ITEM 1A. RISK FACTORS 18
ITEM 1B. UNRESOLVED STAFF COMMENTS 33
ITEM 1C. CYBERSECURITY 33
ITEM 2. PROPERTIES 34
ITEM 3. LEGAL PROCEEDINGS 34
ITEM 4. MINE SAFETY DISCLOSURES 36
PART II
ITEM 6. RESERVED 37
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 50
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 50
ITEM 9A CONTROLS AND PROCEDURES 50
ITEM 9B. OTHER INFORMATION 51
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENTS INSPECTIONS 51
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 52
ITEM 11. EXECUTIVE COMPENSATION 59
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 68
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 69
SIGNATURES 72
FINANCIAL STATEMENTS F-1
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Form (“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 as being applicable to all related forward-looking statements wherever
they appear in 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 dependence on the growth in demand for our products;
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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.
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SUMMARY
OF RISKS ASSOCIATED WITH OUR BUSINESS
Our
business is subject to multiple risks and uncertainties, as more fully described in “Risk Factors” and elsewhere in this
Report. We urge you to read the section entitled “Risk Factors” and this Report in full. Our principal risks may be summarized
as follows:
● We have a history of losses and negative working capital.
● Backlog may not be indicative of future operating results.
● We do not have long-term contracts with our customers.
● The ownership of our stock is highly concentrated in one of our directors.
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
Flux
Power Holdings, Inc. (the “Company” or “Flux”) was incorporated in 1998 in the State of Nevada, and Flux’s
operations are conducted through its wholly owned subsidiary, Flux Power, Inc., a California corporation. 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 with 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 battery pack performance. We believe that the growing demand for lithium-ion
energy storage solutions and more environmentally friendly energy storage solutions across a range of industrial and commercial sectors
should continue to drive growth in the markets we serve.
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 ground support equipment. 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 three patents 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 in order to meet our
growth and “building scale” objectives.
Strategic
Initiatives
Our
near-term priority is to achieve profitability. Accordingly, we will continue to pursue supply chain improvements, and other gross margin
expansion initiatives including redesigning our product line as well as other cost reduction initiatives. In addition, we are focusing
on business expansion to accelerate gross margins by:
● implementing a solutions selling approach;
There
can be no assurance that these initiatives and efforts will be successful.
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Business
Updates
Business
Developments
Since
January 2025, the U.S. government has increased certain existing import tariffs and has implemented new import tariffs across a wide
range of countries at various rates, including on product imports from almost all countries, and individualized higher tariffs on certain
countries, notably China. While we have been able to offset some of the impact of enacted tariffs with supply chain adjustments, alternative
manufacturing locations, cost reduction actions and by increasing the selling prices of our products, we believe that tariffs have negatively
impacted our revenues, profitability and cash flows. Some of these tariff announcements have since been followed by announcements of
limited exemptions and temporary pauses and all have been affected by various circuit court decisions and a key decision by the U.S.
Supreme Court, which invalidated certain tariffs. In response to the U.S. Supreme Court ruling, the current administration debuted a
system for repaying importers for tariffs struck down by the U.S. Supreme Court while also announcing the implementation of new tariffs
under an alternative statutory authority. Upon the expiration of such tariffs, the current administration announced new tariffs under
a different statutory authority. Management continues to actively evaluate ways to mitigate the impacts of tariffs on our business and
financial results, however, due to the uncertainties pertaining to tariffs and tariff levels, it is difficult for us to reliably forecast
the extent of the ongoing impact to our business or customers.
Trade-related
disruptions can create further uncertainty and supply chain interruptions, which may result in last-minute procurement efforts at elevated
cost. We are closely monitoring the fluid nature of proposed tariffs and any further impact they may have on our operations, and will
continue to monitor macroeconomic conditions and evaluate the financial and operational impact of ongoing trade policy shifts. These
risks could intensify depending on future developments, and we are actively incorporating these considerations into our future operation
planning, including assessing pricing actions, cost-control measures and long-term sourcing strategies.
