NOTE 1 – NATURE OF BUSINESS

Flux Power Holdings, Inc. (the “Company” or “Flux”) was incorporated in 1998 in the State of Nevada, and Flux’s operations are conducted through its wholly owned subsidiary, Flux Power, Inc., a California corporation. The Company designs, develops, manufactures, and sells 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”). Management believes the Company’s mobile energy storage solutions provide our customers with a reliable, high performing, cost effective and more environmentally friendly alternative as compared to traditional lead acid and propane-based solutions. The Company’s modular and scalable design allows different configurations of lithium-ion energy storage solutions which are paired with a proprietary wireless battery management system to provide the level of energy storage required and “state of the art” real time monitoring of battery pack performance. Management believes that the growing demand for lithium-ion energy storage solutions and more environmentally friendly energy storage solutions across a range of industrial and commercial sectors should continue to drive growth in the markets served.

Business Trends and Uncertainties

Since January 2025, the U.S. government has increased certain existing import tariffs and has implemented new import tariffs across a wide range of countries at various rates, including on product imports from almost all countries, and individualized higher tariffs on certain countries, notably China. While the Company has been able to offset some of the impact of enacted tariffs with supply chain adjustments, alternative manufacturing locations, cost reduction actions and by also increasing the selling prices of products, management believes that tariffs have negatively impacted the Company’s revenues, profitability and cash flows. Some of these tariff announcements have since been followed by announcements of limited exemptions and temporary pauses, and all have been affected by various circuit court decisions and a key decision by the U.S. Supreme Court invalidating certain tariffs. In response to the U.S. Supreme Court ruling, the current administration debuted a system for repaying importers for tariffs struck down by the U.S. Supreme Court while also announcing the implementation of new tariffs under an alternative statutory authority. Upon the expiration of such tariffs, the current administration announced new tariffs under a different statutory authority. Management continues to actively evaluate ways to mitigate the impacts of tariffs on the Company’s business and financial results, however, due to the uncertainties pertaining to tariffs and tariff levels, it is difficult for the Company to reliably forecast the extent of the ongoing impact to business or customers.

Trade-related disruptions can create further uncertainty and supply chain interruptions, which may result in last-minute procurement efforts at elevated cost. Management is closely monitoring the fluid nature of proposed tariffs and any further impact they may have on operations, and will continue to monitor macroeconomic conditions and evaluate the financial and operational impact of ongoing trade policy shifts. These risks could intensify depending on future developments, and management is actively incorporating these considerations into future operation planning, including assessing pricing actions, cost-control measures and long-term sourcing strategies.

If tariffs continue to escalate or global inflationary trends persist, customers may face greater economic strain, which could in turn affect demand for Company products. Management remains focused on maintaining operational flexibility and adapting the supply chain to navigate these uncertainties to support long-term business performance. See “Risk Factors” under Part I, Item 1A of this Form for additional information.

The Company is also expanding the deployment of a telemetry solution providing customers with state of health, better asset management and a platform for more timely management of service and maintenance requirements.

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 $117.0 million through September 30, 2026. For the three months ended September 30, 2026, the Company generated cash flows from operations of $0.4 million and a net loss of $3.2 million. For the year ended June 30, 2026, the Company generated negative cash flows from operations of $5.9 million and a net loss of $7.4 million. Cash balance as of September 30, 2026 was $0.4 million. In addition, the Company’s operations have been impacted by delays in new orders of its energy storage solutions due to corresponding deferrals of new forklift purchases mainly caused by lower capital spending in the market sector that the Company serves and by interest rate variability. These conditions have affected selected large customer fleets, thereby impacting the Company’s ability to meet projected revenue targets and to generate cash from operations.

Management has evaluated the Company’s expected cash requirements, including investments in additional selling and marketing and in research and development, its expected capital expenditures and its expected working capital requirements. Management believes the Company’s existing cash, forecasted gross margins and additional funding that the management believes is available under the GBC Credit Facility (as defined herein) will not be sufficient to meet the Company’s anticipated capital requirements to fund planned operations for the next twelve months following the filing date of this Form, which raises substantial doubt about its ability to continue as a going concern over the twelve months following the filing date of this Form.

The Company has implemented reductions in labor and overhead costs and has increased selling prices of energy storage solutions; however, management is evaluating strategies to further improve profitability of operations and to obtain additional funding. These steps include planned further price increases for our energy storage solutions, and the implementation of a number of cost saving initiatives including product cost efficiencies and planned operational cost savings. Based on the Company’s existing backlog and customer orders, management anticipates increased revenues which, together with improvements in gross margin, would move the Company closer to profitability. The planned gross margin improvement tasks include, but are not limited to, a plan to drive bill of material costs down while further increasing price of the Company’s products for new orders. The Company also continues to execute cost reduction and sourcing and pricing recovery initiatives in efforts to increase gross margins and improve cash flow from operations. Unforeseen factors beyond management’s control, including economic uncertainty and the impact of global tariff initiatives, could potentially have negative impact on the planned gross margin improvement plan. Management is continuing to evaluate other sources of capital to fund the Company’s operations and growth. However, there can be no assurance that the Company will be able to realize its plans for improved operations or to access necessary additional financing on terms favorable to the Company or at all when needed for sufficient liquidity in order to continue 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 consolidated financial statements.

Nasdaq Stock Market Notices

As previously disclosed, on July 24, 2026, the Listing Qualifications Department (the “Staff”) of Nasdaq notified (the “July 2026 Notice”) the Company that for 30 consecutive business days preceding the date of the July 2026 Notice, the bid price of the Company’s common stock had closed below the $1.00 per share minimum required for continued listing on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). The July 2026 Notice has no effect on the listing of the common stock at this time, and shares of common stock continue to trade on the Nasdaq Capital Market under the symbol “FLUX”.

