SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

 

This report contains forward-looking statements. The forward-looking statements are contained principally in the section entitled “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. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements include, among other things, statements relating to:

 

•	our ability to secure sufficient funding and alternative source of funding to support our current and proposed operations;
•	our anticipated growth strategies and our ability to manage the expansion of our business operations effectively;
•	our ability to maintain or increase our market share in the competitive markets in which we do business;
•	our ability to keep up with rapidly changing technologies and evolving industry standards, including our ability to achieve technological advances;
•	our dependence on the growth in demand for our products;
•	our ability to diversify our product offerings and capture new market opportunities;
•	our ability to source our needs for skilled labor, machinery, parts, and raw materials economically; and
•	the loss of key members of our senior management.

 

Also, forward-looking statements represent our estimates and assumptions only as of the date of this 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:

 

•	the “Company,” “we,” “us,” and “our” refer to the combined business of Flux Power Holdings, Inc., a Nevada corporation and its wholly-owned subsidiary, Flux Power, Inc. (“Flux Power”), a California corporation;
•	“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
•	“SEC” refers to the Securities and Exchange Commission; and
•	“Securities Act” refers to the Securities Act of 1933, as amended.

 

 

PART I - Financial Information 

 

Item 1. Financial Statements  

 

 

FLUX POWER HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

FLUX POWER HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

FLUX POWER HOLDING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

FLUX POWER HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

(Unaudited) 

 

 

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This information should be read in conjunction with the unaudited interim condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the audited financial statements and notes thereto and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended June 30, 2017.

 

Overview

  

We design, develop and sell rechargeable advanced lithium-ion batteries for industrial uses, including our first-ever UL 2271 Listed lithium-ion “LiFT Pack” forklift batteries. We have developed an innovative high-power battery cell management system (“BMS”) and have structured our business around this core technology. Our proprietary BMS provides four critical functions to our battery systems:

 

●

Cell Balancing: This is performed by continuously adjusting the capacity of each cell in a storage system according to temperature, voltage, and internal impedance metrics. This management ensures longevity of the overall system.

 

●

Monitoring: This is performed through temperature probes, physical connection to individual cells for voltage and calculations from basic metrics to determine remaining capacity and internal impedance. This monitoring uses accurate measurements to best manage the system and ensure longevity.

 

●

Error reporting: This is performed by analyzing data from individual cell and to determine whether the system is operating within normal specifications. This error reporting is crucial to system management as it ensures ancillary devices are not damaging the battery; it will give the operator an opportunity to take corrective action to maintain long overall system life.

 

●

Over Discharge Prevention: Battery systems are protected against excessively low cell voltage (over discharge) by means of continuous cell voltage measurement and predictive algorithms in the BMS. Preventing over discharge is critical to maximizing system lifetime.

 

Using our proprietary battery management technology, we offer completely integrated energy storage solutions or custom modular standalone systems to our customers. In addition, we have developed a suite of complementary technologies and products that enhance the abilities of our BMS to meet the needs of the growing advanced energy storage market.

 

In January 2016, we obtained certification from Underwriters Laboratory (“UL”), a global safety science organization, on our LiFT Packs for forklift use. This UL 2271 Listing demonstrates the quality, safety and reliability of our LiFT Pack line for customers, distributors, dealers and industrial equipment manufacturers. We believe we have emerged from this effort with a product of substantially enhanced design, durability, performance and value. Additionally, during September 2017, we completed our initial ISO 9001 audit and received our ISO 9001 certificate in November 2017. Obtaining the ISO 9001 certification further demonstrates our strong customer focus, the motivation and involvement of top management and our commitment to consistently providing high quality products and services to our customers.

 

We are working with various forklift manufacturers, their dealers and battery distributors to bring our advanced energy storage systems to the lift equipment market.  This provides a more direct market path to the consumer without the delays and issues that accompany dealing solely with battery distributors. These efforts have resulted in pilot programs and trials with national accounts, end users, and industrial equipment manufacturers. We have used the feedback from these pilot programs to substantially improve our battery packs. Because of our strong relationships with two leading forklift manufacturers, we were able to generate revenues during both the second and third quarters of fiscal 2018 in excess of our fiscal 2017 revenues and we are on track for a comparable fourth quarter. We are in continued discussions with these forklift manufacturers for similar orders anticipated to ship throughout the next six months.