If
tariffs continue to escalate or global inflationary trends persist, our customers may face greater economic strain, which could in turn
affect demand for our products. We remain focused on maintaining operational flexibility and adapting our supply chain to navigate these
uncertainties to support long-term business performance. See “Risk Factors” under Part I, Item 1A of this Form for additional
information.
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.
Nasdaq
Stock Market Notices
As
previously disclosed, on July 24, 2026, the Listing Qualifications Department (the “Staff”) of Nasdaq notified (the “July
2026 Notice”) us that for 30 consecutive business days preceding the date of the July 2026 Notice, the bid price of our common
stock had closed below the $1.00 per share minimum required for continued listing on the Nasdaq Capital Market pursuant to Nasdaq Listing
Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). The July 2026 Notice has no effect on the listing of our common stock
at this time, and our common stock continues to trade on the Nasdaq Capital Market under the symbol “FLUX”.
Under
Nasdaq Listing Rule 5810(c)(3)(A), we have 180 calendar days following the date of the July 2026 Notice to regain compliance with the
Minimum Bid Price Requirement (the “Compliance Period”). If at any time during the Compliance Period the closing bid price
of our common stock is at least $1.00 for a minimum of 10 consecutive business days, we will regain compliance with the Minimum Bid Price
Requirement and our common stock will continue to be eligible for listing on the Nasdaq Capital Market absent noncompliance with any
other requirement for continued listing.
If
we do not regain compliance with the Minimum Bid Price Requirement by the end of the Compliance Period, we may be afforded an additional
180 calendar days to regain compliance with the Minimum Bid Price Requirement (the “Additional Compliance Period”) if on
the last day of the Compliance Period we are in compliance with the market value of publicly held shares requirement for continued listing
as well as all other standards for initial listing of our common stock on the Nasdaq Capital Market (other than the Minimum Bid Price
Requirement), unless we do not indicate our intent to cure the deficiency, or if it appears to Nasdaq that it is not possible for us
to cure the deficiency.
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If
we do not regain compliance with the Minimum Bid Price Requirement by the end of the Compliance Period, or the Additional Compliance
Period, if applicable, our common stock will be subject to delisting.
We
intend to monitor the closing bid price of our common stock and may, if appropriate, consider implementing available options, including
the option to implement a reverse stock split, to regain compliance with the Minimum Bid Price Requirement. There can be no assurance
that we will regain compliance within the Minimum Bid Price Requirement during the Compliance Period, secure an Additional Compliance
Period to regain compliance or maintain compliance with the other Nasdaq continued listing requirements.
Nasdaq
requires that for continued listing on the Nasdaq Capital Market, we must meet all the requirements set forth in Rule 5550(a) and at
least one of the standards set forth in Rule 5550(b). The standards set forth in 5550(b) include having (i) a minimum of $2,500,000 in
stockholders’ equity (the “Stockholders’ Equity Requirement”), (ii) a market value of listed securities of at
least $35 million (the “Market Equity Requirement”), or (iii) net income from continuing operations of $500,000 in the most
recently completed fiscal year or in two of the three most recently completed fiscal years (the “Net Income Requirement”).
As previously disclosed, on January 31, 2025 the Staff of Nasdaq notified us that we did not comply with the Stockholders’ Equity
Requirement. On March 17, 2025, we filed our plan with Nasdaq to regain compliance with the Stockholders’ Equity Requirement, which
included requesting an extension through July 30, 2025. On July 31, 2025, due to non-compliance with the Stockholders’ Equity Requirement,
the Staff informed us that trading of our common stock would be suspended at the opening of business on August 11, 2025 unless we requested
an appeal of the Staff’s determination to a Nasdaq Hearings Panel (the “Panel”). We requested an appeal hearing with
the Panel and the Panel determined to grant us an exception to demonstrate compliance with the Stockholders’ Equity Requirement
and furthermore granted us our request for continued listing, which extension was subject to, among other requirements, us demonstrating
compliance with the Stockholder’s Equity Requirement on or before October 31, 2025.
