Blueprint
S-1
1
flux_s1.htm
FORM S-1
As filed with the Securities and Exchange Commission on May 24,
2019
Registration
No. 333-_________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
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Flux
Power Holdings, Inc.
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(Exact name of
registrant as specified in its charter)
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Nevada
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3690
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86-0931332
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(State
or jurisdiction of incorporation or
organization)
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(Primary
Standard Industrial Classification Code
Number)
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(I.R.S.
Employer Identification
No.)
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985 Poinsettia
Avenue, Suite A
Vista,
CA 92081
(877)
505-3589
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(Address, including
zip code, and telephone number, including area
code, of registrant’s principal executive
offices)
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Ronald
F. Dutt
Chief
Executive Officer
Flux
Power Holdings, Inc.
985
Poinsettia Avenue, Suite A,
Vista,
CA 92081
(877)
505-3589
|
|
(Name, address,
including zip code, and telephone number, Including area code, of
agent for service)
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Copies
to:
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John P.
Yung, Esq.
Daniel
B. Eng, Esq.
Lewis
Brisbois Bisgaard & Smith LLP
333
Bush Street, Suite 1100
San
Francisco, CA 94104
(415)
362-2580
|
John D.
Hogoboom, Esq.
Lowenstein
Sandler LLP
1251
Avenue of Americas
New
York, NY 10020
(212)
262-6700
|
________________________
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the effective date of
this Registration Statement.
If any
of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box.
☒
If this
Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. ☐
If this
Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same offering.
☐
If this
Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same offering.
☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, 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.
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Large accelerated filer
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☐
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Accelerated
filer
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☐
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Non-accelerated filer
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☐
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Smaller
reporting company
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☒
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(Do not check if a smaller reporting
company)
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|
Emerging
growth company
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☐
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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 to Section 7(a)(2)(B) of the Securities
Act
CALCULATION OF REGISTRATION FEE
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Title of Each
Class of Securities to be Registered
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Proposed Maximum
Aggregate Offering Price(1)
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Amount of
Registration Fee
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Common Stock,
$0.001 par value(2) (3)
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$15,000,000
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$1,818.00
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Representatives’
Warrants
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$990,000
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$119.99
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Common Stock,
$0.001 par value, issuable upon exercise of the
Representatives’ Warrants(3)
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--(4)
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--(4)
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Total
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$15,990,000
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$1,937.99
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(1)
Estimated solely
for the purpose of calculating the registration fee pursuant to
Rule 457(o) under the Securities Act of 1933, as
amended.
(2)
Includes shares
subject to the underwriters’ over-allotment
option.
(3)
Pursuant to Rule
416 under the Securities Act, the securities being registered
hereunder include such indeterminate number of additional shares of
common stock as may be issued after the date hereof as a result of
stock splits, stock dividends or similar transactions.
(4)
Pursuant to Rule
457(g), no separate fee is required.
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities
Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may
determine.
ii
The information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 24, 2019
PROSPECTUS
Shares
Common Stock
We are
offering shares of common stock in this offering.
Our
common stock is quoted on the OTCQB marketplace under the symbol
"FLUX." On May 23, 2019, the closing bid price of our
common stock on the OTCQB was $1.00 per share. We have applied to
list our common stock on The NASDAQ Capital Market under the symbol
"FLUX." We will not consummate this offering unless our
common stock is approved for listing on The NASDAQ Capital
Market.
The
public offering price per share will be determined between us, the
underwriters and investors based on market conditions at the time
of pricing, and may be at a discount to the current market price of
our common stock. Therefore, the recent market price used
throughout this prospectus may not be indicative of the actual
public offering price.
Investing
in our securities involves a high degree of risk. See "Risk
Factors" beginning on page 7.
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Per Share
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Total
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Public offering
price
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$
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$
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Underwriting
discount(1)
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$
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$
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Proceeds to us
(before expenses)
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$
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$
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(1)
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See
"Underwriting" beginning on page 49 for additional
information regarding the compensation payable to the
underwriters.
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We have
granted the underwriters a 30-day option to purchase up to an
additional shares from us at the public offering price, less the
underwriting discount, to cover over-allotments, if
any.
Neither
the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
Delivery of the
shares of common stock is expected to be made through the
facilities of the Depository Trust Company on or about ,
2019.
___________________________________
Joint Book-Running Managers
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Roth
Capital Partners
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Maxim
Group LLC
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The
date of this prospectus is , 2019
iii
Table of Contents
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Page
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Neither we nor the underwriters have authorized anyone to provide
you with information other than that contained in this prospectus
or any free writing prospectus prepared by or on behalf of us or to
which we have referred you. We and the underwriters take no
responsibility for, and can provide no assurance as to the
reliability of, any other information that others may give you. We
and the underwriters are offering to sell, and seeking offers to
buy, common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate
only as of the date on the front cover page of this prospectus, or
other earlier date stated in this prospectus, regardless of the
time of delivery of this prospectus or of any sale of our common
stock.
No action is being taken in any jurisdiction outside the United
States to permit a public offering of our common stock or
possession or distribution of this prospectus in that jurisdiction.
Persons who come into possession of this prospectus in
jurisdictions outside the United States are required to inform
themselves about and to observe any restrictions as to this
offering and the distribution of this prospectus applicable to that
jurisdiction.
iv
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere or
incorporated by reference in this prospectus. This summary provides
an overview of selected information and does not contain all of the
information you should consider before investing in our securities.
You should read the entire prospectus carefully, especially the
"Risk Factors," "Management’s Discussions
and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the
accompanying notes to those statements, included elsewhere in this
prospectus, before making an investment decision. Unless the
context requires otherwise, references to the
"Company," "Flux," "we,"
"us," and "our" refer to the combined
business of Flux Power Holdings, Inc., a Nevada corporation and its
wholly-owned subsidiary, Flux Power, Inc. (Flux Power), a
California corporation.
Company
Overview
We
design, develop and sell advanced rechargeable lithium-ion energy
storage solutions for lift trucks, airport ground support equipment
(GSE) and other industrial motive applications. Our
"LiFT" battery packs, including our proprietary battery
management system (BMS), provide our customers with a better
performing, cheaper and more environmentally friendly alternative,
in many instances, to traditional lead-acid and propane-based
solutions.
We have
received Underwriters Laboratory (UL) Listing on our Class 3 Walkie
Pallet Jack (Class 3 Walkie) LiFT pack product line in 2016 and
expect to seek UL Listing during calendar 2019 for our other
product lines, which include Class 1 Counterbalance/Sit
down/Ride-on (Class 1 Ride-on) LiFT packs , Class 2 Narrow Aisle
LiFT packs, and Class 3 End Rider LiFT packs. We believe that a UL
Listing demonstrates the safety, reliability and durability of our
products and gives us an important competitive advantage over other
lithium-ion energy suppliers. Our Class 3 Walkie LiFT packs have
been approved for use by leading industrial motive manufacturers,
including Toyota Material Handling USA, Inc., Crown Equipment
Corporation, and Raymond Corporation.
Within
our industrial market segments, we believe that our LiFT pack
solutions provide cost and performance benefits over existing
lead-acid power products including:
●
longer operation
and more shifts with fewer batteries;
●
reduced energy and
maintenance costs;
●
faster recharging;
and
●
longer
lifespan.
Additionally, the
toxic nature of lead-acid batteries presents significant safety and
environmental issues as they are subject to Environmental
Protection Agency lead-acid battery reporting requirements, may
create an environmental hazard in the event of a cell breach, and
emit combustible gases during charging.
As a
result of the advantages lithium-ion battery technology provide
over lead-acid batteries, we have experienced significant growth in
our business. We believe we are at the very early stage of a trend
toward the adoption of lithium-ion technology and the displacement
of lead-acid and propane-based energy storage solutions, which
based on North American sales data from the Industrial Truck
Association (ITA), we estimate to be a multi-billion dollar per
year market.
Critical to our
success is our innovative and proprietary high power BMS that both
optimizes the performance of our LiFT packs and provides a platform
for adding new battery pack features, including customized
telemetry for customers. The BMS serves as the brain of the battery
pack, managing cell balancing, charging, discharging, monitoring
and communication between the pack and the forklift.
Our
engineers design, develop, service, and test our products. We
source our battery cells from multiple suppliers in China and the
remainder of the components primarily from vendors in the United
States. Final assembly, testing and shipping of our products is
done from our ISO 9001 certified facility in Vista, California,
which includes three assembly lines.
1
Our
Strengths
We have
leveraged our experience in lithium-ion technology to design and
develop a suite of LiFT pack product lines that we believe provide
attractive solutions to customers seeking an alternative to
lead-acid and propane-based power products. We believe that the
following attributes are significant contributors to our
success:
Engineering and integration
experience in lithium-ion for motive
applications: We have been developing
lithium-ion applications for the advanced energy storage market
since 2010, starting with products for automotive electric vehicle
manufacturers. We believe our experience enables us to develop
superior solutions.
UL Listing: We
launched our Class 3 Walkie LiFT pack product line in 2014 and
obtained UL Listing for all three different power configurations in
January 2016. We believe this UL Listing gives us a significant
competitive advantage and provides assurance to customers that our
technology has been rigorously tested by an independent third party
and determined to be safe, durable and reliable.
Original equipment
manufacturer (OEM) approvals: Our Class 3 Walkie LiFT packs
have been tested and approved for use by Toyota Material Handling
USA, Inc., Crown Equipment Corporation, and Raymond Corporation,
among the top global lift truck manufacturers by revenue according
to Material Handling & Logistics. We also provide a
"private label" Class 3 Walkie LiFT pack to a major
forklift OEM.
Broad product offering and
scalable design: We offer LiFT packs for use in a variety of
industrial motive applications. We believe that our modular and
scalable design enables us to optimize design, inventory, and part
count to accommodate natural product extensions of our products to
meet customer requirements. Based on our Class 3 Walkie LiFT pack
design, we have expanded our product lines to include Class 1
Ride-on, Class 2 Narrow Aisle, and Class 3 End Rider LiFT pack
product lines as well as airport GSE packs.
Significant advantages over
lead acid and propane solutions: We believe that lithium-ion
battery systems have significant advantages over existing
technologies and will displace lead-acid batteries and
propane-based solutions, in most applications. Relative to
lead-acid batteries, such advantages include environmental
benefits, no water maintenance, faster charge times, greater cycle
life and longer run times that provide operational and financial
benefits to customers. Compared to propane solutions, lithium-ion
systems avoid the generation of exhaust emissions and associated
odor and environmental contaminates, and maintenance of an internal
combustion engine, which has substantially more parts than an
electric motor.
Proprietary Battery
Management System:
We have developed a high power BMS that is incorporated into our
entire product family. The BMS serves as the brain of the battery
pack, managing cell balancing, charging, discharging, monitoring
and communication between the pack and the forklift. Our BMS is
specifically designed for the industrial motive application
environment and is adaptable to meet custom
requirements.
2
Our Products
We have
developed, tested, and sold our LiFT packs for use in a broad range
of lift trucks, as pictured below, including Class 3 Walkie and End
Riders, Class 2 Narrow Aisle, and Class 1 Ride-on, as well as for
airport GSE, as outlined below.
Our
LiFT packs use lithium iron phosphate (LiFePO4) battery cells,
which we source from a variety of overseas suppliers that meet our
power, reliability, safety and other specifications. Because our
BMS is not designed to work with a specific battery chemistry, we
believe we can readily adapt our LiFT packs as new chemistries
become available in the market or customer preferences
change. We also offer
24-volt onboard chargers for our Class 3 Walkie LiFT packs, and
smart "wall mounted" chargers for larger applications.
Our smart charging solutions are designed to interface with our
BMS.
Industry
Overview
Driven
by overall growth in global demand for lithium-ion battery
solutions, the supply of lithium-ion batteries has rapidly
expanded, leading to price declines of eighty-five percent (85%)
since 2010 according to BloombergNEF. BloombergNEF also estimates
that lithium-ion battery pack prices, which averaged $1,160 per
kilowatt hour in 2010, were $176 per kWh in 2018 and could drop
below $100 in 2024.
3
The
sharp decline in the price of lithium-ion batteries has commenced a
shift in customer preferences away from lead-acid and propane-based
solutions for power lift equipment to lithium-ion based solutions.
We believe our position as a pioneer in the field and our extensive
experience providing lithium-ion based storage solutions makes us
uniquely positioned to take advantage of this shift in customer
preferences.
Lift Equipment - Material Handling Equipment
We
focus on energy storage solutions for lift equipment and GSE
because we believe they represent large and growing markets that
are just beginning to adopt lithium-ion based technology. These
markets include not only the sale of lithium-ion battery solutions
for new equipment but also a replacement market for existing lead
acid battery packs.
Historically, larger lift trucks were powered by
internal combustion engines, using propane as a fuel, with smaller
equipment powered by lead-acid batteries. Over the past thirty (30)
years, there has been a significant shift toward electric power.
According to Liftech/ITA, over this time period the percentage of
lift trucks powered electrically has doubled from approximately
thirty percent (30%) to over sixty percent
(60%).
According to
McKinsey & Co., worldwide new lift truck orders reached
approximately 1.4 million units in 2017 and had been over 1.2
million units per year for the prior five (5) years. The Industrial
Truck Association has estimated that approximately 200,000 lift
trucks had been sold yearly since 2013 in North America (Canada,
the United States and Mexico), including approximately 253,000
units sold in 2017, with sales relatively evenly distributed
between electric rider (Class 1 and Class 2), motorized hand (Class
3), and internal combustion engine powered lift trucks (Class 4 and
Class 5). The ITA estimates that electric lift trucks represented
approximately sixty-four percent (64%) of the North American market
in 2017. Driven by growth in global manufacturing, e-commerce and
construction, Research and Markets expects that the global lift
truck market will grow at a compound annual growth rate of six and
four-tenths percent (6.4%) through 2024.
Customers
Some of
the end users of our LiFT packs include companies in a number of
different industries, as shown in the graphic below:
Marketing
and Sales
We sell
our products through a number of different channels, including
directly to end users, OEMs and lift equipment dealers or through
battery distributors. Our four-person direct sales staff is
assigned to major geographies nation-wide to collaborate with our
sales partners who have an established customer base. In addition,
we have developed a nation-wide sales network of relationships with
equipment OEMs, their dealers, and battery
distributors.
We have
worked directly with a number of OEMs to secure "technical
approval" for compatibility of our LiFT packs with their
equipment. Once we receive that approval, we focus on developing a
sales network utilizing existing battery distributors and equipment
dealers, along with the OEM corporate national account sales force,
to drive sales through this channel.
As our
LiFT packs have gained acceptance in the marketplace, we have seen
an increase in direct-to-end-customer sales, ranging from small
enterprises to Fortune 500 companies. To expand our customer reach, we
have begun to market directly to end users, primarily focusing on
large fleets operated by Fortune 500 companies seeking productivity
improvements.
To
support our products, we have a nation-wide network of service
providers, typically forklift equipment dealers and battery
distributors, who provide local support to large customers. We also
maintain a call center and provide Tech Bulletins and training to
our service and sales network out of our corporate headquarters.
Our warranty policy for forklift product lines includes a limited
five-year warranty.
4
Risks Associated with Our Business
Our
business is subject to a number of risks of which you should be
aware before making a decision to invest in our common stock. These
risks are more fully described in the section titled "Risk
Factors" beginning on page 7 of this prospectus.
Corporate Information
We were
incorporated in Nevada in 1998. In May 2012, we changed our name to
Flux Power Holdings, Inc. We operate our business through our
wholly-owned subsidiary, Flux Power, Inc. (Flux Power). Flux Power
was incorporated in October 2009 to provide solutions to exploit
the lithium-ion battery market for lift equipment and related
verticals. Our principal executive office is located at 985
Poinsettia Avenue, Suite A, Vista, CA 92081. The telephone number
at our principal executive office is (760) 741-3589
(FLUX).
5
THE OFFERING
|
Common
Stock offered by us
|
shares
of our common stock ( shares if the underwriters exercise the
over-allotment option in full).
|
|
Common
Stock to be outstanding after this offering
|
shares
of common stock(1) ( shares if the
underwriters exercise the over-allotment option in
full).
|
|
Use of
Proceeds
|
We intend to use the net proceeds of this offering for working
capital and general corporate purposes. See ‘‘Use of
Proceeds’’ on page 16 of this prospectus.
|
|
Risk
Factors
|
Investing
in our securities involves a high degree of risk. See "Risk
Factors" beginning on page 7.
|
|
OTCQB
Symbol
|
Our
common stock is quoted on the OTCQB under the symbol
"FLUX."
|
|
Proposed
NASDAQ Listing and symbol
|
We have
applied to list our common stock on The NASDAQ Capital Market under
the symbol "FLUX." We will not consummate this offering
unless our common stock is approved for listing on The NASDAQ
Capital Market.
|
(1)
The number of
shares of common stock outstanding immediately after this offering
is based on 51,000,868 shares of common stock outstanding as of May
10, 2019, and excludes, as of that date, the
following:
●
5,839,773 shares of
common stock issuable upon exercise of outstanding stock options,
at a weighted average exercise price of $0.96 per
share;
●
10 million shares
of common stock reserved under our Equity Incentive Plan;
and
●
83,333 shares of
common stock issuable upon exercise of outstanding warrants, at a
weighted average exercise price of $2.00.
Except
as otherwise indicated herein, all information in this prospectus
reflects the 1 for 10 reverse split of our common stock effected on
August 10, 2017, and assumes no exercise by the underwriters of
their over-allotment option to purchase additional
shares.
6
RISK FACTORS
An investment in our common stock involves a high degree of risk.
You should carefully consider the risks described below, together
with all of the other information included in this prospectus,
before making an investment decision. If any of the following risks
actually occur, our business, financial condition or results of
operations could suffer. In that case, the trading price of our
common stock could decline, and you may lose all or part of your
investment. You also should read the section entitled
"Special Note Regarding Forward Looking
Statements."
Risk
Factors Relating to Our Business
We have a history of losses and negative working
capital.
For the
nine months ended March 31, 2019, and the year ended June 30, 2018,
we had net losses of $9,139,000 and $6,965,000, respectively. We
have historically experienced net losses and until we generate
sufficient revenue, we anticipate to continue to experience losses
in the near future.
In
addition, as of March 31, 2019 and June 30, 2018, we had a negative
working capital of $488,000 and $7,446,000, respectively. As of
March 31, 2019, we had a cash balance of $900,000. We expect that
our existing cash balances, credit facilities, and the expected net
proceeds of this offering will be sufficient to fund our existing
and planned operations for the next twelve months from the date of
this prospectus. Until such time as we generate sufficient cash to
fund our operations, we will need additional capital to continue
our operations thereafter.
We have
relied on equity financings, borrowings under our credit facilities
and/or previously cash flows from operating activities to fund our
operations. However, there is no guarantee we will be able to
obtain additional funds in the future or that funds will be
available on terms acceptable to us, if at all. See "Risk
Factors" – "We will need
to raise additional capital or financing after this offering to
continue to execute and expand our business"
and "We are dependent on
our existing credit facility to finance our operations and in the
event of default, such default could adversely affect our business,
financial condition, results of operations or
liquidity."
Any
future financing may result in dilution of the ownership interests
of our stockholders. If such funds are not available on acceptable
terms, we may be required to curtail our operations or take other
actions to preserve our cash, which may have a material adverse
effect on our future cash flows and results of
operations.
We will need to raise additional capital or financing after this
offering to continue to execute and expand our
business.
While
we expect that our available cash, credit facilities, and the
expected net proceeds from this offering will be sufficient to
sustain our operations for the next twelve months from the date of
this prospectus, we will need to raise additional capital after
this offering to support our operations and execute on our business
plan. We may be required to pursue sources of additional capital
through various means, including joint venture projects, sale and
leasing arrangements, and debt or equity financings. Any new
securities that we may issue in the future may be sold on terms
more favorable for our new investors than the terms of this
offering. Newly issued securities may include preferences, superior
voting rights, and the issuance of warrants or other convertible
securities that will have additional dilutive effects. We cannot
assure that additional funds will be available when needed from any
source or, if available, will be available on terms that are
acceptable to us. Further, we may incur substantial costs in
pursuing future capital and/or financing, including investment
banking fees, legal fees, accounting fees, printing and
distribution expenses and other costs. We may also be required to
recognize non-cash expenses in connection with certain securities
we may issue, such as convertible notes and warrants, which will
adversely impact our financial condition and results of operations.
Our ability to obtain needed financing may be impaired by such
factors as the weakness of capital markets, and the fact that we
have not been profitable, which could impact the availability and
cost of future financings. If the amount of capital we are able to
raise from financing activities, together with our revenues from
operations, is not sufficient to satisfy our capital needs, we may
have to reduce our operations accordingly.
7
We are dependent on our existing credit facility to finance our
operations and in the event of default, such default could
adversely affect our business, financial condition, results of
operations or liquidity.
We have
substantial indebtedness and have relied on our credit facilities
to provide working capital. As of March 31, 2019 and June 30, 2018,
we have an outstanding balance of $3,405,000 and $2,405,000,
respectively, under an Amended and Restated Credit Facility
Agreement dated March 28, 2019 (LOC) with Esenjay Investment, LLC
(Esenjay), a majority shareholder and a company owned and
controlled by Michael Johnson, a director, and Cleveland Capital,
L.P., our minority stockholder (Cleveland and Esenjay, together
with additional parties that may join as additional lenders,
collectively the Lenders). We currently have $3,595,000 available
for future draws. However, our ability to borrow under the LOC is
at the discretion of the Lenders. Also, the Lenders have no
obligation to disburse such funds and have the right not to advance
funds under the LOC. In addition, as a secured party, upon an event
of default, the Lenders will have a right to the collateral granted
to them under the line of credit, and we may lose our ownership
interest in the assets. A loss of our collateral will have material
adverse effect on our operations, our business and financial
condition.
Our independent auditors have expressed substantial doubt about our
ability to continue as a going concern.
In
their audit report issued in connection with our financial
statements for the year ended June 30, 2018, and for the years then
ended, our independent registered public accounting firm included a
going concern explanatory paragraph which stated there was
substantial doubt about our ability to continue as a going
concern. We have prepared our financial statements on a
going concern basis that contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business
for the foreseeable future. Our financial statements do not include
any adjustments that would be necessary should we be unable to
continue as a going concern and, therefore, be required to
liquidate our assets and discharge our liabilities in other than
the normal course of business and at amounts different from those
reflected in our financial statements. If we are unable
to continue as a going concern, our stockholders may lose all or a
substantial portion or all of their investment.
We are dependent on a few customers for the majority of our net
revenues, and our success depends on demand from OEMs and other
users of our battery products.
Historically a
majority of our product sales were generated from a small number of
OEMs and end-user customers, including two customers who made up
77% of our sales for the year ended June 30, 2018. As a result, our
success depends on demand from this small group of customers and
their willingness to incorporate our battery products in their
equipment. The loss of a significant customer would have an adverse
effect on our revenues. There is no assurance that we will be
successful in our efforts to convince end users to accept our
products. Our failure to gain acceptance of our products could have
a material adverse effect on our financial condition and results of
operations.
Additionally, OEMs,
their dealers and battery distributors may be subject to changes in
demand for their equipment which could significantly affect our
business, financial condition and results of
operations.
We do not have long term
contracts with our customers.
We do
not have long-term contracts with our customers. Future agreements
with respect to pricing, returns, promotions, among other things,
are subject to periodic negotiation with each customer. No
assurance can be given that our customers will continue to do
business with us. The loss of any of our significant customers will
have a material adverse effect on our business, results of
operations, financial condition and liquidity. In addition, the
uncertainty of product orders can make it difficult to forecast our
sales and allocate our resources in a manner consistent with actual
sales, and our expense levels are based in part on our expectations
of future sales. If our expectations regarding future sales are
inaccurate, we may be unable to reduce costs in a timely manner to
adjust for sales shortfalls.
8
Real or perceived hazards associated with Lithium-ion battery
technology may affect demand for our products.
Press
reports have highlighted situations in which lithium-ion batteries
in automobiles and consumer products have caught fire or exploded.
In response, the use and transportation of lithium-ion batteries
has been prohibited or restricted in certain circumstances. This
publicity has resulted in a public perception that lithium-ion
batteries are dangerous and unpredictable. Although we believe our
battery packs are safe, these perceived hazards may result in
customer reluctance to adopt our lithium-ion based
technology.
Our products may experience quality problems from time to time that
could result in negative publicity, litigation, product recalls and
warranty claims, which could result in decreased revenues and harm
to our brands.
A
catastrophic failure of our battery modules could cause personal or
property damages for which we would be potentially liable. Damage
to or the failure of our battery packs to perform to customer
specifications could result in unexpected warranty expenses or
result in a product recall, which would be time consuming and
expensive. Such circumstances could result in negative publicity or
lawsuits filed against us related to the perceived quality of our
products which could harm our brand and decrease demand for our
products.
We may be subject to
product liability claims.
If one
of our products were to cause injury to someone or cause property
damage, including as a result of product malfunctions, defects, or
improper installation, then we could be exposed to product
liability claims. We could incur significant costs and liabilities
if we are sued and if damages are awarded against us. Further, any
product liability claim we face could be expensive to defend and
could divert management’s attention. The successful assertion
of a product liability claim against us could result in potentially
significant monetary damages, penalties or fines, subject us to
adverse publicity, damage our reputation and competitive position,
and adversely affect sales of our products. In addition, product
liability claims, injuries, defects, or other problems experienced
by other companies in the solar industry could lead to unfavorable
market conditions for the industry as a whole, and may have an
adverse effect on our ability to attract new customers, thus
harming our growth and financial performance. Although we carry
product liability insurance, it may be insufficient in amount to
cover our claims.
Tariffs that might be imposed on lithium-ion batteries by the
United States government or a resulting trade war could have a
material adverse effect on our results of operations.
In
2018, the United States government announced tariffs on certain
steel and aluminum products imported into the United States, which
has led to reciprocal tariffs being imposed by the European Union
and other governments on products imported from the United States.
The United States government has implemented tariffs on goods
imported from China, and additional tariffs on goods imported from
China are under consideration.
The
lithium-ion battery industry has not been subjected to tariffs
implemented by the United States government on goods imported from
China. If the U.S. and China are not able to resolve their
differences, new and additional tariffs may be put in place and
additional products, including lithium-ion batteries, may become
subject to tariffs. Since all of our lithium-ion batteries are
manufactured in China, potential tariffs on lithium-ion batteries
imported by us from China would increase our costs, require us to
increase prices to our customers or, if we are unable to do so,
result in lower gross margins on the products sold by
us.
The
President of the United States has, at times, threatened to
institute even wider ranging tariffs on all goods imported from
China. China has already imposed tariffs on a wide range of
American products in retaliation for the American tariffs on steel
and aluminum. Additional tariffs could be imposed by China in
response to actual or threatened tariffs on products imported from
China. The imposition of additional tariffs by the United States
could trigger the adoption of tariffs by other countries as well.
Any resulting escalation of trade tensions, including a
"trade war," could have a significant adverse effect on
world trade and the world economy, as well as on our results of
operations. At this time, we cannot predict how the recently
enacted tariffs will impact our business. Tariffs on
components imported by us from China could have a material adverse
effect on our business and results of operations.
9
Economic conditions may adversely affect consumer spending and the
overall general health of our retail customers, which, in turn, may
adversely affect our financial condition, results of operations and
cash resources.
Uncertainty about
the existing and future global economic conditions may cause our
customers to defer purchases or cancel purchase orders for our
products in response to tighter credit, decreased cash availability
and weakened consumer confidence. Our financial success is
sensitive to changes in general economic conditions, both globally
and nationally. Recessionary economic cycles, higher interest
borrowing rates, higher fuel and other energy costs, inflation,
increases in commodity prices, higher levels of unemployment,
higher consumer debt levels, higher tax rates and other changes in
tax laws or other economic factors that may affect consumer
spending or buying habits could continue to adversely affect the
demand for our products. If credit pressures or other financial
difficulties result in insolvency for our customers it could
adversely impact our financial results. There can be no assurances
that government and consumer responses to the disruptions in the
financial markets will restore consumer confidence.
We are dependent on a limited number of suppliers for our battery
cells, and the inability of these suppliers to continue to deliver,
or their refusal to deliver, our battery cells at prices and
volumes acceptable to us would have a material adverse effect on
our business, prospects and operating results.
We do
not own or operate any manufacturing facilities. Our battery cells,
which are an integral part of our battery products and systems, are
sourced from one manufacturer, which is located in China and has
distribution in the United States. While we obtain components for
our products and systems from multiple sources whenever possible,
we have spent a great deal of time in developing and testing our
battery cells that we receive from this manufacturer. We refer to
the battery cell supplier as our limited source supplier. To date,
we have no qualified alternative sources for our battery cells
although we research and assess cells from other suppliers on an
ongoing basis. We generally do not maintain long-term agreements
with our limited source suppliers. While we believe that we will be
able to establish an additional supplier relationship for our
battery cells, we may be unable to do so in the short term or at
all at prices, quality or costs that are favorable to
us.
Changes
in business conditions, wars, regulatory requirements, economic
conditions and cycles, governmental changes and other factors
beyond our control could also affect our suppliers’ ability
to deliver components to us on a timely basis or cause us to terminate our
relationship with them and require us to find replacements, which
we may have difficulty doing. Furthermore, if we experience
significant increased demand, or need to replace our existing
suppliers, there can be no assurance that additional supplies of
component parts will be available when required on terms that are
favorable to us, at all, or that any supplier would allocate
sufficient supplies to us in order to meet our requirements or fill
our orders in a timely manner. In the past, we have replaced
certain suppliers because of their failure to provide components
that met our quality control standards. The loss of any limited
source supplier or the disruption in the supply of components from
these suppliers could lead to delays in the deliveries of our
battery products and systems to our customers, which could hurt our
relationships with our customers and also materially adversely
affect our business, prospects and operating results.
Increases in costs, disruption of supply or shortage of raw
materials, in particular lithium-ion phosphate cells, could harm
our business.
We may
experience increases in the costs or a sustained interruption in
the supply or shortage of raw materials. Any such increase or
supply interruption could materially negatively impact our
business, prospects, financial condition and operating results. For
instance, we are exposed to multiple risks relating to price
fluctuations for lithium-iron phosphate cells.
10
These
risks include:
●
the
inability or unwillingness of battery manufacturers to supply the
number of lithium-iron phosphate cells required to support our
sales as demand for such rechargeable battery cells
increases;
●
disruption
in the supply of cells due to quality issues or recalls by the
battery cell manufacturers; and
●
an
increase in the cost of raw materials, such as iron and phosphate,
used in lithium-iron phosphate cells.
Our
business may be subject to disruption as a result of the planned
relocation of our production facility.
We are
in the process of relocating and expanding our production facility.
We may experience disruption to our business as a result of that
relocation due to factors beyond our control. Any prolonged
business interruption may adversely affect our business, prospects
and operating results. If we fail to meet demand from our customers
due to insufficient production capacity or as a result of prolong
interruption to our business as a result of the relocation, our
business may be materially and adversely affected.
In
connection with the relocation and expanding of our production
facility, our new facility will have to be recertified for ISO 9001
compliance. We may be required to incur unforeseen costs or be
subject to unexpected delays in connection with obtaining such
certification.
Our success depends on our ability to develop new products and
capabilities that respond to customer demand, industry trends or
actions by our competitors and failure to do so may cause us to
lose our competitiveness in the battery industry and may cause our
profits to decline.
Our
success will depend on our ability to develop new products and
capabilities that respond to customer demand, industry trends or
actions by our competitors. There is no assurance that we will be
able to successfully develop new products and capabilities that
adequately respond to these forces. In addition, changes in
legislative, regulatory or industry requirements or in competitive
technologies may render certain of our products obsolete or less
attractive. If we are unable to offer products and capabilities
that satisfy customer demand, respond adequately to changes in
industry trends or legislative changes and maintain our competitive
position in our markets, our financial condition and results of
operations would be materially and adversely affected.
The
research and development of new products and technologies is costly
and time consuming, and there are no assurances that our research
and development of new products will be either successful or
completed within anticipated timeframes, if at all. Our failure to
technologically evolve and/or develop new or enhanced products may
cause us to lose competitiveness in the battery market. In
addition, in order to compete effectively in the renewable battery
industry, we must be able to launch new products to meet our
customers’ demands in a timely manner. However, we cannot
provide assurance that we will be able to install and certify any
equipment needed to produce new products in a timely manner, or
that the transitioning of our manufacturing facility and resources
to full production under any new product programs will not impact
production rates or other operational efficiency measures at our
manufacturing facility. In addition, new product introductions and
applications are risky, and may suffer from a lack of market
acceptance, delays in related product development and failure of
new products to operate properly. Any failure by us to successfully
launch new products, or a failure by our customers to accept such
products, could adversely affect our results.
