UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification Number) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company | ||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐ No
The number of shares of registrant’s common stock outstanding as of March 10, 2025 was .
FLUX POWER HOLDINGS, INC.
FORM 10-Q
For the Quarterly Period Ended December 31, 2024
Table of Contents
| PART I - Financial Information | ||
| ITEM 1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) | 5 |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 23 |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 31 |
| ITEM 4. | CONTROLS AND PROCEDURES | 31 |
| PART II - Other Information | ||
| ITEM 1. | LEGAL PROCEEDINGS | 32 |
| ITEM 1A. | RISK FACTORS | 33 |
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 34 |
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | 34 |
| ITEM 4. | MINE SAFETY DISCLOSURES | 34 |
| ITEM 5. | OTHER INFORMATION | 34 |
| ITEM 6. | EXHIBITS | 34 |
| SIGNATURES | 35 | |
| Page 2 |
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:
| ● | our ability to continue as a going concern; | |
| ● | our ability to comply with the terms of our agreement with Gibraltar Business Capital, LLC (“GBC”) for our credit facility, which we have relied on historically and currently rely on to meet our anticipated capital resources and to fund our operations; | |
| ● | the expense, timing and outcome of legal proceedings relating to our accounting practices, financial disclosures and employment policies and practices, which includes, but is not limited to, a pending purported federal securities class action and shareholder derivative lawsuit, certain employment lawsuits and other legal and governmental proceedings, investigations and information requests that may be initiated or that may be asserted; | |
| ● | our ability to meet projected revenue targets and generate cash from operations as a result of delays in new orders for our energy storage solutions, reflecting corresponding deferrals of new forklift purchases caused by lower capital spending in the market sector that we serve and interest rate variability affecting certain large customer fleets; | |
| ● | our ability to remediate material weaknesses in our controls and procedures and also those identified in our internal control over financial reporting, or to accurately or timely report our financial condition or results of operations, which may adversely affect our business and stock price; | |
| ● | our delinquent and untimely filings with the Securities and Exchange Commission and our ability to regain compliance and continue to meet the continued listing standards of the Nasdaq Stock Market; | |
| ● | substantial unanticipated costs for accounting, legal and consultancy fees we incurred in connection with the restatements and internal investigation, and we expect to continue to incur additional costs; | |
| ● | our ability to secure sufficient funding to support our current and proposed operations; | |
| ● | our ability to manage our working capital requirements efficiently; | |
| ● | our ability to obtain the necessary funds from our credit facilities; | |
| ● | our ability to obtain raw materials and other supplies for our products at existing or competitive prices and on a timely basis; | |
| ● | 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 our revenue, increase our gross profit margin and become a profitable business; | |
| ● | our ability to fulfill our backlog of open sales orders due to delays in the receipt of key component parts and other potential manufacturing disruptions; | |
| ● | 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 us; | |
| ● | our ability to shift to new suppliers and incorporate new components into our products in a manner that is not disruptive to our business; | |
| ● | our ability to obtain and maintain UL Listings and OEM approvals for our energy storage solutions; |
| Page 3 |
| ● | 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 and/or successfully recruit key members of our senior management, including but not limited to recruitment of a new chief executive officer; | |
| ● | our dependence on our major customers; and | |
| ● | the impact of tariffs on our ability to cost-effectively source battery packs and materials used in our products. |
Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference, and file as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
Use of Certain Defined Terms
Except where the context otherwise requires and for the purposes of this report only:
| ● | The “Company,” “Flux,” “we,” “us,” and “our” refer to the combined business of Flux Power Holdings, Inc., a Nevada corporation and its wholly owned subsidiary, Flux Power, Inc., a California corporation (“Flux Power”); | |
| ● | “Exchange Act” refers the Securities Exchange Act of 1934, as amended; | |
| ● | “SEC” refers to the Securities and Exchange Commission; | |
| ● | “Securities Act” refers to the Securities Act of 1933, as amended; |
| Page 4 |
PART I - Financial Information
Item 1. Financial Statements
FLUX POWER HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| December 31, | June 30, | |||||||
| 2024 | 2024 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance for credit losses | ||||||||
| Inventories, net | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Right of use assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Line of credit | ||||||||
| Subordinated debt | ||||||||
| Deferred revenue | ||||||||
| Customer deposits | ||||||||
| Finance leases payable, current portion | ||||||||
| Office leases payable, current portion | ||||||||
| Accrued interest | ||||||||
| Total current liabilities | ||||||||
| Long term liabilities: | ||||||||
| Finance leases payable, less current portion | ||||||||
| Office leases payable, less current portion | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| Preferred stock, $ par value; shares authorized; issued and outstanding | ||||||||
| Common stock, $ par value; shares authorized; shares issued and outstanding at December 31, 2024 and June 30, 2024 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| Page 5 |
FLUX POWER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three months ended December 31, | Six months ended December 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income (expense), net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average number of common shares outstanding - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| Page 6 |
FLUX POWER HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(unaudited)
| Common Stock | ||||||||||||||||||||
| Shares | Capital Stock Amount | Additional Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at September 30, 2024 | ( | ) | ( | ) | ||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at December 31 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Common Stock | ||||||||||||||||||||
| Shares | Capital Stock Amount | Additional Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common stock - exercised options and warrants | ||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at September 30, 2023 | ( | ) | ||||||||||||||||||
| Issuance of common stock - exercised options and RSU settlements | ( | ) | ||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Fair value of warrants issued | – | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at December 31 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| Page 7 |
FLUX POWER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation | ||||||||
| Stock-based compensation | ||||||||
| Amortization of debt issuance costs | ||||||||
| Non-cash lease expense | ||||||||
| Inventory write downs | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ||||||||
| Other assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Accrued interest | ||||||||
| Office leases payable | ( | ) | ( | ) | ||||
| Deferred revenue | ||||||||
| Customer deposits | ||||||||
| Net cash provided by (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 subordinated debt borrowing | ||||||||
| Proceeds from revolving line of credit | ||||||||
| Payment of revolving line of credit | ( | ) | ( | ) | ||||
| Payment of finance leases | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net change in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental Disclosures of Non-Cash Investing and Financing Activities: | ||||||||
| Warrants issued in connection with borrowing agreement, recorded as debt issuance cost | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| Page 8 |
FLUX POWER HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024
(Unaudited)
NOTE 1 - NATURE OF BUSINESS
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) applicable to interim reports of companies filing as a smaller reporting company. These financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2024, filed with the SEC on January 29, 2025. In the opinion of management, the accompanying condensed consolidated interim financial statements include all adjustments necessary in order to make the financial statements not misleading. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year or any other future period. Certain notes to the financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year as reported in the Company’s Annual Report on Form 10-K have been omitted. The accompanying unaudited condensed consolidated balance sheet at June 30, 2024 has been derived from the audited balance sheet at June 30, 2024 contained in such Form 10-K.
Nature of Business
Flux Power Holdings, Inc. (“Flux”) was incorporated in 2009 in the State of Nevada, and Flux’s operations are conducted through its wholly owned subsidiary, Flux Power, Inc. (“Flux Power”), a California corporation (collectively, the “Company”).
We design, develop, manufacture, and sell a portfolio of advanced lithium-ion energy storage solutions for electrification of a range of industrial commercial sectors which include material handling, airport ground support equipment (“GSE”), and other commercial and industrial applications. We believe our mobile and stationary energy storage solutions provide our customers a reliable, high performing, cost effective, and more environmentally friendly alternative as compared to traditional lead acid and propane-based solutions. Our modular and scalable design allows different configurations of lithium-ion energy storage solutions to be paired with our proprietary wireless battery management system to provide the level of energy storage required and “state of the art” real time monitoring of pack performance. We believe that the increasing demand for lithium-ion energy storage solutions and more environmentally friendly energy storage solutions in the material handling sector should continue to drive our revenue growth.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are described in Note 3 – Summary of Significant Accounting Policies to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2024. There have been no material changes in these policies or their application.
Adopted Accounting Pronouncements
The Company did not adopt any new accounting pronouncements during the six months ended December 31, 2024.
Recently Issued Accounting Pronouncements
In November 2024, the FASB issued Accounting Standards Update (“ASU”) 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Topic 220): Disaggregation of Income Statement Expenses, which requires additional disclosure of certain amounts included in the expense captions presented on the statement of operations, as well as disclosures about selling expenses. The ASU is effective on a prospective basis, with the option for retrospective application, for our fiscal year ending June 30, 2028 and interim periods thereafter. Early adoption is permitted for annual financial statements that have not yet been issued. The Company is evaluating the disclosure requirements related to the new standard.
| Page 9 |
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires more detailed income tax disclosures. The guidance requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction. The disclosure requirements will be applied on a prospective basis, with the option to apply them retrospectively. The standard is effective for the Company’s fiscal year ending June 30, 2026, with early adoption permitted. The Company is evaluating the disclosure requirements related to the new standard.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The standard is effective annually for the Company’s fiscal year ending June 30, 2025 and interim periods thereafter. While early adoption is permitted, the Company has decided not to adopt during the interim period reflected in this quarterly report. The Company is evaluating the disclosure requirements related to the new standard.
The Company calculates basic loss per common share by dividing net loss by the weighted average number of common shares outstanding during the periods. Diluted loss per common share includes the impact from all dilutive potential common shares relating to outstanding convertible securities.
For the three months ended December 31, 2024 and 2023, basic and diluted weighted-average common shares outstanding were and , respectively. For the six months ended December 31, 2024 and 2023, basic and diluted weighted-average common shares outstanding were and , respectively. The Company incurred a net loss for the three and six months ended December 31, 2024 and 2023 and, therefore, basic and diluted loss per share for the periods were the same because all potentially dilutive common share equivalents would have been anti-dilutive. At December 31, 2024 and 2023, potentially dilutive common shares excluded from the calculation of diluted weighted-average common shares outstanding were as follows:
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Stock options | ||||||||
| RSUs | ||||||||
| Warrants | ||||||||
Liquidity and Financial Condition
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, substantial doubt about the Company’s ability to continue as a going concern exists.
