SECURITIES & EXCHANGE COMMISSION EDGAR FILING
Flux Power Holdings, Inc.
Form: 10-K
Date Filed: 2017-09-22
Corporate Issuer CIK: 1083743
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2017
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-25909
FLUX POWER HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of
incorporation or organization)
985 Poinsettia Avenue, Suite A, Vista, California
(Address of principal executive offices)
86-0931332
(I.R.S. Employer
Identification Number)
92081
(Zip Code)
877-505-3589
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock,$0.001 par value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in
Rule 12b-2 of the Exchange Act. (Check one):
, a smaller reporting company, or an
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
☐
☐
Emerging growth company ☐
Accelerated filer
Smaller reporting 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 ☒
APPLICABLE ONLY TO CORPORATE ISSUERS:
The aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant as of December 31, 2016 (the last business day of the
registrant’s most recently completed second fiscal quarter) was approximately $2,803,509.
The number of shares of registrant’s common stock outstanding as of September 21, 2017 was 25,085,526.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Documents incorporated by reference: None.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
FLUX POWER HOLDINGS, INC.
FORM 10-K ANNUAL REPORT
For the Fiscal Year Ended June 30, 2017
Table of Contents
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
CONTROLS AND PROCEDURES
OTHER INFORMATION
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A
ITEM 9B.
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
SIGNATURES
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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This report contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Description of
Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements involve known
and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any
future results, performances or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not
limited to, the factors described in the section captioned “Risk Factors” below. In some cases, you can identify forward-looking statements by terms such as
“anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would,” and similar expressions
intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on
assumptions and subject to risks and uncertainties. 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:
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our ability to secure sufficient funding and alternative source of funding to support our current and proposed operations;
our anticipated growth strategies and our ability to manage the expansion of our business operations effectively;
our ability to maintain or increase our market share in the competitive markets in which we do business;
our ability to 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 diversify our product offerings and capture new market opportunities;
our ability to source our needs for skilled labor, machinery, parts, and raw materials economically; and
the loss of key members of our senior management.
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:
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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. (“Flux Power”), a California corporation;
“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.
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ITEM 1 - BUSINESS
Overview
PART I
We design, develop and sell rechargeable advanced lithium-ion batteries for industrial uses, including our first-ever UL 2771 Listed lithium-ion “LiFT
Pack” forklift batteries. We have developed an innovative high power battery cell management system (“BMS”) and have structured our business around this
core technology. Our proprietary BMS provides three critical functions to our battery systems:
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•
•
Cell Balancing: This is performed by adjusting the capacity of each cell in a storage system according to temperature, voltage, and internal
impedance metrics. This cell balancing management assures longevity of the overall system.
Monitoring: This is performed by way of a physical connection to individual cells for monitoring voltage and performing calculations from basic
metrics to determine remaining capacity and internal impedance. This monitoring assures accurate measurements to best manage the system and
assure longevity.
Error Reporting: This is performed by analyzing data from system monitoring and making decisions on whether the system is operating out of
normal specifications. This error reporting is crucial to system management as it ensures ancillary devices are not damaging the storage system
and will give the operator an opportunity to take corrective action to maintain long overall system life.
Using our proprietary BMS technology, we are able to offer completely integrated energy storage solutions or custom modular standalone systems to
our clients. In addition, we have also developed a suite of complementary technologies and products that accompany and enhance the abilities of our core
BMS products to meet the needs of the growing advanced energy storage market.
Current Business Strategy
We are primarily focusing on the lift equipment market targeting dealers and distributors, and secondarily, on the airline ground support equipment
market. Our strategy is to offer a full product lineup for forklifts within the coming year. In January 2016, we obtained certification from Underwriters
Laboratory (“UL”), a global safety science organization, on our LiFT Packs for forklift use listed to UL 2271. The UL Listing demonstrates the quality, safety
and reliability of our LiFT Pack line for customers, distributors, dealers and OEM partners. We believe we have emerged from this effort with a substantially
enhanced product line, particularly in the areas of overall design and durability, as well as, features that improve our LiFT Packs’ value and performance for
customers. We shipped our first UL certified LiFT Pack to our customers beginning in May 2016. Currently, we are working with various lift equipment
original equipment manufacturers (“OEM”), their dealers and battery distributors to bring our advanced energy storage systems to the lift equipment market.
This provides a more direct market path to the consumer without the delays and issues that accompany dealing solely with the OEM.
We have also begun marketing directly to end-users, primarily in the food and beverage industry, with a focus on educating the customer on the many
benefits of utilizing lithium-ion batteries over the traditional lead acid batteries in their walkie pallet jack forklifts. Such benefits include less maintenance,
faster charge times, longer lasting and greater power. Such efforts resulted in Flux being named one of Food Logistics Magazine’s 2017 Champions: Rock
Stars of the [Food & Beverage] Supply Chain. This recognition underscores the increasing interest, piloting and shipments of Flux LiFT Packs to power multi-
shift operations at a growing base of food industry distribution centers across America.
In addition, we are leveraging from our prior experience of developing and shipping over 15 megawatts of battery packs in a variety of applications
ranging from electrical vehicles, electric boats, and various industry specific applications. The current process of working with the lift equipment sector has
included securing “technical approval” by the OEMs for compatibility with their equipment and then developing a sales network utilizing existing battery
distributors and equipment dealers. Our product development has included pilot programs and trials with national account end users and industrial equipment
manufacturers. Such pilot programs have been highly beneficial in providing us with the much-needed feedback necessary to improve our battery packs. It
also led us to securing our UL Listing on our LiFT Pack.
Our primary focus has been with our entry-level LiFT Pack line to power walkie pallet jack forklifts. During fiscal 2016, the pace of sales was limited by
our focus on converting Flux’s production from small-run production and prototyping into large scale production of our UL-listed products. We purposely dialed
down production during the last six months of fiscal 2016 in order to incorporate the improvements gleaned from the UL review process, as well as,
implement important engineering features that stem from a model changeover. During the fourth quarter of fiscal 2016, we developed specialized assembly
and testing stations designed to speed production time frames by automating many facets of testing and assembly. Throughout the fiscal 2017 we
recognized the results of these design and production enhancements through reductions in warranty expense and improved gross margins and expect these
improvements to continue into the future. With a focus on improvements to our LiFT Packs and overall production processes behind us, we are now
positioned to accelerate our sales efforts in fiscal 2018.
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In addition to the walkie pallet jack, in April 2016, we began piloting our custom-developed, 72-volt battery pack for use with electric aviation ground
support equipment (“GSE”). The pilot program, organized by Averest, Inc., a leading distributor of industrial batteries and chargers for aviation ground
support equipment, was with a leading regional airline at Los Angeles International Airport. The test program wrapped up in August 2016 and was deemed an
unqualified success. Now, working with a distributor focused on the airlines, we are planning to provide more test units for additional airlines. The successful
development and 3-month pilot highlights the scalability of our design and engineering capabilities, as well as, our proprietary battery management technology
for a broad array of motive power applications. Importantly it also moves us into a customer price point of roughly $20,000 to $34,000 per pack for several
power rating alternatives, creating an excellent new leg of growth potential.
We have since begun development of a LiFT Pack for use in Class 3 end rider forklifts with evaluation units going out to several accounts in July and
August 2018. The evaluation units are providing us with relevant information on the further development of the battery packs in order to better serve this
market. Along with the development of the LiFT pack for the Class 3 forklifts, our research and development group is designing LiFT Pack prototypes for
Class 1 and Class 2 forklifts with evaluations expected to take place in the second quarter of Fiscal 2018.
In summary, we are developing a suite of complementary technologies and products that utilize our core BMS technology. Sales during the year ended
June 30, 2017 were primarily to customers located throughout the United States.
History
We were incorporated in Nevada in 1998. In May 2012, we changed our name to Flux Power Holdings, Inc. (“Flux”).
We operate our business through our wholly-owned subsidiary, Flux Power, Inc. (“Flux Power”). Flux Power was incorporated in October 2009 to
provide solutions to exploit the lithium battery market for small electric vehicles.
Recent Corporate Transaction
On August 10, 2017, we filed a certificate of amendment to our articles of incorporation with the State of Nevada effectuating a reverse split of our
common stock at a ratio of 1 for 10, whereby every ten pre-reverse stock split shares of common stock automatically converted into one-post reverse stock
split share of common stock, without changing the $0.001 par value or authorized number of our common stock (the “Reverse Stock Split”). The Reverse
Stock Split became effective in the State of Nevada on August 18, 2017. Michael Johnson, our director and beneficial owner of Esenjay, owning a majority of
our issued and outstanding common stock approved the Reverse Stock Split on July 7, 2017 by written consent.
In connection with the Reverse Stock Split, proportionate adjustments have been made to the per share exercise price and the number of shares
issuable upon the exercise or conversion of all outstanding options, warrants, convertible or exchangeable securities entitling the holders to purchase,
exchange for, or convert into, shares of common stock. All references to shares of common stock and per share data for all periods presented in this Annual
Report on Form 10-K and the accompanying consolidated financial statements and notes thereto contained have been adjusted to reflect the Reverse Stock
Split on a retroactive basis.
DESCRIPTION OF OUR BUSINESS
Our Business
We are in the business of energy storage and battery management. In October 2009, we started to develop technologies for the advanced energy
storage market and began shipping prototype product in the second quarter of 2010 while continuing to develop our intellectual property portfolio. In 2011, we
began shipping Federal Motor Vehicle Safety Standards validated products and then started shipping ancillary products to enhance our overall product line.
Focusing on cell management of large format lithium cells, our technology dramatically extends the battery system life, lowering the overall cost of ownership
to a level which makes lithium competitive with lead-acid in numerous applications. We have spent over six years developing lithium battery energy storage
technology, including shipping over 15 megawatts of power in a variety of applications ranging from electrical vehicles to industrial equipment applications.
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In January 2016, we obtained certification from Underwriters Laboratory (“UL”) on our LiFT Packs for forklift use listed to UL 2271. The UL Listing,
issued by UL, a global safety science organization, demonstrates the quality, safety and reliability of our LiFT Pack line for customers, distributors, dealers and
OEM partners. We believe we have emerged from this effort with a substantially enhanced product line, particularly in the areas of overall design and
durability, as well as, features that improve our LiFT Packs’ value and performance for customers. We shipped our first UL certified LiFT Pack to our
customers beginning in May 2016. Our LiFT Packs are now the first and only UL Listed lithium-ion batteries available across the brands of the major OEMs.
In April 2016, we began piloting our custom-developed, 72-volt battery pack for use with electric aviation ground support equipment. The pilot program,
organized by Averest, Inc., a leading distributor of industrial batteries and chargers for aviation ground support equipment, was with a leading regional airline
at Los Angeles International Airport. The test program wrapped up in August 2016 and was deemed an unqualified success. Now, working with a distributor
focused on the airlines, we are planning to provide more test units for additional airlines. The successful development and 3-month pilot highlights the
scalability of our design and engineering capabilities, as well as, our proprietary battery management technology for a broad array of motive power
applications. Importantly it also moves us into a customer price point of roughly $20,000 to $34,000 per pack for several power rating alternatives, creating an
excellent new leg of growth potential.
We have since begun development of a LiFT Pack for use in Class 3 end rider forklifts with evaluation units going out to several accounts in July and
August 2017. The evaluation units are providing us with crucial information on the further development of the battery packs in order to better serve this
market. Along with the development of the LiFT pack for the Class 3 forklifts, our research and development group is designing LiFT Pack prototypes for
Class 1 and Class 2 forklifts with evaluations expected to take place in the second quarter of Fiscal 2018.
We design, develop, and sell rechargeable advanced energy storage systems. We have developed an innovative high power battery cell management
system (“BMS”) and have structured our business around this core technology. Our proprietary BMS provides three critical functions to our battery systems:
•
•
•
Cell Balancing: This is performed by continuously adjusting the capacity of each cell in a storage system according to temperature, voltage, and
internal impedance metrics. This management assures longevity of the overall system.
Monitoring: This is performed through temperature probes, a physical connection to individual cells for voltage and calculations from basic metrics
to determine remaining capacity and internal impedance. This monitoring assures accurate measurements to best manage the system and assure
longevity.
Error reporting: This is performed by analyzing data from monitoring each individual cell and making decisions on whether the individual cell or the
system is operating out of normal specifications. This error reporting is crucial to system management as it ensures ancillary devices are not
damaging your storage system and will give the operator an opportunity to take corrective action to maintain long overall system life.
Using our proprietary battery management technology, we are able to offer completely integrated energy storage solutions or custom modular
standalone systems to our clients. In addition, we have also developed a suite of complementary technologies and products that accompany and enhance the
abilities of our BMS to meet the needs of the growing advanced energy storage market.
Industry Background for the Energy Storage Market
The energy storage market has grown over recent years from one mostly reliant on lead-acid technologies created in the 1800s to one leveraging
advanced chemistries and the corresponding ability to store more energy in less space. Back-up power has increasingly grown to depend on telematics to
accurately gauge system health. Electric vehicles have adopted lighter weight energy storage to increase range and payload abilities and grid management
applications have sought to increase the cycle life of their systems to assure better returns on their investments over the long term. We believe that all of
these needs will cause the advanced energy storage market to grow exponentially over the next five (5) to ten (10) years.
Lift Equipment - Material Handling Equipment
We currently focus our business on lift equipment. Lift equipment commonly called a forklift truck (also called a lift truck, a fork truck, or a forklift) is a
powered industrial truck used to lift and transport materials. The modern forklift was developed in the 1960s by various companies including the transmission
manufacturing company Clark and the hoist company Yale & Towne Manufacturing. The forklift has since become an indispensable piece of equipment in
manufacturing and warehousing operations. Lift equipment is produced in a range of power capacities from smaller lift type equipment such as a Walkie (ie.,
pallet jack) to a ride-on forklift. Lift equipment vehicles are not new technology and don’t require new testing, which can cause delays in product placement.
The existing lift equipment market primarily uses lead-acid batteries, which is a legacy technology and can lead to customer dissatisfaction with life cycles,
performance, and additional maintenance costs. We believe the replacement of lead-acid batteries with lithium cells dramatically extends run time and the
battery system life, lowering the overall cost of ownership to a level which makes lithium very competitive with lead-acid in numerous applications.
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Other Equipment Solutions
We have produced battery packs on an opportunistic basis for applications including robotic mining equipment, portable packs for field operations by the
U.S. military, and solar, grid-tie energy storage in an office setting. We currently are building and selling prototypes for airport equipment, commonly called
ground support equipment, to power the baggage/cargo trucks. These packs provide much higher levels of power ratings of up to 600 amp hours at 72 volts.
Initial customer response indicates our packs to be performing very well with high satisfaction.
Battery Types
The most common battery technologies currently available to address forklift equipment, electric vehicle and grid management markets include the
following:
Lead-acid Batteries: Lead-acid is one of the most developed battery technologies as it has been in use since the 1800s. It is relatively easy to
manufacture and is an inexpensive and ubiquitous energy storage medium. Automobile manufacturers use lead-acid for starter batteries and lead-acid has
been used widely in electric vehicle and grid management solutions. Unfortunately, lead-acid batteries weigh more per unit of stored energy and have less
power output per unit mass versus advanced energy storage system technologies and thus are not well suited for advanced applications such as grid
management devices and electric vehicles. In addition, lead can be hazardous to the environment and there are efforts in many countries to phase this legacy
technology out over time.
Nickel Batteries: Nickel batteries, NiCd (nickel cadmium) or NiMH (nickel metal hydride) are durable and inexpensive technologies with relatively high
power. Unfortunately, cadmium is not a safe material and exposure can result in health hazard to humans and damage to the environment. An alternative to
the toxic NiCd battery is NiMH, which has greater energy versus lead-acid batteries and is more suitable to a wider range of applications. The NiMH was used
in early electric vehicles and some other bulk storage applications. Unfortunately, these chemistries are not as energy dense as advanced lithium batteries
and thus are now being leveraged out of the advanced energy storage system market by more energy dense chemistries.
Legacy Lithium Chemistries: Lithium batteries are more energy dense versus lead-acid, NiCd or NiMH batteries and are more volumetrically and
weight efficient. Introduced in the 1990s, lithium batteries made their way into portable electronics devices like laptop computers and cell phones.
Unfortunately, early lithium cobalt was prone to heat issues when arranged in large groups and if a battery cell were compromised a fire or explosion could
result. This attribute made early lithium batteries unsuitable for large grid management devices and electric vehicles. The cobalt in these early cells was also a
more expensive metal versus the compounds used in modern lithium batteries.
Advanced Energy Storage Lithium Batteries : The current generation of advanced energy storage lithium batteries was developed in the late 1990s.
These new chemistries improve upon energy density, volumetrics and weight metrics. There have also been great enhancements to the safety of these
modern lithium batteries. Heat and catastrophic failure issues do not plague advanced energy storage systems today. There has also been a significant
increase in modern lithium batteries’ cycle life. This makes today’s advanced energy storage systems the most conducive to electric vehicle and grid
management use.
Other Technologies: Ultra capacitors and fuel cells have been proposed as potential alternatives or replacements to lithium batteries. Ultra capacitors
deliver high power and have an extended cycle life but suffer from poor energy density. This makes them suitable for small burst power needs but not for grid
storage and electric vehicle devices. Fuel cells generate energy converting a fuel, typically hydrogen to energy. Fuel cell systems offer good energy density
but are poor performers in terms of power and cycle life. Fuel cell systems are suitable for devices with small power needs and short life spans but are
generally not suitable for use in electric vehicles and grid management devices.
Current Advanced Energy Storage Application Needs
There are a number of features required of advanced energy storage applications today, such as:
Target Application Power: An advanced energy storage system must be able to deliver the electrical power required. Electrical power, measured in
watts, is the rate at which electrical energy is delivered. Electric industrial vehicles, in particular, need enough power to assure smooth acceleration through a
systems discharge curve and grid management systems need enough power to meet load demands.
Duration of Charge/Run Times: An advanced energy storage system must be able to provide a certain total amount of electrical energy. Total
electrical energy is measured in watt hours and is the product of power and time. Advanced energy storage systems with greater energy can perform for a
longer duration when compared to legacy technologies. For example, Lithium ion batteries provide up to 25% longer run times than legacy batteries of
comparable capacity, or amps per hour rating. The total electrical energy of an advanced energy storage system determines an electric vehicle’s range per
charge and a grid management device’s total power.
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High/Sustained Power: The energy that an advanced energy storage system can provide in total depends on the power requirements of the device in
which it is installed. When an advanced energy storage system delivers higher power, the available energy of the advanced energy storage system is less
than if it was delivering lower power. Advanced energy storage systems are better suited to deliver high power versus legacy lead-acid. For example, the
higher power required to push a vehicle like an electrically propelled boat through the water would be detrimental to legacy power technologies because their
lack of ability to operate as efficiently in high power applications. Advanced energy storage systems are able to supply a high power required without
detriment to the energy storage system.
Safe Operation: For almost all industrial equipment, electric vehicle and grid management solutions, the safety of an advanced energy storage system
is of utmost importance. Legacy lead-acid batteries tend to get hot with heavy operation and the toxic nature of these legacy chemistries can be troublesome
in the event of a cell breach. Advanced energy storage systems focus on chemistries that do not violently react with oxygen so a cell breach is less likely to
result in an explosion or fire. Lithium iron phosphate is known to be the “lithium chemistry of choice” for many large format applications due to its lower cost
and greater safety attributes.
Extended Life: The cycle life of an advanced energy storage system is the total number of times the system can be charged and discharged while still
performing to specification in the device installed. Legacy lead-acid technologies often do not perform to specification past a several hundred cycles in
industrial equipment applications. In comparison, an advanced energy storage system can last three to five times as long in the same application.
Volumetrics and Weight: The weight and size of advanced energy storage systems are of crucial importance to both portable power and grid
management devices. In electric vehicles, where packaging space is precious, a lightweight system can greatly enhance range. In grid management devices
that seek to extend current back-up power time benefit from better volumetrics and devices that shift load or peak-shave for improved average energy costs
benefit from small advanced energy storage systems that keep connections between cells at a minimum.
Lowest Cost: Advanced energy storage systems provide power dense solutions with extended cycle life which, together, equate to very cost conscious
solutions for most applications in the industrial vehicle equipment, portable power, and grid management market segments. We believe that, in our products,
advanced energy storage systems can cost much less than legacy lead-acid technologies over the course of product operation.
Our Products and Services
We seek to gain market share in the advanced energy storage segment, with current focus on lift equipment, using our system technologies that
extend life, add much needed safety mechanisms, and communication and cycle life memory tools. We are focused on cell and system management tools.
From our modular 24-volt energy storage solutions to stackable charging, we provide the building blocks to create custom systems designed for a diverse set
of applications. Whether it is vehicle or stationary storage systems, we provide capable systems that meet cost and performance targets which we believe, in
many cases and based on the life cycle data of the lead-acid batteries provided by the manufacturers; outperform traditional lead-acid technologies on both
metrics. Our systems use lithium-ion cells that are denser in energy than traditional lead-acid batteries, which allow our batteries to hold more charge over the
same weight. In addition, our BMS protects the lithium-ion batteries enabling the lithium-ion batteries to reach their full life and cycle potential and outlasting
lead-acid based batteries which would have to be replaced and thereby adding additional costs over the same time period. Our systems manage individual
cells and their charge cycles, which generally allows for more consistent discharge capability and ease of maintenance over an unmanaged battery. Through
our BMS, we have enhanced battery systems overall to provide safer, more reliable and extended life rechargeable energy storage systems for applications
including motive, marine, industrial, military, stationary, and grid management markets.
