ITEM 1A. RISK FACTORS 17
ITEM 1B. UNRESOLVED STAFF COMMENTS 30
ITEM 1C. CYBERSECURITY 30
ITEM 2. PROPERTIES 31
ITEM 3. LEGAL PROCEEDINGS 31
ITEM 4. MINE SAFETY DISCLOSURES 32
PART II
ITEM 6. RESERVED 33
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 42
ITEM 9A CONTROLS AND PROCEDURES 42
ITEM 9B. OTHER INFORMATION 44
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENTS INSPECTIONS 44
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 45
ITEM 11. EXECUTIVE COMPENSATION 45
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 45
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 46
SIGNATURES 49
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;
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● our dependence on the growth in demand for our products;
● 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;
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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 and commercial sectors which include material handling and airport ground support equipment (“GSE”). We believe
our mobile energy storage solutions provide our customers a reliable, high performing, cost effective, and more environmentally friendly
alternative as compared to traditional lead acid and propane-based solutions. Our modular and scalable design allows different configurations
of lithium-ion energy storage solutions to be paired with our proprietary wireless battery management system to provide the level of
energy storage required and “state of the art” real time monitoring of pack performance. We believe that the increasing demand
for lithium-ion energy storage solutions and more environmentally friendly energy storage solutions in the material handling sector should
continue to drive our revenue growth.
Our
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 energy storage needs. We have established selling relationships with customers with large fleets of forklifts
and GSE. We intend to reach this goal by investing in research and development to expand our product mix, by expanding our sales and
marketing efforts, improving our customer support efforts and improving production efficiencies. Our research and development efforts
will continue to focus on providing adaptable, reliable and cost-effective energy storage solutions for our customers. We have received
two patents, with another patent pending, on advanced technology related to lithium-ion energy storage solutions. The technology behind
these 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
Our
largest sector of penetration thus far has been the material handling sector, which we believe is a multi-billion-dollar addressable market.
We believe the sector will provide us with an opportunity to grow our business as we enhance our product mix and service levels and grow
our sales to large fleets of forklifts and GSE. Applications of our modular packs for other industrial and commercial uses, such as mobile
energy storage systems, are providing additional current growth and further opportunities. We intend to continue to expand our supply
chain and customer partnerships and seek further partnerships and/or acquisitions that provide synergy to meeting our growth and “building
scale” objectives.
Strategic
Initiatives
Our
near-term priority will be to achieve profitability 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
Business Developments
We have experienced some delays in new orders of our energy storage solutions
due to corresponding deferrals of new forklift purchases mainly caused by lower capital spending by certain large customer fleets. While
we have had very few cancellations of existing purchase orders, some customers have deferred their orders to later periods. Some customers
have attributed lower capital spending to concerns over the economy and the uncertainty of higher interest rates, as well as broader geopolitical
uncertainty. More recently, the economic impacts and costs of higher global tariffs implemented by the U.S government have affected new
purchase orders. The impact of deferrals and uncertainties related to new customer orders have required additional selling strategies
to support our targeted sales trajectory. Some of these issues are discussed in the Business Trends and Uncertainties section in Part
II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report,
We
have seen improvements in our sourcing and purchasing activity, reflecting our efforts to expand and optimize our vendor strategy. Additional
improvements include more secondary sources to minimize stock-outs, lower costs from increasing sources, and controlled delivery times,
as reflected in our current inventory levels. With strategic supply chain and profitability improvement initiatives, lower costs and
higher volume purchasing, we are targeting gross margin improvement to continue. We are highly focused on expanding sales and marketing
initiatives to secure new customer relationships and support continued migration to lithium of current customers. We recently have added
our second “tier one” OEM private label battery program to supplement our strong OEM relationships and approvals. This collaboration
marks a significant milestone for our S-Series line, which now includes products with the UL Type EE certification, which provides added
safety and durability capabilities. We are also working with our distribution network to expand customer acquisition with direct-to-customer
initiatives.