Historically,
the Company’s revenues and operating cash flows have not been sufficient to sustain its operations and the Company has relied on
debt and equity financing for additional funds. The Company has incurred an accumulated deficit of $
In addition, the Company’s ability to meet projected revenue targets and generate cash from operations has been impacted by delays in new orders of our energy storage solutions, primarily due to deferrals of new forklift purchases caused by lower capital spending in the market sector that the Company serves and due to interest rate variability affecting capital spending in certain large customer fleets.
| Page 10 |
Management has evaluated the Company’s expected cash and working capital requirements, which include but are not limited to investments in additional sales and marketing, research and development and capital equipment, and believes the Company’s existing cash and funding available under the GBC Credit Facility and the November 2, 2023 subordinated line of credit with Cleveland, along with the forecasted gross margin, will not be sufficient to meet the Company’s anticipated capital resources to fund planned operations for the next twelve (12) months following the filing date of this quarterly report.
Management is evaluating strategies to improve profitability of operations and to obtain additional funding. These steps include actual and planned price increases for our energy storage solutions, a number of cost-saving initiatives including product cost efficiencies and planned operating cost savings. The planned gross margin improvement tasks include but are not limited to a plan to drive bill of material costs down while increasing price of our products for new orders. We also continue to execute our cost reduction, sourcing and pricing recovery initiatives in efforts to increase our gross margins and improve cash flow from operations. Unforeseen factors in the general economy beyond management’s control could potentially have a negative impact on the planned gross margin improvement plan. Management is continuing to evaluate other sources of capital to fund its operations and growth. However, there can be no assurance that the Company will be able to realize the plans for improved operations or access necessary additional financing when needed to provide sufficient liquidity to continue its operations over the next twelve months. If such liquidity is not available when required, management will be required to curtail investments in new product development, which may have a material adverse effect on future cash flows and results of operations and the Company’s ability to continue operating as a going concern.
The accompanying condensed consolidated financial statements do not include any adjustments that would be necessary should the Company be unable to continue as a going concern and, therefore, be required to liquidate its assets and discharge its liabilities in other than the normal course of business and at amounts that may differ from those reflected in the accompanying condensed consolidated financial statements.
NOTE 3 – INVENTORIES
Inventories consist of the following:
| December
31, 2024 | June
30, 2024 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| $ | $ | |||||||
NOTE 4 – ACCRUED EXPENSES
Accrued expenses consist of the following:
| December
31, 2024 | June
30, 2024 | |||||||
| Payroll and bonus accrual | $ | $ | ||||||
| PTO accrual | ||||||||
| Warranty liability | ||||||||
| $ | $ | |||||||
NOTE 5 – NOTES PAYABLE
Revolving Line of Credit
Gibraltar Business Capital (“GBC”) Credit Facility
On
July 28, 2023, the Company entered into a Loan and Security Agreement (the “Agreement”) with GBC. The Agreement provides
the Company with a senior secured revolving loan facility for up to $
| Page 11 |
On
November 2, 2023, the Company entered into the First Amendment to Loan and Security Agreement (the “First Amendment”) with
Gibraltar Business Capital, LLC (“GBC”), which amended certain definition of the Subordinated Debt referenced in the Loan
and Security Agreement dated July 28, 2023 as Subordinated Debt owed by the Company to Cleveland Capital L.P. (“Cleveland”)
pursuant to that certain Subordinated Unsecured Promissory Note, dated as of November 1, 2023, in the aggregate principal amount of $
On
January 30, 2024, the Company entered into the Second Amendment to Loan and Security Agreement (the “Second Amendment”) with
GBC, which amended certain terms of the Loan and Security Agreement dated July 28, 2023, including but not limited to, (i) increasing
the commitment amount from $
The
loans and other obligations of the Company under the GBC 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 entered into by and among the Company and GBC on July 28, 2023. During the six months ended December 31,
2024, the Company had multiple drawdowns under the GBC Credit Facility totaling $
In
April 2024, the Company notified GBC of a certain event of default with respect to the Company’s anticipated failure to maintain
the EBITDA covenant for the trailing three (3) month period ended April 30, 2024 (the “Default”). On May 8, 2024,
On
May 31, 2024, the Company entered into the Third Amendment to Loan and Security Agreement (the “Third Amendment”) with GBC
which amended certain terms of the Loan and Security Agreement dated July 28, 2023, including but not limited to amending the EBITDA
Minimum financial covenant of the Company. In consideration for the Third Amendment, the Company agreed to pay GBC a non-refundable amendment
fee of $
| Page 12 |
On August 30, 2024, GBC agreed to waive the Company’s non-compliance with, and the effects of its non-compliance under, various representations, financial covenants and non-financial covenants relating to our financial restatements (the “August Waiver”). On January 17, 2025, GBC agreed to waive the Company’s non-compliance with, and the effects of our non-compliance under, various representations, financial covenants and non-financial covenants relating to its financial restatements and its failure to maintain the EBITDA Minimum for certain financial periods (the “January Waiver”). As a result of the August Waiver and January Waiver, the Company expects that the revolving credit facility remains available subject to meeting certain lending criteria under the Loan Agreement.
On
January 22, 2025, the Company entered into the Fourth Amendment to Loan and Security Agreement (the “Fourth Amendment”) with
GBC which amended certain terms of the Loan and Security Agreement dated July 28, 2023, as amended, relating to the EBITDA Minimum financial
covenant of the Company. In consideration for the Fourth Amendment, the Company agreed to pay GBC a non-refundable amendment fee of $
Silicon Valley Bank Credit Facility
On November 9, 2020, the Company entered into a Loan and Security Agreement (“Loan and Security Agreement”) with Silicon Valley Bank (“SVB”).
On
October 29, 2021, the Company entered into a First Amendment to Loan and Security Agreement (“First Amendment” and together
with the Agreement, the “Loan Agreement”) with SVB which amended certain terms of the Agreement including, but not limited
to, increasing the amount of the revolving line of credit from $
On
June 23, 2022, the Company entered into a Second Amendment to Loan and Security Agreement (“Second Amendment” and together
with the Loan Agreement, the “Second Amended Loan Agreement”) with SVB, which amended certain terms of the Loan Agreement
, including but not limited to, (i) increasing the amount of the revolving line of credit to $
In
addition, under the Second Amendment, the interest rate terms for the outstanding principal under the Revolving LOC were amended to accrue
interest at a floating per annum rate equal to the greater of either
In
connection with the Second Amendment, the Company issued a warrant to SVB and its designee, SVB Financial Group, to purchase
up to
On
November 7, 2022, the Company entered into a Third Amendment to Loan and Security Agreement (“Third Amendment”) with SVB,
which amended certain terms of the Second Amended Loan Agreement (together with the Third Amendment, the “Third Amended Loan Agreement”),
including but not limited to, (i) extending the maturity date from November 7, 2022 to May 7, 2023 (the “Extension Period”),
(ii) amending the financial covenants of the Company to cover the Extension Period and to include a liquidity ratio financial covenant,
and (iii) amending the definition of Permitted Liens (as defined in the Third Amendment). Pursuant to the Third Amendment, the Company
paid SVB a non-refundable amendment fee of $
| Page 13 |
On
January 10, 2023, the Company entered into a Fourth Amendment to Loan and Security Agreement (the “Fourth Amendment”) with
SVB, which amended certain terms of the Third Amended Loan Agreement including but not limited to, (i) increasing the amount of the SVB
Credit Facility from $
On
April 27, 2023, the Company entered into a Fifth Amendment to Loan and Security Agreement (the “Fifth Amendment”) with SVB
which further amended certain terms of the credit facility (together with the Fifth Amendment, the “Agreement”), including
but not limited to, (i) extending the maturity date from May 7, 2023 to December 31, 2023 (the “2023 Extension Period”),
(ii) amending the EBITDA financial covenant of the Company to cover the 2023 Extension Period, and (iii) amending the definition of EBITDA
(as defined in the Fifth Amendment). Pursuant to the Fifth Amendment, the Company agreed to pay SVB a non-refundable amendment fee of
Thirty Thousand Dollars ($
On
July 28, 2023, the Company repaid in full all principal outstanding under the SVB Credit Facility, together with all accrued and unpaid
interest and related fees, with a portion of the funds from the GBC Credit Facility and terminated the Loan and Security Agreement with
SVB, as amended. During the three months ended September 30, 2023, the Company had multiple Revolving LOC drawdowns totaling $
NOTE 6 - RELATED PARTY DEBT AGREEMENTS
As
of December 31, 2024, the Company had $
Subordinated Line of Credit Facilities
Cleveland Capital, L.P. Credit Facility
On
November 2, 2023, the Company entered into a Credit Facility Agreement (the “Credit Facility”) with Cleveland Capital, L.P.,
(“Cleveland”). The Credit Facility provides the Company with a line of credit of up to $
Pursuant
to the terms of the Credit Facility, Cleveland agreed to make loans (each such loan, an “Advance”) up to such Lender’s
Commitment Amount to the Company from time to time, until August 15, 2025 (the “Due Date”). The Note accrues interest at
Secured Overnight Financing Rate plus nine percent (
As
consideration of Cleveland’s commitment to provide the Advances to the Company, the Company issued Cleveland warrants to purchase
2022 Subordinated LOC
On
May 11, 2022, the Company entered into a Credit Facility Agreement (the “Subordinated LOC”) with Cleveland, Herndon Plant
Oakley, Ltd., (“HPO”), and other lenders (together with Cleveland and HPO, the “Lenders”). The Subordinated LOC
provides the Company with a short-term line of credit not less than $
Pursuant to the terms of the Subordinated LOC, each Lender severally agrees to make loans (each such loan, an “Advance”) up to such Lender’s Commitment Amount to the Company from time to time, until December 31, 2022 (the “Due Date”). On December 15, 2022, the Board of Directors of the Company elected to extend the Due Date to December 31, 2023. The Company may, from time to time, prior to the Due Date, draw down, repay, and re-borrow on the Note, by giving notice to the Lenders of the amount to be requested to be drawn down.
| Page 14 |
Each
Note bears an interest rate of
The Subordinated LOC includes customary representations, warranties and covenants by the Company and the Lenders. The Company has also agreed to pay the legal fees of Cleveland’s counsel in an amount up to $10,000. In addition, each Note also provides that, upon the occurrence of a Default, at the option of the Lenders, the entire outstanding principal balance, all accrued but unpaid interest and/or Late Charges (as defined in the Note) at once will become due and payable upon written notice to the Company by the Lenders.