BMS. Our proprietary BMS product provides three critical functions for battery systems: cell balancing, monitoring parameters and reporting errors to the
system. Our BMS monitors parameters and reports errors to other devices, which can then determine the best action to take to prevent failure. Another BMS
function is system cell balancing. The BMS will analyze each battery cell in the system during charge and discharge to determine which cells to balance to
prevent overcharging and allow the other batteries to catch-up and equalize capacity throughout the system.
Battery Modules. We supply high-power, energy-dense advanced energy storage modules for industrial equipment, electrical vehicles, and governmental
applications. Our primary product consists of the Flux Power 24-volt lithium pack and individual 3.2 volt cells in various sizes from 60AH to 900AH. We offer
varying chemistries and configurations based on the applications. Our battery modules are designed for our BMS. We currently use Lithium-ion cells,
specifically lithium iron phosphate (LiFePO4). We are not in the business of developing new battery cell chemistries and are thus “agnostic” as to chemistry
and can take advantage of new chemistries when available in the market.
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Chargers. Our smart charging solutions are designed to interface with our battery management system. Our smart chargers consist of both air-cooled and
liquid-cooled chargers. These modular chargers can be stacked from 3kW - 300kW.
Application Integration. We are one of the few developers to successfully integrate lithium packs in a variety of applications including forklifts and related
industrial equipment. The technology complexity of lithium requires knowledgeable engineering and testing.
Marketing and Sales
Customer Concentrations
We currently sell products directly to our customers, through OEMs, lift equipment dealers, battery distributors and the ultimate end-user. Our direct
customers vary from small companies to Fortune 500 companies.
During the year ended June 30, 2017, we had three major customers that each represented more than 10% of our revenues on an individual basis, or
approximately $524,000 or 58% of our total revenues.
During the year ended June 30, 2016, we had three major customers that each represented more than 10% of our revenues on an individual basis, or
approximately $285,000 or 51% of our total revenues.
Technology
We believe our cell management and communication tools extend battery system life and improve system performance by managing individual cells in
a system, communicating individual cell conditions to ancillary devices, and communicating individual cell conditions to other devices which either require or
supply power. Whether it is lift equipment or related industrial equipment, we provide capable systems that meet cost and performance targets which we
believe, in many cases and based on the life cycle data of the lead-acid batteries provided by the manufacturers; outperform traditional lead-acid technologies
on both metrics. Our systems use lithium-ion cells that are denser in energy than traditional lead-acid batteries, which allow our batteries to hold more charge
over the same weight. In addition, our BMS protects the lithium-ion batteries enabling the lithium-ion batteries to reach their full life and cycle potential and
outlasting lead-acid based batteries which would have to be replaced and thereby adding additional costs over the same time period. Our systems manage
individual cells and their charge cycles, which generally allow for more consistent discharge capability and ease of maintenance over an unmanaged battery
by:
☐
Managing individual cells within a system to maximize:
•
•
•
Life Cycles
Discharge Rate
Depth of Discharge per Cycle
☐
Allowing Cells to communicate their State of Health to:
•
•
•
Ensure Proper Charging
Protect the Cells from Over Discharge
Adjust System Parameters during Varying Temperature
☐
Enabling other system components to adjust their functions to:
•
•
Protect Equipment from Damage
Optimize Charge Efficiency
☐
Other benefits of our battery packs:
•
•
•
•
Lower total costs of ownership
Maintenance free
Lighter in weight
Longer life than lead-acid batteries
Production process
Except for charger components and battery cells, we design and assemble all of our own products in-house and outsource manufacturing when
possible.
Batteries. Since our battery management system and battery modules are not tied to any specific lithium-ion battery chemistry, we can source our
batteries from a variety of manufacturers to meet our needs as well as our customer’s needs. During this past year, we have sourced our batteries from
several suppliers, all having manufacturing operations in China, with some having wholesale warehouses in the United States.
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Battery Modules and Packs . We design all of our battery modules and packs in-house. In addition, we occasionally design and assemble prototype
battery packs and storage systems for our customers.
Chargers. We currently buy chargers from several sources, all of whom are U.S. based suppliers.
BMS. We design our BMS modules/boards and have two granted patents. We source manufacturing of the boards to two local board houses. We are
currently developing further technology enhancements to this BMS technology, including the use of more efficient board components, and are planning to file
related patents.
In-House Product Assembly:
BMS units, Chargers and CAN Current Sensors : Units are outsourced, programmed and tested at our facility before shipping.
24-volt Modules: We receive completed 24-volt module cases and lids. Cells are packed in the module cases, connected to BMS, and secured in
place. Lids with BMS installed are programmed and calibrated. Each full unit is sealed and tested before shipping.
Volume sales will enable cost reductions by:
Manufacturability Optimization: We are currently building products to be as robust and full-featured as possible to meet initial demand that typically
reflects smaller quantity needs. With investment in equipment and process, labor assembly and process can drive cost reductions.
Low Cost Designs: As we receive more feedback from customers, we will strive to achieve cost reduction to improve alignment of pack features and
quality that meet customer satisfaction at reduced cost.
Advanced Manufacturing Capabilities: We are currently seeking out advanced manufacturing relationships to further enhance our abilities.
Suppliers
We obtain a limited number of components and supplies included in our products from a small group of suppliers. During the year ended June 30, 2017
we had three suppliers who accounted for more than 10% of our total purchases, on an individual basis. Purchases for these three suppliers totaled
$1,665,000 or 57% of our total purchases.
During the year ended June 30, 2016 we had three suppliers who accounted for more than 10% of our total purchases, on an individual basis.
Purchases for these three suppliers totaled $793,000 or 66% of our total purchases.
In the past we have sourced Lithium batteries from a number of suppliers. We continuously assess our battery sourcing to improve consistency,
responsiveness, and quality.
Research and Development
Research and development expenses for the fiscal years ended June 30, 2017 and 2016 were approximately $1,052,000 and $1,296,000, respectively.
Such expenses consist primarily of materials, supplies, salaries and personnel related expenses, stock-based compensation expense, consulting costs and
other expenses. Research and development expenses in Fiscal 2016 were slightly higher than Fiscal 2017 due to the extensive personnel, material and
testing costs associated with obtaining the UL listing for our LiFT Packs, as well as, costs associated with the development and testing of a prototype battery
pack for ground support equipment in partnership with a domestic airline. As we continue to develop our product line, we anticipate that research and
development expenses will continue to be a substantial part of our focus. We currently perform our research and development at our facility in Vista,
California. We seek to develop innovative new and improved products for cell and system management along with associated communication, display,
current sensing and charging tools.
Competition
Our competitors in the lift equipment sector are primarily major lead acid battery manufacturers, including, but not limited to: GNB, Hawker, Deka,
Enersys, Crown Battery, Douglas and Interstate. We are not aware that these suppliers currently offer lithium-based products for lift equipment in any
significant volume to end users, equipment dealers, OEMs or battery distributors. There are several new lithium products being introduced to the lift
equipment sector, in apparent small volume, by several manufacturers who do not have ties to the major battery companies or OEM lift equipment
manufacturers.
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We believe that we have several technological and business advantages over our competitors, which will lead to our success in the advanced energy
storage market. Our concentration on cell and system management tools has allowed us to compete with a much lower capitalization structure. Further, since
our BMS is not based on any specific cell chemistry, we can source cells from different manufacturers based on the performance needs and cost. This
flexibility in cell sourcing allows us to provide complete storage systems at a lower cost versus our current competition. We are also differentiated by the
ability to integrate battery packs successfully into a variety of applications.
Our UL Listing, received in January 2016, demonstrates the quality, safety and reliability of our LiFT Pack line for customers, distributors, dealers and
OEM partners. We believe we have emerged from this effort with a substantially enhanced product line, particularly in the areas of overall design and
durability, as well as, features that improve our LiFT Packs’ value and performance for customers. Our LiFT Packs are now the first and only UL Listed
lithium-ion batteries available across the brands of the major OEMs.
Our marketing and sales strategy is to actively pursue the following market segments:
Lift Equipment - Material Handling Equipment: The advantage of the lift equipment market is that it is an indispensable piece of equipment in
manufacturing and warehousing operations. Lift equipment vehicles are not new technology and don’t require new testing which can cause delays in product
placement. The existing lift equipment market uses lead-acid batteries, which is outdated technology and can lead to customer dissatisfaction with life cycles,
performance, and additional maintenance costs. The replacement of lead-acid batteries with lithium cells dramatically extends the battery system life,
lowering the overall cost of ownership to a level which makes lithium competitive with lead-acid in numerous applications. We believe with marketing efforts
we will be able to reach larger target markets.
Ground Support Equipment: Our products’ telematics, modularity, longevity and low-cost solutions fit with airport equipment solutions, commonly
known as ground support equipment, operated by all airlines to transport baggage and related cargo. These applications are well suited to our modular and
scalable pack designs and benefit from our pack innovation derived from LiFT Packs and the related harsh environments. We have conducted successful
pilot programs and plan to continue introduction of these packs to a variety of customers, with expectations of significant revenue opportunity in the coming
year.
Military (Defense) and Municipal : Our products’ longevity and easy integration make it a fit for energy storage applications for both the military and
municipal markets. Although these markets have longer integration timelines, we believe they represent potentially significant additions to our revenue mix in
future periods.
Intellectual Property
Our success depends, at least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we rely on a
combination of patents pending, patent applications, trade secrets, including know-how, employee and third party nondisclosure agreements, copyright laws,
trademarks, intellectual property licenses and other contractual rights to establish and protect our proprietary rights in our technology. In addition to such
factors as innovation, technological expertise and experienced personnel, we believe that a strong patent position is important to remain competitive.
We have developed our intellectual property portfolio through our continued investment in research and development, and through our acquisition of
technologies from Epic Boats (an entity founded and controlled by Chris Anthony, our Chairman of the Board and former chief executive officer), Gottlieb
Inventions, and Joseph Gottlieb.
In connection with our BMS, we are actively pursuing patent applications relating to determining battery life and remaining battery life cycles. Several
patent applications relating to these inventions have been approved and others will be filed with the U.S. Patent & Trademark Office. We are developing a
certain number of BMS related patents. In addition, we have a number of trademark registrations protecting the Flux Power name and logo. These include
Flux, Flux Power, and the Flux Power logo.
As of June 30, 2017, we have 3 patent applications pending with the U.S. Patent & Trademark Office, with two patents approved and issued. In addition,
we intend to continue to file additional patent applications with respect to our technology and to seek protection of our intellectual property internationally in a
broad range of areas. We do not know whether any of our pending patent applications will result in the issuance of patents or whether the examination
process will require us to narrow our claims. Even if granted, there can be no assurance that these pending patent applications will provide us with protection.
Government Regulations
Product Safety Regulations. Our products are subject to product safety regulations by Federal, state, and local organizations. Accordingly, we may be
required, or may voluntarily determine to obtain approval of our products from one or more of the organizations engaged in regulating product safety. These
approvals could require significant time and resources from our technical staff and, if redesign were necessary, could result in a delay in the introduction of
our products in various markets and applications.
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Environmental Regulations. Federal, state, and local regulations impose significant environmental requirements on the manufacture, storage,
transportation, and disposal of various components of advanced energy storage systems. Although we believe that our operations are in material compliance
with current applicable environmental regulations, there can be no assurance that changes in such laws and regulations will not impose costly compliance
requirements on us or otherwise subject us to future liabilities.
Moreover, Federal, state, and local governments may enact additional regulations relating to the manufacture, storage, transportation, and disposal of
components of advanced energy storage systems. Compliance with such additional regulations could require us to devote significant time and resources and
could adversely affect demand for our products. There can be no assurance that additional or modified regulations relating to the manufacture, storage,
transportation, and disposal of components of advanced energy systems will not be imposed.
Occupational Safety and Health Regulations . The California Division of Occupational Safety and Health (“Cal/OSHA”) and other regulatory agencies
have jurisdiction over the operations of our Vista, California facility. Because of the risks generally associated with the assembly of advanced energy storage
systems we expect rigorous enforcement of applicable health and safety regulations. Frequent audits by or changes, in the regulations issued by Cal/OSHA,
or other regulatory agencies with jurisdiction over our operations, may cause unforeseen delays and require significant time and resources from our technical
staff.
Employees
As of June 30, 2017 , we have twenty-nine (27) full-time employees. We engage outside consultants for business development and operations or other
functions from time to time. None of our employees are currently represented by a trade union.
Other Information
Our Internet address is www.fluxpwr.com. We make available free of charge on our website our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon
as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). Other than the
information expressly set forth in this annual report, the information contained, or referred to, on our website is not part of this annual report.
The public may also read and copy any materials we file with the SEC at the SEC ’s Public Reference Room at 100 F Street, NE, Washington, DC
20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a
website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, such as us, that file electronically
with the SEC.
Our principal executive office is located at 985 Poinsettia Avenue, Suite A, Vista, CA 92081. The telephone number at our principal executive office is
(760) 741-3589 (FLUX).
ITEM 1A - RISK FACTORS
An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the
other information included in this report, before making an investment decision. If any of the following risks actually occur, our business, financial condition or
results of operations could suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. You
should read the section entitled “Special Note Regarding Forward Looking Statements” above for a discussion of what types of statements are forward-
looking statements, as well as the significance of such statements in the context of this report.
Risk Factors Relating to Our Business
Our independent auditors have expressed substantial doubt about our ability to continue as a going concern.
In their audit opinion issued in connection with our financial statements as of June 30, 201 7 and June 30, 2016 and for the years then ended, our
independent registered public accounting firm included a going concern explanatory paragraph which stated there was substantial doubt about our ability to
continue as a going concern. We have prepared our financial statements on a going concern basis that contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business for the foreseeable future. Our financial statements do not include any adjustments that would be
necessary should we be unable to continue as a going concern and, therefore, be required to liquidate our assets and discharge our liabilities in other than the
normal course of business and at amounts different from those reflected in our financial statements. If we are unable to continue as a going concern, our
stockholders may lose all or a substantial portion or all of their investment.
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We have a history of losses and negative working capital and currently our lender has the right not to advance funds under our credit
facilities, and we will require additional funding to support operations and provide working capital.
As of June 30, 2017 , we had a cash balance of $121,000 and an accumulated deficit of $19,697,000. We have a history of losses and have experienced
a lack of revenue due to the time to launch our revised business strategy. Despite an increase in our revenues of $344,000 or 62%, our net loss of
$4,435,000 represented a decrease of only $136,000 or 3% in comparison to the year ended June 30, 2016. Based on our current and planned level of
expenditures, we estimate that total financing proceeds of approximately $5,000,000 will be required to fund current and planned operations for the twelve
months following the date of this Annual Report on Form 10-K, September 21, 2017. The Company does not currently believe that its existing cash resources
are sufficient to meet its anticipated needs during the next twelve months. Our operations have been primarily funded through the sale of our securities and
borrowings under our credit facilities. Our continued operations and growth are dependent on our ability to complete equity financings, make borrowings under
our credit facilities and/or generate positive cash flows from operating activities. We initiated a private placement in April 2016 to raise $3,100,000,
subsequently amended in August 2016 to increase offering amount to $4,000,000. As of August 31, 2016, a total of $3,900,000 has been raised of which
$2,125,000 was received in cash and $1,775,000 was received via the settlement of outstanding liabilities. Additionally, during fiscal 2017 we borrowed
$4,385,000 under our existing related party credit facility with Esenjay Investments, LLC (“Esenjay”) and converted $400,000 of debt outstanding under this
credit facility to equity. The credit facility with Esenjay has a maximum borrowing amount of $10,000,000, matures on January 31, 2019, is convertible at
$0.60 per share of common stock and accrues interest at 8% (the “Unrestricted Line of Credit”). Pursuant to a side letter, Esenjay has agreed to limit its right
of conversion under the Unrestricted Line of Credit to such number of shares so that upon conversion, if any, it will not cause the Company to exceed its
authorized number of shares of common stock. As of June 30, 2017, there was $4,815,000 available for future draws, subject to the prior approval by
Esenjay. We are currently pursuing additional funds through private placements. We are pursuing additional sources of funding, which could result from
certain distributor relationships, joint operating ventures, acquisitions or mergers. We expect to cover our anticipated operating expenses through cash on
hand, collections on additional customer billings, borrowings under our line of credit, and proceeds from the private placement of equity securities. However,
there is no guarantee we will be able to obtain additional funds in the future if required or that funds will be available on terms acceptable to us, or that
shareholders will not experience dilution as a result of funds raised through the sale of securities. If such funds are not available, management will be
required to curtail its investments in additional sales and marketing and product development resources and capital expenditures, which may have a material
adverse effect on our future cash flows and results of operations, and its ability to continue operating as a going concern.
Our level of indebtedness and an event of default under our existing credit facility could adversely affect our business, financial condition,
results of operations or liquidity.
We have substantial indebtedness and have relied on our credit facilities to provide working c apital. As of September 21, 2017 we have an outstanding
balance of $6,520,000 under our existing Unrestricted Line of Credit with Esenjay and $3,480,000 available for future draws. However, our ability to borrow
under this facility is at the discretion of Esenjay. Also, Esenjay has no obligation to disburse such funds and has the right not to advance funds under the line
of credit. In addition, as a secured party, upon an event of default, Esenjay will have a right to the collateral granted to them under the line of credit, and we
may lose our ownership interest in the assets. A loss of our collateral will have material adverse effect on our operations, our business and financial condition.
We have realigned our marketing focus to a smaller number of products and selling to customers that do not require extensive product
development.
Since 2010, we have been focused on providing customized solutions to larger OEM customers. Recent experience has shown that we could achieve
higher shorter-term revenue by focusing on a smaller number of products and selling to customers that do not require extensive and lengthy product
development and negotiation periods. As a response, we have determined to narrow our focus to product segments including “lift equipment” and related
verticals. We feel that we are well positioned to address these markets, which include applications such as industrial electric vehicles like lift equipment,
airport ground support equipment, portable power, and specialized equipment such as robotic mining equipment. However, we cannot guarantee that we will
be successful in transitioning companies in these segments from legacy lead-acid technologies to our advanced energy storage solutions.
Our success depends on the success of manufacturers of the end applications that use our battery products and BMS.
Because our products are designed to be used in other products such as lift equipment, our success depends on whether end application
manufacturers and their end dealers will incorporate our battery products and BMS in their products. Although we strive to produce high quality battery
products and BMS, there is no guarantee that end application manufacturers will accept our products. Our failure to gain acceptance of our products from
these manufacturers could result in a material adverse effect on our results of operations.
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Additionally, even if a manufacturer or their equipment dealers decide to use our batteries, the manufacturer may not be able to market and sell its
products successfully. The manufacturer’s inability to market and sell its products successfully could materially and adversely affect our business and
prospects because this manufacturer may not order new products from us. Therefore, our business, financial condition, results of operations and future
success would be materially and adversely affected.
Lithium-ion battery modules in the marketplace have been observed to catch fire or vent smoke and flame, and such events have raised
concerns over the use of large format high-power batteries.
We sell and supply large format high-power lithium based battery modules for industrial equipment and we intend to supply these lithium packs for
industrial applications. Historically, lithium-ion batteries in laptops and cellphones have been reported to catch fire or vent smoke and flames, and more
recently, news have been reported that several electric vehicles that use high-power lithium-ion batteries have caught on fire which trigger investigation as to
the cause of the fires. As such, any adverse publicity and issues as to the use of high-power batteries in automotive or lift equipment applications will affect
our business and prospects since we sell and supply large format high-power lithium based battery packs for industrial applications. In addition, any failure of
our battery modules may cause damage to the industrial equipment or lead to personal injury or death and may subject us to lawsuits. We may have to recall
our battery modules, which would be time consuming and expensive.
Current economic conditions may adversely affect consumer spending and the overall general health of our retail customers, which, in turn,
may adversely affect our financial condition, results of operations and cash resources.
Uncertainty about the current and future global economic conditions may cause our customers to defer purchases or cancel purchase orders for our
products in response to tighter credit, decreased cash availability and weakened consumer confidence. Our financial success is sensitive to changes in
general economic conditions, both globally and nationally. Recessionary economic cycles, higher interest borrowing rates, higher fuel and other energy costs,
inflation, increases in commodity prices, higher levels of unemployment, higher consumer debt levels, higher tax rates and other changes in tax laws or other
economic factors that may affect consumer spending or buying habits could continue to adversely affect the demand for our products. In addition, a number of
our customers may be impacted by the significant decrease in available credit that has resulted from the current financial crisis. If credit pressures or other
financial difficulties result in insolvency for our customers it could adversely impact our financial results. There can be no assurances that government and
consumer responses to the disruptions in the financial markets will restore consumer confidence.
We are dependent on a limited number of suppliers for our battery cells, and the inability of these suppliers to continue to deliver, or their
refusal to deliver, our battery cells at prices and volumes acceptable to us would have a material adverse effect on our business, prospects and
operating results.
Our battery cells, which are an integral part of our battery products and systems, are currently sourced from one manufacturer, which is located in China
and has distribution in the United States. While we obtain components for our products and systems from multiple sources whenever possible, we have spent
a great deal of time in developing and testing our battery cells that we receive from this manufacturer. We refer to the battery cell supplier as our limited
source supplier. To date we have no qualified alternative sources for our battery cells and we generally do not maintain long-term agreements with our limited
source suppliers. We continue to evaluate additional battery suppliers. While we believe that we will be able to establish alternate supply relationships for our
battery cells, we may be unable to do so in the short term or at all at prices, quality or costs that are favorable to us.