 

 

During the latter part of fiscal 2017 we also began marketing directly to end-users of lift equipment, primarily in the food and beverage industry. By going directly to the customers with the many benefits of utilizing lithium-ion batteries in their walkie pallet jack forklifts, we anticipate seeing a more rapid transition from traditional lead acid batteries to our lithium-ion batteries. Such benefits include less maintenance, faster charge times, longer lasting and greater power. As a result of such marketing efforts, Flux was named as one of Food Logistics “Rock Stars of the Food & Beverage Supply Chain” in both 2018 and 2017. Food Logistics is the only publication dedicated to covering the movement of product through the global food supply chain. This recognition underscores the increasing acceptance of Flux LiFT Packs powering multi-shift operations at a growing base of food industry distribution centers across America.

 

Our strategy is to offer a full product lineup for forklifts during the following two quarters. We are leveraging our prior experience of developing and shipping over 15 megawatts of battery packs into a variety of applications including electrical vehicles, robotic mining vehicles, and various industry specific applications. By working with the forklift manufacturers, we have secured “technical approval” for compatibility with their equipment and in January 2018 we received Energy Storage System compatibility approval from Toyota Material Handling USA with respect to their 8HBW23 walkie pallet jack and from Raymond Corporation with respect to their 8210 walkie pallet jack. Each of these models have been tested to be electrically compatible with our LiFT Packs. These approvals represent another step towards our achieving industry acceptance and expanding awareness for a lithium-ion battery pack in lift equipment.  

 

In addition to our forklift line, we have developed an 80-volt, 600 amp-hour lithium-ion battery pack to power large airport ground support equipment (“GSE”). Our GSE Pack is designed to provide a better performing and more cost-effective power source for electrical aviation GSE, with an initial focus on baggage/cargo tractors. Our GSE Packs were in an evaluation stage since April 2016 with unqualified success highlighting the scalability of our design and engineering capabilities, as well as, our proprietary battery management technology for a broad array of motive power applications, and with a customer price point of roughly $20,000 to $34,000 per pack, it creates an excellent new leg of growth potential. During February 2018, we secured a 17-unit purchase order for our GSE Pack from the global aviation industry’s largest provider of cargo and aircraft ground handling services. These units are slated for shipping during the fourth quarter of fiscal 2018 and will generate an additional $300,000 of revenues.

 

Our primary source of revenues thus far has been from our entry-level LiFT Pack line to power Class 3 walkie pallet jack forklifts. We are currently in development of much larger lithium-ion battery solutions for Class 1 and Class 2 material handling equipment. The Class 1 and Class 2 equipment, comprised of counter balance forklifts, narrow aisle, and end riders are a natural progression for Flux as we leverage our scalable technology and design. These larger systems will satisfy customers seeking one lithium battery vendor to address all their material handling equipment needs. During December 2017, we shipped our first Class 1 LiFT Pack to a Fortune 100 heavy machinery conglomerate for evaluation and have continued the improvement and development of the Class 1 LiFT Pack, as well as, the development of the Class 2 and Class 3 packs. Our Class 3 end rider LiFT Pack was presented at a major Food & Beverage tradeshow during March 2018 and we anticipate sending additional evaluation packs out beginning in May 2018. With a focus on improvements to our LiFT Packs and overall production processes behind us, and the continued development of our product line, we are now positioned to accelerate our sales efforts in fiscal 2018.

 

Segment and Related Information

 

We operate as a single reportable segment. 

 

 

Results of Operations and Financial Condition

 

The following table represents our unaudited condensed consolidated statement of operations for the three months ended March 31, 2018 (“Q3 2018”) and March 31, 2017 (“Q3 2017”).

 

		Three Months Ended March 31,
		2018								2017
		$				% of Revenues				$				% of Revenues
Net revenue		$	1,666,000				100	%		$	306,000				100	%
Cost of sales			1,816,000				109	%			508,000				166	%
Gross loss			(150,000	)			-9	%			(202,000	)			-66	%
Operating expenses:
Selling and administrative expenses			909,000				55	%			664,000				217	%
Research and development			483,000				29	%			245,000				80	%
Total operating expenses			1,392,000				84	%			909,000				297	%
Operating loss			(1,542,000	)			-93	%			(1,111,000	)			-363	%
Other income (expense):
Change in fair value of derivative liabilities			-				0	%			1,000				0	%
Interest expense, net			(211,000	)			-13	%			(52,000	)			-17	%
Net loss		$	(1,753,000	)			-105	%		$	(1,162,000	)			-380	%