In
connection with entry into the Subordinated LOC, the Company paid to each Lender a one-time commitment fee in cash equal to 3.5% of such
Lender’s Commitment Amount. In addition, in consideration of the Lenders’ commitment to provide the Advances to the Company,
the Company issued the Lenders five-year warrants to purchase an aggregate of
Pursuant
to a selling agreement, dated as of May 11, 2022, the Company retained HPO as its placement agent in connection with the Subordinated
LOC. As compensation for services rendered in conjunction with the Subordinated LOC, the Company paid HPO a finder fee equal to
There were no borrowings or amounts outstanding under the Subordinated LOC during the six months ended December 31, 2023. On November 2, 2023, the Subordinated LOC was terminated.
NOTE 7 - 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 $ (the “Common Stock”) from time to time, through an “at-the-market offering” program (the “ATM Offering”).
From
December 21, 2020 through October 5, 2023, the Company sold an aggregate of shares of common stock at an average price of
$ per share for gross proceeds of approximately $
On October 5, 2023, the Company terminated the Sales Agreement with HCW upon given prior written notice of termination to HCW pursuant to the terms of the Sales Agreement.
Public Offering
Registered Direct Offering
On
September 27, 2021, the Company closed a registered direct offering, priced at-the-market under Nasdaq rules (“RDO”) for
the sale of shares of common stock and warrants to purchase up to an aggregate of
The securities sold in the RDO were sold pursuant to a “shelf” registration statement on Form S-3 (File No. 333-249521), including a base prospectus, previously filed with the Securities and Exchange Commission (the “SEC”) on October 16, 2020 and declared effective by the SEC on October 26, 2020. The registered direct offering of the securities was made by means of a prospectus supplement dated September 22, 2021 and filed with the SEC, that forms a part of the effective registration statement. The “shelf” registration statement expired on October 26, 2023.
Warrants
In
connection with the Company’s registered direct offering (“RDO”), in September
2021 the Company issued warrants to the RDO investors to purchase up to
In
May 2022 and in conjunction with entry into a credit facility with the Lenders, the Company issued warrants to the Lenders
to purchase up to
In
June 2022 and in conjunction with the entry into the Second Amendment to Loan and Security Agreement with SVB, the Company issued
warrants to SVB and its designee, SVB Financial Group, to purchase up to
| Page 15 |
In
November 2023 and in conjunction with the entry into the 2023 Subordinated LOC, the Company issued warrants to Cleveland Capital,
L.P. to purchase up to
Activity in warrants during the six months ended December 31, 2024 is reflected below:
| Number
of Warrants | Weighted Average Exercise Price Per Warrant | Weighted Average Remaining Contract Term (# years) | ||||||||||
| Warrants outstanding and exercisable at June 30, 2024 | $ | |||||||||||
| Warrants issued | ||||||||||||
| Warrants exercised | ||||||||||||
| Warrants forfeited and cancelled | ||||||||||||
| Warrants outstanding and exercisable at December 31, 2024 | ||||||||||||
Activity in warrants during the six months ended December 31, 2023 is reflected below:
| Number
of Warrants | Weighted Average Exercise Price Per Warrant | Weighted Average Remaining Contract Term (# years) | ||||||||||
| Warrants outstanding and exercisable at June 30, 2023 | $ | |||||||||||
| Warrants issued | ||||||||||||
| Warrants exercised | ||||||||||||
| Warrants forfeited and cancelled | ( | ) | ||||||||||
| Warrants outstanding and exercisable at December 31, 2023 | ||||||||||||
| Six months ended December 31, | ||||||||
| 2024(1) | 2023 | |||||||
| Expected volatility | % | |||||||
| Risk free interest rate | % | |||||||
| Dividend yield | % | |||||||
| Expected term (years) | ||||||||
| (1) |
Equity Award Plans
On February 17, 2015 the Company’s stockholders approved the 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan offers certain employees, directors, and consultants the opportunity to acquire the Company’s common stock subject to vesting requirements and serves to encourage such persons to remain employed by the Company and to attract new employees. The 2014 Plan allows for the award of the Company’s common stock and stock options, up to shares of the Company’s common stock. As of December 31, 2024, shares of the Company’s common stock were available for future grants under the 2014 Plan.
On April 29, 2021, the Company’s stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan authorizes the issuance of awards for up to shares of common stock in the form of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock units, restricted stock awards and unrestricted stock awards to officers, directors and employees of, and consultants and advisors to, the Company or its affiliates. As of December 31, 2024, shares of the Company’s common stock were available for future grants under the 2021 Plan.
| Page 16 |
Stock Options
| Number
of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contract Term (# years) | Aggregate intrinsic Value | Weighted Average Grant Date Fair Value |
||||||||||||||||
| Outstanding at June 30, 2024 | $ | |||||||||||||||||||
| Granted | $ | |||||||||||||||||||
| Exercised | $ | |||||||||||||||||||
| Forfeited and cancelled | ( | ) | ||||||||||||||||||
| Outstanding at December 31, 2024 | ||||||||||||||||||||
| Exercisable at December 31, 2024 | ||||||||||||||||||||
Activity in the Company’s stock options during the six months ended December 31, 2023 and related balances outstanding as of that date is reflected below:
| Number
of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contract Term (# years) | Aggregate intrinsic Value | Weighted Average Grant Date Fair Value |
||||||||||||||||
| Outstanding at June 30, 2023 | $ | |||||||||||||||||||
| Granted | $ | |||||||||||||||||||
| Exercised | $ | |||||||||||||||||||
| Forfeited and cancelled | ( | ) | ||||||||||||||||||
| Outstanding at December 31, 2023 | ||||||||||||||||||||
| Exercisable at December 31, 2023 | ||||||||||||||||||||
| Six months ended December 31, | ||||||||
| 2024(1) | 2023 | |||||||
| Expected volatility | % | |||||||
| Risk free interest rate | % | |||||||
| Dividend yield | % | |||||||
| Expected term (years) | ||||||||
| (1) |
| Page 17 |
Restricted Stock Units
On November 5, 2020, the Company’s Board of Directors approved an amendment to the 2014 Plan, to allow for grants of Restricted Stock Units (“RSUs”). Subject to vesting requirements set forth in the RSU Award Agreement, one share of common stock is issuable for one vested RSU. On April 29, 2021, a total of time-based RSUs were authorized by the Company’s Board of Directors to be granted under the amended 2014 Option Plan. On October 29, 2021, the Board of Directors authorized the following RSUs to be granted under the amended 2014 Option Plan: (i) a total of RSUs to certain executive officers of which were performance-based RSUs and were time-based RSUs, and (ii) a total of time-based RSUs to certain other key employees. The RSUs are subject to the terms and conditions provided in (i) the Restricted Stock Unit Award Agreement for time-based awards (“Time-based Award Agreement”), and (ii) the Performance Restricted Stock Unit Award Agreement for performance-based awards (“Performance-based Award Agreement”). On April 20, 2023, a total of time-based RSUs were authorized by the Company’s Board of Directors to be granted to the Company’s four non-executive directors under the amended 2014 Option Plan.
| Number
of Shares | Weighted
Average Grant Date Fair Value | Weighted
Average Remaining Contract Term (# years) | ||||||||||
| Outstanding at June 30, 2024 | $ | |||||||||||
| Granted | ||||||||||||
| Vested and settled | ||||||||||||
| Forfeited and cancelled | ( | ) | ||||||||||
| Outstanding at December 31, 2024 | ||||||||||||
Activity in RSUs during the six months ended December 31, 2023 and related balances outstanding as of that date is reflected below:
| Number
of Shares | Weighted
Average Grant Date Fair Value | Weighted
Average Remaining Contract Term (# years) | ||||||||||
| Outstanding at June 30, 2023 | $ | |||||||||||
| Granted | ||||||||||||
| Vested and settled | ( | ) | ||||||||||
| Forfeited and cancelled | ( | ) | ||||||||||
| Outstanding at December 31, 2023 | ||||||||||||
Employee Stock Purchase Plan
On
March 6, 2023, the Company’s Board of Directors approved the 2023 Employee Stock Purchase Plan (the “2023 ESPP”), and
on April 20, 2023, the 2023 ESPP was approved by the Company’s stockholders. The 2023 ESPP enables eligible employees of the Company
and certain of its subsidiaries (a “Participating Subsidiary”) to use payroll deductions to purchase shares of the Company’s
Common Stock and acquire an ownership interest in the Company. The maximum aggregate number of shares of the Company’s Common Stock
that have been reserved as authorized for the grant of options under the 2023 ESPP is shares, subject to adjustment as provided
for in the 2023 ESPP. Participation in the 2023 ESPP is voluntary and is limited to eligible employees (as such term is defined in the
2023 ESPP) of the Company or a Participating Subsidiary who
There were stock purchases under the 2023 ESPP during the six months ended December 31, 2024 and 2023.
| Page 18 |
Stock-based Compensation
Stock-based compensation expense for the three and six months ended December 31, 2024 and 2023 represents the estimated fair value of stock options and RSUs at the time of grant, and ESPP shares at the beginning of each offering period, amortized under the straight-line method over the expected vesting period and reduced for estimated forfeitures of options and RSUs. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from original estimates. At December 31, 2024, the aggregate intrinsic value of exercisable stock options was .
| Three months ended December 31, | Six months ended December 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Selling and administrative | $ | $ | $ | $ | ||||||||||||
| Research and development | ||||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | $ | ||||||||||||
At December 31 2024, the unamortized stock-based compensation expense related to outstanding stock options and RSUs was approximately $ and $, respectively, and these amounts are expected to be expensed over the weighted-average remaining recognition period of years and years, respectively.