On
October 14, 2025, we received a notification (the “October 2025 Notification”) from the Staff of Nasdaq that we had regained
compliance with Nasdaq’s continued listing rules because we satisfied the Market Equity Requirement. The October 2025 Notification
also provided that, for a period of one year, the Staff of Nasdaq will monitor our compliance with the continued listing requirements.
If, during such one-year period, we fail to comply with Rule 5550(b), the Staff of Nasdaq will issue a delist determination letter and
we will have an opportunity to request a new hearing.
As
of June 30, 2026, we satisfied the Stockholder’s Equity Requirement, however, we can provide no assurances that we will be able
to continue to comply with the Stockholder’s Equity Requirement. We no longer satisfy the Market Equity Requirement.
If
we fail to regain compliance with the Minimum Bid Price Requirement and/or fail to continue to meet at least one of the Rule 5550(b)
continued listing requirements, our 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 our 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.
Resolution
of Legal Proceedings
Securities
Class Action. On July 11, 2025, we entered into a settlement 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 us, our former chief executive officer,
Ronald F. Dutt, and our 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, heard by the Court on October 23, 2025. In
settling the class action, we are not admitting any liability and the settlement agreement constitutes no admission of liability or any
admission regarding the accuracy of any allegation made by the plaintiffs.
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The
settlement provides for, among other things, the final dismissal of the litigation and a release of claims against the Defendants in
exchange for us establishing a $1.75 million escrowed settlement fund to cover payments to the settlement class, attorneys’ fees
and settlement administration expenses. Our liability insurers directly funded the full $1.75 million settlement amount, which was released
from the escrowed settlement fund pursuant to the Order and Final Judgement.
Stockholder
Derivative Action. On January 7, 2025, plaintiff Ronald Pearl filed a stockholder derivative complaint in the United States District
Court, District of Nevada, captioned Pearl v. Dutt, et al. (Case No. 2:25-cv-00042), against our current and former officers and
directors, naming us as a nominal defendant. The complaint generally arises out of the same allegations contained in the above securities
class action and alleges claims for breach of fiduciary duties and related claims.
Following
a mediation, on July 11, 2025, the parties reached an agreement to resolve the derivative complaint in exchange for us implementing and
maintaining certain corporate governance reforms and enhancements. In connection with the settlement, defendants agreed to a payment
of attorneys’ fees and reimbursement of expenses for plaintiff’s counsel in the total amount of $425,000. On April 7, 2026,
the Court issued its Order and Final Judgement and thereby dismissed all claims with prejudice.
In
settling the derivative complaint, the defendants are not admitting any liability, and the settlement does not constitute an admission
regarding the accuracy of any allegation made by the plaintiffs. As of June 30, 2026, our liability insurers directly funded $187,000
of the agreed upon attorneys’ fees.
Employment-Related
Litigation. On April 30, 2024, a former employee filed a class action complaint against us and Insperity, our third-party payroll
service provider, in San Diego County Superior Court for various claims which he has purported to assert on behalf of himself and all
other individuals who worked for us or Insperity, amended to include a representative action complaint for Violation of Private Attorneys’
General Act, seeking an unspecified amount of penalties and attorneys’ fees based on allegations that we violated certain California
employment laws.
A
Motion to Compel Arbitration was granted and arbitration was scheduled for March 26, 2026 wherein the parties agreed to a settlement
of $164,000. 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.
Committed
Equity Facility
On
May 15, 2026, we entered into a purchase agreement (the “CEF Purchase Agreement”) and a related registration rights agreement
(the “CEF Registration Rights Agreement”) with Roth Principal Investments, LLC (“Roth Principal Investments”).
Subject to the terms and conditions of the CEF Purchase Agreement, we may, in our sole discretion, sell to Roth Principal Investments
up to $40,000,000 of shares of our common stock (the “Commitment Amount”) from time to time during the term of the CEF Purchase
Agreement (the “Committed Equity Facility”). We are under no obligation to sell any shares, and Roth Principal Investments
is required to purchase shares only as directed by us and subject to the CEF Purchase Agreement.
