entered into an agreement with delivery delays at the portsFDIC to purchase all of Los Angelesthe assets and Long Beach.liabilities of Silicon Valley Bridge Bank, N.A.

Amendment to Revolving Line of Credit with Silicon Valley Bank

On April 27, 2023, the Company entered into a Fifth Amendment to Loan and Security Agreement (the “Fifth Amendment”) with Silicon Valley Bank (“SVB”) which further amended certain terms of the Loan and Security Agreement dated November 9, 2020 which has been amended from time to time (together with the Fifth Amendment, the “Agreement”), including but not limited to, (i) extending the maturity date from May 7, 2023 to December 31, 2023 (the “2023 Extension Period”), (ii) amending the EBITDA financial covenant of the Company to cover the 2023 Extension Period, and (iii) amending the definition of EBITDA (as defined in the Fifth Amendment). Pursuant to the Fifth Amendment, the Company agreed to pay SVB a non-refundable amendment fee of Thirty Thousand Dollars ($30,000) and SVB’s legal fees and expenses incurred in connection with the Fifth Amendment. In addition, SVB also agreed to waive compliance by the priceCompany of steel and certain other electrical components used in our products have seen dramatic increases, along with shipping costs. It is impossible to predict how long the current disruptions to the cost and availability of raw materials and component parts will last. We implemented a price increase on certain new product orders in October 2021 to offset rising global costs of raw materials and component parts. A second price increase was implemented in April 2022. In addition, we increased our inventory of raw materials and component parts to $20.9 millionformer EBIDTA financial covenant as of the month ended March 31, 2022 to mitigate supply chain disruptions and support timely deliveries. However, there can be no assurance that such increases or any future increases will be sufficient to offset continued rising costs.2023.

 

19Page 21

 

To address some of the negative consequences to our business, we have implemented a number of new strategic initiatives:

 

StrategicInitiatives.Flux Power Holdings, Inc. 2023 Employee Stock Purchase Plan

Expand our base of suppliers to better manage supply chain disruptions and associated risks;
Introduce new product designs to lower costs, simplify the bill of materials, and improved serviceability;
Improve our manufacturing capacity and production processes (including implementing lean manufacturing) to increase throughput, reduce the time to fulfill our order backlog and improve gross margins;
Seek more competitive carriers to reduce shipping costs;
Utilize lower cost steel suppliers that meet required specifications;
Transition product lines to a new cell technology including revised UL Listing and OEM approvals in efforts to lower costs of production, improve supplier reliability, and higher energy capabilities of our solutions;
Expand our customer base, particularly among Fortune 100 & 500 companies;
Deploy our Sky BMS telematics technology to many users.

There can be no assurance that our initiatives and efforts to mitigate the supply chain issues and rising costs will be successful.

New Product Update

During the quarter ended March 31, 2022, we introduced new product designs to respond to customer requests. Some of the improvements included higher capacities for extra-long and demanding shifts, easier servicing, lower total cost of ownership, and other features to solve a variety of existing performance challenges of customer operations. We continue to introduce new product designs for margin enhancement, part commonality and improved serviceability.

At the MODEX material handling trade show in March 2022, we have introduced three (3) new products as follow:

L36 lithium-ion battery pack, a 36-volt option for 3-wheel forklifts;
C48 lithium-ion battery pack for Automated Guided Vehicles (AGV) and Autonomous Mobile Robots (AMR); and
S24 lithium-ion battery pack providing twice the capacity (210Ah) for Walkie Pallet Jacks for heavy duty

Recent Corporate Development

Subordinate Line2023 Annual Meeting of Credit

On May 11, 2022, the Company entered into a Credit Facility Agreement (the “Credit Facility”) with Cleveland Capital, L.P., a Delaware limited partnership (“Cleveland”), Herndon Plant Oakley, Ltd., (“HPO”), and other lenders (together with Cleveland and HPO, the “Lenders”). The Credit Facility provides the Company with a short-term line of credit (the “LOC”) not less than $3,000,000 and not more than $5,000,000, the proceeds of which shall be used by the Company for working capital purposes. In connection with the LOC, the Company issued separate subordinated unsecured promissory notes in favor of each respective Lender (each promissory note, a “Note”) for each Lender’s commitment amount (each such commitment amount, a “Commitment Amount”). As of May 12, 2022, the Lenders committed an aggregate of $4,000,000.