NOTE 8 – CONCENTRATIONS
Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and unsecured trade accounts
receivable. The Company maintains cash balances in non-interest-bearing bank deposit accounts at a California commercial bank. The Company’s
cash balance at this institution is secured by the Federal Deposit Insurance Corporation up to $
The Company has not experienced any losses in such accounts. Management believes that the Company is not exposed to any significant credit risk with respect to its cash.
Customer Concentrations
During
the three months ended December 31, 2024, the Company had three major customers that each represented more than 10% of revenues on an
individual basis and together represented approximately $
During
the three months ended December 31, 2023, the Company had three major customers that each represented more than 10% of revenues on an
individual basis and together represented approximately $
| Page 19 |
Suppliers/Vendor Concentrations
The
Company obtains components and supplies included in its products from a group of suppliers. During the three months ended December 31,
2024, the Company had one supplier that accounted for more than 10% of total purchases on an individual basis and represented approximately
$
During
the three months ended December 31, 2023, the Company had one supplier that accounted for more than 10% of total purchases on an individual
basis and represented approximately $
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Legal Proceedings
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 any legal proceedings that may arise from time to time may harm the Company’s business. To the best of its knowledge, except for the legal proceedings disclosed below, there are no other material legal proceedings pending against the Company.
Securities Class Action
On November 1, 2024, plaintiff Asfa Kassam filed a purported federal securities class action complaint in the United States District Court, District of Nevada, captioned Kassam v. Flux Power Holdings, Inc. et al. (Case No. 2:24-cv-02051), against the Company, our Chief Executive Officer, Ronald F. Dutt, and our former Chief Financial Officer, Charles A. Scheiwe. The complaint generally alleges that the defendants made false and misleading statements in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. The action purports to be brought on behalf of those who purchased or otherwise acquired the Company’s publicly traded securities between November 11, 2022 and September 30, 2024, and seeks unspecified damages and other relief. On January 14, 2025, the court granted an unopposed motion to transfer the case to the Southern District of California for all further proceedings (Case No. 3:25-cv-00113). On February 20, 2025, the court appointed Brandon Paulson to act as lead plaintiff for the putative class. The court set a schedule under which the lead plaintiff will file an amended complaint on or before April 21, 2025, and defendants will file their motion(s) to dismiss on or before May 12, 2025. The case is still in its early stages. Management believes these claims to be meritless and intends to vigorously defend against them.
Shareholder Derivative Action
On January 7, 2025, plaintiff Ronald Pearl filed a purported shareholder derivative complaint in the United States District Court, District of Nevada, captioned Pearl v. Dutt, et al. (Case No. 2:25-cv-00042), against current and former officers and directors of the Company, naming the Company as a nominal defendant. The complaint generally arises out of the same allegations contained in the Kassam securities class action and alleges claims for breach of fiduciary duties and related claims. The action purports to be brought derivatively on behalf of the Company and seeks damages and other various relief. On February 19, 2025, the court granted an unopposed motion to transfer the case to the Southern District of California for all further proceedings (Case No. 3:25-cv-00373).
| Page 20 |
Employment Related Actions
On April 30, 2024, a former employee (the “Employee”) filed a class action complaint against the Company and Insperity, its third-party payroll service provider, in San Diego County Superior Court for claims including failure to pay minimum wage, failure to pay overtime, failure to provide meal periods, failure to provide rest breaks, failure to pay wages at separation, failure to provide accurate wage statements, failure to reimburse business expenses, failure to produce employment records and unfair competition, which he has purported to assert on behalf of himself and all other individuals who worked for the Company or Insperity, as non-exempt employees in California between April 30, 2020 and the present (the “Employment Proceeding”). On July 1, 2024, the Company filed an answer to the complaint that none of the asserted claims possessed any merit, contended that many of the asserted claims were subject to immediate dismissal, and contended that certain of the asserted claims were subject to binding arbitration. On October 14, 2024, the Employee elected to dismiss Insperity from the action without prejudice.
On July 5, 2024, the Employee filed a representative action complaint against the Company and Insperity in San Diego County Superior Court for Violation of Private Attorneys’ General Act (“PAGA”), seeking an unspecified amount of penalties and attorneys’ fees based on allegations that the Company violated certain California employment laws (the “PAGA Proceeding”). On August 8, 2024, the Company filed an answer to the complaint in which the Company denied that any of the asserted claims possessed any merit and contended that certain of the asserted claims were subject to binding arbitration.
On December 10, 2024, the Company and the Employee stipulated to the consolidation of Employment Lawsuit and the PAGA Action. As of the date hereof, both proceedings are currently pending consolidation by the court. Upon consolidation, the Company intends to move to have the Employee’s action claims dismissed, the Employee’s individual claims compelled to binding arbitration and the Employee’s representative PAGA claims stayed pending the arbitration of his individual claims. On October 22, 2024, the Employee elected to dismiss Insperity from the action without prejudice.
On January 25, 2024, a former CPM, LTD Inc. (“CPM”) employee filed a complaint against CPM, a third-party staffing service provider, Flux Power, Inc., and Flux Power Holdings, Inc. (collectively, the “Defendants”) in San Diego County Superior Court for claims including harassment, failure to prevent harassment, retaliation, wrongful termination, failure to provide meal periods and rest breaks, failure to provide accurate wage statements, and failure to pay wages at separation. CPM is a San Diego based staffing company that provided employees (including the plaintiff) to the Company. The plaintiff has alleged that the Company and CPM were “joint employers” to the plaintiff under California law and are jointly liable for the plaintiff’s claims. The plaintiff is seeking an unspecified amount of unpaid wages, statutory penalties, emotional distress damages, punitive damages, and attorneys’ fees from Defendants. On June 21, 2024, the Company filed an answer to the complaint in which the Company denied that any of the asserted claims possessed any merit and contended that certain of the asserted claims were subject to binding arbitration. This case was settled for an immaterial amount.
It is not possible at this time to reasonably assess the final outcomes of these proceedings or reasonably to estimate the possible loss or range of loss with respect to these proceedings. The Company intends to vigorously defend against these claims.
Operating Leases
On
April 25, 2019 the Company signed a Standard Industrial/Commercial Multi-Tenant Lease (“Lease”) with Accutek to rent approximately
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
On
December 16, 2022 the Company signed a Lease Agreement with MM Parker Court Associates, LLC to rent approximately
Total
rent expense, including the Company’s portion of common area maintenance and other costs allocated between tenants, was approximately
$
| Page 21 |
Finance Leases
The Company’s leased properties as of December 31, 2024 are as follows:
| Lease Date | Property Leased | Lease
Term (months) | Commencement Date | Monthly
Lease Payment(1) | ||||||||
| 9/2/2022 | Vehicle | 9/10/2022 | $ | |||||||||
| 10/17/2022 | Manufacturing equipment | 10/17/2022 | $ | |||||||||
| 1/24/2023 | Manufacturing equipment | 1/24/2023 | $ | |||||||||
| 3/2/2023 | Manufacturing equipment | 3/2/2023 | $ | |||||||||
| (1) |
Lease
costs are amortized on a straight-line basis over their respective lease terms. Depreciation expense related to leased assets was approximately
$
Future Minimum Lease Payments as of December 31, 2024 are as follows:
| Operating Leases | Finance Leases | |||||||
| Years ending June 30, | ||||||||
| 2025 (remaining six months) | $ | $ | ||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Total future minimum lease payments | ||||||||
| Less: discount | ( | ) | ( | ) | ||||
| Total lease liability | ||||||||
| Less: leases payable, current portion | ( | ) | ( | ) | ||||
| Leases payable, noncurrent portion | $ | $ | ||||||
NOTE 10 - SUBSEQUENT EVENTS
Waiver to Loan and Security Agreement with Gibraltar Business Capital
The
filing of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2024 with the SEC was due on September
30, 2024 but was not filed until January 29, 2025. The Company’s failure to file its Annual Report in a timely manner resulted
in an event of default with respect to a covenant under the Loan and Security Agreement with GBC to timely deliver a copy of the
Company’s annual audited financial statements. Additionally, the Company notified GBC that it appeared likely that as a result
of the restatement it would fail to maintain the EBITDA covenant for the trailing three (3) month periods ended May 31, 2024 and
July 31, 2024, or Default. On January 17, 2025, the
Amendment to Loan and Security Agreement with Gibraltar Business Capital
On
January 22, 2025, we entered into Amendment No. 4 to Loan and Security Agreement (the “Fourth Amendment”) with GBC which
amended certain terms of the Loan and Security Agreement dated July 28, 2023, as amended, relating to the EBITDA Minimum financial covenant
of the Company. In consideration for the Fourth Amendment, the Company agreed to pay GBC a non-refundable amendment fee of $
Management and Board of Director Changes
On March 10 2025, Mr. Ronald F. Dutt notified the Company’s Board of Directors of his decision to retire and resign from his position as director, Chairman of the Board, Chief Executive Officer and President of the Company and its wholly owned subsidiary, Flux Power, Inc., effective March 10, 2025. In connection with Mr. Dutt’s retirement, the Board appointed Mr. Dale T. Robinette as the new Chairman of the Board, effective March 10, 2025. Mr. Robinette also currently serves as an independent director, lead independent director, chairperson of the Compensation Committee, and a member of both the Audit Committee and the Nominating and Governance Committee. In addition, the Board appointed Mr. Krishna Vanka as director, Chief Executive Officer and President of the Company and Flux Power, effective March 10, 2025.
| Page 22 |
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information which management believes is relevant to an assessment and understanding of the Company’s results of operations and financial condition. The discussion should be read in conjunction with the unaudited interim condensed consolidated Financial Statements and Notes hereto and Part II, Item 7, Management’s Discussion and Analysis of Financial condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024.
