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, 2021
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-31543
FLUX POWER HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of
incorporation or organization)
2685 S. Melrose Drive, 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:
Title of Each Class
Common Stock, par value $0.001 per share
Trading Symbol(s)
FLUX
Name of each exchange on which registered
NASDAQ Capital Stock
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
(Check one):
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
The aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant as of December 31, 2020 (the last business day of the registrant’s
most recently completed second fiscal quarter) was approximately $131,426,000.
As of September 27, 2021, there were 15,987,502 shares of registrant’s common stock outstanding.
Documents incorporated by reference: None.
FLUX POWER HOLDINGS, INC.
FORM 10-K ANNUAL REPORT
For the Fiscal Year Ended June 30, 2021
Table of Contents
PART I
BUSINESS
ITEM 1.
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2.
ITEM 3.
ITEM 4. MINE SAFETY DISCLOSURES
PROPERTIES
LEGAL PROCEEDINGS
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
SELECTED FINANCIAL DATA
ITEM 6.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
ITEM 9.
ITEM 9A CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENTS INSPECTIONS
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
ITEM 16. FORM 10-K SUMMARY
SIGNATURES
FINANCIAL STATEMENTS
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F-1
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. You should read these factors and the other cautionary statements made in this
report and in the documents we incorporate by reference into this report as being applicable to all related forward-looking statements wherever they appear in this report or the
documents we incorporate by reference into this report. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results,
performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements.
Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements include, among other things,
statements relating to :
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our ability to continue as a going concern;
our ability to secure sufficient funding to support our current and proposed operations, which could be more difficult in light of the negative impact of the COVID-19
pandemic on our operations, customer demand and supply chain as well as investor sentiment regarding our industry and our stock;
our anticipated growth strategies and our ability to manage the expansion of our business operations effectively;
our ability to maintain or increase our market share in the competitive markets in which we do business;
our ability to grow net revenue and increase our gross profit margin;
our ability to keep up with rapidly changing technologies and evolving industry standards, including our ability to achieve technological advances;
our dependence on the growth in demand for our products;
our ability to compete with larger companies with far greater resources than we have;
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our continued ability to obtain raw materials and other supplies for our products at competitive prices and on a timely basis, particularly in light of the potential impact of the
COVID-19 pandemic on our suppliers and supply chain;
our ability to shift to new suppliers and incorporate new components in a manner that is not disruptive to our business;
our ability to obtain and maintain UL Listings and OEM approvals for our energy storage solutions;
our ability to diversify our product offerings and capture new market opportunities;
our ability to source our needs for skilled labor, machinery, parts, and raw materials economically;
our ability to retain key members of our senior management;
our ability to continue to operate safely and effectively during the COVID-19 pandemic; and
our dependence on our major customers.
Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we
reference, and file as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect. Except as
required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those
anticipated in any forward-looking statements, even if new information becomes available in the future.
Use of Certain Defined Terms
Except where the context otherwise requires and for the purposes of this report only:
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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., a California corporation (Flux Power).
“Exchange Act” refers the Securities Exchange Act of 1934, as amended;
“SEC” refers to the Securities and Exchange Commission; and
“Securities Act” refers to the Securities Act of 1933, as amended.
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PART I
ITEM 1 – BUSINESS
Overview
We design, develop, manufacture, and sell advanced lithium-ion energy storage solutions for the material handling sector which includes lift trucks, airport ground
support equipment (“GSE”), and other industrial and commercial applications. We believe our mobile and stationary energy storage solutions provide customers with a reliable,
high performing, cost effective, and more environmentally friendly alternative as compared to traditional lead acid and propane-based solutions. Our modular and scalable
design allows different configurations of lithium-ion battery packs to be paired with our proprietary wireless battery management system (“SkyBMS”) to provide the level of
energy storage required and “state of the art” real time monitoring of pack performance. We believe that the increasing demand for lithium-ion battery packs in the material
handling sector continues to drive our current revenue growth.
Our Strategy
Our business strategy is to meet the rapidly growing demand for lithium-ion energy storage solutions and to be the supplier of choice, targeting large fleets of forklifts
and GSEs as a priority. We intend to reach this goal by investing in research and development to expand our product mix, expanding our sales and marketing efforts, improving
our customer support efforts and continuing our efforts to improve production capacity and efficiencies. Our research and development efforts will continue to focus on
providing adaptable, reliable and cost effective energy storage solutions for customers. In addition, our strategy includes obtaining Underwriters Laboratory (“UL”) Listing on
most of our products. We believe that a UL Listing demonstrates the safety, reliability and durability of our products and gives us an important competitive advantage over
other lithium-ion energy suppliers. Many of our LiFT Packs have been approved for use by leading industrial motive manufacturers, including Toyota Material Handling USA,
Inc., Crown Equipment Corporation, and The Raymond Corporation.
Within our industrial market segments, we believe that our lithium-ion LiFT Pack solutions provide cost, performance and environmental benefits over existing lead
acid batteries and propane-based power solutions including:
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longer operation and multiple shifts with fewer batteries;
reduced energy and maintenance costs;
faster recharging; and
longer lifespan.
Additionally, the toxic nature of lead acid batteries presents significant safety and environmental issues as they are subject to Environmental Protection Agency lead
acid battery reporting requirements, may create an environmental hazard in the event of a cell breach, and emit combustible gases during charging.
As a result of the advantages lithium-ion battery technology provide over lead acid batteries, we have experienced significant growth in our business. We believe the
industry is gaining strong momentum of a trend toward the adoption of lithium-ion technology to displace lead acid and propane-based energy storage solutions, and based on
North American sales data from the Industrial Truck Association (“ITA”), we estimate the market to be a multi-billion dollar per year opportunity.
Critical to our success is our innovative and proprietary versatile BMS that optimizes the performance of our lithium-ion energy solutions and provides a platform for
adding new battery pack features, including customized telemetry (pack data and reports available anytime, anywhere) for customers. The BMS serves as the brain of the battery
pack, managing cell balancing, charging, discharging, monitoring and communication between the pack and the forklift.
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Our engineers design, develop, test, and service our products. We source our battery cells from limited number of suppliers in China and the remainder of the
components primarily from vendors in the United States. Final assembly, testing and shipping of our products is done from our ISO 9001 certified facility in Vista, California,
which includes three assembly lines.
Recent Developments
On September 22, 2021, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with several institutional and accredited investors (the
“Purchasers”), pursuant to which the Company agreed to sell in a registered direct offering an aggregate of 2,142,860 shares of Common Stock of the Company (the “Shares”)
and warrants to purchase up to 1,071,430 shares of its common stock (the “Warrants”), at a combined purchase price of $7.00 per share and related Warrant, for aggregate gross
proceeds to the Company of approximately $15 million, before deducting placement agent fees and offering expenses payable by the Company (the “Registered Offering”).
Subject to certain ownership limitations, the Warrants will be exercisable immediately from the date of issuance, will expire on the five (5) year anniversary of the date of
issuance and will have an exercise price of $7.00 per share. The exercise price of the Warrants is subject to certain adjustments, including stock dividends, stock splits,
combinations and reclassifications of the Company’s common stock.
The Registered Offering closed on September 27, 2021.
Pursuant to an engagement letter, dated as of September 22, 2021, we have engaged H.C. Wainwright & Co., LLC (“HCW” or the “Placement Agent”) to act as our
exclusive Placement Agent in connection with the Registered Offering. As compensation in connection with the Registered Offering, the Company paid HCW a cash fee equal
to 6.0% of the gross proceeds of the Registered Offering.
The net proceeds from the Registered Offering, after deducting placement agent fees and offering expenses, are approximately $14 million.
The Shares and the Warrants and the shares issuable upon exercise of the Warrants were offered and are being sold by the Company pursuant to an effective shelf
registration statements on Form S-3 (File No. 333-249521), which was originally filed with the SEC on October 16, 2020 and declared effective on October 26, 2020.
Our Business
DESCRIPTION OF OUR BUSINESS
We have leveraged our experience in lithium-ion technology to design and develop a suite of LiFT Pack and related industrial and commercial product lines that we
believe provide attractive solutions to customers seeking an alternative to lead acid and propane-based power products. We believe that the following attributes are significant
contributors to our success:
Engineering and integration experience in lithium-ion for motive applications: We have been developing lithium-ion applications for the advanced energy storage
market since 2010, starting with products for automotive electric vehicle manufacturers. We believe our experience enables us to develop superior solutions as we have sold
over 10,000 packs in the field to customers.
UL Listing: We launched our Class 3 Walkie LiFT Pack product line in 2014 and obtained UL Listing for all three different power configurations. We have also
obtained UL Listing for our Class 1 LiFT Packs and our Class 2 LiFT Packs, and our Class 3 End Rider. In addition, we have recently completed the process for obtaining UL
Listings for our new source of battery cells. We believe this UL Listing provides us a significant competitive advantage and provides assurance to customers that our
technology has been rigorously tested by an independent third party and determined to be safe, durable and reliable.
Original equipment manufacturer (OEM) approvals: Many of our LiFT Packs have been tested and approved for use by Toyota Material Handling USA, Inc.,
Crown Equipment Corporation, and The Raymond Corporation, among the top global lift truck manufacturers by revenue according to Material Handling & Logistics. We also
provide a “private label” Class 3 Walkie LiFT Pack to a major forklift OEM.
Broad product offering and scalable design: We offer LiFT Packs for use in a variety of industrial motive applications. We believe that our modular and scalable
design enables us to optimize design, inventory, and part count to accommodate natural product extensions of our products to meet customer requirements. We have leveraged
our Class 3 Walkie LiFT Pack design to develop larger LiFT Packs for larger forklifts, GSE Packs, and other industrial equipment applications. Natural product extensions,
based on our modular, scalable designs, include solar backup power for electric vehicle (“EV”) mobile charging stations and robotic warehouse equipment.
Significant advantages over lead acid and propane-based solutions: We believe that lithium-ion battery systems have significant advantages over existing
technologies and will displace lead acid batteries and propane-based solutions, in most applications. Relative to lead acid batteries, such advantages include environmental
benefits, no water maintenance, faster charge times, greater cycle life, longer run times, and less energy used that provide operational and financial benefits to customers. When
compared to lead acid solutions, our energy storage solutions do not discharge carbon dioxide in the atmosphere due to lithium chemistry efficiencies In addition, when
compared to propane-based solutions, lithium-ion systems avoid the generation of exhaust emissions and associated odor and environmental contaminates, and maintenance of
an internal combustion engine, which has substantially more parts subject to wear than an electric motor.
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Proprietary Battery Management System: We have developed our “next generation” versatile BMS that is currently being rolled out into our full product lines and
which provides significant product features for improved customer productivity. Our BMS serves as the brain of the battery pack, managing cell balancing, charging,
discharging, monitoring and communication between the pack and the forklift. Our BMS is specifically designed for the industrial motive application environment and is
adaptable to meet custom requirements. Our BMS also enables ongoing feature development for reduced cost and higher performance. We have introduced our proprietary
telemetry solution, branded “SkyBMS” which provides real time reports on pack performance, health, and remaining useful life.
Our Products
We have developed, tested, and sold our LiFT Packs for use in a broad range of lift trucks, including Class 3 Walkie and End Riders, Class 2 Narrow Aisle, and Class
1 Ride-on, as well as for industrial equipment including airport ground support equipment (“GSE”), energy storage for solar applications, and other commercial applications.
Within each of these product segments, there is a range of power and equipment variations. Our LiFT Packs fit most of these variations, with only minor modifications needed
to fit the remaining low volume applications. This equipment is described in more detail below.
Our battery pack system design is modular with three core design modules used in our entire family of small, medium, and large pack forklift products. The design of
each core module is driven by power requirements and physical space sizing. We utilize our three core design modules to develop packs for other industrial and commercial
applications, to meet power and space requirements. We offer varying chemistries and configurations based on the specific application. Currently, our LiFT Packs use lithium
iron phosphate (LiFePO4) battery cells, which we source from a variety of overseas suppliers that meet our power, reliability, safety and other specifications. Our BMS works
with a number of battery chemistries providing us with the flexibility to use battery cells developed and manufactured by other suppliers. We believe we can readily adapt our
LiFT Packs to incorporate new chemistries as they become available in the future in order to meet changing customer preferences and to reduce the cost of our products.
We also offer 24-volt onboard chargers for our Class 3 Walkie LiFT Packs, and smart “wall mounted” chargers for larger applications. Our smart charging solutions
are designed to interface with our BMS and integrate easily into most all major chargers in the market.
Industry Overview
Historically, lithium-ion battery solutions were unable to compete with lead acid and propane-based solutions in industrial applications on the basis of cost. However,
the supply of lithium-ion batteries has rapidly expanded, leading to price declines of eighty-five percent (85%) since 2010 according to BloombergNEF. BloombergNEF also
estimates that lithium-ion battery prices, which averaged $1,160 per kilowatt hour in 2010, were $156 per kWh in 2019 and could drop below $100 per kWh in 2024.
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The sharp decline in the price of lithium-ion batteries has made these energy solutions more cost competitive. Affordability has in turn enabled customers to shift away
from lead acid and propane-based solutions for power lift equipment to lithium-ion based solutions with more favorable environmental and performance characteristics. We
believe our position as a pioneer in the field and our extensive experience providing lithium-ion based energy storage solutions makes us uniquely positioned to take advantage
of this shift in customer preferences.
Lift Equipment - Material Handling Equipment
We focus on energy storage solutions for lift equipment and related industrial applications because we believe they represent large and growing markets that are just
beginning to adopt lithium-ion based technology. We apply our scalable, modular designs to natural product extensions in the industrial equipment market. These markets
include not only the sale of lithium-ion battery solutions for new equipment but also a replacement market for existing lead acid battery packs.
According to Modern Materials Handling, worldwide new lift truck orders reached approximately 1.4 million units in 2017. The Industrial Truck Association has
estimated that approximately 200,000 lift trucks had been sold yearly since 2013 in North America (Canada, the United States and Mexico), with sales relatively evenly
distributed between electric rider (Class 1 and Class 2), motorized hand (Class 3), and internal combustion engine powered lift trucks (Class 4 and Class 5). The ITA estimates
that electric products represented approximately sixty-nine percent (69%) of the North American shipments in 2020, reflecting the long term trend of increasing mix of electric
products versus internal combustion (propane) engines. Driven by growth in global manufacturing, e-commerce and construction, Research and Markets expects that the global
lift truck market will grow at a compound annual growth rate of six and four-tenths percent (6.4%) through 2024.
Customers
Our customers include OEMs, lift equipment dealers, battery distributors and end users. Our customers vary from small companies to Fortune 500 companies.
During the year ended June 30, 2021, we had three (3) major customers that each represented more than 10% of our revenues on an individual basis, and together
represented approximately $16,004,000 or 61% of our total revenues. During the year ended June 30, 2020, we had three (3) major customers that each represented more than
10% of our revenues on an individual basis, and together represented approximately $10,045,000 or 60% of our total revenues.
Shift Toward Lithium-ion Battery Technologies
The lithium-ion battery value proposition of higher performance, environmental benefit, and lower life cycle cost is driving an increase in demand for safe and efficient
alternatives to lead acid and propane-based power products. The lithium-ion value proposition includes a number of factors impacting customer preferences:
Duration of Charge/Run Times: Lithium-based energy storage systems can perform for a longer duration compared to lead acid batteries. Lithium-ion batteries
provide up to 50% longer run times than lead acid batteries of comparable capacity, or amps-per-hour rating, allowing equipment to be operated over a long period of time
between charges.
High/Sustained Power: Lithium-ion batteries are better suited to deliver high power versus legacy lead acid. For example, a 100Ah lead acid battery will only deliver
80Ah if discharged over a four-hour period. In contrast, a 100Ah lithium-ion system will achieve over 92Ah even during a 30-minute discharge. Additionally, during discharge,
the LiFT Pack sustains its initial voltage, maximizing the performance of the forklift truck, whereas, lead acid voltages, and hence power, decline over the working shift.
Charging Time: Lead acid batteries are limited to one shift a day, as they discharge for eight hours, need eight hours for charging, and another eight hours for cooling.
For multi-shift operations, this typically requires battery changeout for the equipment. Because lithium batteries can be recharged in as little as one hour and do not degrade
when subjected to opportunity charging, hence, battery changeout is unnecessary.
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Safe Operation: The toxic nature of lead acid batteries presents significant safety and environmental issues in the event of a cell breach. During charging, lead acid
batteries emit combustible gases and increase in temperature. Lithium-ion (particularly LFP) batteries do not get as hot and avoid many of the safety and environmental issues
associated with lead acid batteries.
Extended Life: The performance of lead acid batteries degrades after approximately 500 charging cycles in industrial equipment applications. In comparison, lithium-
ion batteries last up to five times longer in the same application.
Size and Weight: Lithium is about one-third the weight of lead acid for comparable power ratings. Lower weight enables forklift OEMs the ability to optimize the
design of the truck based on a smaller footprint for lithium-ion instead of lead acid.
Lower Cost: Lithium-ion batteries provide power dense solutions with extended cycle life, reduced maintenance and improved operational performance, resulting in
lower total cost of ownership.
Less Energy Used: we believe our lithium-ion batteries use 20-50% less energy based on our internal studies comparing lithium-ion to lead acid.
Marketing and Sales
We sell our products through a number of different channels including OEMs, lift equipment dealers and battery distributors as well as directly to end users. In the
industrial motive market, OEMs sell their lift products through dealer networks and directly to end customers. Because of environmental issues associated with lead acid
batteries and to preserve customer choice, industrial lift products are typically sold without a battery pack. Equipment dealers source battery packs from battery distributors and
battery pack suppliers based on demand or in response to customer specifications. End customers may specify a specific type and manufacturer of battery pack to the equipment
dealer or may purchase battery packs from battery distributors or directly from battery suppliers.
Our direct sales staff is assigned to major geographies throughout North America to collaborate with our sales partners who have an established customer base. We
plan to hire additional sales staff to support our expected sales growth. In addition, we have developed a nation-wide sales network of relationships with equipment OEMs, their
dealers, and battery distributors. To support our products, we have a nation-wide network of service providers, typically forklift equipment dealers and battery distributors, who
provide local customer service to large customers. We also maintain a call center and provide Tech Bulletins and training to our service and sales network out of our corporate
headquarters. We have partnered with an experienced GSE distributor, to market our lithium-ion battery packs for airport GSE. We have typically experienced seasonality in
our customers’ orders, often with lower sales in July, August and December.
Manufacturing and Assembly
Rather than manufacture our own battery cells and be limited to a single chemistry, our battery cells are sourced from a limited number of manufacturers located in
China. We source the remainder of the components primarily from vendors in the United States. We developed our BMS to be agnostic to a battery’s lithium-ion chemistry and
cell manufacturer. Despite such flexibility, we have experienced occasional supply interruptions in the past, and more recently, we have been forced to navigate supply chain
and transportation issues stemming from the global pandemic. We are continuing to monitor and test potential new cell technologies on an ongoing basis to help mitigate our
supply chain risks. Final assembly, testing and shipping of our products is done from our ISO 9001 certified facility in Vista, California, which includes three assembly lines.
We design our BMS modules/boards and have two granted patents: (i) a 12-volt battery design; and (ii) a battery display design. Component acquisition and assembly
of the BMS modules/boards are outsourced to two local, Southern California board houses, both of whom meet our quality and other specifications.
We buy chargers from several sources, including a U.S. based supplier. Additionally, we are a qualified dealer for a well-known manufacturer of “high capacity,
modular, smart chargers” which support our larger packs.
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Research and Development
Our engineers design, develop, test, and service our advanced lithium-ion energy storage solutions at our company headquarters in Vista, California. We believe our
strengths include our core competencies and capabilities in designing and developing proprietary technology for our BMS, lean manufacturing processes, systems engineering,
engineering application, and software engineering for both battery packs and telemetry. We believe that our ability to develop new features and technology for our BMS is
essential to our growth strategy.
Research and development expenses for the fiscal years ended June 30, 2021 and 2020 were approximately $6.7 million and $5.0 million, respectively. Such expenses
consisted primarily of materials, supplies, salaries and personnel related expenses, stock-based compensation expense, consulting costs and other expenses. Research and
development expenses in the year ended June 30, 2021 were higher than the year ended June 30, 2020, primarily due to new product development activities.
As we continue to develop and expand our product offerings, we anticipate that research and development will continue to be a substantial part of our strategic
priorities in the future. We seek to develop innovative new and improved products for cell and system management along with associated communication, display, current
sensing and charging tools. Our research and development efforts are focused on improving performance, reliability and durability of our energy storage solutions for our
customers and on lowering our costs of production.
Competition
Our competitors in the lift equipment market are primarily major lead acid battery manufacturers, including Stryten Energy, East Penn Manufacturing Company,
EnerSys Corporation, and Crown Battery Corporation. Although several of these competitors offer a lithium-ion battery, we do not believe that these suppliers offer lithium-
based products for lift equipment in any significant volume to end users, equipment dealers, OEMs or battery distributors. Several OEMs offer lithium-ion battery packs on
Class 3 forklifts for sale only with their own new forklifts. Some OEMs also offer forklift models designed with an integrated lithium-ion battery. As the demand for lithium-ion
battery packs has increased, several small lithium battery pack providers have entered the market, most of whom we believe are suppliers of other power products and have
simply added a lithium product to their product lines.
The key competitive factors in this market are performance, reliability, durability, safety and price. We believe we compete effectively in all of these categories in light
of our experience with lithium-ion technology, including our development capabilities and the performance of our proprietary BMS. We believe that the UL Listing covering
many of our core products is a significant differentiating competitive advantage and we intend to extend that advantage by seeking to obtain UL Listings for our other LiFT
pack products in the coming months. In addition, because our BMS is not reliant on any specific battery cell chemistry, we believe we can adapt rapidly to changes in advanced
battery technology or customer preferences.
