ITEM 1A. RISK FACTORS 13
ITEM 1B. UNRESOLVED STAFF COMMENTS 23
ITEM 1C. CYBERSECURITY 23
ITEM 2. PROPERTIES 24
ITEM 3. LEGAL PROCEEDINGS 24
ITEM 4. MINE SAFETY DISCLOSURES 24
PART II
ITEM 6. RESERVED 25
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 37
ITEM 9A CONTROLS AND PROCEDURES 37
ITEM 9B. OTHER INFORMATION 38
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENTS INSPECTIONS 38
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 39
ITEM 11. EXECUTIVE COMPENSATION 45
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 57
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 58
SIGNATURES 61
FINANCIAL STATEMENTS F-1
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
report contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Description
of Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results
of Operations.” These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results,
performance or achievements to be materially different from any future results, performances or achievements expressed or implied by
the forward-looking statements. These risks and uncertainties include, but are not limited to, the factors described in the section captioned
“Risk Factors” below. In some cases, you can identify forward-looking statements by terms such as “anticipates,”
“believes,” “could,” “estimates,” “expects,” “intends,” “may,”
“plans,” “potential,” “predicts,” “projects,” “should,” “would,”
and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect
to future events and are based on assumptions and subject to risks and uncertainties. You should read these factors and the other cautionary
statements made in this report and in the documents we incorporate by reference into this report as being applicable to all related forward-looking
statements wherever they appear in this report or the documents we incorporate by reference into this report. If one or more of these
factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially
from any future results, performance or achievements expressed or implied by these forward-looking statements.
Given these uncertainties, you should not place undue reliance on these
forward-looking statements. These forward-looking statements include, among other things, statements relating to:
● our ability to continue as a going concern;
● our ability to manage our working capital requirements efficiently;
● our ability to obtain the necessary funds from our credit facilities;
● our dependence on the growth in demand for our products;
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● our dependence on our major customers; and
Also,
forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and
the documents that we reference, and file as exhibits to this report completely and with the understanding that our actual future results
may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements
publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even
if new information becomes available in the future.
Use
of Certain Defined Terms
Except
where the context otherwise requires and for the purposes of this report only:
● “Exchange Act” refers the Securities Exchange Act of 1934, as amended;
● “SEC” refers to the Securities and Exchange Commission;
● “Securities Act” refers to the Securities Act of 1933, as amended;
RESTATEMENT
EXPLANATORY NOTE
This
Annual Report on Form 10-K is a comprehensive filing for the fiscal years ended June 30, 2024, 2023 and 2022, including interim periods,
by the Company unless the context indicates otherwise. As previously disclosed, we have concluded that the previously issued
audited consolidated financial statements for the fiscal years ended June 30, 2023 and all of the quarterly unaudited consolidated
financial statements within the fiscal years ended June 30, 2024, 2023 and 2022 (collectively, the “Prior Financial Statements”),
could no longer be relied upon due to material accounting errors identified by management and a restatement should be undertaken. As a result, we have determined to restate our audited consolidated financial
statements for the fiscal years ended June 30, 2023 and 2022, including all related unaudited consolidated interim financial statements
within the fiscal years ended June 30, 2024, 2023 and 2022.
Restatement
of the Prior Financial Statements
In connection with the
preparation of its consolidated financial statements as of and for the fiscal year ended June 30, 2024, the Company identified
multiple prior-period misstatements within the Prior Financial Statements. As previously disclosed in the Form 12b-25 for the Annual
Report on Form 10-K for the fiscal year ended June 30, 2024 filed with the SEC on September 30, 2024, the Company was unable to file
its Annual Report on Form 10-K for the fiscal year ended June 30, 2024 within the prescribed time period because of errors it has
discovered at that time in the audited consolidated financial statements as of and for the fiscal year ended June 30, 2023 which required restatement. Specifically, the Company at that time became
aware that (i) approximately $1.2 million of excess and obsolete inventory, primarily as a result of a change in battery cells from
a new supplier, had not been properly reserved or written-off in earlier periods, resulting in an overstatement of inventories, and
(ii) certain loaner service packs were improperly accounted for as finished goods inventory as of June 30, 2023 resulting in an
overstatement of inventories of approximately $0.5 million.
In addition,
promptly after learning of these errors, the audit committee initiated an internal investigation, which was conducted with the assistance
of independent counsel. As a part of this restatement and evaluation process, along with the internal investigation, the Company also
discovered that:
The impact of applying
corrections for these errors is material. Accordingly, prior to the filing of this Annual Report, in coordination with the Board of
Directors and audit committee members, the Company determined to restate its audited consolidated financial statements for the
fiscal years ended June 30, 2023 and 2022, including all related unaudited consolidated interim financial statements within the
fiscal years ended June 30, 2024, 2023 and 2022.