Business Overview
We design, develop, manufacture, and sell a portfolio of advanced lithium-ion energy storage solutions for electrification of a range of industrial and commercial sectors which include material handling and airport ground support equipment (“GSE”). We believe our mobile energy storage solutions provide our customers a reliable, high performing, cost effective, and more environmentally friendly alternative as compared to traditional lead acid and propane-based solutions. Our modular and scalable design allows different configurations of lithium-ion energy storage solutions to be paired with our proprietary wireless battery management system to provide the level of energy storage required and “state of the art” real time monitoring of pack performance. We believe that the increasing demand for lithium-ion energy storage solutions and more environmentally friendly energy storage solutions in the material handling sector should continue to drive our revenue growth.
Our long-term strategy is to meet the rapidly growing demand for lithium-ion energy solutions and to be the supplier of choice, targeting large companies having energy storage needs. We have established selling relationships with customers with large fleets of forklifts and GSE. We intend to reach this goal by investing in research and development to expand our product mix, by expanding our sales and marketing efforts, improving our customer support efforts and improving production efficiencies. Our research and development efforts will continue to focus on providing adaptable, reliable and cost-effective energy storage solutions for our customers. We have filed three new patents on advanced technology related to lithium-ion energy storage solutions. The technology behind these pending patents is designed to:
| ● | increase battery life by optimizing the charging cycle, | |
| ● | give users a better understanding of the health of their battery in use, and | |
| ● | apply artificial intelligence to predictively balance the cells for optimal performance. |
Our largest sector of penetration thus far has been the material handling sector which we believe is a multi-billion-dollar addressable market. We believe the sector will provide us with an opportunity to grow our business as we enhance our product mix and service levels and grow our sales to large fleets of forklifts and GSE. Applications of our modular packs for other industrial and commercial uses, such as mobile energy storage systems, are providing additional current growth and further opportunities. We intend to continue to expand our supply chain and customer partnerships and seek further partnerships and/or acquisitions that provide synergy to meeting our growth and “building scale” objectives.
The following table summarizes the new orders, shipments, and backlog activities for the last six (6) fiscal quarters:
| Fiscal Quarter Ended | Beginning Backlog | New Orders | Shipments | Fiscal Quarter Ended | ||||||||||||
| September 30, 2023 | $ | 28,393,000 | $ | 8,102,000 | $ | 14,787,000 | $ | 21,708,000 | ||||||||
| December 31, 2023 | $ | 21,708,000 | $ | 26,552,000 | $ | 18,203,000 | $ | 30,057,000 | ||||||||
| March 31, 2024 | $ | 30,057,000 | $ | 4,030,000 | $ | 14,457,000 | $ | 19,630,000 | ||||||||
| June 30, 2024 | $ | 19,630,000 | $ | 11,614,000 | $ | 13,377,000 | $ | 17,867,000 | ||||||||
| September 30, 2024 | $ | 17,867,000 | $ | 19,451,000 | $ | 16,125,000 | $ | 21,193,000 | ||||||||
| December 31, 2024 | $ | 21,193,000 | $ | 13,116,000 | $ | 16,830,000 | $ | 17,479,000 | ||||||||
| Page 23 |
“Backlog” represents the amount of anticipated revenues, at a given point in time, we may recognize in the future from existing contractual orders with customers that are in progress and have not yet shipped. Backlog values may not be indicative of future operating results as orders may be cancelled, modified or otherwise altered by customers. In addition, our ability to realize revenue from our backlog will be dependent on the delivery of key parts from our suppliers and our ability to manufacture and ship our products to customers in a timely manner. There can be no assurance that outstanding customer orders will be fulfilled as expected and that our backlog will result in future revenues.
As of February 28, 2025, our order backlog was approximately $19.5 million and, in part, reflects current delays in orders of new forklifts due to a general slowing of capital spending by our customers.
Business Updates
We have experienced some delays in new orders of our energy storage solutions due to corresponding deferrals of new forklift purchases mainly caused by lower capital spending in the market sector that we serve and due to interest rate variability affecting capital spending by certain large customer fleets. While we have had very few cancellations of existing purchase orders, some customers have extended their orders to later periods. Causal rationale for delays is speculative and not definitive, but some customer feedback indicates concerns over the economy and the uncertainty of interest rates, as well as broader geopolitical uncertainty. The impact of order deferrals has required additional selling strategies to support our targeted sales trajectory.
We have seen improvements in our sourcing and purchasing activity, reflecting our efforts to expand and optimize our vendor strategy. Additional improvements include more secondary sources to minimize stock-outs, lower costs from increasing sources, and controlled delivery times, as reflected in our current inventory levels. With strategic supply chain and profitability improvement initiatives, lower costs and higher volume purchasing, we are targeting gross margin improvement to continue. We are highly focused on expanding sales and marketing initiatives to secure new customer relationships and support continued migration to lithium of current customers. We recently have added our second “tier one” OEM private label battery program to supplement our strong OEM relationships and approvals. This collaboration marks a significant milestone for our S-Series line, which now includes products with the UL Type EE certification, which provides added safety and durability capabilities. We are also working with our distribution network to expand customer acquisition with direct-to-customer initiatives.
We are also expanding our deployment of our telemetry solution providing customers with state of health, better asset management, and a platform for more timely management of service and maintenance requirements.
We also announced a new partnership aimed at enhancing the recycling process for end-of-life lithium-ion batteries with the largest critical battery components recycling company in the U.S. This collaboration represents a significant step forward in our ongoing commitment to environmental responsibility.
Nasdaq Stock Market Notices
On January 31, 2025, the Company received a notice (the “January Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that based on its stockholders’ equity of $194,000 as reported in its Form 10-K for the fiscal year ended June 30, 2024, the Company is no longer in compliance with Nasdaq Listing Rule 5550(b)(1), which requires the Company to maintain a minimum of $2,500,000 in stockholders’ equity for continued listing on Nasdaq (the “Stockholders’ Equity Requirement”).
Pursuant to the January Notice, the Company had 45 calendar days from the date of the January Notice, or until March 17, 2025, to submit a plan to regain compliance. On March 17, 2025, the Company filed its plan with Nasdaq to regain compliance with the Stockholders’ Equity Requirement, including requesting an extension through July 30, 2025, which is 180 days from the date of the Stockholders’ Equity Notice, to regain compliance of the Stockholders’ Equity Requirement. In the event the plan is not accepted by Nasdaq, or in the event the plan is accepted by Nasdaq and the 180-day extension period is granted but the Company fails to regain compliance within such plan period, the Company would have the right to a hearing before an independent panel. The hearing request would stay any suspension or delisting action pending the conclusion of the hearing process and the expiration of any additional extension period granted by the panel following the hearing. The Company intends to take all reasonable measures available to regain compliance under the Nasdaq Listing Rules and to remain listed on Nasdaq.
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On February 21, 2025, the Company received a notice (the “February Notice”) from the Nasdaq Listing Qualifications Department (the “Staff”) stating that because the Company had not yet filed its Form 10-Q for the period ended December 31, 2024 (the “December Form 10-Q”), the Company does not comply with Nasdaq Listing Rule 5250(c)(1) (the “Listing Rule”), which requires Nasdaq-listed companies to timely file all required periodic financial reports with the Securities and Exchange Commission, and required the Company to submit an update to its original plan to regain compliance with the Listing Rule. The Company submitted its update to its original plan to Nasdaq on February 25, 2025, including its plan to file the December Form 10-Q by no later than April 14, 2025.
If Nasdaq does not accept the Company’s Stockholders’ Equity Compliance Plan and the Company fails to prevail in its appeal to Nasdaq, or if the Company fails to comply with the Nasdaq listing requirements and does not regain compliance, the Company’s common stock will be subject to delisting by Nasdaq. In the event our common stock is delisted, our stock price and market liquidity of our stock will be adversely affected which will impact the ability of the Company’s stockholders to sell securities in the market. Further, delisting from Nasdaq could also have other negative effects, including potential loss of confidence by partners, lenders, suppliers and employees.
Management and Board of Directors Changes
On March 10 2025, Mr. Ronald F. Dutt, our former chairman and Chief Executive Officer, notified the Company’s Board of Directors (the “Board”) of his decision to retire and resign from his position as director, Chairman of the Board, Chief Executive Officer and President of the Company and its wholly owned subsidiary, Flux Power, Inc. (“Flux Power”), effective March 10, 2025. Mr. Dutt’s stepping down is for personal reasons and not due to any disagreement with the Company’s management team or the Company’s Board on any matter relating to the operations, policies or practices of the Company or any issues regarding the Company’s accounting policies or practices.
In connection with Mr. Dutt’s retirement, the Board appointed Mr. Dale T. Robinette as the new Chairman of the Board, effective March 10, 2025. Mr. Robinette also currently serves as an independent director, lead independent director, chairperson of the Compensation Committee, and a member of both the Audit Committee and the Nominating and Governance Committee. In addition, the Board appointed Mr. Krishna Vanka as director, Chief Executive Officer and President of the Company and Flux Power, effective March 10, 2025.