Pursuant
to the CEF Registration Rights Agreement, we filed a registration statement (the “CEF Resale Registration Statement”) to
register the resale of up to 38,461,538 shares of common stock (the “Purchase Shares”).
From
and after June 4, 2026, and for a period of up to 36 months (the “Commitment Period”), unless earlier terminated, we may
direct Roth Principal Investments to purchase shares of common stock through one or more “Market Open Purchases”, “Intraday
Purchases”, “Pre-Market Purchases” or “Post-Market Purchases”, each subject to the terms, conditions, notice
requirements, and limitations set forth in the CEF Purchase Agreement, including the requirement that the closing sale price of our common
stock on the trading day immediately prior to the applicable purchase date is not less than the threshold price of $0.50 (the “Threshold
Price”).
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The
per share purchase price for shares sold in a Market Open Purchase, an Intraday Purchase, a Pre-Market Purchase or a Post-Market Purchase
is based on the volume weighted average price (“VWAP”) of our common stock during the applicable valuation period, less a
fixed 3.0% discount in the case of a Market Open Purchase or an Intraday Purchase or less a fixed 5.25% discount in the case of a Pre-Market
Purchase or a Post-Market Purchase, subject, in each case, to the applicable minimum price thresholds and other adjustments set forth
in the CEF Purchase Agreement. There is no upper limit on the per share price that Roth Principal Investments may be required to pay.
We
control the timing and amount of any sales under the CEF Purchase Agreement. Actual sales, if any, will depend on market conditions,
the trading price of our common stock and our capital needs. Net proceeds, if any, are expected to be used for working capital and general
corporate purposes.
Under
applicable Nasdaq rules, issuances under the CEF Purchase Agreement may not exceed 4,272,062 shares of common stock, representing 19.999%
of the shares outstanding immediately prior to execution of the purchase agreement (the “Exchange Cap”), unless stockholder
approval is obtained or the average price paid by Roth Principal Investments equals or exceeds $1.2143, in which case the Exchange Cap
will not apply. In addition, issuances may not result in Roth Principal Investments and its affiliates beneficially owning more than
4.99% of our outstanding common stock (the “Beneficial Ownership Limitation”).
The
CEF Purchase Agreement will terminate upon the earliest to occur of the expiration of the Commitment Period, the purchase of the full
Commitment Amount, certain listing or bankruptcy events, or earlier termination by us upon 10 trading days’ prior written notice.
Neither the CEF Purchase Agreement nor the CEF Registration Rights Agreement may be assigned or amended except as expressly permitted
therein.
As
consideration for Roth Principal Investments’ commitment, we paid a $25,000 structuring fee and agreed to pay a cash commitment
fee of up to $800,000, payable over time by Roth Principal Investments withholding cash amounts equal to 10% of the total aggregate purchase
price payable by Roth Principal Investments to us in connection with each purchase of shares of our common stock effected under the CEF
Purchase Agreement. We also agreed to reimburse Roth Principal Investments’ legal fees in the amounts specified in the CEF Purchase
Agreement.
Because
the purchase price for Purchase Shares is based on future VWAP calculations, we cannot determine the actual number of shares that may
be issued under the CEF Purchase Agreement. If all shares registered for resale under the CEF Resale Registration Statement were issued,
such issuances would result in significant dilution to existing stockholders.
As
of August 14, 2026, the closing sale price of our common stock on the Nasdaq Capital Market was $0.595 per share. As noted above, if
the closing sale price of our common stock drops below the Threshold Price we cannot direct Roth Principal Investments to purchase shares
of our common stock pursuant to the CEF Purchase Agreement until the closing price of our common stock exceeds the Threshold Price. There
can be no assurances that our common stock will continue to trade at a price that will exceed the Threshold Price.
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Revolving
Line of Credit - Gibraltar Business Capital Credit Facility
On
July 28, 2023, we entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with Gibraltar Business
Capital (“GBC”) (the “GBC Credit Facility”). The Loan and Security Agreement provides the Company with a senior
secured revolving loan facility for up to $15.0 million, which was increased by amendment, see below (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 Loan and Security Agreement). The GBC Credit Facility is evidenced by a revolving note, which was to mature
on July 28, 2025 (the “Maturity Date”), and was extended prior to maturity by amendment, see below (the “Revolving
Note”). Concurrently, we entered into an Intellectual Property Security Agreement (the “IP Security Agreement”).