We
are also expanding our deployment of our telemetry solution providing customers with state of health, better asset management, and a
platform for more timely management of service and maintenance requirements.
We
also announced a new partnership aimed at enhancing the recycling process for end-of-life lithium-ion batteries with the largest critical
battery components recycling company in the U.S. This collaboration represents a significant step forward in our ongoing commitment to
environmental responsibility.
Nasdaq
Stock Market Notices
On January 31, 2025, the Company received a notice (the “January
Notice”) from the Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that based on its stockholders’ equity
of $194,000 as reported in its Form 10-K for the fiscal year ended June 30, 2024, the Company is no longer in compliance with Nasdaq Listing
Rule 5550(b)(1), which requires the Company to maintain a minimum of $2,500,000 in stockholders’ equity for continued listing on
Nasdaq (the “Stockholders’ Equity Requirement”). On March 17, 2025, the Company filed its plan with Nasdaq to regain
compliance with the Stockholders’ Equity Requirement, which included requesting an extension through July 30, 2025.
On February 21, 2025, the Company received a notice (the “February
Notice”) from the Nasdaq Listing Qualifications Department (the “Staff”) stating that because the Company had not yet
filed its Form 10-Q for the period ended December 31, 2024 (the “December Form 10-Q”), the Company does not comply with Nasdaq
Listing Rule 5250(c)(1) (the “Listing Rule”), which requires Nasdaq-listed companies to timely file all required periodic
financial reports with the Securities and Exchange Commission. The Company filed the December Form 10-Q on March 20, 2025 and is now current
with its required periodic financial reports to be filed with the Securities and Exchange Commission under the Listing Rule.
On July 31, 2025, the Company received a determination letter from the
Staff notifying the Company that based on the Company’s most recent disclosure, the Company’s stockholders’ equity was
a deficit of $4,372,000 as of March 31, 2025 and that the Staff had determined that the Company had not regained compliance with the Stockholders’
Equity Requirement. The Staff informed the company that trading of the Company’s common stock would be suspended at the opening
of business on August 11, 2025, unless the Company requests an appeal of the Staff’s determination to a Nasdaq Hearings Panel (the
“Panel”).
On August 7, 2025, the Company submitted a hearing request to the Panel,
which request will stay suspension of the Company’s securities and the filing of the Form 25-NSE pending the Panel’s decision.
On September 4, 2025, the Company made its presentation to the Panel. On September 16, 2025, the Panel determined to grant the Company an exception to demonstrate compliance with the
Stockholders’ Equity Requirement and granted the Company’s request for continued listing, which extension is subject to the
following: (1) the Company shall file a Form 10-K for the period ending June 30, 2025 on or before September 30, 2025, and (2), the Company
shall demonstrate compliance with the Stockholder’s Equity Requirement on or before October 31, 2025 through public disclosures
describing the transactions undertaken by the Company to achieve compliance and demonstrate long-term compliance. If the Company fails to comply with the Nasdaq listing requirements and does not regain compliance, the Company’s
common stock will be subject to delisting by Nasdaq. In the event our common stock is delisted, our stock price and market liquidity of
our stock will be adversely affected which will impact the ability of the Company’s stockholders to sell securities in the market.
Further, delisting from Nasdaq could also have other negative effects, including potential loss of confidence by partners, lenders, suppliers
and employees.
Authorized
Common Stock Share Increase
On
May 28, 2025, we filed a Certificate of Amendment to our amended and restated articles of incorporation, as amended (the “Articles
of Incorporation”) with the Secretary of State of the State of Nevada to increase the number of authorized shares of common stock
of the Company from 30,000,000 to 75,000,000, effective upon filing. The Amendment did not have any effect on the par value per share
of the Company’s common stock.
Settlement
Term Sheet
On
July 11, 2025, we entered into a settlement term sheet (the “Term Sheet”) to fully resolve the previously disclosed class
action litigation captioned Kassam v. Flux Power Holdings, Inc. et al. (Case No. 3:25-cv-00113-JO-DDL), against the Company, its former
chief executive officer, Ronald F. Dutt, and its former chief financial officer, Charles A. Scheiwe (collectively, the “Defendants”).