Pursuant to the terms of the Credit Facility, each Lender severally agrees to make loans (each such loan, an “Advance”) up to such Lender’s Commitment Amount to the Company from time to time, until the December 31, 2022 (the “Due Date”). The Company may, from time to time, prior to the Due Date, draw down, repay, and re-borrow on the Note, by giving notice to the Lenders of the amount to be requested to be drawn down.

Each Note bears an interest rate of 15.0% per annum on each Advance from and after the date of disbursement of such Advance and shall be payable on (i) the Due Date in cash or shares of common stockStockholders of the Company held on April 20, 2023 (the “Common Stock”“Annual Meeting”) at, the sole electionCompany’s stockholders approved the Flux Power Holdings, Inc. 2023 Employee Stock Purchase Plan (the “2023 ESPP”). The 2023 ESPP was approved by the Board on March 6, 2023, subject to stockholder approval. The 2023 ESPP enables eligible employees of the Company unless extended pursuantand certain of its subsidiaries (a “Participating Subsidiary”) to use payroll deductions to purchase shares of the Note, or (ii) on occurrence ofCompany’s Common Stock and acquire an event of Default (as definedownership interest in the Note).Company. The Due Date may be extended (i) at the sole election of the Company for one (1) additional year period from the Due Date upon the payment of a commitment fee equal to two percent (2%) of the Commitment Amount to the Lender within thirty (30) days prior to the original Due Date, or (ii) by the Lender in writing. In addition, each Lender signed a certain Subordination Agreement by and between the Lenders and Silicon Valley Bank, a California corporation (“SVB”), dated as of May 11, 2022 (the “Subordination Agreement”) for the purposes of subordinating the right to payment under the Note to SVB’s indebtedness by the Company and its wholly-owned subsidiary, Flux Power, Inc., now outstanding or hereinafter incurred.

The Credit Facility includes customary representations, warranties and covenants by the Company and the Lenders. The Company has also agreed to pay the legal fees of Cleveland’s counsel in the amount up to $10,000. In addition, each Note also provides that, upon the occurrence of a Default, at the option of the Lender, the entire outstanding principal balance, all accrued but unpaid interest and/or Late Charges (as defined in the Note) at once shall become due and payable upon written notice to the Company by the Lender.

In connection with entry into the Credit Facility, the Company agreed to pay each Lender a one-time committee fee in cash equal to 3.5% of such Lender’s Commitment Amount. In addition, in consideration of the Lenders’ commitment to provide the Advances to the Company, the Company agreed to issue each Lender warrants to purchase themaximum aggregate number of shares of common stock equalthe Company’s Common Stock that have been reserved as authorized for grant under the 2023 ESPP is 350,000 shares, subject to adjustment as provided for in the product2023 ESPP. Participation in the 2023 ESPP is voluntary and is limited to eligible employees (as such term is defined in the 2023 ESPP) of the Company or a Participating Subsidiary who (i) 160,000has been employed by the Company or a Participating Subsidiary for at least 90 days and (ii) is customarily employed for at least twenty (20) hours per week and more than five (5) months in any calendar year. Each eligible employee may authorize payroll deductions of 1-15% of the eligible employee’s compensation on each pay day to be used to purchase up to 1,500 shares of common stock multiplied by (ii)Common Stock for the ratio represented by each Lender’s Commitment Amount divided by the $5,000,000 (the “Warrants”).

Subject to certain ownership limitations, the Warrants will be exercisable immediately fromemployee’s account occurring during an offering period. The 2023 ESPP has a term of ten (10) years commencing on April 20, 2023, the date of issuance, will expire on the five (5) year anniversary of the date of issuance and will have an exercise price of $2.53 per share. The exercise price of the Warrants is subject to certain adjustments, including stock dividends, stock splits, combinations and reclassifications ofapproval by the Company’s Common Stock. In the event of a Triggering Event, as described in the Warrant Certificate, each of the holders of the Warrants shall be entitled to exercise its Warrant and receive the same amount and kind of securities, cash or property as such holder would have been entitled to receive upon the occurrence of such Triggering Event if such holder had exercised the rights represented by the Warrant Certificate immediately prior to the Triggering Event. Additionally, upon the holder’s request, the continuing or surviving corporation as a result of such Triggering Event shall issue to such holder a new warrant of like tenor evidencing the right to purchase the adjusted amount of securities, cash or property and the adjusted warrant price.