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.
As of June 30, 2021, we have two issued patents and three trademark registrations protecting the Flux Power name and logo. We are currently working to file three
additional patent applications with respect to our technology, including our next generation BMS 2.0, which is now being rolled into production. We do not know whether any
of our efforts will result in the issuance of patents or whether the examination process will require us to narrow our claims. Even if granted, there can be no assurance that these
pending patent applications will provide us with protection. Our two issued patents include: (i) a 12-volt battery design and (ii) a battery display design.
Suppliers
We obtain a limited number of components and supplies included in our products from a small group of suppliers. During the year ended June 30, 2021, we had two
(2) suppliers who accounted for more than 10% of our total purchases, on an individual basis, and together represented approximately $9,260,000 or 27% of our total purchases.
During the year ended June 30, 2020, we had two (2) suppliers who accounted for more than 10% of our total purchases, on an individual basis, and together
represented approximately $6,598,000 or 35% of our total purchases.
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Government Regulations
Product Safety Regulations. Our products are subject to product safety regulations by Federal, state, and local organizations. Accordingly, we may be required, or may
voluntarily determine to obtain approval of our products from one or more of the organizations engaged in regulating product safety. These approvals could require significant
time and resources from our technical staff and, if redesign were necessary, could result in a delay in the introduction of our products in various markets and applications.
Environmental Regulations. Federal, state, and local regulations impose significant environmental requirements on the manufacture, storage, transportation, and
disposal of various components of advanced energy storage systems. Although we believe that our operations are in material compliance with current applicable environmental
regulations, there can be no assurance that changes in such laws and regulations will not impose costly compliance requirements on us or otherwise subject us to future
liabilities.
Moreover, Federal, state, and local governments may enact additional regulations relating to the manufacture, storage, transportation, and disposal of components of
advanced energy storage systems. Compliance with such additional regulations could require us to devote significant time and resources and could adversely affect demand for
our products. There can be no assurance that additional or modified regulations relating to the manufacture, storage, transportation, and disposal of components of advanced
energy systems will not be imposed.
Occupational Safety and Health Regulations. The California Division of Occupational Safety and Health (Cal/OSHA) 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, 2021, we had 121 employees. We engage outside consultants for business development, operations and other functions from time to time. None of our
employees is currently represented by a trade union.
Other Information
Our Internet address is www.fluxpower.com. We make available 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 corporate headquarters and production facility totals approximately 63,200 square feet and is located in Vista, California. Our production facility is ISO 9001
certified. The telephone number at our principal executive office is (760)-741-FLUX or (760)-741-3589. In June 2019 we moved to our current facility, noted above, where we
initially leased approximately 45,600 square feet of industrial space, and in April 2020, we leased an additional 17,600 rentable space under a lease which terminates
concurrently with the term of the original lease, which expires on November 20, 2026. Rent for the corporate headquarters and production facility is approximately $60,500 per
month and escalates approximately 3% per year through the end of the lease term. Total rent expense was approximately $841,000 and $673,000 for the years ended June 30,
2021 and 2020, respectively.
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ITEM 1A - RISK FACTORS
An investment in our common stock involves a high degree of risk. You should carefully consider the summary of risk factors described below, together with all of the
other information included in this report, before making an investment decision. If any of the following risks actually occur, our business, financial condition or results of
operations could suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. You also should read the section
entitled “Special Note Regarding Forward Looking Statements” above for a discussion of what types of statements are forward-looking statements, as well as the significance of
such statements in the context of this report. The risk factors below do not address all the risks relating to securities, business and operations, and financial condition.
Risk Factors Relating to Our Business
We have a history of losses and negative working capital.
For the fiscal years ended June 30, 2021 and 2020, we had net losses of $12,793,000 and $14,336,000, respectively. We have historically experienced net losses and
until we generate sufficient revenue, we anticipate to continue to experience losses in the near future.
As of June 30, 2021 and 2020, we had a cash balance of $4,713,000 and $726,000, respectively. We expect that our existing cash balances, credit facilities, and the net
proceeds from our recent public offering will be sufficient to fund our existing and planned operations for the next twelve months. Until such time as we generate sufficient cash
to fund our operations, we will need additional capital to continue our operations thereafter.
We have relied on equity financings, borrowings under short-term loans with related parties, our credit facilities and/or previous cash flows from operating activities to
fund our operations. However, there is no guarantee we will be able to obtain additional funds in the future or that funds will be available on terms acceptable to us, if at all.
Any future financing may result in dilution of the ownership interests of our stockholders. If such funds are not available on acceptable terms, we may be required to
curtail our operations or take other actions to preserve our cash, which may have a material adverse effect on our future cash flows and results of operations.
We will need to raise additional capital or financing to continue to execute and expand our business.
While we expect that our available cash, the existing revolving line of credit with a bank, and the expected net proceeds from our authorized At-The-Market offering
will be sufficient to sustain our operations for the next twelve months, we will likely need to raise additional capital to support our expanded operations and execute on our
business plan. In order to support our anticipated growth, we may be required to pursue sources of additional capital through various means, including joint venture projects,
sale and leasing arrangements, and debt or equity financings. Any new securities that we may issue in the future may be sold on terms more favourable for our new investors
than the terms in which our stockholders acquired their securities. Newly issued securities may include preferences, superior voting rights, and the issuance of warrants or other
convertible securities that will have additional dilutive effects. We cannot assure that additional funds will be available when needed from any source or, if available, will be
available on terms that are acceptable to us. Further, we may incur substantial costs in pursuing future capital and/or financing. We may also be required to recognize non-cash
expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition and results of
operations. Our ability to obtain needed financing may be impaired by such factors as the weakness of capital markets, and the fact that we have not been profitable, which
could impact the availability and cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is
not sufficient to satisfy our capital needs, we may have to reduce our operations accordingly.
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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. If credit pressures or other financial difficulties result in insolvency for our customers, it could adversely impact our
financial results. There can be no assurances that government and consumer responses to the disruptions in the financial markets will restore consumer confidence.
We are dependent on a few customers for the majority of our net revenues, and our success depends on demand from OEMs and other users of our battery
products.
Historically a majority of our product sales have been generated from a small number of OEMs and customers, including three (3) customers who, on an aggregate
basis, made up 61% of our sales for the year ended June 30, 2021, and three (3) customers who, on an aggregate basis, made up 60% of our sales for the year ended June 30,
2020. As a result, our success depends on continued demand from this small group of customers and their willingness to incorporate our battery products in their equipment. The
loss of a significant customer would have an adverse effect on our revenues. There is no assurance that we will be successful in our efforts to convince end users to accept our
products. Our failure to gain acceptance of our products could have a material adverse effect on our financial condition and results of operations.
Additionally, OEMs, their dealers and battery distributors may be subject to changes in demand for their equipment which could significantly affect our business,
financial condition and results of operations.
Our business is vulnerable to a near-term severe impact from the COVID-19 outbreak, and the continuation of the pandemic could have a material adverse impact
on our operations and financial condition.
The COVID-19 pandemic has spread across the globe and is impacting worldwide economic activity. COVID-19 and another public health epidemic/pandemic could
pose the risk that we or our employees, contractors, customers, suppliers, third party shipping carriers, government and other partners may be prevented from or limited in their
ability to conduct business activities for an indefinite period of time, including due to the spread of the disease within these groups or due to shutdowns that may be requested or
mandated by governmental authorities. While it is not possible at this time to estimate the impact that COVID-19 could have on our business, the continued spread of COVID-
19 and the measures taken by the governments of states and countries affected could disrupt, among other things, the supply chain and the manufacture or shipment of our
products. On March 19, 2020, the governor of California, the state where our facility is located, issued state-wide stay-at-home orders for non-essential workers to help combat
the spread of COVID-19. The Company was deemed to be an essential business consistent with announcements by Forklift OEMs and related supply chain, who support the
logistics industry, critical to delivering food and supplies during COVID-19 crisis and we have instituted processes, policies and workplace procedures in an effort to keep our
workers safe while productive. However, in the future, our manufacturing operations may be subject to closure or shut down for a variety of reasons. While the Company
implemented COVID-19 measures in March 2020 as recommended by the CDC and governmental authorities, since the start of the pandemic the Company has been notified
that a few employees had tested positive for COVID-19. While manufacturing operations were not materially impacted, future operations could be affected by the COVID-19
pandemic. Any substantial disruption in our manufacturing operations from COVID-19, or its related impacts, would have a material adverse effect on our business and would
impede our ability to manufacture and ship products to our customers in a timely manner, or at all.
The effect of the COVID-19 pandemic and its associated restrictions may adversely impact many aspects of our business, including customer demand, the length of
our sales cycles, disruptions in our supply chain, lower the operating efficiencies at our facility, worker shortages and declining staff morale, and other unforeseen disruptions.
The demand for our products may significantly decline if the COVID-19 pandemic continues, restrictions are implemented or re-implemented, or the virus resurges and spreads
and our customers suffer losses in their businesses. The supply of our raw materials and our supply chain may be disrupted and adversely impacted by the pandemic. The
occurrence of any of the foregoing events and their adverse effect on capital markets and investor sentiment may adversely impact our ability to raise capital when needed or on
terms favourable to us and our stockholders to fund our operations, which could have a material adverse effect on our business, financial condition and results of operations.
The extent to which the COVID-19 outbreak impacts our results, its effect on near or long-term value of our share price will depend on future developments that are highly
uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.
We do not have long term contracts with our customers.
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We do not have long-term contracts with our customers. Future agreements with respect to pricing, returns, promotions, among other things, are subject to periodic
negotiation with each customer. No assurance can be given that our customers will continue to do business with us. The loss of any of our significant customers will have a
material adverse effect on our business, results of operations, financial condition and liquidity. In addition, the uncertainty of product orders can make it difficult to forecast our
sales and allocate our resources in a manner consistent with actual sales, and our expense levels are based in part on our expectations of future sales. If our expectations
regarding future sales are inaccurate, we may be unable to reduce costs in a timely manner to adjust for sales shortfalls.
Real or perceived hazards associated with Lithium-ion battery technology may affect demand for our products.
Press reports have highlighted situations in which lithium-ion batteries in automobiles and consumer products have caught fire or exploded. In response, the use and
transportation of lithium-ion batteries has been prohibited or restricted in certain circumstances. This publicity has resulted in a public perception that lithium-ion batteries are
dangerous and unpredictable. Although we believe our battery packs are safe, these perceived hazards may result in customer reluctance to adopt our lithium-ion based
technology.
Our products may experience quality problems from time to time that could result in negative publicity, litigation, product recalls and warranty claims, which
could result in decreased revenues and harm to our brands.
A catastrophic failure of our battery modules could cause personal or property damages for which we would be potentially liable. Damage to or the failure of our
battery packs to perform to customer specifications could result in unexpected warranty expenses or result in a product recall, which would be time consuming and expensive.
Such circumstances could result in negative publicity or lawsuits filed against us related to the perceived quality of our products which could harm our brand and decrease
demand for our products.
We may be subject to product liability claims.
If one of our products were to cause injury to someone or cause property damage, including as a result of product malfunctions, defects, or improper installation, then
we could be exposed to product liability claims. We could incur significant costs and liabilities if we are sued and if damages are awarded against us. Further, any product
liability claim we face could be expensive to defend and could divert management’s attention. The successful assertion of a product liability claim against us could result in
potentially significant monetary damages, penalties or fines, subject us to adverse publicity, damage our reputation and competitive position, and adversely affect sales of our
products. In addition, product liability claims, injuries, defects, or other problems experienced by other companies in the solar industry could lead to unfavorable market
conditions for the industry as a whole, and may have an adverse effect on our ability to attract new customers, thus harming our growth and financial performance. Although we
carry product liability insurance, it may be insufficient in amount to cover our claims.
Tariffs could be imposed on lithium-ion batteries or on any other component parts by the United States government or a resulting trade war could have a material
adverse effect on our results of operations.
In 2018, the United States government announced tariffs on certain steel and aluminum products imported into the United States, which led to reciprocal tariffs being
imposed by the European Union and other governments on products imported from the United States. The United States government has implemented tariffs on goods imported
from China, and additional tariffs on goods imported from China are under consideration.
The lithium-ion battery industry has been subjected to tariffs implemented by the United States government on goods imported from China. There is an ongoing risk of
new or additional tariffs being put in place on lithium-ion batteries or related part. Since all of our lithium-ion batteries are manufactured in China, current and potential tariffs
on lithium-ion batteries imported by us from China could increase our costs, require us to increase prices to our customers or, if we are unable to do so, result in lower gross
margins on the products sold by us. China has already imposed tariffs on a wide range of American products in retaliation for the American tariffs on steel and aluminum.
Additional tariffs could be imposed by China in response to actual or threatened tariffs on products imported from China. The imposition of additional tariffs by the United
States could trigger the adoption of tariffs by other countries as well. Any resulting escalation of trade tensions, including a “trade war,” could have a significant adverse effect
on world trade and the world economy, as well as on our results of operations. At this time, we cannot predict how such enacted tariffs will impact our business. Tariffs on
components imported by us from China could have a material adverse effect on our business and results of operations.
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We are dependent on a limited number of suppliers for our battery cells, and the inability of these suppliers to continue to deliver, or their refusal to deliver, our
battery cells at prices and volumes acceptable to us would have a material adverse effect on our business, prospects and operating results.
We do not manufacture the battery cells used in our LiFT Packs. Our battery cells, which are an integral part of our battery products and systems, are sourced from a
limited number of manufacturers located in China. While we obtain components for our products and systems from multiple sources whenever possible, we have spent a great
deal of time in developing and testing our battery cells that we receive from our suppliers. We refer to the battery cell suppliers as our “limited source suppliers.” Additionally,
our operations are materially dependent upon the continued market acceptance and quality of these manufacturers’ products and their ability to continue to manufacture products
that are competitive and that comply with laws relating to environmental and efficiency standards. Our inability to obtain products from one or more of these suppliers or a
decline in market acceptance of these suppliers’ products could have a material adverse effect on our business, results of operations and financial condition. From time to time
we have experienced shortages, allocations and discontinuances of certain components and products, resulting in delays in filling orders. Qualifying new suppliers to
compensate for such shortages may be time-consuming and costly. In addition, we may have to recertify our UL Listings for the battery cells from new suppliers, which in turn
has led to delays in product acceptance. Similar delays may occur in the future. Furthermore, the performance of the components from our suppliers as incorporated in our
products may not meet the quality requirements of our customers.
To date, we have no qualified alternative sources for our battery cells although we research and assess cells from other suppliers on an ongoing basis. We generally do
not maintain long-term agreements with our limited source suppliers. While we believe that we will be able to establish additional supplier 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, regulatory requirements, economic conditions and cycles, governmental changes, pandemic, and other factors beyond our
control could also affect our suppliers’ ability to deliver components to us on a timely basis or cause us to terminate our relationship with them and require us to find
replacements, which we may have difficulty doing. Furthermore, if we experience significant increased demand, or need to replace our existing suppliers, there can be no
assurance that additional supplies of component parts will be available when required on terms that are favorable to us, at all, or that any supplier would allocate sufficient
supplies to us in order to meet our requirements or fill our orders in a timely manner. In the past, we have replaced certain suppliers because of their failure to provide
components that met our quality control standards. The loss of any limited source supplier or the disruption in the supply of components from these suppliers could lead to
delays in the deliveries of our battery products and systems to our customers, which could hurt our relationships with our customers and also materially adversely affect our
business, prospects and operating results.
Increases in costs, disruption of supply or shortage of raw materials, in particular lithium-ion phosphate cells, could harm our business.
We may experience increases in the costs, or a sustained interruption in the supply or shortage, of raw materials. Any such cost increase or supply interruption could
materially negatively impact our business, prospects, financial condition and operating results. For instance, we are exposed to multiple risks relating to price fluctuations for
lithium-iron phosphate cells.
These risks include:
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the inability or unwillingness of battery manufacturers to supply the number of lithium-iron phosphate cells required to support our sales as demand for such
rechargeable battery cells increases;
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disruption in the supply of cells due to quality issues or recalls by the battery cell manufacturers; and
an increase in the cost of raw materials, such as iron and phosphate, used in lithium-iron phosphate cells.
Our success depends on our ability to develop new products and capabilities that respond to customer demand, industry trends or actions by our competitors and
failure to do so may cause us to lose our competitiveness in the battery industry and may cause our profits to decline.
Our success will depend on our ability to develop new products and capabilities that respond to customer demand, industry trends or actions by our competitors. There
is no assurance that we will be able to successfully develop new products and capabilities that adequately respond to these forces. In addition, changes in legislative, regulatory
or industry requirements or in competitive technologies may render certain of our products obsolete or less attractive. If we are unable to offer products and capabilities that
satisfy customer demand, respond adequately to changes in industry trends or legislative changes and maintain our competitive position in our markets, our financial condition
and results of operations would be materially and adversely affected.
The research and development of new products and technologies is costly and time consuming, and there are no assurances that our research and development efforts
will be either successful or completed within anticipated timeframes, if at all. Our failure to technologically evolve and/or develop new or enhanced products may cause us to
lose competitiveness in the battery market. In addition, in order to compete effectively in the renewable battery industry, we must be able to launch new products to meet our
customers’ demands in a timely manner. However, we cannot provide assurance that we will be able to install and certify any equipment needed to produce new products in a
timely manner, or that the transitioning of our manufacturing facility and resources to full production under any new product programs will not impact production rates or other
operational efficiency measures at our manufacturing facility. In addition, new product introductions and applications are risky, and may suffer from a lack of market
acceptance, delays in related product development and failure of new products to operate properly. Any failure by us to successfully launch new products, or a failure by us to
meet our customers criteria in order to accept such products, could adversely affect our results.
Our business will be adversely affected if we are unable to protect our intellectual property rights from unauthorized use or infringement by third parties.
Any failure to protect our intellectual proprietary rights could result in our competitors offering similar products, potentially resulting in the loss of some of our
competitive advantage and a decrease in our revenue, which would adversely affect our business, prospects, financial condition and operating results. Our success depends, at
least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination of patents (two issued patents), patent
applications, trade secrets, including know-how, employee and third-party nondisclosure agreements, copyright laws, trademarks, intellectual property licenses and other
contractual rights to establish and protect our proprietary rights in our technology.
The protections provided by patent laws 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:
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the patents we have been granted may be challenged, invalidated or circumvented because of the pre-existence of similar patented or unpatented intellectual
property rights or for other reasons;
the costs associated with enforcing patents, confidentiality and invention agreements or other intellectual property rights may make aggressive enforcement
impracticable; and
●
existing and future competitors may independently develop similar technology and/or duplicate our systems in a way that circumvents our patents.
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Our patent applications may not result in issued patents, which may have a material adverse effect on our ability to prevent others from commercially exploiting
products similar to ours.
We cannot be certain that we are the first creator of inventions covered by pending patent applications or the first to file patent applications on these inventions, nor can
we be certain that our pending patent applications will result in issued patents or that any of our issued patents will afford protection against a competitor. In addition, patent
applications that we intend to file in foreign countries are subject to laws, rules and procedures that differ from those of the United States, and thus we cannot be certain that
foreign patent applications related to issue United States patents will be issued. Furthermore, if these patent applications issue, some foreign countries provide significantly less
effective patent enforcement than in the United States.
The status of patents involves complex legal and factual questions and the breadth of claims allowed is uncertain. As a result, we cannot be certain that the patent
applications that we file will result in patents being issued, or that our patents and any patents that may be issued to us in the near future will afford protection against
competitors with similar technology. In addition, patents issued to us may be infringed upon or designed around by others and others may obtain patents that we need to license
or design around, either of which would increase costs and may adversely affect our business, prospects, financial condition and operating results.
We rely on trade secret protections through confidentiality agreements with our employees, customers and other parties; the breach of such agreements could
adversely affect our business and results of operations.
We rely on trade secrets, which we seek to protect, in part, through confidentiality and non-disclosure agreements with our employees, customers and other parties.
There can be no assurance that these agreements will not be breached, that we would have adequate remedies for any such breach or that our trade secrets will not otherwise
become known to or independently developed by competitors. To the extent that consultants, key employees or other third parties apply technological information
independently developed by them or by others to our proposed projects, disputes may arise as to the proprietary rights to such information that may not be resolved in our favor.
We may be involved from time to time in litigation to determine the enforceability, scope and validity of our proprietary rights. Any such litigation could result in substantial
cost and diversion of effort by our management and technical personnel.
Our business depends substantially on the continuing efforts of the members of our senior management team, and our business may be severely disrupted if we
lose their services.
We believe that our success is largely dependent upon the continued service of the members of our senior management team, who are critical to establishing our
corporate strategies and focus, overseeing the execution of our business strategy and ensuring our continued growth. Our continued success will depend on our ability to attract
and retain a qualified and competent management team in order to manage our existing operations and support our expansion plans. Although we are not aware of any change, if
any of the members of our senior management team are unable or unwilling to continue in their present positions, we may not be able to replace them readily. Therefore, our
business may be severely disrupted, and we may incur additional expenses to recruit and retain their replacement. In addition, if any of the members of our senior management
team joins a competitor or forms a competing company, we may lose some of our customers.
If we are forced to implement workforce reductions, our staff resources will be stretched making our ability to comply with legal and regulatory requirements as a
Public Company difficult.
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.
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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, 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 may
need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply
with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal controls over
financial reporting that are deemed to be material weaknesses, the market price of our stock could decline, and we could be subject to sanctions or investigations by the SEC or
other regulatory authorities, which would require additional financial and management resources.