The settlement was subsequently memorialized in a definitive settlement agreement, executed on August 27, 2025, which was filed with
the Court on August 28, 2025 in connection with an unopposed motion for preliminary approval of the settlement, which motion will be
heard by the Court on October 23, 2025. For additional information about the case, see Item 3, “Legal Proceedings,” contained
in Part I of this report. In settling the class action, the Company is not admitting any liability and neither the Term Sheet nor the
definitive settlement agreement constitutes an admission of liability or an admission regarding the accuracy of any allegation made by
the plaintiffs.
The
settlement provides for, among other things, the final dismissal of the litigation and a release of claims against the Defendants in
exchange for the Company establishing a $1.75 million escrowed settlement fund to cover payments to the settlement class, attorneys’
fees and settlement administration expenses.
The
settlement class will consist of all persons or entities who purchased publicly traded common stock of the Company between November 15,
2021 and February 14, 2025, but will exclude (i) persons who suffered no compensable losses; and (ii) the Defendants; present and former
officers, directors, or control persons of the Company at all relevant times; members of their immediate families and their legal representatives,
heirs, successors, predecessors or assigns; present and former parents, subsidiaries, assigns, successors, and predecessors of the Company;
and any entity in which any of the persons excluded hereunder has or had a controlling or majority ownership interest in the Company
at any time. The plaintiff’s motion seeks certification of the settlement class, and, for settlement purposes only, Defendants
will not object to certification of the action as a class action.
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Final
settlement is subject to, among other things, court approval of such agreement. If the settlement does not obtain approval, the parties
agree that the settlement class will be decertified without prejudice, and that all the parties will revert to their pre-settlement positions.
We
expect our liability insurers to directly fund approximately $1.15 million of the settlement fund. The Company estimates that it will
contribute approximately $600,000 to the settlement fund as its remaining retention/deductible related to its insurance policy.
Special
Meeting of Stockholders
On
August 29 2025, at a Special Meeting of Stockholders, our stockholders approved the following proposals: (1) the amendment and restatement
of the Company’s Amended and Restated Articles of Incorporation as amended and currently in effect (the “Articles”)
to, among other things, (i) increase the aggregate number of authorized shares of preferred stock from 500,000 to 3,000,000, $0.001 par
value per share (“Preferred Stock”), (ii) grant the Board authority to fix the rights and preferences of the preferred stock
by resolution from time to time, and (iii) designate 1,000,000 shares of Preferred Stock as “Series A Convertible Preferred Stock”,
$0.001 par value per share (the “Series A Preferred Stock”), with rights, preferences, privileges and restrictions all as
set forth in the Second Amended and Restated Certificate of Incorporation (the “Restated Articles”) in substantially the
form attached to the Proxy Statement, and (2) the reservation and issuance of such number of shares of common stock issuable in connection with the conversion of the shares
of Series A Preferred Stock which are issuable upon exercise of certain prefunded warrants, and exercise of certain common stock warrants
issued and issuable in the Private Placement, which total issuance could exceed 20% of the amount outstanding of common stock prior to
the Private Placement for purposes of complying with Nasdaq Listing Rule 5635(d).
Second
Amended and Restated Articles of Incorporation
On
September 10, 2025, the Company filed a Second Amended and Restated Articles
of Incorporation (the “Restated Articles”) with the Secretary of State of the State of Nevada (“Nevada Secretary of
State”) to among other things, (i) increase the aggregate number of authorized shares of preferred stock from 500,000 to 3,000,000,
$0.001 par value per share (“Preferred Stock”), (ii) grant the Board authority to fix the rights and preferences of the preferred
stock by resolution from time to time, and (iii) designate 1,000,000 shares of Preferred Stock as “Series A Convertible Preferred
Stock”, $0.001 par value per share (the “Series A Preferred Stock”), with rights, preferences, privileges and restrictions
set forth therein. The Restated Articles became effective upon filing with the Nevada Secretary of State on September 10, 2025. The Restated
Articles did not have any effect on the par value per share of the Company’s common stock.