Pursuant to a selling agreement, dated as of May 11, 2022, the Company retained HPO as its placement agent in connection with the Credit Facility. As compensation for services rendered in conjunction with the Credit Facility, the Company agreed to pay HPO a finder fee equal to three percent (3%) of the Commitment Amount from each such Lender placed by HPO in cash.

stockholders, unless otherwise earlier terminated.

20

 

COVID-19 UpdateGrant of Restricted Stock Units to Non-Executive Directors

On April 20, 2023, the Company’s four non-executive directors were granted RSUs covering a total of 67,532 shares of common stock under the 2014 Plan, with each receiving 16,883 RSUs based on aggregate grant date value of $65,000 divided by $3.85 per share. The COVID-19 pandemic has continuedRSUs will all vest on April 20, 2024 in accordance to impact both globalthe vesting service criteria. The awards are subject to the terms and domestic businessesconditions of the 2014 Plan and many economic activities.the terms and conditions of an applicable award agreement covering each grant. The COVID-19 pandemic has placed significant pressures on our supply chains causing supply shortages, price increases, and delays in productions. In addition, the COVID-19 pandemic has also placed additional safety regulations and monitoring measures on companies. The Company began implementing COVID-19 measures in March 2020 asawards were recommended by the CDCcompensation committee of the Company and other governmental authorities. The Company has hadapproved by the Board prior to navigate staffing requirements as certain employees tested positive for COVID-19. Our manufacturing operations have not yet experienced production stoppages, however, we have experience negative consequences such as disruptions in the supply chain supply and price increases. Therefore, we remain subject to significant risks of supply shortages, delays in shipping, and price increases that could materially affect our financial condition and operating results.being granted.

 

Segment and Related Information

 

We operate as a single reportable segment.

 

Results of Operations and Financial Condition

 

The following table represents our unaudited condensed consolidated statement of operations for the three months ended March 31, 20222023 and March 31, 2021.2022.

 

 Three Months Ended March 31,  Three Months Ended March 31, 
 2022  2021  2023  2022 
 $  

% of

Revenues

  $  

% of

Revenues

  $  

% of

Revenues

  $  

% of

Revenues

 
                
Revenues $13,177,000   100% $6,964,000   100% $15,087,000   100% $13,177,000   100%
Cost of sales  11,257,000   85%  5,287,000   76%  10,368,000   69%  11,257,000   85%
Gross profit  1,920,000   15%  1,677,000   24%  4,719,000   31%  1,920,000   15%
                                
Operating expenses:                                
Selling and administrative  3,904,000   30%  3,122,000   45%  4,724,000   31%  3,904,000   30%
Research and development  1,713,000   13%  1,523,000   22%  1,182,000   8%  1,713,000   13%
Total operating expenses  5,617,000   43%  4,645,000   67%  5,906,000   39%  5,617,000   43%
                                
Operating loss  (3,697,000)  -28%  (2,968,000)  -43%  (1,187,000)  -8%  (3,697,000)  -28%
                                
Other income (expense):                
Other income  -   0%  1,307,000   19%  -   0%  -   0%
Interest expense, net  (52,000)  -0%  (64,000)  -1%  (258,000)  -2%  (52,000)  -0%
                                
Net loss $(3,749,000)  -28% $(1,725,000)  -25% $(1,445,000)  -10% $(3,749,000)  -28%

Page 22

 

Revenues

 

Revenues for the quarter ended March 31, 2022,2023, increased by $6,213,000$1,910,000 or 89%14% to $13,177,000,$15,087,000, compared to $6,964,000$13,177,000 for the quarter ended March 31, 2021.2022. The increase in revenues was due to sales of energy storage solutions with higher average selling prices and a higher volume of units sold.sold, driven by significant increases in Ground Support Equipment sales. The increase in revenues included both greater sales to existing and new Material Handling customers as well as initial sales to new customers.an increase in Ground Support Equipment sales.