We may face significant costs relating to environmental regulations for the storage and shipment of our lithium-ion battery packs.
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 applicable environmental regulations, there can be no assurance that
changes in such laws and regulations will not impose costly compliance requirements on us or otherwise subject us to future liabilities. Moreover, Federal, state, and local
governments may enact additional regulations relating to the manufacture, storage, transportation, and disposal of components of advanced energy storage systems. Compliance
with such additional regulations could require us to devote significant time and resources and could adversely affect demand for our products. There can be no assurance that
additional or modified regulations relating to the manufacture, storage, transportation, and disposal of components of advanced energy systems will not be imposed.
Natural disasters, public health crises, political crises and other catastrophic events or other events outside of our control may damage our sole facility or the
facilities of third parties on which we depend, and could impact consumer spending.
Our sole production facility is located in southern California near major geologic faults that have experienced earthquakes in the past. An earthquake or other natural
disaster or power shortages or outages could disrupt our operations or impair critical systems. Any of these disruptions or other events outside of our control could affect our
business negatively, harming our operating results. In addition, if our sole facility, or the facilities of our suppliers, third-party service providers or customers, is affected by
natural disasters, such as earthquakes, tsunamis, power shortages or outages, floods or monsoons, public health crises, such as pandemics and epidemics, political crises, such as
terrorism, war, political instability or other conflict, or other events outside of our control, our business and operating results could suffer. Moreover, these types of events could
negatively impact consumer spending in the impacted regions or, depending upon the severity, globally, which could adversely impact our operating results. Similar disasters
occurring at our vendors’ manufacturing facilities could impact our reputation and our consumers’ perception of our brands.
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Security breaches, loss of data and other disruptions could compromise sensitive information related to our business, prevent us from accessing critical
information or expose us to liability, which could adversely affect our business and our reputation.
We utilize information technology systems and networks to process, transmit and store electronic information in connection with our business activities. As the use of
digital technologies has increased, cyber incidents, including deliberate attacks and attempts to gain unauthorized access to computer systems and networks and divert financial
resources, have increased in frequency and sophistication. These threats pose a risk to the security of our systems and networks and the confidentiality, availability and integrity
of our data, all of which are vital to our operations and business strategy. There can be no assurance we will succeed in preventing cyber-attacks or successfully mitigating their
effects.
Despite implementing security measures, any of the internal computer systems belonging to us or our suppliers are vulnerable to damage from computer viruses,
unauthorized access, natural disasters, terrorism, war, and telecommunication and electrical failure. Any system failure, accident, security breach or data breach that causes
interruptions could result in a material disruption of our product development programs. Further, our information technology and other internal infrastructure systems, including
firewalls, servers, leased lines and connection to the Internet, face the risk of systemic failure, which could disrupt our operations. If any disruption or security breach results in
a loss or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we may incur resulting liability, and competitive position
may be adversely affected, and the further development of our products may be delayed. Furthermore, we may incur additional costs to remedy the damage caused by these
disruptions or security breaches.
Risks Related to Our Common Stock and Market
The market price of our common stock could become volatile or our trading volume become weak, either of which could lead to the price of our stock being
depressed at a time when you may want to sell.
On August 14, 2020, our common stock commenced trading on The NASDAQ Capital Market under the symbol “FLUX.” We cannot predict the extent to which
investor interest in our common stock will lead to the development of an active trading market on that stock exchange or any other exchange in the future. An active market for
our common stock may never develop. We cannot assure you that the volume of trading in shares of our common stock will increase in the future. The trading price of our
common stock has experienced volatility and is likely to continue to be highly volatile in response to numerous factors, many of which are beyond our control, including,
without limitation, the following:
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●
●
●
●
●
●
●
●
●
●
our earnings releases, actual or anticipated changes in our earnings, fluctuations in our operating results or our failure to meet the expectations of financial
market analysts and investors;
changes in financial estimates by securities analysts, if any, who might cover our stock;
speculation about our business in the press or the investment community;
significant developments relating to our relationships with our customers or suppliers;
stock market price and volume fluctuations of other publicly traded companies and, in particular, those that are in our industry;
customer demand for our products;
investor perceptions of our industry in general and our Company in particular;
general economic conditions and trends;
announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures;
changes in accounting standards, policies, guidance, interpretation or principles;
loss of external funding sources;
sales of our common stock, including sales by our directors, officers or significant stockholders; and
additions or departures of key personnel.
18
The volatility of the trading price of our common stock may impact your ability to sell your shares of common stock at an acceptable price, if at all.
The ownership of our stock is highly concentrated in our management, and we have one controlling stockholder.
As of September 10, 2021, our directors and executive officers, and their respective affiliates beneficially owned approximately 34.8% of our outstanding common
stock, including common stock underlying options, and warrants that were exercisable or convertible or which would become exercisable or convertible within 60 days.
Michael Johnson, our director and beneficial owner of Esenjay, beneficially owns approximately 32.5% of such outstanding common stock. As a result of their ownership, our
directors and executive officers and their respective affiliates collectively, and Esenjay, individually, are able to significantly influence all matters requiring stockholder
approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may also have the effect of delaying or
preventing a change in control.
We do not intend to pay dividends on shares of our common stock for the foreseeable future.
We have never declared or paid any cash dividends on shares of our common stock. We intend to retain any future earnings to fund the operation and expansion of our
business and, therefore, we do not anticipate paying cash dividends on shares of our common stock in the foreseeable future.
Although our common stock is listed on The NASDAQ Capital Market, there can be no assurance that we will be able to comply with continued listing standards
of The NASDAQ Capital Market.
Although our common stock is listed on The NASDAQ Capital Market, we cannot assure you that we will be able to continue to comply with the minimum bid price
requirement, stockholder equity requirement and the other standards that we are required to meet in order to maintain a listing of our common stock on The NASDAQ Capital
Market. Our failure to continue to meet these requirements may result in our common stock being delisted from The NASDAQ Capital Market. There can be no assurance that
our common stock will continue to trade on The Nasdaq Capital Market or trade on the over-the counter markets or any public market in the future. In the event our common
stock is delisted, our stock price and market liquidity of our stock will be adversely affected which will impact your ability to sell your securities in the market.
Preferred Stock may be issued under our Articles of Incorporation which may have superior rights to our common stock.
Our Articles of Incorporation authorize the issuance of up to 500,000 shares of preferred stock. The preferred stock may be issued in one or more series, the terms of
which may be determined at the time of issuance. These terms may include voting rights including the right to vote as a series on particular matters, preferences as to dividends
and liquidation, conversion rights, redemption rights and sinking fund provisions. In addition, these voting, conversion and exchange rights of preferred stock could negatively
affect the voting power or other rights of our common stockholders. The issuance of any preferred stock could diminish the rights of holders of our common stock, or delay or
prevent a change of control of our Company, and therefore could reduce the value of such common stock.
19
ITEM 1B - UNRESOLVED STAFF COMMENTS
None.
ITEM 2 - PROPERTIES
Our corporate headquarters and production facility consist of approximately 63,200 square feet and is located in Vista, California. Our production facility is ISO 9001
certified . We lease the property. Monthly rent for the total space is approximately $60,500 per month and escalates approximately 3% per year through the end of the lease term
on November 20, 2026. Total rent expense was approximately $841,000 and $673,000 for the years ended June 30, 2021 and 2020, respectively.
We believe that our leased property is in good condition and suitable for the conduct of our business.
ITEM 3 - LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. To the best knowledge of management, there are
no material legal proceedings pending against us.
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Market for Common Stock
Our common stock is traded on The NASDAQ Capital Market under the symbol “FLUX.”
Holders of Record of Common Stock
As of September 10, 2021, we had approximately 1,454 stockholders of record for our common stock. The foregoing number of stockholders of record does not
include an unknown number of stockholders who hold their stock in “street name.”
Dividend Policy
We have never declared or paid cash dividends on our common stock. 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 stockholders. 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.
Recent Sales of Unregistered Securities
Unregistered securities sold by the Company during the period covered by this report have been previously reported in a Quarterly Report on Form 10-Q or Current
Report on Form 8-K.
Purchases of Equity Securities
None.
20
Equity Compensation Plan Information
The following table provides certain information with respect to our equity compensation plans in effect as of June 30, 2021:
Equity compensation plans approved by security holders(1)
Equity compensation plans approved by security holders(2)
Equity compensation plans not approved by security holders(3)
Total
Number of securities to
be issued upon exercise
of outstanding options,
and settlement of RSUs
(a)
Weighted-average
exercise price of
outstanding options, and
issuance price of RSUs
(b)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column a)
(c)
508,669
-
22,536
531,205
$
$
$
11.04
-
10.55
11.02
328,670
2,000,000
-
2,328,670
(1) 211,800 incentive stock options (“ISO”) and 80,700 non-qualified stock options (“NQSO”) of our common stock were granted under the 2014 Option Plan during the year
ended June 30, 2018. We granted 147,411 incentive stock options and 97,616 non-qualified stock options under the 2014 Option Plan during Fiscal 2019. We granted 15,324
incentive stock options and 3,948 non-qualified stock options under the 2014 Option Plan during Fiscal 2020. We granted 153,177 restricted stock units under the 2014
Option Plan during Fiscal 2021. The 2014 Option Plan was approved February 17, 2015, and was amended on October 25, 2017.
(2) Consists of 2,000,000 shares of common stock reserved for issuance under the 2021 Equity Incentive Plan which was approved by our shareholders on April 29, 2021.
(3) Consists of 7,200 options granted under the 2010 Stock Option Plan (“2010 Option Plan”) and assumed by us in the reverse acquisition. An additional 30,700 non-qualified
options were issued. At June 30, 2021, there was 22 ,536 options outstanding.
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.
21
ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion should be read in conjunction with the Consolidated 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, including, but not limited to, those discussed in Part I, Item 1A of this report under the heading “Risk Factors,” which are
incorporated herein by reference. 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.
Business Overview
We design, develop, manufacture, and sell a portfolio of advanced lithium-ion energy storage solutions for the material handling sector which includes lift trucks,
airport ground support equipment (“GSE”), and other industrial and commercial applications. We believe our mobile and stationary energy storage solutions provide customers
with a reliable, high performing, cost effective, and more environmentally friendly alternative as compared to traditional lead acid and propane-based solutions. Our modular
and scalable design allows different configurations of lithium-ion battery packs to be paired with our proprietary wireless battery management system (“SkyBMS”) to provide
the level of energy storage required and “state of the art” real time monitoring of pack performance. We believe that the increasing demand for lithium-ion battery packs in the
material handling sector continues to drive our current revenue growth.
Our long-term strategy is to meet the rapidly growing demand for lithium-ion energy solutions and to be the supplier of choice, targeting large fleets of forklifts and
GSEs as a priority. We intend to reach this goal by investing in research and development to expand our product mix, and by expanding our sales and marketing efforts,
improving our customer support efforts and continuing our efforts to improve production capacity and efficiencies. Our research and development efforts will continue to focus
on providing adaptable, reliable and cost effective energy storage solutions for customers. We recently filed three new patents on advanced technology related to lithium-ion
battery packs. The technology behind these pending patents are designed to:
●
●
●
increase battery life by optimizing the charging cycle,
give users a better understanding of the health of their battery in use, and
apply artificial intelligence (“AI”) to predictively balance the cells for optimal performance.
We currently focus on the material handling sector which we believe is a multi-billion dollar addressable market. We believe the sector will provide us with an
opportunity to grow our business as we enhance our product mix and service levels, and grow our sales to large fleets. Applications of our modular packs for other industrial
and commercial uses, such as solar energy storage, provide further growth opportunities. We intend to continue to expand our supply chain and customer partnerships and seek
further partnerships and/or acquisitions that provide synergy to meeting our growth and “building scale” objectives. Our recent business growth reflects our expanded product
line, additional OEM relationships and supply contracts, production capacity increases, and an expanded nation-wide service footprint. Our strategy for sales growth places a
high priority on growing relationships with the national account sales forces of the equipment OEMs, expanding relationships with major equipment dealers and distributors,
and leveraging our brand reputation of trust and reliability.
To achieve our long-term strategy, we will need to manage our growth in a thoughtful manner, improve the profitability of our business and continue to take steps to
enhance our financial strength.
Financing Activities
22
During fiscal 2021, we directed our efforts to reduce our outstanding debt through a combination of debt service and debt conversion to equity. During the quarter
ended March 31, 2021, the remaining outstanding balance of approximately $2,632,000 in principal and accrued interest under the Credit Facility was converted into 658,103
shares of common stock, which resulted in elimination of the entire outstanding debt by end of Fiscal 2021.Accordingly, on June 10, 2021, the Third Amended and Restated
Credit Facility Agreement and the related Second Amended and Restated Security Agreement dated August 31, 2020 by and among the Company and the Lenders (the
“Security Agreement”) were terminated. Under the Credit Facility, the Company could borrow up to $12 million under a revolving line of credit, with such advance subject to
discretion of the Lenders. Pursuant to the Security Agreement, advances and obligations under the Credit Facility were secured by a security interest in collateral of the
Company. As of the termination date, all payments due under the related notes have been made in full and all obligations under such notes and the Credit Facility have been
paid or discharged in full. In addition, the Company did not incur any early termination penalties in connection with the termination of the Third Amended and Restated Credit
Agreement or Security Agreement.
On August 18, 2020, we closed an underwritten public offering of our common stock at a public offering and issued 3,099,250 shares of our common stock at $4.00
per share for gross proceeds of approximately $12.4 million, which included the full exercise of the underwriters’ over-allotment option to purchase additional shares, prior to
deducting underwriting discounts and commissions and offering expenses. Concurrent with the announcement of our public offering, on August 14, 2020, our common stock
commenced trading on The NASDAQ Capital Market under the symbol “FLUX.”
At-The-Market Offering
On October 16, 2020, we filed a shelf registration on Form S-3 for up to $50 million to support our ability to raise capital to support our business growth. In connection
with the shelf registration statement, in December 2020, we entered into a Sales Agreement with H.C. Wainwright & Co., LLC enabling us to sell shares of our common stock
in “At-The-Market” offerings from time to time. On May 27, 2021 we filed an amendment to the prospectus supplement dated December 21, 2020 allowing us to sell up to $20
million of shares under the “at-the-market offering” program (“ATM Offering”). From December 2020 to June 30, 2021, we sold an aggregate of 978,782 shares of common
stock at an average price of $12.93 per share for gross proceeds of approximately $12.7 million in the ATM Offering, prior to deducting commissions and other offering related
expenses.
Borrowing under the Revolving Line of Credit
We also put in place a revolving line of credit for up to $4 million with Silicon Valley Bank (“SVB”). On November 9, 2020, we entered into a certain Loan and
Security Agreement (“Agreement”) with SVB for a senior secured revolving credit facility for up to $4.0 million available on a revolving basis (“SVB Credit Facility”). The
Company has utilized the SVB Credit Facility from-time-to-time, however as of June 30, 2021, the outstanding balance of the line of credit was $0 and the entire $4.0 million
of the facility is available for future draws through November 8, 2021, unless the credit facility is renewed and its term is extended prior to its expiration.
Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements issued since the last audit of the Company’s consolidated financial statements, and believes that
these recent pronouncements will not have a material effect on the Company’s condensed consolidated financial statements.
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:
23
Accounts Receivable
Accounts receivable are carried at their estimated collectible amounts. The Company has not experienced collections issues related to its accounts receivable and has
not recorded an allowance for doubtful accounts during the years ended June 30, 2021 and 2020.
Inventories
Inventories consist primarily of battery management systems and the related subcomponents, and are stated at the lower of cost (first-in, first-out) or net realizable
value. The Company evaluates inventories to determine if write-downs are necessary due to obsolescence or if the inventory levels are in excess of anticipated demand at market
value based on consideration of historical sales and product development plans. The Company recorded an adjustment related to obsolete inventory in the amount of
approximately $15,000 during the year ended June 30, 2020. The Company has no adjustment related to obsolete inventory during the year ended June 30, 2021.
Revenue Recognition
The Company recognizes revenue in accordance to the Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”)
for all contracts. The Company derives its revenue from the sale of products to customers. The Company sells its products primarily through a distribution network of
equipment dealers, OEMs and battery distributors in primarily North America. The Company recognizes revenue for the products when all significant risks and rewards have
been transferred to the customer, there is no continuing managerial involvement associated with ownership of the goods sold is retained, no effective control over the goods sold
is retained, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transactions will flow to the Company and the costs
incurred or to be incurred with respect to the transaction can be measured reliably.
Product revenue is recognized as a distinct single performance obligation which represents the point in time that our customer receives delivery of the products. Our
customers do have a right to return product but our returns have historically been minimal.
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, 2021 and 2020, the Company carried warranty liability of approximately $895,000 and $726,000,
respectively, which is included in accrued expenses on the Company’s consolidated balance sheets.
Stock-based Compensation
Pursuant to the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 718-10, Compensation-
Stock Compensation, which establishes accounting for equity instruments exchanged for employee service, we utilize the Black-Scholes option pricing model to estimate the fair
value of employee stock option awards at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected life. Changes
in these inputs and assumptions can materially affect the measure of estimated fair value of our share-based compensation. These assumptions are subjective and generally
require significant analysis and judgment to develop. When estimating fair value, some of the assumptions will be based on, or determined from, external data and other
assumptions may be derived from our historical experience with stock-based payment arrangements. The appropriate weight to place on historical experience is a matter of
judgment, based on relevant facts and circumstances.
Common stock or equity instruments such as warrants issued for services to non-employees are valued at their estimated fair value at the measurement date (the date
when a firm commitment for performance of the services is reached, typically the date of issuance, or when performance is complete). If the total value exceeds the par value of
the stock issued, the value in excess of the par value is added to the additional paid-in-capital.
Segment and Related Information
We operate as a single reportable segment.
24
Comparison of Results of Operations of the Years ended June 30, 2021 and 2020
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, 2021 (“Fiscal 2021”) and June 30, 2020 (“Fiscal 2020”).
Revenues
Cost of sales
Gross profit
Operating expenses:
Selling and administrative
Research and development
Total operating expenses
Operating loss
Other income (expense):
Other income
Interest expense
Net loss
Revenues
Year Ended June 30,
2021
Year Ended June 30,
2020
$
$
26,257,000
20,467,000
5,790,000
12,599,000
6,669,000
19,268,000
(13,478,000)
1,307,000
(622,000)
% of Revenues
$
100%
78%
22%
48%
25%
73%
-51%
4%
-2%
$
16,842,000
14,656,000
2,186,000
9,761,000
4,973,000
14,734,000
(12,548,000)
-
(1,788,000)
$
(12,793,000)
-49%
$
(14,336,000)
% of Revenues
100%
87%
13%
58%
29%
87%
-74%
-%
-11%
-85%
Historically our product focus has been on lift equipment, reflecting a mix of walkie pallet jacks and higher capacity packs for Class 1, 2, and 3 forklifts. Over the past
two years, we expanded our product offering into adjacent applications, including airport GSE,stationary energy storage and other solutions for industrial and commercial
applications. We believe that we are well positioned to address the needs of many segments within the material handling sector in light of our modular and scalable battery pack
design coupled with our proprietary battery management system that can be coupled with our “SkyBMS” product offering.
We sell our products through a number of different channels including OEMs, lift equipment dealers and battery distributors as well as directly to end users, primarily
in North America. The channels sell principally to large company, national accounts. We sell certain battery packs directly to other accounts including industrial equipment
manufacturers and end users.
Revenues for Fiscal 2021 increased $9,415,000 or 56%, to $26,257,000, compared to $16,842,000 for Fiscal 2020. The increase in revenues was due to an increase in
our average selling price and a higher number of energy solutions sold. The launch of larger packs over the past two years has shifted our portfolio mix to include packs with
higher selling prices as compared to our historical mix. The increase in revenues included both higher sales to existing customers as well as sales to new customers.
Cost of Sales
Cost of sales for Fiscal 2021 increased $5,811,000 or 40%, to $20,467,000, compared to $14,656,000 for Fiscal 2020. The increase in cost of sales was due to higher
sales of energy solutions, partially offset by improved cost of sales efficiencies. Cost of sales as a percentage of revenues for Fiscal 2021 was 78%, an improvement of 9% over
87% for the Fiscal 2020. The principal drivers of improved cost of sales efficiencies were simplified component designs, reduced material costs, reduced warranty related
expenses, and lower personnel related costs.
25
Gross Profit
Gross profit for Fiscal 2021 increased $3,604,000 or 165%, to $5,790,000, compared to $2,186,000 for the Fiscal 2020. Gross profit as a percentage of revenues
increased to 22% for Fiscal 2021 as compared to 13% for Fiscal 2020. Improvement in the gross profit margin was primarily attributable to higher sales to both new and existing
customers, and cost of sales efficiencies.
Selling and Administrative
Selling and administrative expenses for Fiscal 2021 increased $2,838,000 or 29%, to $12,599,000, compared to $9,761,000 for Fiscal 2020. The increase was primarily
attributable to increases in personnel expenses of $1,911,000 related to new hires and temporary labor, an increase in insurance premiums of $498,000, and higher accounting
and legal expenses of $489,000 due in part to our financing activities, partially offset primarily by a decrease in stock-based compensation of $969,000.
Research and Development
Research and development expenses for Fiscal 2021 increased $1,696,000 or 34%, to $6,669,000, compared to $4,973,000 for Fiscal 2020. Such expenses consisted
primarily of materials, supplies, salaries and personnel related expenses, product testing, consulting, and other expenses associated with product development. The increase in
research and development expenses was primarily due to new product development activities including expenses related to UL certifications of $1,113,000, staff/labor related
expenses including temporary labor of $506,000, and facility costs including equipment rental of $110,000.