Employment Agreement with Mr. Vanka
On March 10, 2025, the Company entered into an executive employment agreement with Mr. Vanka, pursuant to which he will serve as the Chief Executive Officer and President of the Company (the “Employment Agreement”). Pursuant to the terms of the Employment Agreement, Mr. Vanka will receive an annual base salary of $400,000, subject to annual performance reviews by the Board or Compensation Committee. As an initial incentive for achieving key financial milestones, Mr. Vanka will be awarded a cash bonus of $100,000 if the Company’s average EBITDA is net positive over the next nine months (end of the calendar year). Beginning fiscal year 2026, Mr. Vanka will have the ability to achieve a cash bonus of up to 150% of base salary based on budget performance goals as determined by the Board or the Compensation Committee. Beginning fiscal year 2026, Mr. Vanka will be granted time-based restricted stock units (“Time RSUs”) equivalent to 50% of his base salary, vesting in three (3) equal annual installments over three (3) years. He will also be eligible for performance-based restricted stock units (“PSUs”), with a target of 50% of his base salary and a maximum of 150%, based on budget performance goals. Any earned PSUs will cliff-vest on the third (3rd) anniversary of the grant date.
Additionally, the Employment Agreement provides that Mr. Vanka may be terminated at any time by the Company with or without cause. If Mr. Vanka is terminated without cause or upon a Change in Control (as defined in the Employment Agreement), he will receive: (a) twelve (12) months of base salary paid in a lump sum; and (b) twelve (12) months of continued life, medical and dental insurance coverage, with the Company covering the cost subject to the same employee contribution as active employees. Additionally, in the event of a Change in Control termination, Time RSUs and any PSUs, for which the performance criteria are satisfied, will be subject to double-trigger acceleration. Mr. Vanka is subject to a non-compete obligation during the term of his employment and confidentiality obligations that extend beyond termination. The Employment Agreement also includes other customary clauses and arrangements.
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Amendment to Employment Agreement and Separation and Release with Mr. Dutt
To ensure a smooth transition, on March 10, 2025, the Company entered into an Amendment to Mr. Dutt’s Amended and Restated Employment Agreement, dated February 17, 2021 (the “Amendment to Dutt Employment Agreement,” and together with the Amended and Restated Employment Agreement, the “Dutt Employment Agreement”). Under this amendment, Mr. Dutt may provide services and answer questions on an as-needed basis as a senior advisor and will be compensated based on his current monthly salary in the amount of $32,187.50 through March 2025, unless terminated earlier pursuant to its terms. Mr. Dutt will report to the Chief Executive Officer or his designee.
In addition, the Company and Mr. Dutt also agreed to enter into a separation and release agreement (“Separation Agreement”), which includes the contemplated terms of the payments and benefits in exchange for the release and other agreements set forth therein (the “Severance Benefits”) with Mr. Dutt, including: (a) a cash severance payment of $386,250.02, equivalent to twelve (12) months of his base salary as of the Resignation Date to be paid pro ratably over twelve (12) months; and (b) a monthly cash payment for twelve (12) months in an amount of $4,034.20 for health insurance coverage. Mr. Dutt’s Separation Agreement includes a customary general release of claims in favor of the Company and certain related parties.
Segment and Related Information
We operate as a single reportable segment.
Results of Operations and Financial Condition
The following table represents our unaudited condensed consolidated statement of operations for the three months ended December 31, 2024 and 2023.
| Three months ended December 31, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| Amount | %
of Revenues | Amount | %
of Revenues | |||||||||||||
| Revenues | $ | 16,830,000 | 100 | % | $ | 18,203,000 | 100 | % | ||||||||
| Cost of sales | 11,367,000 | 68 | 12,822,000 | 70 | ||||||||||||
| Gross profit | 5,463,000 | 32 | 5,381,000 | 30 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and administrative | 5,985,000 | 35 | 4,593,000 | 25 | ||||||||||||
| Research and development | 957,000 | 6 | 1,235,000 | 7 | ||||||||||||
| Total operating expenses | 6,942,000 | 41 | 5,828,000 | 32 | ||||||||||||
| Operating loss | (1,479,000 | ) | (8 | ) | (447,000 | ) | (2 | ) | ||||||||
| Interest income (expense), net | (408,000 | ) | (3 | ) | (449,000 | ) | (3 | ) | ||||||||
| Net loss | $ | (1,887,000 | ) | (11 | )% | $ | (896,000 | ) | (5 | )% | ||||||
Revenues
Revenues for the quarter ended December 31, 2024 was $16,830,000 versus $18,203,000 for the quarter ended December 31, 2023. The decrease of $1,373,000 or 8% was driven by lower demand in the material handling market and lower average selling prices due to product mix.
Cost of Sales
Cost of sales for the quarter ended December 31, 2024 was $11,367,000 or 68% of revenue versus $12,822,000 or 70% of revenue for the quarter ended December 31, 2023. The decrease in cost of sales was directly associated with a decrease in units of energy storage packs sold during the current quarter, and lower average cost of sales per unit achieved during the current quarter as a result of our product cost improvement initiatives, partially offset by higher warranty costs.
Gross Profit
Gross profit for the quarter ended December 31, 2024 was $5,463,000 or 32% of revenue versus $5,381,000 or 30% of revenue for the quarter ended December 31, 2023. The 200 basis point increase in gross profit margin (gross profit as a percent of revenues) was primarily driven by a decrease in average costs, partially offset by an increase in warranty costs.
Selling and Administrative Expenses
Selling and administrative expenses for the quarter ended December 31, 2024 were $5,985,000 versus $4,593,000 for the quarter ended December 31, 2023. The increase of $1,392,000 or 30% was primarily attributable to variable incentive compensation, severance and professional fees associated with the multi-year restatement of previously filed financial statements.
Research and Development Expense
Research and development expenses for the quarter ended December 31, 2024 was $957,000 versus $1,235,000 for the quarter ended December 31, 2023. The decrease of $278,000 was mainly driven by lower salaries and stock-based compensation.
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Interest Income (Expense), net
Interest income (expense), net for the quarter ended December 31, 2024 was $408,000 versus $449,000 for the quarter ended December 31, 2023. The decrease of $41,000 or 9% was primarily related to lower balances outstanding under our credit facilities.
Net Loss
Net loss for the quarter ended December 31, 2024, was $1,887,000 versus $896,000 for the quarter ended December 31, 2023. The increase in net loss was primarily attributable to the increase in operating expenses related to costs associated with the multi-year restatement of previously filed financial statements and executive severance.
The following table represents our unaudited condensed consolidated statement of operations for the six months ended December 31, 2024 and 2023.
| Six months ended December 31, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| Amount | %
of Revenues | Amount | %
of Revenues | |||||||||||||
| Revenues | $ | 32,955,000 | 100 | % | $ | 32,990,000 | 100 | % | ||||||||
| Cost of sales | 22,274,000 | 68 | 23,374,000 | 71 | ||||||||||||
| Gross profit | 10,681,000 | 32 | 9,616,000 | 29 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and administrative | 11,100,000 | 33 | 9,318,000 | 28 | ||||||||||||
| Research and development | 2,272,000 | 7 | 2,530,000 | 8 | ||||||||||||
| Total operating expenses | 13,372,000 | 40 | 11,848,000 | 36 | ||||||||||||
| Operating loss | (2,691,000 | ) | (8 | ) | (2,232,000 | ) | (7 | ) | ||||||||
| Interest income (expense), net | (865,000 | ) | (3 | ) | (852,000 | ) | (2 | ) | ||||||||
| Net loss | $ | (3,556,000 | ) | (11 | )% | $ | (3,084,000 | ) | (9 | )% | ||||||
Revenues
Revenues for the six months ended December 31, 2024 were $32,955,000 versus $32,990,000 for the six months ended December 31, 2023. Revenues were nearly flat with decreases in the material handling market being nearly offset by gains in the ground support market.
Cost of Sales
Cost of sales for the six months ended December 31, 2024 was $22,274,000 or 68% of revenue versus $23.374,000 or 71% of revenue for the six months ended December 31, 2023. The decrease of $1,100,000 was mostly attributed to a reduction in average costs for material handling battery packs slightly offset by an increase in warranty expense. The decline in cost of sales as a percent of revenue of 300 basis points was driven by an increase in average selling prices in the ground support market and reduced costs in material handling.
Gross Profit
Gross profit for the six months ended December 31, 2024 was $10,681,000 or 32% of revenue versus $9,616,000 or 29% of revenue for the six months ended December 31, 2023. The 300 basis point increase in gross profit margin (gross profit as a percent of revenues) was primarily driven by an increase in average selling prices in the ground support market and reduced costs in material handling.
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Selling and Administrative Expenses
Selling and administrative expenses for the six months ended December 31, 2024 were $11,100,000 versus $9,318,000 for the quarter six months December 31, 2023. The increase of $1,782,000 or 19% was primarily attributable to higher variable incentive compensation, severance and professional fees associated with the multi-year restatement of previously filed financial statements.
Research and Development Expense
Research and development expenses for the six months ended December 31, 2024 were $2,272,000 versus $2,530,000 for the six months ended December 31, 2023. The decrease of $258,000 was primarily attributable to lower salaries and stock-based compensation.
Interest Income (Expense), net
Interest income (expense), net for the six months ended December 31, 2024 was $865,000 versus $852,000 for the six months ended December 31, 2023, relatively flat year over year.