Changes in business conditions, wars, governmental changes and other factors beyond our control or which we do not presently anticipate, could also
affect our suppliers’ ability to deliver components to us on a timely basis. Furthermore, if we experience significant increased demand, or need to replace our
existing suppliers, there can be no assurance that additional supplies of component parts will be available when required on terms that are favorable to us, at
all, or that any supplier would allocate sufficient supplies to us in order to meet our requirements or fill our orders in a timely manner. In the past, we have
replaced certain suppliers because of their failure to provide components that met our quality control standards. The loss of any limited source supplier or the
disruption in the supply of components from these suppliers could lead to delays in the deliveries of our battery products and systems to our customers,
which could hurt our relationships with our customers and also materially adversely affect our business, prospects and operating results.
Increases in costs, disruption of supply or shortage of raw materials, in particular lithium-iron phosphate cells, could harm our business.
We may experience increases in the costs or a sustained interruption in the supply or shortage of raw materials. Any such increase or supply
interruption could materially negatively impact our business, prospects, financial condition and operating results. For instance, we are exposed to multiple
risks relating to price fluctuations for lithium-iron phosphate cells.
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These risks include:
•
•
•
the inability or unwillingness of current battery manufacturers to supply the number of lithium-iron phosphate cells required to support our sales
as demand for such rechargeable battery cells increases;
disruption in the supply of cells due to quality issues or recalls by the battery cell manufacturers; and
an increase in the cost of raw materials, such as iron and phosphate, used in lithium-iron phosphate cells.
We may be unable to successfully execute our long-term growth strategy or increase our current revenue levels.
We can provide no assurance that our revenues will grow. Our ability to maintain our revenue levels or to grow in the future depends upon, among
other things, adequate capital to support current operations and the continued success of our efforts to maintain our brand image and bring new products to
market and our ability to expand within our current distribution channels.
Our success is highly dependent on continually developing new and advanced products, technologies, and processes and failure to do so
may cause us to lose our competitiveness in the battery industry and may cause our profits to decline.
To remain competitive in the battery industry, it is important to continually develop new and advanced products, technologies, and processes. There is
no assurance that competitors’ new products, technologies, and processes will not render our existing products obsolete or non-competitive. Alternately,
changes in legislative, regulatory or industry requirements or in competitive technologies may render certain of our products obsolete or less attractive. Our
competitiveness in the renewable battery market therefore relies upon our ability to enhance our current products, introduce new products, and develop and
implement new technologies and processes. Our battery system predominately uses lithium-iron phosphate cells. If our competitors develop alternative
products with more enhanced features than our battery system, our financial condition and results of operations would be materially and adversely affected.
The research and development of new products and technologies is costly and time consuming, and there are no assurances that our research and
development of new products will be either successful or completed within anticipated timeframes, if at all. Our failure to technologically evolve and/or
develop new or enhanced products may cause us to lose competitiveness in the battery market. In addition, in order to compete effectively in the renewable
battery industry, we must be able to launch new products to meet our customers’ demands in a timely manner. However, we cannot provide assurance that
we will be able to install and certify any equipment needed to produce new products in a timely manner, or that the transitioning of our manufacturing facility
and resources to full production under any new product programs will not impact production rates or other operational efficiency measures at our
manufacturing facility. In addition, new product introductions and applications are risky, and may suffer from a lack of market acceptance, delays in related
product development and failure of new products to operate properly. Any failure by us to successfully launch new products, or a failure by our customers to
accept such products, could adversely affect our results.
We have historically depended on a limited number of customers for a significant portion of our revenues and this dependence is likely to
continue.
We are dependent on one core technology and product category and limited products to generate revenues. We cannot assure you that these or other
future products will achieve customer acceptance to attain a level of sales to support our operating costs. Historically the vast majority of our product sales
were generated from a small number of customers, however we are concentrating on increasing our customer base in the lift equipment market to expand
our product placement. We currently do not have long-term agreements with any of our customers. Future agreements with respect to pricing, returns,
promotions, among other things, are subject to periodic negotiation with each customer. No assurance can be given that current customers will continue to do
business with us. The loss of any of our significant customers will have a material adverse effect on our business, results of operations, financial condition and
liquidity. In addition, the uncertainty of product orders can make it difficult to forecast our sales and allocate our resources in a manner consistent with actual
sales, and our expense levels are based in part on our expectations of future sales. If our expectations regarding future sales are inaccurate, we may be
unable to reduce costs in a timely manner to adjust for sales shortfalls.
Our business will be adversely affected if we are unable to protect our intellectual property rights from unauthorized use or infringement by
third parties.
Any failure to protect our proprietary rights adequately could result in our competitors offering similar products, potentially resulting in the loss of some
of our competitive advantage and a decrease in our revenue, which would adversely affect our business, prospects, financial condition and operating results.
Our success depends, at least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination of
patents, patent applications, trade secrets, including know-how, employee and third party nondisclosure agreements, copyright laws, trademarks, intellectual
property licenses and other contractual rights to establish and protect our proprietary rights in our technology.
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The protection provided by the patent laws is and will be important to our future opportunities. However, such patents and agreements and various other
measures we take to protect our intellectual property from use by others may not be effective for various reasons, including the following:
•
•
•
the patents we have been granted may be challenged, invalidated or circumvented because of the pre-existence of similar patented or
unpatented intellectual property rights or for other reasons;
the costs associated with enforcing patents, confidentiality and invention agreements or other intellectual property rights may make aggressive
enforcement impracticable; and
current and future competitors may independently develop similar technology and/or duplicate our systems in a way that circumvents our
patents.
Our patent applications may not result in issued patents, which may have a material adverse effect on our ability to prevent others from
commercially exploiting products similar to ours.
Our patent applications may not result in issued patents, which may have a material adverse effect on our ability to prevent others from commercially
exploiting products similar to ours.
We cannot be certain that we are the first creator of inventions covered by pending patent applications or the first to file patent applications on these
inventions, nor can we be certain that our pending patent applications will result in issued patents or that any of our issued patents will afford protection
against a competitor. In addition, patent applications that we intend to file in foreign countries are subject to laws, rules and procedures that differ from those of
the United States, and thus we cannot be certain that foreign patent applications related to issue United States patents will be issued. Furthermore, if these
patent applications issue, some foreign countries provide significantly less effective patent enforcement than in the United States.
The status of patents involves complex legal and factual questions and the breadth of claims allowed is uncertain. As a result, we cannot be certain that
the patent applications that we file will result in patents being issued, or that our patents and any patents that may be issued to us in the near future will afford
protection against competitors with similar technology. In addition, patents issued to us may be infringed upon or designed around by others and others may
obtain patents that we need to license or design around, either of which would increase costs and may adversely affect our business, prospects, financial
condition and operating results.
We rely on trade secret protections through confidentiality agreements with our employees, customers and other parties; the breach of such
agreements could adversely affect our business and results of operations.
We rely on trade secrets, which we seek to protect, in part, through confidentiality and non-disclosure agreements with our employees, customers and
other parties. There can be no assurance that these agreements will not be breached, that we would have adequate remedies for any such breach or that our
trade secrets will not otherwise become known to or independently developed by competitors. To the extent that consultants, key employees or other third
parties apply technological information independently developed by them or by others to our proposed projects, disputes may arise as to the proprietary rights
to such information that may not be resolved in our favor. We may be involved from time to time in litigation to determine the enforceability, scope and validity
of our proprietary rights. Any such litigation could result in substantial cost and diversion of effort by our management and technical personnel.
Our production capacity might not be able to meet with growing market demand or changing market conditions.
We cannot give assurance that our production capacity will be able to meet our obligations and the growing market demand for our products in the
future. Furthermore, we may not be able to expand our production capacity in response to the changing market conditions. If we fail to meet demand from our
customers, we may lose our market share.
Our business depends substantially on the continuing efforts of the members of our senior management team, and our business may be
severely disrupted if we lose their services.
We believe that our success is largely dependent upon the continued service of the members of our senior management team, who are critical to
establishing our corporate strategies and focus, and ensuring our continued growth. Our continued success will depend on our ability to attract and retain a
qualified and competent management team in order to manage our existing operations and support our expansion plans. Although we are not aware of any
change, if any of the members of our senior management team are unable or unwilling to continue in their present positions, we may not be able to replace
them readily. Therefore, our business may be severely disrupted, and we may incur additional expenses to recruit and retain their replacement. In addition, if
any of the members of our senior management team joins a competitor or forms a competing company, we may lose some of our customers.
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Workforce reductions may impair our ability to comply with legal and regulatory requirements as a Public Company.
There can be no assurance that our management team will be able to implement and affect programs and policies in an effective and timely manner
especially if subject to workforce reductions, that adequately respond to increased legal, regulatory compliance and reporting requirements imposed by such
laws and regulations. Our failure to comply with such laws and regulations could lead to the imposition of fines and penalties and further result in the
deterioration of our business.
Compliance with changing regulations concerning corporate governance and public disclosure may result in additional expenses.
There have been changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of
2002 (“Sarbanes-Oxley”), new regulations promulgated by the SEC and rules promulgated by the national securities exchanges. These new or changed laws,
regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and, as a result, their application in practice may
evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters
and higher costs necessitated by ongoing revisions to disclosure and governance practices. As a result, our efforts to comply with evolving laws, regulations
and standards are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from
revenue-generating activities to compliance activities. Members of our Board of Directors and our chief executive officer and chief financial officer could face
an increased risk of personal liability in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified
directors and executive officers, which could harm our business. If the actions we take in our efforts to comply with new or changed laws, regulations and
standards differ from the actions intended by regulatory or governing bodies, we could be subject to liability under applicable laws or our reputation may be
harmed.
In addition, Sarbanes-Oxley specifically requires, among other things, that we maintain effective internal controls for financial reporting and disclosure of
controls and procedures. In particular, we must perform system and process evaluation and testing of our internal controls over financial reporting to allow
management to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of Sarbanes-Oxley. Our testing, or the
subsequent testing by our independent registered public accounting firm, when required, may reveal deficiencies in our internal controls over financial
reporting that are deemed to be material weaknesses. Our compliance with Section 404 will require that we incur substantial accounting expense and expend
significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with
appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404 in a
timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal controls over financial reporting that are
deemed to be material weaknesses, the market price of our stock could decline, and we could be subject to sanctions or investigations by the SEC or other
regulatory authorities, which would require additional financial and management resources.
We may be required to obtain the approval of various government agencies to market our products.
Our products are subject to product safety regulations by Federal, state, and local organizations. Accordingly, we may be required, or may voluntarily
determine to, obtain approval of our products from one or more of the organizations engaged in regulating product safety. These approvals could require
significant time and resources from our technical staff, and, if redesign were necessary, could result in a delay in the introduction of our products in various
markets and applications. There can be no assurance that we will obtain any or all of the approvals that may be required to market our products.
We may face significant costs relating to environmental regulations.
Federal, state, and local regulations impose significant environmental requirements on the manufacture, storage, transportation, and disposal of various
components of advanced energy storage systems. Although we believe that our operations are in material compliance with current applicable environmental
regulations, there can be no assurance that changes in such laws and regulations will not impose costly compliance requirements on us or otherwise subject
us to future liabilities. Moreover, Federal, state, and local governments may enact additional regulations relating to the manufacture, storage, transportation,
and disposal of components of advanced energy storage systems. Compliance with such additional regulations could require us to devote significant time and
resources and could adversely affect demand for our products. There can be no assurance that additional or modified regulations relating to the manufacture,
storage, transportation, and disposal of components of advanced energy systems will not be imposed.
We may face significant costs relating to Occupational Safety and Health Regulations
The California Division of Occupational Safety and Health (“Cal/OSHA”) and other regulatory agencies have jurisdiction over the operations of our Vista,
California facility. Because of the risks generally associated with the assembly of advanced energy storage systems, we expect rigorous enforcement of
applicable health and safety regulations. Frequent audits by or changes in the regulations issued by Cal/OSHA, or other regulatory agencies with jurisdiction
over our operations, may cause unforeseen delays and require significant time and resources from our technical staff.
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Risks Related to Our Common Stock and Market
The market price of our common stock can become volatile, leading to the possibility of its value being depressed at a time when you may
want to sell your holdings.
The market price of our common stock can become volatile. Numerous factors, many of which are beyond our control, may cause the market price of
our common stock to fluctuate significantly. These factors include:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our earnings releases, actual or anticipated changes in our earnings, fluctuations in our operating results or our failure to meet the expectations
of financial market analysts and investors;
changes in financial estimates by us or by any securities analysts who might cover our stock;
speculation about our business in the press or the investment community;
significant developments relating to our relationships with our customers or suppliers;
stock market price and volume fluctuations of other publicly traded companies and, in particular, those that are in our industry;
limited “public float” in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure
on the market price for our common stock;
customer demand for our products;
investor perceptions of our industry in general and our Company in particular;
general economic conditions and trends;
announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures;
changes in accounting standards, policies, guidance, interpretation or principles;
loss of external funding sources;
sales of our common stock, including sales by our directors, officers or significant stockholders; and
additions or departures of key personnel.
The ownership of our stock is highly concentrated in our management, and we have one controlling stockholder.
As of September 21, 2017, our present directors and executive officers, and their respective affiliates beneficially owned approximately 79.8% of our
outstanding common stock, including common shares underlying options, warrants and convertible debt that were exercisable or convertible or which would
become exercisable or convertible within 60 days. More specifically, Michael Johnson, our director and beneficial owner of Esenjay, beneficially owns
approximately 75.6% of such outstanding common stock. As a result of their ownership, our directors and executive officers and their respective affiliates
collectively, and Esenjay, individually, are able to significantly influence all matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. This concentration of ownership may also have the effect of delaying or preventing a change in control.
We do not intend to pay dividends on shares of our common stock for the foreseeable future.
We have never declared or paid any cash dividends on shares of our common stock. We intend to retain any future earnings to fund the operation and
expansion of our business and, therefore, we do not anticipate paying cash dividends on shares of our common stock in the foreseeable future.
Our common stock is illiquid and this low trading volume may adversely affect the price of our common stock.
Our common stock currently is quoted on the OTCQB under the symbol “FLUX.” However, with limited trading history, a trading market that does not
represent an “established trading market,” a limited current public float, volatility in the bid and asked prices and the fact that our common stock is very thinly
traded, you could lose all or a substantial portion of your funds if you make an investment in us. In addition, potential dilutive effects of future sales of shares
of common stock by us and our shareholders, and subsequent sale of common stock by the holders of warrants and options, could have an adverse effect on
the price of our securities, which could hinder our ability to raise additional capital to fully implement our business, operating and development plans.
Penny stock regulations affect our stock price, which may make it more difficult for investors to sell their stock.
Broker-dealer practices in connection with transactions in “penny stocks” are regulated by certain penny stock rules adopted by the SEC. Penny stocks
generally are equity securities with a price per share of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on
the NASDAQ Stock Market, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or
system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the
customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly
account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that
prior to a transaction in a penny stock the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity
in the secondary market for a stock that becomes subject to the penny stock rules. Our securities are subject to the penny stock rules, and investors may find
it more difficult to sell their securities.
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Preferred Stock may be issued under our Articles of Incorporation.
Our Articles of Incorporation authorize the issuance of up to 5,000,000 shares of preferred stock. The preferred stock may be issued in one or more
series, the terms of which may be determined at the time of issuance. These terms may include voting rights including the right to vote as a series on
particular matters, preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred
stock could diminish the rights of holders of our common stock, and therefore could reduce the value of such common stock.
We were a “shell company” and are subject to additional restrictions under Rule 144 on resales of our Restricted Securities.
The following is a quotation from subparagraph (i)(B)(2) of Rule 144: “Notwithstanding paragraph (i)(1), if the issuer of the securities previously had
been an issuer described in paragraph (i)(1)(i) but has ceased to be an issuer described in paragraph (i)(1)(i); is subject to the reporting requirements of
section 13 or 15(d) of the Exchange Act; has filed all reports and other materials required to be filed by section 13 or 15(d) of the Exchange Act, as applicable,
during the preceding 12 months (or for such shorter period that the issue was required to file such reports and materials), other than Form 8-K reports
(§249.308 of this chapter); and has filed current “Form 10 information” with the Commission reflecting its status as an entity that is no longer an issuer
described in paragraph (i)(1)(i), then those securities may be sold subject to the requirements of this section after one year has elapsed from the date that the
issuer filed “Form 10 information” with the Commission.” As a “shell company” immediately prior to the Reverse Acquisition, we are subject to additional
restrictions under Rule 144 which provides that no sales of our restricted securities could be sold until we have complied with subparagraph (i)(B)(2) of Rule
144.
ITEM 1B - UNRESOLVED STAFF COMMENTS
None.
ITEM 2 - PROPERTIES
The Company’s corporate headquarters totals 22,054 square feet and is located in Vista, California. Effective February 25, 2014, the Company
entered into a two-year lease agreement for this facility with average monthly rent payments of approximately $12,000 per month and paid a security deposit
of $25,000, or approximately 2 months of rent. Our lease was subsequently amended resulting in average rent expense of $14,000 per month and expiring
on May 31, 2018.
The Company also subleases space to a related party, Epic Boats, on a month-to-month basis at a rate of 10% of lease expense.
Total rent expense was $140,000 and $137,000 for the years ended June 30, 2017 and 2016, respectively, net of sublease income.
ITEM 3 - LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims arising out of our operations. Since June 2015, we have been a party to a legal
proceeding arising from a work related injury that took place in June 2013. We deny and dispute all liability and damage allegations made by or on behalf of
the plaintiff. However, having fully considered the risks, time and costs associated with continued litigation of this claim, as well as an appeal, we have
decided to fully and finally resolve and settle the dispute. Accordingly, on August 26, 2016 we entered into a settlement agreement with the plaintiff whereby
in exchange for the plaintiff releasing Flux Power from any and all claims of any nature that the plaintiff had or now has or might in the future have against us,
we agreed to pay the plaintiff $10,000 as settlement. Included in accrued expenses in the accompanying consolidated financial statements as of June 30,
2016 is a $10,000 accrual associated with this claim, which was paid in September 2016 to the plaintiff.
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market Data
Our common stock is quoted on the OTCQB under the stock symbol “FLUX.” The following table sets forth the range of the high and low prices for our
common stock during each quarter for the period July 1, 2015 through June 30, 2017, as set forth below, which has been adjusted retroactively to reflect the
Reverse Stock Split. Such prices do not represent actual transactions, and do not include retail mark-ups, mark-downs or commissions.
Fiscal year ended June 30, 2017
First quarter
Second quarter
Third quarter
Fourth quarter
Fiscal year ended June 30, 2016
First quarter
Second quarter
Third quarter
Fourth quarter
Stockholders
High
Low
0.50 $
0.42 $
0.55 $
0.50 $
0.62 $
0.59 $
0.60 $
0.60 $
0.38
0.15
0.33
0.24
0.31
0.31
0.16
0.22
$
$
$
$
$
$
$
$
The approximate number of record holders of our common stock as of September 21, 2017 was 1,360, based on information provided by our transfer
agent. The foregoing number of record holders does not include an unknown number of stockholders who hold their stock in “street name.”
Recent Sales of Unregistered Securities
None that have not been previously reported.
Purchases of Equity Securities
We have never repurchased any of our equity securities.
Dividends
The Company did not declare or pay dividends on its commo n stock during fiscal years 2017 and 2016 and we presently do not expect to declare or
pay such dividends in the foreseeable future and expect to reinvest all undistributed earnings to expand our operations, which the management believes
would be of the most benefit to our shareholders. The declaration of dividends, if any, will be subject to the discretion of our Board of Directors, which may
consider such factors as our results of operations, financial condition, capital needs and acquisition strategy, among others.
Equity Compensation Plan Information
Information for our equity compensation plans in effect a s of June 30, 2017 is as follows:
(a)
(b)
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
(c)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
a)
Equity compensation plans approved by security holders
(1)
Equity compensation plans not approved by security holders
(2)
Total
331,000
385,000
716,000
0.50
1.44
1.01
9,669,000
-
9,669,000
(1) Represents incentive stock options granted under our 2014 Stock Option Plan (“2014 Option Plan) during the fiscal year ended June 30, 2016. The 2014
Equity Incentive Program was approved February 17, 2015 and provided for the issuance of incentive stock options.
(2) Consists of 72,000 options granted under the 2010 Stock Option Plan (“2010 Option Plan”) and assumed by the Company in a Reverse Acquisition. An
additional 313,000 non-qualified options were issued for a total outstanding at June 30, 2017 of 385,000.
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DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue up to 300,000,000 shares of common stock, par value $0.001 per share. Each outstanding share of common stock entitles
the holder thereof to one vote per share on all matters.
On August 10, 2017, we filed a certificate of amendment to our articles of incorporation with the State of Nevada effectuating a reverse split of the
Company’s common stock at a ratio of 1 for 10 (the “Reverse Stock Split”). The Reverse Stock Split became effective in the State of Nevada on August 18,
2017. Michael Johnson, our director and beneficial owner of Esenjay, owning a majority of our issued and outstanding common stock approved the Reverse
Stock Split on July 7, 2017.
In connection with the Reverse Stock Split, proportionate adjustments have been made to the per share exercise price and the number of shares
issuable upon the exercise or conversion of all outstanding options, warrants, convertible or exchangeable securities entitling the holders to purchase,
exchange for, or convert into, shares of common stock. All references to shares of common stock and per share data for all periods presented in this Annual
Report on Form 10-K and the accompanying consolidated financial statements and notes thereto contained have been adjusted to reflect the Reverse Stock
Split on a retroactive basis.