 

Cost of Sales

 

Cost of sales for the quarter ended March 31, 2022, increased2023, decreased by $5,970,000,$889,000, or 113%8%, to $11,257,000$10,368,000 compared to $5,287,000$11,257,000 for the quarter ended March 31, 2021.2022. The increasedecrease in cost of sales was directly associated with higher sales of energy storage solutions, as well as increased costspartially offset by lower average cost of steel, electronic parts, and common offsales per unit achieved during the shelf parts chieflycurrent quarter as a result of theour gross margin improvement initiatives, including design enhancements to lower cost, improve serviceability, simplify bill of materials and supply chain interruptions.initiatives to improve inventory turns and create part commonality across multiple product line. Cost of sales as a percent of revenues for the quarter ended March 31, 20222023 was 85%69%, an increaseimprovement of 9 percentage16percentage points over 76%compared to 85% for the quarter ended March 31, 2021.2022.

 

21

Gross Profit

 

Gross profit for the quarter ended March 31, 20222023 increased by $243,000$2,799,000 or 14%146%, to $1,920,000$4,719,000 compared to $1,677,000$1,920,000 for the quarter ended March 31, 2021.2022. The gross profit margin (gross profit as a percent of revenues) decreasedincreased to 31% for the quarter ended March 31, 2023 compared to 15% for the quarter ended March 31, 2022 compared to 24% for the quarter ended March 31, 2021.2022. Gross profit was negatively impactedimproved by 16 percentage points as a result of a higher costs for steel, electronic parts,volume of units sold with greater gross margin and common offlower cost of sales as a result of the shelf parts during the quarter ended March 31, 2022, partially offset by higher revenues associated with increased sales of energy storage solutions.gross margin improvement initiatives as noted above.

 

Selling and Administrative Expenses

 

Selling and administrative expenses for the quarter ended March 31, 20222023 increased by $782,000$820,000 or 25%21%, to $3,904,000$4,724,000 compared to $3,122,000$3,904,000 for the quarter ended March 31, 2021.2022. The increase was primarily attributable to higher staff related expenses and increases in personnelmarketing expenses, related to new hirescommissions, depreciation, professional service fees, stock-based compensation, and temporary labor,travel expenses, partially offset by decreases in outbound shipping costs, public relation expenses, recruiting costs, and an increase in insurance premiums, partially offset by a decrease in marketing expenses and stock-based compensation and legal expenses.consulting fees.

 

Research and Development Expense

 

Research and development expenses for the quarter ended March 31, 2022 increased2023 decreased by $190,000$531,000 or 12%31%, to $1,713,000$1,182,000 compared to $1,523,000$1,713,000 for the quarter ended March 31, 2021.2022. Such expenses consisted primarily of materials, supplies, salaries and personnel related expenses, product testing, consulting, and other expenses associated with revisions to existing product designs and new product development. The increasedecrease in research and development expenses was primarily due to lower staff related expenses and expenses related to the development of new products, UL certifications, higher personnel expenses related to new hires and temporary labor.

Other Income

Other income for the quarter ended March 31, 2021 represents the forgiven repayment of the entire PPP Loan of approximately $1,297,000 in principal, together with all accrued interest of approximately $10,000 that SBA had forgiven on February 9, 2021.products.

 

Interest Expense

 

Interest expense for the quarter ended March 31, 2022 decreased2023 increased by $12,000 or 19%$206,000 to $52,000$258,000 compared to $64,000$52,000 for the quarter ended March 31, 2021. Interest2022. The increase in interest expense was primarily related to higher balances outstanding under our outstandingSVB Credit Facility as well as higher interest rates. Also included in interest expense during quarter ended March 31, 2023 was additional interest expense of approximately $20,000 representing the amortization of debt issuance costs related to our existing lines of credit and convertible promissory note.credit.

 

Net Loss

 

Net loss for the quarter ended March 31, 2022 increased2023 decreased by $2,024,000$2,304,000 or 117%61%, to $3,749,000$1,445,000 as compared to a net loss of $1,725,000$3,749,000 for the quarter ended March 31, 2021.2022. The higherlower net loss for the quarterthree months ended March 31, 20222023 was primarily attributable to increased operating expenses, and decreased other income,gross profit, partially offset by an increaseincreases in gross profitoperating expenses and a decrease in interest expense.

 

22Page 23

 

 

The following table represents our unaudited condensed consolidated statement of operations for the nine months ended March 31, 20222023 and March 31, 2021.2022.