All material restatement
information is included in this Annual Report and we do not intend to separately amend other filings that the Company has
previously filed with the SEC. As a result, such prior filings should no longer be relied upon. We believe that presenting all of
the information for the periods indicated above in this Form 10-K will allow investors and others to review all pertinent data in a
single presentation. We have not filed, and do not intend to file, any amended annual or quarterly reports on Form 10-Q or Form 10-K for our annual
financial statements for the fiscal years ended June 30, 2023 and 2022, or unaudited consolidated interim financial statements
within the fiscal years ended June 30, 2024, 2023 and 2022 or any prior fiscal years. Information about the
effects of the restatement on each of these periods is contained in Note 15 – Restatement of Previously Issued Financial
Statements and Note 16 – Quarterly Financial Summary (unaudited) to our consolidated financial statements.
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Control
Considerations
In
connection with restatements, the Company conducted an internal investigation of the accounting errors identified. In connection therewith, management has assessed the effectiveness of the Company’s internal control
over financial reporting. Management previously concluded that the Company’s disclosure controls and procedures and internal control over financial reporting
were not effective during the periods covered by the restatement due to previously identified material weaknesses resulting from having
insufficient personnel resources with technical accounting expertise related to certain aspects of the financial reporting process. In early March of 2024, the Company strengthened
its internal financial expertise by hiring a new Chief Financial Officer with over 20 years of experience with publicly traded companies
and finance and accounting and who also served as an auditor for 10 years with Ernst & Young LLP, where he became a certified public
accountant. As part of its ongoing remedial efforts to strengthen controls and procedures, in May 2024 the Company engaged an
external financial consultant with extensive technical accounting expertise. In August 2024, the
Company engaged an external financial consulting firm to assist the Company with accounting advisory services.
After
re-evaluation, the Company’s management has concluded that in connection with restatement and due to a lack of sufficiently designed controls that support an effective assessment of our internal controls
relating to the prevention of fraud and possible management override of controls, this represents an additional
material weakness in the Company’s disclosure controls and procedures and the Company’s internal control over financial
reporting. To address this material weakness, management plans to continue to devote significant effort and resources to the
remediation and improvement of the Company’s internal control over financial reporting. While the Company has processes to
account for its inventory, under the leadership of the Company’s new Chief Financial Officer, the Company intends to
strengthen its internal processes and procedures over inventory management and reporting. The Company has begun updating its
processes and controls around inventory obsolescence, the timing of its internal inventory audits and implementation of other
measures. In addition, in August 2024, the Company engaged an external financial consulting firm with extensive technical
accounting expertise to assist with the analysis of prior periods, along with an independent law firm to conduct an internal review
of the events and activities leading to errors in the financial statements.
The Company’s management recognizes that a control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must
reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Additionally,
controls can be circumvented by collusion or improper management override of the controls. The design of any system of controls is based
in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or
the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected, and there
is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.
Based on this assessment, the Company identified material weaknesses in its internal control over
financial reporting. Management is taking additional steps to remediate these material weaknesses. See Item 9A, Controls and
Procedures, for additional information related to these material weaknesses in internal control over financial reporting and the
related remedial measures.
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PART
I
ITEM
1 – BUSINESS
Overview
We
design, develop, manufacture, and sell a portfolio of advanced lithium-ion energy storage solutions for electrification of a range
of industrial commercial sectors which include material handling, airport ground support equipment (“GSE”), and other
commercial and industrial applications. We believe our mobile and stationary energy storage solutions provide our customers a
reliable, high performing, cost effective, and more environmentally friendly alternative as compared to traditional lead acid and
propane-based solutions. Our modular and scalable design allows different configurations of lithium-ion energy storage solutions to
be paired with our proprietary wireless battery management system to provide the level of energy storage required and “state
of the art” real time monitoring of pack performance. We believe that the increasing demand for lithium-ion energy storage
solutions and more environmentally friendly energy storage solutions in the material handling sector should continue to drive our
revenue growth.
Our
Strategy
Our
long-term strategy is to meet the rapidly growing demand for lithium-ion energy solutions and to be the supplier of choice,
targeting large companies having demanding energy storage needs. We have established selling relationships with equipment OEMs and
customers with large fleets of forklifts and GSE. We intend to reach this goal by investing in research and development to expand
our product mix, by expanding our sales and marketing efforts, improving our customer support efforts and continuing our efforts to
increase production capacity and efficiencies. Our research and development efforts will continue to focus on providing adaptable,
reliable and cost-effective energy storage solutions for our customers.
Our
largest sector of penetration thus far has been the material handling sector which we believe is a multi-billion-dollar addressable
market. We believe the sector will provide us with an opportunity to grow our business as we enhance our product mix and service
levels and grow our sales to large fleets of forklifts and GSE. Applications of our modular packs for other industrial and
commercial uses, such as mobile energy storage, are providing additional current and future growth opportunities. We intend to
continue to expand and diversify our supply chain and customer base and seek further partnerships that provide synergy to
meeting our growth and “building scale” objectives.