Our bylaws provide that any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the Board of Directors. The holders of shares of our common stock are entitled to dividends out of funds legally available when
and as declared by our Board of Directors. Our Board of Directors has never declared a dividend and does not anticipate declaring a dividend in the
foreseeable future. Should we decide in the future to pay dividends, as a holding company, our ability to do so and meet other obligations depends upon the
receipt of dividends or other payments from our operating subsidiary and other holdings and investments. In the event of our liquidation, dissolution or
winding up, holders of our common stock are entitled to receive, ratably, the net assets available to stockholders after payment of all creditors.
To the extent that additional shares of our common stock are issued, the relative interests of existing stockholders will be diluted.
Preferred Stock
We may issue up to 5,000,000 shares of preferred stock, par value of $0.001 in one or more classes or series within a class pursuant to our Articles of
Incorporation. There are currently no shares of preferred stock issued and outstanding.
ITEM 6 - SELECTED FINANCIAL DATA
As a Smaller Reporting Company as defined by Rule12b-2 of the Exchange Act and in item 10(f)(1) of Regulation S-K, we are electing scaled
disclosure reporting obligations and therefore are not required to provide the information requested by this Item.
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ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis 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 Financial Statements and Notes thereto
contained in this Annual Report on Form 10-K.
Some of the statements contained in the following discussion of the Company ’s financial condition and results of operations refer to future expectations
or include other “forward-looking” information. Those statements are subject to known and unknown risks, uncertainties and other factors that could cause the
actual results to differ materially from those contemplated by these statements. The forward-looking information is based on various factors and was derived
from numerous assumptions. See “Special Note regarding Forward Looking Statements” included in this Report on Form 10-K for a discussion of factors to
be considered when evaluating forward-looking information detailed below. These factors could cause our actual results to differ materially from the forward
looking statements.
Overview
We design, develop and sell rechargeable lithium-ion energy storage systems for industrial applications, such as, electric fork lifts and airport ground
support equipment. We have structured our business around our BMS which provides three critical functions to our battery systems: cell balancing, monitoring
and error reporting. Using our proprietary management technology, we are able to offer complete integrated energy storage solutions or custom modular
standalone systems to our customers. We have also developed a suite of complementary technologies and products that accompany our core products.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our Financial Statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and the related disclosure of contingent
assets and liabilities. On an ongoing basis, we evaluate our estimates based on its historical experience and on various other assumptions that are believed
to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies and estimates affect the preparation of our financial statements:
Inventories
Inventories consist primarily of battery management systems and the related subcomponents, and are stated at the lower of cost (first-in, first-out) or
market. The Company evaluates inventories to determine if write-downs are necessary due to obsolescence or if the inventory levels are in excess of
anticipated demand at market value based on consideration of historical sales and product development plans. The Company recorded an adjustment related
to obsolete inventory in the amount of approximately $56,000 and $30,000 during the years ended June 30, 2017 and 2016, respectively.
We reviewed our inventory valuation with regard s to our gross loss for the fiscal year ended June 30, 2017. The gross loss was due to factors related
to new product launch, such as low volume, early higher cost designs, and limited sourcing, as well as, the continued warranty expense of repairing products
in the field and returned products. As such, we do not believe the loss is related to raw material inventory issues that would require write-downs.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, price is fixed or determinable, and
collectability of the selling price is reasonably assured. Delivery occurs when risk of loss is passed to the customer, as specified by the terms of the
applicable customer agreements. When a product is sold on consignment, the item remains in our inventory and revenue is not recognized until the product is
ultimately sold to the end user. When a right of return exists, contractually or implied, the Company recognizes revenue on the sell-through method. Under
this method, revenue is not recognized upon delivery of the products. Instead, the Company records deferred revenue upon delivery and recognizes revenue
when the product is sold through to the end user. As of June 30, 2017 and 2016, the Company did not have any deferred revenue.
Derivative Financial Instruments
The Company follows FASB ASC Topic No. 815, Derivatives and Hedging ("ASC No. 815") to classify and value warrant liabilities. Warrants classified
as derivative liabilities are recorded at their fair values at the issuance date and are revalued at each subsequent reporting date. Using a Monte Carlo
simulation model, multiple random price paths for the stock price are generated to simulate many possible future outcomes, which are then discounted at the
risk-free rate. These simulated paths are then averaged to determine the fair value of the warrants (see Note 9 to the audited consolidated financial
statements).
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We have certain outstanding warrants, issued in 2012, that originally offered the holders of such warrants protection against dilution whereby the
exercise price of the warrants can be adjusted should future equity offerings be offered at a price lower than the warrant exercise price. This provision
requires the warrants issued in 2012 be accounted for as derivative liabilities. On August 23, 2016, we proposed to the holders of these warrants that the re-
set provision included in the warrants be eliminated. Upon receiving consents to eliminate the re-set provision from a majority of the warrant holders, the re-
set provision and the related derivative liability were eliminated as of January 23, 2017. (See Note 9 to the audited consolidated financial statements).
Stock-based Compensation
Pursuant to the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 718-10,
Compensation-Stock Compensation, which establishes accounting for equity instruments exchanged for employee service, we utilize the Black-Scholes
option pricing model to estimate the fair value of employee stock option awards at the date of grant, which requires the input of highly subjective assumptions,
including expected volatility and expected life. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our
share-based compensation. These assumptions are subjective and generally require significant analysis and judgment to develop. When estimating fair value,
some of the assumptions will be based on, or determined from, external data and other assumptions may be derived from our historical experience with
stock-based payment arrangements. The appropriate weight to place on historical experience is a matter of judgment, based on relevant facts and
circumstances.
Common stock or equity instruments such as warrants issued for services to non-employees are valued at their estimated fair value at the
measurement date (the date when a firm commitment for performance of the services is reached, typically the date of issuance, or when performance is
complete). If the total value exceeds the par value of the stock issued, the value in excess of the par value is added to the additional paid-in-capital.
Segment and Related Information
We operate as a single reportable segment.
Comparison of Results of Operations
The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this Annual Report.
The following table represents our statement of operations for the years ended June 30, 2017 (“Fiscal 2017”) and June 30, 2016 (“Fiscal 2016”).
Revenues
Cost of goods sold
Gross loss
Operating expenses:
Selling and administrative expenses
Research and development
Total operating expenses
Fiscal 2017
Fiscal 2016
$
% of
Revenues
$
% of
Revenues
$
902,000
1,622,000
(720,000)
100% $
180%
-80%
558,000
1,119,000
(561,000)
2,404,000
1,052,000
3,456,000
267%
117%
384%
2,253,000
1,296,000
3,549,000
100%
201%
-101%
404%
232%
636%
Operating loss
(4,176,000)
-464%
(4,110,000)
-737%
Other income (expense):
Change in fair value of derivative liabilities
Interest expense, net
14,000
(273,000)
2%
-30%
11,000
(472,000)
Net loss
$
(4,435,000)
-492% $
(4,571,000)
2%
-85%
-820%
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Revenues
Our product focus is primarily on lift equipment, reflecting our current products for walkie pallet jacks and plans to introduce higher capacity packs in
the latter half of 2017 for Class 1, 2, and 3 forklifts. We also are implementing a strategy to expand on an opportunistic basis to adjacent applications,
including airport ground support equipment (“GSE”). We feel that we are well positioned to address these markets, which would utilize our modular and
scalable battery pack design and technology.
We currently sell products primarily through a distribution network of equipment dealers and battery distributors in North America. This distribution
network mostly sells to large company, national accounts. However, we do sell certain battery packs directly to other accounts including industrial equipment
manufacturers and the ultimate end-user.
Revenues for Fiscal 2017 increased $344,000 or 62%, compared to Fiscal 2016. This increase in revenues during Fiscal 2017 was primarily attributable
to our planned slowing of production in Fiscal 2016 associated with a model changeover to new UL Listed Packs. This model changeover included design
changes driven by both UL requirements and ongoing product development changes. Upon completion of the model changeover, we were able to begin
escalating our sales efforts in Fiscal 2017 resulting in the increased revenues.
Cost of Sales
Cost of sales for Fiscal 2017 increased $503,000 or 45%, compared to Fiscal 2016. The increase in cost of sales was primarily attributable to the
increase in revenues during Fiscal 2017, as well as, increases in labor costs to facilitate our ramp up of production and maintain adequate staffing levels for
anticipated growth. Additionally, we recognized the write off of approximately $56,000 of obsolete parts resulting from improvements made to the LiFT
Packs. These increases were offset by a decrease in warranty expense of $145,000. During Fiscal 2016, we noted an increase in warranty related issues
with our LiFT Packs that were primarily attributable to certain operational settings in which the LiFT Packs were subjected to very harsh vibrations. In
response, we implemented a product changeover and various improvements to our LiFT Packs. Our assessment and tracking of product issues indicates
resolution of most problems, including assembly and product launch issues. These improvements, made during the second half of Fiscal 2016 and into Fiscal
2017, resulted in a decrease in warranty expense during Fiscal 2017. Despite the decrease in warranty related issues during Fiscal 2017, warranty expense
continues to represent a significant portion of our cost of sales, lending to the gross loss of $720,000. As a result, the increase in cost of sales was notably
lower that the increase in revenues. We anticipate that we may still incur issues on packs in the field that do not have the benefit of certain fixes. As of June
30, 2017, we had approximately $85,000 accrued for product warranty liability.
Selling and Administrative Expenses
Selling and administrative expenses consist primarily of salaries and personnel related expenses, stock-based compensation expense, public company
costs, consulting costs, professional fees and other expenses. Such expenses for Fiscal 2017 increased $151,000 or 7%, compared to Fiscal 2016. Despite
increases in marketing and payroll costs, we recognized only a modest increase in selling and administrative expenses as a result of decreases in the
utilization of external consultants, engineers and legal professionals, as well as, a decrease in stock based compensation during the current period.
Research and Development
Research and development expenses for Fiscal 2017 decreased $244,000 or 19%, compared to Fiscal 2016. Such expenses consist primarily of
materials, supplies, salaries and personnel related expenses, testing costs, consulting costs, and other expenses associated with the continued development
of our LiFT pack, as well as, research into new product opportunities. The decrease in Fiscal 2017 was primarily due to testing and certification fees
associated with the UL certification of our LiFT Packs primarily taking place in Fiscal 2016. Accordingly, such costs were not as significant in Fiscal 2017. We
anticipate research and development expenses continuing to be a significant portion of our expenses as we continue to develop and add new and improved
products to our product line-up.
Change in Fair Value of Derivative Liabilities
We follow ASC 820 in connection with financial assets and liabilities measured at fair value on a recurring basis subsequent to initial recognition. The
change in the fair value of the derivative liabilities income for Fiscal 2017 increased $3,000 or 27%, compared to Fiscal 2016. The corresponding decrease in
the warrant derivative liability is primarily attributable to the decrease in the market value of our common stock and the exchange of approximately 93% of the
outstanding warrants at June 30, 2016 into shares of common stock during Fiscal 2017. On August 23, 2016, we proposed to our warrant holder that the re-
set provision included in the warrant (that creating the derivative liability) be eliminated. Upon receiving consents to eliminate the re-set provision from a
majority of the warrant holders, the re-set provision and the related derivative liability were eliminated as of January 23, 2017 (see Note 9 to the audited
consolidated financial statements).
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Interest Expense
Interest expense for Fiscal 2017 decreased $199,000 or 42%, compared to Fiscal 2016 and consists primarily of interest expense related to our
outstanding lines of credit, as well as deferred discount amortization. On December 29, 2015, we entered into the Second Amendment of our Unrestricted
Line of Credit (see Note 6 to the audited consolidated financial statements) which included, among other provisions, the reduction in the conversion price of
the Unrestricted Line of Credit from $3.00 to $0.60 per share. The estimated change in fair value of the conversion price of approximately $310,000 was
recorded as a deferred financing cost at the date of the Second Amendment and was amortized over the then remaining seven-month term of the amended
Unrestricted Line of Credit agreement. During Fiscal 2017 and Fiscal 2016, we recorded approximately $44,000 and $266,000, respectively of deferred
financing amortization cost, which is included in interest expense in the accompanying consolidated statements of operations. Also included in Fiscal 2017
and Fiscal 2016 was interest expense of approximately $228,000 and $207,000, respectively, related to our outstanding lines of credit and deferred discount
amortization (see Notes 6 and 7 to the audited consolidated financial statements).
Net Loss
Net loss during Fiscal 2017 decreased $136,000 or 3%, compared to Fiscal 2016. The decrease is due primarily to increased revenues and decreases
in warranty expense, research and development costs and interest, as discussed above.
Liquidity and Capital Resources
Overview
As of June 30, 2017 , we had a cash balance of $121,000 and an accumulated deficit of $19,697,000. We do not have sufficient liquidity and capital
resources to fund planned operations for the twelve months following the date of this Annual Report. See “Future Liquidity Needs” below.
Cash Flows
Operating Activities
Our operating activities resulted in net cash used in operatio ns of $5,698,000 for Fiscal 2017, compared to net cash used in operations of $3,920,000
for Fiscal 2016.
The net cash used in operatin g activities for Fiscal 2017 reflects the net loss of $4,435,000 for the period offset primarily by non-cash items including
depreciation, stock based compensation, stock issued for services and the amortization of deferred financing costs and debt discount, as well as, the
purchase of inventory and the payment of accounts payable and accrued interest.
The net cash used in operating activities for Fiscal 2016 reflects the net loss of $4,571,000 for the period offset primarily by non-cash items including
stock based compensation, stock issued for services and the amortization of deferred financing costs and debt discount, as well as, reductions in accounts
receivables, inventories, other assets and accrued expenses.
Investing Activities
Net cash used in inve sting activities for Fiscal 2017 and Fiscal 2016 totaled $53,000 and $5,000, respectively, which consisted primarily of office and
warehouse equipment purchases.
Financing Activities
Net cash provided by financing activities during Fiscals 2017 and 2016, was $5,745,000 and $3,999,000, respectively. The increase in cash provided
by financing activities primarily results from the borrowings from our Unrestricted Line of Credit with Esenjay totaling $4,385,000, as well as, proceeds from a
$500,000 convertible note payable with another shareholder. Additionally, we received cash proceeds of $1,075,000 from the sale of common stock. These
proceeds were offset by the $215,000 repayment on a line of credit from a non-affiliated lender.
Future Liquidity Needs
We have evaluated our expected cash requirements over the next twelve months, which include, but are not limited to, investments in additional sales
and marketing and product development resources, capital expenditures, and working capital requirements and have determined that our existing cash
resources are not sufficient to meet our anticipated needs during the next twelve months, and that additional financing is required to support current
operations. Based on our current and planned levels of expenditure, we estimate that total financing proceeds of approximately $5,000,000 will be required to
fund current and planned operations for the twelve months following the date of this Annual Report on Form 10-K, September 21, 2017. In addition, we
anticipate that further additional financing may be required to fund our business plan subsequent to that date, until such time as revenues and related cash
flows become sufficient to support our operating costs.
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We intend to continue to seek capital through the sale of equity securities through private placements, in addition to utilizing our existing credit facility
with Esenjay Investments, LLC (“Esenjay”). Esenjay is deemed to be a related party as Mr. Michael Johnson, the beneficial owner and director of Esenjay, is a
current member of our board of directors and a major shareholder of the Company. The credit facility bears interest at 8 % per annum, matures on January
31, 2019, and is convertible into shares of common stock at $0.60 per share (the “Unrestricted Line of Credit”). Between July 1, 2014 and June 30, 2017, we
have borrowed an aggregate of $8,935,000, of which $3,750,000 has been converted to equity, pursuant to various credit facilities with Esenjay of which the
Unrestricted Line of Credit remains outstanding. As of June 30, 2017, the amount outstanding under the Unrestricted Line of Credit was $5,185,000, with
$4,815,000 available for future draws at Esenjay’s discretion. Esenjay owns approximately 64% of our issued and outstanding common stock as of September
21, 2017. As of September 21, 2017, the amount outstanding under the Unrestricted Line of Credit was $6,520,000, with an aggregate of $3,480,000
available for future draws.
During Fiscal 2017 we received cash advances totaling $500,000 (the “Advances”) from a shareholder (the “Shareholder”). The Advances were
received pursuant to an oral agreement, whereby we agreed to accrue interest on the Advances at 12% per annum. On April 27, 2017, we formalized the
oral agreement into a written Convertible Promissory Note (the “Convertible Note”). Borrowings under the Convertible Note accrue interest at 12% per annum,
with all unpaid principal and accrued interest due and payable on October 27, 2018. In addition, at any time commencing on or after the date that is six (6)
months from the issue date, at the election of Shareholder, all or any portion of the outstanding principal, accrued but unpaid interest and/or late charges
under the Convertible Note may be converted into shares of the Company’s common stock at a conversion price of $1.20 per share; provided, however, the
Shareholder shall not have the right to convert any portion of the Convertible Note to the extent that the Shareholder would beneficially own in excess of 5%
of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon conversion of
the Convertible Note.
In April 2016, our Board of Directors approved the private placement of up to 77,500,000 shares of our common stock to select accredited investors for
a total amount of $3,100,000, or $0.40 per share of common stock. On July 28, 2016, our Board of Directors increased the aggregate amount offered to up to
$4,000,000 and extended the termination date to August 31, 2016 (the “Offering”). As of August 31, 2017, a total of 9,750,000 shares of common stock have
been sold to ten (10) accredited investors for a total aggregate offering amount of $3,900,000 of which $2,125,000 was received in cash, $1,750,000 was
received in exchange of settlement of outstanding liabilities under the Unrestricted Line of Credit with Esenjay, and $25,000 was received in the form of
settlement of accounts payable to a vendor.
Although management believes that the additional required funding will be obtained, there is no guarantee we will be able to obtain the additional
required funds in the future or that funds will be available on terms acceptable to us. If such funds are not available, management will be required to curtail its
investments in additional sales and marketing and product development resources, and capital expenditures, which will have a material adverse effect on our
future cash flows and results of operations, and its ability to continue operating as a going concern.
To the extent that we raise additional funds by issuing equity or debt securities, our shareholders may experience additional significant dilution and such
financing may involve restrictive covenants. To the extent that we raise additional funds through collaboration and licensing arrangements, it may be
necessary to relinquish some rights to our technologies or our product candidates, or grant licenses on terms that may not be favorable to us. Such actions
may have a material adverse effect on our business.
Going Concern
During Fiscal 2017, we incurred net losses from operations of $4,435,000 and have incurred an accumulated deficit of $19,697,000 as of June 30,
2017. In addition, as of June 30, 2017 we had limited available cash balances and were in need of additional capital to fund operations. In their report on the
annual consolidated financial statements for Fiscal 2017, our independent auditors included an explanatory paragraph in which they expressed substantial
doubt regarding the Company’s ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to raise
additional capital on a timely basis until such time as revenues and related cash flows are sufficient to fund our operations. Management’s plans are to
continue to seek funding, as necessary, through the sale of equity securities through private placements, credit line extensions and convertible debt
placements.
The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. (See Note 2 to
the audited consolidated financial statements)
Off-Balance Sheet Arrangements
As of June 30, 2017 , we did not have any other relationships with unconsolidated entities or financial partners, such as entities often referred to as
structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in
such relationships.
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Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In August 2014, the FASB issued ASU No. 2014-15 regarding ASC topic No. 205, Presentation of Financial Statements - Going Concern . The standard
requires all companies to evaluate if conditions or events raise substantial doubt about an entity’s ability to continue as a going concern and requires different
disclosure of items that raise substantial doubt that are, or are not, alleviated as a result of consideration of management’s plans. The new guidance is
effective for annual periods ending after December 15, 2016. We adopted ASU No 2014-15 for Fiscal 2017 and have reflected the required disclosures in the
accompanying audited consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash
Payments, which provides guidance on reducing the diversity in how certain cash receipts and cash payments are presented and classified in the statement
of cash flows. In addition to other specific cash flow issues, ASU 2016-15 provides clarification on when an entity should separate cash receipts and cash
payments into more than one class of cash flows and when an entity should classify those cash receipts and payments into one class of cash flows on the
basis of predominance. The new guidance is effective for the fiscal years beginning after December 31, 2017, and interim periods within those fiscal years.
Early adoption is permitted including an adoption in an interim period. The adoption of this ASU is not expected to have a material impact on our consolidated
financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation, (Topic 718): Improvements to Employee Share-Based
Payment Accounting, which will simplify how companies account for certain aspects of share-based payment awards to employees, including the accounting
for income taxes, forfeitures, and statutory tax withholding requirements, as well as, classification in the statement of cash flows. This pronouncement is
effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The adoption of
ASU No. 2016-09 is not expected to have a material impact on our consolidated financial statments.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in this ASU change the existing accounting standards for
lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The
guidance is effective for the Company’s fiscal year beginning July 1, 2019. Early adoption is permitted. The new leases standard requires a modified
retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The
adoption of this ASU is not expected to have a material impact on our consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers . This update outlines a new, single comprehensive model
for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including
industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new
model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a
company expects to receive in exchange for those goods or services. In May 2015, the FASB issued ASU No. 2015-14 deferring the effective date to annual
reporting periods beginning after December 15, 2017, which is effective for the Company’s fiscal year beginning July 1, 2018. Early adoption is permitted only
as of an annual reporting period beginning after December 15, 2016. The adoption of this ASU is not expected to have a material impact on our consolidated
financial statements.
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ITEM 7A - 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 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item begin on page F-1 with the index to financial statements followed by the financial statements.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A - 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 Securities and Exchange Commission (“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 assessment and review
of our financial statements and results for the fiscal year ended June 30, 2017, we have concluded that our disclosure controls and procedures were effective
for purposes stated above.