In
addition, subject to conditions and terms set forth in the Loan and Security 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. On January 30, 2024, we entered into Amendment No. 2 to the Loan and Security Agreement with
GBC, pursuant to which, among other things, the Revolving Loan Commitment was increased to $16.0 million. Outstanding principal under
the GBC Credit Facility accrues interest at Secured Overnight Financing Rate (“SOFR”, as defined in the Loan and Security
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 and Security Agreement bear 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 Loan and Security 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 (2.0%) of the Revolving Loan Commitment if the obligations are paid in full during the first
year after the closing date, or (b) one percent (1.0%) 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.
On
January 22, 2025, we entered into Amendment No. 4 to the Loan and Security Agreement (the “Fourth Amendment”) with GBC which
amended certain terms of the Loan and Security Agreement, as amended, relating to the EBITDA minimum financial covenant. In consideration
for the Fourth Amendment, we agreed to pay GBC a non-refundable amendment fee of $50,000 in cash, as follows: (i) $25,000 paid on March
1, 2025, and (ii) $25,000 paid on April 1, 2025.
On
July 16, 2025, we entered into Amendment No. 5 to the Loan and Security Agreement (the “Fifth Amendment”) with GBC which
amended certain terms relating to the maturity date set forth under the Loan and Security Agreement, as amended. Pursuant to the Fifth
Amendment, we and GBC agreed to amend the of the maturity date to August 31, 2025, unless otherwise extended pursuant to the terms of
the Loan and Security Agreement, provided however, upon the occurrence of either (i) an extension of the due date of our Subordinated
Unsecured Promissory Note, dated November 2, 2023 (the “Original Note”), as amended on July 16, 2025 (the “Cleveland
Note”), with Cleveland Capital, L.P. (“Cleveland”) 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 Company, the maturity date will automatically extend
to July 31, 2027. In consideration for the Fifth Amendment, we agreed to pay GBC a non-refundable amendment fee of $112,500.
On
September 4, 2025, we entered into Amendment No. 6 to the Loan and Security Agreement (the “Sixth Amendment”), with the effective
date of August 31, 2025, which amended certain terms of the Loan and Security Agreement, including (i) modifications to the EBITDA minimum
financial covenant, 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 and Security Agreement. Upon the closing of the Private Placement (as defined herein)
on September 15, 2025, all the outstanding obligations under the Cleveland Note were applied in full towards satisfaction of the subscription
by Cleveland in the Private Placement and we entered into a Debt Satisfaction Agreement with Cleveland (the “Debt Satisfaction
Agreement”) pursuant to which Cleveland represented full payment and satisfaction of any and all of our obligations due to Cleveland
under the Cleveland Note. Upon the conversion of all the outstanding obligations under the Cleveland Note into equity of the Company,
the Maturity Date of the Loan and Security Agreement was automatically extended to July 31, 2027 according to the Fifth Amendment.
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Our
loans and other obligations under the GBC Credit Facility are secured by substantially all of our tangible and intangible assets (including,
without limitation, intellectual property) pursuant to the terms of both the July 31, 2023 Loan and Security Agreement and the IP Security
Agreement. During the fiscal year ended June 30, 2026, our multiple drawdowns and repayments under the GBC Credit Facility resulted in
a net $7.3 million repayment. As of June 30, 2026, the outstanding balance under the GBC Credit Facility was approximately $6.3 million.