Other Income
Other income for Fiscal 2021 represented the forgiveness of the entire PPP Loan of approximately $1,297,000 in principal, together with all accrued interest of
approximately $10,000. The Small Business Administration notified us that our loan and accrued interest had been forgiven on February 9, 2021.
Interest Expense
Interest expense for Fiscal 2021 decreased $1,166,000 or 65%, to $622,000, compared to $1,788,000 for Fiscal 2020. During Fiscal 2021, interest expense was
primarily related to our outstanding lines of credit and convertible promissory note and also included approximately $174,000 related to the amortization of a debt discount
related to a promissory note that was paid in full in August 2020. Interest expense decreased in Fiscal 2021 due to a lower average outstanding debt balance during the year,
partially offset by $174,000 of debt discount amortization.
Net Loss
Net loss during Fiscal 2021 decreased $1,543,000 or 11%, to $12,793,000 compared to $14,336,000 for Fiscal 2020. The decrease was primarily attributable to an
increase in gross profit and other income, and lower interest expense, partially offset by an increase in operating expenses.
Adjusted EBITDA
Earnings or loss before interest, income taxes, depreciation and amortization (“EBITDA”) as adjusted to remove the effect of stock-based compensation expense is
referred to as Adjusted EBITDA. For the years ended June 30, 2021 and 2020, Adjusted EBITDA was a loss of approximately $11,100,000 and $10,604,000, respectively.
Management believes that Adjusted EBITDA, when viewed with our results under GAAP and the accompanying reconciliations, provides useful information about
our period-over-period results. Adjusted EBITDA is presented because management believes it provides an additional metric to assess the performance of our business.
Adjusted EBITDA is a non-GAAP financial measure. We calculate adjusted EBITDA by taking net income, and adding back the expenses related to interest, income
taxes, depreciation, amortization, and stock-based compensation expense, and as each of those elements are calculated in accordance with GAAP. Adjusted EBITDA should not
be construed as a substitute for net income (loss) (as determined in accordance with GAAP) for the purpose of analyzing our operating performance or financial position, as
Adjusted EBITDA is not defined by GAAP.
A reconciliation of our adjusted EBITDA to net loss is included in the table below:
26
Net loss
Interest, net
Income tax provision
Years Ended June 30,
2021
2020
$
$
(12,793,000)
622,000
-
(14,336,000)
1,788,000
-
Depreciation and amortization
EBITDA
Stock-based compensation
Adjusted EBITDA
Liquidity and Capital Resources
Overview / Going Concern
274,000
(11,897,000)
797,000
(11,100,000)
$
141,000
(12,407,000)
1,803,000
(10,604,000)
$
As of June 30, 2021, we had a cash balance of $4,713,000 and an accumulated deficit of $66,205,000. Our business has not generated sufficient cash to fund our
planned operations, and we will need to raise additional cash and capital resources. We believe our existing cash, additional funding available under our revolving line of credit
for up to $4.0 million with Silicon Valley Bank, net proceeds of approximately $14.0 million raised during September 2021 through a registered direct offering, and potential
sales of our common stock under our ATM Offering, will be sufficient to meet our anticipated capital resources to fund planned operations for the next twelve months. See
“Future Liquidity Needs” below.
Cash Flow Summary
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net change in cash
Operating Activities
Year Ended June 30,
2021
2020
$
$
(18,358,000)
(1,102,000)
23,447,000
3,987,000
$
$
(8,344,000)
(323,000)
9,291,000
624,000
Net cash used in operating activities was $18,358,000 for Fiscal 2021, compared to net cash used in operating activities of $8,344,000 for Fiscal 2020. The net cash
used in operating activities for Fiscal 2021 reflects the net loss of $12,793,000 for the period offset primarily by non-cash items including depreciation, stock-based
compensation, PPP loan forgiveness, non-cash interest expense, non-cash facility lease expense, amortization of prepaid offering costs, as well as, increases in accounts payable,
accrued expenses, and deferred revenue, partially offset by increases in accounts receivable, inventory, other current assets, and decreases in customer deposits, drawdowns
from factoring facility, accrued interest, office lease payable. We intend to improve our working capital efficiency by improving vendor terms, reducing inventory levels,
implementing additional cost saving initiatives, and decreasing our receivables days outstanding.
Net cash used in operating activities for Fiscal 2020 reflects the net loss of $14,336,000 for the period offset primarily by non-cash items including depreciation, stock-
based compensation, non-cash interest expense, non-cash facility lease expense, allowance for inventory reserve, and stock issued for services, as well as increases in accounts
payable and accrued expense, customer deposits, and drawdowns from factoring facility, partially offset by increases in accounts receivable, inventory, other current assets, and
office lease payable.
Investing Activities
Net cash used in investing activities for Fiscal 2021 was $1,102,000 and consisted primarily of the costs of internally developed software and purchase of furniture and
equipment and warehouse equipment.
27
Net cash used in investing activities for Fiscal 2020 was $323,000 and consisted primarily of the purchase of leasehold improvements and warehouse equipment.
Financing Activities
Net cash provided by financing activities was $23,447,000 for Fiscal 2021, which primarily consisted of $26,000,000 in net proceeds from the issuance of common
stock in a public offering, a private placement of common stock, sales of common stock under our ATM Offering, and $55,000 from stock and warrant exercises, which were
partially offset by $2,580,000 used to repay outstanding debt, and $28,000 in payment of financing lease payable. We occasionally used our bank revolving line of credit during
the Fiscal 2021, but the balance was zero at June 30, 2021.
Net cash provided by financing activities was $9,291,000 for Fiscal 2020, which primarily consisted of proceeds from the issuance of common stock in a private
placement of common stock, borrowings under the Company’s Amended and Restated Credit Facility Agreement, proceeds from the Paycheck Protection Program loan, and
short-term loans.
As of June 30, 2021, approximately $7.3 million remained available under our $20.0 million ATM Offering for future sales of our common stock for financing
activities.
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 research and development, capital expenditures, and working capital requirements. We believe our existing cash, additional funding available under our revolving line of
credit for up to $4.0 million with Silicon Valley Bank, net proceeds of approximately $14.0 million raised during September 2021 through a registered direct offering, and
potential sales of our common stock under our ATM Offering, will be sufficient to meet our anticipated capital resources to fund planned operations for the next twelve months..
In addition, to support our operations and anticipated growth, we intend to continue our efforts to secure additional capital from a variety of current and new sources including,
but not limited to, a working capital line of credit facility, and sales of our equity securities.
To the extent that we raise additional funds by issuing equity or convertible debt securities, our stockholders may experience additional dilution and such financing
may involve restrictive covenants. In the event the Company required to obtain additional funds, there is no guarantee that the Company will be able to raise or obtain the
additional funds or that the funds will be available on favorable terms to the Company.
Off-Balance Sheet Arrangements
As of June 30, 2021, we had no off-balance sheet arrangements.
New Accounting Standards
Recently Adopted Accounting Pronouncements
The Company did not adopt any new accounting pronouncements for the year ended June 30, 2021.
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
28
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 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 upon that evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2021.
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control
over financial reporting is a process designed under the supervision of the Company’s principal executive officer and principal financial officer to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with generally accepted accounting
principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurances with respect to financial statement
preparation and presentation. Additionally, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management’s Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-
15(f) and 15d-15(f) under the Exchange Act. As of June 30, 2021, 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 such assessment, management determined that the Company maintained effective internal control over financial
reporting as of June 30, 2021, 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 year ended June 30, 2021, that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B - OTHER INFORMATION
None.
ITEM 9C - DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENTS INSPECTIONS
Not Applicable.
29
PART III
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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 September 10, 2021. Our Board
of Directors is comprised of only one class. All of the directors will serve until the next annual meeting of stockholders or until their successors are elected and qualified, or
until their earlier death, retirement, resignation or removal. There are no family relationships among any of the directors and executive officers. From time to time, our directors
have received compensation in the form of cash and equity grant for their services on the Board.
Name
Ronald F. Dutt
Charles A. Scheiwe
Jonathan A. Berry
Michael Johnson
Lisa Walters-Hoffert(1)(2)
Age
74
55
53
73
63
Position
Director, Chief Executive Officer and President
Chief Financial Officer and Secretary
Chief Operating Officer
Director
Director
Dale Robinette(1)(3)
John A. Cosentino, Jr.(1)(4)
57
71
Director
Director
Independent Director
(1)
(2) Chairperson of the Audit Committee, Member of Compensation Committee and Governance Committee
(3) Lead Independent Director, Chairperson of the Compensation Committee, Member of Audit Committee and Governance Committee
(4) Mr. Cosentino was appointed to the Board on May 7, 2020 to fill a vacancy. Mr. Cosentino is the chairperson of the Nominating and Corporate Governance Committee
(“Governance Committee”) and a member of the Audit Committee and Compensation Committee.
There are no arrangements or understandings between our directors and executive officers and any other person pursuant to which any director or officer was or is to
be selected as a director or officer.
Business Experience
Ronald F. Dutt. Chairman, Chief Executive Officer, President, and Director. Mr. Dutt has been our chief executive officer, former interim chief financial officer
and director since March 19, 2014. He became our chairman on June 28, 2019. On September 19, 2017, he was also appointed as our president, chief financial officer and
corporate secretary. He resigned as chief financial officer and corporate secretary as of December 16, 2018. 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. 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.
Charles A. Scheiwe, Chief Financial Officer and Secretary. Mr. Scheiwe joined the Company in July of 2018 and has been acting as the Company’s Controller
since July 9, 2018. He was appointed as our chief financial officer and secretary on December 17, 2018. Prior to joining the Company, Mr. Scheiwe was the controller of
Senstay, Inc. and provided financial and accounting consulting services to start-up companies from 2016 to 2018. From 2006 to 2016, Mr. Scheiwe was the vice president of
finance and controller for GreatCall, Inc. Mr. Scheiwe’s experience in accounting, financial planning and analysis, business intelligence, cash management, and equity
management has prepared and qualified him for the position of chief financial officer and secretary of the Company. Mr. Scheiwe has a Bachelor of Science degree in Business
Management, with emphasis in Accounting, from the University of Colorado. Mr. Scheiwe also holds a CPA certificate.
30
Jonathan A. Berry, Chief Operating Officer. Mr. Berry joined the Company in 2016 and has been our director of operations since 2016. On June 29, 2018, he was
appointed as our chief operating officer. Prior to joining the Company in 2016, Mr. Berry was Clean Air Power, Inc.’s group operations director and general manager of the
USA operations from 2014 to 2016, and operations director of the UK, Australia, and USA market from 2012 to 2014. Mr. Berry’s experience in the development,
implementation, and management of all aspects of supply chain, production, and sales has prepared and qualified him for the position of chief operating officer. Mr. Berry
attended the Senior Executive Program at Hult Ashridge Business School in London, England, and has an undergraduate degree in Electrical Engineering from the University of
Leeds.
Michael Johnson, Director. Mr. Johnson has been our director since July 12, 2012. Mr. Johnson has been a director of Flux Power since it was incorporated. Since
2002, Mr. Johnson has been a director and the chief executive officer of Esenjay Petroleum Corporation (Esenjay Petroleum), a Delaware company located in Corpus Christi,
Texas, which is engaged in the business oil exploration and production. Mr. Johnson’s primary responsibility at Esenjay Petroleum is to manage the business and company as
chief executive officer. Mr. Johnson is a director and beneficial owner of Esenjay Investments LLC, a Delaware limited liability company engaged in the business of investing
in companies, and an affiliate of the Company owning approximately 32.5% of our outstanding shares, including common stock underlying options, and warrants that were
exercisable or convertible or which would become exercisable or convertible within sixty (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
Bachelor of Science degree in mechanical engineering from the University of Southwestern Louisiana.
Lisa Walters-Hoffert, Director. Ms. Walters-Hoffert was appointed to our Board on June 28, 2019. Ms. Walters-Hoffert was a co-founder of Daré Bioscience, Inc.
and following the company’s merger with Cerulean Pharma, Inc. in July of 2017, became Chief Financial Officer of the surviving public company (NASDAQ: DARE). For
over twenty-five (25) years, Ms. Walters-Hoffert was an investment banker focused on small-cap public companies in the technology and life science sectors. From 2003 to
2015, Ms. Walters-Hoffert worked at Roth Capital Partners as Managing Director in the Investment Banking Division. Ms. Walters-Hoffert has held various positions in the
corporate finance and investment banking divisions of Citicorp Securities in San José, Costa Rica and Oppenheimer & Co, Inc. in New York City, New York. Ms. Walters-
Hoffert has served as a member of the Board of Directors of the San Diego Venture Group, as Past Chair of the UCSD Librarian’s Advisory Board, and as Past Chair of the
Board of Directors of Planned Parenthood of the Pacific Southwest. Ms. Walters-Hoffert currently serves as a member of the Board of Directors of The Elementary Institute of
Science in San Diego. Ms. Walters-Hoffert graduated magna cum laude from Duke University with a B.S. in Management Sciences. As a senior financial executive with over
twenty-five years of experience in investment banking and corporate finance and based on Ms. Walters-Hoffert’s expertise in audit, compliance, valuation, equity finance,
mergers, and corporate strategy, the Company believes Ms. Walters-Hoffert is qualified to be on the Board.
Dale T. Robinette, Director. Mr. Robinette was appointed to our Board on June 28, 2019 and our lead independent director on September 10, 2021. Mr. Robinette
has been a CEO Coach and Master Chair since 2013 as an independent contractor to Vistage Worldwide, Inc., an executive coaching company. In addition, since 2013 Mr.
Robinette has been providing business consulting related to top-line growth and bottom-line improvement through his company EPIQ Development. From 2013 to 2019, Mr.
Robinette was the Founder and CEO of EPIQ Space, a marketing website for the satellite industry, a member-based community of suppliers promoting their offerings. Mr.
Robinette was with Peregrine Semiconductor, Inc., a manufacturer of high-performance RF CMOS integrated circuits, from 2007 to 2013 in two roles as a Director of
Worldwide Sales as well as the Director of the High Reliability Business Unit. Mr. Robinette started his career from 1991 to 2007 at Tyco Electronics Ltd. (known today as TE
Connectivity Ltd.), a passive electronics manufacturer, in various sales, sales leadership and product development leadership roles. Mr. Robinette received a Bachelor of
Science degree in Business Administration, Marketing from San Diego State University. Based on the above qualifications, the Company believes Mr. Robinette is qualified to
be on the Board.
31
John A. Cosentino, Jr., Director . Mr. Cosentino was appointed to our Board on May 7, 2020. Mr. Cosentino has been a director of Sturm, Ruger & Company, Inc.
(NYSE: RGR), a firearm manufacturing company listed on the NYSE, since 2005 to the present, a partner of Ironwood Manufacturing Fund, LP, a private equity fund, since
2002, a director of Simonds International, Inc., a cutting tools manufacturer, since 2001, the Chairman of the Board of Habco Industries LLC, an aerospace equipment and
services supplier, since 2012, and Senior Advisor of Ironwood Capital Holdings LLC, a private equity firm, since 2012. He was a director of Addaero LLC, Whitcraft LLC,
Bilco Company, Chairman of North American Specialty Glass LLC, Vice-Chairman of Primary Steel LLC, and a director of the Wiremold Company. Mr. Cosentino was a
partner of Capital Resource Partners, LP, a private capital firm, from 1999 to 2000, and served as a director in a number of its portfolio companies. Mr. Cosentino was the Vice
President-Operations of the Stanley Works (NYSE:SWK), President and Co-owner of PCI Group, Inc., CEO and Co-owner of Rau Fastener, LLC, President of the Otis
Elevator-North America division of United Technologies Corporation (NYSE:UTX), and Group Executive of the Danaher Corporation (NYSE:DHR). Mr. Cosentino received
an undergraduate degree from Harvard University and an MBA from the University of Pennsylvania. The Board believes that Mr. Cosentino’s extensive executive
management, investment management and board experience qualify him to serve on the Board of Directors.
Involvement in Certain Legal Proceedings
To the best of our knowledge, during the past ten years, none of our directors or executive officers were involved in any of the following: (1) any bankruptcy petition
filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2)
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order,
judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or
otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the
Securities and Exchange Commission or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has
not been reversed, suspended or vacated.
Board Leadership Structure and Role in Risk Oversight
Our Board of Directors (“Board”) recognizes that one of its key responsibilities is to evaluate and determine its optimal leadership structure to provide independent
oversight of management. Our Board is currently led by a Chairman of the Board who also serves as our Chief Executive Officer. The Board understands that the right Board
leadership structure may vary depending on the circumstances, and our independent directors periodically assess these roles and the Board leadership to ensure the leadership
structure best serves the interests of the Company and stockholders.
On September 10, 2021, the Board adopted the Lead Independent Director Guidelines (“Guidelines.). The Guidelines provide that when the positions of Chief
Executive Officer and Chairman of the Board are combined or the Chairman is not an independent director, the independent directors will appoint a lead independent director to
serve with the authority and responsibility described in these Guidelines, and as the Board and/or the independent directors may determine from time to time. The Guidelines are
available on our website at www.fluxpower.com.
Mr. Dutt currently holds the Chairman and Chief Executive Officer roles. Mr. Robinette currently serves as the Lead Independent Director elected by the majority of
the Board on September 10, 2021.
The responsibilities of the Lead Independent Director include, among others: (i) serving as primary intermediary between non-employee directors and management;
(ii) working with the Chairman of the Board to approve the agenda and meeting schedules for the Board; (iii) working with the Chairman of the Board as to the quality, quantity
and timeliness of the information provided to directors; (iv) in consultation with the Nominating and Governance Committee, reviewing and reporting on the results of the Board
and Committee performance self-evaluations; (v) calling additional meetings of independent directors; and (vi) serving as liaison for consultation and communication with
stockholders.
We believe the current leadership structure, with combined Chairman and Chief Executive Officer roles and a Lead Independent Director, best serves the Company
and its stockholders at this time. Mr. Robinette possesses understanding and knowledge of the business and affairs of the Company and has the ability to devote a substantial
amount of time to serve in this capacity. In addition, we believe having one leader serving as both the Chairman and Chief Executive Officer provides decisive, consistent and
effective leadership, as well as clear accountability to our stockholders and customers. This enhances our ability to communicate our message and strategy clearly and
consistently to our stockholders, employees, customers and suppliers. The Board believes the appointment of a strong Lead Independent Director and the use of regular
executive sessions of the non-management directors, along with a majority the Board being composed of independent directors, allow it to maintain effective oversight of
management. We believe that the combination of the Chairman and Chief Executive Officer roles is appropriate in the current circumstances and, based on the relevant facts and
circumstances, separation of these offices would not serve our best interests and the best interests of our stockholders at this time.
32
In addition, our Board as a whole has responsibility for risk oversight. Our Board exercises this risk oversight responsibility directly and through its committees. The
risk oversight responsibility of our Board and its committees is informed by reports from our management teams to provide visibility to our Board about the identification,
assessment and management of key risks, and our management’s risk mitigation strategies. Our Board has primary responsibility for evaluating strategic and operational risk,
including related to significant transactions. Our audit committee has primary responsibility for overseeing our major financial and accounting risk exposures, and, among other
things, discusses guidelines and policies with respect to assessing and managing risk with management and our independent auditor. Our compensation committee has
responsibility for evaluating risks arising from our compensation and people policies and practices. Our nominating and corporate governance committee has responsibility for
evaluating risks relating to our corporate governance practices. Our committees and management provide reports to our Board on these matters.
In its governance role, and particularly in exercising its duty of care and diligence, our 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.
Board Composition, Committees and Independence
Under the rules of NASDAQ, “independent” directors must make up a majority of a listed company’s Board of Directors. In addition, applicable NASDAQ rules
require that, subject to specified exceptions, each member of a listed company’s audit and compensation committees be independent within the meaning of the applicable
NASDAQ rules. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act.
Our Board has undertaken a review of the independence of each director and considered whether any director has a material relationship with us that could
compromise the director’s ability to exercise independent judgment in carrying out his or her responsibilities. As a result of this review, our Board determined that Ms. Walters-
Hoffert, Mr. Cosentino and Mr. Robinette are independent directors as defined in the listing standards of NASDAQ and SEC rules and regulations. A majority of our directors
are independent, as required under applicable NASDAQ rules. As required under applicable NASDAQ rules, our independent directors will meet in regularly scheduled
executive sessions at which only independent directors are present.
Board Committees
Our Board has established an Audit Committee, a Compensation Committee, and a Nominating and Governance Committee. The composition and responsibilities of
each of the committees is described below.
Audit Committee
Audit Committee. The Audit Committee of the Board of Directors currently consists of three independent directors of which at least one, the Chairman of the Audit
Committee, qualifies as a qualified financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Ms. Walters-Hoffert is the Chairperson of the Audit Committee and
financial expert, and Mr. Robinette and Mr. Cosentino are the other directors who are members of the Audit Committee. The Audit Committee’s duties are to recommend to our
Board of Directors the engagement of the independent registered public accounting firm to audit our consolidated financial statements and to review our accounting and
auditing principles. The Audit Committee reviews the scope, timing and fees for the annual audit and the results of audit examinations performed by any internal auditors and
independent public accountants, including their recommendations to improve the system of accounting and internal controls. The Audit Committee will at all times be
composed exclusively of directors who are, in the opinion of our Board of Directors, free from any relationship that would interfere with the exercise of independent judgment
as a committee member and who possess an understanding of consolidated financial statements and generally accepted accounting principles. Our Audit Committee operates
under a written charter, which is available on our website at www.fluxpower.com.