 

Revenues

 

Revenues for Q3 2018, increased by $1,360,000 or 444%, compared to Q3 2017. During Q3 2018 we sold approximately 530 LiFT Packs, compared to approximately 90 LiFT Packs in Q3 2018. This substantial increase was directly attributable to our strong relationships with two leading forklift manufacturers and the related end users which resulted in approximately 92% of Q3 2018 revenues. Additionally, at March 31, 2018 we had sales orders which will generate approximately $1,000,000 in revenues from our walkie pallet jack and GSE product lines, combined.

   

Cost of Sales

 

Cost of sales for Q3 2018, increased $1,308,000, or 257%, compared to Q3 2017. The increase in cost of sales is directly related to our substantial increase in LiFT Pack sales as discussed above. The primary reason for cost of sales not increasing as much as our revenues during the quarter is due to efficiencies garnered in the production of our LiFT Packs. It has always been imperative to us that we maintain a knowledgeable and well-trained workforce to produce our packs. Accordingly, production wage expense included in cost of sales has remained substantial, despite our low sales volume prior to September 2017. During Q2 2018 and Q3 2018, we have been able to increase production significantly while increasing our production wages only minimally. The impact of the greater efficiency of our workforce resulted in an improved gross loss percent from -72% during Q3 2017 to -9% in Q3 2018. Despite this improvement, we have continued to recognize a gross loss during Q3 2018 as we remain subject to low volume purchases, early higher cost designs and limited sourcing related to our inventory purchases, as well as, the continued warranty expense from early generation products in the field. As demand for our LiFT Pack continues, we anticipate recognizing quantity discounts on inventory purchases, reductions in warranty expense and continued efficiencies from our workforce, all contributing to improvements in our gross margin.

 

Selling and Administrative Expenses 

 

Selling and administrative expenses consist primarily of salaries and personnel related expenses, stock-based compensation expense, public company costs, consulting costs, professional fees and other expenses. Such expense for Q3 2018 increased $245,000 or 37%, compared to Q3 2017. This increase is primarily due to the addition of two Regional Sales Managers and a Director of Sales since Q3 2017, commissions related to the Q3 2018 sales and increased shipping costs on delivery of our LiFT packs.

 

Research and Development Expense

 

Research and development expenses for Q3 2018 increased $238,000 or 97%, compared to Q3 2017. Such expenses consist primarily of materials, supplies, salaries and personnel related expenses, stock-based compensation expense, and other expenses associated with the continued development of our full line of products for LiFT Pack and GSE. During Q3 2018, we have continued to focus our efforts in developing lithium-ion battery packs for Class 1 and Class 2 forklifts. The scalable technology and design of our LiFT Packs makes for a natural progression to these larger packs. During December 2017, we shipped our first Class 1 LiFT Pack to a Fortune 100 heavy machinery conglomerate for evaluation and have continued the improvement and development of the Class 1 LiFT Pack, as well as, the development of the Class 2 and Class 3 packs. The impact of these efforts is expected to continue to be seen throughout the remainder of fiscal 2018. We anticipate research and development expenses continuing to be a sizeable portion of our expenses as we continue to develop new and improved products to our product line. 

 

 

Change in Fair Value of Warrant Derivative Liability

 

We follow FASB ASC Topic No. 820, Fair Value Measurements and Disclosures (“ASC 820”) in connection with financial assets and liabilities measured at fair value on a recurring basis subsequent to initial recognition. The change in fair value of derivative liabilities for Q3 2018 decreased $1,000 or 100% compared to Q3 2017. During August 2016, we proposed to our warrant holders that the re-set provision included in the warrant (that creating the derivative liability) be eliminated.  Upon receiving consents to eliminate the re-set provision from a majority of the warrant holders, the re-set provision and the related derivative liability were eliminated as of January 23, 2017, thus resulting in no change in fair value of derivative liabilities during Q3 2018.

 

Interest Expense

 

Interest expense for Q3 2018 increased $159,000 or 306% and consists of interest expense related to our outstanding lines of credit and convertible promissory note (see Note 4 in the accompanying condensed consolidated financial statements).