Our borrowing base changes as qualified collateral fluctuates and, therefore, available funding under the GBC Credit Facility could be
substantially lower. As discussed in Note 7 – Line of Credit, on March 31, 2026, we notified GBC that we failed to comply with
the minimum EBITDA financial covenant for the trailing three-month period ended February 28, 2026 under the GBC Credit Facility, which
resulted in an “event of default” under the GBC Credit Facility. We are working with GBC to negotiate an amendment to the
GBC Credit Facility or otherwise obtain a waiver from GBC, but there can be no assurance that we will be able to do so or that we will
be able to obtain a waiver from GBC on terms favorable to us or at all. GBC has allowed us to continue to use our line of credit under
the GBC Credit Facility while negotiations continue, however, GBC can choose to limit or discontinue availability at any time. In addition,
due to our event of default under the GBC Credit Facility, GBC may, at its option, declare its commitments to us terminated and all our
obligations under the GBC Credit Facility 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, which include, among other things, its rights as a secured party
under the GBC Credit Facility.
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., and Crown Equipment 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-ten 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 and
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 “SkyEMS,” which provides real time reports
on battery 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 Updates
During
fiscal 2026, we advanced our product portfolio with new designs aimed at addressing customer needs while improving our own manufacturing
and service operations, including a comprehensive evaluation of our supply chain sourcing strategy aimed at lowering costs to improve
gross profit margins. Notably, we completed a new forklift OEM approval, further supporting our battery sales through an expanded base
of approved equipment applications. Product portfolio updates also emphasized higher energy capacities to support longer and more demanding
shifts, simplified service access and cost efficiencies. Looking forward, we plan to continue introducing designs that increase part
commonality and improve serviceability, which we believe will also enhance gross profit margins.
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 we improved our G80 design to simplify maintenance and enhance usability for the ground support equipment industry.
Beyond hardware, we began developing and showcasing SkyBMS, 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 significant price declines according to
BloombergNEF. BloombergNEF estimates that lithium-ion battery prices, which averaged $1,160 per kilowatt hour in 2010, were $156 per
kWh in 2019, dropped to $115 per kWh in 2024, and fell an additional 8% in 2025 to $108/kWh. Our unit costs to source of lithium
changed materially in 2025 and 2026 as a result of the imposition of tariffs.
We
focus on energy storage solutions for industrial equipment and related industrial applications because we believe they represent large
and growing markets that are in the early stages of adoption 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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Material
Handling Equipment
According
to Worldwide Industrial Truck Statistics (“WITS”), new lift truck sales reached approximately 2.4 million units worldwide
in 2025. Approximately 435,000 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 Industrial Truck Association (“ITA”) estimates that electric-powered models represented approximately seventy-one
percent (71%) of North American retail orders in 2024 (the latest publicly available information), 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 approximately
7.0% from 2025 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 fiscal year ended June 30, 2026, we had two major customers that each represented more than 10% of our revenues on an individual
basis, and together represented approximately $30,065,000 or 71% of our total revenues. As of June 30, 2026, three customers represented
approximately $3,525,000 or 71% of accounts receivable, of which 96% was aged less than 60 days from invoice. During the fiscal 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.
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.
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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.
Selling
and Marketing
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, which includes batteries and power systems to propel heavy-duty material handling and
commercial vehicles such as electric forklifts and warehouse pallet trucks, 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 team covers major geographies throughout North America and collaborates with our sales channel partners who have an established
customer base. We plan to expand our direct sales team to support future 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. 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 and tariffs. Where possible, we have diversified our base of suppliers, and we will continue these efforts to
minimize future global supply chain disruptions. 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
are continuing to monitor and test potential new battery cell technologies on an ongoing basis to help mitigate our supply chain risks.
Our BMS was developed to be agnostic to both a battery’s lithium-ion chemistry and cell manufacturer which should provide greater
flexibility to our diversification alternatives.
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.
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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.
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. Our competitors
offering lithium-ion solutions include Electrovaya, EnerSys, Ethium by EControls, Green Cubes Technology and Stromcore Energy. 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, 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, 2026, we have three issued U.S. patents pertaining to 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
have obtained U.S. federal trademark registrations for Flux, Flux Power, Flux Power logo, Lift and SkyBMS. We have a pending application
to register SkyEMS. We also believe that we have common law trademark rights to certain marks in addition to those which we have registered.
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Suppliers
We