Supply
Chain Issues and Higher Procurement Costs
Disruptions
from the COVID-19 pandemic over the past several years have been largely abated. We addressed supply chain challenges with improved
vendor selection, and improved supply chain internal practices. However, we have experienced recent shipment delays of battery packs
for some forklift models as a result of production delays from our suppliers. We have seen recent improvements in shipment timing. However,
there can be no assurance that our price increases, inventory levels or any future steps we take will be sufficient to offset the
rising procurement costs and manage sourcing of raw materials and component parts effectively.
Strategic
Initiatives
Our
near-term priorities will be to achieve “profitability,” specifically, cash flow breakeven, within our capital constraints. Accordingly, we will
continue to pursue supply chain improvements, gross margin expansion initiatives, and cost reductions. In addition, we are focusing
on business expansion to accelerate gross margins by:
There
can be no assurance that these initiatives and efforts will be successful.
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Recent
Developments
Management Transition
On November 20, 2024,
Ronald F. Dutt, our chairman and Chief Executive Officer, notified the Company’s Board of Directors of his intentions to
retire from his positions upon the appointment of a new Chief Executive Officer. The Board has commenced a search for a new Chief Executive Officer
and Mr. Dutt will remain with the Company through the search and transition period.
Credit Facility
On
July 28, 2023, we entered into a certain Loan and Security Agreement (the “Agreement”) with Gibraltar Business Capital, LLC,
a Delaware limited liability company (“GBC”). The Agreement provides the Company with a senior secured revolving loan facility
(the “GBC Credit Facility”) for up to $15.0 million (the “Revolving Loan Commitment”). The revolving amount available
under the GBC Credit Facility is equal to the lesser of the Revolving Loan Commitment and the borrowing base amount (as defined in the
Agreement). The GBC Credit Facility is evidenced by a revolving note, which matures on July 28, 2025 (the “Maturity Date”),
unless extended, modified or renewed (the “Revolving Note”). Provided that there is no event of default, the Maturity Date
can automatically be extended for one (1) year period upon payment of a renewal fee for each such extension in the amount of three-quarters
of one percent (0.75%) of the Revolving Loan Commitment, which fee will be due and payable on or before the applicable Maturity Date.
In addition, subject to conditions and terms set forth in the Agreement, the Company may request an increase in the Revolving Loan Commitment
from time to time upon not less than 30 days’ notice to GBC which increase may be made at the sole discretion of GBC, as long as:
(a) the requested increase is in a minimum amount of $1,000,000, and (b) the total increases do not exceed $5,000,000 and no more than
five (5) increases are made. Outstanding principal under the GBC Credit Facility accrues interest at Secured Overnight Financing Rate
(“SOFR”, as defined in the Agreement) plus five and one half of one percent (5.50%) per annum with such interest payment due monthly on the last day of the month. In the event of default, the amounts due under the Agreement bears interest at a rate per
annum equal to three percent (3.0%) above the rate that is otherwise applicable to such amounts. We paid GBC a non-refundable closing
fee for the GBC Credit Facility of $112,500 upon the execution of the Agreement. In addition, we are required to pay a monthly unused
line fee equal to one-half of one percent (0.50%) per annum on the difference between the Revolving Loan Commitment and the average outstanding
principal balance of the revolving loan(s) for such month. The obligations under the GBC Credit Facility may be prepaid in whole or in
part at any time upon an exit fee of (a) two percent (2.00%) of the Revolving Loan Commitment if the obligations are paid in full during
the first year after the closing date, or (b) one percent (1.00%) of the Revolving Loan Commitment if the obligations are paid in full
one year after the closing date, provided, that, the exit fee will be waived if such prepayment occurs in connection with the refinancing
of the obligations with Bank of America, N.A., as lender.
The
loans and other obligations of the Company under the GBC Credit Facility are secured by substantially all of the tangible and intangible
assets of the Company (including, without limitation, intellectual property) pursuant to the terms of the Agreement and the Intellectual
Property Security Agreement entered into by and among the Company and GBC on July 28, 2023.
In
April 2024, we notified GBC of a certain event of default with respect to the Company’s anticipated failure to maintain the EBITDA
covenant for the trailing three (3) month period ended April 30, 2024, (the “Default”). On May 8, 2024, the Company received a waiver from GBC, (the “Waiver”) which
waived the Default, subject to satisfaction of the following conditions: (i) receipt of a counterpart of the Waiver duly executed by
us; (ii) receipt of the waiver fee of $20,000; (iii) receipt of the representations and warranties from us that after giving effect to
the Waiver, the representations and warranties contained in the Agreement, the Waiver and the other Loan Documents shall be true and
correct; and (iv) after giving effect to the Waiver, no additional event of default shall have occurred and be continuing on and as of
the effective date of the Waiver.
On
May 31, 2024, we entered into the Third Amendment to Loan and Security Agreement (the “Third Amendment”) with GBC which amended
certain terms of the Loan and Security Agreement dated July 28, 2023, including but not limited to amending the EBITDA Minimum financial
covenant. In consideration for the Third Amendment, the Company agreed to pay GBC a non-refundable amendment fee of $50,000 in cash.