 

 Nine Months Ended March 31,  Nine Months Ended March 31, 
 2022  2021  2023  2022 
 $  

% of

Revenues

  $  

% of

Revenues

  $  

% of

Revenues

  $  

% of

Revenues

 
                
Revenues $27,138,000   100% $17,932,000   100% $50,085,000   100% $27,138,000   100%
Cost of sales  22,838,000   84%  13,893,000   77%  37,310,000   74%  22,838,000   84%
Gross profit  4,300,000   16%  4,039,000   23%  12,775,000   26%  4,300,000   16%
                                
Operating expenses:                                
Selling and administrative  11,402,000   42%  9,177,000   51%  13,510,000   27%  11,402,000   42%
Research and development  5,768,000   21%  4,624,000   26%  3,567,000   7%  5,768,000   21%
Total operating expenses  17,170,000   63%  13,801,000   77%  17,077,000   34%  17,170,000   63%
                                
Operating loss  (12,870,000)  -47%  (9,762,000)  -54%  (4,302,000)  -9%  (12,870,000)  -47%
                                
Other income (expense):                
Other income  -   0%  1,307,000   7%  8,000   0%  -   0%
Interest expense, net  (86,000)  -0%  (618,000)  -4%  (971,000)  -2%  (86,000)  -1%
                                
Net loss $(12,956,000)  -48% $(9,073,000)  -51% $(5,265,000)  -11% $(12,956,000)  -48%

 

Revenues

 

Revenues for the nine months ended March 31, 2022,2023, increased by $9,206,000$22,947,000 or 51%85% to $27,138,000,$50,085,000, compared to $17,932,000$27,138,000 for the nine months ended March 31, 2021.2022. The increase in revenues was due to sales of energy storage solutions with higher average selling prices and a higher volume of units sold. The increase in revenues included both greater sales to existing customers as well as initial sales to new customers. Though volume growth was consistent across all Material Handling product lines, high-powered Class 1 product saw the biggest volume increase from the year ago same period. Additionally, we further diversified our sales channels, and saw considerable volume and price improvement in Ground Support Equipment sales as domestic airlines resumed operations with a reinvigorated focus on sustainably scaling their own operations with our environmentally friendly and cost-effective solutions.

 

Cost of Sales

 

Cost of sales for the nine months ended March 31, 2022,2023, increased by $8,945,000,$14,472,000, or 64%63%, to $22,838,000$37,310,000 compared to $13,893,000$22,838,000 for the nine months ended March 31, 2021.2022. The increase in cost of sales was directly associated with higher sales volume of our energy storage solutions, as well as increased costs of steel, and electronic parts, and common off the shelf parts chiefly as a result of thelargely due to supply chain interruptions.interruptions within our supply base. Cost of sales as a percent of revenues for the nine months ended March 31, 20222023 was 84%74%, an increaseimprovement of 710 percentage points over 77%compared to 84% for the same period last year as described above.nine months ended March 31, 2022.

 

Gross Profit

 

Gross profit for the nine months ended March 31, 20222023 increased by $261,000$8,475,000 or 6%197%, to $4,300,000$12,775,000 compared to $4,039,000$4,300,000 for the nine months ended March 31, 2021.2022. The gross profit margin (gross profit as a percent of revenues) decreasedincreased to 26% for the nine months ended March 31, 2023 compared to 16% for the nine months ended March 31, 2022 compared to 23% for the nine months ended March 31, 2021.2022. Gross profit was negatively impactedimproved by 10 percentage points due to a higher costs for steel, electronic parts,volume of units sold with greater gross margins and common offlower cost of sales as a result of the shelf parts during nine months ended March 31, 2022, partially offset by higher revenues directly associated with higher sales of energy storage solutions.gross margin improvement initiatives.

Page 24

 

Selling and Administrative Expenses

 

Selling and administrative expenses for the nine months ended March 31, 20222023 increased by $2,225,000$2,108,000 or 24%18%, to $11,402,000$13,510,000 compared to $9,177,000$11,402,000 for the nine months ended March 31, 2021.2022. The increase was primarily attributable to increases in personnel expenses related to new hires and temporary labor, an increaseseverance expenses incurred, and recruiting costs, and increases in depreciation expense, outbound shipping costs, insurance premiums, commissions, travel expenses, marketing expenses, and outbound shippingfacilities related costs, partially offset by a decreasedecreases in marketingbad debt expenses, stock-base compensation,consulting fees, public relations expenses, and professional service fees including accounting and legal expenses.stock-based compensation.