Series
A Preferred Stock
The
Series A Preferred Stock have the following material rights, features, privileges and limitations:
Rank.
With respect to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up of the Company, whether
voluntary or involuntary, all shares of Series A Preferred Stock rank senior to all the common stock and any other class of securities
that is specifically designated as junior to the Series A Preferred Stock (“Junior Securities”).
Voting
Rights. The holders of shares of Series A Preferred Stock have a right to vote as a single class with the holders of common stock
on an as-if-converted-to-Common-Stock-basis based on the greater of the (i) Conversion Price, or the (ii) Minimum Price as defined in
Rule 5635(d) of the Nasdaq Listing Rules, except that holders of Series A Preferred Stock shall have the right to vote as a separate
class with respect to certain specified matters.
Dividends.
The holders of each share of the Series A Preferred Stock then outstanding are entitled to receive cumulative cash dividends at an annual
dividend rate of 8.0%, payable quarterly on the last day of March, June, September, and December of each year, which may be payable in
kind or in cash at the option of the Company
Liquidation,
Dissolution, or Winding Up. Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”),
bankruptcy event, or change of control, the holders of shares of Series A Preferred Stock will be entitled to receive out of the assets,
whether capital or surplus, of the Company an amount equal to the purchase price per warrant to purchase Series A Preferred Stock paid
for by the holders of Series A Preferred Stock, adjusted for any stock splits, stock dividends, recapitalizations, or similar transaction
with respect to the Series A Preferred Stock (“Liquidation Value”), for each share of Series A Preferred Stock before any
distribution or payment will be made to the holders of any Junior Securities, and if the assets of the Company will be insufficient to
pay in full such amounts, then the entire assets to be distributed to the holders of shares of Series A Preferred Stock will be ratably
distributed among such holders in accordance with the respective amounts that would be payable on such shares if all amounts payable
thereon were paid in full.
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Conversion
Rights. The holders of shares of Series A Preferred Stock have the right to convert all or any portion of the outstanding shares
of Series A Preferred Stock held by such holder multiplied by the Liquidation Value into shares of the Company’s common stock at
the initial conversion price equal to 120% of the 20-day volume weighted average price (“VWAP”) per share of common stock
immediately preceding the initial closing in which the warrants to purchase Series A Preferred Stock were first issued to such holders
(the “Initial Conversion Price”), with automatic conversion at the Initial Conversion Price upon (i) the conversion of the
shares of Series A Preferred Stock by a then majority of holders of Series A Preferred Stock (the “Majority Holders”), (ii)
the affirmative vote or written consent by the Majority Holder to convert all outstanding shares of Series A Preferred Stock, and (iii)
on the fifth (5th) anniversary of the initial closing date in which the warrants to purchase Series A Preferred Stock are first issued
to such holders of Series A Preferred Stock.
Adjustments
to Conversion Price and Conversion Shares. The Conversion Price is subject to standard weighted average anti-dilution protection,
and anti-dilution protection against issuance of securities by the Company in certain incidences, such as (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, common stock, and (ii) in the event of any capital reorganization,
reclassification of the capital stock, consolidation or merger of the Company.