Our business will be adversely affected if we are unable to protect
our intellectual property rights from unauthorized use or
infringement by third parties.
Any
failure to protect our proprietary rights adequately could result
in our competitors offering similar products, potentially resulting
in the loss of some of our competitive advantage and a decrease in
our revenue, which would adversely affect our business, prospects,
financial condition and operating results. Our success depends, at
least in part, on our ability to protect our core technology and
intellectual property. To accomplish this, we rely on a combination
of patents, patent applications, trade secrets, including know-how,
employee and third party nondisclosure agreements, copyright laws,
trademarks, intellectual property licenses and other contractual
rights to establish and protect our proprietary rights in our
technology.
11
The
protection provided by the patent laws is and will be important to
our future opportunities. However, such patents and agreements and
various other measures we take to protect our intellectual property
from use by others may not be effective for various reasons,
including the following:
●
the
patents we have been granted may be challenged, invalidated or
circumvented because of the pre-existence of similar patented or
unpatented intellectual property rights or for other
reasons;
●
the
costs associated with enforcing patents, confidentiality and
invention agreements or other intellectual property rights may make
aggressive enforcement impracticable; and
●
existing
and future competitors may independently develop similar technology
and/or duplicate our systems in a way that circumvents our
patents.
Our patent applications may not result in issued patents, which may
have a material adverse effect on our ability to prevent others
from commercially exploiting products similar to ours.
Our
patent applications may not result in issued patents, which may
have a material adverse effect on our ability to prevent others
from commercially exploiting products similar to ours.
We
cannot be certain that we are the first creator of inventions
covered by pending patent applications or the first to file patent
applications on these inventions, nor can we be certain that our
pending patent applications will result in issued patents or that
any of our issued patents will afford protection against a
competitor. In addition, patent applications that we intend to file
in foreign countries are subject to laws, rules and procedures that
differ from those of the United States, and thus we cannot be
certain that foreign patent applications related to issue United
States patents will be issued. Furthermore, if these patent
applications issue, some foreign countries provide significantly
less effective patent enforcement than in the United
States.
The
status of patents involves complex legal and factual questions and
the breadth of claims allowed is uncertain. As a result, we cannot
be certain that the patent applications that we file will result in
patents being issued, or that our patents and any patents that may
be issued to us in the near future will afford protection against
competitors with similar technology. In addition, patents issued to
us may be infringed upon or designed around by others and others
may obtain patents that we need to license or design around, either
of which would increase costs and may adversely affect our
business, prospects, financial condition and operating
results.
We rely on trade secret protections through confidentiality
agreements with our employees, customers and other parties; the
breach of such agreements could adversely affect our business and
results of operations.
We rely
on trade secrets, which we seek to protect, in part, through
confidentiality and non-disclosure agreements with our employees,
customers and other parties. There can be no assurance that these
agreements will not be breached, that we would have adequate
remedies for any such breach or that our trade secrets will not
otherwise become known to or independently developed by
competitors. To the extent that consultants, key employees or other
third parties apply technological information independently
developed by them or by others to our proposed projects, disputes
may arise as to the proprietary rights to such information that may
not be resolved in our favor. We may be involved from time to time
in litigation to determine the enforceability, scope and validity
of our proprietary rights. Any such litigation could result in
substantial cost and diversion of effort by our management and
technical personnel.
Our business depends substantially on the continuing efforts of the
members of our senior management team, and our business may be
severely disrupted if we lose their services.
We
believe that our success is largely dependent upon the continued
service of the members of our senior management team, who are
critical to establishing our corporate strategies and focus, and
ensuring our continued growth. We are a smaller company with a
limited number of personnel. Because of this dependence, the
Company may be more adversely affected by the loss of a member of
our senior management than at a larger company. Our continued
success will depend on our ability to attract and retain a
qualified and competent management team in order to manage our
existing operations and support our expansion plans. Although we
are not aware of any change, if any of the members of our senior
management team are unable or unwilling to continue in their
present positions, we may not be able to replace them readily.
Therefore, our business may be severely disrupted, and we may incur
additional expenses to recruit and retain their replacement. In
addition, if any of the members of our senior management team joins
a competitor or forms a competing company, we may lose some of our
customers.
12
We may be required to obtain the approval of various government
agencies to market our products.
Our
products are subject to product safety regulations by Federal,
state, and local organizations. Accordingly, we may be required, or
may voluntarily determine to, obtain approval of our products from
one or more of the organizations engaged in regulating product
safety. These approvals could require significant time and
resources from our technical staff, and, if redesign were
necessary, could result in a delay in the introduction of our
products in various markets and applications. There can be no
assurance that we will obtain any or all of the approvals that may
be required to market our products.
We may face significant costs relating to environmental regulations
for the storage and shipment of our lithium-ion battery
packs.
Federal, state, and
local regulations impose significant environmental requirements on
the manufacture, storage, transportation, and disposal of various
components of advanced energy storage systems. Although we believe
that our operations are in material compliance with applicable
environmental regulations, there can be no assurance that changes
in such laws and regulations will not impose costly compliance
requirements on us or otherwise subject us to future liabilities.
Moreover, Federal, state, and local governments may enact
additional regulations relating to the manufacture, storage,
transportation, and disposal of components of advanced energy
storage systems. Compliance with such additional regulations could
require us to devote significant time and resources and could
adversely affect demand for our products. There can be no assurance
that additional or modified regulations relating to the
manufacture, storage, transportation, and disposal of components of
advanced energy systems will not be imposed.
Natural disasters, public health crises, political crises and other
catastrophic events or other events outside of our control may
damage our sole facility or the facilities of third parties on
which we depend, and could impact consumer spending.
Our
sole production facility is located in southern California near
major geologic faults that have experienced earthquakes in the
past. An earthquake or other natural disaster or power shortages or
outages could disrupt our operations or impair critical systems.
Any of these disruptions or other events outside of our control
could affect our business negatively, harming our operating
results. In addition, if our sole facility, or the facilities of
our suppliers, third-party service providers or customers, is
affected by natural disasters, such as earthquakes, tsunamis, power
shortages or outages, floods or monsoons, public health crises,
such as pandemics and epidemics, political crises, such as
terrorism, war, political instability or other conflict, or other
events outside of our control, our business and operating results
could suffer. Moreover, these types of events could negatively
impact consumer spending in the impacted regions or, depending upon
the severity, globally, which could adversely impact our operating
results. Similar disasters occurring at our vendors’
manufacturing facilities could impact our reputation and our
consumers’ perception of our brands.
Risks
Related to the Offering, Our Common Stock and Market
If you purchase shares of common stock in this offering, you will
suffer immediate and substantial dilution of your
investment.
Because
the public offering price per share of our common stock in this
offering is expected to exceed the net tangible book value per
share of our common stock, you will suffer immediate and
substantial dilution in the net tangible book value of the common
stock you purchase in this offering. Therefore, if you purchase
shares of our common stock in this offering, you may pay a price
per share that substantially exceeds our net tangible book value
per share after this offering. Assuming the sale of shares of our
common stock at a public offering price of $per share, the closing
bid price of our common stock on the OTCQB on , 2019, after
deducting the underwriting discount and estimated offering expenses
payable by us, you will incur immediate dilution of $per share. See
the section entitled "Dilution" below for a more
detailed discussion of the dilution you will incur if you
participate in this offering. To the extent shares are issued under
outstanding options and warrants at exercise prices lower than the
public offering price of our common stock in this offering, you
will incur further dilution.
13
You may experience future dilution as a result of future equity
offerings.
In
order to raise additional capital, we may at any time offer
additional shares of our common stock or other securities
convertible into or exchangeable for our common stock at prices
that may not be the same as the price per share in this offering.
We may sell shares or other securities in any other offering at a
price per share that is less than the public offering price per
share in this offering, and investors purchasing shares or other
securities in the future could have rights superior to existing
stockholders. The price per share at which we sell additional
shares of our common stock, or securities convertible or
exchangeable into common stock, in future transactions may be
higher or lower than the public offering price per share paid by
investors in this offering.
We have broad discretion in the use of our cash and cash
equivalents, including the net proceeds we receive in this
offering, and may not use them effectively.
Our
management has broad discretion to use our cash and cash
equivalents, including the net proceeds we receive in this
offering, to fund our operations and could spend these funds in
ways that do not improve our results of operations or enhance the
value of our common stock, and you will not have the opportunity as
part of your investment decision to assess whether the net proceeds
are being used appropriately. The failure by our management to
apply these funds effectively could result in financial losses that
could have a material adverse effect on our business, cause the
price of our common stock to decline. Pending their use to fund our
operations, we may invest our cash and cash equivalents, including
the net proceeds from this offering, in a manner that does not
produce income or that loses value.
The market price of our common stock can become volatile, leading
to the possibility of its value being depressed at a time when you
may want to sell your holdings.
The
market price of our common stock can become volatile. Numerous
factors, many of which are beyond our control, may cause the market
price of our common stock to fluctuate significantly. These factors
include:
●
our
earnings releases, actual or anticipated changes in our earnings,
fluctuations in our operating results or our failure to meet the
expectations of financial market analysts and
investors;
●
changes
in financial estimates by us or by any securities analysts who
might cover our stock;
●
speculation
about our business in the press or the investment
community;
●
significant
developments relating to our relationships with our customers or
suppliers;
●
stock
market price and volume fluctuations of other publicly traded
companies and, in particular, those that are in our
industry;
●
limited
"public float" in the hands of a small number of
persons whose sales or lack of sales could result in positive or
negative pricing pressure on the market price for our common
stock;
●
customer
demand for our products;
●
investor
perceptions of our industry in general and our Company in
particular;
●
general
economic conditions and trends;
●
announcements
by us or our competitors of new products, significant acquisitions,
strategic partnerships or divestitures;
●
changes
in accounting standards, policies, guidance, interpretation or
principles;
●
loss
of external funding sources;
●
sales
of our common stock, including sales by our directors, officers or
significant stockholders; and
●
additions
or departures of key personnel.
14
The ownership of our stock is highly concentrated in our
management, and we have one controlling stockholder.
As of
April 30, 2019, our directors and executive officers, and their
respective affiliates beneficially owned approximately 65.6% of our
outstanding common stock, including common stock underlying
options, warrants and convertible debt that were exercisable or
convertible or which would become exercisable or convertible within
60 days. Michael Johnson, our director and beneficial owner
of Esenjay, beneficially owns approximately 61.4% of such
outstanding common stock. As a result of their ownership, our
directors and executive officers and their respective affiliates
collectively, and Esenjay, individually, are able to significantly
influence all matters requiring stockholder approval, including the
election of directors and approval of significant corporate
transactions. This concentration of ownership may also
have the effect of delaying or preventing a change in
control.
We do not intend to pay dividends on shares of our common stock for
the foreseeable future.
We have
never declared or paid any cash dividends on shares of our common
stock. We intend to retain any future earnings to fund the
operation and expansion of our business and, therefore, we do not
anticipate paying cash dividends on shares of our common stock in
the foreseeable future.
Our common stock is illiquid and the lack of liquidity may
adversely affect the trading price of our common
stock.
The
trading volume of our common stock is relatively small. Because of
the lack of liquidity in our common stock, small fluctuations in
the demand for our common stock may have significant impact on the
trading price of our common stock. The lack of liquidity may impact
your ability to sell your shares of common stock at an acceptable
price, if at all.
Preferred Stock may be issued under our Articles of Incorporation
which may have superior rights to our common stock.
Our
Articles of Incorporation authorize the issuance of up to 5,000,000
shares of preferred stock. The preferred stock may be issued in one
or more series, the terms of which may be determined at the time of
issuance. These terms may include voting rights including the right
to vote as a series on particular matters, preferences as to
dividends and liquidation, conversion rights, redemption rights and
sinking fund provisions. In addition, these voting, conversion and
exchange rights of preferred stock could negatively affect the
voting power or other rights of our common stockholders. The
issuance of any preferred stock could diminish the rights of
holders of our common stock, or delay or prevent a change of
control of our Company, and therefore could reduce the value of
such common stock.
SPECIAL NOTE REGARDING FORWARD LOOKING
STATEMENTS
This
prospectus 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 prospectus and in the documents
we incorporate by reference into this prospectus as being
applicable to all related forward-looking statements wherever they
appear in this prospectus or the documents we incorporate by
reference into this prospectus. 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.
15
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 secure sufficient funding and alternative source of
funding to support our existing and proposed
operations;
●
our
anticipated growth strategies and our ability to manage the
expansion of our business operations effectively;
●
our
ability to maintain or increase our market share in the competitive
markets in which we do business;
●
our
ability to keep up with rapidly changing technologies and evolving
industry standards, including our ability to achieve technological
advances;
●
our
dependence on the growth in demand for our products;
●
our
ability to diversify our product offerings and capture new market
opportunities;
●
our
ability to source our needs for skilled labor, machinery, parts,
and raw materials economically; and
●
the
loss of key members of our senior management.
Also,
forward-looking statements represent our estimates and assumptions
only as of the date of this prospectus. You should read this
prospectus and the documents that we reference and file as exhibits
to this prospectus 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.
We
obtained statistical data, market data and other industry data and
forecasts used throughout this Prospectus from market research,
publicly available information and industry publications which we
believe are reliable. However, investors should not place undue
reliance on such information.
Unless
otherwise indicated, information contained in this prospectus
concerning our industry and the markets in which we operate is
based on information obtained by us from various sources, including
independent industry publications, which we believe to be reliable.
In presenting this information, we have also made assumptions based
on such data and other similar sources, and on our knowledge of,
and our experience to date in, the potential markets for our
products. The industry in which we operate is subject to a high
degree of uncertainty and risk due to a variety of factors,
including those described in the section entitled "Risk
Factors." Accordingly, investors should not unduly rely on
such estimates.
USE OF PROCEEDS
We estimate that the net proceeds from this offering will be
approximately $ ($ if the underwriters exercise their
over-allotment option in full), after deducting the underwriting
discount and estimated offering expenses payable by
us.
We intend to use the net proceeds of this offering for working
capital and general corporate purposes. We will retain broad
discretion over the use of the net proceeds of this offering.
Pending such use, we intend to invest the net proceeds in
interest-bearing investment-grade securities or government
securities.
16
MARKET INFORMATION
Our
common stock is quoted on the OTCQB under the stock symbol
"FLUX." The following table sets forth the high and low
closing bid prices for our common stock during each quarter for the
past two fiscal years and the current fiscal year as set forth
below. The information presented below has been adjusted
retroactively to reflect the 1 for 10 reverse stock split of our
common stock, effective August 10, 2017. Such prices reflect
inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual
transactions.
|
Year
Ending June 30, 2019
|
High
|
Low
|
|
First
Quarter
|
$3.20
|
$1.40
|
|
Second
Quarter
|
$2.35
|
$1.01
|
|
Third
Quarter
|
$1.85
|
$1.12
|
|
Fourth Quarter
(through May 23, 2019)
|
$1.60
|
$0.80
|
|
Year
Ended June 30, 2018
|
High
|
Low
|
|
First
Quarter
|
$1.00
|
$0.39
|
|
Second
Quarter
|
$0.63
|
$0.14
|
|
Third
Quarter
|
$0.52
|
$0.35
|
|
Fourth
Quarter
|
$3.35
|
$0.44
|
|
Year
Ended June 30, 2017
|
High
|
Low
|
|
First
Quarter
|
$0.50
|
$0.38
|
|
Second
Quarter
|
$0.42
|
$0.15
|
|
Third
Quarter
|
$0.55
|
$0.33
|
|
Fourth
Quarter
|
$0.50
|
$0.24
|
Holders of Common Stock
As of
April 30, 2019, we had approximately 1,400 record holders of our
common stock, based on information provided by our transfer agent.
The foregoing number of record holders does not include an unknown
number of stockholders who hold their stock in "street
name."
Dividend Policy
We have
never declared or paid any cash dividends. We presently do not
expect to declare or pay such dividends in the foreseeable future
and expect to reinvest all undistributed earnings to expand our
operations, which the management believes would be of the most
benefit to our stockholders. The declaration of dividends, if any,
will be subject to the discretion of our Board of Directors, which
may consider such factors as our results of operations, financial
condition, capital needs and acquisition strategy, among others.
Therefore, there can be no assurance that any dividends on our
common stock will ever be paid.
17
Equity
Compensation Plan Information
Information for our
equity compensation plans in effect as of June 30, 2018 is as
follows:
|
|
(a)
|
(b)
|
(c)
|
|
|
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column a)
|
|
Equity
compensation plans approved by security holders(1)
|
3,165,000
|
0.76
|
6,835,000
|
|
Equity
compensation plans not approved by security holders(2)
|
379,000
|
1.43
|
-
|
|
|
|
|
|
|
Total
|
3,544,000
|
0.74
|
6,835,000
|
(1)
No incentive stock
options were granted under our 2014 Stock Option Plan (2014 Option
Plan) during the fiscal year ended June 30, 2017. An additional
2,118,000 incentive stock options (ISO) and 807,000 non-qualified
stock options (NQSO) of the Company’s common stock was
granted under the 2014 Option Plan during the fiscal year ended
June 30, 2018. The 2014 Option Plan was approved February 17, 2015,
and was amended on October 25, 2017.
(2)
Consists of 72,000
options granted under the 2010 Stock Option Plan (2010 Option Plan)
and assumed by the Company in a Reverse Acquisition. An additional
307,000 non-qualified options were issued for a total outstanding
at June 30, 2018 of 379,000.
18
CAPITALIZATION
The following table sets forth our capitalization, as of March 31,
2019:
●
on an actual basis;
and
●
as adjusted to give
effect to the assumed sale of shares of our common stock in this
offering at an assumed public offering price of $ per share, the
closing bid price of our common stock on the OTCQB on , 2019, after
deducting the underwriting discount and estimated offering expenses
payable by us.
You
should read the forgoing table together with
"Management’s Discussion and Analysis of Financial
Condition and Results of Operations for The Company" and our
consolidated financial statements and related notes appearing
elsewhere in this prospectus.
|
|
As of March 31, 2019
|
|
|
|
Actual
(Unaudited)
|
Pro Forma
(Unaudited)
|
|
Total long-term
liabilities:
|
$125,000
|
|
|
Stockholders'
equity:
|
|
|
|
Preferred stock,
$0.001 par value, 5,000,000 shares authorized, no shares issued and
outstanding
|
-
|
|
|
Class common stock,
$0.001 par value, 300,000,000 share authorized, 51,000,868 shares
issued and outstanding as of March 31, 2019, shares issued and
outstanding as adjusted
|
$51,000
|
|
|
Additional paid in
capital
|
$35,405,000
|
|
|
Accumulated
deficit
|
$(35,801,000)
|
|
|
Total
Stockholders’ equity (deficit)
|
$(345,000)
|
|
|
Total
Capitalization
|
$5,924,000
|
|
The as adjusted information discussed above is illustrative only
and will be adjusted based on the actual public offering price and
other terms of this offering determined between us and the
underwriters at pricing.
The table and discussion above are
based on 51,000,868 shares of common stock outstanding as
of March 31, 2019, and excludes, as of that date, the
following:
●
5,839,773 shares of
common stock issuable upon exercise of outstanding stock options at
a weighted average exercise price of $1.10 per share;
●
10,000,000 shares
of common stock reserved under our Equity Incentive Plan;
and
●
83,333 shares of
common stock issuable upon exercise of outstanding warrants plans
at a weighted average exercise price of $2.00 per
share.
19
DILUTION
If you invest in our common stock in this
offering, your ownership interest will be diluted immediately to
the extent of the difference between the public offering price per
share of our common stock and the as adjusted net tangible book
value per share of our common stock immediately after this
offering. As of
March 31, 2019, we had a net tangible book value of approximately
$(345,000) or approximately $(0.007) per share. Net tangible book value per
share represents our total tangible assets, less total liabilities,
divided by the number of shares of common stock outstanding. After
giving effect to the assumed sale of shares of our common stock in
this offering at an assumed public offering price of $ per share,
the closing bid price per share of our common stock on the OTCQB on
, 2019, and after deducting the underwriting discount and estimated
offering expenses payable by us, our as adjusted net tangible book
value per share as of March 31, 2019, would have been approximately
$ or approximately $ per share. This represents an immediate
increase in net tangible book value per share of $ to existing
stockholders and an immediate dilution of approximately $ per share
to new investors purchasing shares of our common stock in this
offering.
The following table illustrates this dilution on a per share
basis:
|
Assumed
public offering price per share
|
|
$
|
|
Net tangible book value per share at March
31, 2019
|
$(0.007)
|
|
|
Increase
in book value per share attributable to new investors
|
$
|
|
|
As
adjusted net tangible book value per share after this
offering
|
|
$
|
|
Dilution
per share to new investors
|
|
$
|
If the underwriters exercise their over-allotment option in full,
our as adjusted net tangible book value would be approximately $
million, or approximately $ per share, representing an increase in
the net tangible book value to existing stockholders of
approximately would be $ per share and immediate dilution of
approximately $ per share to new investors purchasing shares of our
common stock in this offering.
The table and discussion above are
based on 51,000,868 shares of common stock outstanding as
of March 31, 2019, and excludes, as of that date, the
following:
●
5,839,773 shares of
common stock issuable upon exercise of outstanding stock options at
a weighted average exercise price of $1.10 per share;
●
10 million shares
of common stock reserved under our Equity Incentive Plan;
and
●
83,333 shares of
common stock issuable upon exercise of outstanding warrants plans
at a weighted average exercise price of $2.00 per
share.
In addition, we may choose to raise additional capital in the
future. To the extent that capital is raised through equity or
convertible securities, the issuance of those securities may result
in further dilution to the holders of common stock.
20
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and related notes included
elsewhere in this prospectus. This discussion contains
forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of various factors,
including those discussed below and elsewhere in this
prospectus.
Overview
We
design, develop and sell advanced rechargeable lithium-ion energy
storage solutions for lift trucks, airport ground support equipment
(GSE) and other industrial motive applications. Our
"LiFT" battery packs, including our proprietary battery
management system (BMS), provide our customers with a better
performing, cheaper and more environmentally friendly alternative,
in many instances, to traditional lead-acid and propane-based
solutions.
We have
received Underwriters Laboratory (UL) Listing on our Class 3 Walkie
Pallet Jack (Class 3 Walkie) LiFT pack product line in 2016 and
expect to seek UL Listing during calendar 2019 for our other
product lines, which include, Class 1 Counterbalance/Sit
down/Ride-on (Class 1 Ride-on) LiFT packs, Class 2 Narrow Aisle
LiFT packs, and Class 3 End Rider LiFT packs. We believe that a UL
Listing demonstrates the safety, reliability and durability of our
products and gives us an important competitive advantage over other
lithium-ion energy suppliers. Our Class 3 Walkie LiFT packs have
been approved for use by leading industrial motive manufacturers,
including Toyota Material Handling USA, Inc., Crown Equipment
Corporation, and Raymond Corporation.
Critical
Accounting Policies and Estimates
Our
discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been
prepared in accordance with accounting principles generally
accepted in the United States of America (GAAP). The preparation of
these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities,
revenues, and expenses, and the related disclosure of contingent
assets and liabilities. On an ongoing basis, we evaluate our
estimates based on our historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions.
We
believe the following critical accounting policies and estimates
affect the preparation of our financial statements:
Accounts Receivable
Accounts receivable
are carried at their estimated collectible amounts. We have not
experienced collections issues related to our accounts receivable
and have not recorded an allowance for doubtful accounts during the
nine months ended March 31, 2019 and 2018 and the fiscal years
ended June 30, 2018 and 2017.
Inventories
Inventories consist
primarily of battery management systems, lithium-ion battery cells,
and the related subcomponents, and are stated at the lower of cost
(first-in, first-out) or net realizable value. We evaluate our
inventories to determine if write-downs are necessary due to
obsolescence or if the inventory levels are in excess of
anticipated demand at market value based on consideration of
historical sales and product development plans. We recorded
adjustments related to obsolete inventory in the amount of
approximately $4,000 and $22,000 during the nine months ended March
31, 2019 and 2018, respectively, and approximately $27,000 and
$56,000 during the years ended June 30, 2018 and 2017,
respectively.
21
Revenue Recognition
We
recognize revenue when persuasive evidence of an arrangement
exists, delivery has occurred, price is fixed or determinable, and
collectability of the selling price is reasonably assured. Delivery
occurs when risk of loss is passed to the customer, as specified by
the terms of the applicable customer agreements. When a product is
sold on consignment, the item remains in our inventory and revenue
is not recognized until the product is ultimately sold to the end
user. When a right of return exists, contractually or implied, we
recognize revenue when the product is sold through to the end user.
As of nine month ended March 31, 2019 and 2018, and as of June 30,
2018 and 2017, we did not have any deferred revenue.
Product Warranties
We
evaluate our exposure to product warranty obligations based on
historical experience. Our products, primarily lift equipment
packs, are warrantied for five years unless modified by a separate
agreement. As of March 31, 2019 and 2018, we had warranty liability
of approximately $298,000 and $105,000, respectively, and as of
June 30, 2018 and 2017, we had warranty liability of approximately
$158,000 and $85,000, respectively, which is included in accrued
expenses on our consolidated balance sheets.
Derivative Financial Instruments
We do
not use derivative instruments to hedge exposures to cash flow,
market, or foreign currency risk.
Stock-based Compensation
Pursuant to the
provisions of the Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) Topic No. 718-10,
Compensation-Stock
Compensation, which establishes accounting for equity
instruments exchanged for employee service, we utilize the
Black-Scholes option pricing model to estimate the fair value of
employee stock option awards at the date of grant, which requires
the input of highly subjective assumptions, including expected
volatility and expected life. Changes in these inputs and
assumptions can materially affect the measure of estimated fair
value of our share-based compensation. These assumptions are
subjective and generally require significant analysis and judgment
to develop. When estimating fair value, some of the assumptions
will be based on, or determined from, external data and other
assumptions may be derived from our historical experience with
stock-based payment arrangements. The appropriate weight to place
on historical experience is a matter of judgment, based on relevant
facts and circumstances.
Common
stock or equity instruments such as warrants issued for services to
non-employees are valued at their estimated fair value at the
measurement date (the date when a firm commitment for performance
of the services is reached, typically the date of issuance, or when
performance is complete). If the total value exceeds the par value
of the stock issued, the value in excess of the par value is added
to the additional paid-in-capital.
Segment
and Related Information
We
operate as a single reportable segment.
22
Results of Operations and Financial Condition
|
|
Three
months ended March 31,
|
Nine
months ended March 31,
|
||||||
|
|
2019
|
2018
|
2019
|
2018
|
||||
|
|
$
|
% of
Revenues
|
$
|
% of
Revenues
|
$
|
% of
Revenues
|
$
|
% of
Revenues
|
|
Net
revenue
|
$1,751,000
|
100%
|
$1,666,000
|
100%
|
$6,297,000
|
100%
|
$3,020,000
|
100%
|
|
Cost
of sales
|
1,690,000
|
97%
|
1,816,000
|
109%
|
5,968,000
|
95%
|
3,728,000
|
123%
|
|
Gross
profit (loss)
|
61,000
|
3%
|
(150,000)
|
-9%
|
329,000
|
5%
|
(708,000)
|
-23%
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Selling
and administrative expenses
|
2,421,000
|
138%
|
909,000
|
55%
|
5,518,000
|
88%
|
2,378,000
|
79%
|
|
Research
and development
|
1,364,000
|
78%
|
483,000
|
29%
|
2,892,000
|
46%
|
1,441,000
|
48%
|
|
Total
operating expenses
|
3,785,000
|
216%
|
1,392,000
|
84%
|
8,410,000
|
134%
|
3,819,000
|
126%
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
(3,724,000)
|
-213%
|
(1,542,000)
|
-93%
|
(8,081,000)
|
-128%
|
(4,527,000)
|
-150%
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
(90,000)
|
-5%
|
(211,000)
|
-13%
|
(1,058,000)
|
-17%
|
(512,000)
|
-17%
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
$(3,814,000)
|
-218%
|
$(1,753,000)
|
-105%
|
$(9,139,000)
|
-145%
|
$(5,039,000)
|
-167%
|
23
Comparison
of Results of Operations For the Three Months Ended March 31, 2019
and March 31, 2018
Revenues
Revenues for the
three months ended March 31, 2019 were $1,751,000, an increase by
$85,000 or 5%, compared to revenues of $1,666,000 for the three
months ended March 31, 2018. During three months ended March 31,
2019, we sold LiFT packs from our full family of products for Class
3 Walkie and End Riders, Class 2 Narrow Aisle, Class 1 Ride-on, and
GSE as compared to the sale of primarily Class 3 Walkie LiFT packs
for the three months ended March 31, 2018. During this fiscal year
2019 and with the introduction of our full "family" of
forklift battery packs, we are seeing an increasing mix shift from
lower power rated packs to much higher power rated packs, that have
a direct correlation to pricing, and our revenue. Over the next
twelve months, we anticipate this mix shift continue with the
increased sales of the larger power rated packs.
Cost of Sales
Cost of
sales for three months ended March 31, 2019 decreased $126,000, or
7%, compared to three months ended March 31, 2018. The
Company’s development efforts and improvements to our
products have resulted in reductions in inventory costs, improved
workforce efficiencies, and reduced warranty expense, which have
all contributed to an improvement in the gross margin percentage by
12% in three months ended March 31, 2019, compared to three months
ended March 31, 2018. We expect continued improvements to the gross
margin percentage as the sales volumes increase, assembly
productivity improves, and cost reductions are
achieved.
Selling and Administrative Expenses
Selling
and administrative expenses consist primarily of salaries and
personnel related expenses, stock-based compensation expense,
public company costs, consulting costs, professional fees and other
expenses. Such expenses for three months ended March 31, 2019
increased $1,530,000 or 172%, compared to three months ended March
31, 2018. This increase is primarily due to a significant increase
in stock based compensation related to new option
grants.
Research and Development Expense
Research and
development expenses for three months ended March 31, 2019
increased $881,000 or 182%, compared to three months ended March
31, 2018. Such expenses consist primarily of materials, supplies,
salaries and personnel related expenses, stock-based compensation
expense, and other expenses associated with the continued
development of our full family of products for LiFT pack and GSE.
During three months ended March 31, 2019, we have continued to
focus our efforts in developing lithium-ion battery packs for Class
1 and Class 2 forklifts. We initiated the UL Listing process on our
Class 1 pack and our new BMS in January 2019. The impact of these
efforts is expected to continue to be seen throughout the remainder
of calendar 2019, as we schedule our remaining family of forklift
packs for UL Listing. We anticipate research and development
expenses continuing to be a sizeable portion of our expenses as we
continue to develop new and improved products to our product
line.
Interest Expense
Interest expense
for three months ended March 31, 2019 decreased $121,000 or 57%,
compared to the three months ended March 31, 2018, and consists of
interest expense related to our outstanding lines of credit and
convertible promissory note.
Net Loss
Net
loss for three months ended March 31, 2019 increased $2,061,000 or
118%, as compared to the net loss in three months ended March 31,
2018. The increase is primarily attributable to increased
staff and development expenses related to expanding our products
line, our growing sales department, interest expense, and increased
stock-based compensation costs. As we continue to increase sales of
our packs, we anticipate being able to take advantage of greater
quantity discounts thus improving our gross margin.
24
Comparison
of Results of Operations For the Nine Months Ended March 31, 2019
and March 31, 2018
Revenues
Revenues for the
nine months ended March 31, 2019, was $6,297,000, an increase of
$3,277,000, or 109%, compared to revenues of $3,020,000 for the
nine months ended March 31, 2018. The increase in revenues resulted
primarily from the sale of Class 3 Walkie Lift packs to existing
customers. In addition a portion of the revenue increase resulted
from sales of across our full family of products for Class 3 Walkie
and End Riders, Class 2 Narrow Aisle, Class 1 Ride-on, and GSE
during the nine months ended March 31, 2019. During this fiscal
year 2019 and with the introduction of our full
"family" of forklift battery packs, we are seeing an
increasing mix shift from lower power rated packs to much higher
power rated packs, that have a direct correlation to pricing, and
our revenue. Over the next twelve months, we anticipate this mix
shift continue with the increased sales of the larger power rated
packs.