33
Compensation Committee
Compensation Committee. The Compensation Committee establishes our executive compensation policy, determines the salary and bonuses of our executive officers
and recommends to the Board stock option grants or other incentive equity awards for our executive officers. Mr. Robinette is the Chairperson of the Compensation Committee,
and Ms. Walters-Hoffert and Mr. Cosentino are members of the Compensation Committee. Each of the members of our Compensation Committee are independent under
NASDAQ’s independence standards for compensation committee members. Our chief executive officer often makes recommendations to the Compensation Committee and the
Board concerning compensation of other executive officers. The Compensation Committee seeks input on certain compensation policies from the chief executive officer. Our
Compensation Committee operates under a written charter, which is available on our website at www.fluxpower.com.
Nominating and Governance Committee
Nominating and Governance Committee. The Nominating and Governance Committee is responsible for matters relating to the corporate governance of our Company
and the nomination of members of the Board and committees of the Board. Mr. Cosentino is Chairperson of the Nominating and Governance Committee, and Ms. Walters-
Hoffert and Mr. Robinette are members. Each of the members of our Nominating and Governance Committee is independent under NASDAQ’s independence standards. The
Nominating and Governance Committee operates under a written charter, which is available on our website at www.fluxpower.com.
We seek directors with established strong professional reputations and experience in areas relevant to the strategy and operations of our business. We seek directors
who possess the qualities of integrity and candor, who have strong analytical skills and who are willing to engage management and each other in a constructive and
collaborative fashion. We also seek directors who have the ability and commitment to devote significant time and energy to serve on the Board and its committees. We believe
that all of our directors meet the foregoing qualifications. We do not have a formal policy with respect to diversity.
Code of Business Conduct and Ethics
Our Board has adopted a Code of Business Conduct and Ethics (the “Code”) that applies to all of our directors, officers, and employees. Any waivers of any provision
of this Code for our directors or officers may be granted only by the Board or a committee appointed by the Board. Any waivers of any provisions of this Code for an employee
or a representative may be granted only by our chief executive officer or principal accounting officer. We have filed a copy of the Code with the SEC and have made it available
on our website at https://www.fluxpower.com/corporate-governance. In addition, we will provide any person, without charge, a copy of this Code. Requests for a copy of the
Code may be made by writing to the Company at is c/o Flux Power Holdings, Inc., 2685 S. Melrose Drive, Vista, California 92081.
Indemnification Agreements
We executed a standard form of indemnification agreement (“Indemnification Agreement”) with each of our Board members and executive officers (each, an
“Indemnitee”).
Pursuant to and subject to the terms, conditions and limitations set forth in the Indemnification Agreement, we agreed to indemnify each Indemnitee, against any and
all expenses incurred in connection with the Indemnitee’s service as our officer, director and or agent, or is or was serving at our request as a director, officer, employee, agent
or advisor of another corporation, partnership, joint venture, trust, limited liability company, or other entity or enterprise but only if the Indemnitee acted in good faith and in a
manner he reasonably believed to be in or not opposed to our best interest, and in the case of a criminal proceeding, had no reasonable cause to believe that his conduct was
unlawful. In addition, the indemnification provided in the indemnification agreement is applicable whether or not negligence or gross negligence of the Indemnitee is alleged or
proven. Additionally, the Indemnification Agreement establishes processes and procedures for indemnification claims, advancement of expenses and costs and contribution
obligations.
Delinquent Section 16(a) Reports
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 SEC initial statements of beneficial ownership, reports of changes in ownership and Annual Reports concerning their ownership, of
Common Stock and other of our equity securities on Forms 3, 4, and 5, respectively. Executive officers, directors and greater than 10% stockholders are required by SEC
regulations to furnish us with copies of all Section 16(a) reports they file. Based solely on our review of Forms 3, 4 and 5 and amendments thereto filed electronically with the
SEC during the most recent fiscal year, we believe that all reports required by Section 16(a) for transactions in the year ended June 30, 2021, were timely filed.
34
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 Fiscal 2021 and Fiscal 2020 for
services provided to the Company and its subsidiary.
Name and Principal
Position
Year
Salary ($)
Bonus ($)
Stock
Awards(1)
($)
Option
Awards(2) ($)
Non-Equity
Incentive Plan
Compensation
($)
All Other
Compensation
($)
Total
($)
Ronald F. Dutt, Chief Executive
Officer, President, and Chairman
2021 $ 242,288 $ 133,525 $ 234,681 $
- $
2020 $ 195,000 $ 34,047 $
Charles A. Scheiwe
Chief Financial Officer and Corporate
Secretary
2021 $ 187,635 $ 77,055 $ 124,853 $
2020 $ 155,000 $ 27,063 $
- $
Jonathan Berry, Chief Operating Officer
2021 $ 188,077 $ 77,055 $ 124,853 $
- $
2020 $ 160,000 $ 27,936 $
- $
- $
- $
- $
- $
- $
- $
- $
- $
- $
- $
- $
- $ 610,494
- $ 229,047
- $ 389,543
- $ 182,063
- $ 389,985
- $ 187,936
(1) Represent the fair value of the RSUs granted on grant date.
(2) The grant date fair value was determined in accordance with the provisions of FASB ASC Topic No. 718 using the Black-Scholes valuation model with assumptions
described in more detail in the notes to our audited financial statements included in this report.
Benefit Plans
We do not have any profit sharing plan or similar plans for the benefit of our officers, directors or employees. However, we may establish such plan in the future.
Equity Compensation Plan Information
In connection with the reverse acquisition of Flux Power, Inc. in 2012, we assumed the 2010 Option Plan. As of June 30, 2021, the number of options outstanding to
purchase common stock under the 2010 Option Plan was 22,536. No additional options to purchase common stock may be granted under the 2010 Option Plan.
On February 17, 2015, our shareholders approved our 2014 Equity Incentive Plan (“2014 Option Plan”), which was amended on July 23, 2018 and on November 5,
2020. The 2014 Option Plan authorizes the issuance of awards for up to 1,000,000 shares of our common stock in the form of incentive stock options, non-statutory stock
options, stock appreciation rights, restricted stock units, restricted stock awards and unrestricted stock awards to officers, directors and employees of, and consultants and
advisors to, the Company or its affiliates. No options were granted during Fiscal 2021. We granted 153,177 restricted stock units under the 2014 Option Plan during Fiscal
2020.
On April 29, 2021, at the Company’s annual stockholders meeting, the 2021 Equity Incentive Plan (the “2021 Plan”) was approved by our stockholders. The 2021 Plan
authorizes the issuance of awards for up to 2,000,000 shares of our common stock in the form of incentive stock options, non-statutory stock options, stock appreciation rights,
restricted stock units, restricted stock awards and unrestricted stock awards to officers, directors and employees of, and consultants and advisors to, the Company or its
affiliates. No awards were granted under the 2021 Plan during Fiscal 2021.”
35
As of June 30, 2021, we had 490,323 options exercisable and 531,205 options outstanding, under the 2014 Option Plan and the 2010 Option Plan. There were no
options outstanding under the 2021 Plan as of June 30, 2021.
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, 2021 for the named executive officers below:
Option Awards (1)
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
Number of
Securities
Underlying
Unexercised
Options
Exercisable
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
($)
Number of
Shares or
Units of
Stock That
Have Not
Vested
Option
Exercise
Price ($)
Option
Expiration
Date
Stock Awards
Equity
Incentive
Plan:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested ($)
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
40,625
9,375
9,375 $
13.60
3/15/2029
33,527
50,000
50,000
19,000
17,500
-
-
-
24,375
-
-
-
-
19.80
7/25/2028
-
14.40
6/29/2028
-
4.60 10/26/2027
-
5.00 12/22/2025
- $
- $
- $
- $
- $
- - $
-
-
-
-
- $
- $
- $
- $
-
-
-
-
-
-
-
-
-
10.00
-
-
-
7/29/2023
11/11/2030
11/11/2030
11/11/2030
- $
-
6,607 $ 58,670
6,607 $ 58,670
13,214 $ 117,340
- $
6,607 $
6,607 $
-
58,670
58,670
13,214 $ 117,340
-
-
-
-
-
-
-
-
5,625
-
-
-
5,625
-
-
-
13.60
-
-
-
3/15/2029
11/11/2030
11/11/2030
11/11/2030
- $
-
3,515 $ 31,213
3,515 $ 31,213
7,030 $ 62,426
- $
3,515 $
3,515 $
7,030 $
-
31,213
31,213
62,426
24,375
5,625
5,625
13.60
3/15/2029
- $
-
- $
-
45,500
22,500
-
-
-
-
-
-
-
-
-
-
-
-
-
14.40
6/29/2028
4.60 10/26/2027
11/11/2030
11/11/2030
11/11/2030
-
-
-
- $
- $
-
-
3,515 $ 31,213
3,515 $ 31,213
7,030 $ 62,426
- $
- $
3,515 $
3,515 $
7,030 $
-
-
31,213
31,213
62,426
Award
Grant Date
3/15/2019
7/25/2018
6/29/2018
10/26/2017
12/22/2015
7/30/2013
11/12/2020
11/12/2020
11/12/2020
3/15/2019
11/12/2020
11/12/2020
11/12/2020
3/15/2019
6/29/2018
10/26/2017
11/12/2020
11/12/2020
11/12/2020
Name
Ronald Dutt
Charles Scheiwe
Jonathan Berry
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. The
fair value of each restricted stock unit is the fair value of the Company’s common stock on the grant date.
Aggregated Option/Stock Appreciation Right (“SAR”) exercised and Fiscal year-end Option/SAR value table
Neither our executive officers nor the other individuals listed in the tables above, exercised options or SARs during Fiscal 2021.
Long-term incentive plans
No long term incentive awards were granted by us in Fiscal 2021.
Employment Agreements with Executive Officers
On February 12, 2021, we entered into an Amended and Restated Employment Agreement with the Company’s president and chief executive officer, Ronald F. Dutt
(the “Dutt Employment Agreement”), which amends and restates the Employment Agreement effective December 11, 2012, as amended (the “Prior Agreement”). In addition to
the inclusion of terms relating to change in control, termination, severance, benefits and the acceleration of vesting of options and restricted stock units upon certain events, the
Dutt Employment Agreement memorialized Mr. Dutt’s continued services as the president and chief executive officer of the Company and its wholly-owned subsidiary, Flux
Power, Inc. (“Flux Power”), and the terms pursuant to which he would provide such services. Pursuant to the terms of the Dutt Employment Agreement, Mr. Dutt’s annual base
salary is $250,000.
36
On February 12, 2021, we entered into an Employment Agreement with the Company’s chief financial officer, treasurer and secretary, Charles A. Scheiwe (the
“Scheiwe Employment Agreement”). In addition to the inclusion of terms relating to change in control, termination, severance, benefits and the acceleration of vesting of
options and restricted stock units upon certain events, the Employment Agreement memorialized Mr. Scheiwe’s continued services as the chief financial officer and secretary of
the Company, and as chief financial officer/treasurer and secretary of Flux Power. Pursuant to the terms of the Scheiwe Employment Agreement, Mr. Scheiwe’s annual base
salary is $190,000.
On February 12, 2021, we entered into an Employment Agreement with its chief operating officer, Jonathan Berry (the “Berry Employment Agreement”). In addition
to the inclusion of terms relating to change in control, termination, severance, benefits and the acceleration of vesting of options and restricted stock units upon certain events,
the Berry Employment Agreement memorialized Mr. Berry’s continued services as the chief operating officer of Flux Power. Pursuant to the terms of the Berry Employment
Agreement, Mr. Berry’s annual base salary is $190,000.
Under their respective employment agreement, Messrs. Dutt, Scheiwe and Berry, among other things, are (i) eligible for annual target cash bonus and awards of
restricted stock units or other equity-based incentive compensation consistent with his position as determined by the Board of Directors (the “Board”) and the Compensation
Committee; (ii) entitled to reimbursement for all reasonable business expenses incurred in performing services; and (iii) entitled to certain severance and change of control
benefits contingent upon such employee’s agreement to a general release of claims in favor of the Company following termination of employment. Messrs. Dutt, Scheiwe and
Berry are also eligible to participate in all customary employee benefit plans or programs generally made available to the senior executive officers. Messrs. Dutt, Scheiwe and
Berry have each agreed to observe the terms of a standard confidentiality and non-compete agreement for a restricted period of two (2) years. Each of Messrs. Dutt, Scheiwe and
Berry employment is “at-will” and may be terminated at any time for any reason.
2020 Gross Margin Bonus Plan
On December 4, 2019, the Board of Directors adopted a 2020 Gross Margin Plan (“GM Plan”) which provided its executives and key senior employees (“Key
Executives”) with a cash bonus equal to 2% of base pay for every additional 1% profit margin achieved based on the increase gross profits for calendar year 2020 and to be paid
in the first quarter of calendar year 2021. On August 4, 2020, the compensation committee amended the 2020 GM Plan to allow for the early payment of cash bonuses to Key
Executives equal to 2% of base pay for every additional 1% profit margin achieved based on (1) the increase in profit margin first half of calendar year 2020, and (2) an
adjustment to the bonuses to be paid in the first quarter of calendar year 2021 based on the profit margin achieved during the second half of calendar year 2020 (“Amended GM
Plan”).
On August 7, 2020, the Company made cash bonus payments in the aggregate amount of $225,710 to certain Key Executives (the “Awards”) pursuant to the Amended
GM Plan, which included payments of $34,047 to Mr. Dutt, $27,063 to Mr. Scheiwe, and $27,936 to Mr. Berry. The aggregate amount of such bonus payments was included in
the accrued expenses in the accompanying balance sheet as of June 30, 2020. The Awards were calculated on the basis of increase in profit margins achieved during the first six
(6) months of the calendar year 2020.
Annual Bonus Plan
On November 5, 2020, the Board approved an annual cash bonus plan (the “Annual Bonus Plan”) which allows the compensation committee and/or the Board of the
Company to set the amount of bonus each fiscal year and the performance criteria. Executive officers and all employees (other than part-time employees and temporary
employees) are eligible to participate in the Annual Bonus Plan (“Participants”) as long as the Participant remains an active regular employee of the Company. The Annual
Bonus Plan is effective for Fiscal 2021 and each fiscal year thereafter (the “Plan Year”). For each Plan Year, the compensation committee will establish an aggregate amount of
allocable Bonus under the Annual Bonus Plan and determine the performance goals applicable to a bonus during a Plan Year (the “Participation Criteria”). The Participation
Criteria may differ from Participant to Participant and from bonus to bonus. The Participation Criteria for Fiscal 2021 is based on the Company achieving certain performance
targets based on annual revenue, gross margin, operating expense and new business development. All of the Company’s executive officers are eligible to participate in the
Annual Bonus Plan.
37
In addition, on November 5, 2020, the Board approved an annual cash bonus plan (the “Annual Bonus Plan”) which allows the compensation committee and/or the
Board of the Company to set the amount of bonus each fiscal year and the performance criteria. Executive officers and all employees (other than part-time employees and
temporary employees) are eligible to participate in the Annual Bonus Plan (“Participants”) as long as the Participant remains an active regular employee of the Company. The
Annual Bonus Plan is effective for fiscal year 2021 and each fiscal year thereafter (the “Plan Year”). For each Plan Year, the compensation committee will establish an
aggregate amount of allocable Bonus under the Annual Bonus Plan and determine the performance goals applicable to a bonus during a Plan Year (the “Participation Criteria”).
The Participation Criteria may differ from Participant to Participant and from bonus to bonus. The Participation Criteria for fiscal year 2021 is based on the Company achieving
certain performance targets based on annual revenue, gross margin, operation expense and new business development. All of the Company’s executive officers are eligible to
participate in the Annual Bonus Plan.
On November 5, 2020, the Board approved target cash bonuses under the Annual Bonus Plan for Fiscal 2021 (“2021 Bonus Grant”) to the following executive officers,
which target bonus was calculated based on percentage of the executive’s current base salary:
Name
Ronald F. Dutt
Charles Scheiwe
Jonathan Berry
Position
Chief Executive Officer
Chief Financial Officer
Chief Operating Officer
$
$
$
Current Base
Salary
Percentage
of Salary
Target Cash
Bonus
250,000
190,000
190,000
50% $
35% $
35% $
125,000
66,500
66,500
Under the 2021 Bonus Grant, the Company’s executives are eligible to receive cash incentive bonus payments based on the target cash bonus amount and on the
achievement of financial targets and corporate objectives as follows:
Achievements
Minimum
Target
Maximum
Bonus payments based on Target Cash Bonus Amount
70%
100%
150%
On June 30, 2021, the Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of the Company amended the performance goals for the
2021 plan year (from July 1, 2020 through June 30, 2021) (the “2021 Plan Year”), under the Annual Cash Bonus Plan, which was previously approved by the Committee on
November 5, 2020. The performance goals for the 2021 Plan Year were amended to the Company achieving certain performance targets measured by annual revenue, gross
margin and new business development. The Committee made the equitable adjustment to better align the objectives and activities of the Company’s executives and employees
with the goals of the Company during a very challenging 2021 Plan Year.
On June 30, 2021, the Committee approved an addendum to the Performance Restricted Stock Unit Award under the 2014 Equity Incentive Plan approved by the
Committee on November 5, 2020 to provide clarification for the calculation of vesting
Amendment to 2014 Equity Incentive Plan
On November 5, 2020, the Board approved an amendment to the 2014 Option Plan as amended to include the right to grant Restricted Stock Units (“RSUs”). All of the
Company’s executive officers are eligible to participate in the 2014 Option Plan.
Restricted Stock Unit Grants
On November 5, 2020, the Board approved the grant of RSUs under the 2014 Option Plan to certain employees of the Company. The RSUs are subject to the terms
and conditions provided in (i) the form of Restricted Stock Unit Award Agreement which is time based (“Time Based Awards”), and (ii) the form of Performance Restricted
Stock Unit Award Agreement which is performance based (“Performance Based Awards”). In addition, the Committee approved the grant of one-time retention based RSUs
pursuant to the form of the Restricted Stock Unit Award Agreement (“Retention Awards”).
38
The following executive officers and key employees of the Company were granted RSUs under the 2014 Option Plan in the amounts and according to the vesting
schedule indicated below:
Time Based Awards:
Name
Position
No. of RSUs
Ronald F. Dutt
Charles Scheiwe
Jonathan Berry
Performance Based Awards:
Chief Executive Officer
Chief Financial Officer
Chief Operating Officer
Vesting Schedule
6,607 Three Years from Award’s grant date
3,515 Three Years from Award’s grant date
3,515 Three Years from Award’s grant date
Name
Position
No. of RSUs
Maximum
Grant
Ronald F. Dutt
Charles Scheiwe
Jonathan Berry
Retention Awards:
Chief Executive Officer
Chief Financial Officer
Chief Operating Officer
Vesting Schedule
Vest in installments of up to one-third annually based on
target performance goals
Vest in installments of up to one-third annually based on
target performance goals
Vest in installments of up to one-third annually based on
target performance goals
9,910
5,272
5,272
Name
Position
No. of RSUs
Vesting Schedule
Chief Executive Officer
Chief Financial Officer
Chief Operating Officer
13,214 Four Years from Award’s grant date
7,030 Four Years from Award’s grant date
7,030 Four Years from Award’s grant date
Ronald F. Dutt
Charles Scheiwe
Jonathan Berry
Incentive Plans
Management, the Committee and the Board will continue to explore and evaluate different long-term and short-term incentives to help attract, retain and motivate our
employees to align their interest to our business and financial success through the use of equity award and cash bonuses.
Compensation of Non-Executive Directors
In December 2019, our Board approved non-executive director compensation packages as recommended by the Committee. Below are the compensation packages for
non-executive directors approved by the Board for 2020 calendar year:
Independent
Non-
Executive
Director
Position
Base
Retainer
Chair Fee
Committee
Member
Stock
Options
Total
Comp
Lisa Walters-Hoffert
Dale Robinette
John A. Cosentino Jr.
Michael Johnson
X
X
X
Audit Chair
Compensation Chair
Governance Chair
Board Member
$
$
$
$
39
35,000 $
35,000 $
35,000 $
35,000 $
15,000 $
10,000 $
7,500 $
- $
8,750 $
11,250 $
12,500 $
- $
35,000 $
35,000 $
35,000 $
35,000 $
93,750
91,250
90,000
70,000
In December 2020, pursuant to the recommendation and advice of the Committee, the Board approved the annual compensation package for non-executive directors of
the Company for calendar year 2021 as follows:
Independent
Non-Executive
Director
Position
Base
Retainer
Chair Fee
Committee
Member
Total
Comp
X
X
X
Audit Chair
$
Compensation Chair $
$
Governance Chair
$
Board Member
50,000
50,000
50,000
50,000
$
$
$
$
7,500 $
5,000 $
5,000 $
- $
- $
- $
- $
- $
57,500
55,000
55,000
50,000
Lisa Walters-Hoffert
Dale Robinette
John A. Cosentino Jr.
Michael Johnson
Restricted Stock Units
In addition, our directors are eligible to receive an annual equity grant of RSUs, which terms are determined at the time of grant.
Director Compensation
Director Compensation Table
Below is summary of compensation accrued or paid to our non-executive directors during Fiscal 2021 and Fiscal 2020. Mr. Dutt, our chief executive officer and
president, received no compensation for his service as a director and is not included in the table. The compensation Mr. Dutt receives as an employee of the Company is
included in the section titled “Executive Compensation.”
Name
Year
Fees Earned or
Paid in
Cash
($)
Stock Awards(2) ($)
Option
Awards(3)
($)
All Other
Compensation
($)
Total ($)
Lisa Walters-Hoffert
Dale Robinette
John A. Cosentino Jr.