Under Nasdaq Listing Rule 5810(c)(3)(A), the Company has 180 calendar days following the date of the July 2026 Notice to regain compliance with the Minimum Bid Price Requirement (the “Compliance Period”). If at any time during the Compliance Period the closing bid price of shares of common stock is at least $1.00 for a minimum of 10 consecutive business days, compliance with the Minimum Bid Price Requirement will be regained and the Company’s common stock will continue to be eligible for listing on the Nasdaq Capital Market absent noncompliance with any other requirement for continued listing.

If the Company does not regain compliance with the Minimum Bid Price Requirement by the end of the Compliance Period, the Nasdaq may afford an additional 180 calendar days to regain compliance with the Minimum Bid Price Requirement (the “Additional Compliance Period”) if, on the last day of the Compliance Period, the stock price is in compliance with the market value of publicly held shares requirement for continued listing as well as all other standards for initial listing of the Company’s common stock on the Nasdaq Capital Market (other than the Minimum Bid Price Requirement), unless management does not indicate its intent to cure the deficiency, or if it appears to Nasdaq that it is not possible for the deficiency to be cured.

Management intends to monitor the closing bid price of the Company’s common stock and may, if appropriate, consider implementing available options including the option to implement a reverse stock split in order to regain compliance with the Minimum Bid Price Requirement. There can be no assurance that the Company will regain compliance within the Minimum Bid Price Requirement during the Compliance Period, will secure an Additional Compliance Period, will regain compliance or will maintain compliance with the other Nasdaq continued listing requirements.

In addition, in the past the Company has failed to comply with and is currently not in compliance with other Nasdaq continued listing requirements. Nasdaq requires that for continued listing on the Nasdaq Capital Market, the Company must meet all the requirements set forth in Rule 5550(a) and at least one of the standards set forth in Rule 5550(b). The standards set forth in 5550(b) include having (i) a minimum of $2,500,000 in stockholders’ equity (the “Stockholders’ Equity Requirement”), (ii) a market value of listed securities of at least $35 million (the “Market Equity Requirement”), or (iii) net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the three most recently completed fiscal years (the “Net Income Requirement”). As previously disclosed, on January 31, 2025 the Staff of Nasdaq notified the Company that it did not comply with the Stockholders’ Equity Requirement. On March 17, 2025, the Company filed its plan with Nasdaq to regain compliance with the Stockholders’ Equity Requirement, which included requesting an extension through July 30, 2025. On July 31, 2025, due to non-compliance with the Stockholders’ Equity Requirement, the Staff informed the Company that trading of its common stock would be suspended at the opening of business on August 11, 2025 unless the Company requested an appeal of the Staff’s determination to the Panel. The Company requested an appeal hearing with the Panel, and the Panel determined to grant the Company an exception to demonstrate compliance with the Stockholders’ Equity Requirement and granted the Company its request for continued listing, which extension was subject to, among other requirements, the Company demonstrating compliance with the Stockholder’s Equity Requirement on or before October 31, 2025. However, on October 14, 2025, the Company received a notification from the Staff of Nasdaq that it had regained compliance with Nasdaq’s continued listing requirements because the Company met the Market Equity Requirement. The October 2025 Notification also provided that, for a period of one year (the “Monitoring Period”), the Staff of Nasdaq will monitor the Company’s compliance with the continued listing requirements. If, during the Monitoring Period, the Company fails to comply with Rule 5550(b), the Staff of Nasdaq will issue a delist determination letter and the Company will have an opportunity to request a new hearing.

The Monitoring Period expired on October 14, 2026, however, the Company’s stockholders’ deficit as of September 30, 2026 did not comply with the Stockholders’ Equity Requirement and the Company no longer complied with the Market Equity Requirement or any of the other standards set forth in Rule 5550(b). While the Company did not receive any notifications from the Staff of Nasdaq with respect to its noncompliance with the standards set forth in Rule 5550(b) prior to the expiration of the Monitoring Period and has not received any such notifications as of the date of this Quarterly Report, the Company cannot predict how the Staff of Nasdaq will view the timing of its noncompliance with the Stockholder’s Equity Requirement reported in this Quarterly Report. While this Quarterly Report was filed after the expiration of the Monitoring Period, this Quarterly Report reports the Company’s stockholders’ deficit as of September 30, 2026, a date prior to the expiration of the Monitoring Period. If the Staff of Nasdaq were to view the Company’s noncompliance with the Stockholder’s Equity Requirement reported in this Quarterly Report as occurring prior to the expiration of the Monitoring Period, then the Staff of Nasdaq will issue a delist determination letter and the Company will have an opportunity to request a new hearing. If the Staff of Nasdaq were to view the Company’s noncompliance with the Stockholder’s Equity Requirement reported in this Quarterly Report as occurring after the expiration of the Monitoring Period, then the Company would likely instead receive a notice of noncompliance from the Staff of Nasdaq affording the Company an opportunity to submit a plan to regain compliance.

If the Company fails to regain compliance with the Minimum Bid Price Requirement and/ fails to regain compliance with at least one of the Rule 5550(b) continued listing requirements, the Company’s common stock will be subject to delisting by Nasdaq. In the event the Company’s common stock is delisted, the stock price and market liquidity of the common 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.

Resignation of Officer

On September 8, 2026, Mr. Jeff Mason, Chief Operating Officer, tendered his resignation effective September 25, 2026. Mr. Mason and the Company failed to enter into a separation and release agreement.