Under the Agreement,
upon an occurrence of an event of default, GBC may, at its option, declare its commitments to the Company to be terminated and all
obligations to be immediately due and payable, all without demand, notice or further action of any kind required on the part of GBC,
and/or exercise other remedies available to it among other things including its rights as a secured party. On August 30, 2024, GBC
agreed to waive the Company’s non-compliance with, and the effects of its non-compliance under, various representations,
financial covenants and non-financial covenants relating to the Company’s restatement (the “August Waiver”). On January 17, 2025, GBC agreed to waive our non-compliance with, and the effects of our non-compliance under, various
representations, financial covenants and non-financial covenants relating to our financial restatements and our failure to maintain the
EBITDA Minimum for certain financial periods (the “January Waiver”). As a result of the August Waiver and January Waiver, the Company expects that its revolving credit facility remains available subject to meeting certain
lending criteria under the Loan Agreement.
On January 22, 2025, we entered into Amendment No. 4 to Loan and Security Agreement (the “Fourth Amendment”)
with GBC which amended certain terms of the Loan and Security Agreement dated July 28, 2023, as amended, relating to the EBITDA Minimum
financial covenant of the Company. In consideration for the Fourth Amendment, the Company agreed to pay GBC a non-refundable amendment
fee of $50,000 in cash, as follows: (i) $25,000 shall be due and payable on March 1, 2025, and (ii) $25,000 shall be due and payable on
April 1, 2025.
We rely on our credit
facility with GBC to meet our anticipated capital resources and to fund our operations. The availability of the GBC Credit Facility
is subject to satisfaction of certain affirmative covenants and financial covenants including maintaining minimum tangible net
worth, and certain limitations on dispositions of assets. The Agreement also contains usual and customary events of default (with
customary grace periods, as applicable) and provides that, upon the occurrence of an event of default, payment of all amounts
payable under the GBC Credit Facility may be accelerated and/or GBC’s commitment may be terminated by GBC without any action
by GBC. Due to our inability to satisfy certain financial covenants and other covenants under the agreement with GBC we have
previously needed to obtain waivers from GBC. In the event we are unable to comply with terms of the Agreement or to obtain a waiver
from GBC, funds will be unavailable to us under the GBC Credit Facility, and our operations, financial condition and business will be
materially and adversely affected.
Nasdaq
Stock Market Notices
On October 16, 2024, the Company received a notice (the “October Notice”) from the Listing Qualifications Department (the
“Staff”) of the Nasdaq Stock Market (“Nasdaq”) stating that because the Company had not yet filed its Form 10-K
for the fiscal year ended June 30, 2024 (the “Form 10-K”), the Company was not in compliance with Nasdaq Listing Rule 5250(c)(1)
(the “Listing Rule”), which requires Nasdaq-listed companies to timely file all required periodic financial reports with the
Securities and Exchange Commission.
On November 20, 2024, the Company received a notice (the “November Notice,” together with the October Notice, the “Notices”)
from the Staff of Nasdaq stating that because the Company had not yet filed its Form 10-Q for the period ended September 30, 2024 (the
“Form 10-Q”) and because the Company remains delinquent in filing its Form 10-K (together with the Form 10-Q, the “Delinquent
Reports”), the Company does not comply with the Listing Rule.
The notices stated that the
Company had until December 16, 2024 to submit a plan to regain compliance with the Listing Rule (the “Plan”). If Nasdaq accepts
the Company’s Plan to regain compliance, then Nasdaq may grant the Company up to 180 calendar days from the Form 10-K filing due
date, or until April 14, 2025, to file the Delinquent Reports to regain compliance. If Nasdaq does not accept the Company’s Plan, then the
Company will have the opportunity to appeal that decision to a Nasdaq Hearings Panel. The Notice had no immediate effect on the listing of the Company’s common stock on Nasdaq.
On December 16, 2024, the Company filed a plan with Nasdaq to regain Nasdaq compliance, including requesting an extension to file the
Delinquent Reports by no later than April 14, 2025. If Nasdaq does not accept the Company’s Plan and the Company fails to prevail
in its appeal to Nasdaq, or if the Company fails to meet the Nasdaq listing requirements and do not regain compliance, the Company’s
common stock will be subject to delisting by Nasdaq. In the
event our common stock is delisted, our stock price and market liquidity of our stock will be adversely affected which will impact the
ability of the Company’s stockholders to sell securities in the market. Further, delisting from Nasdaq
markets could also have other negative effects, including potential loss of confidence by partners, lenders, suppliers and employees.
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DESCRIPTION
OF OUR BUSINESS
Our
Business
We
have leveraged our experience in lithium-ion technology to design and develop a portfolio of industrial and commercial energy storage
packs 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: Our engineers design, develop, test, and service our advanced
lithium-ion energy storage solutions. 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 engineering experience enables us to develop competitive
solutions that meet our customers’ needs currently and in the foreseeable future.