Cost of Sales
Cost of
sales during the nine months ended March 31, 2019, increased
$2,240,000, or 60%, compared to the nine months ended March 31,
2018. The increase in cost of sales resulted primarily from the
increase in pack sales as discussed above offset by decreased cost
for inventory, and lower warranty expense as a percentage of
revenue resulting in a gross margin percentage increase of 28% for
the nine months ended March 31, 2019 compared to the nine months
ended March 31, 2018.
Selling and Administrative Expenses
Selling
and administrative expenses for the nine months ended March 31,
2019 increased $3,158,000, or 134%, compared to the nine months
ended March 31, 2018. The increase is primarily attributable to
increases in staff, higher stock-based compensation as discussed
above regarding March 31, 2019, and additional professional
fees.
Research and Development Expense
Research and
development expenses for the nine months ended March 31, 2019
increased $1,451,000, or 101%, compared to the nine months ended
March 31, 2018 due to our continued focus in developing lithium-ion
battery packs for Class 1 forklifts, Class 2 forklifts, Class 3 end
riders, and GSE.
Interest Expense
Interest expense
during the nine months ended March 31, 2019 increased $546,000, or
107%, and consists primarily of interest expense related to our
outstanding lines of credit and convertible promissory note. Also
included in interest expense during the nine months ended March 31,
2019 is additional interest expense of approximately $466,000
agreed to be paid under the Early Note Conversion Agreement, dated
October 31, 2018, with Esenjay, as origination fees of $25,000 for
the shareholder lines of credit.
Net Loss
Net
loss for the nine months ended March 31, 2019 increased $4,118,000,
or 82%, as compared to net loss for the nine months ended March 31,
2018 for the reasons stated above.
25
Comparison
of Results of Operations For the Years Ended June 30, 2018 and June
30, 2017
The
following table sets forth information from our statements of
operations for the years ended June 30, 2018 (Fiscal 2018) and June
30, 2017 (Fiscal 2017).
|
|
Fiscal
2018
|
Fiscal
2017
|
||
|
|
$
|
% of
Revenues
|
$
|
% of
Revenues
|
|
Revenues
|
$4,118,000
|
100%
|
$902,000
|
100%
|
|
Cost of goods
sold
|
4,913,000
|
119%
|
1,622,000
|
180%
|
|
Gross
loss
|
(795,000)
|
-19%
|
(720,000)
|
-80%
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
Selling
and administrative expenses
|
3,462,000
|
84%
|
2,404,000
|
267%
|
|
Research
and development
|
1,956,000
|
47%
|
1,052,000
|
117%
|
|
Total operating
expenses
|
5,418,000
|
132%
|
3,456,000
|
384%
|
|
|
|
|
|
|
|
Operating
loss
|
(6,213,000)
|
-151%
|
(4,176,000)
|
-464%
|
|
|
|
|
|
|
|
Other income
(expenses)
|
|
|
|
|
|
Change
in fair value derivative liabilities
|
|
0%
|
14,000
|
2%
|
|
Interest
expense, net
|
(752,000)
|
-18%
|
(273,000)
|
-30%
|
|
|
|
|
|
|
|
Net
loss
|
$(6,965,000)
|
-169%
|
$(4,435,000)
|
-492%
|
Revenues
Revenues for Fiscal
2018 increased $3,216,000, or 357%, compared to Fiscal 2017. This
increase in revenues during Fiscal 2018 was primarily attributable
to sales of Class 3 Walkie LiFT packs to one major customer
beginning in November 2017. A portion of the revenue increase also
resulted from the sale of GSE.
Cost of Sales
Cost of
sales for Fiscal 2018 increased $3,291,000, or 203%, compared to
Fiscal 2017. The increase in cost of sales was directly
attributable to the increase in revenues during Fiscal 2018. The
cost of materials per LiFT pack in Fiscal 2018 decreased compared
to Fiscal 2017 as higher purchase quantities resulted in lower
costs of materials per pack. Despite the improvement in lower costs
per pack, we have continued to recognize a gross loss during Fiscal
2018 as we remain subject to low volume purchases, higher cost
designs from more costly initial designs and limited sourcing
related to our inventory purchases. Warranty expense for Fiscal
2018 increased as a result of the higher sales volume. As of June
30, 2018, we had approximately $158,000 accrued for product
warranty liability.
Selling and Administrative Expenses
Selling
and administrative expenses consist primarily of salaries and
personnel related expenses, stock-based compensation expense,
public company costs, consulting costs, professional fees and other
expenses. Such expenses for Fiscal 2018 increased $1,058,000, or
44%, compared to Fiscal 2017. The increase was primarily
attributable to increased marketing expense for the promotion of
new products, additional payroll costs and stock based compensation
related to new employees, and additional legal fees for capital
raises.
Research and Development
Research and
development expenses for Fiscal 2018 increased $904,000, or 86%,
compared to Fiscal 2017. Such expenses consist primarily of
materials, supplies, salaries and personnel related expenses,
testing costs, consulting costs, and other expenses associated with
the continued development of our LiFT pack, as well as, research
into new product opportunities. The increase in expenses in Fiscal
2018 was primarily due to the development and implementation of the
higher capacity packs for Class 1, 2, and 3 forklifts. We
anticipate research and development expenses continuing to be a
significant portion of our expenses as we continue to develop and
add new and improved products to our product line-up.
26
Change in Fair Value of Derivative Liabilities
The
derivative liability was eliminated as of January 23, 2017,
resulting in a Fiscal 2018 decrease of $14,000, or 100%, compared
to Fiscal 2017 (see Note 7 to the audited consolidated financial
statements).
Interest Expense
Interest expense
for Fiscal 2018 increased $479,000, or 175%, compared to Fiscal
2017 and was primarily comprised of interest on our outstanding
lines of credit. On December 29, 2015, we entered into the Second
Amendment of our Unrestricted Line of Credit (see Note 6 to the
audited consolidated financial statements), which included, among
other provisions, the reduction in the conversion price of the
Unrestricted Line of Credit from $3.00 to $0.60 per share. The
estimated change in fair value of the conversion price of
approximately $310,000 was recorded as a deferred financing cost at
the date of the Second Amendment and was amortized over the then
remaining seven-month term of the amended Unrestricted Line of
Credit agreement. During Fiscal 2017, we recorded approximately
$44,000 of deferred financing amortization cost, which is included
in interest expense in the accompanying consolidated statements of
operations. Also included in Fiscal 2018 and Fiscal 2017 was
interest expense of approximately $752,000 and $228,000,
respectively, related to our outstanding lines of credit and
deferred discount amortization (see Notes 6 and 7 to the audited
consolidated financial statements).
Net Loss
Net
loss during Fiscal 2018 increased $2,530,000, or 57%, compared to
Fiscal 2017. The increase is due primarily to increased selling,
administrative, and research and development expenses, as discussed
above.
Liquidity and Capital Resources
Overview
As
of March 31, 2019, and June 30, 2018, we had a cash balance of
$900,000 and $2,706,000, respectively. Since June, 2012, when we
changed our business operations to the design, development and sale
of rechargeable advanced energy storage systems, we have generated
negative cash flows from operations, and we have financed our
operations primarily through sales of our products, private sales
of equity securities and credit facilities.
In
January 2019, we completed the sale of 3,992,564 shares of common
stock for aggregate gross proceeds of $4,391,820, or $1.10 per
share in cash, before expenses. A portion of the proceeds from the
offering was used to repay in full approximately $2.6 million in
borrowings and accrued interest under two short-term credit
facilities with two creditors.
In
March 2019, we amended our Original Credit Facility with Esenjay to
(i) increase the line of credit from $5,000,000 to $7,000,000 to
purchase inventory and related operational support expenses, (ii)
added Cleveland as an additional lender, and (iii) extend the
maturity date from March 31, 2019 to December 31, 2019. As of March
31, 2019, we have an outstanding balance of $3,405,000 and a
remaining credit line of $3,595,000 for future draws.
We
have evaluated our expected cash requirements over the next twelve
months, which include, but are not limited to, investments in
additional sales and marketing and product development resources,
capital expenditures, and working capital requirements and have
determined that our existing cash resources are not sufficient to
meet our anticipated needs during the next twelve months, and that
additional financing is required to support our operations. Based
on our existing and planned levels of expenditures, we estimate
that our available cash balance, credit facilities, and the
expected net proceeds of this offering will be sufficient to fund
our existing and planned operations for the next twelve months from
the date of this prospectus. We will need to raise additional
capital after this offering to fund our business plan subsequent to
that date, until such time as revenues and related cash flows
become sufficient to support our operating costs.
We
intend to continue to seek capital through the sale of equity
securities through private or public placements and debt
placements.
27
The
following table summarizes our cash flows for the periods
indicated:
|
|
Nine
Months Ended March 31,
|
Year
Ended June 30,
|
||
|
|
2019
|
2018
|
2018
|
2017
|
|
Net cash used in
operating activities
|
(7,055,000)
|
(4,679,000)
|
(6,500,000)
|
(5,698,000)
|
|
Net cash used in
investing activities
|
(144,000)
|
(59,000)
|
(85,000)
|
(53,000)
|
|
Net cash provided
by financing activities
|
5,393,000
|
4,745,000
|
9,170,000
|
5,745,000
|
|
Net change in
cash
|
(1,806,000)
|
7,000
|
2,585,000
|
(6,000)
|
Operating Activities
Net
cash used in operating activities was $7,055,000 during the nine
months ended March 31, 2019, compared to net cash used in
operations of $4,679,000 during the nine months ended March 31,
2018. The primary reason for the increase in net cash used in
operations was a significant increase in net loss and an increase
in inventory and accounts receivable at March 31, 2019, offset by
increases in accounts payable, and accrued expenses and interest.
Inventory and accounts receivables levels increased to support
significant increase in revenue.
Net
cash used in operating activities was $6,500,000 for the year ended
June 30, 2018, compared to net cash used in operations of
$5,698,000 for the year ended June 30, 2017. Cash used in operating
activities for year ended June 30, 2018 reflects the net loss of
$6,965,000 offset primarily by non-cash items including
depreciation, stock-based compensation, stock issued for services
and the amortization of deferred financing costs and debt discount,
as well as the purchase of inventory and the payment of accounts
payable and accrued interest. Cash used in operating activities for
year ended June 30, 2017 reflects the net loss of $4,435,000 offset
primarily by non-cash items including depreciation, stock-based
compensation, stock issued for services, as well as an increase in
accounts receivable and accrued interest.
Investing Activities
Net
cash used in investing activities during the nine months ended
March 31, 2019 resulted from the purchase of office equipment,
primarily computer related, for $144,000. Net cash used in
investing activities during the nine months ended March 31, 2018
consisted primarily of the purchase of office and warehouse
equipment and leasehold improvements, totaling
$59,000.
Net
cash used in investing activities for the year ended June 30, 2018
and 2017 totaled $85,000 and $53,000, respectively, which consisted
primarily of office and warehouse equipment purchases.
Financing Activities
Net
cash provided by financing activities during the nine months ended
March 31, 2019 was $5,393,000 and consisted primarily of proceeds
from the sale of common stock. Net cash provided by financing
activities during the nine months ended March 31, 2018 was
$4,745,000 and resulted primarily from borrowing under our line of
credit with Esenjay.
Net
cash provided by financing activities during the years ended June
30, 2018 and 2017 was $9,170,000 and $5,745,000, respectively. The
increase in cash provided by financing activities primarily
resulted from the borrowings under our lines of credit with Esenjay
totaling $5,195,000, as well as proceeds from a $4,000,000 private
placement of common stock.
28
Indebtedness
On March 31, 2019, we amended our line of credit
with Esenjay, a related party, to: (i) increase the maximum
principal amount available under line of credit from $5,000,000 to
$7,000,000 (LOC), (ii) add Cleveland, our minority stockholder, as
an additional lender to the LOC pursuant to which each lender has a
right to advance a pro rata amount of the principal amount
available under the LOC, (iii) extend the maturity date from March
31, 2019 to December 31, 2019, and (iv) to provide for additional
parties to become a lender under the LOC. $3,405,000 remains
outstanding under the LOC as of March 31, 2019, and $3,595,000 is
available for future draws. The LOC matures on December 31,
2019.
Going Concern
For the
nine months ended March 31, 2019 and the year ended June 31, 2018,
we incurred net losses from operations of $9,139,000 and
$6,965,000, respectively. As of March 31, 2019, we had an
accumulated deficit of $35,801,000. In addition, as of March 31,
2019, our available cash balance was $900,000. In their report on
the annual consolidated financial statements for Fiscal 2018, our
independent auditors included an explanatory paragraph in which
they expressed substantial doubt regarding the Company’s
ability to continue as a going concern. Our ability to continue as
a going concern is dependent upon our ability to raise additional
capital on a timely basis until such time as revenues and related
cash flows are sufficient to fund our operations.
Management’s plans are to continue to seek funding, as
necessary, through the sale of equity securities, credit line
extensions and convertible debt
placements.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet financing
arrangements or any relationships with unconsolidated entities or
financial partnerships, including entities sometimes referred to as
structured finance or special purpose entities, that were
established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited
purposes.
Recently Issued Accounting Pronouncements Not Yet
Adopted
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in
this ASU change the existing accounting standards for lease
accounting, including requiring lessees to recognize most leases on
their balance sheets and making targeted changes to lessor
accounting. The guidance is effective for the Company’s
fiscal year beginning July 1, 2019. Early adoption is permitted.
The new leases standard requires a modified retrospective
transition approach for all leases existing at, or entered into
after, the date of initial application, with an option to use
certain transition relief. We have not completed our assessment of
the potential impact of this guidance on our consolidated financial
statements.
29
BUSINESS
Overview
We
design, develop and sell advanced rechargeable lithium-ion energy
storage solutions for lift trucks, airport ground support equipment
(GSE) and other industrial motive applications. With a decade of
experience in lithium-ion technology, we believe our
"LiFT" battery packs, including our proprietary battery
management system (BMS), provide our customers with a better
performing, cheaper and more environmentally friendly alternative,
in many instances, to traditional lead-acid and propane-based
solutions. We have prioritized achieving Underwriters Laboratory
(UL) Listing for our Lift pack products. We believe that a UL
Listing demonstrates the safety, reliability and durability of our
products and gives us an important competitive advantage over other
lithium-ion energy suppliers. Our LiFT packs have been approved for
use by leading industrial motive manufacturers, including Toyota
Material Handling USA, Inc., Crown Equipment Corporation, and
Raymond Corporation.
Within
our industrial market segments, we believe that our LiFT pack
solutions provide cost and performance benefits over existing
lead-acid power products including:
●
Longer operation
and more shifts with fewer batteries;
●
Reduced energy and
maintenance costs;
●
Faster recharging;
and
●
Longer
lifespan.
Additionally, the
toxic nature of lead-acid batteries presents significant safety and
environmental issues as they are subject to Environmental
Protection Agency lead-acid battery reporting requirements, may
create an environmental hazard in the event of a cell breach, and
emit combustible gases during charging.
As a
result of the advantages lithium-ion battery technology provide
over lead-acid batteries, we have experienced significant growth in
our business. We believe we are at the very early stage of a trend
toward the adoption of lithium-ion technology and the displacement
of lead-acid and propane-based energy storage solutions, which
based on North American sales data from the Industrial Truck
Association (ITA), we estimate to be a multi-billion dollar per
year market.
We
launched our LiFT packs for the Class 3 Walkie Pallet Jack (Class 3
Walkie) product line in 2014 and
received
Underwriters Laboratory (UL) Listing on our Class 3 Walkie LiFT
pack product line in 2016. We expect to seek UL Listing during
calendar 2019 for our other product lines, which include Class 1
Counterbalance/Sit down/Ride-on (Class 1 Ride-on) LiFT packs ,
Class 2 Narrow Aisle LiFT packs, and Class 3 End Rider LiFT
packs.
Critical to our
success is our innovative and proprietary high power BMS that both
optimizes the performance of our LiFT packs and provides a platform
for adding new battery pack features, including customized
telemetry for customers. The BMS serves as the brain of the battery
pack, managing cell balancing, charging, discharging, monitoring
and communication between the pack and the forklift.
Our
engineers design, develop, service, and test our products. We
source our battery cells from multiple suppliers in China and the
remainder of the components primarily from vendors in the United
States. Final assembly, testing and shipping of our products is
done from our ISO 9001 certified facility in Vista, California,
which includes three assembly lines.
Our
Strengths
We have
leveraged our decade of experience in lithium-ion technology to
design and develop a suite of LiFT pack products lines that we
believe provide attractive solutions to customers seeking an
alternative to lead-acid and propane-based power products. We
believe that the following attributes are significant contributors
to our success:
Engineering and integration
experience in lithium-ion for motive
applications: We have been developing
lithium-ion applications for the advanced energy storage market
since 2010, starting with products for automotive electric vehicle
manufacturers. We believe our expertise in management of large
format lithium cells and overall experience in control and
integration of battery modules has enabled us to develop
superior.
30
UL Listing: We
launched our LiFT packs for the Class 3 Walkie product line in 2014
and obtained our UL Listing for all three different power
configurations in January 2016. We believe this UL Listing gives us
a significant competitive advantage and provides assurance to
customers that our technology has been rigorously tested by an
independent third party and determined to be safe, durable and
reliable. We believe that the process involved in obtaining UL
Listing has enabled us to substantially enhance our entire family
of products, including in the areas of overall design and
durability, which we believe has improved the performance and
overall value of our LiFT packs. We are seeking to obtain
additional UL Listings for our other LiFT pack product lines during
calendar 2019.
Original equipment
manufacturer (OEM) approvals: Our Class 3 Walkie LiFT packs
have been tested and approved for use by Toyota Material Handling
USA, Inc., Crown Equipment Corporation, and Raymond Corporation,
among the top global lift truck manufacturers by revenue according
to Material Handling & Logistics. We also provide a
"private label" LiFT pack for a Class 3 Walkie LiFT
pack to a major forklift OEM.
Broad product offering and
scalable design: We offer LiFT packs for use in a variety of
industrial motive applications. We believe that our modular and
scalable design enables us to optimize design, inventory, and part
count to accommodate natural product extensions of our products to
meet customer requirements. Based on our Class 3 Walkie LiFT pack
design, we have expanded our produce lines to include Class 1
Ride-on, Class 2 Narrow Aisle, and Class 3 End Rider LiFT pack
product lines as well as airport GSE packs. Our modular design
enables us to group cells in certain unit counts and electrical
connections (series vs. parallel) that can be easily modified to
satisfy a wide range of power requirements for varying voltages,
current amperages, and kilowatt power ratings. The modular design
also includes three (3) different physical formats to accommodate a
variety of dimension requirements.
Significant advantages over
lead acid and propane solutions: We believe that lithium-ion
battery systems have significant advantages over existing
technologies and will displace lead-acid batteries and
propane-based solutions, in most applications, because they have a
number of advantages over these legacy technologies. Relative to
lead-acid batteries, such advantages include environmental
benefits, no water maintenance, faster charge times, greater cycle
life and longer run times that provide operational and financial
benefits to customers. Compared to propane solutions, lithium-ion
systems avoid the generation of exhaust emissions and associated
odor and environmental contaminates, and maintenance of an internal
combustion engine, which has substantially more parts than an
electric motor.
Proprietary Battery
Management System:
We have developed a high power BMS that is incorporated into our
entire product family. The BMS serves as the brain of the battery
pack, managing cell balancing, charging, discharging, monitoring
and communication between the battery pack and the forklift. Our
BMS is specifically designed for the industrial motive application
environment and is adaptable to meet custom requirements. The
system is optimized to meet the operational requirements of material handling and
airport ground support equipment and to work with the LiFePO4
battery chemistry (although we can easily accommodate other
lithium-ion chemistries). We have designed our BMS to
interface with telematics systems to enable remote diagnostics,
software upgrades and early warnings to fleet managers. Our next
generation BMS design will be released in fiscal year 2019 and
incorporate advanced automotive chip technologies that will enable
faster, lower cost, more extensive
data logging and easier re-configurations for product
extensions.
Our Products
We have
developed, tested, and sold our LiFT packs for use in a broad range
of lift trucks, as pictured below, including Class 3 Walkie and End
Riders, Class 2 Narrow Aisle, and Class 1 Ride-on, as well as for
airport GSE. Within each of these product segments, there is a
range of power and equipment variations. Our LiFT packs fit most of
these variations, with only minor modifications needed to fit the
remaining low volume applications. This equipment is described in
more detail below.
31
Class 3 Walkie Pallet Jack Packs
●
Our smallest
product line by weight and size.
●
Dedicated assembly
line for production with unique design to fit battery
compartments.
●
Used in food and
beverage delivery business, where the "walkie" often
rides on truck deliveries in a very rugged
environment.
●
UL Listing received
in 2016 for all three power configurations.
●
Power ratings range
from 1.7 to 4.3 kWh.
Class 1 Counterbalance/Sit Down/Ride-on
●
Our "large
product" line for Class 1 ride-on forklifts, to meet high
power requirements.
●
Utilizes modular
"blade" design
●
Used in warehouses
and production facilities, for demanding requirements, especially
multi-shift operations
●
Proven to support
3-shift operations and avoid the need for a battery for each
shift.
●
Power ratings range
from 21.6 to 32.0 kWh.
Class 2 Narrow Aisle
●
Our "medium
product line" utilizes a modular design for medium-size
packs.
●
Popular in new
facilities focused on high efficiency operations.
●
Power ratings range
from 21.6 to 31.1 kWh.
Class 3 End Rider
●
Uses similar design
to our Class 2 Narrow Aisle LiFT packs.
●
Equipment and
battery packs designed for use in high volume distribution centers
(DC).
●
Power ratings range
from 9.6 to 14.4 kWh.
Airport GSE
●
Our first
"large pack" product line, built on our "large
pack" assembly line.
●
Utilizes similar
modular design as our large forklift LiFT packs with minor
modifications.
●
Used to power
airport GSE including: baggage and cargo trucks, scissor lifts,
pushback tractors, and belt loaders, all used at
airports.
●
Used by major
airlines and ground support equipment "service"
companies.
●
Power ratings range
from 16.0 to 48.0 kWh.
32
Because
we are addressing a wide range of power and energy requirements
across broad industrial motive applications, we have taken a
modular approach to our battery pack system design. We have three
core design modules that are used in our entire family of forklift
products. Our core modules are designed for small, medium, and
large packs. The design of each core module is driven by power and
physical space sizing. The core module for our small LiFT pack,
which fits a Class 3 Walkie, is a 24-volt lithium pack (figure
below) comprised of individual 3.2-volt cells. The medium and large
cored modules are designed to accommodate larger equipment size and
power by adding more cells and components. These larger designs
support 36-volt, 48-volt, and 72-volt applications with power
requirements up to 900Ah (amps per hour or "current"
rating), which enables us to offer a full product line-up
.
We
offer varying chemistries and configurations based on the specific
application. Currently, our LiFT packs use lithium iron phosphate
(LiFePO4) battery cells, which we source from a variety of overseas
suppliers that meet our power, reliability, safety and other
specifications. Because our BMS is not designed to work with
aspecific battery chemistry, and we do not develop or manufacture
our own battery cells, we believe we can readily adapt our LiFT
packs as new chemistries become available in the market or customer
preferences change.
33
We also
offer 24-volt onboard chargers for our Class 3 Walkie LiFT packs,
and smart "wall mounted" chargers for larger
applications. Our smart charging solutions are designed to
interface with our BMS.
Industry
Overview
The
motive energy storage markets have evolved from reliance primarily
on lead-acid technologies created in the 1800s to increasing use of
advanced chemistries that have the ability to store energy more
efficiently and with lower environmental impact.
Driven
by overall growth in global demand for lithium-ion battery
solutions, the supply of lithium-ion batteries has rapidly
expanded, leading to price declines of eighty-five percent (85%)
since 2010 according to BloombergNEF. BloombergNEF also estimates
that lithium-ion battery pack prices, which averaged $1,160 per
kilowatt hour in 2010, were $176 per kWh in 2018 and could drop
below $100 in 2024.
The
sharp decline in the price of lithium-ion batteries has commenced a
shift in customer preferences away from lead-acid and propane-based
solutions for power lift equipment to lithium-ion based solutions.
We believe our position as a pioneer in the field and our extensive
experience providing lithium-ion based storage solutions makes us
uniquely positioned to take advantage of this shift in customer
preferences.
Lift Equipment - Material Handling Equipment
We
focus on energy storage solutions for lift equipment and GSE
because we believe they represent large and growing markets that
are just beginning to adopt lithium-ion based technology. These
markets include not only the sale of lithium-ion battery solutions
for new equipment but also a replacement market for existing lead
acid battery packs.
Historically, larger lift trucks were powered by
internal combustion engines, using propane as a fuel, with smaller
equipment powered by lead-acid batteries. Over the past thirty
years, there has been a significant shift toward electric power.
According to Liftech/ITA, over this time period the percentage of
lift trucks powered electrically has doubled from approximately 30%
to over sixty percent 60%.
According to
McKinsey & Co., worldwide new lift truck orders reached
approximately 1.4 million units in 2017 and had been over 1.2
million units per year for the prior five years. The Industrial
Truck Association has estimated that approximately 200,000 lift
trucks had been sold yearly since 2013 in North America (Canada,
the United States and Mexico), including approximately 253,000
units sold in 2017, with sales relatively evenly distributed
between electric rider Class 1 and Class 2, motorized hand (Class
3), and internal combustion engine powered lift trucks (Class 4 and
Class 5). The ITA estimates that electric lift trucks represented
approximately 64% of the North American market in 2017. Driven by
growth in global manufacturing, e-commerce and construction,
Research and Markets expects that the global lift truck market will
grow at a compound annual growth rate of 6.4% through
2024.
34
Customers
Some of
our end users of our LiFT packs include companies in a number of
different industries, as shown in the graphic below:
During
the three months ended March 31, 2019, we had two major customers
(Crown Equipment Corporation and Toyota Material Handling USA,
Inc.) that each represented more than 10% of our revenues on an
individual basis, and approximately 59% in the aggregate. During
the nine months ended March 31, 2019, we had four major customers
(including two additional customers, Caterpillar Inc. and Delta
Airlines that each represented more than 10% of our revenues on an
individual basis, or approximately 80% in the
aggregate.
During
the three months ended March 31, 2018, we had two major customers
(Crown Equipment Corporation and Toyota Material Handling USA,
Inc.) that each represented more than 10% of our revenues on an
individual basis, or approximately 92% in the aggregate. During the
nine months ended March 31, 2018, we had two major customers (Crown
Equipment Corporation and Toyota Material Handling USA, Inc.) that
each represented more than 10% of our revenues on an individual
basis, or approximately 85% in the aggregate.
Shift
Toward Lithium-ion Battery Technologies
We
expect that there will be a significant increase in demand for safe
and efficient alternatives to lead-acid and propane-based power
products. There are a number of factors driving the change in
customer preference away from these legacy products and toward
lithium-ion energy storage solutions:
Duration of Charge/Run
Times: Lithium-based energy storage systems can perform for
a longer duration compared to lead-acid batteries. Lithium-ion
batteries provide up to 50% longer run times than lead-acid
batteries of comparable capacity, or amps-per-hour rating, allowing
equipment to be operated over a long period of time between
charges.
High/Sustained
Power: Lithium-ion batteries are better suited to deliver
high power versus legacy lead-acid. For example, a 100Ah lead acid
battery will only deliver 80Ah if discharged over a four-hour
period. In contrast, a 100Ah lithium-ion system will achieve over
92Ah even during a 30 minute discharge. Additionally, during
discharge, the LiFT pack sustains its initial voltage, maximizing
the performance of the forklift truck, whereas, lead acid voltages,
and hence power, decline over the working shift.
35
Charging Time: Lead
acid batteries are limited to one shift a day, as they discharge
for eight hours, need eight hours for charging, and another eight
hours for cooling. For multi-shift operations, this typically
requires battery changeout for the equipment. Because lithium
batteries can be recharged in as little as one hour and do not
degrade when subjected to opportunity charging, hence, battery
changeout is unnecessary.
Safe Operation: The
toxic nature of lead-acid batteries presents significant safety and
environmental issues in the event of a cell breach. During
charging, lead acid emits combustible gases and increases in
temperature. Lithium-ion (particularly LFP) batteries do not get as
hot and avoid many of the safety and environmental issues
associated with lead-acid batteries.
Extended Life: The
performance of lead-acid batteries degrades after approximately 500
charging cycles in industrial equipment applications. In
comparison, lithium-ion batteries last up to five times longer in
the same application.
Size and Weight:
Lithium is about one-third the weight of lead acid for comparable
power ratings.
Lower Cost:
Lithium-ion batteries provide power dense solutions with extended
cycle life, reduced maintenance and improved operational
performance, resulting in lower total cost of
ownership.
Marketing
and Sales
In the
industrial motive market, OEMs sell their lift products through
dealer networks and directly to end customers. Because of
environmental issues associated with lead-acid batteries and to
preserve customer choice, industrial lift products are typically
sold without a battery pack. Equipment dealers source battery packs
from battery distributors and battery pack suppliers based on
demand or in response to customer specifications. End customers may
specify a specific type and manufacturer of battery pack to the
equipment dealer or may purchase battery packs from battery
distributors or directly from battery suppliers. Consequently, we
sell our products through a number of different channels, including
directly to end users, OEMs and lift equipment dealers or through
battery distributors.
Our
four-person direct sales staff is assigned to major geographies
nation-wide to collaborate with our sales partners who have an
established customer base. We are seeking to hire additional sales
staff to support our expected sales growth. In addition, we have
developed a nation-wide sales network of relationships with
equipment OEMs, their dealers, and battery
distributors.
We have
worked directly with a number of OEMs to secure "technical
approval" for compatibility of our LiFT packs with their
equipment. Once we receive that approval, we focus on developing a
sales network utilizing existing battery distributors and equipment
dealers, along with the OEM corporate national account sales force,
to drive sales through this channel.
As our
LiFT packs have gained acceptance in the marketplace, we have seen
an increase in direct-to-end-customer sales, ranging from small
enterprises to Fortune 500 companies. To expand our customer reach, we
have begun to market directly to end users, primarily focusing on
large fleets operated by Fortune 500 companies seeking productivity
improvements. We have seen initial success in these efforts,
including sales to a Fortune 100 heavy machinery conglomerate. Our
marketing efforts to these customers focus on the benefits of
lithium-ion batteries over lead acid batteries in their
equipment.
Our
product development efforts have included pilot programs and trials
with national account end users. This has resulted in increased
sales to these end users as many of them seek to replace lead-acid
batteries with lithium power packs in their fleets as they buy new
equipment.
To
support our products, we have a nation-wide network of service
providers, typically forklift equipment dealers and battery
distributors, who provide local support to large customers. We
utilize a discount price to our standard retail prices to
compensate our partners for customer orders and service
availability. We also maintain a call center and provide Tech
Bulletins and training to our service and sales network out of our
corporate headquarters.
36
Our
warranty policy for our family of forklift products includes a
limited five-year warranty. Warranty claims are handled by our call
center that determines the appropriate response path: return pack,
field fix by approved technician on location, or technical
resolution by the call center. Our approved field technicians are
typically equipment dealers or battery distributors, charging
agreed upon discounted rates to their "street
rates."
We
partner with Averest, Inc., an experienced GSE distributor, to
market our lithium-ion battery packs for airport GSE. Our sales
cycle for GSE equipment has required initial multi-month evaluation
periods of packs prior to ordering. After initial shipments,
subsequent ordering is dependent upon operating requirements and
capital budgeting.
We
customarily maintain a relatively small inventory of Class 3 Walkie
LiFT packs, which typically have shorter customer timing
requirements than other lift equipment. For larger packs, we seek
to align our inventory and production with historical OEM order
patterns. Typically, we deliver larger packs on a four- to
eight-week lead time. Because of associated lead times, we provide
six-month rolling forecasts to our battery sell suppliers who
manufacture and deliver to our forecast.
Ordering patterns
primarily reflect ordering patterns of new equipment, commonly done
in monthly or quarterly stages by large customers, as single
fleet-size orders would require significant planning and
operational support to implement. Backlog varies with customers but
is driven by operating timing. Customer payment terms are normally
net 30 days, but certain large customers require extended payment
terms, ranging from 45 to 60 days. We have experienced some
seasonality, particularly in July, August and
December.
Manufacturing
and Assembly
We
source our battery cells from multiple suppliers in China and the
remainder of the components primarily from vendors in the United
States. While we have experienced supply interruptions from time to
time, none have been material. Production rates aligned with our
forecasts have helped us mitigate the risk of disruption. Our BMS
is not dependent on a specific lithium-ion chemistry or cell
manufacturer, as we are agnostic to chemistry and supplier. We
monitor and test potential new cell technologies on an ongoing
basis. Final assembly, testing and shipping of our products is done
from our ISO 9001 certified facility in Vista, California, which
includes three assembly lines.