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company ’s
internal control over financial reporting is a process designed under the supervision of the Company’s principal executive officer and principal financial officer
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external
purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurances with respect to financial statement preparation and presentation. Additionally, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Management’s Report on Internal Control over Financial Reporting
Our management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. As of June 30, 2017 management assessed the effectiveness of the Company’s internal
control over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control - Integrated
Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Based on the assessment,
management determined that the Company maintained effective internal control over financial reporting as of June 30, 2017 based on the COSO criteria.
This Annual Report on Form 10-K does not include an attestation report of the Company ’s independent registered public accounting firm regarding the
effectiveness of the Company’s internal control over financial reporting, as such report is not required due to the Company’s status as a smaller reporting
company.
Change in Internal Control Over Financial Reporting
There have been no changes in the Company ’s internal controls over financial reporting during the fiscal year ended June 30, 2017 that have materially
affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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ITEM 9B - OTHER INFORMATION
On September 19, 2017, our Board of Directors appointed Ronald Dutt, age 70, as the president, chief financial officer and corporate secretary of the Company.
Mr. Dutt has been our chief executive officer, interim chief financial officer and director since March 19, 2014. Previously, he was our chief financial officer since
December 7, 2012 and our interim chief executive officer since June 28, 2013. Mr. Dutt has served as the Company's interim corporate secretary since June 28,
2013. Prior to Flux Power, Mr. Dutt provided chief financial officer and chief operating officer consulting services during 2008 through 2012. In this capacity Mr.
Dutt provided financial consulting, including strategic business modeling and managed operations. Prior to 2008, Mr. Dutt served in several capacities as
executive vice president, chief financial officer and treasurer for various public and private companies including SOLA International, Directed Electronics, Fritz
Companies, DHL Americas, Aptera Motors, Inc., and Visa International. Currently, Mr. Dutt serves as a board member of Rising International, a not-for-profit
organization in Santa Cruz, California since 2011, and as a board advisor for Tyga-Box Systems, a New York City based company since 2011. Rising
International and Tyga-Box are not affiliates of the Company. Mr. Dutt holds an MBA in Finance from University of Washington and an undergraduate degree in
Chemistry from the University of North Carolina. Additionally, Mr. Dutt served in the United States Navy and received an honorable discharge as a Lieutenant.
In connection with his prior appointments, the Company previously entered into an employment agreement effective December 11, 2012. In connection with Mr.
Dutt's employment agreement, the Company has agreed to pay him an annual salary of $170,000. He is not paid any additional compensation for his positions.
There are no family relationships among any of the directors and executive officers.
PART III
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors, Executive Officers and Significant Employees
Identification of Directors, Executive Officers and Significant Employees
The following table and text set forth the names and ages of our current directors, executive officers and significant employees as of the date of this
report. Our Board of Directors is comprised of only one class. All of the directors will serve until the next annual meeting of stockholders or until their
successors are elected and qualified, or until their earlier death, retirement, resignation or removal. There are no family relationships among any of the
directors and executive officers. Our Board of Directors are not paid for their service.
Name
Christopher L. Anthony
Ronald F. Dutt
Michael Johnson
James Gevarges
Age
41
70
69
52
Position
Chairman
Director, Chief Executive Officer, President, Chief Financial Officer, and
Corporate Secretary
Director
Director
There are no arrangements or understandings between our directors and executive officers and any other person pursuant to which any director or
officer was or is to be selected as a director or officer.
Business Experience
Christopher L. Anthony, Chairman. Mr. Anthony was appointed as chairman on September 3, 2015 and has been a board member since June 14,
2012. Mr. Anthony was also the Company’s former chief executive officer from June 14, 2012 to June 28, 2013. Prior to the Company’s reverse acquisition of
Flux Power Holdings, Inc., in June 2012 Mr. Anthony served as chairman and chief executive officer of Flux Power since it was incorporated in 2009. Mr.
Anthony is the founder and a majority owner of Epic Boats, LLC (“Epic Boats”) a Delaware Corporation and has served as an R&D advisor since it was
founded in 2002 and also served as chief executive officer though October 2010. On June 28, 2013 Mr. Anthony resigned as Flux Power’s chief executive
officer to return full time to his position as chief executive officer of Epic Boats to manage the day to day operations. Epic Boats is primarily engaged in the
business of providing recreational and competitive watercrafts, including an electric wake boarding boat. From 2005 to 2009 Mr. Anthony served as the chief
operating officer of Aptera Motors, Inc., a Delaware company engaged in the business of manufacturing a three-wheel electric car (“Aptera Motors”) and was
a director of that company from 2005 to 2010. Aptera Motors and Epic Boats are not affiliates of the Company. Mr. Anthony is an expert in energy storage,
electric propulsion systems, and advanced composite manufacturing processes. He has significant experience building advanced products in the marine and
commuter vehicle industries. Mr. Anthony has a Bachelor’s of Science degree in finance from the Cameron School of Business.
Ronald F. Dutt. Director, Chief Executive Officer, President, Chief Financial Officer, Director and Corporate Secretary. Mr. Dutt has been our
chief executive officer, interim chief financial officer and director since March 19, 2014. On September 19, 2017, he was also appointed as our president,
chief financial officer and corporate secretary. Previously he was our chief financial officer since December 7, 2012 and our interim chief executive officer
since June 28, 2013. Mr. Dutt has served as the Company’s interim corporate secretary since June 28, 2013. Prior to Flux Power, Mr. Dutt provided chief
financial officer and chief operating officer consulting services during 2008 through 2012. In this capacity Mr. Dutt provided financial consulting, including
strategic business modeling and managed operations. Prior to 2008, Mr. Dutt served in several capacities as executive vice president, chief financial officer
and treasurer for various public and private companies including SOLA International, Directed Electronics, Fritz Companies DHL Americas, Aptera Motors,
Inc., and Visa International. Currently, Mr. Dutt serves as a board member of Rising International, a not-for-profit organization in Santa Cruz, California since
2011, and as a board advisor for Tyga-Box Systems, a New York City based company since 2011. Rising International and Tyga-Box are not affiliates of the
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Company. Mr. Dutt holds an MBA in Finance from University of Washington and an undergraduate degree in Chemistry from the University of North Carolina.
Additionally, Mr. Dutt served in the United States Navy and received an honorable discharge as a Lieutenant.
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Michael Johnson, Director. Mr. Johnson has been our director since July 12, 2012. Mr. Johnson has been a director of Flux Power since it was
incorporated. Since 2002, Mr. Johnson has been a director and the chief executive officer of Esenjay Petroleum Corporation (“Esenjay Petroleum”), a
Delaware company located in Corpus Christi, Texas which is engaged in the business oil exploration and production. Mr. Johnson’s primary responsibility at
Esenjay Petroleum is to manage the business and company as chief executive officer. Mr. Johnson is director and beneficial owner of Esenjay Investments
LLC, a Delaware company engaged in the business of investing in companies, and an affiliate of the Company owning approximately 75.6% of our
outstanding shares, including common shares underlying options, warrants and convertible debt that were exercisable or convertible or which would become
exercisable or convertible within 60 days. As a result of Mr. Johnson’s leadership and business experience he is an industry expert in the natural gas
exploration industry and brings a wealth of management and successful company building experience to the board. Mr. Johnson received a BS degree in
mechanical engineering from the University of Southwestern Louisiana.
James Gevarges, Director. Mr. Gevarges served on our Board as director from July 14, 2012 to October 24, 2014 at which time he resigned. On
September 30, 2015, Mr. Gevarges was reinstated as a director. Mr. Gevarges is the President, Chief Executive Officer, and a majority owner of Current
Ways, Inc., a California company engaged in the business of manufacturing chargers and other components for electric vehicles, which he founded in 2010.
Current Ways, Inc. is not an affiliate of the Company. Since 1991 Mr. Gevarges has also been a Director and the Chief Executive Officer of LHV Power
Corporation (formerly known as HiTek Power, Corp) (“LHV Power”), a California company located in Santee, California which is engaged in the business of
designing, manufacturing and marketing of power supply systems. Mr. Gevarges is the sole owner of LHV Power. LHV Power is not an affiliate of the
Company. Mr. Gevarges’ primary responsibilities at LHV Power are to manage the company and business as Chief Executive Officer and President. As a
result of Mr. Gevarges’ management and industry experience he is a power supply industry expert and brings an enormous amount of manufacturing and
successful company management experience to the Company. Mr. Gevarges has a Bachelor’s of Science degree in electrical engineering from Louisiana
State University.
Involvement in Certain Legal Proceedings
To the best of our knowledge, during the past ten years, none of our directors or executive officers were involved in any of the following: (1) any
bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or
within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and
other minor offenses); (3) being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking
activities; and (4) being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodities Futures
Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Board Leadership Structure and Role in Risk Oversight
The Board does not have a policy as to whether the roles of our chairman and chief executive officer should be separate. Instead, the Board makes this
determination based on what best serves our Company’s needs at any given time.
In its governance role, and particularly in exercising its duty of care and diligence, the Board is responsible for ensuring that appropriate risk
management policies and procedures are in place to protect the company’s assets and business. Our Board has broad and ultimate oversight responsibility
for our risk management processes and programs and executive management is responsible for the day-to-day evaluation and management of risks to the
Company.
Audit Committee
We have not adopted an audit committee charter. Our Board of Directors serves the function of the audit committee. The Board of Directors intends to
establish an audit committee in the future.
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Audit Committee Financial Expert
Our Board of Directors has not established a separate audit committee within the meaning of Section 3(a)(58)(A) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”). Instead, our entire Board of Directors acts as the audit committee within the meaning of Section 3(a)(58)(B) of the
Exchange Act. In addition, our Board of Directors has not made a determination as to whether a director on the Board meets the definition of an “audit
committee financial expert” within the meaning of Item 407(d)(5) of Regulation S-K. We continue to seek candidates for outside directors and for a financial
expert to serve on a separate audit committee when we establish one.
In fulfilling its oversight responsibilities, the Board has reviewed and discussed the audited financial statements with management and discussed with
the independent auditors the matters required to be discussed by PCAOB Standard 16, formerly SAS 61. Management is responsible for the financial
statements and the reporting process, including the system of internal controls. The independent auditors are responsible for expressing an opinion on the
conformity of those audited financial statements with generally accepted accounting principles.
The Board of Directors discussed with the independent auditors, the auditors ’ independence from the management of the Company and received
written disclosures and the letter from the independent accountants required by Independence Standards Board Standard No. 1. After Board of Director’s
review and discussions, as mentioned above, the Board of Directors recommended that the audited financial statements be included in the Company’s
Annual Report on Form 10-K.
Compensation Committee and Governance and Nomination Committee
We have not adopted a compensation committee and governance committee charters. The Board of Directors currently serves these functions. The
Board of Directors will consider establishing a compensation committee and governance committee in the future. There were no material changes to the
procedures by which security holders may recommend nominees to our Board of Directors.
Code of Conduct and Ethics
We have not adopted a Code of Conduct for our senior executive officers.
Indemnification Agreements
We executed a standard form of indemnification agreement (“Indemnification Agreement”) with each of our Board members and executive officers
(each, an “Indemnitee”).
Pursuant to and subject to the terms, conditions and limitations set forth in the Indemnification Agreement, we agreed to indemnify each Indemnitee, against
any and all expenses incurred in connection with the Indemnitee’s service as our officer, director and or agent, or is or was serving at our request as a
director, officer, employee, agent or advisor of another corporation, partnership, joint venture, trust, limited liability company, or other entity or enterprise but
only if the Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to our best interest, and in the case of a criminal
proceeding, had no reasonable cause to believe that his conduct was unlawful. In addition, the indemnification provided in the indemnification agreement is
applicable whether or not negligence or gross negligence of the Indemnitee is alleged or proven. Additionally, the Indemnification Agreement establishes
processes and procedures for indemnification claims, advancement of expenses and costs and contribution obligations.
Compliance with Section 16 of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10%
of a registered class of our equity securities, to file with the Securities and Exchange Commission (hereinafter referred to as the “Commission”) initial
statements of beneficial ownership, reports of changes in ownership and Annual Reports concerning their ownership, of Common Stock and other of our
equity securities on Forms 3, 4, and 5, respectively. Executive officers, directors and greater than 10% stockholders are required by Commission regulations
to furnish us with copies of all Section 16(a) reports they file. Based solely on information available to us in public filings, we believe that all reports required
by Section 16(a) for transactions in the fiscal year ended June 30, 2017, were timely filed, except as follows:
•
On August 16, 2016, Esenjay acquired 1,000,000 shares of common stock (at $0.40 per share) in consideration for cancellation of debt in the
amount of $400,000 and on August 31, 2016, Esenjay acquired 1,250,000 shares of common stock (at $0.40 per share) for $500,000 in cash.
On September 7, 2016, a Form 4 was filed for Mr. Johnson, the sole director and beneficial owner of Esenjay, and our director.
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ITEM 11 - EXECUTIVE COMPENSATION
Compensation for our Named Executive Officers
The following table sets forth information concerning all forms of compensation earned by our named executive officers during the fiscal years ended
June 30, 2017 and 2016 for services provided to the Company and its subsidiaries.
Name and Principal
Position
Year Salary ($)
Bonus
($)
Stock
Awards
($)
Option
Awards
($)(1)
Non-Equity
Incentive Plan
Compensation
($)
All Other
Compensation
($)
Total
($)
Ronald F. Dutt, Chief
Executive
Officer, President, Chief
Financial Officer, Director
and Corporate Secretary
(2)
2017 $
$
2016
170,000 $
$
170,000
- $
$
-
- $
$
-
- $
$
48,968
- $
$
-
- $
$
-
170,000
218,968
(1) The grant date fair value was determined in accordance with the provisions of FASB ASC Topic No. 718 using the Black-Scholes valuation model with
assumptions described in more detail in the notes to our audited financial statements included in this report.
(2) Mr. Dutt’s Employment Agreement effective December 11, 2012 provided for option grants of 20,000. On July 30, 2013, Mr. Dutt was granted 175,000
shares of non-qualified stock options. On December 22, 2015, Mr. Dutt was granted 190,000 shares of incentive stock options subject to certain vesting
restrictions.
Benefit Plans
We do not have any profit sharing plan or similar plans for the benefit of our officers, directors or employees. However, we may establish such plan in
the future.
Equity Compensation Plan Information
In connection with the reverse acquisition of Flux Power, Inc in 2012, we assumed the 2010 Option Plan. As of June 30, 2017, the number of options
outstanding to purchase common stock under the 2010 Option Plan was 385,000. No additional options to purchase common stock may be granted under
the 2010 Option Plan.
On November 26, 2014, our board of directors approved our 2014 Equity Incentive Plan (the “2014 Option Plan”), which was approved by our
shareholders on February 17, 2015. The 2014 Option Plan offers selected employees, directors, and consultants the opportunity to acquire our common
stock, and serves to encourage such persons to remain employed by us and to attract new employees. The 2014 Option Plan allows for the award of stock
and options, up to 10,000,000 shares of our common stock. We granted 438,000 incentive stock options under the 2014 Option Plan during Fiscal 2016 of
which 331,000 remain outstanding at June 30, 2017. No options were granted during Fiscal 2017.
As of June 30, 2017 , we have 331,000 incentive stock options and 385,000 non-qualified options exercisable and outstanding which were granted from
the 2014 Option Plan and 2010 Option Plan, respectively.
32
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The following table sets forth certain information concerning unexercised options, stock that has not vested, and equity compensation plan awards
outstanding as of June 30, 2017 for the named executive officers below:
Option Awards(1)
Stock Awards
Number of
Securities
Underlying
Unexercised
Options
Exercisable
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
Award
Grant
Date
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
Option
Exercise
Price
($)
Option
Expiration
Date
Number of
Shares or
Units of
Stock That
Have Not
Vested
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
Market
Value
of Shares or
Units of
Stock
That Have
Not
Vested
($)
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
($)
12/22/2015
118,750
71,250
71,250
0.50
12/22/2025
7/30/2013
173,177
1,823
-
1.0 7/30/2023
-
$
- $
-
-
-
$
- $
-
-
Name
Ronald
Dutt
(1) The fair value of each option grant is estimated at the date of grant using the Black-Scholes option pricing model. Expected volatility is calculated based on
the historical volatility of the Company’s stock. The risk free interest rate is based on the U.S. Treasury yield for a term equal to the expected life of the
options at the time of grant.
Compensation of Non-Executive Directors
Aggregated Option/SAR exercised and Fiscal year-end Option/SAR value table
Neither our executive officers nor the other individuals listed in the tables above, exercised options or SARs during the last fiscal year.
Long-term incentive plans
No long term incentive awards were granted by us in the last fiscal year.
Employment Agreements with Executive Officers
We entered into an Employment Agreement with our current chief executive officer, Ronald F. Dutt effective December 11, 2012. Mr. Dutt is an “at-will”
employee of Flux Power Holdings, Inc. The Employment Agreement provides for an annual salary of $170,000.
There were no performance based bonuses paid for fiscal years ended June 30, 2017 and 2016.
33
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Compensation Committee Interlocks and Insider Participation
We have not established a Compensation Committee and our Board of Directors will serve this function.
Director Independence
We currently do not have any independent directors as the term “independent” is defined by the rules of the Nasdaq Stock Market.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
As used in this section, the term beneficial ownership with respect to a security is defined by Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, as consisting of sole or shared voting power (including the power to vote or direct the vote) and/or sole or shared investment power (including the
power to dispose of or direct the disposition of) with respect to the security through any contract, arrangement, understanding, relationship or otherwise,
subject to community property laws where applicable. As of September, 21, 2017 we had a total of 25,085,526 shares of common stock issued outstanding.
The following table sets forth, as of September 21, 2017, information concerning the beneficial ownership of shares of our common stock held by our
directors, our named executive officers, our directors and executive officers as a group, and each person known by us to be a beneficial owner of more than
5% of our outstanding common stock. Unless otherwise indicated, the business address of each of our directors, executive officers and beneficial owners of
more than 5% of our outstanding common stock is c/o Flux Power Holdings, Inc., 985 Poinsettia Avenue, Suite A, Vista, California 92081. Each person has
sole voting and investment power with respect to the shares of our common stock, except as otherwise indicated. Beneficial ownership consists of a direct
interest in the shares of common stock, except as otherwise indicated. The amount of beneficial ownership set forth below has been adjusted to reflect the
Reverse Stock Split.
Name and Address of Beneficial Owner
Directors and Named Executive Officers :
Christopher L. Anthony, Chairman and Former Chief Executive Officer
Ronald F. Dutt, Director, Chief Executive Officer, President and Chief Financial Officer
James Gevarges
Michael Johnson (Esenjay Investments, LLC), Director
Current Executive Officers & Directors as a Group (4 people)
_________________
Amount and Nature
of
Beneficial
Ownership (1)
Percentage of
Ownership
911,882(2)
322,857(3)
650,488(4)
28,226,946(5)
30,112,173
3.6%
1.3%
2.6%
75.6%
79.8%
(1)
(2)
(3)
(4)
(5)
As used in this section, the term beneficial ownership with respect to a security is defined by Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, as consisting of sole or shared voting power (including the power to vote or direct the vote) and/or sole or shared investment power (including
the power to dispose of or direct the disposition of) with respect to the security through any contract, arrangement, understanding, relationship or
otherwise, subject to community property laws where applicable. Accordingly, shares of common stock which an individual or group has a right to acquire
within 60 days pursuant to the exercise of options or warrants are deemed to be outstanding for the purpose of computing the percentage ownership of
such individual or group, but are not deemed to be beneficially owned and outstanding for the purpose of computing the percentage ownership of any
other person shown in the table.
The 911,882 shares beneficially owned includes 881,882 shares of common stock and 30,000 stock options.
The 322,857 shares beneficially owned includes 4,100 shares of common stock and 318,757 stock options.
The 650,488 shares beneficially owned includes 590,941 shares of common stock and 59,547 stock options.
The 28,226,946 shares beneficially owned includes shares held by Esenjay Investments, LLC, of which Mr. Johnson is the sole director and beneficial
owner. Includes 15,992,399 shares of common stock, 59,547 stock options, 708,333 warrants and 11,466,667 shares issuable related to existing
convertible debt.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
On June 29, 2016 and August 15, 2016 two (2) accredited investors, who are siblings of Mr. Johnson, invested an aggregate of $200,000 for the
purchase of 500,000 shares of our common stock in our Offering.
34
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Loans from Stockholder and Conversion into Common Stock
In October 2011, we entered into a revolving promissory note agreement (“Revolving Note”) for $1,000,000 with Esenjay Investments, LLC (“Esenjay”),
which is one of our major stockholders who beneficially own approximately 75.6% of our common stock as of September 21, 2017. Mr. Michael Johnson is a
current member of our board of directors and is the director and beneficial owner of Esenjay. The Revolving Note had an interest rate of 8% per annum, and
an original maturity date of September 30, 2013, as amended, and is secured by substantially all of the assets of the Company. On October 16, 2013, we
entered into the Second Amendment to the Revolving Note pursuant to which the Revolving Note was amended to: (i) extend the maturity date from
September 30, 2013, to December 31, 2015; (ii) change the interest rate on the outstanding principal amount as of October 16, 2013, and forward to 6% per
annum, and (iii) grant the holder of the Revolving Note the option to convert any or all of the amount outstanding under the Revolving Note, as amended, into
shares of our common stock at a conversion price of $3.00 per share until December 31, 2015.