UL
Listing: Our goal is to obtain a UL Listing for all of our Packs, and we recently completed the process for our newest source
of battery cells. We believe this UL Listing provides us a significant competitive advantage and provides assurance to customers that
our technology has been rigorously tested by an independent third party and determined to be safe, durable and reliable.
Original
equipment manufacturer (OEM) approvals: Many of our energy storage packs have been tested and approved for use by Toyota
Material Handling USA, Inc., Crown Equipment Corporation, and The Raymond Corporation, among the top global lift truck manufacturers
by revenue according to Material Handling & Logistics. We also provide a “private label” Class 3 Walkie Pallet Pack
to two major top 10 forklift OEMs.
Broad
product offering and scalable design: We offer energy storage packs for use in a variety of industrial motive applications. We
believe that our modular and scalable design enables us to optimize design, inventory, and part count to accommodate natural product
extensions of our products to meet customer requirements. We have leveraged our Class 3 Walkie Pallet Pack design to develop larger energy
storage packs for larger forklifts, GSE Packs, and other industrial equipment applications. Natural product extensions, based on our
modular, scalable designs, include solar backup power for electric vehicle (“EV”) mobile charging stations and robotic warehouse
equipment.
Significant
advantages over lead acid and propane-based solutions: We believe that lithium-ion battery systems have significant advantages
over existing technologies and will displace lead acid batteries and propane-based solutions, in most applications. Relative to lead
acid batteries, such advantages include environmental benefits, no water maintenance, faster charge times, greater cycle life, longer
run times, and less energy used that provide operational and financial benefits to customers. When compared to lead acid solutions, our
energy storage solutions do not discharge carbon dioxide in the atmosphere due to lithium chemistry efficiencies. In addition, when compared
to propane-based solutions, lithium-ion systems avoid the generation of exhaust emissions and associated odor and environmental contaminates,
and maintenance of an internal combustion engine, which has substantially more parts subject to wear than an electric motor.
Proprietary
Battery Management System: Critical to our success is our innovative, proprietary and versatile battery management system
(“BMS’) that optimizes the performance of our lithium-ion energy solutions and provides a platform for adding new
energy storage solution features, including customized telemetry (energy storage solution data and reports available anytime, anywhere) for customers who choose this option.
The BMS serves as the brain of the energy storage solution, managing cell balancing, charging, discharging, monitoring and communication
between the pack and the forklift. Our “next generation” versatile BMS is currently part of our full product lines and
provides significant product features for improved customer productivity. Our BMS also enables ongoing feature development for
reduced cost and higher performance. We have included our proprietary telemetry solution, branded “SkyBMS” which
provides real time reports on pack performance, health, and remaining useful life.
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Our
Products
We
design, develop, test and sell our energy storage solutions for use in a broad range of lift trucks, industrial equipment including airport
GSE, and other commercial applications. Within each of these product segments, we offer a range of power and equipment solutions.
Our
energy storage solution system design is adaptable with three core design modules used in our entire family of small, medium, and
large pack forklift products. A scalable modular design allows for core modules to be configured to address a variety of unique
power and space requirements. We also have the capability to offer varying chemistries and configurations based on the specific
application. Currently, our energy storage packs use lithium iron phosphate (LiFePO4) battery cells, which we source from a single supplier located in China, that meet our power, reliability, safety and other specifications. Our BMS works with several battery
configurations providing the flexibility to use battery cells developed and manufactured by other suppliers. We believe we can
readily adapt our energy storage packs to incorporate new chemistries as they become available in the future in order to meet
changing customer preferences and to reduce the cost of our products.
We
also offer 24-volt onboard chargers for our Class 3 Walkie Pallet Packs, and smart “wall mounted” chargers for larger applications.
Our smart charging solutions are designed to interface with our BMS and integrate easily into most all major chargers in the market.
New
Product Update
During fiscal 2024, we introduced new product designs to respond to customer requests and to allow for greater operational
efficiencies for us. Some of the improvements included higher capacities for extra-long and demanding shifts, easier servicing, cost
efficiencies, and other features to solve a variety of existing performance challenges of customer operations. We intend to continue
to develop and to introduce new product designs for margin enhancement, part commonality and improved serviceability.
In
fiscal 2024, we also introduced the next generation of Material Handling and GSE products, the G2 line. These seven new products
greatly extend the reach of Flux packs in the Class 1 and 2 forklift market as well as enhancing our offerings for aircraft ground
support equipment. Ranging from 36 to 80 volts and capacities between 210 and 840 amp-hours, the G2 systems deliver power and
versatility.
We also added a second “private label” program for a top 10 OEM for Class 3 products. This program accelerates
our sales and distribution capabilities including representing a leverage point to sell our larger packs to end customers. It also has
shown to provide wider exposure to new potential customers.