Michael Johnson
James Gevarges (1)
2021
2020
2021
2020
2021
2020
2021
2020
2020
$
$
$
$
$
58,125
29,375
55,625
28,125
55,000
13,750
42,500
17,500
13,750
50,000
-
50,000
-
50,000
-
50,000
-
$
$
$
$
-
28,287
-
28,287
-
23,095
-
28,287
-
-
-
-
-
-
-
-
$
$
$
$
108,125
57,662
105,625
56,412
105,000
36,845
92,500
45,787
-
$
28,287
-
$
42,037
(1)Mr. Gevarges resigned as our director on May 6, 2020.
(2)Represent the fair value of the RSUs granted using the volume weighted average price of the ten days of trading prior to grant date.
(3)The amounts shown in this column represent the full grant date fair value of the award granted, excluding any as computed in accordance with Financial Accounting Standards
Board (“FASB”).
40
The following table shows the aggregate number of stock options held by non-employee directors as of June 30, 2021 and June 30, 2020:
Name
Lisa Walters-Hoffert
Dale Robinette
John A. Cosentino Jr.
Michael Johnson
James Gevarges(1)
Year
2021
2020
2021
2020
2021
2020
2021
2020
2020
Vested Stock Options
2,467
493
2,467
493
1,740
-
10,904
8,180
6,761
(1) Mr. Gevarges resigned as our director on May 6, 2020.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security Ownership of Principal Stockholders and Management
BENEFICIAL OWNERSHIP
As used in this section, the term beneficial ownership with respect to a security is defined by Rule 13d-3 under the Exchange Act, 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 10 , 2021, we had
a total of 13,844,642 shares of common stock issued and outstanding.
The following table sets forth, as of September 10, 2021, information concerning the beneficial ownership of shares of our common stock held by our directors, our
named executive officers, our directors and executive officers as a group, and each person known by us to be a beneficial owner of more than five percent (5%) of our
outstanding common stock. Unless otherwise indicated, the business address of each of our directors, executive officers and beneficial owners of more than five percent (5%) of
our outstanding common stock is c/o Flux Power Holdings, Inc., 2685 S. Melrose Drive, Vista, California 92081. Each person has sole voting and investment power with
respect to the shares of our common stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise
indicated.
Name and Address of Beneficial Owner (1)
Officers and Directors
Michael Johnson, Director
Ronald Dutt, Chief Executive Officer, President, and Director
Charles A Scheiwe, Chief Financial Officer and Secretary
Jonathan A. Berry, Chief Operating Officer
John A. Cosentino, Director
Lisa Walters-Hoffert, Director
Dale Robinette, Director
All Officers and Directors as a group (7 people)
5% Stockholders
Cleveland Capital Management L.L.C.
1250 Linda Street, Suite 304
Rocky River, OH 44116
Invesco Ltd.
1555 Peachtree Street NE, Suite 1800
Atlanta, GA 30309
* Represents less than 1% of shares outstanding.
Shares
Beneficially
Owned
% of
Ownership
4,498,033(2)
237,640(3)
32,422(4)
97,308(5)
65,280(6)
3,454(7)
3,454(8)
4,937,591
842,529(9)
856,486(10)
32.5%
1.7%
*
*
*
*
*
34.8%
6.0%
6.2%
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
All addresses above are 2685 S. Melrose Drive, Vista, California 92081, unless otherwise stated.
Includes 4,485,954 shares of common stock held by Esenjay Investments, LLC, of which Mr. Johnson is the sole director and beneficial owner, and (ii) 12,079 shares
of common stock issuable to Mr. Johnson upon exercise of stock options.
Includes 21,660 shares of common stock and 215,980 shares of common stock issuable upon exercise of stock options and settlement of vested RSUs.
Includes 5,000 shares of common stock and 27,422 shares of common stock issuable upon exercise of stock options and settlement of vested RSUs.
Includes 1,875 shares of common stock and 95,433 shares of common stock issuable upon exercise of stock options and settlement of vested RSUs.
Includes 62,670 shares of common stock and 2,610 shares of common stock issuable upon exercise of stock options.
Includes 3,454 shares of common stock issuable upon exercise of stock options.
Includes 3,454 shares of common stock issuable upon exercise of stock options.
Based on Amendment No. 4 to Schedule 13G filed jointly by Cleveland, Wade Massad and Cleveland Capital Management, L.L.C. with the SEC on February 16, 2021.
Reflects 842,529 shares of common stock beneficially owned by certain private funds managed by Cleveland Capital Management, L.L.C., or by its principals.
Based on Schedule 13G filed by Invesco Ltd. on February 16, 2021, Invesco Capital Management LLC is a subsidiary of Invesco Ltd. and it advises the Invesco
WilderHill Clean Energy ETF which owns the common stock. However, no one individual has greater than 5% economic ownership. The stockholders of the fund have
the right to receive or the power to direct the receipt of dividends and proceeds from the sale of securities.
* Represents less than 1% of shares outstanding.
41
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following includes a summary of certain relationships and transactions, including transactions since July 1, 2019 to June 30, 2021 and any currently proposed
transactions, to which we were or are to be a participant, in which (1) the amount involved exceeded or will exceed the lesser of (i) $120,000 or (ii) one percent (1%) of the
average of our total assets for the last two completed fiscal years, and (2) any of our directors, executive officers or holders of more than five percent (5%) of our capital stock,
or any affiliate or member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest other than compensation and other
arrangements that are described under the section titled “Executive Compensation.”
Pursuant to the Audit Committee’s written charter, our Audit Committee has the responsibility to review, approve and oversee transactions between the Company and
any related person (as defined in Item 404 of Regulation S-K) and any potential conflict of interest situations on an ongoing basis, in accordance with our policies and
procedures, and to develop policies and procedures for the Audit Committee’s approval of related party transactions.
2020 Private Placement
From April 2020 to July 2020, pursuant to private placement offerings, we sold and issued an aggregate of 1,141,250 shares of common stock, at $4.00 per share, for
an aggregate purchase price of $4,565,000 in cash to twenty-seven (27) accredited investors. Esenjay, our major stockholder and an entity controlled by our director, Mr.
Johnson, participated in the offering in the amount of $300,000. In addition, Mr. Cosentino, one of our directors, also participated in the offering in the amount of $250,000.
Credit Facility Agreement
On March 22, 2018, we entered into a credit facility agreement with Esenjay with a maximum borrowing amount of $5,000,000 (the “Original Credit Facility
Agreement”). The Original Credit Facility Agreement and secured notes issued (the “LOC Notes”) to the lenders (the “Lenders”) in connection with the credit facility was
subsequently amended and restated multiple times to allow for, among other things, an increase in the maximum principal amount available under line of credit (“LOC”) to
$12,000,000, additional lenders (including Cleveland Capital, L.P., or Cleveland) and extensions of the maturity date to September 30, 2021. Advances and obligations under
the LOC were secured by a security interest in collateral of the Company. As an inducement to the Lenders for entering into amended notes, on December 31, 2019, we granted
the Lenders the right to convert, in whole or in parts, all of the outstanding principal amount and accrued and unpaid interest into shares of common stock, $0.001 par value, at
the conversion price equal to the purchase price at the next financing of at least $1,000,000 on or after December 31, 2019. As of June 30, 2019, there was $6,405,00
outstanding under the LOC consisting of advances of $2,405,000 by Esenjay, $2,000,000 by Cleveland, and the balance of $2,000,000 by other Lenders.
In connection with our private placement of up to 2,000,000 shares of our common stock, par value $0.001 to accredited investors for an aggregate amount of up to
approximately $8,000,000, or $4.00 per share of common stock (the “Offering”), we completed an initial closing of the Offering on June 30, 2020. As a result of the initial
closing of the Offering, the conversion price under their respective LOC Notes became fixed at $4.00 per share, which was the price per share of common stock sold under the
Offering. On June 30, 2020, Esenjay converted $4,400,000 of its LOC Note, which consisted of principal plus accrued interest, into 1,100,000 shares of common stock at $4.00
per share (“Conversion”). On June 26, 2020, Esenjay partially assigned $1,350,000 of its LOC Note to certain creditors of Esenjay as settlement of obligations owed by Esenjay
to such creditors. As of June 30, 2020, there was approximately $5,290,000 in principal outstanding under the LOC, consisting of advances of $984,000 by Esenjay, $1,720,000
by Cleveland, and $2,586,000 by other Lenders. In August 2020, we made a payment of $1,000,000 to some of our lenders, including $600,000 to Esenjay, as partial repayment
of outstanding principal under the LOC Notes.
On August 31, 2020, we entered into a certain Third Amended and Restated Credit Facility Agreement (“Third Amended and Restated Credit Facility Agreement”) to
(i) extend the maturity date from December 31, 2020 to September 30, 2021, and (ii) to include outstanding obligations for an aggregate amount of approximately $564,000,
consisting of $500,000 in principal and approximately $64,000 in accrued interest, under the Esenjay Note, into the LOC (“Notes Consolidation”). As of August 31, 2020, after
the Notes Consolidation there was approximately $4,396,000 in principal outstanding.
42
In November 2020 and January 2021, six (6) note holders holding an aggregate of approximately $3,749,000 in principal and accrued interest outstanding under the
LOC elected to convert their Notes into 937,317 shares of common stock, which included conversion of approximately $1,824,000 into 456,074 shares of common stock by
Cleveland. As of March 1, 2021, there was approximately $884,000 in principal outstanding under Esenjay’s LOC Note, and $11,116,000 available for draw under the LOC.
The Esenjay’s LOC Note had an interest rate of 15% per annum and a maturity date of September 30, 2021.
To secure the obligations under the LOC Notes, we entered into an Amended and Restated Security Agreement dated March 28, 2019 with the Lenders (the “Amended
Security Agreement”). The Amended Security Agreement amended and restated the Guaranty and Security Agreement dated March 22, 2018, by and between the Company
and Esenjay, to among other things, amend such agreement to include Cleveland and the other Lenders as additional secured parties to the Amended Security Agreement and
appoint Esenjay as collateral agent.
On June 10, 2021, the Third Amended and Restated Credit Facility Agreement and the related Second Amended and Restated Security Agreement dated August 31,
2020 by and among the Company and the Lenders (the “Security Agreement”) were terminated.
Cleveland Loan
On July 3, 2019, we entered into a loan agreement with Cleveland for $1,000,000 (the “Cleveland Loan”). In connection with the Cleveland Loan, on July 3, 2019, we
issued Cleveland an unsecured short-term promissory note in the amount of $1,000,000, bearing an interest rate of 15% (the “Unsecured Promissory Note”). In connection with
the Cleveland Loan, we issued Cleveland a three-year warrant (the “Cleveland Warrant”) to purchase common stock in a number equal to 0.5% of the number of shares of
common stock outstanding after giving effect to the total number of shares of common stock to be sold in a contemplated public offering and with an exercise price equal to the
per share public offering price.
On September 1, 2019, we entered into the First Amendment to the Unsecured Promissory Note pursuant to which the maturity date of the Unsecured Promissory Note
was modified from September 1, 2019 to December 1, 2019 (the “First Amendment”). In connection with the First Amendment, we replaced the Cleveland Warrant with the
Amended and Restated Warrant Certificate (the “Amended Warrant”). The Amended Warrant increased the warrant coverage from 0.5% to 1% of the number of shares of
common stock outstanding after giving effect to the total number of shares of common stock sold in the next private or public offering. In addition, the exercise price was also
changed to equal the per share price of common stock sold in such offering.
Subsequent to December 2019, we entered into seven (7) amendments pursuant to which the maturity date was extended from time to time (with the final amendment
reflecting a maturity date of August 31, 2020), and all accrued and unpaid interest as of the time of the respective amendment was capitalized to the principal amount. As of
June 30, 2020, there was $1,157,000 in principal outstanding under the Cleveland Note. On August 19, 2020, we paid Cleveland the entire remaining principal balance due
under the Cleveland Loan, together with all accrued interest payable as of August 19, 2020, in an aggregate amount of approximately $978,000.
Esenjay Loan
On March 9, 2020, we entered into a convertible promissory note with Esenjay (“Original Esenjay Note”) pursuant to which Esenjay provided a loan in the principal
amount of $750,000, bearing an interest rate of 15% per annum (the “Esenjay Loan”). On June 2, 2020, the Original Esenjay Note was amended and restated to (i) extend the
maturity date from June 30, 2020 to September 30, 2020, and (ii) to increase the principal amount outstanding under the Esenjay Note from $750,000 to $1,400,000 (the
“Esenjay Note”). The outstanding obligations under the Esenjay Note were convertible into shares of common stock at the cash price per share of the equity securities paid by
purchasers in the offering at any time upon consummation of an offering of equity securities of at least $1,000,000 before the maturity date.
On June 30, 2020, in connection with the completion of our initial closing of the Offering, the principal amount outstanding under the Esenjay Note became
convertible into shares of common stock at $4.00 per share, which was the cash price per share of the Offering. On June 26, 2020 and July 22, 2020, Esenjay assigned an
aggregate of $900,000 of the Esenjay Note (“Esenjay Assignment”) to three (3) accredited investors, which were converted into an aggregate of 225,000 shares of common
stock at $4.00 per share. On August 31, 2020, the outstanding obligations under the Esenjay Note of approximately $564,000, consisting of $500,000 in principal and
approximately $64,000 in accrued interest, was consolidated into the LOC. See Credit Facility Agreement above.
43
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
Independent Auditor
For the years ended June 30, 2021 and 2020, the Company’s independent public accounting firm was Baker Tilly US, LLP (formerly Squar Milner LLP, which,
effective as of November 1, 2020, merged with Baker Tilly US, 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, 2021 and 2020 are as follows:
Audit fees(1)
Audit related fees(2)
Tax fees(3)
All other fees(4)
Total
2021
2020
$
$
107,000
103,000
-
-
210,000
$
$
212,000
-
-
-
212,000
(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, 2021 or 2020.
(3) Baker Tilly US, LLP did not provide us with tax compliance, tax advice or tax planning services.
(4) All other fees include fees billed by our independent auditors for products or services other than as described in the immediately preceding three categories. No such fees
were incurred during the fiscal years ended June 30, 2021 or 2020.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm
Our audit committee’s policy is to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm, the scope of
services provided by our independent registered public accounting firm and the fees for the services to be performed. These services may include audit services, audit-related
services, tax services and other services. Pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget.
Our independent registered public accounting firm and management are required to periodically report to the audit committee regarding the extent of services provided
by our independent registered public accounting firm in accordance with this preapproval, and the fees for the services performed to date.
All of the services relating to the fees described in the table above were approved by our audit committee.
44
PART IV
ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements and Financial Statement Schedules.
The following financial statements of Flux Power Holdings, Inc., and Report of Baker Tilly US, LLP, independent registered public accounting firm, are included in this report:
Report of Independent Registered Public Accounting Firm – Baker Tilly US, LLP
Consolidated Balance Sheets as of June 30, 2021 and 2020
Consolidated Statements of Operations for the Years Ended June 30, 2021 and 2020
Consolidated Statements of Stockholders’ Deficit for the Years Ended June 30, 2021 and 2020
Consolidated Statements of Cash Flows for the Years Ended June 30, 2021 and 2020
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.
(b) Exhibits:
The following exhibits are filed as part of this Report
Exhibit
No.
Description
2.1
2.2
3.1
3.2
3.3
3.4
4(vi)
4.1
10.1#
10.2
10.3
10.4
10.5
10.6#
10.7#
10.8#
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.
Certificate of Change. Incorporated by reference to Exhibit 3.1 on Form 8-K filed with the SEC on July 12, 2019.
Description of Securities. Incorporated by reference to Exhibit 4(vi) on Form 10-K filed with the SEC on September 28, 2020.
Form of Warrant. Incorporated by reference to Exhibit 4.1 on Form 8-K filed with the SEC on September 23, 2021.
Form of Indemnification Agreement. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on April 9, 2019.
Lease Agreement dated April 25, 2019. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on April 30, 2019.
Amended and Restated Warrant Certificate (Cleveland) dated July 3, 2019. Incorporated by reference to Exhibit 10.2 on Form 8-K filed with the SEC on
September 6, 2019.
First Amendment to Standard Industrial/Commercial Multi Tenant Lease with Accutek dated March 1, 2020. Incorporated by reference to Exhibit 10.1 on Form 8-
K filed with the SEC on March 5, 2020.
Form of Representative Warrant. Incorporated by reference to Exhibit 10.1 on Form 10-Q filed with the SEC on November 12, 2020.
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.
2014 Equity Incentive Plan. Incorporated by reference to Exhibit 10.23 on Form 10-Q filed with the SEC on May 15, 2015.
Amendment to the Flux Power Holdings Inc. 2014 Equity Incentive Plan. Incorporated by reference to Exhibit 10.20 on Form 10-K filed with the SEC on
September 27, 2018.
10.9#
Amendment No. 2 to the Flux Power Holdings Inc. 2014 Equity Incentive Plan Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on
November 9, 2020.
10.10#
Form of Restricted Stock Unit Award Agreement. Incorporated by reference to Exhibit 10.2 on Form 8-K filed with the SEC on November 9, 2020.
45
10.11#
10.12#
10.13
10.14
10.15
Form of Performance Restricted Stock Unit Award Agreement. Incorporated by reference to Exhibit 10.3 on Form 8-K filed with the SEC on November 9, 2020.
Annual Cash Bonus Plan. Incorporated by reference to Exhibit 10.4 on Form 8-K filed with the SEC on November 9, 2020.
Loan and Security Agreement with Silicon Valley Bank. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on November 12, 2020.
Intellectual Property Security Agreement. Incorporated by reference to Exhibit 10.2 on Form 8-K filed with the SEC on November 12, 2020.
Sales Agreement with H.C. Wainwright & Co., LLC. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on December 21, 2020.
10.16#
Amended and Restated Employment Agreement by and between Flux Power Holdings, Inc. and Ronald F. Dutt. Incorporated by reference to Exhibit 10.1 on
Form 8-K filed with the SEC on February 17, 2021.
10.17#
Employment Agreement by and between Flux Power Holdings, Inc. and Charles A. Scheiwe. Incorporated by reference to Exhibit 10.2 on Form 8-K filed with the
SEC on February 17, 2021.
10.18#
Employment Agreement by and between Flux Power, Inc. and Jonathan Berry. Incorporated by reference to Exhibit 10.3 on Form 8-K filed with the SEC on
February 17, 2021.
10.19#
10.20#
2021 Equity Incentive Plan. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on May 4, 2021.
Form of Restricted Stock Unit Award Agreement – Non-Executive Director. Incorporated by reference to Exhibit 10.2 on Form 8-K filed with the SEC on May 4,
2021.
10.21
14.1
21.1
23.1*
31.1*
31.2*
32.1*
32.2*
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
Form of Securities Purchase Agreement. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on September 23, 2021.
Code of Business Conduct and Ethics. Incorporated by reference to Exhibit 99.4 on Form 8-K filed with the SEC on July 2, 2019.
Subsidiaries. Incorporated by reference to Exhibit 21.1 on Form 8-K filed with the SEC on June 18, 2012
Consent of Independent Registered Public Accounting Firm
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
*
#
Filed herewith.
Indicates management contract or compensatory plan or arrangement.
ITEM 16 – FORM 10-K SUMMARY
None.
46
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 27, 2021
Flux Power Holdings, Inc.
By:
By:
/s/ Ronald F. Dutt
Ronald F. Dutt
Chief Executive Officer
(Principal Executive Officer)
/s/ Charles A. Scheiwe
Charles A. Scheiwe
Chief Financial Officer
(Principal Financial 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/ Ronald F. Dutt
Ronald F. Dutt
/s/ Charles A. Scheiwe
Charles A. Scheiwe
/s/ Michael Johnson
Michael Johnson
/s/ John A. Cosentino, Jr.
John A. Cosentino, Jr.
/s/ Lisa Walters-Hoffert
Lisa Walters-Hoffert
/s/ Dale Robinette
Dale Robinette
Title
Director, Chief Executive Officer,
President and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Director
Director
Director
Director
47
Date
September 27, 2021
September 27, 2021
September 27, 2021
September 27, 2021
September 27, 2021
September 27, 2021
To the Board of Directors and Stockholders of Flux Powe Holdings, Inc.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Flux Power Holdings, Inc. and its subsidiary (the Company) as of June 30, 2021 and 2020, the
related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial
statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
June 30, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United
States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our
audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit
committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
judgements. We determined that there are no critical audit matters.
BAKER TILLY US, LLP
/s/ BAKER TILLY US, LLP
We have served as the Company’s auditor since 2012.
San Diego, California
September 27, 2021
F-1
FLUX POWER HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
Current assets:
Cash
Accounts receivable
Inventories
Other current assets
Total current assets
Right of use asset
Other assets
Property, plant and equipment, net
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable
Accrued expenses
Deferred revenue
Customer deposits
Due to factor
Short-term loans – related party
Line of credit - related party
Financing lease payable, current portion
Office lease payable, current portion
Accrued interest
Total current liabilities
Long term liabilities:
Paycheck Protection Program loan payable
$
$
$
June 30,
2021
June 30,
2020
$
4,713,000
6,097,000
10,513,000
417,000
21,740,000
3,035,000
131,000
1,356,000
726,000
3,069,000
5,256,000
787,000
9,838,000
3,435,000
174,000
528,000
26,262,000
$
13,975,000
$
7,175,000
2,583,000
24,000
171,000
-
-
-
-
435,000
2,000
10,390,000
4,648,000
1,400,000
4,000
1,563,000
469,000
2,057,000
5,290,000
28,000
288,000
50,000
15,797,000
-
1,297,000
Office lease payable, less current portion
Total liabilities
Stockholders’ equity (deficit):
Preferred stock, $0.001 par value; 500,000 shares authorized; none issued and outstanding
Common stock, $0.001 par value; 30,000,000 shares authorized; 13,652,164 and 7,420,487 shares issued and
outstanding at June 30, 2021 and June 30, 2020, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity (deficit)
Total liabilities and stockholders’ equity (deficit)
$
2,866,000
13,256,000
-
14,000
79,197,000
(66,205,000)
13,006,000
26,262,000
$
3,301,000
20,395,000
-
7,000
46,985,000
(53,412,000)
(6,420,000)
13,975,000
The accompanying notes are an integral part of these consolidated financial statements.