 

Research and Development Expense

 

Research and development expenses for the nine months ended March 31, 2022 increased2023 decreased by $1,144,000$2,201,000 or 25%38%, to $5,768,000$3,567,000 compared to $4,624,000$5,768,000 for the nine months ended March 31, 2021.2022. Such expenses consisted primarily of materials, supplies, salaries and personnel related expenses, product testing, consulting, and other expenses associated with revisions to existing product designs and new product development. The increasedecrease in research and development expenses was primarily due to lower staff related expenses and expenses related to UL certifications, higher personnel expenses related todevelopment of new hires and temporary labor.

23

Other Income

Other income for the nine months ended March 31, 2021 represents the forgiven repayment of the entire PPP Loan of approximately $1,297,000 in principal, together with all accrued interest of approximately $10,000 that SBA had forgiven on February 9, 2021.products.

 

Interest Expense

 

Interest expense for the nine months ended March 31, 2022 decreased2023 increased by $532,000 or 86%$885,000 to $86,000$971,000 compared to $618,000$86,000 for the nine months ended March 31, 2021. Interest2022. The increase in interest expense was primarily related to higher balances outstanding under our outstanding lines of credit and convertible promissory note.SVB Credit Facility as well as higher interest rates. Also included in interest expense during the nine months ended March 31, 20212023 was additional interest expense of approximately $174,000$445,000 representing the amortization of debt discountissuance costs related to Cleveland Loan that was paid off during that period.our existing lines of credit.

 

Net Loss

 

Net loss for the nine months ended March 31, 2022 increased2023 decreased by $3,883,000$7,691,000 or 43%59%, to $12,956,000$5,265,000 as compared to a net loss of $9,073,000$12,956,000 for the nine months ended March 31, 2021.2022. The higherlower net loss for the nine months ended March 31, 20222023 was primarily attributable to increased operating expenses,gross profit, and decreased other income,operating expenses, partially offset by an increase in gross profit and a decrease inincreased interest expense.

Adjusted EBITDA

 

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA is calculated by taking net income and adding back the expenses related to interest, income taxes, depreciation, amortization, and stock-based compensation, each of which has been calculated in accordance with GAAP. Adjusted EBITDA was a loss of approximately $3,108,000 for the nine months ended March 31, 2023 compared to a loss of $11,857,000 for the nine months ended March 31, 2022 compared to a loss of $7,629,000 for the nine months ended March 31, 2021.2022.

 

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 additional information with respect to the performance of our fundamental business activities and is also frequently used by securities analysts, investors and other interested parties in the evaluation of comparable companies. We also rely on Adjusted EBITDA as a primary measure to review and assess the operating performance of our company and our management team.

 

As Adjusted EBITDA is a non-GAAP financial measure, it should not be construed as a substitute for EBITDA and net income (loss) (as determined in accordance with GAAP) for the purpose of analyzing our operating performance or financial position.

 

Page 25

A reconciliation of our Adjusted EBITDA to net loss is included in the table below:

 

 Nine Months Ended March 31,  Nine Months Ended March 31, 
 2022  2021  2023  2022 
Net loss $(12,956,000) $(9,073,000) $(5,265,000) $(12,956,000)
Add/Subtract:                
Interest, net  86,000   618,000   971,000   86,000 
Income tax provision  -   -   -   - 
Depreciation and amortization  412,000   176,000   647,000   412,000 
EBITDA  (12,458,000)  (8,279,000)  (3,647,000)  (12,458,000)
Add/Subtract:                
Stock-based compensation  601,000   650,000   539,000   601,000 
Adjusted EBITDA $(11,857,000) $(7,629,000) $(3,108,000) $(11,857,000)

24

Liquidity and Capital Resources

 

Overview

 

As ofFor the nine months ended March 31, 2023 and the year ended June 30, 2022, we had agenerated negative cash balanceflows from operations of $3,804,000$5.2 million and an accumulated deficit of $79,161,000. Our$23.9 million, respectively. To date our business has not generated sufficient cash to fund our historical operations, andoperations. However, based on our ability to recognize revenue from our existing backlog, we will need additional cash and capital resourcesanticipate increased revenues as well as planned improvements in our gross margin over the next twelve (12) months. Our gross margin improvement plan includes, but is not limited to, supportefforts to drive bill of material costs down while increasing the price of our planned operations and to execute our business plan. However,products for new orders. We have received new orders during the twelve (12) months period ended March 31, 2023, of approximately $51.7 million.