  

Net Loss

 

Net loss for Q3 2018 increased $591,000 or 51%, as compared to net loss in Q3 2017.  The increase is primarily attributable to increased staff and development expenses related to expanding our products line, our growing sales department, interest expense, and increased stock-based compensation costs. As we continue to increase sales of our walkie LiFT Packs, we anticipate being able to take advantage of greater quantity discounts thus improving our gross margin. Additionally, with the introduction of Class 1 and Class 2 packs to the market we expect to also strengthen our financial position.

 

The following table represents our unaudited condensed consolidated statement of operations for the nine months ended March 31, 2018 and March 31, 2017.

 

		Nine months ended March 31,
		2018								2017
		$				% of Revenues				$				% of Revenues
Net revenue		$	3,020,000				100	%		$	781,000				100	%
Cost of sales			3,728,000				123	%			1,384,000				177	%
Gross loss			(708,000	)			-23	%			(603,000	)			-77	%
Operating expenses:
Selling and administrative expenses			2,378,000				79	%			1,842,000				236	%
Research and development			1,441,000				48	%			772,000				99	%
Total operating expenses			3,819,000				126	%			2,614,000				335	%
Operating loss			(4,527,000	)			-150	%			(3,217,000	)			-412	%
Other income (expense):
Change in fair value of derivative liabilities			-				0	%			14,000				2	%
Interest expense, net			(512,000	)			-17	%			(174,000	)			-22	%
Net loss		$	(5,039,000	)			-167	%		$	(3,377,000	)			-432	%

 

Revenues

 

Revenues for the nine months ended March 31, 2018, increased by $2,239,000 or 287%, compared to the nine months ended March 31, 2017. This substantial increase in shipments was directly attributable the development of a strong relationships with two leading forklift manufacturers and the related end users which generated approximately 85% of revenues during the nine months ended March 31, 2018. Additionally, at March 31, 2018 we had sales orders which will generate approximately $1,000,000 in revenues from our walkie pallet jack and GSE product lines, combined. We are in continued discussions with these forklift manufacturers for similar orders anticipated to ship throughout the remainder of fiscal 2018 and into fiscal 2019.

 

 

Cost of Sales

 

Cost of sales during the nine months ended March 31, 2018, increased $2,344,000, or 169%, compared to the nine months ended March 31, 2017. The increase in cost of sales is directly related to our increase in LiFT Pack sales. Consistent with the increase discussed regarding Q3 2018 above, cost of sales did not increase as much as our revenues during the period due to efficiencies garnered by our production workforce. We anticipate further reductions in our cost of sales in the future as we begin to take advantage of greater quantity discounts that will come along with our increased sales.

 

Selling and Administrative Expenses 

 

Selling and administrative expenses for the nine months ended March 31, 2018 increased $536,000 or 29%, compared to the nine months ended March 31, 2017. As discussed above regarding Q3 2018, the increase is primarily attributable to the addition of two Regional Sales Managers and a Director of Sales since Q3 2017, sales commissions and increased shipping costs on delivery of our LiFT packs. Additionally, we issued 1.97 million stock options in October 2017 resulting in stock based compensation during the nine months ended March 31, 2018 of $129,000 compared to $19,000 during the nine months ended March 31, 2017.

 

Research and Development Expense

 

Research and development expenses for the nine months ended March 31, 2018 increased $669,000 or 87%, compared to the nine months ended March 31, 2017 due to our continued focus in developing lithium-ion battery packs for Class 1 and Class 2 forklifts. During December 2017, we shipped our first Class 1 LiFT Pack to a Fortune 100 heavy machinery conglomerate for evaluation and have continued the improvement and development of the Class 1 LiFT Pack, as well as, the development of the Class 2 and Class 3 packs. The impact of these efforts is expected to continue to be seen throughout the remainder of fiscal 2018. We anticipate research and development expenses continuing to be a sizeable portion of our expenses as we continue to develop new and improved products to our product line. 

 

Change in Fair Value of Warrant Derivative Liability

 

We follow FASB ASC Topic No. 820, Fair Value Measurements and Disclosures (“ASC 820”) in connection with financial assets and liabilities measured at fair value on a recurring basis subsequent to initial recognition. The change in fair value of derivative liabilities for the nine months ended March 31, 2018 decreased $14,000 or 100% compared to the nine months ended March 31, 2017. During August 2016, we proposed to our warrant holders that the re-set provision included in the warrant (that creating the derivative liability) be eliminated.  Upon receiving consents to eliminate the re-set provision from a majority of the warrant holders, the re-set provision and the related derivative liability were eliminated as of January 23, 2017, thus resulting in no change in fair value of derivative liabilities during the nine months ended March 31, 2018.