We
design our BMS modules/boards and have two granted patents: (i) a
12-volt battery design; and (ii) a battery display design.
Component acquisition and assembly of the BMS modules/boards are
outsourced to two local, Southern California board houses, both of
whom meet our quality and other specifications.
We buy
chargers from several sources, including a U.S. based supplier.
Additionally, we are a qualified dealer for a well-known
manufacturer of "high capacity, modular, smart
chargers" which support our larger packs.
Research and Development
Our
engineers design, develop, service, and test our products. We
believe our core competencies and capabilities are designing and
developing technology for BMS, systems engineering, engineering
application, and software engineering for both battery packs and
telemetry. We believe that our ability to develop new features and
technology for our BMS is essential to our growth
strategy.
Research and
development expenses for the fiscal years ended June 30, 2018 and
2017 were approximately $1,956,000 and $1,052,000, respectively.
Such expenses consisted primarily of materials, supplies, salaries
and personnel related expenses, stock-based compensation expense,
consulting costs and other expenses. Research and development
expenses in fiscal year ended June 30, 2018 (Fiscal 2018) were
higher than fiscal year ended June 30, 2017 (Fiscal 2017) primarily
due to the development and implementation of the higher capacity
packs for Class 1, 2, and 3 forklifts.
Research and
development expenses for the nine (9) months ended March 31, 2019
and 2018 were approximately $2,892,000 and $1,441,000,
respectively. Such expenses consisted primarily of materials,
supplies, salaries and personnel related expenses, stock-based
compensation expense, consulting costs and other expenses. Research
and development expenses in the nine (9) months ended March 31,
2019 were one hundred two percent (102%) higher than the nine (9)
months ended March 31, 2018 primarily due to our continued focus in
developing lithium-ion battery packs for our family of LiFT packs
products and GSE.
37
As we
continue to develop our product offerings, we anticipate that
research and development expenses will continue to be a substantial
part of our focus. We perform our research and development at our
facility in Vista, California. We seek to develop innovative new
and improved products for cell and system management along with
associated communication, display, current sensing and charging
tools.
Competition
Our
competitors in the lift equipment market are primarily major
lead-acid battery manufacturers, including Exide Technologies, East
Penn Manufacturing Company, EnerSys Corporation, and Crown Batter
Corporation We do not believe that these suppliers offer
lithium-based products for lift equipment in any significant volume
to end users, equipment dealers, OEMs or battery distributors.
Several OEMs offer lithium-ion battery packs on Class 3 forklifts
for sale only with their own new forklifts. As the demand for
lithium-ion battery packs has increased, a number of lithium
battery pack providers have entered the market, most of whom we
believe are suppliers of existing power products who have added a
lithium product to their product lines.
The key
competitive factors in this market are performance, reliability,
durability, safety and price. We believe we compete effectively
based on our experience with lithium-ion technology, including our
development capabilities and the performance of our proprietary
BMS. We believe that the UL Listing covering our entire Class 3
Walkie LiFT pack product line is a significant differentiating
competitive advantage and we intend to extend that advantage by
seeking to obtain UL Listings for our other LiFT pack products
during calendar 2019. In addition, because our BMS is not reliant
on any specific battery cell chemistry, we believe we can adapt
rapidly to changes in advanced battery technology or customer
preferences.
Intellectual
Property
Our
success depends, at least in part, on our ability to protect our
core technology and intellectual property. To accomplish this, we
rely on a combination of patents pending, patent applications,
trade secrets, including know-how, employee and third party
nondisclosure agreements, copyright laws, trademarks, intellectual
property licenses and other contractual rights to establish and
protect our proprietary rights in our technology. In addition to
such factors as innovation, technological expertise and experienced
personnel, we believe that a strong patent position is important to
remain competitive.
As of
March 31, 2019, we have two issued patents and three trademark
registrations protecting the Flux Power name and logo. We intend to
file additional patent applications with respect to our technology,
including our next generation BMS 2.0, which we plan to release for
production later this year. We also intend to seek protection of
our intellectual property internationally in a broad range of
areas. We do not know whether any of our efforts will result in the
issuance of patents or whether the examination process will require
us to narrow our claims. Even if granted, there can be no assurance
that these pending patent applications will provide us with
protection. We have two granted patents: (i) a 12-volt battery
design and (ii) a battery display design. Based on soon to be
released next generation BMS, we plan to file four utility patents
within this year.
Government
Regulations
Product Safety
Regulations. Our products are subject to product safety
regulations by Federal, state, and local organizations.
Accordingly, we may be required, or may voluntarily determine to
obtain approval of our products from one or more of the
organizations engaged in regulating product safety. These approvals
could require significant time and resources from our technical
staff and, if redesign were necessary, could result in a delay in
the introduction of our products in various markets and
applications.
Environmental
Regulations. Federal, state, and local regulations impose
significant environmental requirements on the manufacture, storage,
transportation, and disposal of various components of advanced
energy storage systems. Although we believe that our operations are
in material compliance with current applicable environmental
regulations, there can be no assurance that changes in such laws
and regulations will not impose costly compliance requirements on
us or otherwise subject us to future liabilities.
38
Moreover, Federal,
state, and local governments may enact additional regulations
relating to the manufacture, storage, transportation, and disposal
of components of advanced energy storage systems. Compliance with
such additional regulations could require us to devote significant
time and resources and could adversely affect demand for our
products. There can be no assurance that additional or modified
regulations relating to the manufacture, storage, transportation,
and disposal of components of advanced energy systems will not be
imposed.
Occupational Safety and
Health Regulations. The California Division of Occupational
Safety and Health (Cal/OSHA) and other regulatory agencies have
jurisdiction over the operations of our Vista, California facility.
Because of the risks generally associated with the assembly of
advanced energy storage systems we expect rigorous enforcement of
applicable health and safety regulations. Frequent audits by, or
changes in, the regulations issued by Cal/OSHA, or other regulatory
agencies with jurisdiction over our operations, may cause
unforeseen delays and require significant time and resources from
our technical staff.
Employees
As of
April 30, 2019, we had 75 full-time employees. We engage outside
consultants for business development and operations or other
functions from time to time. None of our employees is currently
represented by a trade union.
Properties
Our
headquarters are located at 985 Poinsettia Avenue, Suite A, Vista,
California, where we lease 22,054 square feet. Final assembly,
testing and shipping of our products is done at this facility which
is ISO 9001 certified and includes three assembly lines. Effective
February 25, 2014, we entered into a two (2)-year lease agreement
for this facility with average monthly rent payments of
approximately $12,000 per month and paid a security deposit of
$25,000, or approximately two months of rent. The lease was
subsequently extended to May 31, 2019, with an average rent expense
of approximately $15,000 per month.
We are
relocating our headquarters and production facility to 2685 South
Melrose Drive, Vista, California, where we are leasing
approximately 45,600 square feet with an option for an additional
15,300 square-feet of warehouse space, which we believe is
sufficient for our projected future growth. Monthly rent for the
new space is $42,300 and escalates 3% per year through the end of
the lease term in January 2024. We expect to relocate to the new
facility on June 25, 2019, with an option to extend the lease for
our existing space to mid-July, 2019 if operating needs require. We
intend to seek ISO 9001 certification for the new
facility.
Legal
Proceedings
From
time to time, we may become involved in legal proceedings that
arise in the ordinary course of business. We are not a party to any
material legal proceedings.
39
MANAGEMENT
Directors,
Executive Officers and Significant Employees
Identification of Directors, Executive Officers and Significant
Employees
The
following table and text set forth the names and ages of our
current directors, executive officers and significant employees as
of April 30, 2019. Our Board of Directors is comprised of only one
class. All of the directors will serve until the next annual
meeting of stockholders or until their successors are elected and
qualified, or until their earlier death, retirement, resignation or
removal. There are no family relationships among any of the
directors and executive officers. Our Board of Directors are not
paid for their service.
|
Name
|
|
Age
|
|
Position
|
|
Christopher L. Anthony
|
|
43
|
|
Chairman
|
|
Ronald F. Dutt
|
|
72
|
|
Director, Chief Executive Officer and President
|
|
Charles A. Scheiwe
|
|
52
|
|
Chief Financial Officer and Secretary1
|
|
Jonathan A. Berry
|
|
51
|
|
Chief Operating Officer
|
|
Michael Johnson
|
|
70
|
|
Director
|
|
James Gevarges
|
|
55
|
|
Director
|
________________
(1)
Mr. Dutt
resigned as our chief financial officer and secretary on December
16, 2018, and upon his resignation, Mr. Scheiwe was appointed as
our chief financial officer and secretary on December 17,
2018.
There
are no arrangements or understandings between our directors and
executive officers and any other person pursuant to which any
director or officer was or is to be selected as a director or
officer.
Business Experience
Christopher L. Anthony, Chairman. Mr.
Anthony was appointed as chairman on September 3, 2015 and has been
a board member since June 14, 2012. Mr. Anthony was also the
Company’s former chief executive officer from June 14, 2012
to June 28, 2013. Prior to the Company’s reverse acquisition
of Flux Power Holdings, Inc., in June 2012, Mr. Anthony served as
chairman and chief executive officer of Flux Power since it was
incorporated in 2009. Mr. Anthony is the founder and a majority
owner of Epic Boats, LLC (Epic Boats), a Delaware Corporation, and
has served as an R&D advisor since it was founded in 2002 and
also served as chief executive officer though October 2010. On June
28, 2013, Mr. Anthony resigned as Flux Power’s chief
executive officer to return full time to his position as chief
executive officer of Epic Boats to manage the day to day
operations. Epic Boats is primarily engaged in the business of
providing recreational and competitive watercrafts, including an
electric wake boarding boat. From 2005 to 2009, Mr. Anthony served
as the chief operating officer of Aptera Motors, Inc., a Delaware
company engaged in the business of manufacturing a three-wheel
electric car (Aptera Motors), and was a director of that company
from 2005 to 2010. Aptera Motors and Epic Boats are not affiliates
of the Company. Mr. Anthony is an expert in energy storage,
electric propulsion systems, and advanced composite manufacturing
processes. He has significant experience building advanced products
in the marine and commuter vehicle industries. Mr. Anthony has a
Bachelor of Science degree in finance from the Cameron School of
Business.
Ronald F. Dutt. Director, Chief Executive Officer, President,
and Director. Mr. Dutt has been our chief executive officer,
former interim chief financial officer and director since March 19,
2014. On September 19, 2017, he was also appointed as our
president, chief financial officer and corporate secretary. He
resigned as chief financial officer and corporate secretary as of
December 16, 2018. Previously, he was our chief financial officer
since December 7, 2012, and our interim chief executive officer
since June 28, 2013. Mr. Dutt has served as the Company’s
interim corporate secretary since June 28, 2013. Prior to Flux
Power, Mr. Dutt provided chief financial officer and chief
operating officer consulting services during 2008 through 2012. In
this capacity Mr. Dutt provided financial consulting, including
strategic business modeling and managed operations. Prior to 2008,
Mr. Dutt served in several capacities as executive vice president,
chief financial officer and treasurer for various public and
private companies including SOLA International, Directed
Electronics, Fritz Companies DHL Americas, Aptera Motors, Inc., and
Visa International. Mr. Dutt holds an MBA in Finance from
University of Washington and an undergraduate degree in Chemistry
from the University of North Carolina. Additionally, Mr. Dutt
served in the United States Navy and received an honorable
discharge as a Lieutenant.
40
Charles A. Scheiwe, Chief Financial Officer and
Secretary. Mr. Scheiwe joined the Company in July of 2018
and has been acting as the Company’s Controller since July 9,
2018. He was appointed as our chief financial officer and secretary
on December 17, 2018. Prior to joining the Company, Mr. Scheiwe was
the controller of Senstay, Inc. and provided financial and
accounting consulting services to start-up companies from 2016 to
2018. From 2006 to 2016, Mr. Scheiwe was the vice president of
finance and controller for GreatCall, Inc. Mr. Scheiwe’s
experience in accounting, financial planning and analysis, business
intelligence, cash management, and equity management has prepared
and qualified him for the position of chief financial officer and
secretary of the Company. Mr. Scheiwe has a Bachelor of Science
degree in Business Management, with emphasis in Accounting, from
the University of Colorado. Mr. Scheiwe also holds a CPA
certificate.
Jonathan A. Berry, Chief Operating
Officer. Mr. Berry joined the Company in 2016 and has been
our director of operations since 2016. On June 29, 2018, he was
appointed as our chief operating officer. Prior to joining the
Company in 2016, Mr. Berry was Clean Air Power, Inc.’s group
operations director and general manager of the USA operations from
2014 to 2016, and operations director of the UK, Australia, and USA
market from 2012 to 2014. Mr. Berry’s experience in the
development, implementation, and management of all aspects of
supply chain, production, and sales has prepared and qualified him
for the position of chief operating officer. Mr. Berry has an MBA
from Ashford Business School in London, England, and an
undergraduate degree in electrical engineering from Leeds
University.
Michael Johnson, Director. Mr. Johnson
has been our director since July 12, 2012. Mr. Johnson has been a
director of Flux Power since it was incorporated. Since 2002, Mr.
Johnson has been a director and the chief executive officer of
Esenjay Petroleum Corporation (Esenjay Petroleum), a Delaware
company located in Corpus Christi, Texas, which is engaged in the
business oil exploration and production. Mr. Johnson’s
primary responsibility at Esenjay Petroleum is to manage the
business and company as chief executive officer. Mr. Johnson is a
director and beneficial owner of Esenjay Investments LLC, a
Delaware company engaged in the business of investing in companies,
and an affiliate of the Company owning approximately 61.4% of our
outstanding shares, including common stock underlying options,
warrants and convertible debt that were exercisable or convertible
or which would become exercisable or convertible within 60 days. As
a result of Mr. Johnson’s leadership and business experience,
he is an industry expert in the natural gas exploration industry
and brings a wealth of management and successful company building
experience to the board. Mr. Johnson received a Bachelor of Science
degree in mechanical engineering from the University of
Southwestern Louisiana.
James Gevarges, Director. Mr. Gevarges
served on our Board as director from July 14, 2012 to October 24,
2014, at which time he resigned. On September 30, 2015, Mr.
Gevarges was reinstated as a director. Mr. Gevarges is the
president, chief executive officer, and a majority owner of Current
Ways, Inc., a California company engaged in the business of
manufacturing chargers and other components for electric vehicles,
which he founded in 2010. Current Ways, Inc. is not an affiliate of
the Company. Since 1991, Mr. Gevarges has also been a Director and
the chief executive officer of LHV Power Corporation (formerly
known as HiTek Power, Corp) (LHV Power), a California company
located in Santee, California, which is engaged in the business of
designing, manufacturing and marketing of power supply systems. Mr.
Gevarges is the sole owner of LHV Power. LHV Power is not an
affiliate of the Company. Mr. Gevarges’ primary
responsibilities at LHV Power are to manage the company and
business as chief executive officer and president. As a result of
Mr. Gevarges’ management and industry experience, he is a
power supply industry expert and brings an enormous amount of
manufacturing and successful company management experience to the
Company. Mr. Gevarges has a Bachelor of Science degree in
electrical engineering from Louisiana State
University.
Involvement in Certain Legal Proceedings
To the
best of our knowledge, during the past ten years, none of our
directors or executive officers were involved in any of the
following: (1) any bankruptcy petition filed by or against any
business of which such person was a general partner or executive
officer either at the time of the bankruptcy or within two years
prior to that time; (2) any conviction in a criminal proceeding or
being subject to a pending criminal proceeding (excluding traffic
violations and other minor offenses); (3) being subject to any
order, judgment, or decree, not subsequently reversed, suspended or
vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking
activities; and (4) being found by a court of competent
jurisdiction (in a civil action), the Securities and Exchange
Commission or the Commodities Futures Trading Commission to have
violated a federal or state securities or commodities law, and the
judgment has not been reversed, suspended or vacated.
41
Board Leadership Structure and Role in Risk Oversight
The
Board does not have a policy as to whether the roles of our
chairman and chief executive officer should be separate. Instead,
the Board makes this determination based on what best serves our
Company’s needs at any given time.
In its
governance role, and particularly in exercising its duty of care
and diligence, the Board is responsible for ensuring that
appropriate risk management policies and procedures are in place to
protect the company’s assets and business. Our Board has
broad and ultimate oversight responsibility for our risk management
processes and programs and executive management is responsible for
the day-to-day evaluation and management of risks to the
Company.
Board Composition, Committees, and Independence
Under
the rules of NASDAQ, "independent" directors must make
up a majority of a listed company’s board of directors. In
addition, applicable NASDAQ rules require that, subject to
specified exceptions, each member of a listed company’s audit
and compensation committees be independent within the meaning of
the applicable NASDAQ rules. Audit committee members must also
satisfy the independence criteria set forth in Rule 10A-3 under the
Exchange Act.
Our
Board has undertaken a review of the independence of each director
and considered whether any director has a material relationship
with us that could compromise his ability to exercise independent
judgment in carryout out his responsibilities. As a result of this
review, our Board determined that we do not have independent board
members. We plan on appointing "independent" directors
prior to the completion of this offering so that a majority of our
directors are independent, as required under applicable NASDAQ
rules. As required under applicable NASDAQ rules, we anticipate
that our independent directors will meet in regularly scheduled
executive sessions at which only independent directors are
present.
Board Committees
We have
no board committees, but we plan to institute, at minimum, an audit
committee and compensation committee prior to the completion of the
offering.
Code of Ethics
We have
not adopted a Code of Ethics but expect to adopt a Code of Ethics
and will require that each employee abide by the terms of such Code
of Ethics. A copy of our Code of Business Conduct and Ethics will
be posted on our website on or prior to the closing of this
offering.
Indemnification Agreements
We
executed a standard form of indemnification agreement
(Indemnification Agreement) with each of our Board members and
executive officers (each, an Indemnitee).
Pursuant to and
subject to the terms, conditions and limitations set forth in the
Indemnification Agreement, we agreed to indemnify each Indemnitee,
against any and all expenses incurred in connection with the
Indemnitee’s service as our officer, director and or agent,
or is or was serving at our request as a director, officer,
employee, agent or advisor of another corporation, partnership,
joint venture, trust, limited liability company, or other entity or
enterprise but only if the Indemnitee acted in good faith and in a
manner he reasonably believed to be in or not opposed to our best
interest, and in the case of a criminal proceeding, had no
reasonable cause to believe that his conduct was unlawful. In
addition, the indemnification provided in the indemnification
agreement is applicable whether or not negligence or gross
negligence of the Indemnitee is alleged or proven. Additionally,
the Indemnification Agreement establishes processes and procedures
for indemnification claims, advancement of expenses and costs and
contribution obligations.
42
EXECUTIVE COMPENSATION
Compensation for our Named Executive Officers
The
following table sets forth information concerning all forms of
compensation earned by our named executive officers during the
fiscal years ended June 30, 2018 and 2017 for services provided to
the Company and its subsidiaries.
|
Name and Principal Position
|
Year
|
Salary ($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)(1)
|
Non-Equity
Incentive Plan
Compensation
($)
|
All Other
Compensation
($)
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
Ronald
F. Dutt, Chief Executive Officer
|
2018
|
$170,000
|
$-
|
$-
|
$677,538
|
$-
|
$-
|
$847,538
|
|
Officer,
President, Chief Financial Officer, Director and Corporate
Secretary
|
2017
|
$170,000
|
$-
|
$-
|
$-
|
$-
|
$-
|
$170,000
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan
Berry, Chief Operating Officer(2)
|
2018
|
$145,000
|
$-
|
$-
|
$541,741
|
$-
|
$-
|
$686,741
|
(1)
The
grant date fair value was determined in accordance with the
provisions of FASB ASC Topic No. 718 using the Black-Scholes
valuation model with assumptions described in more detail in the
notes to our audited consolidated financial
statements.
(2)
Mr.
Berry became our chief operating officer on June 29,
2018.
Benefit Plans
We do
not have any profit sharing plan or similar plans for the benefit
of our officers, directors or employees. However, we may establish
such plan in the future.
Equity Compensation Plan Information
In
connection with the reverse acquisition of Flux Power, Inc. in
2012, we assumed the 2010 Option Plan. As of June 30, 2018, the
number of options outstanding to purchase common stock under the
2010 Option Plan was 379,000. No additional options to purchase
common stock may be granted under the 2010 Option
Plan.
On
November 26, 2014, our board of directors approved our 2014 Equity
Incentive Plan (2014 Option Plan), which was approved by our
stockholders on February 17, 2015. The 2014 Option Plan was amended
by our board of directors on October 26, 2017 and approved by our
stockholders on July 23, 2018. The 2014 Option Plan offers selected
employees, directors, and consultants the opportunity to acquire
our common stock, and serves to encourage such persons to remain
employed by us and to attract new employees. The 2014 Option Plan
allows for the award of stock and options, up to 10,000,000 shares
of our common stock. We granted 438,000 incentive stock options
under the 2014 Option Plan during Fiscal 2016, of which 320,000
remain outstanding at June 30, 2018. No options were granted during
Fiscal 2017. We granted 2,118,000 incentive stock options and
807,000 non-qualified stock options under the 2014 Option Plan
during Fiscal 2018.
As of
June 30, 2018, we have 3,165,000 options and 379,000 options
exercisable and outstanding which were granted from the 2014 Option
Plan and 2010 Option Plan, respectively.
43
The
following table sets forth certain information concerning
unexercised options, stock that has not vested, and equity
compensation plan awards outstanding as of June 30, 2018 for the
named executive officers below:
|
|
Option Awards(1)
|
Stock Awards
|
||||||||
|
Name
|
Award
Grant Date
|
Number of Securities Underlying Unexercised Options
Exercisable
|
Number of Securities Underlying Unexercised Options
Unexercisable
|
Equity Incentive Plan Awards: Number of Securities Underlying
Unexercised Unearned Options
|
Option Exercise Price
($)
|
Option Expiration Date
|
Number of Shares or Units of Stock That Have Not
Vested
|
Market Value of Shares or Units of Stock That Have Not
Vested
($)
|
Equity Incentive Plan Awards: Number of Unearned Shares, Units or
Other Rights That Have Not Vested
|
Equity Incentive Plan Awards: Market or Payout Value of
Unearned
Shares, Units or Other Rights That Have Not
Vested
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronald
Dutt
|
6/29/2018
|
-
|
500,000
|
500,000
|
1.44
|
6/29/2028
|
-
|
$-
|
-
|
$-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/26/2017
|
187,500
|
312,500
|
312,500
|
0.46
|
10/26/2027
|
-
|
$-
|
-
|
$-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/22/2015
|
166,250
|
23,750
|
23,750
|
0.50
|
12/22/2025
|
-
|
$-
|
-
|
$-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/30/2013
|
175,000
|
-
|
-
|
1.0
|
7/29/2023
|
-
|
$-
|
-
|
$-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan
Berry
|
6/29/2018
|
-
|
455,106
|
455,106
|
1.44
|
6/29/2028
|
-
|
$-
|
-
|
$-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/26/2017
|
84,375
|
140,625
|
140,625
|
0.46
|
10/26/2027
|
-
|
$-
|
-
|
$-
|
|
(1)
|
The fair value of each option grant is estimated at the date of
grant using the Black-Scholes option pricing model. Expected
volatility is calculated based on the historical volatility of the
Company’s stock. The risk free interest rate is based on the
U.S. Treasury yield for a term equal to the expected life of the
options at the time of grant.
|
Compensation
of Non-Executive Directors
Aggregated Option/Stock Appreciation Right (SAR) exercised and
Fiscal year-end Option/SAR value table
Neither
our executive officers nor the other individuals listed in the
tables above, exercised options or SARs during the last fiscal
year.
Long-term incentive plans
No long
term incentive awards were granted by us in the last fiscal
year.
Employment Agreements with Executive Officers
We
entered into an Employment Agreement with our chief executive
officer, Ronald F. Dutt, effective December 11, 2012. Mr. Dutt is
an "at-will" employee of Flux Power Holdings, Inc. The
Employment Agreement provided for an annual salary of $170,000. On
February 15, 2019, Flux Power Holdings, Inc. entered into an
amendment to the Employment Agreement (Amendment) with the
Company’s president and chief executive officer, Ronald F.
Dutt, dated December 7, 2012. The Amendment confirmed Mr.
Dutt’s continued services as the president and chief
executive officer of the Company and its wholly-owned subsidiary,
Flux Power, Inc., and setting Mr. Dutt’s new annual base
salary to $195,000.
44
On
December 17, 2018, the Board of Directors of the Company appointed
Charles A. Scheiwe to serve as our chief financial officer and
secretary. In connection with his appointment as the
Company’s chief financial officer and secretary, Mr. Scheiwe
will receive an annual base salary of $145,000. Mr. Scheiwe is an
"at-will" employee of Flux Power Holdings,
Inc.
On June
29, 2018, the Board of Directors of the Company appointed Jonathan
Berry to serve as our chief operating officer. In connection with
his appointment as the Company’s chief operating officer, Mr.
Berry will receive an annual base salary of $145,000. Mr. Berry is
an "at-will" employee of Flux Power Holdings,
Inc.
There
were no performance based bonuses paid for fiscal years ended June
30, 2018 and 2017.
SECURITY OWNERSHIP OF
CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
As used
in this section, the term beneficial ownership with respect to a
security is defined by Rule 13d-3 under the Securities Exchange Act
of 1934, as amended, as consisting of sole or shared voting power
(including the power to vote or direct the vote) and/or sole or
shared investment power (including the power to dispose of or
direct the disposition of) with respect to the security through any
contract, arrangement, understanding, relationship or otherwise,
subject to community property laws where applicable. As of April
30, 2019, we had a total of 51,000,868 shares of common stock
issued outstanding.
The
following table sets forth, as of April 30, 2019, information
concerning the beneficial ownership of shares of our common stock
held by our directors, our named executive officers, our directors
and executive officers as a group, and each person known by us to
be a beneficial owner of more than 5% of our outstanding common
stock. Unless otherwise indicated, the business address of each of
our directors, executive officers and beneficial owners of more
than 5% of our outstanding common stock is c/o Flux Power Holdings,
Inc., 985 Poinsettia Avenue, Suite A, Vista, California 92081. Each
person has sole voting and investment power with respect to the
shares of our common stock, except as otherwise indicated.
Beneficial ownership consists of a direct interest in the shares of
common stock, except as otherwise indicated.
|
Name
and Address of Beneficial Owner (1)
|
Shares Beneficially Owned
|
|
% of
Ownership
|
|
|
|
|
|
|
|
|
Officers and Directors
|
|
|
|
|
|
Michael
Johnson, Director
|
31,378,973(2)
|
|
61.42%
|
|
|
Ronald
Dutt, Chief Executive Officer, President, and Director
|
1,213,574(3)
|
|
2.32%
|
|
|
Charles
A Scheiwe, Chief Financial Officer and Secretary
|
93,750(4)
|
|
*
|
|
|
Jonathan
A. Berry, Chief Operating Officer
|
461,928(5)
|
|
*
|
|
|
Christopher
Anthony, Director
|
943,757(6)
|
|
1.85%
|
|
|
James
Gevarges, Director
|
682,363(7)
|
|
1.34%
|
|
|
|
|
|
|
|
|
All Officers and Directors as a group (6 people)
|
3,477,345
|
|
65.60%
|
|
|
|
|
|
|
|
|
5% Stockholders
|
|
|
|
|
|
Cleveland
Capital, L.P.
1250
Linda Street, Suite 304
Rocky
River, OH 44116
|
5,159,100(8)
|
|
10.30%
|
|
_______________________________________________
* Represents less than 1% of shares
outstanding.
(1)
All addresses above
are 985 Poinsettia Ave., Suite A, Vista, California 92081, unless
otherwise stated.
(2)
The 31,378,973
shares beneficially owned include shares held by Esenjay
Investments, LLC, of which Mr. Johnson is the sole director and
beneficial owner. Includes 31,287,551 shares of Common Stock and
91,422 stock options.
(3)
The 1,213,574
shares beneficially owned include 4,100 shares of Common Stock and
1,209,474 stock options.
(4)
The 93,750 shares
beneficially owned include 93,750 stock options.
(5)
The 461,928 shares
beneficially owned include 461,928 stock options.
(6)
The 943,757 shares
beneficially owned include 881,882 shares of Common Stock and
61,875 stock options.
(7)
The 682,363 shares
beneficially owned include 590,941 shares of Common Stock and
91,422 stock options.
(8)
The beneficial
ownership of Cleveland Capital, L.P. is derived from the Schedule
13G filed by Cleveland Capital Management, L.L.C. filed on February
13, 2019.
45
CERTAIN RELATIONSHIPS AND RELATED
PARTY TRANSACTIONS
Credit Facility Agreement
On
March 28, 2019, our subsidiary, Flux Power, entered into an Amended
and Restated Credit Facility Agreement (LOC) with Esenjay
Investments, LLC (Esenjay), and Cleveland Capital, L.P., our
minority stockholder (Cleveland and Esenjay, together with
additional parties that may join as a additional lenders,
collectively the Lenders) to amend and restate the terms of the
Credit Facility Agreement dated March 22, 2018 between Flux Power
and Esenjay (the Original Credit Facility Agreement) in its
entirety. Mr. Michael Johnson, a member of our board of directors
and a major stockholder of our company, is the beneficial owner and
director of Esenjay.
The
Original Credit Facility Agreement was amended, among other things,
to (i) increase the maximum principal amount available under line
of credit from $5,000,000 to $7,000,000, (ii) add Cleveland as an
additional lender to the LOC pursuant to which each lender has a
right to advance a pro rata amount of the principal amount
available under the LOC, (iii) extend the maturity date from March
31, 2019 to December 31, 2019, and (iv) to provide for additional
parties to become a Lender under the LOC. In connection with the
LOC, on March 28, 2019, we issued a secured promissory note to
Cleveland (the Cleveland Note), and an amended and restated secured
promissory note to Esenjay, which amended and superseded the
secured promissory note dated March 22, 2018 (Esenjay Note and
together with the Cleveland Note, the Notes). The Notes were issued
for the aggregate principal amount of $7,000,000 or such lesser
principal amount advanced by the respective Lender under the LOC.
The Notes bear an interest of 15% per annum and a maturity date of
December 31, 2019.
To
secure the obligations under the Notes, Flux Power entered into an
Amended and Restated Security Agreement dated March 28, 2019 with
the Lenders (the Amended Security Agreement). The Amended Security
Agreement amends and restates the Guaranty and Security Agreement
dated March 22, 2018, by and between Flux Power and the Esenjay, by
among other things, adding Cleveland as additional secured parties
to the agreement and appointing Esenjay as collateral
agent.
Loan Agreements With Esenjay
Between
October 2011 and September 2012, we entered into three debt
agreements with Esenjay. The three debt agreements consisted of a
Bridge Loan Promissory Note (Bridge Note), a Secondary Revolving
Promissory Note (Revolving Note) and an Unrestricted Line of Credit
(Unrestricted LOC). On December 31, 2015, the Bridge Note and the
Revolving Note expired, leaving the Unrestricted LOC available for
future draws. The Unrestricted LOC had a maximum borrowing amount
of $10,000,000, was convertible at a rate of $0.60 per share, bore
interest at 8% per annum and was to mature on January 31, 2019. On
October 31, 2018, we entered into an Early Note Conversion
Agreement pursuant to which Esenjay converted the outstanding
principal amount of $7,975,000 plus accrued and unpaid interest of
$1,041,280 under the Bridge Note, Revolving Note and the
Unrestricted LOC into 15,027,134 shares of our common stock. In
connection with the Early Note Conversion Agreement, we issued an
additional 268,018 shares of common stock to Esenjay and recorded
the issuance as interest expense at the stock’s fair value of
$466,351.
On
March 22, 2018, Flux Power entered into the Original Credit
Facility Agreement with Esenjay with a maximum borrowing amount of
$5,000,000. Proceeds from the Original Credit Facility Agreement
were to be used to purchase inventory and related operational
expenses and accrued interest at a rate of 15% per annum. The
outstanding balance of the Original Credit Facility and accrued
interest was due and payable on March 31, 2019. Funds received from
Esenjay since December 5, 2017 and prior to the Original Credit
Facility Agreement were consolidated under the Original Credit
Facility resulting in $2,405,000 outstanding as of December 31,
2018 and $2,595,000 available for future draws, subject to the
lender’s approval. As disclosed above, the Original Credit
Facility was amended on March 28, 2019 pursuant to the
LOC.