Industry
Overview
Historically,
lithium-ion battery solutions were unable to compete with lead acid and propane-based solutions in industrial applications on the
basis of cost. However, the supply of lithium-ion batteries has rapidly expanded, leading to price declines of eighty-five percent
(85%) since 2010 according to BloombergNEF. BloombergNEF also estimates that lithium-ion battery prices, which averaged $1,160 per
kilowatt hour in 2010, were $156 per kWh in 2019 and dropped to $115 per kWh in 2024. Lithium metal itself represents well
less than 5% of the cost of our energy storage solutions.
The
sharp decline in the price of lithium-ion batteries has made these energy solutions more cost competitive. Affordability has in turn
enabled customers to shift away from lead acid and propane-based solutions for power lift equipment to lithium-ion based solutions with
more favorable environmental and performance characteristics. Reducing our cost per kilowatt of energy enables our value proposition to attract increasing customer demand.
Material
Handling Equipment
We
focus on energy storage solutions for industrial equipment and related industrial applications because we believe they represent large
and growing markets that are just beginning to adopt lithium-ion based technology. We apply our scalable, modular designs to natural
product extensions in the industrial equipment market. These markets include not only the sale of lithium-ion energy storage solutions for new
equipment but also a replacement market for existing lead acid battery packs.
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According
to Modern Materials Handling, worldwide new lift truck orders reached approximately 1.4 million units in 2017. The Industrial Truck Association
(“ITA”) has estimated that approximately 200,000 lift trucks had been sold yearly since 2013 in North America (Canada, the
United States and Mexico), with sales relatively evenly distributed between electric rider (Class 1 and Class 2), motorized hand (Class
3), and internal combustion engine powered lift trucks (Class 4 and Class 5). The ITA estimates that electric products represented approximately
sixty-nine percent (69%) of the North American shipments in 2020, reflecting the long-term trend of increasing mix of electric products
versus internal combustion (propane) engines. Driven by growth in global manufacturing, e-commerce and construction, Research and Markets
expects that the global lift truck market will grow at a compound annual growth rate of six and four-tenths percent (6.4%) through 2024.
Customers
Our
customers include OEMs, lift equipment dealers, battery distributors and end users. Our customers vary from small companies to Fortune
500 companies.
During
the year ended June 30, 2024, we had three (3) major customers that each represented more than 10% of our revenues on an individual
basis, and together represented approximately $47,178,000 or 78% of our total revenues. During the year ended June 30, 2023, we had
three (3) major customers (as restated) that each represented more than 10% of our revenues on an individual basis, and together
represented approximately $53,140,000 (as restated) or 80% (as restated) of our total revenues. During the year ended June 30, 2022,
the Company had four (4) major customers that each represented more than 10% of its revenues on an individual basis, and together
represented approximately $35,229,000 (as restated) or 83% (as restated) of its total revenues.
Shift
Toward Lithium-ion Battery Technologies
Today’s
lithium-ion energy storage solutions offer higher performance, environmental benefits, and lower life cycle costs, and these features are driving an
increase in demand for safe and efficient alternatives to lead acid and propane-based power products. The value
proposition of lithium-ion energy storage solutions includes a number of factors impacting customer preferences:
Duration
of Charge/Run Times: Lithium-based energy storage systems can perform for a longer duration compared to lead acid batteries.
Lithium-ion batteries provide up to 50% longer run times than lead acid batteries of comparable capacity, or amps-per-hour rating, allowing
equipment to be operated over a long period of time between charges.
High/Sustained
Power: Lithium-ion batteries are better suited to deliver high power versus legacy lead acid. For example, a 100Ah lead acid
battery will only deliver 80Ah if discharged over a four-hour period. In contrast, a 100Ah lithium-ion system will achieve over 92Ah
even during a 30-minute discharge. Additionally, during discharge, the energy storage pack sustains its initial voltage, maximizing the
performance of the forklift truck, whereas, lead acid voltages, and hence power, decline over the working shift.
Charging
Time: Lead acid batteries are limited to one shift a day, as they discharge for eight hours, need eight hours for charging, and
another eight hours for cooling. For multi-shift operations, this typically requires battery changeout for the equipment. Because lithium
batteries can be recharged in as little as one hour and do not degrade when subjected to opportunity charging, hence, battery changeout
is unnecessary.
Safe
Operation: The toxic nature of lead acid batteries presents significant safety and environmental issues in the event of a cell
breach. During charging, lead acid batteries emit combustible gases and increase in temperature. Lithium-ion (particularly LFP) batteries
do not get as hot and avoid many of the safety and environmental issues associated with lead acid batteries.
Extended
Life: The performance of lead acid batteries degrades after approximately 500 charging cycles in industrial equipment applications.
In comparison, lithium-ion batteries last up to five times longer in the same application.
Size
and Weight: Lithium is about one-third the weight of lead acid for comparable power ratings. Lower weight enables forklift OEMs
the ability to optimize the design of the truck based on a smaller footprint for lithium-ion instead of lead acid.