 

Interest Expense

 

Interest expense during the nine months ended March 31, 2018 and 2017 increased $338,000, or 194%, , and consists primarily of interest expense related to our outstanding lines of credit and convertible promissory note. Also included in interest expense during the nine months ended March 31, 2017 is the amortization of deferred financing costs associated with our Unrestricted Line of Credit. On December 29, 2015, we entered into the Second Amendment of our Unrestricted Line of Credit which included, among other provisions, the reduction in the conversion price of the Unrestricted Line of Credit from $3.00 to $0.60 per share. The estimated change in fair value of the conversion price of approximately $310,000 was recorded as a deferred financing cost at the date of the Second Amendment and was amortized over the then remaining seven-month term of the amended Unrestricted Line of Credit agreement. During the nine months ended March 31, 2017, we amortized the remaining $44,000 of deferred financing costs.

 

Net Loss

 

Net loss for the nine months ended March 31, 2018 increased $1,662,000, or 49%, as compared to net loss for the nine months ended March 31, 2017.  The increase is primarily attributable to increased staff and development expenses related to expanding our product line, our growing sales department, interest expense, and increased stock-based compensation costs As we continue to increase sales of our walkie LiFT Packs, we anticipate being able to take advantage of greater quantity discounts thus improving our gross margin. Additionally, with the introduction of Class 1 and Class 2 packs to the market we expect to also strengthen our financial position.

 

Liquidity and Capital Resources

 

Overview

 

As of March 31, 2018, we had a cash balance of $128,000, a working capital deficit of $9,341,000, and an accumulated deficit of $24,736,000. We do not have sufficient liquidity and capital resources to fund planned operations for the twelve months following the filing date of this Quarterly Report. The Company is exploring and working on securing additional capital in the form of convertible debt and private placements from both current sources and new sources. See “Future Liquidity Needs” below.

 

 

Cash Flows

 

Operating Activities

 

Our operating activities resulted in net cash used in operations of $4,679,000 during the nine months ended March 31, 2018, compared to net cash used in operations of $3,897,000 during the nine months ended March 31, 2017.

 

 Net cash used in operating activities during the nine months ended March 31, 2018, reflects the net loss of $5,021,000 for the period offset primarily by non-cash items including stock-based compensation and depreciation, as well as, increases in accounts receivable, accounts payable and accrued interest and decreases in inventories.

 

Net cash used in operating activities during the nine months ended March 31, 2017, reflects the net loss of approximately $3,377,000 for the period offset primarily by non-cash items including depreciation, stock based compensation and the amortization of debt discounts and deferred financing costs, as well as, increases in inventories and accrued expenses offset by an increase in accounts payable. 

 

Investing Activities

 

Net cash used in investing activities during the nine months ended March 31, 2018 consists primarily of the purchase of office and warehouse equipment and leasehold improvements, totaling $59,000.

 

Net cash used in investing activities during the nine months ended March 31, 2017 consists primarily of the purchase of computer software, leasehold improvements and warehouse equipment for $45,000. 

 

Financing Activities

 

Net cash provided by financing activities during the nine months ended March 31, 2018 was $4,745,000 and consisted of $200,000 of proceeds from the sale of common stock and $4,545,000 of borrowings from our lines of credit with Esenjay.

 

Net cash provided by financing activities during the nine months ended March 31, 2017 was $3,885,000 and consisted of $1,075,000 of proceeds from the sale of common stock, $2,525,000 of borrowings from our line of credit with Esenjay, $500,000 advanced from a shareholder and the repayment of our Line of Credit of $215,000 with a non-related party.

 

Future Liquidity Needs

  

We have evaluated our expected cash requirements over the next twelve months, which include, but are not limited to, investments in additional sales and marketing and product development resources, capital expenditures, and working capital requirements and have determined that our existing cash resources are not sufficient to meet our anticipated needs during the next twelve months, and that additional financing is required to support current operations. These factors raise substantial doubt about our ability to continue as a going concern for the twelve months following the filing date of our Quarterly Report on Form 10-Q. Based on our current and planned levels of expenditures, we estimate that total financing proceeds of approximately $5,000,000 will be required to fund current and planned operations for the twelve months following the filing date of this Quarterly Report on Form 10-Q. In addition, we anticipate that further additional financing may be required to fund our business plan subsequent to that date, until such time as revenues and related cash flows become sufficient to support our operating costs.