F-2
FLUX POWER HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenues
Cost of sales
Gross profit
Operating expenses:
Selling and administrative
Research and development
Total operating expenses
Operating loss
Other income (expense):
Other income
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,
2021
2020
26,257,000
20,467,000
$
5,790,000
12,599,000
6,669,000
19,268,000
16,842,000
14,656,000
2,186,000
9,761,000
4,973,000
14,734,000
(13,478,000)
(12,548,000)
1,307,000
(622,000)
(12,793,000)
(1.08)
11,796,217
$
$
-
(1,788,000)
(14,336,000)
(2.80)
5,118,713
The accompanying notes are an integral part of these consolidated financial statements.
F-3
FLUX POWER HOLDING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock
Additional
Shares
Capital Stock
Amount
7,420,487
$
7,000
Paid-in Capital
46,985,000
$
Accumulated
Deficit
(53,412,000)
$
Total
(6,420,000)
$
Balance at June 30, 2020
Issuance of common stock – exercised options and warrants
Fair value of warrants issued
Issuance of common stock, net of costs
Issuance of common stock - private placement transactions,
net
Issuance of Common Stock - Debt Conversion
Stock-based compensation
Net loss
Balance at June 30, 2021
Balance at June 30, 2019
55,195
-
4,078,032
800,000
1,298,450
-
-
13,652,164
$
-
-
4,000
1,000
2,000
-
-
14,000
$
55,000
174,000
22,796,000
3,199,000
5,191,000
797,000
-
79,197,000
-
-
-
-
-
-
(12,793,000)
(66,205,000)
$
Common Stock
Additional
Shares
Capital Stock
Amount
5,101,580
$
5,000
Paid-in Capital
35,902,000
$
Accumulated
Deficit
(39,076,000)
$
Issuance of common stock – services
Issuance of common stock – exercised options
Issuance of common stock - private placement transactions,
net
3,121
3,706
341,250
-
-
-
30,000
4,000
1,365,000
-
-
-
55,000
174,000
22,800,000
3,200,000
5,193,000
797,000
(12,793,000)
13,006,000
Total
(3,169,000)
30,000
4,000
1,365,000
$
$
Issuance of Common Stock - Loan Conversion
Stock based compensation
Net loss
Balance at June 30, 2020
1,970,830
-
-
7,420,487
$
2,000
-
-
7,000
$
7,881,000
1,803,000
-
46,985,000
$
-
-
(14,336,000)
(53,412,000)
$
7,883,000
1,803,000
(14,336,000)
(6,420,000)
The accompanying notes are an integral part of these consolidated financial statements.
F-4
FLUX POWER HOLDING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation
Stock-based compensation
Stock issuance for services
PPP Loan principal and accrued interest forgiveness
Fair value of warrants issued as debt discount cost
Noncash interest expense
Noncash rent expense
Allowance for inventory reserve
Amortization of prepaid offering costs
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Other current assets
Accounts payable
Accrued expenses
Due to factor
Deferred revenue
Accrued interest
Office lease payable
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:
Proceeds from the issuance of common stock, net of costs
Proceeds from the issuance of common stock in private placement
Proceeds from Payment Protection Program
Borrowings from revolving line of credit
Payment of short-term loan - related party
Payment of line of credit - related party
Payment of revolving line of credit
Borrowings from short-term loan - related party debt
Borrowings from line of credit - related party debt
Principal payments of financing lease payable
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:
Initial recognition of right-of-use lease asset and lease liability
Accrued interest converted into principal
Interest paid
Common stock issued for conversion of related party debt
Stock issuance for services
Year ended June 30,
2021
2020
$
(12,793,000)
$
(14,336,000)
274,000
797,000
-
(1,307,000)
174,000
426,000
400,000
(195,000)
547,000
(3,028,000)
(5,062,000)
(134,000)
2,527,000
1,183,000
(469,000)
20,000
(38,000)
(288,000)
(1,392,000)
(18,358,000)
(1,102,000)
(1,102,000)
22,855,000
3,200,000
-
700,000
(1,178,000)
(1,402,000)
(700,000)
-
-
(28,000)
23,447,000
3,987,000
726,000
$
$
$
$
$
$
4,713,000
$
-
358,000
59,000
5,193,000
-
$
$
$
$
$
141,000
1,803,000
30,000
-
-
1,599,000
323,000
317,000
-
(653,000)
(1,760,000)
(432,000)
2,165,000
542,000
469,000
4,000
50,000
(169,000)
1,563,000
(8,344,000)
(323,000)
(323,000)
1,369,000
-
1,297,000
-
-
-
-
2,400,000
4,255,000
(30,000)
9,291,000
624,000
102,000
726,000
2,706,000
2,170,000
137,000
7,883,000
30,000
The accompanying notes are an integral part of these consolidated financial statements.
F-5
FLUX POWER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021 and 2020
NOTE 1 - NATURE OF BUSINESS
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”).
We design, develop, manufacture, and sell a portfolio of advanced lithium-ion energy storage solutions for the material handling sector which includes lift trucks,
airport ground support equipment (“GSE”), and other industrial and commercial applications. We believe our mobile and stationary energy storage solutions provide customers
with a reliable, high performing, cost effective, and more environmentally friendly alternative as compared to traditional lead acid and propane-based solutions. Our modular
and scalable design allows different configurations of lithium-ion battery packs to be paired with our proprietary wireless battery management system (“SkyBMS”) to provide
the level of energy storage required and “state of the art” real time monitoring of pack performance.
As used herein, the terms “we,” “us,” “our,” “Flux,” and “Company” mean Flux Power Holdings, Inc., unless otherwise indicated. All dollar amounts herein are in U.S.
dollars unless otherwise stated.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company’s significant accounting policies which have been consistently applied in the preparation of the accompanying consolidated financial
statements follows:
Principles of Consolidation
The consolidated financial statements include Flux Power Holdings, Inc. and its wholly-owned subsidiary Flux Power, Inc. after elimination of all intercompany
accounts and transactions.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management
to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as certain financial statement disclosures. Significant
estimates include valuation allowances relating to inventory and deferred tax assets. While management believes that the estimates and assumptions used in the preparation of
the financial statements are appropriate, actual results could differ from these estimates.
Cash and Cash Equivalents
As of June 30, 2021 and June 30, 2020, cash was approximately $4,713,000 and $726,000, respectively. Cash consisted of funds held in a non-interest bearing bank
deposit account. The Company considers all liquid short-term investments with maturities of less than three months when acquired to be cash equivalents. The Company had no
cash equivalents at June 30, 2021 and 2020.
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.
F-6
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 years ended June 30, 2021 and 2020.
Inventories
Inventories consist primarily of battery management systems and the related subcomponents and are stated at the lower of cost or net realizable value. The Company
evaluates inventories to determine if write-downs are necessary due to obsolescence or if the inventory levels are in excess of anticipated demand at market value based on
consideration of historical sales and product development plans. The Company recorded adjustments to inventory reserve related to obsolete and slow moving inventory in the
amount of approximately $195,000 and $317,000 during the years ended June 30, 2021 and 2020, respectively.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation and amortization are provided using the straight-line method over the
estimated useful lives, of the related assets ranging from three to ten years, or, in the case of leasehold improvements, over the lesser of the useful life of the related asset or the
lease term.
Stock-based Compensation
Pursuant to the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 718-10, Compensation-
Stock Compensation, which establishes accounting for equity instruments exchanged for employee service, we utilize the Black-Scholes option pricing model to estimate the fair
value of employee stock option awards at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected life. Changes
in these inputs and assumptions can materially affect the measure of estimated fair value of our share-based compensation. These assumptions are subjective and generally
require significant analysis and judgment to develop. When estimating fair value, some of the assumptions will be based on, or determined from, external data and other
assumptions may be derived from our historical experience with stock-based payment arrangements. The appropriate weight to place on historical experience is a matter of
judgment, based on relevant facts and circumstances.
Common stock or equity instruments such as warrants issued for services to non-employees are valued at their estimated fair value at the measurement date (the date
when a firm commitment for performance of the services is reached, typically the date of issuance, or when performance is complete). If the total value exceeds the par value of
the stock issued, the value in excess of the par value is added to the additional paid-in-capital.
Revenue Recognition
The Company recognizes revenue in accordance to the Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”)
for all contracts. The Company derives its revenue from the sale of products to customers. The Company sells its products primarily through a distribution network of
equipment dealers, OEMs and battery distributors in primarily North America. The Company recognizes revenue for the products when all significant risks and rewards have
been transferred to the customer, there is no continuing managerial involvement associated with ownership of the goods sold is retained, no effective control over the goods sold
is retained, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transactions will flow to the Company and the costs
incurred or to be incurred with respect to the transaction can be measured reliably.
F-7
Product revenue is recognized as a distinct single performance obligation which for the Company’s three major customers represents the point in time that they receive
delivery of the products, and for all other customers represents the point in time that the Company ships the products. Our customers do have a right to return product but our
returns have historically been minimal.
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, 2021 and 2020, the Company carried warranty liability of approximately $895,000 and $726,000,
respectively, which is included in accrued expenses on the Company’s consolidated balance sheets.
Impairment of Long-lived Assets
In accordance with authoritative guidance for the impairment or disposal of long-lived assets, if indicators of impairment exist, the Company assesses the
recoverability of the affected long-lived assets by determining whether the carrying value of such assets can be recovered through the undiscounted future operating cash flows.
If impairment is indicated, the Company measures the amount of such impairment by comparing the carrying value of the asset to the present value of the expected
future cash flows associated with the use of the asset. The Company believes that no impairment indicators were present, and accordingly no impairment losses were recognized
during the fiscal years ended June 30, 2021 and 2020.
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, 2021 or
June 30, 2020, and accordingly, no additional tax liabilities have been recorded.
The Company records deferred tax assets and liabilities based on the differences between the financial statement and tax bases of assets and liabilities and on operating
loss carry forwards using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided when it is more likely than
not that some portion or all of a deferred tax asset will not be realized.
Net Loss Per Common Share
The Company calculates basic loss per common share by dividing net loss by the weighted average number of common shares outstanding during the periods. Diluted
loss per common share includes the impact from all dilutive potential common shares relating to outstanding convertible securities.
For the years ended June 30, 2021 and 2020, basic and diluted weighted-average common shares outstanding were 11,796,217 and 5,118,713, respectively. The
Company incurred a net loss for the years ended June 30, 2021 and 2020, and therefore, basic and diluted loss per share for each fiscal year are the same because the inclusion
of potential common equivalent shares were excluded from diluted weighted-average common shares outstanding during the period, as the inclusion of such shares would be
anti-dilutive. The total potentially dilutive common shares outstanding at June 30, 2021 and 2020, excluded from diluted weighted-average common shares outstanding, which
include common shares underlying outstanding convertible debt, stock options, RSUs, and warrants, were 891,659 and 2,210,216, respectively.
F-8
New Accounting Standards
Recently Adopted Accounting Pronouncements
The Company did not adopt any new accounting pronouncements for the year ended June 30, 2021. During the year ended June 30, 2020, the Company adopted
Accounting Standards Update (“ASU”) 2016-02, Leases (“ASU 2016-02”) and ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to
Nonemployee Share-Based Payment Accounting (“ASU 2018-07”) effective July 1, 2019, neither of which had a material impact on the Company’s consolidated financial
statements.
Management has considered all recent accounting pronouncements issued since the last audit of the Company’s consolidated financial statements.
NOTE 3 - INVENTORIES
Inventories consist of the following:
Raw materials
Work in process
Finished goods
Total Inventories
June 30,
2021
June 30,
2020
$
$
$
8,185,000
918,000
1,410,000
10,513,000
$
4,231,000
332,000
693,000
5,256,000
Inventories consist primarily of our energy storage systems and the related subcomponents, and are stated at the lower of cost or net realizable value.
NOTE 4 – OTHER CURRENT ASSETS
Other current assets consist of the following:
Prepaid insurance
Prepaid inventory
Prepaid offering costs
Prepaid expenses
Total Other current assets
NOTE 5 – ACCRUED EXPENSES
Accrued expenses consist of the following:
Payroll and bonus accrual
PTO accrual
Warranty liability
Garnishments
Total Accrued expenses
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consist of the following:
Vehicles
Machinery and equipment
Office equipment
Furniture and Equipment
Leasehold improvements
Less: Accumulated depreciation
Total property, plant and equipment, net
June 30,
2021
June 30,
2020
249,000
73,000
-
95,000
417,000
June 30,
2021
1,271,000
417,000
895,000
-
2,583,000
June 30,
2021
20,000
593,000
1,027,000
220,000
56,000
1,916,000
(560,000)
1,356,000
$
$
$
$
$
$
160,000
32,000
547,000
48,000
787,000
June 30,
2020
403,000
270,000
726,000
1,000
1,400,000
June 30,
2020
20,000
323,000
290,000
154,000
54,000
841,000
(313,000)
528,000
$
$
$
$
$
$
Depreciation expense was approximately $274,000 and $141,000, for the years ended June 30, 2021 and 2020, respectively, and is included in selling and
administrative expenses in the accompanying consolidated statements of operations.
F-9
NOTE 7 – Notes Payable
Paycheck Protection Program Loan
On May 1, 2020, the Company applied for and received a loan from the Bank of America, NA (the “BOA”) in the aggregate principal amount of approximately
$1,297,000 (the “PPP Loan”) pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The
PPP Loan is evidenced by a promissory note dated May 1, 2020, issued by Flux Power to the BOA (the “PPP Note”). The PPP Loan had a two-year term and bears interest at a
rate of 1.0% per annum. Monthly principal and interest payments were deferred for six months after the date of disbursement. The Company received the funds on May 4, 2020.
On February 9, 2021, the Company was notified that the Small Business Administration (“SBA”) had forgiven repayment of the entire PPP Loan of approximately $1,297,000
in principal, together with all accrued interest of approximately $10,000. The Company has recorded the entire forgiven principal and accrued interest amount of approximately
$1,307,000 as other income in its statement of operations on February 9, 2021. As of June 30, 2021, the outstanding balance of the PPP Loan was $0.
The SBA reserves the right to audit any PPP loan, regardless of size. These audits may occur after forgiveness has been granted. In accordance with the CARES Act,
all borrowers are required to maintain their PPP loan documentation for six years after the PPP loan was forgiven or repaid in full and to provide that documentation to the SBA
upon request.
Revolving Line of Credit
On November 9, 2020, the Company entered into a certain Loan and Security Agreement (“Agreement”) with Silicon Valley Bank (“SVB”). The Agreement provides
the Company with a senior secured revolving credit facility for up to $4.0 million available on a revolving basis (“Credit Facility”). Outstanding principal under the Credit
Facility accrues interest at a floating per annum rate equal to the greater of (i) prime rate plus two and a half percent (2.50%) or (ii) five and three-quarters percent (5.75%).
Interest is due monthly on the last day of the month. In the event of default, the amounts due under the Agreement will bear interest at a rate per annum equal to five percent
(5.0%) above the rate that is otherwise applicable to such amounts. The Company paid a non-refundable commitment fee of $15,000 upon execution of the Loan Agreement. In
addition, the Company is required to pay a quarterly unused facility fee equal to one-quarter percent (0.25%) per annum of the average daily unused portion of the commitments
under the Credit Facility, depending upon availability of borrowings under the Credit Facility. The loans and other obligations of the Company under the Credit Facility are
secured by substantially all of the tangible and intangible assets of the Company (including, without limitation, intellectual property) pursuant to the terms of the Agreement and
the Intellectual Property Security Agreement dated as of November 9, 2020. The Company has utilized the line of credit from-time-to-time, however as of June 30, 2021, the
outstanding balance of the line of credit was $0 and the entire $4.0 million of the facility was available for future draws through November 8, 2021, unless the credit facility is
renewed and its term is extended prior to its expiration.
NOTE 8 - RELATED PARTY DEBT AGREEMENTS
Esenjay Loan
On March 9, 2020, the Company and Esenjay Investments, LLC (“Esenjay”) entered into a certain convertible promissory note (“Original Esenjay Note”) pursuant to
which Esenjay provided the Company with a loan in the principal amount of $750,000 (the “Esenjay Loan”). On June 2, 2020, the Original Esenjay Note was amended and
restated to (i) extend the maturity date from June 30, 2020 to September 30, 2020, and (ii) to increase the principal amount outstanding under the Original Esenjay Note from
$750,000 to $1,400,000 (the “Esenjay Note”).
F-10
On June 26, 2020 and July 22, 2020, Esenjay assigned a total of $900,000 of the Esenjay Note to three (3) accredited investors. On June 30, 2020, in connection with
the completion of the Company’s initial closing of its private placement offering, the principal amount outstanding under the Esenjay Note became convertible into shares of
common stock at $4.00 per share, which was the cash price per share of such offering. The three note holders converted their notes into an aggregate 225,000 shares of common
stock at $4.00 per share.
On August 31, 2020, the Company entered into the Third Amended and Restated Credit Facility Agreement and pursuant to which the Company further amended the
Notes to, among other amended items, include outstanding obligations for an aggregate amount of approximately $564,000, consisting of $500,000 in principal and
approximately $64,000 in accrued interest, under the Esenjay Note, into the Credit Facility Agreement. (See “Credit Facility” below).
Cleveland Loan
On July 3, 2019, the Company entered into a loan agreement with Cleveland, pursuant to which Cleveland agreed to loan the Company $1,000,000 (the “Cleveland
Loan”). In connection with the Cleveland Loan, on July 3, 2019, the Company issued Cleveland an unsecured short-term promissory note in the amount of $1,000,000 (the
“Unsecured Promissory Note”). The Unsecured Promissory Note bears an interest rate of 15.0% per annum and was originally due on September 1, 2019, unless repaid earlier
from a percentage of proceeds from certain identified accounts receivable. In connection with the Cleveland Loan, the Company issued Cleveland a three-year warrant (the
“Cleveland Warrant”) to purchase the Company’s common stock in a number equal to 0.5% of the number of shares of common stock outstanding after giving effect to the total
number of shares of common stock to be sold in a contemplated public offering and with an exercise price equal to the per share public offering price.
On September 1, 2019, the Company entered into the First Amendment to the Unsecured Promissory Note pursuant to which the maturity date of the Unsecured
Promissory Note was modified from September 1, 2019 to December 1, 2019 (the “First Amendment”). In connection with the First Amendment, the Company replaced the
Cleveland Warrant with the Amended and Restated Warrant Certificate (the “Amended Warrant”). The Amended Warrant increased the warrant coverage from 0.5% to 1% of
the number of shares of common stock outstanding after giving effect to the total number of shares of common stock sold in the next private or public offering. In addition, the
exercise price was also changed to equal the per share price of common stock sold in such offering. The fair value of such warrants was not significant.
On July 9, 2020, the Company made a payment to Cleveland in the amount of $200,000 as a partial payment of the outstanding principal balance of the Cleveland
Loan. Subsequently, the Company entered into seven (7) additional amendments pursuant to which the maturity date was extended from time to time (with the final amendment
reflecting a maturity date of August 31, 2020), and all accrued and unpaid interest as of the time of the respective amendment was capitalized to the principal amount. As of
June 30, 2020, there was $1,157,000 in principal outstanding under the Cleveland Note. On August 19, 2020, the Company paid Cleveland the entire remaining principal
balance due under the Cleveland Loan, together with all accrued interest payable as of August 19, 2020, in an aggregate amount of approximately $978,000.
Credit Facility
On March 22, 2018, Flux Power entered into a credit facility agreement with Esenjay with a maximum borrowing amount of $5,000,000 (the “Original Agreement”).
The Original Agreement was amended multiple times to allow for, among other things, an increase in the maximum principal amount available under line of credit (“LOC”) to
$12,000,000, additional lenders and extensions of the maturity date to September 30, 2021.
In August 2020, the Company paid down an aggregate principal amount of approximately $1,402,000 of the outstanding balance under the LOC. On August 31, 2020,
the Company entered into the Third Amended and Restated Credit Facility Agreement (“Third Amended and Restated Facility Agreement”) and pursuant to which the
Company further amended the Notes to (i) extend the maturity date from December 31, 2020 to September 30, 2021, and (ii) include outstanding obligations under the Esenjay
Note of approximately $564,000, consisting of $500,000 in principal and approximately $64,000 in accrued interest, into the LOC. In November 2020, the Lenders holding an
aggregate of approximately $2,161,000 in principal and accrued interest outstanding under the LOC elected to convert their Notes into 540,347 shares of common stock. In
January and March 2021, the Lenders holding an aggregate of approximately $2,632,000 in principal and accrued interest outstanding under the LOC elected to convert their
Notes into 658,103 shares of common stock of which approximately $1,045,000 was held by Esenjay and was converted to 261,133 shares of common stock.
F-11
On June 10, 2021, the Third Amended and Restated Credit Facility Agreement by and among Flux Power, Inc. Esenjay, Cleveland Capital, L.P., Otto Candies, Jr.,
Paul Candies, Brett Candies, Winn Interest, Ltd., Tabone Family Partnership (as assignee to the interests, rights and obligations of Helen M. Tabone) and additional lenders who
became a party to such agreement pursuant to Section 15 thereof (collectively, the “Lenders”); and the related Second Amended and Restated Security Agreement (“Security
Agreement”) were terminated.