Private
Placement
On
July 18, 2025, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited investors
(the “Initial Purchaser(s)”) pursuant to which the Company agreed to sell an initial aggregate amount of approximately $2.9
million in Prefunded Warrants (the “Prefunded Warrants”) at a purchase price equal to $19.369 per warrant (the “Purchase
Price”). Each Prefunded Warrant entitled the holder to purchase one share of the Company’s Series A Convertible Preferred
Stock, par value $0.001 per share (the “Series A Preferred Stock”) for $0.001 per share. Purchasers of Prefunded Warrants
were also issued an additional five (5) year warrant to purchase a number of shares of common stock, par value $0.001 per share equal
to fifty percent (50%) of the number of shares of common stock issuable upon conversion of the Series A Preferred Stock (the “Common
Warrants,” and together with the Prefunded Warrants, the “Warrants”). The Warrants, the shares of Series A Preferred
Stock issuable upon exercise of the Prefunded Warrants, and the shares of common stock issuable upon exercise of the Common Warrants
are referred herein as the “Securities”. On September 15, 2025, the Company entered into an amended and restated securities
purchase agreement (the “Amended and Restated Purchase Agreement”) with certain of the Initial Purchasers and certain additional
investors (collectively, the “Purchasers”) pursuant to which, among other things, the Purchasers agreed to subscribe for
and purchase, and the Company agreed to issue and sell to the Purchasers, an aggregate of 258,144 Prefunded Warrants and 1,214,769 Common
Warrants at the Purchase Price for gross proceeds of approximately $5.0 million (the “Private Placement”). The Purchase Price
was paid in cash or, in lieu of cash, cancellation of certain existing debt of the Company.
The
closing of the Private Placement contemplated by the Purchase Agreement occurred simultaneously on September 15, 2025 upon the satisfaction
of certain customary conditions (the “Closing”). As of the Closing, there were no shares of Series A Preferred Stock issued
or outstanding. The Company intends to use the net proceeds from the Private Placement for general corporate purposes and growth capital.
The
Securities were offered to a small select group of accredited investors, as defined in Rule 501 of Regulation D, all of whom have a substantial
pre-existing relationship with the Company. Certain affiliates of the Company participated in the Private Placement, among which included
Krishna Vanka, our Chief Executive Officer and director, Kevin Royal, our Chief Financial Officer, Jeffrey Mason, our Chief Operating
Officer, Dale Robinette, our director, Michael Johnson, our director, and Cleveland Capital,
L.P. (“Cleveland”), which beneficially owns approximately 7.3% of our common stock.
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Prefunded
Warrant and Common Warrant
Each
Prefunded Warrant has an exercise price per share of Series A Preferred Stock equal to $0.001 per share. The Prefunded Warrants are immediately
exercisable upon the Closing of the Private Placement and expire when exercised in full. The exercise price and the number of shares
of Series A Preferred Stock issuable upon exercise of each Prefunded Warrant is subject to appropriate adjustments in the event of certain
stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the Series A Preferred
Stock.
Each
Common Warrant has an initial exercise price of $1.715, which is equal to the 20-day volume weighted average price (“VWAP’)
per share of common stock immediately preceding the Closing of the Private Placement (subject to adjustment therein), are exercisable
immediately following issuance and have a term of five (5) years from the initial issuance date. The Common Warrant has a “cashless
exercise” provision which provides that the Common Warrant can be exercised without further payment to the Company. The exercise
price and the number of shares of common stock issuable upon exercise of each Common Warrant is subject to appropriate adjustments in
the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting
the common stock.
In
addition, the Warrants may not be exercised in full and may not be exercised to the extent that immediately following such exercise,
the holder would beneficially own greater than 4.99% or, at the election of the holder, greater than 9.99% of the Company’s outstanding
common stock.
Registration
Rights Agreement
In
connection with the Purchase Agreement, the Company agreed to enter into a registration rights agreement with the Purchasers (the “Registration
Rights Agreement”), pursuant to which the Company will prepare and file a registration statement with the SEC covering the resale
of a number of shares of common stock underlying the Series A Preferred Stock and the Common Warrants issued pursuant to the Purchase
Agreement, and to use its commercially reasonable efforts to cause such registration statement to be declared effective by the SEC within
seventy-five (75) days following the date of the registration statement.
Escrow
Agreement
In
connection with the Closing, the Company entered into an Escrow Agreement (the “Escrow Agreement”), with David L. Hill, II
on behalf of Hill Innovative Law, LLC, as escrow agent (the “Escrow Agent”), pursuant to which the Escrow Agent agreed to
hold and will disburse the total aggregate purchase price pursuant to the terms of the Escrow Agreement.