Stockholder Short Term Lines of Credit
On
October 26, 2018, we entered into a credit facility agreement with
Cleveland, a related party, pursuant to which Cleveland agreed to
make available to Flux a line of credit (Cleveland LOC) in a
maximum principal amount at any time outstanding of up to 2,000,000
with a maturity date of December 31, 2018. The Cleveland LOC has an
origination fee in the amount of $20,000, which represents 1% of
the Cleveland LOC, and carries a simple interest of 12% per annum.
Interest is calculated on the basis of the actual daily balances
outstanding under the Cleveland LOC. The Cleveland LOC was paid
back December 27, 2018.
46
Transactions with Epic Boats
We
sublease office and manufacturing space to Epic Boats (an entity
founded and controlled by Chris Anthony, our board member and
former chief executive officer) in our facility in Vista,
California, pursuant to a month-to-month sublease agreement.
Pursuant to this agreement, Epic Boats pays Flux Power 10% of
facility costs through the end of our lease agreement. We received $15,000 for the nine
months ended March 31, 2019 and $18,000 for the fiscal year ended
June 30, 2018, from Epic Boats under the sublease rental agreement.
We plan to continue the sublease arrangement with Epic Boats at our
new production facility.
DESCRIPTION OF CAPITAL
STOCK
The
following description of our capital stock and provisions of our
amended and restated articles of incorporation (Articles of
Incorporation) and Amended and Restated Bylaws (Bylaws) are
summaries, are not intended to be complete and are qualified in
their entirety by reference such Articles of Incorporation and
Bylaws, copies of which have been filed as exhibits to our
registration statement, of which this prospectus forms a
part.
Common Stock
We are
authorized to issue up to 300,000,000 shares of common stock, par
value $0.001 per share. Each outstanding share of common stock
entitles the holder thereof to one vote per share on all matters.
As of May 10, 2019, there were 51,000,868 shares of common stock
issued and outstanding.
The
holders of shares of our common stock are entitled to dividends out
of funds legally available when and as declared by our Board of
Directors. In the event of our liquidation, dissolution or winding
up, holders of our common stock are entitled to receive, ratably,
the net assets available to stockholders after payment of all
creditors.
To the
extent that additional shares of our common stock are issued, the
relative interests of existing stockholders will be
diluted.
Voting Rights
Our
common stock is entitled to one vote for each share held of record
on all matters submitted to a vote of the stockholders, including
the election of directors, and does not have cumulative voting
rights.
Economic Rights
Except
as otherwise expressly provided in our Articles of Incorporation or
required by applicable law, all shares of common stock will have
the same rights and privileges and rank equally, share ratably, and
be identical in all respects for all matters, including those
described below.
Dividends
Subject
to preferences that may be applicable to any then-outstanding
preferred stock, the holders of common stock are entitled to
receive dividends, if any, as may be declared from time to time by
our Board of Directors out of legally available funds.
Liquidation Rights
In the
event of our liquidation, dissolution or winding-up, holders of our
common stock will be entitled to share ratably in the net assets
legally available for distribution to stockholders after the
payment of all of our debts and other liabilities, subject to the
satisfaction of any liquidation preference granted to the holders
of any outstanding shares of preferred stock.
47
No Preemptive or Similar Rights
The
holders of our shares of common stock are not entitled to
preemptive rights, and are not subject to conversion, redemption or
sinking fund provisions. The rights, preferences and privileges of
the holders of our common stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any
series of our preferred stock that we may designate and issue in
the future.
Removal of Directors by Stockholders
Our
Bylaws provide that subject to any limitations in our Articles of
Incorporation, directors may be removed by a vote not less than
two-thirds of the voting power of the issued and outstanding stock
entitled to vote thereon, at a special meeting of the stockholders
called for that purpose.
Preferred
Stock
We may
issue up to 5,000,000 shares of preferred stock, par value $0.001
per share, in one or more classes or series within a class pursuant
to our Articles of Incorporation. There are no shares of preferred
stock issued and outstanding. Preferred stock may be issued from
time to time by the Board of Directors as shares of one or more
classes or series. One of the effects of undesignated preferred
stock may be to enable the Board of Directors to render more
difficult or to discourage an attempt to obtain control of us by
means of a tender offer, proxy contest, merger or otherwise, and
thereby to protect the continuity of our management. The issuance
of shares of preferred stock pursuant to the Board of
Directors’ authority described above may adversely affect the
rights of holders of common stock. For example, preferred stock
issued by us may rank prior to the common stock as to dividend
rights, liquidation preference or both, may have full or limited
voting rights and may be convertible into shares of common stock.
Accordingly, the issuance of shares of preferred stock may
discourage bids for the common stock at a premium or may otherwise
adversely affect the market price of the common stock.
Nevada Laws
Sections
78.378 to 78.3793 of the Nevada Revised Statutes (NRS) (Acquisition
of Controlling Interest) provide generally that any person or
entity that acquires at least one-fifth of all the voting power in
the election of directors of a Nevada corporation, which has 200 or
more stockholders of record and does business in the State of
Nevada, may be denied voting rights with respect to the acquired
shares, unless a majority of the disinterested stockholders of the
corporation elects to restore such voting rights in whole or in
part.
Section
78.3785 of the NRS provides that a person or entity acquires
"control shares" whenever it acquires shares that, but
for the operation of the control share acquisition act, would bring
its voting power within any of the following three
ranges:
●
One-fifth or more
but less than one-third;
●
One-third or more
but less than a majority; or
●
A majority or
more.
A
"control share acquisition" is generally defined as the
direct or indirect acquisition of either ownership or voting power
associated with issued and outstanding control shares. The
stockholders or board of directors of a corporation may elect to
exempt the stock of the corporation from the provisions of the
control share acquisition act through adoption of a provision to
that effect in the articles of incorporation or bylaws of the
corporation.
Transfer Agent And Registrar
The
transfer agent and registrar for our common stock is Issuer Direct
Corporation, 1981 Murray Holladay Rd Suite 100, Salt Lake City,
Utah 84117.
48
UNDERWRITING
We have
entered into an underwriting agreement with Roth Capital Partners,
LLC and Maxim Group LLC, acting as the representatives of the
several underwriters named below, with respect to the shares of
common stock subject to this offering. Subject to certain
conditions, we have agreed to sell to the underwriters, and the
underwriters have severally agreed to purchase, the number of
shares of common stock provided below opposite their respective
names.
|
Underwriters
|
Number
of Shares
|
|
Roth Capital
Partners, LLC
|
|
|
Maxim Group
LLC
|
|
|
|
|
|
Total
|
|
The
underwriters are offering the shares of common stock subject to
their acceptance of the shares of common stock from us and subject
to prior sale. The underwriting agreement provides that the
obligations of the several underwriters to pay for and accept
delivery of the shares of common stock offered by this prospectus
are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The underwriters are
obligated to take and pay for all of the shares of common stock if
any such shares are taken. However, the underwriters are not
required to take or pay for the shares of common stock covered by
the underwriters’ over-allotment option described
below.
Over-Allotment Option
We have
granted the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of
additional shares of common stock to cover over-allotments, if any,
at the public offering price set forth on the cover page of this
prospectus, less the underwriting discount. The underwriters may
exercise this option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of
the shares of common stock offered by this prospectus. If the
underwriters exercise this option, each underwriter will be
obligated, subject to certain conditions, to purchase a number of
additional shares proportionate to that underwriter’s initial
purchase commitment as indicated in the table above.
Discount, Commissions and Expenses
The
underwriters have advised us that they propose to offer the shares
of common stock to the public at the public offering price set
forth on the cover page of this prospectus and to certain
dealers at that price less a concession not in excess of $ per
share. The underwriters may allow, and certain dealers may reallow,
a discount from the concession not in excess of $ per share to
certain brokers and dealers. After this offering, the public
offering price, concession and reallowance to dealers may be
changed by the representatives. No such change will change the
amount of proceeds to be received by us as set forth on the cover
page of this prospectus. The shares of common stock are offered by
the underwriters as stated herein, subject to receipt and
acceptance by them and subject to their right to reject any order
in whole or in part. The underwriters have informed us that they do
not intend to confirm sales to any accounts over which they
exercise discretionary authority.
49
The
following table shows the underwriting discount payable to the
underwriters by us in connection with this offering. Such amounts
are shown assuming both no exercise and full exercise of the
underwriters’ over-allotment option to purchase additional
shares.
|
|
Per
share1
|
Total Without
Exercise of Over-Allotment Option
|
Total With
Exercise of Over-Allotment Option
|
|
Public offering
price
|
$-
|
$-
|
$-
|
|
Underwriting
discount
|
$
|
$
|
$
|
__________________________
1.
Does not include
the warrants to purchase shares of common stock equal to an
aggregate of 5.5% of the number of shares sold in the offering to
be issued to the representatives at the closing as described
below.
We have
agreed to reimburse the underwriters for certain out-of-pocket
expenses, including the fees and disbursements of their counsel, up
to an aggregate of $75,000. We estimate that the total expenses
payable by us in connection with this offering, other than the
underwriting discount referred to above, will be approximately $
.
Representatives’ Warrants
We have
agreed to issue to the representatives warrants to purchase up to a
number of shares of our common stock equal to an aggregate of 5.5%
of the shares of common stock sold in this offering. The warrants will have an exercise price equal to
120% of the public offering price of the shares of common stock
sold in this offering and may be exercised on a cashless basis. The
warrants are not redeemable by us and will expire on the fifth
anniversary of the effective date of this offering. The warrants
will provide for adjustment in the number and price of such
warrants (and the shares of common stock underlying such warrants)
in the event of recapitalization, merger or other fundamental
transaction. The warrants and the underlying shares of common stock
have been deemed compensation by FINRA and are therefore subject to
FINRA Rule 5110(g)(1). In accordance with FINRA Rule 5110(g)(1),
neither the representative warrants nor any shares of our common
stock issued upon exercise of the representative warrants may be
sold, transferred, assigned, pledged, or hypothecated, or be the
subject of any hedging, short sale, derivative, put, or call
transaction that would result in the effective economic disposition
of such securities by any person for a period of 180 days
immediately following the date of effectiveness or commencement of
sales of the offering pursuant to which the representative warrants
are being issued, except the transfer of any
security:
●
by
operation of law or by reason of reorganization of our
company;
●
to
any FINRA member firm participating in this offering and the
officers or partners thereof, if all securities so transferred
remain subject to the lock-up restriction described above for the
remainder of the time period;
●
if
the aggregate amount of securities of our company held by either an
underwriter or a related person do not exceed 1% of the securities
being offered;
●
that
is beneficially owned on a pro-rata basis by all equity owners of
an investment fund, provided that no participating member manages
or otherwise directs investments by the fund, and participating
members in the aggregate do not own more than 10% of the equity in
the fund; or
●
the
exercise or conversion of any security, if all securities received
remain subject to the lock-up restriction set forth above for the
remainder of the time period.
In
addition, in accordance with FINRA Rule 5110(f)(2)(G), the
representative warrants may not contain certain terms.
The
registration statement of which this prospectus forms a part also
covers the issuance of the representative warrants and shares of
our common stock issuable thereunder.
50
Indemnification
We have
agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended,
or the Securities Act, and liabilities arising from breaches of
representations and warranties contained in the underwriting
agreement, or to contribute to payments that the underwriters may
be required to make in respect of those liabilities.
Lock-Up Agreements
We,
our officers, directors and certain of our stockholders have agreed
to, subject to limited exceptions, for a period of 180 days after
the date of the underwriting agreement, not to offer, sell,
contract to sell, pledge, grant any option to purchase, make any
short sale or otherwise dispose of, directly or indirectly any
shares of common stock or any securities convertible into or
exchangeable for our common stock either owned as of the date of
the underwriting agreement or thereafter acquired without the prior
written consent of the representatives. The representative may, in
its sole discretion and at any time or from time to time before the
termination of the lock-up period, without notice, release all or
any portion of the securities subject to lock-up
agreements.
Price Stabilization, Short Positions and Penalty Bids
In
connection with the offering the underwriters may engage in
stabilizing transactions, over-allotment transactions, syndicate
covering transactions and penalty bids in accordance with
Regulation M under the Exchange Act:
●
Stabilizing
transactions permit bids to purchase the underlying security so
long as the stabilizing bids do not exceed a specified
maximum.
●
Over-allotment
involves sales by the underwriters of shares in excess of the
number of shares the underwriters are obligated to purchase, which
creates a syndicate short position. The short position may be
either a covered short position or a naked short position. In a
covered short position, the number of shares over-allotted by the
underwriters is not greater than the number of shares that they may
purchase in the over-allotment option. In a naked short position,
the number of shares involved is greater than the number of shares
in the over-allotment option. The underwriters may close out any
covered short position by either exercising their over-allotment
option and/or purchasing shares in the open market.
●
Syndicate covering
transactions involve purchases of shares of the common stock in the
open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of
shares to close out the short position, the underwriters will
consider, among other things, the price of shares available for
purchase in the open market as compared to the price at which they
may purchase shares through the over-allotment option. If the
underwriters sell more shares than could be covered by the
over-allotment option, a naked short position, the position can
only be closed out by buying shares in the open market. A naked
short position is more likely to be created if the underwriters are
concerned that there could be downward pressure on the price of the
shares in the open market after pricing that could adversely affect
investors who purchase in the offering.
●
Penalty bids permit
the representatives to reclaim a selling concession from a
syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate
covering transaction to cover syndicate short
positions.
These
stabilizing transactions, syndicate covering transactions and
penalty bids may have the effect of raising or maintaining the
market price of our common stock or preventing or retarding a
decline in the market price of the common stock. As a result, the
price of our securities may be higher than the price that might
otherwise exist in the open market. Neither we nor the underwriters
make any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may
have on the price of our common stock. In addition, neither we nor
the underwriters make any representations that the underwriters
will engage in these stabilizing transactions or that any
transaction, once commenced, will not be discontinued without
notice.
51
Nasdaq Listing Application
Our
shares of common stock are quoted on the OTCQB under the symbol
"FLUX." We have applied to list our common stock on The
NASDAQ Capital Market under the symbol "FLUX." We will
not consummate this offering unless our common stock is approved
for listing on The NASDAQ Capital Market.
Electronic Distribution
This
preliminary prospectus in electronic format may be made available
on websites or through other online services maintained by one or
more of the underwriters, or by their affiliates. Other than this
preliminary prospectus in electronic format, the information on any
underwriter’s website and any information contained in any
other website maintained by an underwriter is not part of this
preliminary prospectus or the registration statement of which this
preliminary prospectus forms a part, has not been approved and/or
endorsed by us or any underwriter in its capacity as underwriter,
and should not be relied upon by investors.
Other
From
time to time, certain of the underwriters and/or their affiliates
have provided, and may in the future provide, various investment
banking and other financial services for us for which services they
have received and, may in the future receive, customary fees. In
the course of their businesses, the underwriters and their
affiliates may actively trade our securities or loans for their own
account or for the accounts of customers, and, accordingly, the
underwriters and their affiliates may at any time hold long or
short positions in such securities or loans. Except for services
provided in connection with this offering, no underwriter has
provided any investment banking or other financial services to us
during the 180-day period preceding the date of this prospectus and
we do not expect to retain any underwriter to perform any
investment banking or other financial services for at least 90 days
after the date of this prospectus.
Selling Restrictions
No
action may be taken in any jurisdiction other than the United
States that would permit a public offering of the common stock or
the possession, circulation or distribution of this prospectus in
any jurisdiction where action for that purpose is required.
Accordingly, the common stock may not be offered or sold, directly
or indirectly, and neither the prospectus nor any other offering
material or advertisements in connection with the common stock may
be distributed or published in or from any country or jurisdiction
except under circumstances that will result in compliance with any
applicable laws, rules and regulations of any such country or
jurisdiction.
Notice to
Prospective Investors in Canada
The
common stock may be sold only to purchasers purchasing, or deemed
to be purchasing, as principal that are accredited investors, as
defined in National Instrument 45-106 Prospectus Exemptions or
subsection 73.3(1) of the Securities Act (Ontario), and are
permitted clients, as defined in National Instrument 31-103
Registration Requirements, Exemptions and Ongoing Registrant
Obligations. Any resale of the common stock must be made in
accordance with an exemption from, or in a transaction not subject
to, the prospectus requirements of applicable securities
laws.
Securities
legislation in certain provinces or territories of Canada may
provide a purchaser with remedies for rescission or damages if this
prospectus (including any amendment thereto) contains a
misrepresentation, provided that the remedies for rescission or
damages are exercised by the purchaser within the time limit
prescribed by the securities legislation of the purchaser’s
province or territory. The purchaser should refer to any applicable
provisions of the securities legislation of the purchaser’s
province or territory for particulars of these rights or consult
with a legal advisor.
Pursuant to section
3A.3 (or, in the case of securities issued or guaranteed by the
government of a non-Canadian jurisdiction, section 3A.4) of
National Instrument 33-105 Underwriting Conflicts (NI 33-105), the
underwriters are not required to comply with the disclosure
requirements of NI 33-105 regarding underwriter conflicts of
interest in connection with this offering.
52
Notice
to Prospective Investors in the European Economic
Area
In
relation to each Member State of the European Economic Area (each,
a Relevant Member State), no offer of common stock may be made to
the public in that Relevant Member State other than:
●
to any legal entity
which is a qualified investor as defined in the Prospectus
Directive;
●
to fewer than 100
or, if the Relevant Member State has implemented the relevant
provision of the 2010 PD Amending Directive, 150, natural or legal
persons (other than qualified investors as defined in the
Prospectus Directive), as permitted under the Prospectus Directive,
subject to obtaining the prior consent of the underwriters;
or
●
in any
other circumstances falling within Article 3(2) of the Prospectus
Directive, provided that no such offer of common stock shall
require us or the underwriters to publish a prospectus pursuant to
Article 3 of the Prospectus Directive or supplement a prospectus
pursuant to Article 16 of the Prospectus Directive.
Each
person in a Relevant Member State who initially acquires any common
stock or to whom any offer is made will be deemed to have
represented, acknowledged and agreed that it is a "qualified
investor" within the meaning of the law in that Relevant
Member State implementing Article 2(1)(e) of the Prospectus
Directive. In the case of any common stock being offered to a
financial intermediary as that term is used in Article 3(2) of the
Prospectus Directive, each such financial intermediary will be
deemed to have represented, acknowledged and agreed that the common
stock acquired by it in the offer have not been acquired on a
non-discretionary basis on behalf of, nor have they been acquired
with a view to their offer or resale to, persons in circumstances
which may give rise to an offer of any common stock to the public
other than their offer or resale in a Relevant Member State to
qualified investors as so defined or in circumstances in which the
prior consent of the underwriters has been obtained to each such
proposed offer or resale.
We, the
underwriters and their affiliates will rely upon the truth and
accuracy of the foregoing representations, acknowledgements and
agreements.
This
prospectus has been prepared on the basis that any offer of common
stock in any Relevant Member State will be made pursuant to an
exemption under the Prospectus Directive from the requirement to
publish a prospectus for offers of common stock. Accordingly, any
person making or intending to make an offer in that Relevant Member
State of common stock which are the subject of the offering
contemplated in this prospectus supplement may only do so in
circumstances in which no obligation arises for us or any of the
underwriters to publish a prospectus pursuant to Article 3 of the
Prospectus Directive in relation to such offer. Neither we nor the
underwriters have authorized, nor do they authorize, the making of
any offer of common stock in circumstances in which an obligation
arises for us or the underwriters to publish a prospectus for such
offer.
Notice
to Prospective Investors in the United Kingdom
In the
United Kingdom, this prospectus supplement is being distributed
only to, and is directed only at, and any offer subsequently made
may only be directed at persons who are "qualified
investors" (as defined in the Prospectus Directive) (i) who
have professional experience in matters relating to investments
falling within Article 19 (5) of the Financial Services and Markets
Act 2000 (Financial Promotion) Order 2005, as amended (the Order)
and/or (ii) who are high net worth companies (or persons to whom it
may otherwise be lawfully communicated) falling within Article
49(2)(a) to (d) of the Order (all such persons together being
referred to as "relevant persons").
Any
person in the United Kingdom that is not a relevant person should
not act or rely on the information included in this prospectus
supplement or use it as basis for taking any action. In the United
Kingdom, any investment or investment activity that this prospectus
supplement relates to may be made or taken exclusively by relevant
persons. Any person in the United Kingdom that is not a relevant
person should not act or rely on this prospectus supplement or any
of its contents.
53
LEGAL MATTERS
The
validity of the shares of common stock offered hereby will be
passed upon by Lewis Brisbois Bisgaard & Smith LLP, San
Francisco, California. Lowenstein Sandler LLP, New York, New York,
is acting as counsel for the underwriters in connection with this
offering.
EXPERTS
The
consolidated financial statements of Flux Power Holdings, Inc. as
of June 30, 2018 and 2017 and for each of the years in the two-year
period ended June 30, 2018 have been audited by Squar Milner LLP,
an independent registered public accounting firm, as stated in
their report thereon (which report expresses an unqualified opinion
and includes an explanatory paragraph relating to the
entity’s uncertainty to continue as a going concern), and
included in this Prospectus and Registration Statement in reliance
upon such report and upon the authority of such firm as experts in
accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL
INFORMATION
We have
filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the securities offered by this
prospectus. This prospectus, which constitutes a part of the
registration statement, does not contain all the information set
forth in the registration statement, some of which is contained in
exhibits to the registration statement as permitted by the rules
and regulations of the SEC. For further information with respect to
us and our securities, we refer you to the registration statement,
including the exhibits filed as a part of the registration
statement. Statements contained in this prospectus concerning the
contents of any contract or any other document are not necessarily
complete. If a contract or document has been filed as an exhibit to
the registration statement, please see the copy of the contract or
document that has been filed. Each statement in this prospectus
relating to a contract or document filed as an exhibit is qualified
in all respects by the filed exhibit. You may obtain copies of this
information by mail from the Public Reference Section of the SEC,
100 F Street, N.E., Room 1580, Washington, D.C. 20549, at
prescribed rates. You may obtain information on the operation of
the public reference rooms by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an internet website that contains reports
and other information about issuers, like us, that file
electronically with the SEC. The address of that website is
www.sec.gov.
You may also request a copy
of these filings, at no cost, by writing us at:
Flux
Power Holdings, Inc.
985
Poinsettia Avenue, Suite A
Vista,
California 92081
Attention:
Corporate Secretary
We are subject to the information and reporting requirements of the
Exchange Act and, in accordance with this law, file periodic
reports, proxy statements and other information with the SEC. These
periodic reports, proxy statements and other information are
available for inspection and copying at the SEC’s public
reference facilities and the website of the SEC referred to above.
We also maintain a website at www.fluxpower.com. Information
contained in, or accessible through, our website is not a part of
this prospectus, and the inclusion of our website address in this
prospectus is only as an inactive textual reference. You may access
these materials free of charge as soon as reasonably practicable
after they are electronically filed with, or furnished to, the
SEC.
54
FLUX POWER HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS
|
|
Page
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
|
|
Consolidated
Balance Sheets as of June 30, 2018 and 2017
|
F-3
|
|
|
|
|
Consolidated
Statements of Operations for the Years Ended June 30, 2018 and
2017
|
F-4
|
|
|
|
|
Consolidated
Statements of Stockholders’ Deficit for the Years Ended June
30, 2018 and 2017
|
F-5
|
|
|
|
|
Consolidated
Statements of Cash Flows for the Years Ended June 30, 2018 and
2017
|
F-6
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
|
|
|
|
Condensed
Consolidated Balance Sheets as of March 31, 2019 (Unaudited) and
June 30, 2018
|
F-21
|
|
|
|
|
Condensed
Consolidated Statements of Operations (Unaudited) for the Three and
Nine Months Ended March 31, 2019 and 2018
|
F-22
|
|
|
|
|
Condensed
Consolidated Statement of Stockholders’ Deficit (Unaudited)
for the Nine Months Ended March 31, 2019 and 2018
|
F-23
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows (Unaudited) for the Nine
Months ended March 31, 2019 and 2018
|
F-24
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
|
F-25
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Stockholders
Flux
Power Holdings, Inc.
Vista,
California
Opinion
on the Financial Statements
We have
audited the accompanying consolidated balance sheets of Flux Power
Holdings, Inc. and its subsidiary (the Company) as of June 30, 2018
and 2017, the related consolidated statements of operations,
changes in stockholders' deficit, and cash flows for the years then
ended, and the related notes to the consolidated financial
statements (collectively, the financial statements). In our
opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of June 30, 2018
and 2017, and the results of its operations and its cash flows for
the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
Uncertainty
to Continue as a Going Concern
The
accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note
2 to the financial statements, the Company has suffered recurring
losses from operations and its total liabilities exceed its total
assets. Additionally, the Company has incurred a significant
accumulated deficit through June 30, 2018 and requires immediate
additional financing to sustain its operations. This raises
substantial doubt about the Company’s ability to continue as
a going concern. Management’s plans in regard to these
matters are also described in Note 2. The financial statements do
not include any adjustments that might result from the outcome of
this uncertainty.
Basis
for Opinion
These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose
of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express
no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
/s/
SQUAR MILNER LLP
We have
served as the Company's auditor since 2012.
San
Diego, California
September 26,
2018
F-2
|
FLUX POWER HOLDINGS, INC.
|
|
CONSOLIDATED BALANCE SHEETS
|
|
|
June
30,
2018
|
June
30,
2017
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
Cash
|
$2,706,000
|
$121,000
|
|
Accounts
receivable
|
946,000
|
80,000
|
|
Inventories,
net
|
1,512,000
|
1,566,000
|
|
Other
current assets
|
92,000
|
69,000
|
|
Total
current assets
|
5,256,000
|
1,836,000
|
|
|
|
|
|
Other
assets
|
26,000
|
26,000
|
|
Property,
plant and equipment, net
|
87,000
|
59,000
|
|
|
|
|
|
Total
assets
|
$5,369,000
|
$1,921,000
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$417,000
|
$367,000
|
|
Accrued
expenses
|
474,000
|
259,000
|
|
Line
of credit - related party
|
10,380,000
|
5,185,000
|
|
Convertible
promissory note - related party
|
500,000
|
500,000
|
|
Accrued
interest
|
931,000
|
239,000
|
|
Total
current liabilities
|
12,702,000
|
6,550,000
|
|
|
|
|
|
Long
term liabilities:
|
|
|
|
Customer
deposits from related party
|
102,000
|
120,000
|
|
|
|
|
|
Total
liabilities
|
12,804,000
|
6,670,000
|
|
|
|
|
|
Commitments
and contingencies (Note 14)
|
|
|
|
|
|
|
|
Stockholders’
deficit:
|
|
|
|
Preferred
stock, $0.001 par value; 5,000,000 shares authorized; none issued
and outstanding
|
-
|
-
|
|
Common
stock, $0.001 par value; 300,000,000 shares authorized; 31,061,028
and 25,085,526 shares issued and outstanding at June 30, 2018 and
2017, respectively
|
31,000
|
25,000
|
|
Additional
paid-in capital
|
19,196,000
|
14,923,000
|
|
Accumulated
deficit
|
(26,662,000)
|
(19,697,000)
|
|
|
|
|
|
Total
stockholders’ deficit
|
(7,435,000)
|
(4,749,000)
|
|
|
|
|
|
Total
liabilities and stockholders’ deficit
|
$5,369,000
|
$1,921,000
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
|
F-3
|
FLUX POWER HOLDINGS, INC.
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
Years
ended June 30,
|
|
|
|
2018
|
2017
|
|
Net
revenue
|
$4,118,000
|
$902,000
|
|
Cost
of sales
|
4,913,000
|
1,622,000
|
|
|
|
|
|
Gross
loss
|
(795,000)
|
(720,000)
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
Selling
and administrative expenses
|
3,462,000
|
2,404,000
|
|
Research
and development
|
1,956,000
|
1,052,000
|
|
Total
operating expenses
|
5,418,000
|
3,456,000
|
|
|
|
|
|
Operating
loss
|
(6,213,000)
|
(4,176,000)
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
Change
in fair value of derivative liabilities
|
-
|
14,000
|
|
Interest
expense
|
(752,000)
|
(273,000)
|
|
|
|
|
|
Net
loss
|
$(6,965,000)
|
$(4,435,000)
|
|
|
|
|
|
Net
loss per share - basic and diluted
|
$(0.27)
|
$(0.18)
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic and
diluted
|
25,394,262
|
24,544,605
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
|
F-4
|
FLUX POWER HOLDING, INC.
|
|
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
DEFICIT
|
|
For the Years Ended June 30, 2018 and 2017
|
|
|
Common
Stock
|
|
|
|
|
|
|
Shares
|
Capital
Stock Amount
|
Additional
Paid-in Capital
|
Accumulated
Deficit
|
Total
|
|
Balance at June 30, 2016
|
20,938,000
|
$21,000
|
$13,383,000
|
$(15,262,000)
|
$(1,858,000)
|
|
Issuance
of common stock – conversion of related party debt to
equity
|
1,000,000
|
1,000
|
399,000
|
-
|
400,000
|
|
Issuance
of common stock - services
|
46,000
|
-
|
19,000
|
-
|
19,000
|
|
Issuance
of common stock - private placement transactions, net
|
2,938,000
|
3,000
|
1,072,000
|
-
|
1,075,000
|
|
Deferred
financing costs related to debt modification
|
163,000
|
-
|
10,000
|
-
|
10,000
|
|
Stock
based compensation
|
-
|
-
|
40,000
|
-
|
40,000
|
|
Net
loss
|
-
|
-
|
-
|
(4,435,000)
|
(4,435,000)
|
|
|
|
|
|
|
|
|
Balance at June 30, 2017
|
25,085,000
|
25,000
|
14,923,000
|
(19,697,000)
|
(4,749,000)
|
|
|
|
|
|
|
|
|
Issuance
of common stock - services
|
174,000
|
-
|
49,000
|
-
|
49,000
|
|
Issuance
of common stock - private placement transactions, net
|
5,714,000
|
6,000
|
3,969,000
|
-
|
3,975,000
|
|
Warrants
exchanged for common stock
|
88,000
|
-
|
-
|
-
|
-
|
|
Stock
based compensation
|
-
|
-
|
255,000
|
-
|
255,000
|
|
Net
loss
|
-
|
-
|
-
|
(6,965,000)
|
(6,965,000)
|
|
|
|
|
|
|
|
|
Balance at June 30, 2018
|
31,061,000
|
$31,000
|
$19,196,000
|
$(26,662,000)
|
$(7,435,000)
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
|
FLUX POWER HOLDING, INC.
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
Years
ended June 30,
|
|
|
|
2018
|
2017
|
|
Cash
flows from operating activities:
|
||
|
Net
loss
|
$(6,965,000)
|
$(4,435,000)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
|
Depreciation
|
57,000
|
40,000
|
|
Change
in fair value of warrant liability
|
-
|
(14,000)
|
|
Stock-based
compensation
|
255,000
|
40,000
|
|
Stock
issuance for services
|
49,000
|
19,000
|
|
Amortization
of deferred financing costs
|
-
|
44,000
|
|
Amortization
of debt discount
|
-
|
19,000
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Accounts
receivable
|
(866,000)
|
2,000
|
|
Inventories
|
54,000
|
(1,364,000)
|
|
Other
current assets
|
(23,000)
|
(37,000)
|
|
Accounts
payable
|
51,000
|
(159,000)
|
|
Accrued
expenses
|
214,000
|
30,000
|
|
Accrued
interest
|
692,000
|
133,000
|
|
Customer
deposits
|
(18,000)
|
(16,000)
|
|
Net
cash used in operating activities
|
(6,500,000)
|
(5,698,000)
|
|
|
||
|
Cash
flows from investing activities
|
|
|
|
Purchases
of equipment
|
(85,000)
|
(53,000)
|
|
Net
cash used in investing activities
|
(85,000)
|
(53,000)
|
|
|
||
|
Cash
flows from financing activities:
|
|
|
|
Repayment
of line of credit
|
-
|
(215,000)
|
|
Proceeds
from the sale of common stock, net
|
3,975,000
|
1,075,000
|
|
Borrowings
from line of credit - related party
|
5,195,000
|
4,385,000
|
|
Borrowings
from convertible promissory note - related party
|
-
|
500,000
|
|
Net
cash provided by financing activities
|
9,170,000
|
5,745,000
|
|
|
||
|
Net
change in cash
|
2,585,000
|
(6,000)
|
|
Cash,
beginning of period
|
121,000
|
127,000
|
|
|
||
|
Cash,
end of period
|
$2,706,000
|
$121,000
|
|
|
||
|
Supplemental Disclosures of Non-Cash Investing and Financing
Activities:
|
||
|
Conversion
of related party debt to equity
|
$-
|
$400,000
|
|
Fair
value of warrants exchanged for common stock
|
$-
|
$10,000
|
|
Stock
issuance for services
|
$49,000
|
$19,000
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
|
F-6
FLUX
POWER HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018 and 2017
NOTE
1 - NATURE OF BUSINESS AND REVERSE STOCK SPLIT
Nature
of Business
Flux
Power Holdings, Inc. ("Flux") was incorporated in 1998 in the State
of Nevada. On June 14, 2012, we changed our name to Flux
Power Holdings, Inc. Flux's operations are conducted through its
wholly owned subsidiary, Flux Power, Inc. ("Flux
Power"), a California corporation (collectively, the
"Company").