 

Management plans to raise additional required capital through private placements of equity securities and through draws on our existing related-party credit facilities. We initiated a private placement of equity securities in March 2018 under which we are authorized by the Board of Directors to raise up to $4,000,000 through the sale of our common stock at $0.70 per share to select accredited investors. As of May 11, 2018, a total of $800,000 was raised pursuant to this private placement, of which $200,000 was raised prior to March 31, 2018. The private placement was terminated on May 11, 2018 following the closing. Additionally, as more fully discussed in Note 4 to our unaudited condensed consolidated financial statements, we have two credit facilities with Esenjay Investments, LLC (“Esenjay”). Esenjay is deemed to be a related party as Mr. Michael Johnson, the beneficial owner and director of Esenjay, is a current member of our board of directors and a major shareholder of the Company. The Unrestricted Line of Credit with Esenjay has a maximum borrowing amount of $10,000,000, bears interest at 8% per annum, matures on January 31, 2019, and is convertible into shares of common stock at $0.60 per share. As of May 14, 2018, there was $2,025,000 available for future draw under the Unrestricted Line of Credit. Pursuant to a credit facility agreement dated March 22, 2018, Esenjay agreed to provide Flux Power with a line of credit which has a maximum borrowing amount of $5,000,000, bears interest at 15% per annum and matures on March 31, 2019. As of May 14, 2018, there was $3,245,000 available for future draws under the Inventory Line of Credit. Esenjay owns approximately 61% of our issued and outstanding common stock as of May 14, 2018. 

 

 

Although management believes we will be able to obtain additional required funding, there is no guarantee we will be able to obtain such funding on a timely basis or that funds will be available on terms acceptable to us. If such funds are not available, management will be required to curtail its investments in additional sales and marketing and product development resources, and capital expenditures, which will have a material adverse effect on our future cash flows and results of operations, and our ability to continue operating as a going concern.

 

To the extent that we raise additional funds by issuing equity or debt securities, our shareholders may experience additional significant dilution and such financing may involve restrictive covenants. To the extent that we raise additional funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to our technologies or our product candidates, or grant licenses on terms that may not be favorable to us. Such actions may have a material adverse effect on our business. 

 

Off-Balance Sheet Arrangements

 

None.

 

Critical Accounting Policies

 

The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Information with respect to our critical accounting policies which we believe could have the most significant effect on our reported results and require subjective or complex judgments by management is contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended June 30, 2017.

 

Recently Issued Accounting Pronouncements Not Yet Adopted

 

Management has considered all recent accounting pronouncements issued since the last audit of the Company’s consolidated financial statements and believes that these recent pronouncements will not have a material effect on the Company’s condensed consolidated financial statements.

 

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.

 

ITEM 4 - CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file with the SEC under the Securities Exchange Act of 1934, as amended is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate, to allow for timely decisions regarding required disclosure. As required by SEC Rules 13a-15(e) and 15d-15(e) 15d-15(b), we carried out an evaluation as of the end of the fiscal quarter ended March 31, 2018, under the supervision and with the participation of our management, including our principal executive and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934, as amended (“Exchange Act”) and concluded that our disclosure controls and procedures were effective to ensure the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed and reported within the time periods specified in the SEC’s rules and forms.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in the Company’s internal controls over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

ITEM 1 - LEGAL PROCEEDINGS

 

From time to time, we may be involved in routine legal proceedings, as well as demands, claims and threatened litigation that arise in the normal course of our business. The ultimate amount of liability, if any, for any claims of any type (either alone or in the aggregate) may materially and adversely affect our financial condition, results of operations and liquidity. In addition, the ultimate outcome of any litigation is uncertain. Any outcome, whether favorable or unfavorable, may materially and adversely affect us due to legal costs and expenses, diversion of management attention and other factors. We expense legal costs in the period incurred. We cannot assure you that contingencies of a legal nature or contingencies having legal aspects will not be asserted against us in the future, and these matters could relate to prior, current or future transactions or events. As of March 31, 2018, we are not a party to any legal proceedings that are expected, individually or in the aggregate, to have a material adverse effect on our business, financial condition or operating results.