Net Loss
Net loss for the six months ended December 31, 2024, was $3,556,000 versus $3,084,000 for the six months ended December 31, 2023. The increase in net loss was primarily attributable to the increase in operating expenses related to costs associated with the multi-year restatement of previously filed financial statements and executive severance, partially offset by the increase in gross profit.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA is calculated by taking net loss and adding back the expenses related to interest, income taxes, depreciation, amortization and stock-based compensation, each of which has been calculated in accordance with GAAP. Adjusted EBITDA was a loss of $951,000 for the quarter ended December 31, 2024, a decrease of $1,160,000 compared to a gain of $209,000 for the quarter ended December 31, 2023. Adjusted EBITDA was a loss of approximately $1,564,000 for the six months ended December 31, 2024, a loss increase of $525,000 compared to a loss of $1,039,000 for the six months ended December 31, 2023.
Management believes that Adjusted EBITDA, when viewed with our results under GAAP and the accompanying reconciliations, provides useful information about our period-over-period results. Adjusted EBITDA is presented because management believes it provides additional information with respect to the performance of our fundamental business activities and is also frequently used by securities analysts, investors and other interested parties in the evaluation of comparable companies. We also rely on Adjusted EBITDA as a primary measure to review and assess the operating performance of our company and our management team.
As Adjusted EBITDA is a non-GAAP financial measure, it should not be construed as a substitute for EBITDA and net income (loss) (as determined in accordance with GAAP) for the purpose of analyzing our operating performance or financial position.
A reconciliation of our Adjusted EBITDA to net loss is included in the table below:
| Three months ended December 31, | Six months ended December 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net loss | $ | (1,887,000 | ) | $ | (896,000 | ) | $ | (3,556,000 | ) | $ | (3,084,000 | ) | ||||
| Add/Subtract: | ||||||||||||||||
| Interest, net | 408,000 | 449,000 | 865,000 | 852,000 | ||||||||||||
| Income tax provision | - | - | - | - | ||||||||||||
| Depreciation and amortization | 250,000 | 262,000 | 502,000 | 523,000 | ||||||||||||
| EBITDA | (1,229,000 | ) | (185,000 | ) | (2,189,000 | ) | (1,709,000 | ) | ||||||||
| Add/Subtract: | ||||||||||||||||
| Stock-based compensation | 278,000 | 394,000 | 625,000 | 670,000 | ||||||||||||
| Adjusted EBITDA | $ | (951,000 | ) | $ | 209,000 | $ | (1,564,000 | ) | $ | (1,039,000 | ) | |||||
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Liquidity and Capital Resources
Overview
To date, our business has not generated sufficient cash to fund our operations. However, given our existing backlog, we anticipate that revenue growth coupled with improvement in our gross margin and lower operating expenses will move us closer to profitability and improve our cash flow. Our gross margin improvement plan includes, but is not limited to, efforts to reduce product costs while increasing the price of our products for new orders. We received new orders during the six months ended December 31, 2024 of approximately $32.6 million.
As of December 31, 2024, we had an existing cash balance of $0.9 million, $6.3 million available under our $16.0 million GBC Credit Facility, subject to borrowing base limitations, and $1.0 million available from Cleveland Capital under our $2.0 million 2023 Subordinated LOC.
On January 22, 2025, we entered into Amendment No. 4 to the Loan and Security Agreement (the “Fourth Amendment”) with GBC which amended certain terms of the Loan and Security Agreement dated July 28, 2023, as amended, relating to the EBITDA Minimum financial covenant of the Company. In consideration for the Fourth Amendment, we agreed to pay GBC a non-refundable amendment fee of $50,000 in cash, as follows: (i) $25,000 paid on March 1, 2025, and (ii) $25,000 shall be due and payable on April 1, 2025.
As of January 31, 2025, we believe our cash balance of $0.4 million, together with $4.9 million available under our $16.0 million revolving line of credit with GBC, subject to borrowing base limitations, and $1.0 million available under the subordinated line of credit (“Subordinated LOC”) through August 2025, will not be sufficient to meet our anticipated capital resources to fund planned operations for the next twelve (12) months. See “Future Liquidity Needs” below and Liquidity and Financial Condition in Note 2 – Summary of Significant Accounting Policies to the unaudited condensed consolidated financial statements for additional information.
Cash Flows
Cash Flow Summary
| Six months ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Net cash provided by (used in) operating activities | $ | 3,774,000 | $ | (4,045,000 | ) | |||
| Net cash used in investing activities | (317,000 | ) | (338,000 | ) | ||||
| Net cash provided by (used in) financing activities | (3,217,000 | ) | 3,588,000 | |||||
| Net change in cash | $ | 240,000 | $ | (795,000 | ) | |||
Operating Activities
Net cash provided by operating activities was $3,774,000 for the six months ended December 31, 2024, which consisted of $5,389,000 provided by changes in operating assets and liabilities and $1,941,000 of non-cash operating costs, partially offset by net loss of $3,556,000. The primary changes in operating assets and liabilities were a decrease in accounts receivable, a decrease in inventories and an increase in accounts payable and accrued expenses combined, partially offset by office lease payable payments.
Net cash used in operating activities was $4,045,000 for the six months ended December 31, 2023, which consisted of net loss of $3,084,000 and $2,817,000 used in changes in operating assets and liabilities, partially offset by $1,856,000 of non-cash operating costs. The primary changes in operating assets and liabilities were an increase in accounts receivable, partially offset by a reduction in accounts payable and accrued expenses combined and a reduction in inventories.
Investing Activities
Net cash used in investing activities for the six months ended December 31, 2024 was $317,000, which consisted primarily of equipment purchases.
Net cash used in investing activities for the six months ended December 31, 2023 was $338,000, which consisted primarily of equipment purchases.
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Financing Activities
Net cash used in financing activities for the six months ended December 31, 2024 was $3,217,000, which primarily consisted of $4,141,000 in net repayments under the working capital line of credit, partially offset by $1,000,000 of subordinated debt borrowings.
Net cash provided by financing activities for the six months ended December 31, 2023 was $3,588,000, which primarily consisted of $3,663,000 in net borrowing under the working capital line of credit.
Future Liquidity Needs
We have evaluated our expected cash and working capital requirements, which include, but are not limited to, investments in additional sales and marketing, research and development and capital equipment and have determined that our existing cash resources are not sufficient to meet our anticipated needs for the next twelve (12) months following the filing date of this quarterly report.
As of January 31, 2025, we had a cash balance of $0.4 million, available funding under our GBC Credit Facility for up to $4.9 million, subject to borrowing base limitations, and additional borrowing capacity under our 2023 Subordinated LOC of $1.0 million. Our operations have relied on our ability to successfully maintain and draw on our credit facilities. Our ability to draw funds from the GBC Credit Facility is subject to certain restrictions, covenants and borrowing base limitations. In light of the recent Default under the GBC Credit Facility, the financial covenants in the Agreement were modified to help prevent future defaults.
In addition, our ability to meet projected revenue targets and generate cash from operations has been impacted by delays in new orders of our energy storage solutions, primarily due to deferrals of new forklift purchases caused by lower capital spending in the market sector that we serve and due to interest rate variability affecting capital spending in certain large customer fleets.
Furthermore, should there be any delays in the receipts of key component parts, due in part to supply change disruptions, our ability to fulfill the backlog of sales orders will be negatively impacted resulting in lower availability of cash resources from operations. In that event, we may be required to raise additional funds by issuing equity, convertible debt securities or other forms of indebtedness. If such funds are not available when required, management will be required to curtail investments in new product development, which may have a material adverse effect on future cash flows and results of operations and our ability to continue operating as a going concern.
Our failure to timely file our fiscal 2024 annual report on Form 10-K and subsequent fiscal 2025 interim quarterly reports on Form 10-Q means that we currently are ineligible to use a registration statement on Form S-3. We will not be eligible to use a registration statement on Form S-3 again until we have timely filed all materials and reports required to be filed pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934 for a period of at least twelve (12) calendar months immediately preceding the filing of a new registration statement on Form S-3. The inability to use a Form S-3 registration statement will limit our ability to raise capital through sales of our securities and would require us to file a Form S-1, which would require additional effort to complete. To the extent that we raise additional funds by issuing equity, equity-linked or convertible debt securities, our stockholders may experience dilution and such financing could be costly.
These events and circumstances raise substantial doubt about our ability to continue as a going concern for the next twelve (12) months following the filing date of this quarterly report. See Liquidity and Financial Condition in Note 2 – Summary of Significant Accounting Policies to the unaudited condensed consolidated financial statements for additional information.
Critical Accounting Policies
The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Information with respect to our critical accounting policies which we believe could have the most significant effect on our reported results and require subjective or complex judgments by management is contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended June 30, 2024 filed with the SEC on January 29, 2025.
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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.
ITEM 4 - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, as of the end of the period covered by this report, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(f) and 15d-15(f) 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 not effective as of December 31, 2024 because of the material weaknesses identified in our internal controls over financial reporting.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurances with respect to financial statement preparation and presentation. Additionally, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As part of its ongoing remedial efforts to strengthen controls and procedures, during the quarter ended March 31, 2024 management engaged a financial consultant with extensive technical accounting expertise to provide technical accounting advice regarding certain complex transactions. In early March 2024, the Company strengthened its internal financial expertise by hiring a new Chief Financial Officer with over 20 years of experience with publicly traded companies and finance and accounting and who also served as an auditor for 10 years with Ernst & Young LLP, where he became a certified public accountant. In May 2024, the Company engaged an external financial consulting firm with extensive technical accounting expertise in SEC Reporting. In addition, in August 2024, the Company engaged an external financial consulting firm to assist the Company with technical accounting matters.
Under the supervision of management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and subsequent guidance prepared by the Commission specifically for smaller public companies. Based on that evaluation, our management concluded that our internal control over financial reporting was not effective as of June 30, 2024, continuing through December 31, 2024, due to previously identified material weaknesses resulting from having insufficient personnel resources with technical accounting expertise related to certain aspects of the financial reporting process.