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Lower
Cost: Lithium-ion energy storage solutions provide power dense solutions with extended cycle life, reduced maintenance and improved operational
performance, resulting in lower total cost of ownership.
Less
Energy Used: we believe our lithium-ion energy storage solutions use 20-50% less energy based on our internal studies comparing lithium-ion
to lead acid.
Marketing
and Sales
We
sell our products through several different channels including OEMs, lift equipment dealers and battery distributors as well as
directly to end users. In the industrial motive market, OEMs sell their lift products through dealer networks and directly to end
customers. Because of environmental issues associated with lead acid batteries and to preserve customer choice, industrial lift
products are typically sold without a battery pack or an energy storage solution. Equipment dealers source battery packs from battery distributors and battery
pack suppliers based on demand or in response to customer specifications. End customers may specify a specific type and manufacturer
of battery pack to the equipment dealer or may purchase battery packs from battery distributors or directly from battery
suppliers.
Our
direct sales staff cover major geographies throughout North America and collaborate with our sales partners who have an
established customer base. We plan to hire additional sales staff to support our expected sales growth. In addition, we have
developed a nationwide sales network of relationships with equipment OEMs, their dealers, and battery distributors. To support our
products, we have a nationwide network of service providers, typically forklift equipment dealers and battery distributors, who
provide local customer service to large customers. We also maintain a customer support center and provide Tech Bulletins and
training to our service and sales network out of our corporate headquarters. We have partnered with an experienced GSE distributor
to market our lithium-ion energy storage solutions for airport GSE.
Manufacturing
and Assembly
Rather
than manufacture our own battery cells, our battery cells are currently sourced from one manufacturer located in China. We source the
remainder of the components primarily from numerous vendors in the United States. We developed our BMS to be agnostic to a
battery’s lithium-ion chemistry and cell manufacturer. Despite such flexibility, we have experienced occasional supply
interruptions in the past, and more recently, we have been forced to navigate supply chain and transportation issues stemming from
the global pandemic. We have made great strides in sourcing alternate suppliers and parts to minimize future global supply chain
disruptions. We are continuing to monitor and test potential new cell technologies on an ongoing basis to help mitigate our supply
chain risks. Using Lean Manufacturing principles, our final assembly, testing and shipping of our energy storage solutions are
completed within our ISO 9001 certified facility in Vista, California, which includes six assembly lines.
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, test, and service our advanced lithium-ion energy storage solutions at our company headquarters in Vista,
California. We believe our strengths include our core competencies and capabilities in designing and developing proprietary
technology for our BMS, lean manufacturing processes, systems engineering, engineering application, and software engineering for
both energy storage solutions and telemetry. We believe that our ability to develop new features and technology for our BMS is
essential to our growth strategy.
As
we continue to develop and expand our product offerings, we anticipate that research and development will continue to be a substantial
part of our strategic priorities in the future. We seek to develop innovative, new and improved products for cell and system management
along with associated communication, display, current sensing and charging tools. Our research and development efforts are focused on
improving performance, reliability and durability of our energy storage solutions for our customers and on lowering our costs of production.
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Competition
Our
competitors in the lift equipment market in years past have been primarily major lead acid battery manufacturers, including Stryten
Energy, East Penn Manufacturing Company, EnerSys Corporation, and Crown Battery Corporation. However, more recently our potential
customer base has become increasingly aware of the performance, lifetime cost, and environmental advantages of lithium-ion
solutions. At the same time, our competitor base offering lithium-ion solutions has grown from a number of early-stage businesses
and now includes several larger companies. The increasing market activity reflects the double-digit sales growth of lithium-ion
based solutions. The sales channel includes. equipment dealers, OEMs and battery distributors.
The
key competitive factors in this market are performance, reliability, durability, safety and price. We believe we compete effectively
in all of these categories in light of our experience with lithium-ion technology, including our development capabilities and the performance
of our proprietary BMS. We believe having the UL Listing covering our core products gives us a significant differentiating competitive
advantage. In addition, because our BMS is not reliant on any specific battery cell chemistry, we believe we can adapt rapidly to
changes in advanced battery technology or customer preferences.
Intellectual
Property
Our
success depends, at least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we rely
on a combination of patents pending, patent applications, trade secrets, including know-how, employee and third-party nondisclosure agreements,
copyright laws, trademarks, intellectual property licenses and other contractual rights to establish and protect our proprietary rights
in our technology. In addition to such factors as innovation, technological expertise and experienced personnel, we believe that a strong
patent position is important to remain competitive.
As
of June 30, 2024, we have two issued U.S. patents. We have filed one new U.S. patent application on advanced technology related to lithium-ion
energy storage solutions. The technology behind these three patents is designed to:
● increase battery life by optimizing the charging cycle;
● give users a better understanding of the health of their battery in use; and
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 obtained U.S. federal trademark registrations for Flux, Flux Power, Flux Power logo and Lift. We have pending applications to register
SkyBMS. We also believe that we have common law trademark rights to certain marks in addition to those which we have registered.