First
Amendment to the Subordinated Unsecured Promissory Note
On
July 16, 2025, we entered into a First Amendment to the Subordinated Unsecured Promissory Note (“Note Amendment”) with Cleveland
Capital, L.P. (“Cleveland”). The Note Amendment amended the due date set forth in the Subordinated Unsecured Promissory Note
dated November 2, 2023 (“Original Note” and as amended by the First Amendment, the “Cleveland Note”) issued by
us to Cleveland in connection with a certain Credit Facility Agreement dated November 2, 2023 (the “Subordinated LOC”). Pursuant
to the Note Amendment, the due date under the Original Note was changed from August 15, 2025 to September 30, 2025. See Note 8 –
Related Party Debt Agreements to the audited consolidated financial statements for additional information regarding the Cleveland
Note.
Debt
Satisfaction Agreement
On
September 15, 2025, concurrently with the Closing of the Private Placement, we entered into a Debt Satisfaction Agreement with Cleveland
(the “Debt Satisfaction Agreement”) pursuant to which Cleveland represented that the full subscription price for the Securities
acquired and issued in the Private Placement to Cleveland were in exchange for the full payment and settlement of any and all obligations
of the Company due to Cleveland the Cleveland Note and upon issuance of the Securities in the Private Placement to Cleveland, all obligations
under the Cleveland Note and Subordinated LOC were deemed paid in full and the Subordinated LOC was terminated. In connection with such termination, the Cleveland Note was cancelled.
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Credit
Facility
On
July 28, 2023, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Gibraltar Business Capital, LLC
(“GBC”). The Agreement provided us with a senior secured revolving loan 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 (the “Revolving
Note”), which maturity date was automatically extended to July 31, 2027 (the “Maturity Date”) upon the conversion of
all the outstanding obligations under the Cleveland Note into equity of the Company at the Closing of the Private Placement on September
15, 2025. Provided that there is no event of default, the Maturity Date can automatically be extended for a one-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 Loan Agreement, we 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 Loan 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 Loan Agreement bear interest at a rate per
annum equal to three percent (3.0%) above the rate that is otherwise applicable to such amounts. 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, our intellectual property) pursuant to the terms of the Loan Agreement and the
Intellectual Property Security Agreement dated July 28, 2023.
Amendments
and Waivers to Credit Facility
On
November 2, 2023, we entered into Amendment No. 1 to the Loan Agreement (the “First Amendment”) which amended certain definition
of the Subordinated Debt referenced in the Loan Agreement as Subordinated Debt owed by us to Cleveland Capital L.P. (“Cleveland”)
pursuant to that certain Subordinated Unsecured Promissory Note, dated as of November 1, 2023, in the aggregate principal amount of $2,000,000.
On
January 30, 2024, we entered into Amendment No, 2 to the Loan Agreement (the “Second Amendment”) which amended certain terms
of the Loan Agreement including but not limited to, (i) increasing the commitment amount from $15.0 million to $16.0 million, (ii) adding
an additional non-refundable closing fee in the amount of $7,500 in cash for the increase in the commitment amount to $16 million, (iii)
amending the definition of “Eligible Accounts;” and (iv) amending the EBITDA Minimum financial covenant. In consideration
for the Second Amendment, we paid GBC a non-refundable amendment fee of $10,000 in cash, in addition to the $7,500 non-refundable closing
fee paid.
On
May 8, 2024, we received a waiver from GBC, which waived an event of default with respect to our anticipated failure to maintain the
EBITDA covenant for the trailing three (3) month period ended April 30, 2024.
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On
May 31, 2024, we entered into Amendment No. 3 to the Loan Agreement (the “Third Amendment”) 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, we paid GBC a non-refundable amendment fee of $50,000 in cash.
On
August 30, 2024, GBC agreed to waive our non-compliance with, and the effects of its non-compliance under, various representations, financial
covenants and non-financial covenants relating to our financial restatements.