After re-evaluation, the Company’s management has concluded that in connection with restatement and due to a lack of sufficiently designed controls that support an effective assessment of our internal controls relating to the prevention of fraud and possible management override of controls, this represents an additional material weakness in the Company’s disclosure controls and procedures and the Company’s internal control over financial reporting. To address this material weakness, management plans to continue to devote significant effort and resources to the remediation and improvement of the Company’s internal control over financial reporting. While the Company has processes to account for its inventory, under the leadership of the Company’s new Chief Financial Officer, the Company intends to strengthen its internal processes and procedures over inventory management and reporting. The Company has begun updating its processes and controls around inventory obsolescence, the timing of its internal inventory audits and implementation of other measures. In addition, in August 2024, the Company also engaged an external financial consulting firm with extensive technical accounting expertise to assist with the analysis of prior periods, along with an independent law firm to conduct an internal review of the events and activities leading to errors in the financial statements.
The Company’s management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Additionally, controls can be circumvented by collusion or improper management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected, and there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.
Change in Internal Control over Financial Reporting
Except as discussed above, there have been no changes in the Company’s internal controls over financial reporting during the three months ended December 31, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
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 any legal proceedings that may arise from time to time may harm the Company’s business. To the best of its knowledge, except for the legal proceedings disclosed below, there are no other material legal proceedings pending against the Company.
Securities Class Action
On November 1, 2024, plaintiff Asfa Kassam filed a purported federal securities class action complaint in the United States District Court, District of Nevada, captioned Kassam v. Flux Power Holdings, Inc. et al. (Case No. 2:24-cv-02051), against the Company, our Chief Executive Officer, Ronald F. Dutt, and our former Chief Financial Officer, Charles A. Scheiwe. The complaint generally alleges that the defendants made false and misleading statements in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. The action purports to be brought on behalf of those who purchased or otherwise acquired the Company’s publicly traded securities between November 11, 2022 and September 30, 2024, and seeks unspecified damages and other relief. On January 14, 2025, the court granted an unopposed motion to transfer the case to the Southern District of California for all further proceedings (Case No. 3:25-cv-00113). On February 20, 2025, the court appointed Brandon Paulson to act as lead plaintiff for the putative class. The court set a schedule under which the lead plaintiff will file an amended complaint on or before April 21, 2025, and defendants will file their motion(s) to dismiss on or before May 12, 2025. The case is still in its early stages. Management believes these claims to be meritless and intends to vigorously defend against them.
Shareholder Derivative Action
On January 7, 2025, plaintiff Ronald Pearl filed a purported shareholder derivative complaint in the United States District Court, District of Nevada, captioned Pearl v. Dutt, et al. (Case No. 2:25-cv-00042), against current and former officers and directors of the Company, naming the Company as a nominal defendant. The complaint generally arises out of the same allegations contained in the Kassam securities class action and alleges claims for breach of fiduciary duties and related claims. The action purports to be brought derivatively on behalf of the Company and seeks damages and other various relief. On February 19, 2025, the court granted an unopposed motion to transfer the case to the Southern District of California for all further proceedings (Case No. 3:25-cv-00373).
Employment Related Actions
On April 30, 2024, a former employee (the “Employee”) filed a class action complaint against the Company and Insperity, its third-party payroll service provider, in San Diego County Superior Court for claims including failure to pay minimum wage, failure to pay overtime, failure to provide meal periods, failure to provide rest breaks, failure to pay wages at separation, failure to provide accurate wage statements, failure to reimburse business expenses, failure to produce employment records and unfair competition, which he has purported to assert on behalf of himself and all other individuals who worked for the Company or Insperity, as non-exempt employees in California between April 30, 2020 and the present (the “Employment Proceeding”). On July 1, 2024, the Company filed an answer to the complaint that none of the asserted claims possessed any merit, contended that many of the asserted claims were subject to immediate dismissal, and contended that certain of the asserted claims were subject to binding arbitration. On October 14, 2024, the Employee elected to dismiss Insperity from the action without prejudice.
On July 5, 2024, the Employee filed a representative action complaint against the Company and Insperity in San Diego County Superior Court for Violation of Private Attorneys’ General Act (“PAGA”), seeking an unspecified amount of penalties and attorneys’ fees based on allegations that the Company violated certain California employment laws (the “PAGA Proceeding”). On August 8, 2024, the Company filed an answer to the complaint in which the Company denied that any of the asserted claims possessed any merit and contended that certain of the asserted claims were subject to binding arbitration.
On December 10, 2024, the Company and the Employee stipulated to the consolidation of Employment Lawsuit and the PAGA Action. As of the date hereof, both proceedings are currently pending consolidation by the court. Upon consolidation, the Company intends to move to have the Employee’s action claims dismissed, the Employee’s individual claims compelled to binding arbitration and the Employee’s representative PAGA claims stayed pending the arbitration of his individual claims. On October 22, 2024, the Employee elected to dismiss Insperity from the action without prejudice.
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On January 25, 2024, a former CPM, LTD Inc. (“CPM”) employee filed a complaint against CPM, a third-party staffing service provider, Flux Power, Inc., and Flux Power Holdings, Inc. (collectively, the “Defendants”) in San Diego County Superior Court for claims including harassment, failure to prevent harassment, retaliation, wrongful termination, failure to provide meal periods and rest breaks, failure to provide accurate wage statements, and failure to pay wages at separation. CPM is a San Diego based staffing company that provided employees (including the plaintiff) to the Company. The plaintiff has alleged that the Company and CPM were “joint employers” to the plaintiff under California law and are jointly liable for the plaintiff’s claims. The plaintiff is seeking an unspecified amount of unpaid wages, statutory penalties, emotional distress damages, punitive damages, and attorneys’ fees from Defendants. On June 21, 2024, the Company filed an answer to the complaint in which the Company denied that any of the asserted claims possessed any merit and contended that certain of the asserted claims were subject to binding arbitration.
It is not possible at this time to reasonably assess the final outcomes of these proceedings or reasonably to estimate the possible loss or range of loss with respect to these proceedings. The Company intends to vigorously defend against these claims.
ITEM 1A - RISK FACTORS
An investment in our common stock involves a high degree of risk. You should carefully consider the risks set forth below and in the section captioned “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024, filed with the SEC on January 29, 2025, before making an investment decision. If any of the risks actually occur, our business, financial condition or results of operations could suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. You should read the section captioned “Special Note Regarding Forward Looking Statements” above for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this report.
We are not currently in compliance with the continued listing requirements for the Nasdaq Stock Market. If we fail to regain compliance or to meet the continued listing requirements, our common stock may be delisted, which could affect the market price of our common stock, negatively impact stockholders’ ability to sell shares and negatively impact our ability to access the capital markets.
On January 31, 2025, we received a notice (the “Stockholders’ Equity Notice”) from The Nasdaq Stock Market (“Nasdaq”) LLC notifying the Company that based on its stockholders’ equity of $194,000 as reported in its Form 10-K for the fiscal year ended June 30, 2024, the Company is no longer in compliance with Nasdaq Listing Rule 5550(b)(1), which requires the Company to maintain a minimum of $2,500,000 in stockholders’ equity for continued listing on Nasdaq (the “Stockholders’ Equity Requirement”).
On February 21, 2025, we received an additional notice (the “February Notice”) from the Nasdaq Listing Qualifications Department (the “Staff”) stating that because the Company had not yet filed its Form 10-Q for the period ended December 31, 2024 (the “December Form 10-Q”), the Company does not comply with Nasdaq Listing Rule 5250(c)(1) (the “Listing Rule”), which requires Nasdaq-listed companies to timely file all required periodic financial reports with the Securities and Exchange Commission.
Under the Nasdaq rules and pursuant to the Stockholders’ Equity Notice, we had until March 17, 2025 to submit to Nasdaq a plan to regain compliance with the Stockholders’ Equity requirement. On March 17, 2025, we filed such plan with Nasdaq to regain compliance with the Stockholders’ Equity requirement, including requesting an extension through July 30, 2025, which is 180 calendar days from the date of the Stockholders’ Equity Notice to regain compliance of the Stockholders’ Equity Requirement. In the event the plan is not accepted by Nasdaq, or in the event the plan is accepted by Nasdaq and the 180-day extension period is granted, but we fail to regain compliance within such plan period, we would have the right to a hearing before an independent panel. The hearing request would stay any suspension or delisting action pending the conclusion of the hearing process and the expiration of any additional extension period granted by the panel following the hearing. We intend to take all reasonable measures available to regain compliance under the Nasdaq Listing Rules and to remain listed on Nasdaq.
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Upon the filing of this December Form 10-Q, we will be current with our required periodic financial reports to be filed with the Securities and Exchange Commission under the Listing Rule. However, any subsequent failure to regain and maintain compliance with the continued listing requirements of Nasdaq could result in delisting of our common stock from Nasdaq and negatively impact our company and holders of our common stock, including by reducing the liquidity and trading of our common stock, limited availability of price quotations and reduced news and analyst coverage. Delisting may adversely impact the perception of our financial condition, cause reputational harm with investors, our employees and parties conducting business with us and limit our access to debt and equity financing.
In addition, we cannot assure that we will be able to continue to comply with the minimum bid price requirement, successfully comply and continue to comply with the stockholders’ equity requirement, and the other standards that we are required to meet in order to maintain a listing of our common stock on Nasdaq. Our failure to continue to meet these requirements may result in our common stock being delisted from Nasdaq. There can be no assurance that our common stock will continue to trade on Nasdaq 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.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There have been no unregistered securities sold by the Company during the period covered by this report.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 – EXHIBITS
The following exhibits are filed as part of this Report.
| * | Filed herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Flux Power Holdings, Inc. | ||
| Date: March 20, 2025 | By: | /s/ Krishna Vanka |
| Krishna Vanka | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Kevin S. Royal | |
| Kevin S. Royal | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) |
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