On March 7, 2012, we entered into an additional note payable agreement with Esenjay for $250,000 (“Bridge Note”). The Bridge Note had an
original maturity date of March 7, 2014, and bore interest at the rate of 8% per annum. As of September 30, 2013, the balance outstanding payable on the
Bridge Note was $250,000 and there were no further funds available under the Bridge Note. On October 16, 2013, we entered into the First Amendment to
the Bridge Loan Promissory Note (the “Amendment”) pursuant to which the Bridge Note was amended to: (i) extend the maturity date from March 7, 2014, to
December 31, 2015; (ii) change the interest rate on the outstanding principal amount as of October 16, 2013, and forward to 6% per annum; and (iii) grant the
holder of the Bridge Note the option to convert any or all of the amount outstanding under the Bridge Note, as amended, into shares of our common stock at
a conversion price of $3.00 per share until December 31, 2015.
On September 24, 2012, we entered into a Unrestricted Line of Credit agreement with Esenjay for $1,500,000 (“Unrestricted Line of
Credit”). Borrowings under the Unrestricted Line of Credit are secured by our assets and bore interest at the rate of 8% per annum, with all unpaid principal
and accrued interest due and payable on September 24, 2014. On October 16, 2013, we entered into the First Amendment to the Unrestricted Line of Credit
(the “Amendment”) pursuant to which the Unrestricted Line of Credit was amended to: (i) extend the maturity date from September 24, 2014, to December
31, 2015; (ii) change the interest rate on the outstanding principal amount as of October 16, 2013, and forward to 6% per annum; (iii) increase the
Unrestricted Line of Credit to $2,000,000; and (iv) grant holder the option to convert up to $400,000 of the outstanding amount under the Unrestricted Line of
Credit into shares of our common stock at a conversion price of $0.60 per share until December 31, 2013, and the option to convert any or all of the
remaining amount outstanding under the Unrestricted Line of Credit into shares of our common stock at a conversion price of $3.00 per share until December
31, 2015.
On September 3, 2015, the Company entered into a Loan Conversion Agreement (“Conversion Agreement”), as amended on October 6, 2015 and
November 13, 2015 (the “Amendments”), with Esenjay pursuant to which we agreed to issue 5,117,103 shares of our common stock (based on $0.40 per
share) (the “Shares”) in exchange for the cancellation of principal amount of $2,000,000 (“Principal Amount”) of the total $2,200,000 outstanding under the
Revolving Note, the Bridge Note and the Unrestricted Line of Credit (collectively, the “Loan Agreements”), with Esenjay, plus $46,841 in accrued and unpaid
interest on such Principal Amount as of September 3, 2015 (the accrued interest together with the Principal Amount referred to as the “Debt”). In connection
with the Conversion Agreement, as amended, on September 9, 2015, the Company issued 5,117,103 shares (“Esenjay Shares”) to Esenjay in exchange for
cancellation of Principal Amount. The Revolving Note and Bridge Note expired on December 31, 2015 and the Unrestricted Line of Credit was amended as
discussed below.
On December 29, 2015, we entered into a Second Amendment to the Unrestricted Line of Credit (“Second Amendment”), with Esenjay, pursuant to
which we agreed to amend certain terms of the Unrestricted Line of Credit agreement dated September 24, 2012 and amended on October 16, 2013. Under
the Second Amendment, the agreement was modified and amended to (i) extended the maturity date to July 30, 2016; (ii) increased the maximum principal
amount available from $2,000,000 to $2,500,000; and (iii) reduced the conversion price from $3.00 to $0.60. The estimated change in fair value of the
conversion price of approximately $310,000 was determined to be a debt issuance cost, and accordingly, was recorded as a deferred financing cost at the
date of the Second Amendment to be amortized over the remaining seven-month term through July 30, 2016. During the Fiscal 2017 and Fiscal 2016, we
recorded approximately $44,000 and $266,000, respectively, of deferred financing amortization costs, which are included in interest expense in the
accompanying consolidated statements of operations.
On March 29, 2016, we entered into a Third Amendment to the Unrestricted Line of Credit with Esenjay, pursuant to which the maximum principal
amount available was increased to $3,500,000. In April 2016, $1,350,000 of the outstanding debt under the Unrestricted Line of Credit was settled, in
conjunction with our then outstanding private placement via the issuance of 3,375,000 shares of our common stock. In August 2016, $400,000 of the
outstanding debt under the Unrestricted Line of Credit was settled, in conjunction with our then outstanding private placement via the issuance of 1,000,000
shares of our common stock. See further discussion in Note 8 of our consolidated financial statements included herein.
35
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
In April 2016, pursuant to a certain Side Letter, Esenjay agreed to limit its right of conversion under the Unrestricted Line of Credit to such number of
shares so that upon conversion, if any, it will not cause the Company to exceed the authorized number of shares of common stock.
On July 28, 2016, we entered into a Fourth Amendment to the Unrestricted Line of Credit with Esenjay, pursuant to which we modified and amended to
extend the maturity date to January 31, 2018.
On April 11, 2017, the Unrestricted Line of Credit was amended for a fifth time resulting in an increase in the maximum borrowing amount to
$5,000,000 and an increase in the interest rate, effective April 1, 2017, to 8% per annum on the outstanding balance and future drawdowns.
On June 29, 2017, the Unrestricted Line of Credit was amended for a sixth time resulting in an increase in the maximum borrowing amount from
$10,000,000 and an extension in the maturity date to January 31, 2019. The outstanding principal balance of the Unrestricted Line of Credit as of June 30,
2017 was $5,185,000 resulting in a remaining $4,815,000 available for future draws under this agreement, subject to lender’s approval.
Lease Agreements
The Company’s corporate headquarters totals 22,054 square feet and is located in Vista, California. Effective February 25, 2014, the Company
entered into a two-year lease agreement for this facility with average monthly rent payments of approximately $12,000 per month and paid a security deposit
of $25,000, or approximately 2 months of rent. Our lease was subsequently amended resulting in average rent expense of $14,000 per month and expiring
on May 31, 2018.
The Company also subleases space to a related party, Epic Boats, on a month-to-month basis at a rate of 10% of lease expense.
Total rent expense was $140,000 and $137,000 for the years ended June 30, 2017 and 2016, respectively, net of sublease income.
Transactions with Epic Boats
The Company subleases office and manufacturing space to Epic Boats (an entity founded and controlled by Chris Anthony, our board member and
former Chief Executive Officer) in our facility in Vista, California pursuant to a month-to-month sublease agreement. Pursuant to this agreement, Epic Boats
pays Flux Power 10% of facility costs through the end of our lease agreement.
The Company received $16,000 during each of the years ended June 30, 2017 and 2016, respectively, from Epic Boats under the sublease rental
agreement which is recorded as a reduction to rent expense and the customer deposits discussed below.
As of June 30, 2017 and 2016, customer deposits totaling approximately $120,000 and $136,000, respectively, related to such products were
recorded in the accompanying consolidated balance sheets. There were no receivables outstanding from Epic Boats as of June 30, 2017 and 2016.
36
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
Independent Auditor
For the years ended June 30, 2017 and 2016, the Company’s independent public accounting firm was Squar Milner LLP.
Fees Paid to Principal Independent Registered Public Accounting Firm
The aggregate fees billed by our Independent Registered Public Accounting Firm, for the years ended June 30, 2017 and 2016 are as follows:
(2)
Audit fees
(1)
Audit related fees
Tax fees(3)
(4)
All other fees
Total
2017
2016
$
90,000 $
95,000
-
-
-
90,000 $
-
-
-
95,000
$
(1) Audit fees represent fees for professional services provided in connection with the audit of our annual financial statements and the review of our
quarterly financial statements and those services normally provided in connection with statutory or regulatory filings or engagements including comfort
letters, consents and other services related to SEC matters. This information is presented as of the latest practicable date for this annual report.
(2) Audit-related fees represent fees for assurance and related services that are reasonably related to the performance of the audit or review of our
financial statements and not reported above under “Audit Fees.” No such fees were incurred during the fiscal years ended June 30, 2017 or 2016.
(3) Squar Milner LLP does not provide us with tax compliance, tax advice or tax planning services.
(4) All other fees include fees billed by our independent auditors for products or services other than as described in the immediately preceding three
categories. No such fees were incurred during the fiscal years ended June 30, 2017 or 2016.
The Company’s Board of Directors serves as the Audit Committee and has unanimously approved all audit and non-audit services provided by the
independent auditors. The independent accountants and management are required to periodically report to the Board of Directors regarding the extent of
services provided by the independent accountants, and the fees for the services performed to date. The Company has not adopted a Charter for the Audit
Committee as of June 30, 2017.
37
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements and Financial Statement Schedules.
PART IV
The following financial statements of Flux Power Holdings, Inc., and Report of Squar Milner LLP, independent registered public accounting firm, are included
in this report:
Report of Independent Registered Public Accounting Firm - Squar Milner LLP
Consolidated Balance Sheets as of June 30, 2017 and 2016
Consolidated Statements of Operations for the Years Ended June 30, 2017 and 2016
Consolidated Statements of Stockholders’ Deficit for the Years Ended June 30, 2017 and 2016
Consolidated Statements of Cash Flows for the Years Ended June 30, 2017 and 2016
Notes to the Consolidated Financial Statements
Page
F-1
F-2
F-3
F-4
F-5
F-6
Financial Statement Schedules: All schedules have been omitted because the required information is included in the financial statements or notes thereto or
because they are not required.
See Subsection (b) below:
(b) Exhibits:
The following exhibits are filed as part of this Report
Exhibit
No.
2.1
2.2
3.1
3.2
3.3
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
Description
Securities Exchange Agreement dated May 18, 2012. Incorporated by reference to Exhibit 2.1 on Form 8-K filed with the SEC on May
24, 2012.
Amendment No. 1 to the Securities Exchange Agreement dated June 13, 2012. Incorporated by reference to Exhibit 2.2 on Form 8-K filed
with the SEC on June 18, 2012.
Restated Articles of Incorporation. Incorporated by reference to Exhibit 3.1 on Form 8-K filed with the SEC on February 19, 2015.
Amended and Restated Bylaws of Flux Power Holdings, Inc. Incorporated by reference to Exhibit 3.1 on Form 8-K filed with the SEC on
May 31, 2012.
Certificate of Amendment to Articles of Incorporation. Incorporated by reference to Exhibit 3.1 on Form 8-K filed with the SEC on August
18, 2017.
Esenjay Secondary Revolving Promissory Note for Operating Capital dated October 1, 2011. Incorporated by reference to Exhibit 10.1 on
Form 8-K filed with the SEC on June 18, 2012.
Esenjay Bridge Loan Promissory Note dated March 7, 2012. Incorporated by reference to Exhibit 10.2 on Form 8-K filed with the SEC on
June 18, 2012.
Flux Power Holdings, Inc. 2010 Stock Plan. Incorporated by reference to Exhibit 10.5 on Form 8-K filed with the SEC on June 18, 2012.
Flux Power Holdings, Inc. 2010 Stock Plan: Form of Stock Option Agreement. Incorporated by reference to Exhibit 10.6 on Form 8-K filed
with the SEC on June 18, 2012.
Form of Warrant. Incorporated by reference to Exhibit 4.1 on Form 8-K filed with the SEC on June 26, 2012.
Form of Securities Purchase Agreement. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on June 26, 2012.
Form of Indemnification Agreement. Incorporated by reference to Exhibit 10.12 on Form 8-K filed with the SEC on June 18, 2012.
Unrestricted and Open Line of Credit dated September 24, 2012. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC
on September 27, 2012.
Terms of Employment with Ronald F. Dutt. Incorporated by reference to Exhibit 10.16 on Form 8-K filed with the SEC on December 13,
2012.
Agreement to Amend Unrestricted and Open Line of Credit. Incorporated by reference to Exhibit 10.1 on Form 10-Q/A filed with the SEC
on May 13, 2013.
Second Amendment to the Secondary Revolving Promissory Note. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the
SEC on October 22, 2013.
First Amendment to the Bridge Loan Promissory Note. Incorporated by reference to Exhibit 10.2 on Form 8-K filed with the SEC on
October 22, 2013.
38
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.29
21.1
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
First Amendment to the Unrestricted and Open Line of Credit. Incorporated by reference to Exhibit 10.3 on Form 8-K filed with the SEC on
October 22, 2013.
Subscription Agreement Dated January 13, 2014. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on January 15,
2014.
Warrant. Incorporated by reference to Exhibit 4.1 on Form 8-K filed with the SEC on January 15, 2014.
Form of Unit Subscription. Incorporated by reference to Exhibit 10.18 on Form 10-Q filed with the SEC on February 14, 2014.
Loan Conversion Agreement. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on June 11, 2014.
Form of Unit Subscription. Incorporated by reference to Exhibit 10.22 on Form 10-K filed with the SEC on October 7, 2014.
2014 Equity Incentive Plan. Incorporated by reference to Exhibit 10.23 on Form 10-Q filed with the SEC on May 15, 2015.
Credit Facility Agreement. Incorporated by reference to Exhibit 10.01 on Form 8-K filed with the SEC on October 8, 2014
Loan Conversion Agreement. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on September 9, 2015.
Amendment to Loan Conversion Agreement by reference to Exhibit 10.2 on Form 8-K/A filed with the SEC on October 7, 2015 .
Amendment No. 2 to the Loan Conversion Agreement by reference to Exhibit 10.1 on Form 8-K filed with the SEC on November 16, 2015 .
Second Amendment to the Unrestricted and Open Line of Credit by reference to Exhibit 10.1 on Form 8-K filed with the SEC on January 5,
2016.
Third Amendment to the Unrestricted and Open Line of Credit by reference to Exhibit 10.1 on Form 8-K filed with the SEC on March 31,
2016.
Subscription Agreement by reference to Exhibit 10.1 on Form 8-K filed with the SEC on May 9, 2016
Fourth Amendment to the Unrestricted and Open Line of Credit by reference to Exhibit 10.1 on Form 8-K filed with the SEC on August 2,
2016.
Subscription Agreement by reference to Exhibit 10.1 on Form 8-K filed with the SEC on August 19, 2016
Fifth Amendment to the Unrestricted and Open Line of Credit by reference to Exhibit 10.1 on Form 8-K filed with the SEC on April 24, 2017.
Convertible Promissory Note dated April 27, 2017. Incorporate by reference to Exhibit 10.2 on Form 10-Q filed with the SEC on May 15,
2017.
Sixth Amendment to the Unrestricted and Open Line of Credit by reference to Exhibit 10.1 on Form 8-K filed with the SEC on July 3, 2017.
Subsidiaries. Incorporated by reference to Exhibit 21.1 on Form 8-K filed with the SEC on June 18, 2012.
Certifications of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act.*
Certifications of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act.*
Certifications of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act.*
Certifications of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act.*
XBRL Instance Document (*)
XBRL Taxonomy Extension Schema
(*)
XBRL Taxonomy Extension Calculation Linkbase
(*)
XBRL Taxonomy Extension Definition Linkbase
(*)
XBRL Taxonomy Extension Label Linkbase
(*)
XBRL Taxonomy Extension Presentation Linkbase Document
(*)
* Filed herewith.
39
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: September 21, 2017
Flux Power Holdings, Inc.
By:
/s/ Ronald F. Dutt
Ronald F. Dutt
Chief Executive Officer and
Chief Financial Officer
(Principal Executive Officer and
Principal Financial and
Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature
/s/ Christopher Anthony
Christopher Anthony
/s/ Ronald F. Dutt
Ronald F. Dutt
/s/ Michael Johnson
Michael Johnson
/s/ James Gevarges
James Gevarges
Title
Date
Chairman of the Board
September 21, 2017
Director, Chief Executive Officer,
President and Chief Financial Officer
(Principal Executive Officer and
Principal Financial and
Principal Accounting Officer)
Director
Director
40
September 21, 2017
September 21, 2017
September 21, 2017
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Flux Power Holdings, Inc.
Vista, California
We have audited the accompanying consolidated balance sheets of Flux Power Holdings, Inc. and its subsidiary (th e “Company”) as of June 30, 2017 and
2016, and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Flux Power Holdings,
Inc. and its subsidiary, as of June 30, 2017 and 2016, and the results of their operations and their cash flows for the years then ended, in conformity with U.S.
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note
2 to the consolidated financial statements, the Company has incurred a significant accumulated deficit through June 30, 2017 and requires immediate
additional financing to sustain its operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans in regards to these matters are also described in Note 2 to the financial statements. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ SQUAR MILNER LLP
San Diego, California
September 21, 2017
F-1
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
FLUX POWER HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, 2017
June 30, 2016
Current assets:
Cash
Accounts receivable
Inventories
Other current assets
Total current assets
Other assets
Property, plant and equipment, net
Total assets
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable
Accrued expenses
Accrued interest
Warrant derivative liability
Line of credit, net of discount
Total current liabilities
Long term liabilities:
Line of credit - related party
Convertible promissory note - related party
Customer deposits from related party
Total liabilities
Commitments and contingencies (Note 1 4)
Stockholders’ deficit:
$
121,000 $
80,000
1,566,000
69,000
1,836,000
26,000
59,000
127,000
82,000
202,000
86,000
497,000
16,000
46,000
$
1,921,000 $
559,000
$
367,000 $
259,000
239,000
-
-
865,000
5,185,000
500,000
120,000
526,000
229,000
106,000
24,000
196,000
1,081,000
1,200,000
-
136,000
6,670,000
2,417,000
Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued and outstanding
-
-
Common stock, $0.001 par value; 300,000,000 shares authorized; 25,085,526 and 20,937,513 shares issued
and outstanding at June 30, 2017 and 2016, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ deficit
Total liabilities and stockholders ’ deficit
25,000
14,923,000
(19,697,000)
21,000
13,383,000
(15,262,000)
(4,749,000)
(1,858,000)
$
1,921,000 $
559,000
The accompanying notes are an integral part of these consolidated financial statements.
F-2
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
FLUX POWER HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Net revenue
Cost of sales
Gross loss
Operating expenses:
Selling and administrative expenses
Research and development
Total operating expenses
Operating loss
Other income (expense):
Change in fair value of derivative liabilities
Interest expense
Net loss
Net loss per share - basic and diluted
Weighted average number of common shares outstanding - basic and diluted
Years ended June 30,
2017
2016
$
902,000 $
1,622,000
558,000
1,119,000
(720,000)
(561,000)
2,404,000
1,052,000
3,456,000
2,253,000
1,296,000
3,549,000
(4,176,000)
(4,110,000)
14,000
(273,000)
11,000
(472,000)
(4,435,000) $
(4,571,000)
(0.18) $
(0.31)
24,544,605
14,927,390
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-3
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
FLUX POWER HOLDING, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Years Ended June 30, 2017 and 2016
Balance at June 30, 2015
Issuance of common stock – conversion of related party debt to
equity
Issuance of common stock - services
Issuance of common stock - private placement transactions, net
Deferred financing costs related to debt modification
Stock based compensation
Net loss
Common Stock
Shares
Capital
Stock
Amount
Additional
Paid-in
Capital
Accumulated
Deficit
Total
9,946,000 $
10,000 $
8,487,000 $
(10,691,000) $
(2,194,000)
8,492,000
62,000
2,438,000
-
-
-
9,000
-
2,000
-
-
-
3,388,000
29,000
1,060,000
310,000
109,000
-
-
-
-
-
-
(4,571,000)
3,397,000
29,000
1,062,000
310,000
109,000
(4,571,000)
Balance at June 30, 2016
20,938,000
21,000
13,383,000
(15,262,000)
(1,858,000)
Issuance of common stock - conversion of related party debt to
equity
Issuance of common stock - services
Issuance of common stock - private placement transactions
Warrants exchanged for common stock
Stock based compensation
Net loss
1,000,000
46,000
2,938,000
163,000
-
-
1,000
-
3,000
-
-
-
399,000
19,000
1,072,000
10,000
40,000
-
-
-
-
-
-
(4,435,000)
400,000
19,000
1,075,000
10,000
40,000
(4,435,000)
Balance at June 30, 2017
25,085,000 $
25,000 $
14,923,000 $
(19,697,000) $
(4,749,000)
The accompanying notes are an integral part of these consolidated financial statements.
F-4
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
FLUX POWER HOLDING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities
Years ended June 30,
2017
2016
$
(4,435,000) $
(4,571,000)
Depreciation
Change in fair value of warrant liability
Stock-based compensation
Stock issuance for services
Amortization of prepaid advisory fees
Amortization of deferred financing costs
Amortization of debt discount
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Other current assets
Accounts payable
Accrued expenses
Accrued interest
Customer deposits
Net cash used in operating activities
Cash flows from investing activities
Purchases of equipment
Net cash used in investing activities
Cash flows from financing activities:
Repayment of line of credit
Proceeds from the sale of common stock
Borrowings from line of credit - related party
Borrowings from convertible promissory note - related party
Private placement subscription
Net cash provided by financing activities
Net change in cash
Cash, beginning of period
Cash, end of period
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Conversion of related party debt to equity
Fair value of warrants exchanged for common stock
Stock issuance for services
Issuance of common stock in private placement for reduction of accounts payable
Warrant re-pricing modification
Deferred financing cost related to the line of credit - related party
40,000
(14,000)
40,000
19,000
-
44,000
19,000
2,000
(1,364,000)
(37,000)
(159,000)
30,000
133,000
(16,000)
(5,698,000)
25,000
(11,000)
109,000
29,000
34,000
266,000
86,000
(13,000)
(21,000)
(11,000)
(42,000)
200,000
-
-
(3,920,000)
(53,000)
(53,000)
(5,000)
(5,000)
(215,000)
1,075,000
4,385,000
500,000
-
5,745,000
(6,000)
127,000
-
949,000
2,950,000
-
100,000
3,999,000
74,000
53,000
121,000 $
127,000
400,000 $
10,000 $
19,000 $
- $
- $
- $
3,397,000
-
29,000
25,000
12,000
310,000
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-5
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
FLUX POWER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017 and 2016
NOTE 1 - NATURE OF BUSINESS AND REVERSE STOCK SPLIT
Nature of Business
Flux Power Holdings, Inc. ("Flux") was incorporated in 1998 in the State of Nevada. On June 14, 2012, we changed our name to Flux Power Holdings,
Inc. Flux's operations are conducted through its wholly owned subsidiary, Flux Power, Inc. (“Flux Power”), a California corporation (collectively, the
"Company").