Suppliers
We
obtain a limited number of components and supplies included in our products from a small group of suppliers. During the year ended June
30, 2024, we had one (1) supplier who accounted for more than 10% of our total purchases, which represented approximately $12,437,000
or 27% of our total purchases.
During
the year ended June 30, 2023, we had one (1) supplier who accounted for more than 10% of our total purchases, which represented approximately
$17,022,000 or 31% of our total purchases.
During the year ended June 30, 2022 the Company had one (1) supplier who accounted for more than 10% of its total purchases which represented
approximately $13,884,000 or 28% of its total purchases
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We currently single
source our battery cells from one Chinese supplier. We are actively pursuing backup cell suppliers as part of our growth strategy,
efforts to manage the risks of having only one supplier of battery cells and strategies to address potential exposure to tariffs. In
addition, with our expanding portfolio of energy storage solutions and expected higher volumes, we will also seek to lower the costs of our component
parts through a network of suppliers
Government
Regulations
Product
Safety Regulations. Our products are subject to product safety regulations by Federal, state, and local organizations. Accordingly,
we may be required, or may voluntarily determine, to obtain approval of our products from one or more of the organizations engaged in
regulating product safety. These approvals could require significant time and resources from our technical staff and, if redesign were
necessary, could result in a delay in the introduction of our products in various markets and applications.
Environmental
Regulations. Federal, state, and local regulations impose significant environmental requirements on the manufacture, storage,
transportation, and disposal of various components of advanced energy storage systems. Although we believe that our operations are in
material compliance with current applicable environmental regulations, there can be no assurance that changes in such laws and regulations
will not impose costly compliance requirements on us or otherwise subject us to future liabilities.
Moreover,
Federal, state, and local governments may enact additional regulations relating to the manufacture, storage, transportation, and disposal
of components of advanced energy storage systems. Compliance with such additional regulations could require us to devote significant
time and resources and could adversely affect demand for our products. There can be no assurance that additional or modified regulations
relating to the manufacture, storage, transportation, and disposal of components of advanced energy systems will not be imposed.
Occupational
Safety and Health Regulations. The California Division of Occupational Safety and Health (Cal/OSHA) and other regulatory agencies
have jurisdiction over the operations of our Vista, California facility. Because of the risks generally associated with the assembly
of advanced energy storage systems we expect rigorous enforcement of applicable health and safety regulations. Frequent audits by, or
changes, in the regulations issued by Cal/OSHA, or other regulatory agencies with jurisdiction over our operations, may cause unforeseen
delays and require significant time and resources from our technical staff.
Human
Capital Resources
As
of June 30, 2024, we had 119 employees. We engage outside consultants to assist our efforts in business development, operations, finance and other functions from time
to time. None of our employees is currently represented by a trade union.
Corporate
Office
Our
corporate headquarters and production facility totals approximately 63,200 square feet and is located in Vista, California. Our production
facility is ISO 9001 certified. The telephone number at our principal executive office is (760)-741-FLUX or (760)-741-3589.
Other
Information
The
Company website Internet address is www.fluxpower.com. We make available on our website our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the
Securities and Exchange Commission (“SEC”). Other than the information expressly set forth in this annual report, the
information contained, or referred to, on our website is not part of this annual report.
The
SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding
issuers, such as us, that file electronically with the SEC.
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ITEM
1A - RISK FACTORS
An
investment in our common stock involves a high degree of risk. You should carefully consider the summary of risk factors described below,
together with all of the other information included in this report, before making an investment decision. If any of the following risks
actually occur, our business, financial condition or results of operations could suffer. In that case, the trading price of our common
stock could decline, and you may lose all or part of your investment. You also should read the section entitled “Special Note Regarding
Forward Looking Statements” above for a discussion of what types of statements are forward-looking statements, as well as the significance
of such statements in the context of this report. The risk factors below do not address all the risks relating to securities, business
and operations, and financial condition.
Risk
Factors Relating to Our Business
Our
independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern
in its report on our audited financial statements included in this report. Our audited financial statements at June 30, 2024, and for
the year then ended, were prepared assuming that we will continue as a going concern.
Management has evaluated the Company’s expected cash requirements, including investments in additional sales
and marketing and research and development, capital expenditures and working capital requirements, and believes the Company’s existing
cash and funding available under the GBC Credit Facility and the Subordinated LOC, along with the forecasted gross margin, will not be
sufficient to meet the Company’s anticipated capital requirements to fund planned operations for the next twelve months following
the filing date of this Annual Report on Form 10-K.
The
report from our independent registered public accounting firm for the year ended June 30, 2024 includes an explanatory paragraph
stating that our current liquidity position and projected cash needs raise substantial doubt about our ability to continue as a going concern, along with management’s assessment and strategies. The perception
that we may not be able to continue as a going concern may make it difficult for us to raise new funds and to operate our business
due to concerns about our ability to meet our contractual obligations. There is no assurance that sufficient financing will be available when needed or on reasonable terms to allow us