As of May 10, 2023, we believe that our existing cash together with $2.5of $1.4 million, that currently remains available under our $6.0$14.0 million working capitalrevolving line of credit with Silicon Valley Bank (“SVB Line of Credit”Credit Facility”), andunder which $3.8 million is currently available, our $4.0 million available under our new subordinated line of creditSubordinated LOC, along with the Lenders,forecasted gross margin improvement will be sufficientenable us to meetfund our anticipated capital resources to fund planned operations for the next twelve (12) months. See “Future Liquidity Needs” below.

 

Cash Flows

 

Cash Flow Summary

 

 Nine Months Ended March 31,  Nine Months Ended March 31, 
 2022  2021  2023  2022 
          
Net cash used in operating activities $(19,338,000) $(14,000,000) $(5,197,000) $(19,338,000)
Net cash used in investing activities  (644,000)  (692,000)  (745,000)  (644,000)
Net cash provided by financing activities  19,073,000   16,398,000   6,247,000   19,073,000 
Net change in cash $(909,000) $1,706,000  $305,000  $(909,000)

 

Operating Activities

 

Net cash used in operating activities was $19,338,000$5,197,000 for the nine months ended March 31, 2022,2023, compared to net cash used in operating activities of $14,000,000$19,338,000 for the nine months ended March 31, 2021.2022. The primary usages of cash for the nine months ended March 31, 2023 were the net loss of $5,265,000 and increases in accounts receivable, and inventory, and decreases in deferred revenue, customer deposits and office lease payable, that were partially offset by non-cash operating costs, and increases in accounts payable and accrued expenses and a decrease in other assets. The primary usages of cash for the nine months ended March 31, 2022 were the net loss of $12,956,000 and increases in accounts receivable, inventory, and other assets, and decreases in accrued expenses and office lease payable, that were partially offset by increases in accounts payable, customer deposits, deferred revenue and non-cash operating costs. The primary usages of cash for the nine months ended March 31, 2021 were the net loss of $9,073,000, increases in accounts receivable, inventory, and other assets, and decreases in customer deposits, amount due to factoring facility, deferred revenue, and accrued interest, that were partially offset by increases in accounts payable, accrued expenses, deferred revenue, and non-cash operating costs.

Page 26

 

Investing Activities

Net cash used in investing activities was $745,000 for the nine months ended March 31, 2023 and consisted primarily of the costs of internal software development and other capital equipment.

 

Net cash used in investing activities was $644,000 for the nine months ended March 31, 2022 and consisted primarily of the costs of internal software development and other capital equipment.

Net cash used in investing activities was $692,000 for the nine months ended March 31, 2021 and consisted primarily of the costs of internal software development and purchase of other capitalfurniture and equipment and warehouse equipment.

 

Financing Activities

Net cash provided by financing activities was $6,247,000 for the nine months ended March 31, 2023, which primarily consisted of $5,602,000 in net borrowing under the working capital line of credit, and $697,000 in net proceeds from sales of common stock under our ATM offering.

 

Net cash provided by financing activities was $19,073,000 for the nine months ended March 31, 2022, which primarily consisted of $13,971,000 in net proceeds from issuances of common stock in the registered direct offering completed inclosed on September 27, 2021, $3,500,000 in borrowingsborrowing under the SVB Lineworking capital line of Credit,credit, and $1,602,000 in net proceeds from sales of common stock under our ATM Offering.

Net cash provided by financing activities was $16,398,000 for the nine months ended March 31, 2021, which primarily consisted of $10,698,000 in net proceeds from issuances of common stock in the public offering completed in August 2020 , $3,200,000 from a private placement completed [add date], and $5,079,000 in net proceeds from sales126,954 shares of common stock under our ATM offering, which were partially offset by $2,580,000 in payments of outstanding related party borrowings, and $28,000 in payment of financing lease payable.offering.