The Company designs, develops and sells rechargeable lithium-ion energy storage systems for industrial applications, such as, electric fork lifts and
airport ground support equipment. The Company has structured its business around its core technology, “The Battery Management System” (“BMS”). The
Company’s BMS provides three critical functions to their battery systems: cell balancing, monitoring and error reporting. Using its proprietary management
technology, the Company is able to offer complete integrated energy storage solutions or custom modular standalone systems to their customers. The
Company has also developed a suite of complementary technologies and products that accompany their core products. Sales during the years ended June
30, 2017 and 2016 were primarily to customers located throughout the United States.
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.
Reverse Stock Split
On August 10, 2017, we filed a certificate of amendment to our articles of incorporation with the State of Nevada effectuating a reverse split of the
Company’s common stock at a ratio of 1 for 10 , whereby every ten pre-reverse stock split shares of common stock automatically converted into one-post
reverse stock split share of common stock, without changing the $0.001 par value or authorized number of our common stock (the “Reverse Stock Split”). The
Reverse Stock Split became effective in the State of Nevada on August 18, 2017. Mr. Michael Johnson, a current member of our board of directors and a
holder of a majority of our issued and outstanding common stock approved the Reverse Stock Split on July 7, 2017. On that date, every 10 issued and
outstanding shares of the Company’s common stock automatically converted into one outstanding share. No fractional shares were issued in connection with
the Reverse Stock Split. If, as a result of the Reverse Split, a stockholder would otherwise have been entitled to a fractional share, each fractional share was
rounded up. As a result of the Reverse Stock Split, the number of the Company’s outstanding shares of common stock decreased from 250,842,418 (pre-
split) shares to 25,085,526 (post-split) shares. The Reverse Stock Split affected all stockholders of the Company’s common stock uniformly, and did not affect
any stockholder’s percentage of ownership interest, except for that which may have been effected by the rounding up of fractional shares. The par value of
the Company’s stock remained unchanged at $0.001 per share and the number of authorized shares of common stock remained the same after the Reverse
Stock Split. In addition, by reducing the number of the Company’s outstanding shares, the Company’s loss per share in all periods will be increased by a
factor of ten.
As the par value per share of the Company ’s common stock remained unchanged at $0.001 per share, a total of $226,000 was reclassified from
common stock to additional paid-in capital. In connection with the Reverse Stock Split, proportionate adjustments have been made to the per share exercise
price and the number of shares issuable upon the exercise or conversion of all outstanding options, warrants, convertible or exchangeable securities entitling
the holders to purchase, exchange for, or convert into, shares of common stock. All references to shares of common stock and per share data for all periods
presented in the accompanying consolidated financial statements and notes thereto have been adjusted to reflect the Reverse Stock Split on a retroactive
basis.
NOTE 2 - GOING CONCERN
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. The Company has incurred an accumulated deficit of $19,697,000 through June 30, 2017 and a
net loss of $4,435,000 for the year ended June 30, 2017. To date, our revenues and operating cash flows have not been sufficient to sustain our operations
and we have relied on debt and equity financing to fund our operations. These factors raise substantial doubt about our ability to continue as a going concern
for the twelve months following the date of our Annual Report on Form 10-K, September 21, 2017. Our ability to continue as a going concern is dependent
upon our ability to raise additional capital on a timely basis until such time as revenues and related cash flows are sufficient to fund our operations.
F-6
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Management has undertaken steps as part of a plan to improve operations with the goal of sustaining our op erations. These steps include (a)
developing additional products to cater to the Class 1 and Class 2 industrial equipment markets; and (b) expand our sales force throughout the United States.
In that regard, the Company has increased its research and development efforts to focus on completing the development of energy storage solutions that can
be used on larger fork lifts and has also doubled its sales force since December 2016 with personnel having significant experience in the industrial equipment
handling industry.
Management also plans to raise additional required capital through the sale of equity securities through private placements, convertible debt
placements and the utilization of our existing related-party credit facility.
We currently have a line of credit facility with our largest shareholder with a maximum principal amount available of $10,000,000. As of June 30, 2017
and September 21, 2017, an aggregate of $4,815,000 and $3,480,000, respectively was available for future draws at the lender’s discretion. The related party
credit facility matures on January 31, 2019, but may be further extended by the lender (see Notes 6 and 15).
Although management believes that the additional required funding will be obtained, there is no guarantee we will be able to obtain the additional
required funds on a timely basis or that funds will be available on terms acceptable to us. If such funds are not available when required, management will be
required to curtail its investments in additional sales and marketing and product development resources, and capital expenditures, which may have a material
adverse effect on our future cash flows and results of operations, and our ability to continue operating as a going concern. The accompanying financial
statements do not include any adjustments that would be necessary should we be unable to continue as a going concern and, therefore, be required to
liquidate its assets and discharge its liabilities in other than the normal course of business and at amounts that may differ from those reflected in the
accompanying consolidated financial statements.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company ’s significant accounting policies which have been consistently applied in the preparation of the accompanying consolidated
financial statements follows:
Principles of Consolidation
The consolidated financial statements include Flux Power Holdings, Inc. and its wholly-owned subsidiary Flux Power, Inc. after elimination of all
intercompany accounts and transactions.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation for comparative purposes.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP") requires
management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as certain financial
statement disclosures. Significant estimates include valuation allowances relating to accounts receivable, inventory, and deferred tax assets, and valuation of
derivative liabilities and equity instruments. While management believes that the estimates and assumptions used in the preparation of the financial
statements are appropriate, actual results could differ from these estimates.
Cash and Cash Equivalents
As of June 30, 2017 , cash totaled approximately $121,000 and consists of funds held in a non-interest bearing bank deposit account. The Company
considers all liquid short-term investments with maturities of less than three months when acquired to be cash equivalents. The Company had no cash
equivalents at June 30, 2017 and 2016.
F-7
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Fair Values of Financial Instruments
The carrying amount of our cash, accounts payable, accounts receivable, and accrued liabilities approximates their estimated fair values due to the
short-term maturities of those financial instruments. The carrying amount of the line of credit agreement approximates its fair values as interest approximates
current market interest rates for similar instruments. Management has concluded that it is not practical to determine the estimated fair value of amounts due to
related parties because the transactions cannot be assumed to have been consummated at arm’s length, the terms are not deemed to be market terms,
there are no quoted values available for these instruments, and an independent valuation would not be practical due to the lack of data regarding similar
instruments, if any, and the associated potential costs. Derivative liabilities recorded in connection with warrants are reported at their estimated fair value, with
changes in fair value reported in results of operations (see Note 11).
Except for derivative liabilities referenced above, the Company does not have any other assets or liabilities that are measured at fair value on a
recurring or non-recurring basis.
Accounts Receivable
Accounts receivable are carried at their estimated collectible amounts. The Company has not experienced collection issues related to its accounts
receivable, and has not recorded an allowance for doubtful accounts during the fiscal year ended June 30, 2017 and 2016.
Inventories
Inventories consist primarily of battery management systems and the related subcomponents, and are stated at the lower of cost (first-in, first-out) or
market. The Company evaluates inventories to determine if write-downs are necessary due to obsolescence or if the inventory levels are in excess of
anticipated demand at market value based on consideration of historical sales and product development plans. The Company wrote off obsolete inventory in
the amount of approximately $56,000 and $30,000 during the years ended June 30, 2017 and 2016, respectively.
We reviewed our inventory valuation with regards to our gross loss for the year ended June 30, 2017. The gross loss was due to factors related to new
product launch, such as low volume, early higher cost designs, and limited sourcing, as well as, the continued warranty expense of repairing products in the
field and returned products. As such, we do not believe the loss is related to raw material inventory issues that would require write-downs.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation and amortization are provided using the straight-line
method over the estimated useful lives, of the related assets ranging from three to ten years, or, in the case of leasehold improvements, over the lesser of the
useful life of the related asset or the lease term.
Stock-based Compensation
Pursuant to the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 718-10,
Compensation-Stock Compensation, which establishes accounting for equity instruments exchanged for employee service, we utilize the Black-Scholes
option pricing model to estimate the fair value of employee stock option awards at the date of grant, which requires the input of highly subjective assumptions,
including expected volatility and expected life. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our
share-based compensation. These assumptions are subjective and generally require significant analysis and judgment to develop. When estimating fair value,
some of the assumptions will be based on, or determined from, external data and other assumptions may be derived from our historical experience with
stock-based payment arrangements. The appropriate weight to place on historical experience is a matter of judgment, based on relevant facts and
circumstances.
Common stock or equity instruments such as warrants issued for services to non-employees are valued at their estimated fair value at the
measurement date (the date when a firm commitment for performance of the services is reached, typically the date of issuance, or when performance is
complete). If the total value exceeds the par value of the stock issued, the value in excess of the par value is added to the additional paid-in-capital.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, price is fixed or determinable, and
collectability of the selling price is reasonably assured. Delivery occurs when risk of loss is passed to the customer, as specified by the terms of the
applicable customer agreements. When a product is sold on consignment, the item remains in our inventory and revenue is not recognized until the product is
ultimately sold to the end user. When a right of return exists, contractually or implied, the Company recognizes revenue on the sell-through method. Under
this method, revenue is not recognized upon delivery of the products. Instead, the Company records deferred revenue upon delivery and recognizes revenue
when the product is sold through to the end user. As of June 30, 2017 and 2016, the Company did not have any deferred revenue.
F-8
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Product Warranties
The Company evaluates its exposure to product warranty obligations based on historical experience. Our products, primarily lift equipment packs, are
warrantied for five years unless modified by a separate agreement. As of June 30, 2017 and 2016, the Company carried warranty liability of approximately
$85,000 and $120,000, respectively, which is included in accrued expenses on the Company’s consolidated balance sheets.
Impairment of Long-lived Assets
In accordance with authoritative guidance for the impairment or disposal of long-lived assets, if indicators of impairment exist, the Company assesses
the recoverability of the affected long-lived assets by determining whether the carrying value of such assets can be recovered through the undiscounted
future operating cash flows.
If impairment is indicated, the Company measures the amount of such impairment by comparing the carrying value of the asset to the present value of
the expected future cash flows associated with the use of the asset. The Company believes that no impairment indicators were present, and accordingly no
impairment losses were recognized during the fiscal years ended June 30, 2017 and 2016.
Research and Development
The Company is actively engaged in new product development efforts. Research and development cost relating to possible future products are
expensed as incurred.
Income Taxes
Pursuant to FASB ASC Topic No. 740, Income Taxes, deferred tax assets or liabilities are recorded to reflect the future tax consequences of temporary
differences between the financial reporting basis of assets and liabilities and their tax basis at each year-end. These amounts are adjusted, as appropriate, to
reflect enacted changes in tax rates expected to be in effect when the temporary differences reverse. The Company has analyzed filing positions in all of the
federal and state jurisdictions where the Company is required to file income tax returns, as well as all open tax years in these jurisdictions. As a result, no
unrecognized tax benefits have been identified as of June 30, 2017 or June 30, 2016, and accordingly, no additional tax liabilities have been recorded.
The Company records deferred tax assets and liabilities based on the differences between the financial statement and tax bases of assets and liabilities
and on operating loss carry forwards using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is
provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.
Net Loss Per Common Share
The Company calculates basic loss per common share by dividing net loss by the weighted average number of common shares outstanding during the
periods. Diluted loss per common share includes the impact from all dilutive potential common shares relating to outstanding convertible securities.
For the years ended June 30, 2017 and 2016, basic and diluted weighted-average common shares outstanding were 24,544,605 and 14,927,390,
respectively. The Company incurred a net loss for the years ended June 30, 2017 and 2016, and therefore, basic and diluted loss per share for each fiscal
year are the same because the inclusion of potential common equivalent shares were excluded from diluted weighted-average common shares outstanding
during the period, as the inclusion of such shares would be anti-dilutive. The total potentially dilutive common shares outstanding at June 30, 2017 and 2016,
excluded from diluted weighted-average common shares outstanding, which include common shares underlying outstanding convertible debt, stock options
and warrants, were 12,607,853 and 5,795,292, respectively.
F-9
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risk.
The Company evaluates free-standing derivative instruments (or embedded derivatives) to properly classify such instruments within equity or as
liabilities in our financial statements. The classification of a derivative instrument is reassessed at each reporting date. If the classification changes because of
events during a reporting period, the instrument is reclassified as of the date of the event that caused the reclassification. There is no limit on the number of
times a contract may be reclassified.
Instruments classified as derivative liabilities are recorded initially at their estimated fair value and are re-measured each reporting period (or upon
reclassification). The change in fair value is recorded on our consolidated statements of operations in other (income) expense.
The Company follows FASB ASC Topic No. 815, Derivatives and Hedging ("ASC No. 815") to classify and value warrant liabilities. Warrants classified
as derivative liabilities are recorded at their fair values at the issuance date and are revalued at each subsequent reporting date. Using a Monte Carlo
simulation model, multiple random price paths for the stock price are generated to simulate many possible future outcomes, which are then discounted at the
risk-free rate. These simulated paths are then averaged to determine the fair value of the warrants (see Note 9).
Beneficial Conversion Feature of Notes Payable
The convertible feature of certain notes payable provides for a rate of conversion that is below market value. Such feature is normally characterized as
a "beneficial conversion feature” of which we measure the estimated fair value in circumstances in which the conversion feature is not required to be
separated from the host instrument and accounted for separately, and record that value in the consolidated financial statements as a discount from the face
amount of the notes. Such discounts are amortized to interest expense over the term of the notes.
New Accounting Standards
Recently Adopted Accounting Pronouncements
In August 2014, the FASB issued ASU No. 2014-15 regarding ASC topic No. 205, Presentation of Financial Statements - Going Concern . The standard
requires all companies to evaluate if conditions or events raise substantial doubt about an entity’s ability to continue as a going concern and requires different
disclosure of items that raise substantial doubt that are, or are not, alleviated as a result of consideration of management’s plans. The new guidance is
effective for annual periods ending after December 15, 2016. We adopted ASU No 2014-15 for the year ended June 30, 2017 and have reflected the required
disclosures in the accompanying consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash
Payments, which provides guidance on reducing the diversity in how certain cash receipts and cash payments are presented and classified in the statement
of cash flows. In addition to other specific cash flow issues, ASU 2016-15 provides clarification on when an entity should separate cash receipts and cash
payments into more than one class of cash flows and when an entity should classify those cash receipts and payments into one class of cash flows on the
basis of predominance. The new guidance is effective for the fiscal years beginning after December 31, 2017, and interim periods within those fiscal years.
Early adoption is permitted including an adoption in an interim period. The adoption of this ASU is not expected to have a material impact on our consolidated
financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation, (Topic 718): Improvements to Employee Share-Based
Payment Accounting, which will simplify how companies account for certain aspects of share-based payment awards to employees, including the accounting
for income taxes, forfeitures, and statutory tax withholding requirements, as well as, classification in the statement of cash flows. This pronouncement is
effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The adoption of
ASU No. 2016-09 is not expected to have a material impact on our consolidated financial statments.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in this ASU change the existing accounting standards for
lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The
guidance is effective for the Company’s fiscal year beginning July 1, 2019. Early adoption is permitted. The new leases standard requires a modified
retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The
adoption of this ASU is not expected to have a material impact on our consolidated financial statements.
F-10
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers . This update outlines a new, single comprehensive model
for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including
industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new
model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a
company expects to receive in exchange for those goods or services. In May 2015, the FASB issued ASU No. 2015-14 deferring the effective date to annual
reporting periods beginning after December 15, 2017, which is effective for the Company’s fiscal year beginning July 1, 2018. Early adoption is permitted only
as of an annual reporting period beginning after December 15, 2016. The adoption of this ASU is not expected to have a material impact on our consolidated
financial statements.
NOTE 4 - INVENTORIES
Inventories consist of the following:
Raw materials
Work in process
Finished goods
Total Inventories
June 30, 2017
June 30, 2016
$
$
445,000 $
251,000
870,000
1,566,000 $
189,000
-
13,000
202,000
Inventories consist primarily of our energy storage systems and the related subcomponents, and are stated at the lower of cost or market. Inventory
held at consignment locations is included in our finished goods inventory and totaled $32,000 and $10,000 as of June 30, 2017 and June 30, 2016,
respectively.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net consist of the fol lowing:
Vehicles
Machinery and equipment
Office equipment
Furniture and Equipment
Leasehold improvements
Less: Accumulated depreciation
Property, plant and equipment, net
June 30, 2017
June 30, 2016
$
$
1,000 $
84,000
133,000
36,000
10,000
264,000
(205,000)
59,000 $
1,000
71,000
105,000
34,000
-
211,000
(165,000)
46,000
Depreciation expense was approximately $ 40,000 and $25,000, for the years ended June 30, 2017 and 2016, respectively, and is included in selling
and administrative expenses in the accompanying consolidated statements of operations.
NOTE 6 - RELATED PARTY DEBT AGREEMENTS
Esenjay Unrestricted Line Of Credit
Between October 2011 and September 2012, the Company entered into three debt agreement with Esenjay Investments, LLC (“Esenjay”). Esenjay is
deemed to be a related party as Mr. Michael Johnson, the beneficial owner and director of Esenjay is a current member of our board of directors and a major
shareholder of the Company (owning approximately 64% of our outstanding common shares as of June 30, 2017). The three debt agreements consisted of a
Bridge Loan Promissory Note, a Secondary Revolving Promissory Note and an Unrestricted Line of Credit (collectively, the “Loan Agreements”). On
December 31, 2015, the Bridge Loan Promissory Note and the Secondary Revolving Promissory Note expired leaving the Unrestricted Line of Credit,
available for future draws.
F-11
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The Unrestricted Line of Credit has a maximum borrowing amount of $10,000,000, is convertible at a rate of $0.60 per share, bears interest at 8% per
annum and matures on January 31, 2019. Advances under the Unsecured Line of Credit are subject to Esenay's approval.
On December 29, 2015, we entered into a Second Amendment to the Unrestricted Line of Credit (“Second Amendment”), with Esenjay which modified
certain terms of the Unrestricted Line of Credit resulting in approximately $310,000 of debt issuance costs, and accordingly, was amortized over the
remaining seven-month term through July 30, 2016, at which time it was fully amortized. During the years ended June 30, 2017 and 2016, we recorded
approximately $44,000 and $266,000, respectively of deferred financing amortization costs, which are included in interest expense in the accompanying
consolidated statements of operations.
In August 2016 and April 2016, $400,000 and $1,350,000, respectively, of the outstanding debt under the Unrestricted Line of Credit was settled, in
conjunction with our then outstanding private placement discussed further in Note 8, via the issuance of 4,375,000 shares of our common stock.
The common stock shares issued during fiscal 2017 and 2016 as settlement of the Unrestricted Line of Credit have not been registered under the
Securities Act. The shares were offered and sold in reliance upon exemptions from registration pursuant to Section 4(a)(2) of the Securities Act. The
transactions have been accounted for as a capital transaction in accordance with FASB ASC Topic No. 470-50, “Debt, Modifications and Extinguishments”.
Accordingly, no gain or loss has been recognized.
The outstanding principal balance of the Unrestricted Line of Credit as of June 30, 2017 was $5,185,000, convertible into 8,642,000 shares of common
stock, resulting in a remaining $4,815,000 available for future draws under this agreement, subject to lender’s approval. During the years ended June 30,
2017 and 2016, the Company recorded approximately $162,000 and $92,000, respectively of interest expense in the accompanying consolidated statements
of operations related to the Unrestricted Line of Credit. Subsequent to June 30, 2017, we have borrowed $1,335,000 under the credit facility (see Note 15).
Shareholder Convertible Promissory Note
On April 27, 2017, we formalized an oral agreement for advances totaling $500,000, received from a shareholder (“Shareholder”) into a written
Convertible Promissory Note (the “Convertible Note”). Borrowings under the Convertible Note accrue interest at 12% per annum, with all unpaid principal
and accrued interest due and payable on October 27, 2018. In addition, at any time commencing on or after the date that is six (6) months from the issue
date, at the election of Shareholder, all or any portion of the outstanding principal, accrued but unpaid interest and/or late charges under the Convertible
Note may be converted into shares of the Company’s common stock at a conversion price of $1.20 per share; provided, however, the Shareholder shall not
have the right to convert any portion of the Convertible Note to the extent that the Shareholder would beneficially own in excess of 5% of the total number
of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon conversion of the
Convertible Note. As a result, the Convertible Note is convertible into 416,667 shares of common stock at June 30, 2017. During the year ended June 30,
2017, the Company recorded approximately $22,000 of interest expense in the accompanying consolidated statements of operations related to the
Unrestricted Line of Credit.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOTE 7 - LINE OF CREDIT
On October 2, 2014, the Company entered into a line of credit (“Line of Credit”) agreement in the maximum amount of $500,000 with a non-related
lender (“Lender”). Borrowings under the Line of Credit bore interest at 8% per annum, with all unpaid principal and accrued interest due and payable on
September 19, 2016. On December 23, 2016, the Company had repaid in full the $215,000 outstanding under the Note, accrued interest totaling $42,000
and the late payment penalty fee of $5,000.