 

 

ITEM 1A - RISK FACTORS

 

Any investment in our common stock involves a high degree of risk. Investors should carefully consider the risks described in our Annual Report on Form 10-K as filed with the SEC on September 22, 2017 and all of the information contained in our public filings before deciding whether to purchase our common stock.

 

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS  

 

Effective April 1, 2017, we entered into a renewal contract (the “2017 Renewal”) with Catalyst Global LLC to provide investor relations services for 12 months in exchange for monthly fees of $3,500 per month and 23,333 shares of restricted common stock per quarter. The initial tranche of 23,333 shares was valued at $0.45 per share or $10,500 when issued on June 7, 2017, the second tranche of 23,333 shares was valued at $0.50 per share or $11,667 when issued on September 25, 2017, the third tranche of 23,333 shares was valued at $0.475 per share or $11,083 when issued on January 16, 2018, the fourth tranche of 23,333 shares was valued at $0.50 per share or $11,667 when issued on March 27, 2018. The 2017 Renewal is cancelable upon 60 days written notice.   These shares have not been registered under the Securities Act. Such shares were issued upon exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.

 

On March 14, 2018, we entered into a consulting agreement with Shenzhen Reach Investment Development Co. (“SRID”) to assist us with identifying strategic partners, suppliers and manufacturers in China for a term of 12 months. In consideration for the services, we agreed to issue to SRID, up to 174,672 shares of restricted common stock valued at approximately $80,000 over the course of the 12-month term. On April 25, 2018, we issued 57,672 shares of common stock valued at $0.49 per share or $28,000, to SRID as payment for consulting service rendered in accordance with their consulting agreement. These shares have not been registered under the Securities Act. Such shares were issued upon exemptions from registration pursuant to Regulation S of the Securities Act.

 

In March 2018, our Board of Directors approved the private placement of up to 5,714,286 shares of our common stock to select accredited investors for a total amount of $4,000,000, or $0.70 per share of common stock. The private placement was terminated on May 11, 2018.  During the period from March 1, 2018 through May 11, 2018 we sold an aggregate of 1,142,857 shares of our common stock at $0.70 per share, to five accredited investors, resulting in gross proceeds of $800,000. These shares have not been registered under the Securities Act. Such shares were issued upon exemptions from registration pursuant to Section 4(a)(2) of the Securities Act, and Rule 506 promulgated thereunder.

 

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4 - MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5 - OTHER INFORMATION

 

Consulting Agreement

 

On February 15, 2018, we entered into an oral agreement with Chris Anthony, our founder and board member, as an independent contractor to assist us with evaluating potential suppliers of parts and/or sub-assembly manufacturers of our LiFT Packs. For his services, we agreed to pay him $5,000 per month plus expenses. Either party may terminate this arrangement with or without cause upon notice to the other party.  We believe that the fees for such services are reasonable and comparable to those charged by other firms for services rendered.

 

 

ITEM 6 - EXHIBITS

 

The following exhibits are filed as part of this Report

 

Exhibit No.		Description
10.1		Credit Facility Agreement dated March 22, 2018 (1)
10.2		Secured Promissory Note dated March 22, 2018 (2)
10.3		Guaranty and Security Agreement dated March 22, 2018 (3)
31.1		Certifications of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act.*
31.2		Certifications of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act.*
32.1		Certifications of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act.*
32.2		Certifications of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act.*
101.INS		XBRL Instance Document*
101.SCH		XBRL Taxonomy Extension Schema*
101.CAL		XBRL Taxonomy Extension Calculation Linkbase*
101.DEF		XBRL Taxonomy Extension Definition Linkbase*
101.LAB		XBRL Taxonomy Extension Label Linkbase*
101.PRE		XBRL Taxonomy Extension Presentation Linkbase*

 

*	Filed herewith.

(1)	Incorporated by reference to Exhibit 10.1 contained in Form 8-K filed with the SEC on March 28, 2018.

(2)	Incorporated by reference to Exhibit 10.2 contained in Form 8-K filed with the SEC on March 28, 2018.
(3)	Incorporated by reference to Exhibit 10.3 contained in Form 8-K filed with the SEC on March 28, 2018.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	Flux Power Holding, Inc.
Date:   May 14, 2018	By:		/s/ Ronald F. Dutt
			Name:   Ronald F. Dutt
			Title:   Chief Executive Officer
			(Principal Executive Officer and Principal Financial Officer)