As of the termination date, all payments due under the related notes have been made in full and all obligations under such notes and the Credit Facility have been paid
or discharged in full. In addition, the Company did not incur any early termination penalties in connection with the termination of the Third Amended and Restated Credit
Agreement or Security Agreement.
NOTE 9 - STOCKHOLDERS’ EQUITY (DEFICIT)
At-The-Market (“ATM”) Offering
On December 21, 2020 the Company entered into a Sales Agreement (the “Sales Agreement”) with H.C. Wainwright & Co., LLC (“HCW”) to sell shares of its
common stock, par value $0.001 (the “Common Stock”) from time to time, through an “at-the-market offering” program (the “ATM Offering”) under which HCW will act as
sales agent.
The Company agreed to pay HCW a commission in an amount equal to 3.0% of the gross sales proceeds of the shares sold under the Sales Agreement. In addition, the
Company agreed to reimburse HCW for certain legal and other expenses incurred up to a maximum of $50,000 to establish the ATM Offering, and $2,500 per quarter thereafter
to maintain such program under the Sales Agreement. The Company has also agreed pursuant to the Sales Agreement to indemnify and provide contribution to HCW against
certain liabilities, including liabilities under the Securities Act.
On May 27, 2021, the Company filed Amendment No. 1 (the “Amendment”) to the prospectus supplement dated December 21, 2020 (the “Prospectus Supplement”) to
increase the size of the ATM Offering from an aggregate offering price of up to $10 million in the Prospectus Supplement to an amended maximum aggregate offering price of
up to $20 million of shares of the Company’s common stock (the “Shares”) (which amount includes the value of shares we have already sold prior to the date of the
Amendment) pursuant to the base prospectus dated October 26, 2020, the Prospectus Supplement, and the Amendment (collectively, the “Prospectus”).
From December 21, 2020 to June 30, 2021, the Company sold an aggregate of 978,782 shares of common stock at an average price of $12.93 per share for gross
proceeds of approximately $12.7 million in the ATM Offering, prior to deducting commissions and other offering related expenses.
The Shares have been registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the Company’s Registration Statement on Form S-3
(File No. 333-249521), declared effective by the Securities and Exchange Commission (the “Commission”) on October 26, 2020, and the Prospectus. Sales of the Shares, if any,
may be made by any method permitted by law deemed to be an “at-the-market offering” as defined in Rule 415(a)(4) of the Securities Act. The Company or the HCW may,
upon written notice to the other party in accordance with the terms of the Sales Agreement, suspend offers and sales of the Shares. The Company and HCW each have the right,
in its sole discretion, to terminate the Sales Agreement at any time upon prior written notice pursuant to the terms and subject to the conditions set forth in the Sales Agreement.
Public Offering
2020 Public Offering and NASDAQ Capital Market Uplisting
In August 2020, the Company closed an underwritten public offering of its common stock at a public offering price of $4.00 per share for gross proceeds of
approximately $12.4 million, which included the full exercise of the underwriters’ over-allotment option to purchase additional shares, prior to deducting underwriting discounts
and commissions and offering expenses. A total of 3,099,250 shares of common stock were issued by the Company in the offering, including the full exercise of the over-
allotment option. The securities were offered pursuant to a registration statement on Form S-1 (File No. 333-231766), which was declared effective by the SEC on August 12,
2020.
F-12
Concurrent with the announcement of the public offering, on August 14, 2020, the Company’s common stock commenced trading on The NASDAQ Capital Market
under the symbol “FLUX.”
Private Placements
2020 Private Placement
On April 22, 2020, the Company sold and issued an aggregate of 66,250 shares of common stock, at $4.00 per share, for an aggregate purchase price of $265,000 in
cash to two (2) accredited investors (the “2020 Private Placement”). On June 30, 2020, the Company completed an initial closing of the 2020 Private Placement offering of up
to 2,000,000 shares of common stock, pursuant to which the Company sold an aggregate of 275,000 shares of common stock at $4.00 per share, for an aggregate purchase price
of $1,100,000 to six (6) accredited investors. The $1,100,000 aggregate purchase price for such shares was paid in cash. Esenjay and Mr. Dutt, the Company’s president and
chief executive officer, participated in the initial closing in the amount of $300,000 and $50,000, respectively. On July 24, 2020, the Company sold and issued an aggregate of
800,000 shares of common stock, at $4.00 per share, for an aggregate purchase price of $3,200,000 in cash to accredited investors, including Mr. Cosentino, one of our
directors, who participated in the offering in the amount of $250,000.
The shares offered and sold in the 2020 Private Placement described above were sold to accredited investors in reliance upon exemptions from registration pursuant to
Rule 506(b) of Regulation D promulgated under Section 4(a)(2) under the Securities Act. Such shares were not registered under the Securities Act of 1933, as amended
(“Securities Act”), and could not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act.
Pursuant to a registration statement on Form S-3 filed with the SEC on October 16, 2020 which became effective on October 26, 2020, such shares were registered.
Debt Conversion
LOC Conversion
On June 30, 2020, there was a partial conversion of the debt underlying the secured promissory notes issued to lenders under the LOC at a conversion price of $4.00
per share (the “Conversion”). At the option of the lenders, on June 30, 2020, an aggregate of approximately $7,383,000 in principal and accrued interest outstanding under the
LOC was converted into 1,845,830 shares of common stock, which consisted of (a) partial conversion of Principal plus interest under the Esenjay LOC Note in the amount of
$4,400,000 into 1,100,000 shares of common stock at $4.00 per share, and (b) conversion of approximately $2,983,000 of the secured promissory notes issued in connection
with the LOC, principal plus accrued interest, by other lenders, including certain assignees of the Esenjay LOC Note, into 745,830 shares of common stock.
On November 6, 2020, there was a partial conversion of the debt underlying the secured promissory notes issued to lenders under the LOC at a conversion price of
$4.00 per share (the “November 2020 Conversion”). At the option of the lenders, on November 6, 2020, an aggregate of approximately $2,161,000 in principal and accrued
interest outstanding under the LOC was converted into 540,347 shares of common stock.
In January and March 2021, there was a conversion of the remaining debt underlying the secured promissory notes issued to lenders under the LOC at a conversion
price of $4.00 per share. At the option of the lenders, an aggregate of approximately $2,632,000 in principal and accrued interest outstanding under the LOC was converted into
658,103 shares of common stock.
Esenjay Note Conversion
On June 30, 2020, two (2) accredited individuals, who became note holders to the Esenjay Note pursuant to the assignment of such notes by Esenjay to the note
holders, converted $500,000 in principal into 125,000 shares of common stock at $4.00 per share.
On July 22, 2020, one accredited individual, who became note holder to the Esenjay Note pursuant to the assignment of such note by Esenjay to the note holder,
converted $400,000 in principal into 100,000 shares of common stock at $4.00 per share.
F-13
Warrants
On July 3, 2019, the Company issued a three-year warrant to Cleveland Capital, L.P. (“Cleveland Warrant”) to purchase our common stock in a number equal to one-
half percent (0.5%) of the number of shares of common stock outstanding after giving effect to the total number of shares of common stock sold in a public offering at an
exercise price equal to the per share public offering price. On September 1, 2019, the Cleveland Warrant was amended and restated to change the warrant coverage from 0.5%
to 1% of the number of shares of common stock outstanding after giving effect to the total number of shares of common stock sold in the next private or public offering
(“Offering”) at an exercise price equal the per share price of common stock sold in the Offering. The closing of a private offering constituting the Offering occurred on July 24,
2020. Upon such closing, the number and the exercise price of the Cleveland Warrant became determinable, and represented as a right to purchase up to 83,205 shares of
common stock at $4.00 per share and had a fair value of approximately $174,000. As of June 30, 2021, all 83,205 warrants remained outstanding and exercisable.
In August 2020 and in conjunction with the Company’s public offering, the Company issued five-year warrants to the underwriters to purchase up to 185,955 shares of
the Company’s common stock at an exercise price of $4.80 per share and had a fair value of approximately $513,000. The underwriters’ warrants became exercisable on
February 8, 2021.
Warrant detail for the year ended June 30, 2021 is reflected below:
Warrants outstanding and exercisable at June 30, 2020
Warrants issued
Warrants exercised
Warrants forfeited
Warrants outstanding and exercisable at June 30, 2021
Warrant detail for the year ended June 30, 2020 is reflected below:
Number of
Warrants
83,205
185,955
(40,993)
(13,284)
214,883
$
$
$
$
$
Number of
Warrants
Weighted
Average
Exercise
Price Per
Warrant
Weighted
Average
Exercise
Price Per
Warrant
Warrants outstanding and exercisable at June 30, 2019
Warrants issued
Warrants forfeited
Warrants outstanding and exercisable at June 30, 2020
Stock Options
8,333
83,205
(8,333)
83,205
$
$
$
$
20.00
4.00
20.00
4.00
Remaining
Contract
Term (# years)
2.01
5.00
-
-
2.92
4.00
4.80
4.80
4.80
4.49
Remaining
Contract
Term (# years)
0.25
3.00
-
2.01
In connection with the reverse acquisition of Flux Power, Inc in 2012, we assumed the 2010 Option Plan. As of June 30, 2021, the number of options outstanding to
purchase common stock under the 2010 Option Plan was 22,536. No additional options to purchase common stock may be granted under the 2010 Option Plan.
On November 26, 2014, the Board of Directors approved the 2014 Equity Incentive Plan (the “2014 Option Plan”), which was approved by the Company’s
stockholders on February 17, 2015. The 2014 Option Plan offers selected employees, directors, and consultants the opportunity to acquire our common stock subject to vesting
requirements and serves to encourage such persons to remain employed by us and to attract new employees. The 2014 Option Plan allows for the award of stock and options, up
to 1,000,000 shares of our common stock.
F-14
Activity in stock options during the year ended June 30, 2021 and related balances outstanding as of that date are reflected below:
Outstanding at June 30, 2020
Exercised
Forfeited and cancelled
Outstanding at June 30, 2021
Exercisable at June 30, 2021
Number of
Shares
Weighted
Average
Exercise Price
579,584
(22,760)
(25,619)
531,205
490,323
$
$
$
$
$
11.00
6.16
14.62
11.02
10.87
Activity in stock options during the year ended June 30, 2020 and related balances outstanding as of that date are reflected below:
Outstanding at June 30, 2019
Granted
Exercised
Forfeited and cancelled
Outstanding at June 30, 2020
Exercisable at June 30, 2020
Restricted Stock Units
Number of
Shares
Weighted
Average
Exercise Price
580,171
19,272
(5,249)
(14,610)
579,584
454,156
$
$
$
$
$
$
11.05
8.45
4.68
11.86
11.00
10.77
Weighted
Average
Remaining
Contract
Term (# years)
7.55
6.73
6.64
Weighted
Average
Remaining
Contract
Term (# years)
8.59
7.55
7.27
On November 5, 2020, the Company’s Board of Directors approved an amendment to the Company’s 2014 Option Plan, to allow grants of Restricted Stock Units
(“RSUs”). Subject to vesting requirements set forth in the RSU Award Agreement, one share of common stock is issuable for one vested RSU. On November 5, 2020, the
Board of Directors authorized the following RSUs to be granted under the amended 2014 Option Plan: (i) a total of 43,527 RSUs to certain executive officers as one-time
retention incentive awards, and (ii) a total of 91,338 RSUs to certain key employees as annual equity compensation of which 45,652 were performance-based RSUs and 45,686
were time-based RSUs. On April 29, 2021, an additional 18,312 time-based RSUs were authorized by the Company’s Board of Directors to be granted under the amended 2014
Option Plan.
Activity in RSUs during the year ended June 30, 2021 and related balances outstanding as of that date are reflected below:
Number of Shares
Weighted Average
Grant date Fair
Value
Weighted Average
Remaining Contract
Term
(# years)
Outstanding at June 30, 2020
Granted
Forfeited and cancelled
Outstanding at June 30, 2021
-
153,177
(21,525)
131,652
$
$
$
$
-
9.20
8.88
9.25
-
-
-
2.72
There were no RSUs granted or outstanding during the year ended June 30, 2020.
F-15
Stock-based Compensation
Stock-based compensation expense recognized in the consolidated statements of operations for the year ended June 30, 2021 and 2020, includes compensation expense
for stock-based options and awards granted based on the grant date fair value. For options and awards granted, expenses are amortized under the straight-line method over the
expected vesting period. Stock-based compensation expense recognized in the consolidated statements of operations has been reduced for estimated forfeitures of options that
are subject to vesting. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
At June 30, 2021, the aggregate intrinsic value of exercisable options was approximately $1,278,000.
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
Selling and administrative
Total stock-based compensation expense
$
$
2021
2020
178,000
619,000
797,000
$
$
215,000
1,588,000
1,803,000
The Company uses the Black-Scholes valuation model to calculate the fair value of stock options. The fair value of stock options was measured at the grant date using
the assumptions (annualized percentages) in the table below:
Years ended June 30,
Expected volatility
Risk free interest rate
Forfeiture rate
Dividend yield
Expected term (years)
2021
0%
0%
20%
0%
0
2020
100.6% - 119.6%
0.35% - 2.00%
20%
0%
6.35
At June 30, 2021, the unamortized stock-based compensation expense relating to outstanding stock options and RSUs was approximately $361,000 and $687,000,
respectively, and these amounts are expected to be expensed over the weighted-average remaining recognition period of 0.69 years and 2.69years, respectively.
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, 2021 and 2020 are shown below. A valuation allowance of approximately $18,839,000 and $15,174,000 has
been established to offset the net deferred tax assets as of June 30, 2021 and 2020, respectively, due to uncertainties surrounding the Company’s ability to generate future
taxable income to realize these assets.
The Company is subject to taxation in the United States and California. The Company’s tax years for 2010 and forward are subject to examination by the United States
and California tax authorities due to the carry forward of unutilized net operating losses and research and development credits (if any).
F-16
The Company has incurred losses since inception, so no current income tax provision or benefit has been recorded. Significant components of the Company’s net
deferred tax assets are shown in the table below.
Deferred Tax Assets:
Net operating loss carryforwards
Research & development credit carryforward
Stock compensation
Interest expense Sec. 163
Lease liability
Other, net
Net deferred tax assets
Valuation allowance for deferred tax assets
Total deferred tax assets
Deferred Tax Liabilities:
Right of use asset
Total deferred tax liabilities
Net deferred tax liabilities
Year Ended June 30,
2021
2020
16,111,000
27,000
1,696,000
366.000
924,000
564,000
19,688,000
(18,839,000)
849,000
(849,000)
(849,000)
-
$
$
$
$
12,865,000
-
1,652,000
261,000
1,004,000
353,000
16,135,000
(15,174,000)
961,000
(961,000)
(961,000)
-
$
$
$
$
At June 30, 2021, the Company had unused net operating loss (“NOL”) carryovers of approximately $57,472,000 and $57,871,000 that are available to offset future
federal and state taxable income, respectively. Federal NOL carryforwards arising after 2017 of approximately $35,064,000 do not expire. Federal NOL carryforwards arrising
before 2018 of approximately $22,408,000 and all of the state NOL carryforward begin to expire in 2030.
The provision for income taxes on earnings subject to income taxes differs from the statutory federal rate at June 30, 2021 and 2020, due to the following:
Federal income taxes at 21%
State income taxes, net
Permanent differences and other
Other true ups, if any
Change in federal tax rate
Change in valuation allowance
Provision for income taxes
Year Ended June 30,
2021
2020
(2,686,000)
(894,000)
(58,000)
(27,000)
-
(3,665,000)
-
$
$
(3,011,000)
(1,001,000)
474,000
-
-
(3,538,000)
-
$
$
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,
2021 and 2020.
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, 2021 or June 30, 2020
NOTE 11 - 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 California commercial bank. Our cash balance at this institution is secured by the Federal Deposit Insurance
Corporation up to $250,000. As of June 30, 2021 and 2020, cash was approximately $4,713,000, and $726,000 respectively, which consisted of funds held in a non-interest
bearing bank deposit account. The Company has not experienced any losses in such accounts. Management believes that the Company is not exposed to any significant credit
risk with respect to its cash.
F-17
Customer Concentrations
During the year ended June 30, 2021, the Company had three (3) major customers that each represented more than 10% of its revenues, on an individual basis, and
together represented approximately $16,004,000 or 61% of its total revenues.
During the year ended June 30, 2020, the Company had three (3) major customers that each represented more than 10% of its revenues, on an individual basis, and
together represented approximately $10,045,000 or 60% of its total revenues.
Suppliers/Vendor Concentrations
The Company obtains a limited number of components and supplies included in its products from a small group of suppliers. During the year ended June 30, 2021 the
Company had two (2) suppliers who accounted for more than 10% of its total purchases, on an individual basis, and together represented approximately $9,260,000 or 27% of
its total purchases.
During the year ended June 30, 2020, the Company had two (2) suppliers who accounted for more than 10% of its total purchases, on an individual basis, and together
represented approximately $6,598,000 or 35% of its total purchases.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is
subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. To the best knowledge of management,
there are no material legal proceedings pending against the Company.
Operating Leases
On April 25, 2019 the Company signed a Standard Industrial/Commercial Multi-Tenant Lease (“Lease”) with Accutek to rent approximately 45,600 square feet of
industrial space at 2685 S. Melrose Drive, Vista, California. The Lease has an initial term of seven years and four months, commencing on or about June 28, 2019. The lease
contains an option to extend the term for two periods of 24 months, and the right of first refusal to lease an additional approximate 15,300 square feet. The monthly rental rate
was $42,400 for the first 12 months, escalating at 3% each year.
On February 26, 2020, the Company entered into the First Amendment to Standard Industrial/Commercial Multi-Tenant Lease dated April 25, 2019 (the
“Amendment”) with Accutek to rent an additional 16,309 rentable square feet of space plus a residential unit of approximately 1,230 rentable square feet (for a total of
approximately 17,539 rentable square feet). The lease for the additional space commenced 30 days following the occupancy date of the additional space, and terminates
concurrently with the term for the lease of the original lease, which expires on November 20, 2026. The base rent for the additional space is the same rate as the space rented
under the terms of the original lease, $0.93 per rentable square (subject to 3% annual increase). In connection with the Amendment, the Company purchased certain existing
office furniture for a total purchase price of $8,300.
Total rent expense was approximately $841,000 and $673,000 for the years ended June 30, 2021 and 2020, respectively, net of sublease income.
The Future Minimum Lease Payments are:
2022
2023
2024
2025
2026
$
746,000
768,000
791,000
815,000
840,000
Thereafter
Total Future Minimum Lease Payments
Less: discount
Total lease liability
NOTE 13 - SUBSEQUENT EVENTS
359,000
4,319,000
(1,018,000)
3,301,000
$
On September 22, 2021, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with several institutional and accredited investors (the
“Purchasers”), pursuant to which the Company agreed to sell in a registered direct offering an aggregate of 2,142,860 shares of Common Stock of the Company (the “Shares”)
and warrants to purchase up to 1,071,430 shares of its common stock (the “Warrants”), at a combined purchase price of $7.00 per share and related Warrant, for aggregate gross
proceeds to the Company of approximately $15 million, before deducting placement agent fees and offering expenses payable by the Company (the “Registered Offering”).
Subject to certain ownership limitations, the Warrants will be exercisable immediately from the date of issuance, will expire on the five (5) year anniversary of the date
of issuance and will have an exercise price of $7.00 per share. The exercise price of the Warrants is subject to certain adjustments, including stock dividends, stock splits,
combinations and reclassifications of the Company’s common stock.
The Registered Offering is anticipated to close on or about September 27, 2021.
Pursuant to an engagement letter, dated as of September 22, 2021, we have engaged H.C. Wainwright & Co., LLC (“HCW” or the “Placement Agent”) to act as our
exclusive Placement Agent in connection with the Registered Offering. As compensation in connection with the Registered Offering, the Company paid HCW a cash fee equal
to 6.0% of the gross proceeds of the Registered Offering.
The net proceeds from the Registered Offering, after deducting placement agent fees and offering expenses, are approximately $14 million.
The Shares and the Warrants and the shares issuable upon exercise of the Warrants were offered and are being sold by the Company pursuant to an effective shelf
registration statements on Form S-3 (File No. 333-249521), which was originally filed with the SEC on October 16, 2020 and declared effective on October 26, 2020.
F-18
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-249521) and Form S-8 (No. 333-229644) of Flux Power Holdings, Inc. (the
“Company”) of our report dated September 27, 2021, relating to the consolidated financial statements of Flux Power Holdings, Inc., appearing in this Annual Report on Form
10-K of Flux Power Holdings, Inc. for the year ended June 30, 2021.
Exhibit 23.1
/s/ Baker Tilly US, LLP
BAKER TILLY US, LLP
San Diego, California
September 27, 2021
CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302
Exhibit 31.1
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 27, 2021
/s/ Ronald F. Dutt
By:
Name: Ronald F. Dutt
Title:
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATIONS OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302
Exhibit 31.2
I, Charles A. Scheiwe, 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 27, 2021
/s/ Charles A. Scheiwe
By:
Name: Charles A. Scheiwe
Title:
Chief Financial Officer
(Principal Financial Officer)
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, 2021, 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 27, 2021
/s/ Ronald F. Dutt
By:
Name: Ronald F. Dutt
Title:
Chief Executive Officer
(Principal Executive Officer)
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, 2021, 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 27, 2021
/s/ Charles A. Scheiwe
By:
Name: Charles A. Scheiwe
Title:
Chief Financial Officer
(Principal Financial Officer)