The
Company designs, develops and sells rechargeable lithium-ion energy
storage systems for industrial applications, such as, electric fork
lifts and airport ground support equipment. The Company has
structured its business around its core technology, "The
Battery Management System" ("BMS"). The
Company’s BMS provides three critical functions to their
battery systems: cell balancing, monitoring and error reporting.
Using its proprietary management technology, the Company is able to
offer complete integrated energy storage solutions or custom
modular standalone systems to their customers. The Company has also
developed a suite of complementary technologies and products that
accompany their core products. Sales during the years ended June
30, 2018 and 2017 were primarily to customers located throughout
the United States.
As used
herein, the terms "we," "us,"
"our,", "Flux" and "Company"
mean Flux Power Holdings, Inc., unless otherwise indicated. All
dollar amounts herein are in U.S. dollars unless otherwise
stated.
Reverse Stock Split
On
August 10, 2017, we filed a certificate of amendment to our
articles of incorporation with the State of Nevada effectuating a
reverse split of the Company’s common stock at a ratio of 1
for 10, whereby every ten pre-reverse stock split shares of common
stock automatically converted into one-post reverse stock split
share of common stock, without changing the $0.001 par value or
authorized number of our common stock (the "Reverse Stock
Split"). The Reverse Stock Split became effective in the
State of Nevada on August 18, 2017. Mr. Michael Johnson, a current
member of our board of directors and a holder of a majority of our
issued and outstanding common stock approved the Reverse Stock
Split on July 7, 2017. On that date, every 10 issued and
outstanding shares of the Company’s common stock
automatically converted into one outstanding share. No fractional
shares were issued in connection with the Reverse Stock Split. If,
as a result of the Reverse Split, a stockholder would otherwise
have been entitled to a fractional share, each fractional share was
rounded up. As a result of the Reverse Stock Split, the number of
the Company’s outstanding shares of common stock decreased
from 250,842,418 (pre-split) shares to 25,085,526 (post-split)
shares. The Reverse Stock Split affected all stockholders of the
Company’s common stock uniformly, and did not affect any
stockholder’s percentage of ownership interest, except for
that which may have been effected by the rounding up of fractional
shares. The par value of the Company’s stock remained
unchanged at $0.001 per share and the number of authorized shares
of common stock remained the same after the Reverse Stock Split. In
addition, by reducing the number of the Company’s outstanding
shares, the Company’s loss per share in all periods will be
increased by a factor of ten.
As the
par value per share of the Company’s common stock remained
unchanged at $0.001 per share, a total of $226,000 was reclassified
from common stock to additional paid-in capital. In connection with
the Reverse Stock Split, proportionate adjustments have been made
to the per share exercise price and the number of shares issuable
upon the exercise or conversion of all outstanding options,
warrants, convertible or exchangeable securities entitling the
holders to purchase, exchange for, or convert into, shares of
common stock. All references to shares of common stock and
per share data for all periods presented in the accompanying
consolidated financial statements and notes thereto have been
adjusted to reflect the Reverse Stock Split on a retroactive
basis.
NOTE
2 - GOING CONCERN
The
accompanying consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. The Company has incurred an accumulated deficit of
$26,662,000 through June 30, 2018 and a net loss of $6,965,000 for
the year ended June 30, 2018. To date, our revenues and operating
cash flows have not been sufficient to sustain our operations and
we have relied on debt and equity financing to fund our operations.
These factors raise substantial doubt about our ability to continue
as a going concern for the twelve months following the date of our
Annual Report on Form 10-K, September 26, 2018. Our ability to
continue as a going concern is dependent upon our ability to raise
additional capital on a timely basis until such time as revenues
and related cash flows are sufficient to fund our
operations.
F-7
Management has
undertaken steps as part of a plan to improve operations with the
goal of sustaining our operations. These steps include (a)
developing additional products to cater to the Class 1 and Class 2
industrial equipment markets; and (b) expand our sales force
throughout the United States. In that regard, the Company has
increased its research and development efforts to focus on
completing the development of energy storage solutions that can be
used on larger fork lifts and has also doubled its sales force
since December 2016 with personnel having significant experience in
the industrial equipment handling industry.
Management also
plans to raise additional required capital through the sale of
equity securities through private placements, convertible debt
placements and the utilization of our existing related-party credit
facility.
We
currently have a line of credit facility with our largest
shareholder with a maximum principal amount available of
$10,000,000. As of June 30, 2018 and September 26, 2018, an
aggregate of $2,025,000 for both periods, respectively was
available for future draws at the lender’s discretion. The
related party credit facility matures on January 31, 2019, but may
be further extended by the lender (see Note 6).
We
are also party to an additional line of credit facility with
Esenjay which has a maximum borrowing amount of $5,000,000 and
matures on March 31, 2019. The outstanding principal balance of the
related party credit facility was $2,405,000 as of June 30, 2018
and September 26, 2018 for both periods, respectively with
$2,595,000 available for future draws at the lender’s
discretion.
Although management
believes that the additional required funding will be obtained,
there is no guarantee we will be able to obtain the additional
required funds on a timely basis or that funds will be available on
terms acceptable to us. If such funds are not available when
required, management will be required to curtail its investments in
additional sales and marketing and product development resources,
and capital expenditures, which may have a material adverse effect
on our future cash flows and results of operations, and our ability
to continue operating as a going concern. The accompanying
financial statements do not include any adjustments that would be
necessary should we be unable to continue as a going concern and,
therefore, be required to liquidate its assets and discharge its
liabilities in other than the normal course of business and at
amounts that may differ from those reflected in the accompanying
consolidated financial statements.
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A
summary of the Company’s significant accounting policies
which have been consistently applied in the preparation of the
accompanying consolidated financial statements
follows:
Principles of Consolidation
The
consolidated financial statements include Flux Power Holdings, Inc.
and its wholly-owned subsidiary Flux Power, Inc. after elimination
of all intercompany accounts and transactions.
Reclassifications
Certain
prior year amounts have been reclassified to conform to the current
year presentation for comparative purposes.
Use of Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
("GAAP") requires management to make estimates and
assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses, as well as certain financial
statement disclosures. Significant estimates include valuation
allowances relating to inventory and deferred tax assets. While
management believes that the estimates and assumptions used in the
preparation of the financial statements are appropriate, actual
results could differ from these estimates.
Cash and Cash
Equivalents
As of
June 30, 2018, cash totaled approximately $2,706,000 and consists
of funds held in a non-interest bearing bank deposit account. The
Company considers all liquid short-term investments with maturities
of less than three months when acquired to be cash equivalents. The
Company had no cash equivalents at June 30, 2018 and
2017.
F-8
Fair Values of Financial Instruments
The
carrying amount of our cash, accounts payable, accounts receivable,
and accrued liabilities approximates their estimated fair values
due to the short-term maturities of those financial instruments.
The carrying amount of the line of credit agreement approximates
its fair values as interest approximates current market interest
rates for similar instruments. Management has concluded that it is
not practical to determine the estimated fair value of amounts due
to related parties because the transactions cannot be assumed to
have been consummated at arm’s length, the terms are not
deemed to be market terms, there are no quoted values available for
these instruments, and an independent valuation would not be
practical due to the lack of data regarding similar instruments, if
any, and the associated potential costs.
The
Company does not have any other assets or liabilities that are
measured at fair value on a recurring or non-recurring
basis.
Accounts Receivable
Accounts receivable
are carried at their estimated collectible amounts. The Company has
not experienced collection issues related to its accounts
receivable, and has not recorded an allowance for doubtful accounts
during the fiscal year ended June 30, 2018 and 2017.
Inventories
Inventories consist
primarily of battery management systems and the related
subcomponents, and are stated at the lower of cost (first-in,
first-out) or net realizable value. The Company evaluates
inventories to determine if write-downs are necessary due to
obsolescence or if the inventory levels are in excess of
anticipated demand at market value based on consideration of
historical sales and product development plans. The Company
recorded an adjustment related to obsolete inventory in the amount
of approximately $27,000 and $56,000 during the years ended June
30, 2018 and 2017, respectively.
We
reviewed our inventory valuation with regards to our gross loss for
the fiscal year ended June 30, 2018. The gross loss was due to
factors related to new product launch of the GSE packs, such as low
volume, early higher cost designs, and limited sourcing as we have
seen with the launch of the LiFT Packs. As sales volumes rise we
are seeing increased margins. As such, we do not believe the gross
loss would require any write-downs to inventory on
hand.
Property, Plant and Equipment
Property, plant and
equipment are stated at cost, net of accumulated depreciation.
Depreciation and amortization are provided using the straight-line
method over the estimated useful lives, of the related assets
ranging from three to ten years, or, in the case of leasehold
improvements, over the lesser of the useful life of the related
asset or the lease term.
Stock-based Compensation
Pursuant to the
provisions of the Financial Accounting Standards Board
("FASB") Accounting Standards Codification
("ASC") Topic No. 718-10, Compensation-Stock Compensation, which
establishes accounting for equity instruments exchanged for
employee service, we utilize the Black-Scholes option pricing model
to estimate the fair value of employee stock option awards at the
date of grant, which requires the input of highly subjective
assumptions, including expected volatility and expected life.
Changes in these inputs and assumptions can materially affect the
measure of estimated fair value of our share-based compensation.
These assumptions are subjective and generally require significant
analysis and judgment to develop. When estimating fair value, some
of the assumptions will be based on, or determined from, external
data and other assumptions may be derived from our historical
experience with stock-based payment arrangements. The appropriate
weight to place on historical experience is a matter of judgment,
based on relevant facts and circumstances.
Common
stock or equity instruments such as warrants issued for services to
non-employees are valued at their estimated fair value at the
measurement date (the date when a firm commitment for performance
of the services is reached, typically the date of issuance, or when
performance is complete). If the total value exceeds the par value
of the stock issued, the value in excess of the par value is added
to the additional paid-in-capital.
Revenue Recognition
The
Company recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred, price is fixed or
determinable, and collectability of the selling price is reasonably
assured. Delivery occurs when risk of loss is passed to the
customer, as specified by the terms of the applicable customer
agreements. When a product is sold on consignment, the item remains
in our inventory and revenue is not recognized until the product is
ultimately sold to the end user. When a right of return exists,
contractually or implied, the Company recognizes when the product
is sold through to the end user. As of June 30, 2018 and 2017, the
Company did not have any deferred revenue.
F-9
Product Warranties
The
Company evaluates its exposure to product warranty obligations
based on historical experience. Our products, primarily lift
equipment packs, are warrantied for five years unless modified by a
separate agreement. As of June 30, 2018 and 2017, the Company
carried warranty liability of approximately $158,000 and $85,000,
respectively, which is included in accrued expenses on the
Company’s consolidated balance sheets.
Impairment of Long-lived Assets
In
accordance with authoritative guidance for the impairment or
disposal of long-lived assets, if indicators of impairment exist,
the Company assesses the recoverability of the affected long-lived
assets by determining whether the carrying value of such assets can
be recovered through the undiscounted future operating cash
flows.
If
impairment is indicated, the Company measures the amount of such
impairment by comparing the carrying value of the asset to the
present value of the expected future cash flows associated with the
use of the asset. The Company believes that no impairment
indicators were present, and accordingly no impairment losses were
recognized during the fiscal years ended June 30, 2018 and
2017.
Research and Development
The
Company is actively engaged in new product development efforts.
Research and development cost relating to possible future products
are expensed as incurred.
Income Taxes
Pursuant to FASB
ASC Topic No. 740, Income
Taxes, deferred tax assets or liabilities are recorded to
reflect the future tax consequences of temporary differences
between the financial reporting basis of assets and liabilities and
their tax basis at each year-end. These amounts are adjusted, as
appropriate, to reflect enacted changes in tax rates expected to be
in effect when the temporary differences reverse. The Company has
analyzed filing positions in all of the federal and state
jurisdictions where the Company is required to file income tax
returns, as well as all open tax years in these jurisdictions. As a
result, no unrecognized tax benefits have been identified as of
June 30, 2018 or June 30, 2017, and accordingly, no additional tax
liabilities have been recorded.
The
Company records deferred tax assets and liabilities based on the
differences between the financial statement and tax bases of assets
and liabilities and on operating loss carry forwards using enacted
tax rates in effect for the year in which the differences are
expected to reverse. A valuation allowance is provided when it is
more likely than not that some portion or all of a deferred tax
asset will not be realized.
Net Loss Per Common Share
The
Company calculates basic loss per common share by dividing net loss
by the weighted average number of common shares outstanding during
the periods. Diluted loss per common share includes the impact from
all dilutive potential common shares relating to outstanding
convertible securities.
For the
years ended June 30, 2018 and 2017, basic and diluted
weighted-average common shares outstanding were 25,394,262 and
24,544,605, respectively. The Company incurred a net loss for the
years ended June 30, 2018 and 2017, and therefore, basic and
diluted loss per share for each fiscal year are the same because
the inclusion of potential common equivalent shares were excluded
from diluted weighted-average common shares outstanding during the
period, as the inclusion of such shares would be anti-dilutive. The
total potentially dilutive common shares outstanding at June 30,
2018 and 2017, excluded from diluted weighted-average common shares
outstanding, which include common shares underlying outstanding
convertible debt, stock options and warrants, were 16,109,214 and
12,607,853, respectively.
F-10
Derivative Financial Instruments
The
Company does not use derivative instruments to hedge exposures to
cash flow, market, or foreign currency risk.
New Accounting Standards
Recently
Adopted Accounting Pronouncements
In
August 2014, the FASB issued ASU No. 2014-15 regarding ASC topic
No. 205, Presentation of Financial
Statements - Going Concern. The standard requires all
companies to evaluate if conditions or events raise substantial
doubt about an entity’s ability to continue as a going
concern and requires different disclosure of items that raise
substantial doubt that are, or are not, alleviated as a result of
consideration of management’s plans. The new guidance is
effective for annual periods ending after December 15, 2016. We
adopted ASU No 2014-15 for the year ended June 30, 2017 and have
reflected the required disclosures in the accompanying consolidated
financial statements.
In
March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation, (Topic
718): Improvements to Employee Share-Based Payment
Accounting, which will simplify how companies account for
certain aspects of share-based payment awards to employees,
including the accounting for income taxes, forfeitures, and
statutory tax withholding requirements, as well as, classification
in the statement of cash flows. This pronouncement is
effective for annual periods beginning after December 15, 2016, and
interim periods within those annual periods. We adopted ASU No.
2016-09 for the year ended June 30, 2018 and is reflected in the
accompanying consolidated financial statements.
Recently
Issued Accounting Pronouncements Not Yet Adopted
In
August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230)
Classification of Certain Cash Receipts and Cash Payments,
which provides guidance on reducing the diversity in how certain
cash receipts and cash payments are presented and classified in the
statement of cash flows. In addition to other specific cash flow
issues, ASU 2016-15 provides clarification on when an entity should
separate cash receipts and cash payments into more than one class
of cash flows and when an entity should classify those cash
receipts and payments into one class of cash flows on the basis of
predominance. The new guidance is effective for the fiscal years
beginning after December 31, 2017, and interim periods within those
fiscal years. Early adoption is permitted including an adoption in
an interim period. The adoption of this ASU is not expected to have
a material impact on our consolidated financial
statements.
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in
this ASU change the existing accounting standards for lease
accounting, including requiring lessees to recognize most leases on
their balance sheets and making targeted changes to lessor
accounting. The guidance is effective for the Company’s
fiscal year beginning July 1, 2019. Early adoption is permitted.
The new leases standard requires a modified retrospective
transition approach for all leases existing at, or entered into
after, the date of initial application, with an option to use
certain transition relief. The adoption of this ASU is not expected
to have a material impact on our consolidated financial
statements.
F-11
In
2014, the FASB issued Accounting Standards update 2014-09,
Revenue from Contracts with
Customers ("ASU 2014-09"). ASU 2014-09 specifies
a comprehensive model to be used in accounting for revenue arising
from contracts with customers, and supersedes most of the current
revenue recognition guidance, including industry-specific guidance.
The FASB subsequently issued amendments to ASU No. 2014-09 that
have the same effective date and transition date. It applies to all
contracts with customers except those that are specifically within
the scope of other FASB topics, and certain of its provisions also
apply to transfers of nonfinancial assets, including in-substance
nonfinancial assets that are not an output of an entity’s
ordinary activities. The core principal of the model is that
revenue is recognized to depict the transfer of goods or services
to customers in an amount that reflects the consideration to which
the transferring entity expects to be entitled in exchange. To
apply the revenue model, an entity will: 1) identify the
contract(s) with a customer, 2) identify the performance
obligations in the contract, 3) determine the transaction price, 4)
allocate the transaction price to the performance obligations in
the contract, and 5) recognize revenue when (or as) the entity
satisfies a performance obligation. For public companies, ASU
2014-09 is effective for annual reporting periods (including
interim reporting periods within those periods) beginning after
December 15, 2017. Upon adoption, entities can choose to use either
a full retrospective or modified approach, as outlined in ASU
2014-09. As compared with current GAAP, ASU 2014-09 requires
significantly more disclosures about revenue recognition. These new
standards became effective for us on July 1, 2018, and will be
adopted using the modified retrospective method through a
cumulative-effect adjustment directly to retained earnings as of
that date, as applicable. Based on our assessment of the impact
that these new standards will have on our consolidated results of
operations, financial position and disclosures completed to date,
we have not identified any accounting changes that would materially
impact the amount of reported revenues with respect to our
revenues, or the timing of such revenues; however, certain changes
are required for financial statement disclosure
purposes.
NOTE
4 - INVENTORIES
Inventories consist
of the following:
|
|
June 30,
2018
|
June 30,
2017
|
|
Raw
materials
|
$807,000
|
$445,000
|
|
Work
in process
|
333,000
|
251,000
|
|
Finished
goods
|
372,000
|
870,000
|
|
Total
Inventories
|
$1,512,000
|
$1,566,000
|
Inventories consist
primarily of our energy storage systems and the related
subcomponents, and are stated at the lower of cost or net
realizable value. Inventory held at consignment locations is
included in our finished goods inventory and totaled $14,000 and
$32,000 as of June 30, 2018 and June 30, 2017,
respectively.
NOTE
5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and
equipment, net consist of the following:
|
|
June 30,
2018
|
June 30,
2017
|
|
Vehicles
|
$1,000
|
$1,000
|
|
Machinery
and equipment
|
112,000
|
84,000
|
|
Office
equipment
|
162,000
|
133,000
|
|
Furniture
and Equipment
|
39,000
|
36,000
|
|
Leasehold
improvements
|
34,000
|
10,000
|
|
|
348,000
|
264,000
|
|
Less:
Accumulated depreciation
|
(261,000)
|
(205,000)
|
|
Property,
plant and equipment, net
|
$87,000
|
$59,000
|
Depreciation
expense was approximately $57,000 and $40,000, for the years ended
June 30, 2018 and 2017, respectively, and is included in selling
and administrative expenses in the accompanying consolidated
statements of operations.
NOTE
6 - RELATED PARTY DEBT AGREEMENTS
Esenjay Credit Facilities
Between
October 2011 and September 2012, the Company entered into three
debt agreement with Esenjay. Esenjay is deemed to be a related
party as Mr. Michael Johnson, the beneficial owner and director of
Esenjay is a current member of our board of directors and a major
shareholder of the Company (owning approximately 52% of our
outstanding common shares as of June 30, 2018). The three debt
agreements consisted of a Bridge Loan Promissory Note, a Secondary
Revolving Promissory Note and an Unrestricted Line of Credit
(collectively, the "Loan Agreements"). On December 31,
2015, the Bridge Loan Promissory Note and the Secondary Revolving
Promissory Note expired leaving the Unrestricted Line of Credit,
available for future draws.
F-12
The
Unrestricted Line of Credit has a maximum borrowing amount of
$10,000,000, is convertible at a rate of $0.60 per share, bears
interest at 8% per annum and matures on January 31, 2019. Advances
under the Unsecured Line of Credit are subject to Esenjay's
approval.
On
December 29, 2015, we entered into a Second Amendment to the
Unrestricted Line of Credit ("Second Amendment"), with
Esenjay which modified certain terms of the Unrestricted Line of
Credit resulting in approximately $310,000 of debt issuance costs,
and accordingly, was amortized over the remaining seven-month term
through July 30, 2016, at which time it was fully amortized. During
the year ended June 30, 2017 we recorded approximately $44,000 of
deferred financing amortization costs, which is included in
interest expense in the accompanying consolidated statements of
operations.
The
outstanding principal balance of the Unrestricted Line of Credit as
of June 30, 2018 was $7,975,000, convertible at $0.60 per share or
13,291,667 shares of common stock, resulting in a remaining
$2,025,000 available for future draws under this agreement, subject
to lender’s approval. During the years ended June 30,
2018 and 2017, the Company recorded approximately $587,000 and
$162,000, respectively of interest expense in the accompanying
consolidated statements of operations related to the Unrestricted
Line of Credit.
On
March 22, 2018, Flux Power entered into a credit facility agreement
with Esenjay with a maximum borrowing amount of $5,000,000.
Proceeds from the credit facility are to be used to purchase
inventory and related operational expenses and accrue interest at a
rate of 15% per annum (the "Inventory Line of Credit").
The outstanding balance of the Inventory Line of Credit and accrued
interest is due and payable on March 31, 2019. Funds received from
Esenjay since December 5, 2017 were transferred to the Inventory
Line of Credit resulting in $2,405,000 outstanding as of June 30,
2018 and $2,595,000 available for future draws, subject to the
lender’s approval.
As of
June 30, 2018 and 2017, the Company had approximately $931,000 and
$239,000, respectively of accrued interest associated with such
credit facilities.
Shareholder Convertible Promissory Note
On
April 27, 2017, we formalized an oral agreement for advances
totaling $500,000, received from a shareholder
("Shareholder") into a written Convertible Promissory
Note (the "Convertible Note"). Borrowings under the
Convertible Note accrue interest at 12% per annum, with all unpaid
principal and accrued interest due and payable on October 27, 2018.
In addition, at any time commencing on or after the date that is
six (6) months from the issue date, at the election of Shareholder,
all or any portion of the outstanding principal, accrued but unpaid
interest and/or late charges under the Convertible Note may be
converted into shares of the Company’s common stock at a
conversion price of $1.20 per share. As a result, the Convertible
Note is convertible into 485,345 and 416,667 shares of common stock
at June 30, 2018 and June 30, 2017, respectively. During the year
ended June 30, 2018 and 2017, the Company recorded approximately
$60,000 and $22,000, respectively of interest expense in the
accompanying consolidated statements of operations related to the
Unrestricted Line of Credit.
As of
June 30, 2018 and 2017, the Company had approximately $82,000 and
$22,000, respectively of accrued interest associated with the
Convertible Note.
F-13
NOTE
7 - LINE OF CREDIT AND RELATED WARRANTS
In
connection with a 2014 line of credit, the Company granted a
warrant to the Lender to purchase a certain number of shares of
common stock of the Company equal to the outstanding advances under
the Line of Credit divided by the conversion price of $1.20, for a
term of five years, at an exercise price per share equal to $2.00.
Accordingly, in connection with the advance of $215,000, Lender is
entitled to purchase up to 179,167 shares of common stock upon
exercise of the warrant at $2.00 per share. The Lender has no other
material relationship with the Company or its affiliates. The
estimated relative fair value of warrants issued in connection with
advances under the Line of Credit is recorded as a debt discount
and is amortized as additional interest expense over the term of
the underlying debt. The Company recorded debt discount of
approximately $85,000 based on the relative fair value of these
warrants. In addition, as the effective conversion price of the
debt was less than the market price of the underlying common stock
on the date of issuance, the Company recorded additional debt
discount of approximately $80,000 related to the beneficial
conversion feature. As of June 30, 2017, the Line of Credit has
been paid in full. During the year ended June 30, 2017 the Company
recorded approximately $19,000 of debt discount amortization, which
is included in interest expense in the accompanying consolidated
statements of operations.
NOTE
8 - STOCKHOLDERS’ DEFICIT
Private Placements – Fiscal 2017 and 2018
During
fiscal 2017, we sold 3,687,500 shares of common stock for a total
purchase price of $1,475,000 to six accredited investors of which
$1,075,000 was received in cash and $400,000 was received via the
settlement of outstanding liabilities. Esenjay, our controlling
shareholder and primary credit line holder, purchased 1,000,000
shares in exchange for the settlement of $400,000 of debt owed to
Esenjay by the Company. Two of the accredited investors who
invested an aggregate of $200,000 are siblings of Mr. Johnson.
During fiscal 2016, a total of $2,425,000 had been raised of which
$1,050,000 was received in cash and $1,375,000 was received via the
settlement of outstanding liabilities. Esenjay purchased 625,000
shares for cash proceeds of $250,000 and 3,375,000 shares in
exchange for the settlement of $1,350,000 of debt owed to Esenjay
by the Company. In addition, we sold 2,000,000 shares (of which
250,000 shares (valued at $100,000) were not issued until
subsequent to June 30, 2016) to two unrelated accredited investors
for $800,000 in cash and 63,000 shares (valued at $25,000) in
exchange for settlement of accounts payable to a vendor. On April
15, 2016, we entered into an agreement with Esenjay, whereby
Esenjay agreed to limit its right of conversion under the
Unrestricted Line of Credit to such number of shares so that upon
conversion, if any, it will not cause us to exceed our authorized
number of shares of common stock. The securities offered and sold
in the Offering have not been registered under the Securities Act.
The securities were offered and sold to accredited investors in
reliance upon exemptions from registration pursuant to Rule 506
promulgated thereunder.
The
initial closing of the Offering in May 2016 at a price of $0.40 per
share triggered an anti-dilution provision for warrant holders
under our 2012 Private Placement pursuant to which an aggregate of
290,735 shares of common stock may be purchased upon exercise. As a
result, the exercise price of such warrants was reduced from $2.69
to $1.55 per share. The remaining terms, including expiration
dates, of all effected warrants remain unchanged. The modified
exercise price of the warrants to $1.55 resulted in a repricing
modification charge of $12,000 that was recorded as a cost of
capital raised in connection with the offering.
F-14
In
March 2018, our Board of Directors approved a private placement of
up to 5,714,286 shares of our common stock to select accredited
investors for a total amount of $4,000,000, or $0.70 per share of
common stock ("Offering"). As of June 30, 2018, all
5,714,286 shares of our common stock were sold to accredited
investors at $0.70 per share for a total gross proceeds of
$4,000,000. The securities in the Offering were offered and sold to
accredited investors in reliance upon exemptions from registration
pursuant to Section 4(a)(2) of the Securities Act and Rule 506
promulgated thereunder.
Advisory Agreements
Catalyst Global LLC.
Effective April 1, 2016, we entered into a renewal contract (the
"2016 Renewal") with Catalyst Global LLC
("CGL") to provide investor relations services for 12
months in exchange for monthly fees of $2,000 per month and 54,000
shares of unregistered common stock issued as follows: 31,500
shares on June 30, 2016 for services provided during the three
months ended June 30, 2016 and 7,500 shares issued upon each of the
six-, nine-, and twelve-month anniversaries of the contract. The
initial tranche was valued at $0.50 per share or approximately
$14,500 when issued on June 30, 2016, the second tranche of 7,500
shares was issued on September 29, 2016 and was valued at $0.40 per
share or $3,000, the third tranche of 7,500 shares was issued on
January 23, 2017 and was valued at $0.40 per share or $3,000 and
the fourth tranche of 7,500 shares was issued on March 20, 2017 and
was valued at $0.45 per share or $3,375.
Effective April 1,
2017, we entered into a renewal contract (the "2017
Renewal") with CGL to provide investor relations services for
12 months in exchange for monthly fees of $3,500 per month and
7,777 shares of restricted common stock per month, issued on a
quarterly basis. In relation to the 2017 Renewal, we issued 23,333
and 69,999 shares of common stock, during Fiscal 2017 and Fiscal
2018, respectively. The common stock was valued at $0.45 per share
or $10,500 and $31,500, during Fiscal 2017 and Fiscal 2018,
respectively. The 2017 Renewal is cancelable upon 60 days written
notice.
Effective April 1,
2018, we entered into another renewal contract (the "2018
Renewal") with CGL to provide investor relations services for
12 months in exchange for monthly fees of $4,500 and 34,840 shares
of restricted common stock, issued on a quarterly basis. During the
three months ended June 30, 2018, we issued 8,710 shares of common
stock to CGL valued at $1.55 per share or $13,500. The 2018 Renewal
is cancelable upon 60 days written notice.
Shenzhen Reach Investment
Development Co. ("SRID"). On March 14, 2018, we
entered into a consulting agreement with SRID to assist us with
identifying strategic partners, suppliers and manufacturers in
China for a term of 12 months. Included with the services is a
two-week trip to China to meet with potential manufacturers, which
took place in April 2018. In consideration for the services, we
agreed to issue to SRID, up to 174,672 shares of restricted common
stock valued at approximately $80,000 over the course of the
12-month term. As of June 30, 2018, 86,900 shares have been
issued.
Warrant Activity
Warrant
detail for the year ended June 30, 2018 is reflected
below:
|
|
Number of
Warrants
|
Weighted
Average
Exercise
Price Per
Warrant
|
Remaining
Contract
Term (#
years)
|
|
Warrants
outstanding and exercisable at June 30, 2017
|
2,342,590
|
$1.97
|
0.12 - 1.55
|
|
Warrants issued
|
-
|
$-
|
-
|
|
Warrants exchanged
|
(141,643)
|
$0.60
|
-
|
|
Warrants expired
|
(460,157)
|
$2.15
|
-
|
|
Warrants outstanding and exercisable at June 30, 2018
|
1,740,790
|
$2.03
|
0.74
|
Warrant
detail for the year ended June 30, 2017 is reflected
below:
|
|
Number of
Warrants
|
Weighted Average Exercise Price Per Warrant
|
Remaining
Contract
Term (#
years)
|
||
|
Warrants
outstanding and exercisable at June 30, 2016
|
2,804,010
|
$2.00
|
0.39
-
2.50
|
||
|
Warrants
exchanged
|
(271,420)
|
$1.40
|
-
|
||
|
Warrants
expired
|
(190,000)
|
$3.00
|
-
|
||
|
Warrants
outstanding and exercisable at June 30, 2017
|
2,342,590
|
$1.97
|
0.12
-
1.55
|
||
F-15
Stock-based
Compensation
On
November 26, 2014, our board of directors approved our 2014 Equity
Incentive Plan (the "2014 Plan"), which was approved by
our shareholders on February 17, 2015. The 2014 Plan offers
selected employees, directors, and consultants the opportunity to
acquire our common stock, and serves to encourage such persons to
remain employed by us and to attract new employees. The 2014 Plan
allows for the award of stock and options, up to 10,000,000 shares
of our common stock.
Activity in stock
options during the year ended June 30, 2018 and related balances
outstanding as of that date are reflected below:
|
|
Number
of
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contract
Term (#
years)
|
|
Outstanding
at June 30, 2017
|
716,277
|
$1.10
|
7.09
|
|
Granted
|
2,925,106
|
0.78
|
|
|
Exercised
|
-
|
|
|
|
Forfeited
and cancelled
|
(96,910)
|
$0.57
|
|
|
Outstanding
at June 30, 2018
|
3,544,473
|
$0.83
|
8.87
|
|
Exercisable
at June 30, 2018
|
1,356,806
|
$0.74
|
7.71
|
Activity in stock
options during the year ended June 30, 2017 and related balances
outstanding as of that date are reflected below:
|
|
Number
of
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contract
Term (#
years)
|
|
Outstanding
at June 30, 2016
|
900,402
|
$1.13
|
|
|
Granted
|
-
|
|
|
|
Exercised
|
-
|
|
|
|
Forfeited
and cancelled
|
(184,125)
|
$1.63
|
|
|
Outstanding
at June 30, 2017
|
716,277
|
$1.10
|
7.09
|
|
Exercisable
at June 30, 2017
|
589,476
|
$1.11
|
6.80
|
Stock-based
compensation expense recognized in our consolidated statements of
operations for the year ended June 30, 2018 and 2017, includes
compensation expense for stock-based options and awards granted
based on the grant date fair value. For options and awards granted,
expenses are amortized under the straight-line method over the
expected vesting period. Stock-based compensation expense
recognized in the consolidated statements of operations has been
reduced for estimated forfeitures of options that are subject to
vesting. Forfeitures are estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates.