On
January 17, 2025, we received a waiver which, subject to the satisfaction of certain conditions which were met, waived 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.
On
January 22, 2025, we entered into Amendment No. 4 to the Loan Agreement (the “Fourth Amendment”) which amended certain terms
relating to the EBITDA Minimum financial covenant. In consideration for the Fourth Amendment, we paid GBC a non-refundable amendment
fee of $50,000.
On
July 16, 2025, we entered into Amendment No. 5 to the Loan Agreement (the “Fifth Amendment”) which amended the definition
of the maturity date to August 31, 2025, unless otherwise extended pursuant to the terms of the Loan Agreement, provided however, upon
the occurrence of either (i) an extension of the due date of Cleveland Note to a date no earlier than September 29, 2027, or (ii) the
conversion of all of the outstanding obligations under the Cleveland Note into equity of the Registrant, the maturity date will automatically
extend to July 31, 2027. In consideration for the Fifth Amendment, we paid GBC a non-refundable amendment fee of $112,500.
On
September 4, 2025, we entered into Amendment No. 6 to Loan Agreement (the “Sixth Amendment”), with the effective date of
August 31, 2025, which amended certain terms of the Loan Agreement, including (i) modifications to the EBITDA minimum financial covenant
of the Company, and (ii) an extension of the maturity date from August 31, 2025 to September 15, 2025, subject to acceleration or further
extension pursuant to the terms of the Loan Agreement. Upon the closing of the Private Placement on September 15, 2025, all the outstanding
obligations under the Cleveland Note were applied in full satisfaction of the subscription by Cleveland in the Private Placement. Upon the conversion
of all of the outstanding obligations under the Cleveland Note into equity of the Company, the Maturity Date of the Revolving Note was
automatically extended to July 31, 2027.
As
a result of the aforementioned waivers and amendments, and extension of the Maturity Date to July 31, 2027, we expect that the revolving
credit facility will remain available subject to meeting certain lending criteria under the Loan Agreement.
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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 2025, we advanced our product portfolio with new designs aimed at addressing customer needs while improving our own
manufacturing and service operations, including lowering costs to improve margins. These updates emphasized higher energy capacities to support longer and more demanding shifts, simplified service
access and cost efficiencies. Collectively, these improvements were intended to resolve performance challenges in customer applications
and strengthen our ability to deliver reliable efficient energy solutions. Looking forward, we plan to continue introducing designs that
enhance margins, increase part commonality and improve serviceability.
In fiscal
2025, we introduced the G96, a higher-voltage battery system with greater capacity for intensive applications in the Airline and Aviation
industry and improved the developed G80 design that simplifies maintenance and enhances usability for GSE. Beyond hardware, we began developing
and showcasing SkyEMS, our energy management solution, marking a significant step in building a more comprehensive energy ecosystem. These
initiatives reflect our commitment to ramping up integrated energy solutions by combining advanced hardware with intelligent software.
Our focus is on creating a connected platform that optimizes performance, improves serviceability, and expands the long-term value we deliver
to 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. Our unit costs to source lithium in 2025 did not materially change
from 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 Worldwide Industrial Truck Statistics (“WITS”), new lift truck sales reached approximately 2.1 million units
worldwide in 2023. Approximately 431,000 units were sold in the Americas, primarily Canada, the United States and Mexico, spread
relatively evenly 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 International Truck Association (“ITA”) estimates that electric products represented approximately sixty-seven percent
(67%) of the North American shipments in 2023, 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 5.7% from 2024 through
2030.
Customers
Our
customers include OEMs, forklift equipment dealers, battery distributors and end users. Our customers vary from small companies to
Fortune 500 companies.
During
the year ended June 30, 2025, we had three major customers that each represented more than 10% of our revenues on an individual basis,
and together represented approximately $48,288,000 or 73% of our total revenues. During the year ended June 30, 2024, we had three 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.
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.
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.
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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