In connection with the Line of Credit, the Company granted a warrant to the Lender to purchase a certain number of shares of common stock of the
Company equal to the outstanding advances under the Line of Credit divided by the conversion price of $1.20, for a term of five years, at an exercise price
per share equal to $2.00. Accordingly, in connection with the advance of $215,000, Lender is entitled to purchase up to 179,167 shares of common stock
upon exercise of the warrant at $2.00 per share. The Lender has no other material relationship with the Company or its affiliates. The estimated relative fair
value of warrants issued in connection with advances under the Line of Credit is recorded as a debt discount and is amortized as additional interest expense
over the term of the underlying debt. The Company recorded debt discount of approximately $85,000 based on the relative fair value of these warrants. In
addition, as the effective conversion price of the debt was less than the market price of the underlying common stock on the date of issuance, the Company
recorded additional debt discount of approximately $80,000 related to the beneficial conversion feature. As of June 30, 2017, the Line of Credit has been paid
in full. As of June 30, 2016, the $215,000 principal amount outstanding under this agreement was presented net of unamortized debt discount totaling
$19,000. During years ended June 30, 2017 and 2016 the Company recorded approximately $19,000 and $86,000, respectively of debt discount
amortization, which is included in interest expense in the accompanying consolidated statements of operations.
NOTE 8 - STOCKHOLDERS’ DEFICIT
Private Placement – Fiscal 2016
In April 2016, our Board of Directors approved the private placement of up to 7,750,000 shares of our common stock to select accredited investors for a
total amount of $3,100,000, or $0.40 per share of common stock. On July 28, 2016, our Board of Directors increased the aggregate amount offered to up to
$4,000,000 and extended the termination date to August 31, 2016 (the “Offering”). During fiscal 2017, we sold 3,687,500 shares of common stock for a total
purchase price of $1,475,000 to six accredited investors of which $1,075,000 was received in cash and $400,000 was received via the settlement of
outstanding liabilities. Esenjay, our controlling shareholder and primary credit line holder, purchased 1,000,000 shares in exchange for the settlement of
$400,000 of debt owed to Esenjay by the Company. Two of the accredited investors who invested an aggregate of $200,000 are siblings of Mr. Johnson.
During fiscal 2016, a total of $2,425,000 had been raised of which $1,050,000 was received in cash and $1,375,000 was received via the settlement of
outstanding liabilities. Esenjay purchased 625,000 shares for cash proceeds of $250,000 and 3,375,000 shares in exchange for the settlement of $1,350,000
of debt owed to Esenjay by the Company. In addition, we sold 2,000,000 shares (of which 250,000 shares (valued at $100,000) were not issued until
subsequent to June 30, 2016) to two unrelated accredited investors for $800,000 in cash and 63,000 shares (valued at $25,000) in exchange for settlement of
accounts payable to a vendor. On April 15, 2016, we entered into an agreement with Esenjay, whereby Esenjay agreed to limit its right of conversion under
the Unrestricted Line of Credit to such number of shares so that upon conversion, if any, it will not cause us to exceed our authorized number of shares of
common stock. The securities offered and sold in the Offering have not been registered under the Securities Act. The securities were offered and sold to
accredited investors in reliance upon exemptions from registration pursuant to Rule 506 promulgated thereunder.
The initial closing of the Offering in May 2016 at a price of $0. 40 per share triggered an anti-dilution provision for warrant holders under our 2012 Private
Placement pursuant to which an aggregate of 297,035 shares of common stock may be purchased upon exercise. As a result, the exercise price of such
warrants was reduced from $2.69 to $1.55 per share. The remaining terms, including expiration dates, of all effected warrants remain unchanged (See Note
9).
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Advisory Agreements
Catalyst Global LLC. Effective April 1, 2016, we entered into a renewal contract (the “2016 Renewal”) with Catalyst Global LLC (“CGL”) to provide
investor relations services for 12 months in exchange for monthly fees of $2,000 per month and 54,000 shares of unregistered common stock issued as
follows: 31,500 shares on June 30, 2016 for services provided during the three months ended June 30, 2016 and 7,500 shares issued upon each of the six-,
nine-, and twelve-month anniversaries of the contract. The initial tranche was valued at $0.50 per share or approximately $14,500 when issued on June 30,
2016, the second tranche of 7,500 shares was issued on September 29, 2016 and was valued at $0.40 per share or $3,000, the third tranche of 7,500
shares was issued on January 23, 2017 and was valued at $0.40 per share or $3,000 and the fourth tranche of 7,500 shares was issued on March 20, 2017
and was valued at $0.45 per share or $3,375.
Effective April 1, 2017, we entered into a renewal contract (the “2017 Renewal”) with Catalyst Global LLC (“CGL”) to provide investor relations services
for 12 months in exchange for monthly fees of $3,500 per month and 7,777 shares of restricted common stock per month, issued on a quarterly basis. During
the three months ended June 30, 2017, we issued 23,331 shares of common stock to Catalyst valued at $0.45 per share or $10,499. The 2017 Renewal is
cancelable upon 60 days written notice.
Warrant Activity
Warrant detail is reflected below:
Shares purchasable under outstanding warrants at June 30, 2016
Stock purchase warrants expired
Stock purchase warrants exchanged
Shares purchasable under outstanding warrants at June 30, 2017
Number
2,804,010 $
(190,000) $
(271,420) $
2,342,590 $
Weighted Average
Exercise Price Per
Share
Remaining Contract
Term (# years)
0.39 - 2.50
-
-
0.12 - 1.55
2.00
3.00
1.40
1.97
In 2012, we issued warrants to certain investors and a consultant (together, the "2012 Warrant Holders") to purchase a total of 297,035 shares of our
common stock at $4.10 per share (the "2012 Warrants"). On August 23, 2016, we offered our 2012 Warrant Holders the option to convert their 2012 Warrants
for shares of our common stock at a conversion rate of 0.602 shares of common stock per warrant share (the "Warrant Exchange"). As of June 30, 2017, twenty
(20) 2012 Warrant Holders had accepted this offer and accordingly, we have exchanged warrants to purchase 271,420 shares of common stock at an exercise
price of $1.40 per share, valued at approximately $10,000, into 163,395 shares of common stock.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Stock-based Compensation
On November 26, 2014, our board of directors approved our 2014 Equity Incentive Plan (the “2014 Plan”), which was approved by our shareholders on
February 17, 2015. The 2014 Plan offers selected employees, directors, and consultants the opportunity to acquire our common stock, and serves to
encourage such persons to remain employed by us and to attract new employees. The 2014 Plan allows for the award of stock and options, up to 10,000,000
shares of our common stock.
Activity in stock options during the year ende d June 30, 2017 and related balances outstanding as of that date are reflected below:
Outstanding at June 30, 2016
Granted
Exercised
Forfeited and cancelled
Outstanding at June 30, 2017
Exercisable at June 30, 2017
Number of
Shares
Weighted
Average
Exercise Price
900,402 $
-
-
(184,125) $
716,277 $
589,476 $
1.13
1.63
1.10
1.11
Weighted
Average
Remaining
Contract
Term (# years)
7.09
6.80
Activity in stock options during the year ended June 30, 2016 and related balances outstanding as of that date are reflected below:
Outstanding at June 30, 2015
Granted
Exercised
Forfeited and cancelled
Outstanding at June 30, 2016
Exercisable at June 30, 2016
Number of
Shares
Weighted
Average
Exercise Price
610,136 $
438,500 $
-
(148,234) $
900,402 $
652,590 $
1.61
0.50
1.21
1.13
1.35
Weighted
Average
Remaining
Contract
Term (# years)
7.55
6.95
Stock-based compensation expense recognized in our consolidated statements of operations for the year ended June 30, 2017 and 2016, includes
compensation expense for stock-based options and awards granted based on the grant date fair value. For options and awards granted, expenses are
amortized under the straight-line method over the expected vesting period. Stock-based compensation expense recognized in the consolidated statements of
operations has been reduced for estimated forfeitures of options that are subject to vesting. Forfeitures are estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those estimates.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Our average stock price during the year ended June 30, 2017, was $0.43, and as a result the intrinsic value of the exercisable options at June 30,
2017, was $2,000.
We allocated stock-based compensation expense included in the consolidated statements of operations for employee option grants and non-employee
option grants as follows:
Years ended June 30,
Research and development
General and administrative
Total stock-based compensation expense
2017
2016
13,000 $
27,000
40,000 $
21,000
88,000
109,000
$
$
The Company uses the Black-Scholes valuation model to calculate the fair value of stock options. The fair value of stock options was measured at the
grant date using the assumptions (annualized percentages) in the table below:
Expected volatility
Risk free interest rate
Forfeiture rate
Dividend yield
Expected term (years)
2017
100%
1.31%
2016
100%
1.31%
17% -
24%
17% -
24%
0%
3
0%
3
The remaining amount of unrecognized stock-based compe nsation expense at June 30, 2017 relating to outstanding stock options, is approximately $41,000,
which is expected to be recognized over the weighted average period of 1.27 years.
NOTE 9 - Warrant Derivative Liability
In 2012, we issued warrants to certain investors and a consultant (together, the "2012 Warrant Holders") to purchase a total of 297,035 shares of our
common stock at $4.10 per share (the "2012 Warrants"). The 2012 Warrants include exercise price re-set provisions (the "Re-set Provisions") should future
equity offerings be offered at a price lower than the warrant exercise price. In accordance with ASC No. 815, the Re-set Provisions are recorded as derivative
liabilities in the accompanying consolidated financial statements.
Warrants classified as derivative liabilities are recorded at their fair values at the issuance date and are revalued at each subsequent reporting date. The
change in the fair value of the derivative liabilities income for the years ended June 30, 2017 and 2016 totaled approximately $14,000 and $11,000,
respectively, and is included as a component of other income (expense) in the accompanying consolidated statements of operations (see Note 11) . The
change in the warrant derivative liability is primarily attributable to the exchange of approximately 93% of the outstanding warrants at June 30, 2016 into
shares of common stock during fiscal 2017 (see Note 8) and the decrease in the market value of our common stock. Additionally, on August 23, 2016, we
proposed to our 2012 Warrant Holders that the Re-set Provision included in the 2012 Warrants be eliminated. Upon receiving consents to eliminate the Re-
set Provision from a majority of the 2012 Warrant Holders, the Re-set Provision and the related derivative liability were eliminated as of January 23, 2017.
The derivative liabilities had an average fair value per warrant and aggregate value as of June 30, 2016 of $0.10 and $24,000, respectively.
Significant assumptions used to estimate the fair value of the warrants classified as derivative liabilities are summarized below:
Risk-free interest rate
Expected life (average) (years)
Stock price (based on prices on valuation date)
Exercise price
Expected volatility
As of
June 30, 2016
0.44% -
0.96 –
0.49%
1.33
$0.50
$1.55
110%
As discussed in Note 8 above, during May 2016 we sold shares of our common stock at a price of $0.40 per share, thereby triggering an anti-dilution
provision included in the warrants to purchase an aggregate of 297,035 shares of common stock upon exercise. As a result, the exercise price of such
warrants was reduced to $1.55 per share. The remaining terms, including expiration dates, of all effected warrants remain unchanged.
F-16
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOTE 10 - INCOME TAXES
Pursuant to the provisions of FASB ASC Topic No. 740 Income Taxes (“ASC 740”), deferred income taxes reflect the net effect of (a) temporary
difference between carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net
operating loss carryforwards. No net provision for refundable Federal income taxes has been made in the accompanying statement of operations because
no recoverable taxes were paid previously. Significant components of the Company’s net deferred tax assets at June 30, 2017 and 2016 are shown below. A
valuation allowance of approximately $9,927,000 and $8,107,000 has been established to offset the net deferred tax assets as of June 30, 2017 and 2016,
respectively, due to uncertainties surrounding the Company’s ability to generate future taxable income to realize these assets.
The Company is subject to taxation in the United States and California. The Company ’s tax years for 2010 and forward are subject to examination by
the United States and California tax authorities due to the carry forward of unutilized net operating losses and research and development credits (if any).
We have incurred losses since inception, so no current income tax provision or benefit has been recorded. Significant components of our net deferred
tax assets are shown in the table below.
Deferred Tax Assets:
Net operating loss carryforwards
Stock compensation
Other, net
Net deferred tax assets
Valuation allowance for deferred tax assets
Net deferred tax assets
Year Ended June 30,
2017
2016
$
$
8,126,000 $
1,646,000
155,000
9,927,000
(9,927,000)
- $
6,473,000
1,503,000
131,000
8,107,000
(8,107,000)
-
The Company recognizes windfall tax benefits associated with the exercise of stock options directly to stockholders' equity only when realized.
Accordingly, deferred tax assets are not recognized for net operating loss carryforwards from windfall tax benefits occurring from January 1, 2006 onward. At
June 30, 2017, deferred tax assets do not include excess tax benefits from stock-based compensation.
At June 30, 2017, the Company had unused net operating loss carryovers of approximately $20,242,000 and $20,200,000 that are available to offset
future federal and state taxable income, respectively. These operating losses begin to expire in 2030.
The provision for income taxes on earnings subject to income taxes differs from the statutory federal rat e at June 30, 2017 and 2016, due to the
following:
Federal income taxes at 34%
State income taxes, net
Permanent differences and other
Change in the estimated fair market value of derivatives
Other true ups, if any
Change in valuation allowance
Provision for income taxes
Year Ended June 30,
2017
2016
(1,508,000) $
(392,000)
83,000
6,000
(9,000)
1,820,000
- $
(1,554,000)
(404,000)
121,000
(11,000)
-
1,848,000
-
$
$
Internal Revenue Code Sections 382 limits the use of our net operating loss carryforwards if there has been a cumulative change in ownership of more
than 50% within a three-year period. The Company has not yet completed a Section 382 net operating loss analysis. In the event that such analysis
determines there is a limitation on the use on net operating loss carryforwards to offset future taxable income, the recorded deferred tax asset relating to such
net operating loss carryforwards will be reduced. However, as the Company has recorded a full valuation allowance against its net deferred tax assets, there
is no impact on the Company’s consolidated financial statements as of June 30, 2017 and 2016.
F-17
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
We follow FASB ASC Topic No. 740, Income Taxes (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized in an
entity's financial statements, and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or
expected to be taken on a tax return. Under ASC 740, the impact of an uncertain income tax position on the income tax return must be recognized at the
largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized
if it has less than a 50% likelihood of being sustained. Additionally, ASC 740 provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition.
In accordance with ASC 740, there are no unrecognized tax benefits as of June 30, 2017 or June 30, 2016.
NOTE 11 - FAIR VALUE MEASUREMENTS
We follow FASB ASC Topic No. 820, Fair Value Measurements and Disclosures (“ASC 820”) in connection with financial assets and liabilities measured
at fair value on a recurring basis subsequent to initial recognition.
ASC 820 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:
Level 1: Quoted market prices in active markets for identical assets and liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data
The hierarchy noted above requires us to minimize the use of unobservable inputs and to use observable market data, if available, when determining
fair value.
The fair value of our recorded derivative liabilities is determined based on unobservable inputs that are not corroborated by market data, which is a
(Level 3) classification. We record derivative liabilities on our balance sheet at fair value with changes in fair value recorded in our consolidated statements of
operations. The fair value of our warrant derivative liabilities at June 30, 2017 and 2016 was $0 and $24,000, respectively.
The table below sets forth a summary of changes in the fair value of our (Level 3) financial instruments for the year ended June 30, 2017:
Fair value measurements of warrants using significant unobservable inputs (Level 3)
Balance at June 30, 2016
Change in fair value of warrant liability
Warrant re-pricing modification charge (Note 9)
Balance at June 30, 2017
F-18
$
$
24,000
(14,000)
(10,000)
-
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The fair value of our warrant derivative liabilities and the change in the estimated fair value of derivative liabilities that we recorded during fiscal year
2017, related to warrants issued in connection with our private placement transactions (see Notes 8 and 9).
NOTE 12 - OTHER RELATED PARTY TRANSACTIONS
The Company subleases office and manufacturing space to Epic Boats (an entity founded and controlled by Chris Anthony, our board member and
former Chief Executive Officer) in our facility in Vista, California pursuant to a month-to-month sublease agreement. Pursuant to this agreement, Epic Boats
pays Flux Power 10% of facility costs through the end of our lease agreement.
The Company received $ 16,000 during each of the years ended June 30, 2017 and 2016, respectively, from Epic Boats under the sublease rental
agreement which is recorded as a reduction to rent expense and the customer deposits discussed below.
As of June 30, 2017 and 2016, customer deposits totaling approximately $120,000 and $136,000, respectively, related to such products were recorded
in the accompanying consolidated balance sheets. There were no receivables outstanding from Epic Boats as of June 30, 2017 and 2016.
NOTE 13 - CONCENTRATIONS
Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and
unsecured trade accounts receivable. The Company maintains cash balances at a financial institution in San Diego, California. Our cash balance at this
institution is secured by the Federal Deposit Insurance Corporation up to $250,000. As of June 30, 2017, cash totaled approximately $121,000, which
consists of funds held in a non-interest bearing bank deposit account. The Company has not experienced any losses in such accounts. Management believes
that the Company is not exposed to any significant credit risk with respect to its cash.
Customer Concentrations
During the year ended June 30, 2017, we had three major customers that each represented more than 10% of our revenues on an individual basis, or
approximately $524,000 or 58% of our total revenues.
During the year ended June 30, 2016, we had three major customers that each represented more than 10% of our revenues on an individual basis, or
approximately $285,000 or 51% of our total revenues.
Suppliers/Vendor Concentrations
We obtain a limited number of components and supplies included in our products from a small group of suppliers. Dur ing the year ended June 30, 2017
we had three suppliers who accounted for more than 10% of our total purchases, on an individual basis. Purchases for these three suppliers totaled
$1,665,000 or 57% of our total purchases.
During the year ended June 30, 2016 we had three suppliers who accounted for more than 10% of our total purchases, on an individual basis.
Purchases for these three suppliers totaled $793,000 or 66% of our total purchases.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
From time to time, we may be involved in litigation relating to claims arising out of our operations. Since June 2015, we have been a party to a legal
proceeding arising from a work related injury that took place in June 2013. We deny and dispute all liability and damage allegations made by or on behalf of
the plaintiff. However, having fully considered the risks, time and costs associated with continued litigation of this claim, as well as an appeal, we have
decided to fully and finally resolve and settle the dispute. Accordingly, on August 26, 2016 we entered into a settlement agreement with the plaintiff whereby
in exchange for the plaintiff releasing Flux Power from any and all claims of any nature that the plaintiff had or now has or might in the future have against us,
we agreed to pay the plaintiff $10,000 as settlement. Included in accrued expenses in the accompanying consolidated financial statements as of June 30,
2016 is a $10,000 accrual associated with this claim, which was paid in September 2016.
F-19
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Operating Leases
The Company’s corporate headquarters totals 22,054 square feet and is located in Vista, California. Effective February 25, 2014, the Company
entered into a two-year lease agreement for this facility with average monthly rent payments of approximately $12,000 per month and paid a security deposit
of $25,000, or approximately 2 months of rent. Our lease was subsequently amended resulting in average rent expense of $14,000 per month and expiring
on May 31, 2018.
The Company also subleases space to a related party, Epic Boats, on a month-to-month basis at a rate of 10% of lease expense.
Total rent expense was $ 140,000 and $137,000 for the years ended June 30, 2017 and 2016, respectively, net of sublease income.
NOTE 15 - SUBSEQUENT EVENTS
During the period from July 1, 2017 through September 21, 2017 we borrowed an aggregate of $1,335,000 from Esenjay under our Unrestricted Line
of Credit. As of September 21, 2017, the amount outstanding under the Unrestricted Line of Credit was $6,520,000, with an aggregate of $3,480,000
available under the Unrestricted Line of Credit for future draws at Esenjay’s discretion. As of September 21, 2017, Esenjay owns approximately 64% of our
issued and outstanding common stock (See Note 6).
On September 19, 2017, our Board of Directors appointed Ronald Dutt, as the president, chief financial officer and corporate secretary of the
Company. Mr. Dutt has been our chief executive officer, interim chief financial officer and director since March 19, 2014. Previously, he was our chief
financial officer since December 7, 2012 and our interim chief executive officer since June 28, 2013. Mr. Dutt has served as the Company's interim corporate
secretary since June 28, 2013.
F-20
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 31.1
CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302
I, Ronald F. Dutt, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Flux Power Holdings, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and
have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the Registrant ’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter
(the Registrant’s fourth fiscal quarter) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial
reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant
’s internal control over financial
reporting.
Date: September 21, 2017
By:
/s/ Ronald F. Dutt
Name: Ronald F. Dutt
Title: Chief Executive Officer
(Principal Executive Officer)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CERTIFICATIONS OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302
Exhibit 31.2
I, Ronald F. Dutt, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Flux Power Holdings, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and
have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the Registrant ’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter
(the Registrant’s fourth fiscal quarter) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial
reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant
’s internal control over financial
reporting.
Date: September 21, 2017
By:
/s/ Ronald F. Dutt
Name: Ronald F. Dutt
Title: Chief Financial Officer
(Principal Financial Officer)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Flux Power Holdings, Inc. (the “Company”) on Form 10-K for the year ended June 30, 2017 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacities and on the date indicated below, hereby
certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the
Company.
Date: September 21, 2017
By:
/s/ Ronald F. Dutt
Name: Ronald F. Dutt
Title: Chief Executive Officer
(Principal Executive Officer)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Flux Power Holdings, Inc. (the “Company”) on Form 10-K for the year ended June 30, 2017, as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacities and on the date indicated below, hereby
certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the
Company.
Date: September 21, 2017
By:
/s/ Ronald F. Dutt
Name: Ronald F. Dutt
Title: Chief Financial Officer
(Principal Financial Officer)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.