F-16
Our average
stock price during the year ended June 30, 2018, was $0.57, and as
a result the intrinsic value of the exercisable options at June 30,
2018, was $107,000.
We
allocated stock-based compensation expense included in the
consolidated statements of operations for employee option grants
and non-employee option grants as follows:
|
Years
ended June 30,
|
2018
|
2017
|
|
Research
and development
|
$96,000
|
$13,000
|
|
General
and administrative
|
159,000
|
27,000
|
|
Total
stock-based compensation expense
|
$255,000
|
$40,000
|
The
Company uses the Black-Scholes valuation model to calculate the
fair value of stock options. The fair value of stock options was
measured at the grant date using the assumptions (annualized
percentages) in the table below:
|
|
2018
|
2017
|
|
Expected
volatility
|
138%
-143%
|
100%
|
|
Risk
free interest rate
|
1.76%
- 2.63%
|
1.31%
|
|
Forfeiture
rate
|
20%
-2 3%
|
17%-24%
|
|
Dividend
yield
|
0%
|
0%
|
|
Expected
term (years)
|
5
|
3
|
The
remaining amount of unrecognized stock-based compensation expense
at June 30, 2018 relating to outstanding stock options, is
approximately $1,338,000, which is expected to be recognized over
the weighted average period of 2.10 years.
NOTE
9 - INCOME TAXES
Pursuant to the
provisions of FASB ASC Topic No. 740 Income Taxes ("ASC
740"), deferred
income taxes reflect the net effect of (a) temporary difference
between carrying amounts of assets and liabilities for financial
purposes and the amounts used for income tax reporting purposes,
and (b) net operating loss carryforwards. No net provision for
refundable Federal income taxes has been made in the accompanying
statement of operations because no recoverable taxes were paid
previously. Significant components of the Company’s net
deferred tax assets at June 30, 2018 and 2017 are shown below.
A valuation allowance of approximately $8,589,000 and $9,927,000
has been established to offset the net deferred tax assets as of
June 30, 2018 and 2017, respectively, due to uncertainties
surrounding the Company’s ability to generate future taxable
income to realize these assets.
The
Company is subject to taxation in the United States and California.
The Company’s tax years for 2010 and forward are subject to
examination by the United States and California tax authorities due
to the carry forward of unutilized net operating losses and
research and development credits (if any).
We have
incurred losses since inception, so no current income tax provision
or benefit has been recorded. Significant components of our net
deferred tax assets are shown in the table below.
|
|
Year
Ended June 30,
|
|
|
|
2018
|
2017
|
|
Deferred
Tax Assets:
|
|
|
|
Net
operating loss carryforwards
|
$7,333,000
|
$8,126,000
|
|
Stock
compensation
|
1,160,000
|
1,646,000
|
|
Other,
net
|
96,000
|
155,000
|
|
Net
deferred tax assets
|
8,589,000
|
9,927,000
|
|
Valuation
allowance for deferred tax assets
|
(8,589,000)
|
(9,927,000)
|
|
Net
deferred tax assets
|
$-
|
$-
|
At June
30, 2018, the Company had unused net operating loss carryovers of
approximately $26,837,000 and $26,794,000 that are available to
offset future federal and state taxable income, respectively. These
operating losses begin to expire in 2030.
The
provision for income taxes on earnings subject to income taxes
differs from the statutory federal rate at June 30, 2018 and 2017,
due to the following:
|
|
Year
Ended June 30,
|
|
|
|
2018
|
2017
|
|
Federal income taxes at 21% and
34%, respectively
|
$(1,915,000)
|
$(1,508,000)
|
|
State
income taxes, net
|
(446,000)
|
(392,000)
|
|
Permanent
differences and other
|
345,000
|
83,000
|
|
Change
in the estimated fair market value of derivatives
|
-
|
6,000
|
|
Other
true ups, if any
|
(206,000)
|
(9,000)
|
|
Change
in federal tax rate
|
3,560,000
|
-
|
|
Change
in valuation allowance
|
(1,338,000)
|
1,820,000
|
|
Provision
for income taxes
|
$-
|
$-
|
Internal Revenue
Code Sections 382 limits the use of our net operating loss
carryforwards if there has been a cumulative change in ownership of
more than 50% within a three-year period. The Company has not
yet completed a Section 382 net operating loss analysis. In the
event that such analysis determines there is a limitation on the
use on net operating loss carryforwards to offset future taxable
income, the recorded deferred tax asset relating to such net
operating loss carryforwards will be reduced. However, as the
Company has recorded a full valuation allowance against its net
deferred tax assets, there is no impact on the Company’s
consolidated financial statements as of June 30, 2018 and
2017.
F-17
Under
ASC 740, the impact of an uncertain income tax position on the
income tax return must be recognized at the largest amount that is
more-likely-than-not to be sustained upon audit by the relevant
taxing authority. An uncertain income tax position will not be
recognized if it has less than a 50% likelihood of being sustained.
Additionally, ASC 740 provides guidance on de-recognition,
classification, interest and penalties, accounting in interim
periods, disclosure and transition.
In
accordance with ASC 740, there are no unrecognized tax benefits as
of June 30, 2018 or June 30, 2017.
On December
22, 2017, the President of the United States signed into law
the Tax Cuts and Jobs Act ("Tax Act"). The legislation
significantly changes U.S. tax law by, among other things, reducing
the US federal corporate tax rate from 35% to 21%, repealing the
alternative minimum tax, implementing a territorial tax system and
imposing a repatriation tax on deemed repatriated earnings of
foreign subsidiaries.
Pursuant to the SEC’s Staff Accounting Bulletin No. 118, Income
Tax Accounting Implications of the Tax Cuts and Jobs Act
("SAB 118"), given the amount and complexity of the changes in the tax law resulting from the tax legislation, the Company
has
not finalized the
accounting for the income tax effects of the tax legislation
related to the remeasurement of deferred taxes and provisional
amounts recorded related to the transition tax. The impact of the
tax legislation may differ from the estimate, during the one-year
measurement period due to, among other things, further refinement
of the Company’s calculations, changes in interpretations and
assumptions the Company has made, guidance that may be issued and
actions the Company may take as a result of the tax
legislation.
We have
remeasured our deferred tax assets and liabilities based on the
rates at which they are expected to reverse in the future, which is
generally 21% plus state and local tax. The Company recorded a
provisional decrease related to our deferred tax assets and
liabilities of $3.6 million as a result of the tax rate decrease,
with a corresponding adjustment to our valuation allowance for the
year ended June 30, 2018.
F-18
NOTE
10 - OTHER RELATED PARTY TRANSACTIONS
The
Company subleases office and manufacturing space to Epic Boats (an
entity founded and controlled by Chris Anthony, our board member
and former Chief Executive Officer) in our facility in Vista,
California pursuant to a month-to-month sublease agreement.
Pursuant to this agreement, Epic Boats pays Flux Power 10% of
facility costs through the end of our lease agreement.
The
Company received $18,000 and $16,000 during the years ended June
30, 2018 and 2017, respectively, from Epic Boats under the sublease
rental agreement which is recorded as a reduction to rent expense
and the customer deposits discussed below.
As of
June 30, 2018 and June 30, 2017, customer deposits totaling
approximately $102,000 and $120,000, respectively, related to such
products were recorded in the accompanying consolidated balance
sheets. There were no receivables outstanding from Epic Boats as of
June 30, 2018 and June 30, 2017.
NOTE
11 - CONCENTRATIONS
Credit Risk
Financial
instruments that potentially subject the Company to concentrations
of credit risk consist principally of temporary cash investments
and unsecured trade accounts receivable. The Company maintains cash
balances at a financial institution in San Diego, California. Our
cash balance at this institution is secured by the Federal Deposit
Insurance Corporation up to $250,000. As of June 30, 2018, cash
totaled approximately $2,706,000, which consists of funds held in a
non-interest bearing bank deposit account. The Company has not
experienced any losses in such accounts. Management believes that
the Company is not exposed to any significant credit risk with
respect to its cash.
Customer Concentrations
During
the year ended June 30, 2018, we had two major customers that each
represented more than 10% of our revenues on an individual basis,
or approximately $3,181,000 or 77% of our total
revenues.
During
the year ended June 30, 2017, we had three major customers that
each represented more than 10% of our revenues on an individual
basis, or approximately $524,000 or 58% of our total
revenues.
Suppliers/Vendor Concentrations
We
obtain a limited number of components and supplies included in our
products from a small group of suppliers. During the year ended
June 30, 2018 we had three suppliers who accounted for more than
10% of our total purchases, on an individual basis. Purchases for
these three suppliers totaled $2,285,000 or 50% of our total
purchases.
During
the year ended June 30, 2017 we had three suppliers who accounted
for more than 10% of our total purchases, on an individual basis.
Purchases for these three suppliers totaled $1,665,000 or 57% of
our total purchases.
NOTE
12 - COMMITMENTS AND CONTINGENCIES
From
time to time, we may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business.
However, litigation is subject to inherent uncertainties and an
adverse result in these or other matters may arise from time to
time that may harm our business. To the best knowledge of
management, there are no material legal proceedings pending against
the Company.
F-19
Operating Leases
The
Company’s corporate headquarters totals 22,054 square feet
and is located in Vista, California. Effective February
25, 2014, the Company entered into a two-year lease agreement for
this facility with average monthly rent payments of approximately
$12,000 per month and paid a security deposit of $25,000, or
approximately 2 months of rent. Our lease was subsequently amended
resulting in average rent expense of $14,000 per month and expiring
on May 31, 2018. A third amendment to the lease in May 2018
extended the lease to May 31, 2019 with an average rent expense of
approximately $15,000 per month.
The
Company also subleases space to a related party, Epic Boats, on a
month-to-month basis at a rate of 10% of lease
expense.
Total
rent expense was $160,000 and $140,000 for the years ended June 30,
2018 and 2017, respectively, net of sublease income.
NOTE
13 - SUBSEQUENT EVENTS
On July
25, 2018, our Board of Directors granted Ronald F. Dutt, our chief
executive officer president, chief financial officer, and corporate
secretary, options to purchase 335,264 shares of our common stock
with an exercise price equal to $1.98 per share and will vest
quarterly over a two-year period following the date of grant and
expire on July 25, 2028. The exercise price is equal to the fair
market value of our common stock, which is $1.98 per share based on
our 30 day volume-weighted average price on July 25, 2018. The
options were issued under the 2014 Equity Incentive
Plan.
F-20
FLUX POWER HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
March
31,
2019
(Unaudited)
|
June
30,
2018
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
Cash
|
$900,000
|
$2,706,000
|
|
Accounts
receivable
|
997,000
|
946,000
|
|
Inventories
|
3,618,000
|
1,512,000
|
|
Other
current assets
|
141,000
|
92,000
|
|
Total
current assets
|
5,656,000
|
5,256,000
|
|
|
|
|
|
Other
assets
|
26,000
|
26,000
|
|
Property,
plant and equipment, net
|
242,000
|
87,000
|
|
|
|
|
|
Total
assets
|
$5,924,000
|
$5,369,000
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$1,614,000
|
$417,000
|
|
Accrued
expenses
|
712,000
|
391,000
|
|
Line
of credit - related party
|
3,405,000
|
10,380,000
|
|
Convertible
promissory note - related party
|
-
|
500,000
|
|
Capital
lease payable
|
29,000
|
-
|
|
Accrued
interest
|
384,000
|
1,014,000
|
|
Total
current liabilities
|
6,144,000
|
12,702,000
|
|
|
|
|
|
Long
term liabilities:
|
|
|
|
Capital
lease payable
|
36,000
|
|
|
Customer
deposits from related party
|
89,000
|
102,000
|
|
|
|
|
|
Total
liabilities
|
6,269,000
|
12,804,000
|
|
|
|
|
|
Commitments
and contingencies (Note 8)
|
|
|
|
|
|
|
|
Stockholders’
deficit:
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value; 5,000,000 shares authorized; none issued
and outstanding
|
-
|
-
|
|
Common
stock, $0.001 par value; 300,000,000 shares authorized; 51,000,000
and 31,061,000 shares issued and outstanding at March 31, 2019 and
June 30, 2018, respectively
|
51,000
|
31,000
|
|
Additional
paid-in capital
|
35,405,000
|
19,196,000
|
|
Accumulated
deficit
|
(35,801,000)
|
(26,662,000)
|
|
|
|
|
|
Total
stockholders’ deficit
|
(345,000)
|
(7,435,000)
|
|
|
|
|
|
Total
liabilities and stockholders’ deficit
|
$5,924,000
|
$5,369,000
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-21
FLUX POWER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three
months ended March 31,
|
Nine
months ended March 31,
|
||
|
|
2019
|
2018
|
2019
|
2018
|
|
Net
revenue
|
$1,751,000
|
$1,666,000
|
$6,297,000
|
$3,020,000
|
|
Cost
of sales
|
1,690,000
|
1,816,000
|
5,968,000
|
3,728,000
|
|
|
|
|
|
|
|
Gross
profit (loss)
|
61,000
|
(150,000)
|
329,000
|
(708,000)
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
Selling
and administrative expenses
|
2,421,000
|
909,000
|
5,518,000
|
2,378,000
|
|
Research
and development
|
1,364,000
|
483,000
|
2,892,000
|
1,441,000
|
|
Total
operating expenses
|
3,785,000
|
1,392,000
|
8,410,000
|
3,819,000
|
|
|
|
|
|
|
|
Operating
loss
|
(3,724,000)
|
(1,542,000)
|
(8,081,000)
|
(4,527,000)
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
Interest
expense
|
(90,000)
|
(211,000)
|
(1,058,000)
|
(512,000)
|
|
|
|
|
|
|
|
Net
loss
|
$(3,814,000)
|
$(1,753,000)
|
$(9,139,000)
|
$(5,039,000)
|
|
|
|
|
|
|
|
Net
loss per share - basic and diluted
|
$(0.08)
|
$(0.07)
|
$(0.22)
|
$(0.20)
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic and
diluted
|
50,769,673
|
25,112,349
|
41,054,334
|
25,142,039
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-22
FLUX POWER HOLDING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Unaudited)
|
|
Common
Stock
|
|
|
|
|
|
|
Shares
|
Capital Stock
Amount
|
Additional Paid-in
Capital
|
Accumulated
Deficit
|
Total
|
|
Balance
at June 30, 2018
|
31,060,000
|
31,000
|
$19,196,000
|
(26,662,000)
|
(7,435,000)
|
|
|
|
|
|
|
|
|
Issuance of common
stock - services
|
39,000
|
-
|
152,000
|
-
|
152,000
|
|
Warrant exchange
for common stock
|
12,000
|
-
|
-
|
-
|
-
|
|
Stock based
compensation
|
-
|
-
|
164,000
|
-
|
164,000
|
|
Net
loss
|
-
|
-
|
-
|
(2,401,000)
|
(2,401,000)
|
|
Balance
at September 30, 2018
|
31,111,000
|
31,000
|
19,512,000
|
(29,063,000)
|
(9,520,000)
|
|
|
|
|
|
|
|
|
Issuance of common
stock - services
|
38,000
|
-
|
56,000
|
-
|
56,000
|
|
Issuance of common
stock - conversion of related party debt to equity
|
15,797,000
|
16,000
|
10,069,000
|
-
|
10,085,000
|
|
Warrant exchange
for common stock
|
24,000
|
-
|
-
|
-
|
-
|
|
Issuance of common
stock - private placement transactions, net
|
3,359,000
|
3,000
|
3,692,000
|
|
3,695,000
|
|
Stock based
compensation
|
-
|
-
|
243,000
|
-
|
243,000
|
|
Net
loss
|
-
|
-
|
-
|
(2,924,000)
|
(2,924,000)
|
|
Balance
at December 31, 2018
|
50,329,000
|
50,000
|
33,572,000
|
(31,987,000)
|
1,635,000
|
|
|
|
|
|
|
|
|
Issuance of common
stock - services
|
38,000
|
|
51,000
|
-
|
51,000
|
|
Issuance of common
stock - private placement transactions, net
|
633,000
|
1,000
|
696,000
|
-
|
697,000
|
|
Stock based
compensation
|
-
|
-
|
1,086,000
|
-
|
1,086,000
|
|
Net
loss
|
-
|
-
|
-
|
(3,814,000)
|
(3,814,000)
|
|
Balance
at March 31, 2019
|
51,000,000
|
51,000
|
35,405,000
|
(35,801,000)
|
(345,000)
|
|
|
Common
Stock
|
|
|
|
|
|
|
Shares
|
Capital Stock
Amount
|
Additional Paid-in
Capital
|
Accumulated
Deficit
|
Total
|
|
Balance
at June 30, 2017
|
25,086,000
|
25,000
|
14,923,000
|
(19,697,000)
|
(4,749,000)
|
|
|
|
|
|
|
|
|
Issuance of common
stock - services
|
23,000
|
-
|
12,000
|
-
|
12,000
|
|
Stock based
compensation
|
-
|
-
|
11,000
|
-
|
11,000
|
|
Net
loss
|
-
|
-
|
-
|
(1,446,000)
|
(1,446,000)
|
|
Balance
at September 30, 2017
|
25,109,000
|
25,000
|
14,946,000
|
(21,143,000)
|
(6,172,000)
|
|
|
|
|
|
|
|
|
Stock based
compensation
|
-
|
-
|
153,000
|
-
|
154,000
|
|
Net
loss
|
-
|
-
|
-
|
(1,839,000)
|
(1,839,000)
|
|
Balance
at December 31, 2017
|
25,109,000
|
25,000
|
15,100,000
|
(22,982,000)
|
(7,857,000)
|
|
|
|
|
|
|
|
|
Issuance of common
stock - services
|
47,000
|
-
|
23,000
|
-
|
23,000
|
|
Issuance of common
stock - private placement transactions, net
|
286,000
|
-
|
200,000
|
-
|
200,000
|
|
Stock based
compensation
|
-
|
-
|
44,000
|
-
|
44,000
|
|
Net
loss
|
-
|
-
|
-
|
(1,753,000)
|
(1,753,000)
|
|
Balance
at March 31, 2018
|
25,442,000
|
25,000
|
15,367,000
|
(24,735,000)
|
(9,343,000)
|
F-23
FLUX POWER HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Nine
Months Ended March 31,
|
|
|
|
2019
|
2018
|
|
Cash
flows from operating activities:
|
|
|
|
Net
loss
|
$(9,139,000)
|
$(5,039,000)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
|
Depreciation
|
54,000
|
41,000
|
|
Stock-based
compensation
|
1,492,000
|
209,000
|
|
Stock
issuance for services
|
259,000
|
35,000
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Accounts
receivable
|
(51,000)
|
(892,000)
|
|
Inventories
|
(2,106,000)
|
135,000
|
|
Other
current assets
|
(49,000)
|
47,000
|
|
Accounts
payable
|
1,197,000
|
261,000
|
|
Accrued
expenses
|
321,000
|
3,000
|
|
Accrued
interest
|
980,000
|
535,000
|
|
Customer
deposits
|
(13,000)
|
(14,000)
|
|
Net
cash used in operating activities
|
(7,055,000)
|
(4,679,000)
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
Purchases
of equipment
|
(144,000)
|
(59,000)
|
|
Net
cash used in investing activities
|
(144,000)
|
(59,000)
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
Proceeds
from the sale of common stock
|
4,393,000
|
200,000
|
|
Repayment
of line of credit - related party debt
|
(2,500,000)
|
-
|
|
Proceeds
from line of credit – related party
|
3,500,000
|
4,545,000
|
|
Net
cash provided by financing activities
|
5,393,000
|
4,745,000
|
|
|
|
|
|
Net
change in cash
|
(1,806,000)
|
7,000
|
|
Cash,
beginning of period
|
2,706,000
|
121,000
|
|
|
|
|
|
Cash,
end of period
|
$900,000
|
$128,000
|
|
|
|
|
|
Supplemental Disclosures of Non-Cash Investing and Financing
Activities:
|
|
|
|
Common
stock issued for conversion of related party debt
|
$8,475,000
|
$-
|
|
Common
stock issued for conversion of accrued interest
|
$1,610,000
|
$-
|
|
Stock
issuance for services
|
$259,000
|
$35,000
|
|
Equipment purchase
through capital lease
|
$65, 000
|
$-
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-24
FLUX
POWER HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2019
(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, 2018
filed with the SEC on September 26, 2018. In the opinion of
management, the accompanying condensed consolidated interim
financial statements include all adjustments necessary in order to
make the financial statements not misleading. The results of
operations for interim periods are not necessarily indicative of
the results to be expected for the full year or any other future
period. Certain notes to the financial statements that would
substantially duplicate the disclosures contained in the audited
financial statements for the most recent fiscal year as reported in
the Company’s Annual Report on Form 10-K have been omitted.
The accompanying condensed consolidated balance sheet at June 30,
2018 has been derived from the audited balance sheet at June 30,
2018 contained in such Form 10-K.
Nature
of Business
Flux Power
Holdings, Inc. designs, develops and sells rechargeable advanced
lithium-ion batteries for industrial equipment. As used herein, the
terms "we", "us", "our",
"Flux" and "Company" refer to Flux Power
Holdings, Inc. and our wholly owned subsidiary, Flux Power, Inc.
("Flux Power"), unless otherwise indicated. We have
structured our business around our core technology, "The
Battery Management System" ("BMS") and the
development of a scalable product line that can accommodate a
variety of applications. Our BMS provides four critical functions
to our battery systems: cell balancing, monitoring, error reporting
and over discharge prevention. The modular and scalable nature of
our flagship battery pack, the LiFT Pack, utilized in Class 3
walkie pallet jacks, has provided for a natural transition into the
production of battery packs used in other types of forklifts such
as the Class 1 ride-on trucks, Class 2 narrow aisle trucks and
order pickers and Class 3 end riders, as well as, ground support
equipment ("GSE"). Using our proprietary management
technology, we are able to offer complete integrated energy storage
solutions or custom modular standalone systems to our customers. We
have also developed a suite of complementary technologies and
products that accompany our core products. Sales have been
primarily to customers located throughout the United
States.
NOTE
2 – LIQUIDITY AND GOING CONCERN
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. The Company has incurred an accumulated deficit of
$35,801,000 through March 31, 2019 and had a net loss of $3,814,000
and $9,139,000 for the three and nine month ended March 31, 2019,
respectively. To date, our revenues and operating cash flows have
not been sufficient to sustain our operations and we have relied on
debt and equity financing to fund our operations. These factors
raise substantial doubt about our ability to continue as a going
concern for the twelve months following the filing date of our
Quarterly Report on Form 10-Q, May 10, 2019. Our ability to
continue as a going concern is dependent upon our ability to raise
additional capital on a timely basis until such time as revenues
and related cash flows are sufficient to fund our
operations.
Management
has undertaken steps to improve operations with the goal of
sustaining our operations. These steps include (a) developing
additional products to serve the Class 1 and Class 2 industrial
equipment markets; (b) expand our sales efforts; and (c) improve
gross margins. In that regard, we have increased our research and
development efforts to focus on completing the development of
energy storage solutions that can be used on larger forklifts and
have implemented additional marketing efforts. Those efforts have
resulted in ongoing evaluations of battery packs on larger
forklifts and ground support equipment ("GSE") along
with commercial sales of GSE packs, End Rider packs, Class 2 packs
and Class 1 packs.
F-25
We have evaluated
our expected cash requirements over the next twelve months, which
include, but are not limited to, investments in additional sales,
marketing, and product development resources, capital expenditures,
and working capital requirements and have determined that our
existing cash resources are not sufficient to meet our anticipated
needs during the next twelve months, and that additional financing
is required to support current operations. Based on our current and
planned levels of expenditure, we estimate that total financing
proceeds of approximately $13,100,000 will be required to fund
current and planned operations for the twelve months following
the filing date of this Quarterly Report on Form 10-Q. In addition,
we anticipate that further additional financing may be required to
fund our business plan subsequent to that date, until such time as
revenues and related cash flows become sufficient to support our
operating costs.
We intend to
continue to seek capital through the sale of equity securities
through private or public placements and debt
placements.
Although management
believes that the additional required funding will be obtained,
there is no guarantee we will be able to obtain the additional
required funds on a timely basis or that funds will be available on
terms acceptable to us. If such funds are not available when
required, management will be required to curtail its investments in
additional sales, marketing, and product development resources, and
capital expenditures, which may have a material adverse effect on
our future cash flows and results of operations, and our ability to
continue operating as a going concern. The accompanying financial
statements do not include any adjustments that would be necessary
should we be unable to continue as a going concern and, therefore,
be required to liquidate our assets and discharge our 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 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's
significant accounting policies are described in Note 3, "Summary
of Significant Accounting Policies," in the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 2018. There have
been no material changes in these policies or their
application.
Reclassifications
Certain prior
period amounts have been reclassified to conform to the current
period presentation for comparative purposes.
Net Loss Per Common Share
The Company
calculates basic loss per common share by dividing net loss by the
weighted average number of common shares outstanding during the
periods. Diluted loss per common share includes the impact from all
dilutive potential common shares relating to outstanding
convertible securities.
For the three
months ended March 31, 2019 and 2018, basic and diluted
weighted-average common shares outstanding were 50,769,673 and
25,112,349, respectively. For the nine months ended March 31, 2019
and 2018, basic and diluted weighted-average common shares
outstanding were 41,054,334 and 25,142,039, respectively. The
Company incurred a net loss for the three and nine months ended
March 31, 2019 and 2018, and therefore, basic and diluted loss per
share for the periods are the same because the inclusion of
potential common equivalent shares were excluded from diluted
weighted-average common shares outstanding during the period, as
the inclusion of such shares would be anti-dilutive. The total
potentially dilutive common shares outstanding at March 31, 2019
and 2018, excluded from diluted weighted-average common shares
outstanding, which include common shares underlying outstanding
convertible debt, stock options and warrants, were 5,923,106 and
17,987,632, respectively.
F-26
Income Taxes
We follow the
liability method of accounting for income taxes under which
deferred tax assets and liabilities are recognized for the future
tax consequences of (i) temporary differences between the tax
basis of assets and liabilities and their reported amounts in the
consolidated financial statements and (ii) operating loss and
tax credit carry-forwards for tax purposes. Deferred tax assets are
reduced by a valuation allowance when, based upon
management’s estimates, it is more likely than not that a
portion of the deferred tax assets will not be realized in a future
period. We recognized a full valuation allowance as of March 31,
2019 and June 30, 2018 and have not recognized any tax
provision or benefit for any of the periods presented. We review
our tax positions quarterly for tax uncertainties. We did not have
any uncertain tax positions as of March 31, 2019 or June 30,
2018.
In December 2017,
the United States ("U.S.") enacted the Tax Cuts and
Jobs Act (the "2017 Act"), which changes existing U.S.
tax law and includes various provisions that are expected to affect
companies. Among other things, the 2017 Act reduces the top U.S.
corporate income tax rate from 35.0% to 21.0%, and makes changes to
certain other business-related exclusions, deductions and credits.
The Company has assessed the impact of the tax bill on the
financial statements as of June 30, 2018 and has determined it to
be immaterial. Due to the Company's full valuation
allowance, the tax effects of any changes are not expected to have
a material impact on our consolidated financial
statements.
NOTE
4 - RELATED PARTY DEBT AGREEMENTS
Esenjay Credit Facilities
Between October
2011 and September 2012, the Company entered into three debt
agreements with Esenjay Investments, LLC ("Esenjay").
Esenjay is deemed to be a related party as Mr. Michael Johnson, the
beneficial owner and director of Esenjay, is a current member of
our board of directors and a major shareholder of the Company
(owning approximately 61.3% of our outstanding common shares as of
March 31, 2019). The three debt agreements consisted of a Bridge
Loan Promissory Note, a Secondary Revolving Promissory Note and an
Unrestricted Line of Credit (collectively, the "Loan
Agreements"). On December 31, 2015, the Bridge Loan
Promissory Note and the Secondary Revolving Promissory Note
expired, leaving the Unrestricted Line of Credit available for
future draws.
The Unrestricted
Line of Credit had a maximum borrowing amount of $10,000,000, was
convertible at a rate of $0.60 per share, bore interest at 8% per
annum and was converted to the company’s common stock on
October 31, 2018 prior to maturity on January 31,
2019.
On March 22, 2018,
Flux Power entered into a credit facility agreement with Esenjay
with a maximum borrowing amount of $5,000,000. Proceeds from the
credit facility are to be used to purchase inventory and related
operational expenses and accrue interest at a rate of 15% per annum
(the "Inventory Line of Credit"). The outstanding
balance of the Inventory Line of Credit and all accrued interest is
due and payable on March 31, 2019. Funds received from Esenjay
since December 5, 2017 were transferred to the Inventory Line of
Credit resulting in $1,755,000 outstanding as of March 31, 2018 and
$3,245,000 available for future draws.
On October 31,
2018, the Company entered into an Early Note Conversion Agreement
(the "Early Note Conversion Agreement") with Esenjay,
pursuant to which Esenjay agreed to immediately exercise its
conversion rights under the Unrestricted and Open Line of Credit,
dated September 24, 2012 to convert the outstanding principal
amount of $7,975,000 plus accrued and unpaid interest of $1,041,280
for 15,027,134 shares of the Company’s common stock. The
Company followed FASB ASC Topic No.470, Debt to record the early conversion of
debt to equity. The Early Note Conversion Agreement had an induced
conversion which included issuance of 268,018 additional shares of
common stock and recorded as interest expense at the stock’s
fair value of $466,351 at October 31, 2018.
During the three
and nine months ended March 31, 2019, the Company recorded
approximately $90,000 and $1,058,000, respectively of interest
expense in the accompanying condensed consolidated statements of
operations related to the Unrestricted Line of Credit and Inventory
Line of Credit. Advances under both the Unrestricted Line of Credit
and Inventory Line of Credit are made solely at the discretion of
Esenjay and are secured by substantially all of Flux’s
tangible and intangible assets.
F-27
Shareholder Convertible Promissory Note
On April 27, 2017,
we formalized an oral agreement for advances totaling $500,000,
received from a shareholder ("Shareholder") into a
written Convertible Promissory Note (the "Convertible
Note"). Borrowings under the Convertible Note accrue interest
at 12% per annum, with all unpaid principal and accrued interest
due and payable on October 27, 2018. In addition, at the election
of Shareholder, all or any portion of the outstanding principal,
accrued but unpaid interest and/or late charges under the
Convertible Note may be converted into shares of the
Company’s common stock at a conversion price of $1.20 per
share; provided, however, the Shareholder shall not have the right
to convert any portion of the Convertible Note to the extent that
the Shareholder would beneficially own in excess of 5% of the total
number of shares of common stock outstanding immediately after
giving effect to the issuance of shares of common stock issuable
upon conversion of the Convertible Note.
On October 25,
2018, the Company and the Shareholder entered into an amendment to
the Convertible Promissory Note. The amendment (i) extended the
maturity date of the Convertible Note from October 27, 2018 to
February 1, 2019 and (ii) allowed for the automatic conversion of
the Convertible Note immediately following the full conversion of
the line of credit granted by Esenjay to the Company under the
Esenjay Loan into shares of Common Stock of the Company. As a
result of the conversion of the Esenjay Loan on October 31, 2018,
the Shareholder Convertible Note of $500,000 plus accrued interest
of $102,510 automatically converted into 502,091 shares of common
stock.
Shareholder Short Term Lines of Credit
On October 26,
2018, the Company entered into a credit facility agreement with
Cleveland Capital, L.P., a Delaware limited partnership
("Cleveland"), our minority shareholder, pursuant to
which Cleveland agreed to make available to Flux a line of credit
("Cleveland LOC") in a maximum principal amount at any
time outstanding of up to Two Million Dollars ($2,000,000) with a
maturity date of December 31, 2018. The Cleveland LOC has an
origination fee in the amount of Twenty Thousand Dollars ($20,000),
which represents one percent (1%) of the Cleveland LOC, and carries
a simple interest of twelve percent (12%) per annum. Interest is
calculated on the basis of the actual daily balances outstanding
under the Cleveland LOC. The Cleveland LOC was paid back December
27, 2018.