25

FutureLiquidity Needs

 

We have evaluated our expected cash requirements over the next twelve (12) months, which include, but are not limited to, investments in additional sales and marketing and research and development, capital expenditures, and working capital requirements. WeAs of May 10, 2023, we believe that our existing cash and additionalof $1.4 million, cash from our future operations, funding available under our $14 million SVB Line of Credit combined withFacility, under which $3.8 million is currently available, which maturity date has been extended to December 31, 2023, funds available to us under our new subordinated line of creditSubordinated LOC of up to $4.0 million, along with the forecasted improvement in the gross margin will be sufficient to meet our anticipated capital resourcesenable us to fund our planned operations for at least the next twelve (12) months. As of May 12, 2022, there is $4.010, 2023, $4.6 million available for future draws under the LOC and $2.5 millionremained available under our existing ATM offering that may be utilized if necessary subject to the SVB Linevolume of Credit.trading and price of our stock and market conditions. In addition, to support our operations and anticipated growth, we intend onto continue our effortsto explore alternatives to secure additional capital from a variety of current and new sources including, but not limited to, sales of our equity securities. We also continue to have positiveexecute our cost reduction, sourcing, pricing recovery initiatives in efforts to increase our gross margin which has improvedmargins and improve cash flow from operations.

 

Although management believes that our existing cash and the additional funding sources currently available to us under the lines of credit are sufficient to fund planned operations for the next twelve (12) months, this is dependent our ability to successfully maintain and draw on our credit facilities. Our ability to draw funds from the line of creditSVB Credit Facility are subject to certain restrictions and covenants. In addition, under the current arrangement our SVB Credit Facility matures on December 31, 2023, and we will need to renew or replace it at that time. If we are unable to meet the conditions provided in the loan documents and further extend the maturity date, the funds will not be available to us. In addition, should there be any delays in the receipts of key component parts, due in part to supply change disruptions, our ability to fulfil the backlog of sales orders will be negatively impacted resulting in lower availability of cash resources from operations. In that event, we may be required to raise additional funds by issuing equity or convertible debt securities. If such funds are not available when required, management will be required to curtail investments in additional sales and marketing and product development, which may have a material adverse effect on future cash flows and results of operations. In addition, any unforeseen factors in the general economy beyond management’s control could potentially have negative impact on the planned gross margin improvement plan.

 

In the event we are required to obtain additional funds, there is no guarantee that additional funds will be available on a timely basis or on acceptable terms. To the extent that we raise additional funds by issuing equity or convertible debt securities, our stockholders may experience additional dilution and such financing may involve restrictive covenants.

Page 27

 

Critical Accounting Policies

 

The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Information with respect to our critical accounting policies which we believe could have the most significant effect on our reported results and require subjective or complex judgments by management is contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.2022 filed with the SEC on September 28, 2022.

 

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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.

 

ITEM 4 - CONTROLS AND PROCEDURES

 

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 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 quarter ended March 31, 2022, weChief Financial Officer have concluded that our disclosure controls and procedures were effective for purposes stated above.as of March 31, 2023.

26

 

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.

 

As described in the Company’s 10-K for the fiscal year ended June 30, 2022, management assessed the effectiveness of the Company’s internal control over financial reporting and based on such assessment, management concluded that as of June 30, 2022, our internal control over financial reporting was not effective due to material weakness related to ineffective oversight of the Company’s internal control over financial reporting and lack of sufficient review and approval of the underlying data used in the calculation of warranty reserve. We believe we have remediated the material weaknesses. We plan to continue to assess our internal controls and control procedures and intend to take further action as necessary or appropriate to address any other matters we identify or are brought to our attention.

Changes in Internal Control Over Financial Reporting

 

ThereExcept as discussed above, there have been no changes in the Company’s internal controls over financial reporting during the quarter ended March 31, 20222023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Page 28

PART II - OTHER INFORMATION

 

ITEM 1 - LEGAL PROCEEDINGS

 

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.

ITEM 1A - RISK FACTORS

 

An investment in our common stock involves a high degree of risk. You should carefully consider the risks set forth in the section captioned “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021,2022, filed with the SEC on September 27, 2021,28, 2022, before making an investment decision. If any of the 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 should read the section captioned “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.

 

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4 - MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5 - OTHER INFORMATION

 

None.

 

ITEM 6 - EXHIBITS

 

The following exhibits are filed as part of this Report.

 

Exhibit No. Description
31.1 Certifications of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act.*
31.2 Certifications of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act.*
32.1 Certifications of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act.*
32.2 Certifications of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act.*
101.INS XBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document*
101.SCH Inline XBRL Taxonomy Extension Schema Document*
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document*
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document*
104 Cover Page Interactive Data File, formatted in Inline XBRL (included as Exhibit 101)

 

*Filed herewith

 

27Page 29

 

SIGNATURES

 

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

 

 Flux Power Holdings, Inc.
   
Date: May 12, 202211, 2023By:/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 Officer)

 

28Page 30