On October 31,
2018, Flux entered into a credit facility agreement with a
shareholder, ("Investor"), pursuant to which Investor
agreed to make available to Flux a line of credit ("Investor
LOC") in a maximum principal amount at any time outstanding
of up to Five Hundred Thousand Dollars ($500,000) with a maturity
date of December 31, 2018. The Investor LOC had an origination fee
in the amount of Five Thousand Dollars ($5,000), which represents
one percent (1%) of the Investor LOC, and carries a simple interest
of twelve percent (12%) per annum. Interest is calculated on the
basis of the actual daily balances outstanding under the Investor
LOC. The Investor LOC was paid back December 28, 2018.
Amended Credit
Facility
On March 28, 2019,
the Company, entered into an amended and restated credit facility
agreement ("Amended and Restated Credit Facility
Agreement") with Esenjay Investments, LLC,
("Esenjay") and, Cleveland Capital, L.P., a Delaware
limited partnership and a minority stockholder of the Registrant
("Cleveland" and Esenjay, together with additional
parties that may join as a lender, the "Lenders") to
amend and restate the terms of the Credit Facility Agreement dated
March 22, 2018 between the Company and Esenjay (the "Original
Agreement") in its entirety.
The Original
Agreement was amended, among other things, to (i) increase the
maximum principal amount available under line of credit from
$5,000,000 to $7,000,000 ("LOC"), (ii) add Cleveland as
additional lender to the LOC pursuant to which each lender has a
right to advance a pro rata amount of the principal amount
available under the LOC, (iii) extend the maturity date from March
31, 2019 to December 31, 2019, and (iv) to provide for additional
parties to become a "Lender" under the Amended and
Restated Credit Facility Agreement. In connection with the LOC, on
March 28, 2019 the Company issued a secured promissory note to
Cleveland (the "Cleveland Note"), and an amended and
restated secured promissory note to Esenjay which amended and
superseded the secured promissory note dated March 22, 2018
("Esenjay Note" and together with the Cleveland Note,
the "Notes"). The Notes were issued for the principal
amount of $7,000,000 or such lesser principal amount advanced by
the respective Lender under the Amended and Restated Credit
Facility Agreement (the "Principal Amount"). The Notes
bear an interest of fifteen percent (15%) per annum and a maturity
date of December 31, 2019. The outstanding balance as of March 31,
2019 was $3,405,000.
F-28
To secure the
obligations under the Notes, the Company entered into an amended
and restated credit facility agreement dated March 28, 2019 with
the Lenders (the "Amended Security Agreement"). The
Amended Security Agreement amends and restates the Guaranty and
Security Agreement dated March 22, 2018 by and between Cleveland as
a secured party to the agreement and appointing Esenjay as
collateral agent.
NOTE
5 - STOCKHOLDERS’ DEFICIT
Private Placement of Common Stock
In December 2018, our Board of Directors approved
the private placement of up to 4,545,455 shares of our common stock
to select accredited investors for a total amount of $5,000,000, or
$1.10 per share of common stock with the right of the Board to
increase the offering amount to $7,000,000 (the
"Offering"). On December 26, 2018, we completed
an initial closing of the Offering, pursuant to which we sold an
aggregate of 3,359,100 shares of common stock, at $1.10 per share,
for an aggregate purchase price of $3,695,010 in cash. A portion of
the proceeds from the Offering was used to repay in full
approximately $2.6 million in borrowings and accrued interest under
two short-term credit facilities provided by Cleveland Capital,
L.P. and a shareholder. The shares offered and sold in the Offering
have not been registered under the Securities Act of 1933, as
amended ("Securities Act"), and may not be offered or
sold in the United States absent registration or an applicable
exemption from the registration requirements of the Securities Act.
The shares were offered and sold to the accredited investors in
reliance upon exemptions from registration pursuant to Rule 506(c)
of Regulation D promulgated under Section 4(a)(2) under the
Securities Act.
On January 29,
2019, the Company conducted its final closing (the "Final
Closing") to its round of private placement to accredited
investors that initially closed on December 26, 2018
("Initial Closing"). Following the Initial Closing to
the Final Closing, the Company sold an additional 633,464 shares of
its Common Stock ("Shares"), at $1.10 per share, for an
aggregate purchase price of $696,810 to two accredited investors.
In the aggregate, the Company issued 3,992,564 for an aggregate
gross proceeds of approximately $4.39 million. The Shares were
issued on identical terms to those previously reported for the
Initial Closing on the Company’s Form 8-K filed with the
Securities and Exchange Commission ("SEC") on December
28, 2018. The Company relied on the exemption from registration
pursuant to Rule 506(c) of Regulation D promulgated under Section
4(a)(2) under the Securities Act of 1933, as amended.
Advisory Agreements
Catalyst Global LLC.
Effective April 1, 2018, we entered into a renewal contract (the
"2018 Renewal") with Catalyst Global LLC to provide
investor relations services for 12 months in exchange for monthly
fees of $4,500 per month and 34,840 shares of restricted common
stock per quarter. The initial tranche of 8,710 shares was valued
at $1.70 or $14,807 when issued on June 21, 2018, the second
tranche of 8,710 shares was valued at $2.01 or $17,507 when issued
September 28, 2018, the third tranche of 8,710 shares was valued at
$1.75 per share or $15,243 when issued on December 31, 2018, and
the fourth tranche of 8,710 shares was valued at $1.31 per share or
$11,410 when issued on March 27, 2019. The 2018 Renewal is
cancelable upon 60 days written notice.
Shenzhen Reach Investment
Development Co. ("SRID"). On March 14, 2018, we
entered into a consulting agreement with SRID to assist us with
identifying strategic partners, suppliers and manufacturers in
China for a term of 12 months. Included with the services is a
two-week trip to China to meet with potential manufacturers, which
took place in April 2018. In consideration for the services, we
agreed to issue to SRID, up to 174,674 shares of restricted common
stock valued at approximately $80,000 over the course of the
12-month term. As of March 31, 2019, 174,674 shares have been
issued.
F-29
Warrant Activity
Warrant detail for
the nine months ended March 31, 2019 is reflected
below:
|
|
Number
of
Warrants
|
Weighted
Average
Exercise
Price
Per
Warrant
|
Remaining
Contract
Term
(# years)
|
|
Warrants
outstanding and exercisable at June 30, 2018
|
1,740,790
|
$2.03
|
0.74
|
|
Warrants
issued
|
-
|
$-
|
-
|
|
Warrants
forfeited
|
(1,657,457)
|
$2.03
|
-
|
|
Warrants
outstanding and exercisable at March 31, 2019
|
83,333
|
$2.00
|
0.50
|
Stock-based
Compensation
On November 26,
2014, our board of directors approved our 2014 Equity Incentive
Plan (the "2014 Plan"), which was approved by our
shareholders on February 17, 2015. The 2014 Plan offers selected
employees, directors, and consultants the opportunity to acquire
our common stock, and serves to encourage such persons to remain
employed by us and to attract new employees. The 2014 Plan allows
for the award of stock and options, up to 10,000,000 shares of our
common stock.
On October 26,
2017, we granted 1,880,000 incentive stock options
("ISO") of the Company’s common stock, with an
estimated grant-date fair value of $769,000, to 20 Company
employees. The ISOs vest 25% on the grant date and then 6% per
quarter for the following twelve quarters with all options expiring
ten years from the date of grant. In addition, the Company issued
90,000 non-qualified stock options ("NQSO") of the
Company’s common stock, with an estimated grant-date fair
value of $37,000, to three members of its Board of Directors. The
NQSOs vest 12.5% per quarter over a two-year period and expire ten
years from the date of grant.
Between March 15,
2019 and March 18, 2019, we granted 1,975,000 incentive stock
options ("ISO") of the Company’s common stock,
with an estimated grant-date fair value of $2,686,000, to 34
Company employees. The ISOs vest 25% on the grant date and then 6%
per quarter for the following twelve quarters with all options
expiring ten years from the date of grant. In addition, the Company
issued 90,000 non-qualified stock options ("NQSO") of
the Company’s common stock, with an estimated grant-date fair
value of $122,000, to three members of its Board of Directors. The
NQSOs vest 25% on the grant date and then 6% per quarter for the
following twelve quarters with all options expiring ten years from
the date of grant.
Activity in stock
options during the nine months ended March 31, 2019, and related
balances outstanding as of that date are reflected
below:
|
|
Number
of
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contract
Term
(# years)
|
|
Outstanding
at June 30, 2018
|
3,544,473
|
$0.83
|
|
|
Granted
|
2,478,960
|
1.44
|
|
|
Exercised
|
-
|
|
|
|
Forfeited
and cancelled
|
(183,660)
|
0.46
|
|
|
Outstanding
at March 31, 2019
|
5,839,773
|
$1.10
|
8.78
|
|
Exercisable
at March 31, 2019
|
2,669,193
|
$0.96
|
7.98
|
F-30
Activity in stock
options during the nine months ended March 31, 2018 and related
balances outstanding as of that date are reflected
below:
|
|
Number
of
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contract
Term
(# years)
|
|
Outstanding
at June 30, 2017
|
716,277
|
$1.10
|
|
|
Granted
|
1,970,000
|
0.46
|
|
|
Exercised
|
-
|
|
|
|
Forfeited
and cancelled
|
(66,910)
|
$0.62
|
|
|
Outstanding
at March 31, 2018
|
2,619,367
|
$0.61
|
8.16
|
|
Exercisable
at March 31, 2018
|
1,228,654
|
$0.77
|
7.75
|
Stock-based
compensation expense recognized in our condensed consolidated
statements of operations for the three and nine months ended March
31, 2019 and 2018, includes compensation expense for stock-based
options and awards granted based on the grant date fair value. For
options and awards granted, expenses are amortized under the
straight-line method over the expected vesting period. Stock-based
compensation expense recognized in the condensed consolidated
statements of operations has been reduced for estimated forfeitures
of options that are subject to vesting. Forfeitures are estimated
at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those
estimates.
Our average stock
price during the nine months ended March 31, 2019 was $1.82, and as
a result the intrinsic value of the exercisable options at March
31, 2019 was approximately $4,858,000.
We allocated
stock-based compensation expense included in the condensed
consolidated statements of operations for employee option grants
and non-employee option grants as follows:
|
|
For
the Three Months Ended
March
31
|
For
the Nine Months Ended
March
31,
|
||
|
|
2019
|
2018
|
2019
|
2018
|
|
Research
and development
|
$225,000
|
$16,000
|
$256,000
|
$80,000
|
|
General
and administration
|
861,000
|
29,000
|
1,236,000
|
129,000
|
|
Total
stock-based compensation expense
|
$1,086,000
|
$45,000
|
$1,492,000
|
$209,000
|
The Company uses
the Black-Scholes valuation model to calculate the fair value of
stock options. The fair value of stock options was measured at the
grant date using the assumptions (annualized percentages) in the
table below:
|
Nine
months ended March 31,
|
2019
|
2018
|
|
Expected
volatility
|
111%
|
100%
|
|
Risk
free interest rate
|
2.10%
|
1.76%
|
|
Forfeiture
rate
|
20.0%
|
23.0%
|
|
Dividend
yield
|
0%
|
0%
|
|
Expected
term (years)
|
5
|
5
|
The remaining
amount of unrecognized stock-based compensation expense at March
31, 2019 relating to outstanding stock options, is approximately
$2,595,000, which is expected to be recognized over the weighted
average period of 2.11 years.
F-31
NOTE
6 - OTHER RELATED PARTY TRANSACTIONS
Transactions with Epic Boats
The Company
subleases office and manufacturing space to Epic Boats (an entity
founded and controlled by Chris Anthony, our founder and board
member), in our facility in Vista, California pursuant to a
month-to-month sublease agreement. Pursuant to this
agreement, Epic Boats pays Flux Power 10% of facility costs through
the end of our lease agreement.
The Company
received $5,000 and $15,000, respectively during the three months
and nine months ended March 31, 2019, from Epic Boats under the
sublease rental agreement which is recorded as a reduction to rent
expense and the customer deposits discussed below.
As of March 31,
2019 and June 30, 2018, customer deposits totaling approximately
$89,000 and $102,000, respectively, were recorded in the
accompanying condensed consolidated balance sheets. There were no
receivables outstanding from Epic Boats as of March 31, 2019 and
June 30, 2018.
Consulting Agreement
On February 15,
2018, we entered into an oral agreement with Chris Anthony, as an
independent contractor, to assist us with evaluating potential
suppliers of parts and/or sub-assembly manufacturers of our LiFT
Packs. For his services, we agreed to pay him $5,000 per month plus
expenses. Either party may terminate this arrangement with or
without cause upon notice to the other party. We believe that
the fees for such services are reasonable and comparable to those
charged by other firms for services rendered.
NOTE
7 - CONCENTRATIONS
Credit Risk
Financial
instruments that potentially subject the Company to concentrations
of credit risk consist principally of temporary cash investments
and unsecured trade accounts receivable. The Company maintains cash
balances at a financial institution in San Diego, California. Our
cash balance at this institution is secured by the Federal Deposit
Insurance Corporation up to $250,000. 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
We had certain
customers whose revenue individually represented 10% or more of our
total revenue, or whose accounts receivable balances individually
represented 10% or more of our total accounts receivable, as
follows:
During the three
months ended March 31, 2019, we had two major customers that each
represented more than 10% of our revenues on an individual basis,
or approximately 59% in the aggregate. During the nine months ended
March 31, 2019, we had four major customers that each represented
more than 10% of our revenues on an individual basis, or
approximately 80% in the aggregate.
During the three
months ended March 31, 2018, we had two major customers that each
represented more than 10% of our revenues on an individual basis,
or approximately 92% in the aggregate. During the nine months ended
March 31, 2018, we had two major customers that each represented
more than 10% of our revenues on an individual basis, or
approximately 85% in the aggregate.
F-32
Suppliers/Vendor Concentrations
We obtain many of
the components and supplies included in our products from a small
group of suppliers. During the three and nine months ended March
31, 2019 we had three suppliers who accounted for more than 10% of
our total inventory purchases on an individual basis or
approximately 67% and 63%, respectively, in the
aggregate.
During the three
and nine months ended March 31, 2018 we had four suppliers who
accounted for more than 10% of our total inventory purchases on an
individual basis or approximately 65% and 57%, respectively, in the
aggregate.
NOTE
8 - COMMITMENTS AND CONTINGENCIES
From time to time,
we may be involved in routine legal proceedings, as well as
demands, claims and threatened litigation that arise in the normal
course of our business. The ultimate amount of liability, if any,
for any claims of any type (either alone or in the aggregate) may
materially and adversely affect our financial condition, results of
operations and liquidity. In addition, the ultimate outcome of any
litigation is uncertain. Any outcome, whether favorable or
unfavorable, may materially and adversely affect us due to legal
costs and expenses, diversion of management attention and other
factors. We expense legal costs in the period incurred. We cannot
assure you that contingencies of a legal nature or contingencies
having legal aspects will not be asserted against us in the future,
and these matters could relate to prior, current or future
transactions or events. As of March 31, 2019, we are not a party to
any legal proceedings that are expected, individually or in the
aggregate, to have a material adverse effect on our business,
financial condition or operating results.
NOTE
9 - SUBSEQUENT EVENTS
On April 25, 2019
we signed a lease with Accutek to rent approximately 45,600 square
feet of industrial space at 2685 S. Melrose Drive, Vista
California. The lease has an initial term of seven years and four
months, commencing on or about August 2019. The lease contains an
option to extend the term for two periods of twenty-four months,
and the right of first refusal to lease an additional approximate
15,300 square feet. The monthly rental rate is $42,400 for the
first 12 months, escalating at 3% each year.
F-33
Shares
Common Stock
PROSPECTUS
___________________________________
Joint Book-Running Manager
|
Roth
Capital Partners
|
Maxim
Group LLC
|
The
date of this prospectus is , 2019
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The
estimated expenses payable by us in connection with the offering
described in this registration statement will be as follows. With
the exception of the filing fees for the U.S. Securities Exchange
Commission and the FINRA filing fee, all amounts are
estimates.
|
SEC registration
fee
|
$1,905
|
|
FINRA filing
fee
|
$2,858
|
|
NASDAQ listing
fee
|
$50,000
|
|
Legal fees and
expenses
|
$*
|
|
Accounting fees and
expenses
|
$*
|
|
Miscellaneous
expenses
|
$*
|
|
Total
|
$*
|
*To be
filed by amendment
Item 14. Indemnification of Directors and Officers
We are
a corporation organized under the laws of the State of Nevada.
Section 78.138 of the Nevada Revised Statutes (NRS) provides that,
unless the corporation’s articles of incorporation or an
amendment thereto provide otherwise, a director or officer will not
be individually liable to the corporation or its shareholders or
creditor for any damages as a result of any act or failure to act
in his or her capacity as a director or officer, unless (i) the
presumption that the director and officer acted in good faith, on
an information basis and with a review to the interest of the
corporation, is rebutted, and (ii) it is proven that the
director’s or officer’s acts or omissions constituted a
breach of his or her fiduciary duties, and such breach involved
intentional misconduct, fraud, or a knowing violation of the
law.
Section
78.7502 of the NRS permits a corporation to indemnify its directors
and officers against expenses, including attorney’s fees,
judgments, fines, and amounts paid in settlement actually and
reasonably incurred in connection with a threatened, pending, or
completed action, suit, or proceeding, if the officer or director
(i) is not liable pursuant to NRS 78.138, or (ii) acted in good
faith and in a manner the officer or director reasonably believed
to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the conduct was unlawful. Section
78.7502 of the NRS requires a corporation to indemnify a director
or officer who has been successful on the merits or otherwise in
defense of any action or suit. Section 78.7502 of the NRS precludes
indemnification by the corporation if the officer or director has
been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals, to be liable to the corporation or for
amounts paid in settlement to the corporation, unless and only to
the extent that the court determines that in view of all the
circumstances, the person is fairly and reasonably entitled to
indemnity for such expenses.
Section
78.751 of the NRS permits a Nevada corporation to indemnify its
officers and directors against expenses incurred by them in
defending a civil or criminal action, suit, or proceeding as they
are incurred and in advance of final disposition thereof, upon
determination by the stockholders, the disinterested board members,
or by independent legal counsel. If so provided in the
corporation’s articles of incorporation, bylaws, or other
agreements, Section 78.751 of the NRS requires a corporation to
advance expenses as incurred upon receipt of an undertaking by or
on behalf of the officer or director to repay the amount if it is
ultimately determined by a court of competent jurisdiction that
such officer or director is not entitled to be indemnified by the
corporation. Section 78.751 of the NRS further permits the
corporation to grant its directors and officers additional rights
of indemnification under its articles of incorporation, bylaws, or
other agreements.
Section
78.752 of the NRS provides that a Nevada corporation may purchase
and maintain insurance or make other financial arrangements on
behalf of any person who is or was a director, officer, employee,
or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other
enterprise, for any liability asserted against him or herand
liability and expenses incurred by him or her in his or her
capacity as a director, officer, employee, or agent, or arising out
of his or her status as such, whether or not the corporation has
the authority to indemnify him or her against such liability and
expenses.
II-1
Charter Provisions
Article
XI of our Amended and Restated Articles of Incorporation (Articles)
provide that the Company shall indemnify any person who incur
expenses by reason of the fact that he or she is or was an officer,
director, employee or agent of the company and that this
indemnification shall be mandatory on all circumstances in which
indemnification is permitted by law. Article XII of our Articles
provide that the Company shall indemnify its directors and officers
from personal liability for lawful acts of the Company has
permitted by law. The foregoing provisions shall not eliminate or
limit the liability of a director for (i) any breach of the
director’s duty of loyalty to us or our stockholders, (ii)
acts or omissions not in good faith or, which involve intentional
misconduct or a knowing violation of law, (iii) the payment of
dividends in violation of Section 78.300 of the Nevada Revised
Statutes; or (iv) any transaction from which the director derived
an improper personal benefit.
Article
VII of our Amended and Restated Bylaws (Bylaws) provide for
indemnification of our directors, officers, and employees in most
cases for any liability suffered by them or arising out of their
activities as directors, officers, and employees if they acted in
good faith and in a manner they reasonably believed to be in, or
not opposed to, the best interests of the Company, and with respect
to any criminal action to proceeding, have no reasonable cause to
believe their conduct was unlawful. To the extent that our
directors and officers have been successful on the merits of
otherwise in defense of any action, suit, or proceeding, the
Company shall indemnify them against expenses, including
attorneys’ fees, actually and reasonably incurred. Any other
indemnification, unless ordered by a court, shall be made by the
Company only in the specific case on a determination that the
indemnification has met the applicable standard or conduct set
forth in the Bylaws. The determination shall be made by
disinterested directors, shareholders, or independent legal
counsel. Our Bylaws, therefore, limit the liability of directors to
the maximum extent permitted by Nevada law (Section 78.751 of the
NRS).
Indemnification Agreements
The
Company has entered into Indemnification Agreements with all of the
Company’s directors. Under the Indemnification Agreement, the
Company agrees to indemnify the director against any and all
expenses incurred if the director acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interest of the Company and, in the case of a criminal proceeding,
had no reasonable cause to believe that his conduct was
unlawful.
The
Company also maintains directors’ and officers’
liability insurance under which its directors and officers are
insured against loss (as defined in the policy) as a result of
certain claims brought against them in such
capacities.
At
present, there is no pending litigation or proceeding involving any
of our directors or officers in which indemnification or
advancement is sought. We are not aware of any threatened
litigation that may result in claims for advancement or
indemnification.
Item 15. Recent Sales of Unregistered Securities
Private Placements
From
May 2016 to August 2016, we sold 9,750,000 shares of common stock
to eight (8) accredited investors, at $0.40 per share, for an
aggregate of $3,900,000 000, of which $2,125,000 was in cash and
$1,775,000 was settlement of outstanding loan.
From
March 2018 to June 2018, we sold an aggregate of 5,714,286 shares
of our common stock to fifteen (15) accredited investors, at 0.70
per share, for an aggregate of $4,000,000.
From December 2018 to January 2019, we sold
an aggregate of 3,992,564 shares of common stock to three (3)
accredited investor, at $1.10 per share, for an aggregate purchase
price of $4,391,820.
II-2
The
offers, sales, and issuances of the securities described above were
deemed to be exempt from registration under the Securities Act in
reliance on Section 4(a)(2) of the Securities Act or Rule 506 of
Regulation D promulgated thereunder as transactions by an issuer
not involving a public offering. Each of the recipients of
securities in these transactions was an accredited investor within
the meaning of Rule 501 of Regulation D under the Securities
Act.
Conversion of Debt
In
October 2018, we issued 15,027,134 shares of the Company’s
common stock in connection with the conversion of an outstanding
principal amount of $7,975,000 plus accrued and unpaid interest of
$1,041,280. As an inducement for the conversion of principal and
interest, we also issued 268,018 additional shares of common stock.
The issuance of common shares of common stock to an accredited
investor was exempt from registration pursuant to Section
4(a)(2).
In
October 2018, we issued 502,091 shares of common stock in exchange
for the cancellation of a loan in the amount of $500,000 plus
accrued interest of $102,510. The shares of common stock were
issued in reliance upon exemption from registration pursuant to
Section 4(a)(2).
Advisory Agreements
On
April 1, 2016, we agreed to issue 54,000 shares of common stock; on
April 1, 2017, we agreed to issue 93,332 shares of common stock;
and on April 1, 2018, we agreed to issue 139,360 to an entity to
provide investor relations services. All shares of common stock
issued to the entity was issued in reliance upon exemption from
registration pursuant to Section 4(a)(2).
From
March 14, 2018 to March 14, 2019, we have issued an aggregate of
174,672 shares of restricted common stock to a consultant to assist
us with identifying strategic partners, suppliers and manufacturers
in China. The common stock was issued in reliance upon exemption
from registration pursuant to Section 4(a)(2) or Regulation S
promulgated thereunder.
Options
From
May 2016 through the filing date of this registration statement, we
granted to our directors, officers and employees options to
purchase an aggregate of 3,050,370 shares of our common stock under
our equity compensation plans at exercise prices ranging from
approximately $0.46 to $1.98 per share. The grants of options were
issued in reliance upon exemption from registration pursuant to
Section 4(a)(2) or Rule 506 of Regulation D.
None of
the foregoing transactions involved any underwriters, underwriting
discounts or commissions or any public offering. All recipients had
adequate access, through their relationships with us, to
information about us. The recipients of the securities in each of
these transactions represented their intentions to acquire the
securities for investment only and not with a view to or for sale
in connection with any distribution thereof, and appropriate
legends were placed upon the stock certificates issued in these
transactions. The sales of these securities were made without any
general solicitation or advertising.
II-3
Item 16. Exhibits and Financial Statement Schedules
(a)
Exhibits
The
following exhibits are filed herewith or incorporated by reference
in this prospectus:
|
Exhibit No.
|
|
Description
|
|
1.1*
|
|
Form of
Underwriting Agreement
|
|
|
Securities
Exchange Agreement dated May 18, 2012. Incorporated by
reference to Exhibit 2.1 on Form 8-K filed with the SEC on May 24,
2012.
|
|
|
|
Amendment
No. 1 to the Securities Exchange Agreement dated June 13, 2012.
Incorporated by reference to Exhibit 2.2 on Form 8-K filed with the
SEC on June 18, 2012.
|
|
|
|
Restated
Articles of Incorporation. Incorporated by reference to Exhfibit
3.1 on Form 8-K filed with the SEC on February 19,
2015.
|
|
|
|
Amended
and Restated Bylaws of Flux Power Holdings,
Inc. Incorporated by reference to Exhibit 3.1 on Form
8-K filed with the SEC on May 31, 2012.
|
|
|
|
Certificate
of Amendment to Articles of Incorporation. Incorporated by
reference to Exhibit 3.1 on Form 8-K filed with the SEC on August
18, 2017.
|
|
|
5.1*
|
|
Opinion
of Lewis Brisbois Bisgaard & Smith LLP
|
|
|
Flux
Power Holdings, Inc. 2010 Stock Plan. Incorporated by reference to
Exhibit 10.5 on Form 8-K filed with the SEC on June 18,
2012.
|
|
|
|
Flux
Power Holdings, Inc. 2010 Stock Plan: Form of Stock Option
Agreement. Incorporated by reference to Exhibit 10.6 on Form 8-K
filed with the SEC on June 18, 2012.
|
|
|
|
Form of
Indemnification Agreement. Incorporated by reference to Exhibit
10.1 on Form 8-K filed with the SEC on April 9, 2019.
|
|
|
|
Terms
of Employment with Ronald F. Dutt. Incorporated by reference to
Exhibit 10.16 on Form 8-K filed with the SEC on December 13,
2012.
|
|
|
|
Amendment
to the Employment Agreement, dated February 15, 2019 by and between
Flux Power Holdings, Inc. and Ronald F. Dutt. Incorporated by
reference to Exhibit 10.1 on Form 8-K filed with the SEC on
February 19, 2019.
|
|
|
10.6**
|
|
Warrant
issued to Leon Frenkel on October 2, 2014.
|
|
|
2014
Equity Incentive Plan. Incorporated by reference to Exhibit 10.23
on Form 10-Q filed with the SEC on May 15, 2015.
|
|
|
|
Amendment
to the Flux Power Holdings Inc. 2014 Equity Incentive Plan.
Incorporated by reference to Exhibit 10.20 on Form 10-K filed with
the SEC on September 27, 2018.
|
|
|
|
Amended
and Restated Credit Facility Agreement dated March 28, 2019.
Incorporated by reference to Exhibit 10.1 on Form 8-K filed with
the SEC on April 2, 2019.
|
|
|
|
Amended
and Restated Security Agreement dated March 28, 2019. Incorporated
by reference to Exhibit 10.2 on Form 8-K filed with the SEC on
April 2, 2019.
|
|
|
|
Amended
and Restated Secured Promissory Note dated March 28, 2019
(Esenjay). Incorporated by reference to Exhibit 10.4 on Form 8-K
filed with the SEC on April 2, 2019.
|
|
|
|
Secured
Promissory Note dated March 28, 2019 (Cleveland). Incorporated by
reference to Exhibit 10.5 on Form 8-K filed with the SEC on April
2, 2019.
|
|
|
|
Lease
Agreement dated April 25, 2019. Incorporated by reference to
Exhibit 10.1 on Form 8-K filed with the SEC on April 30,
2019.
|
|
|
23.1**
|
|
Consent
of Squar Milner LLP, independent public accounting
|
|
23.2*
|
|
Consent
of Lewis Brisbois
Bisgaard & Smith LLP (included in Exhibit 5.1)
|
|
24.1**
|
|
Power of Attorney (included on the signature page to this
registration statement)
|
|
101.INS**
|
|
XBRL
Instance Document
|
|
101.SCH**
|
|
XBRL
Taxonomy Extension Schema
|
|
101.CAL**
|
|
XBRL
Taxonomy Extension Calculation Linkbase
|
|
101.DEF**
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XBRL
Taxonomy Extension Definition Linkbase
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101.LAB**
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XBRL
Taxonomy Extension Label Linkbase
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101.PRE**
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XBRL
Taxonomy Extension Presentation Linkbase
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____________________________________
* To be
filed by amendment
**
Filed herewith
II-4
Item 17. Undertakings
(a)
The undersigned
Registrant hereby undertakes:
(1)
to
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement
to:
(i)
include any
prospectus required by section 10(a)(3) of the Securities
Act;
(ii)
reflect in the
prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the SEC pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement; and
(iii)
include any
material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material
change to such information in the registration
statement.
(2)
that, for the
purpose of determining any liability under the Securities Act, each
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3)
to remove from
registration by means a post-effective amendment any of the
securities that remain unsold at the end of the
offering.
(4)
that, for the
purpose of determining liability under the Securities Act to any
purchaser, each prospectus filed pursuant to Rule 424(b) as part of
a registration statement relating to an offering, other than
registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be deemed to be
part of and included in the registration statement as of the date
it is first used after effectiveness. Provided, however, that no
statement made in a registration statement or prospectus that is
part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such
document immediately prior to such date of first use.
(5)
that, for the
purpose of determining liability of the Registrant under the
Securities Act to any purchaser in the initial distribution of the
securities, regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or sold
to such purchaser by means of any of the following communications,
the Registrant will be a seller to the purchaser and will be
considered to offer or sell such securities to such
purchaser:
(i)
any preliminary
prospectus or prospectus of the Registrant relating to the offering
filed pursuant to Rule 424;
(ii)
any free writing
prospectus relating to the offering prepared by or on behalf of the
Registrant or used or referred to by the Registrant;
(iii)
the portion of any
other free writing prospectus relating to the offering containing
material information about the Registrant or its securities
provided by or on behalf of the Registrant; and
(iv)
any other
communication that is an offer in the offering made by the
Registrant to the purchaser.
(b)
Insofar as
indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of
the Registrant, the Registrant has been advised that in the opinion
of the SEC, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the Registration of expenses incurred or paid
by a director, officer or controlling person to the Registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will
be governed by the final adjudication of such issue.
II-5
SIGNATURES
Pursuant to the
requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement on Form S-1
to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Vista, California on the 24th day of May,
2019.
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Flux Power Holdings, Inc.
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By:
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/s/ Ronald
F. Dutt
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Ronald F. Dutt
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Chief Executive Officer
(Principal Executive Officer)
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By:
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/s/ Charles
A. Scheiwe
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Charles A. Scheiwe
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Chief Financial Officer
(Principal Financial and
Principal Accounting Officer)
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Known
All Persons By These Presents, that each person whose signature
appears below appoints Chris Anthony as his true and lawful
attorney-in-fact and agent, with full power of substitution, for
him and in his name, place and stead, to sign any amendment
(including post-effective amendments) to this registration
statement (or any other registration statement for the same
offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933), and to file the same,
with all exhibits thereto, and other documents in connection
therewith, with the SEC, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every
act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he may do in
person, hereby ratifying and confirming all that said
attorney-in-fact and agent or any of them, or of his substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the
requirements of the Securities Act of 1933, this Registration
Statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated.
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Signature
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Title
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Date
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/s/ Christopher
Anthony
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Chairman of the Board
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May 24, 2019
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Christopher Anthony
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/s/ Ronald
F. Dutt
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Director, Chief Executive Officer, And President
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May 24, 2019
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Ronald F. Dutt
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(Principal Executive Officer)
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/s/ Charles
A. Scheiwe
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Chief
Financial Officer
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Charles A. Scheiwe
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(Principal Financial and Principal Accounting Officer)
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May 24, 2019
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/s/ Michael
Johnson
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Director
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May 24, 2019
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Michael Johnson
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/s/ James
Gevarges
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Director
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May
24, 2019
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James Gevarges
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II-6
