Flux Power Holdings, Inc. 10-K

ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Data On August 14, 2020, we priced an underwritten public offering of common stock, and as a result of this equity offering and our compliance with other listing requirements, shares of our common stock commenced trading on The NASDAQ Capital Market under the symbol “FLUX.” Prior to the listing of our shares on The NASDAQ Capital Market, our common stock was quoted on the OTCQB. The following table sets forth the range of the high and low prices for our common stock during each quarter for the period July 1, 2018 through June 30, 2020, which has been adjusted retroactively to reflect the 1 for 10 reverse stock split, effective July 11, 2019. Such prices do not represent actual transactions, and do not include retail mark-ups, mark-downs or commissions. High Low Fiscal year ended June 30, 2020 First quarter $ 15.00 $ 8.75 Second quarter $ 9.80 $ 7.22 Third quarter $ 10.09 $ 5.50 Fourth quarter $ 9.00 $ 3.80 Fiscal year ended June 30, 2019 First quarter $ 32.00 $ 14.00 Second quarter $ 23.50 $ 10.10 Third quarter $ 18.50 $ 11.00 Fourth quarter $ 16.00 $ 7.50 Stockholders The approximate number of record holders of our common stock as of September 15, 2020 was 1,408, based on information provided by our transfer agent. The foregoing number of record holders does not include an unknown number of stockholders who hold their stock in “street name.” Recent Sales of Unregistered Securities Warrant On July 3, 2019, we issued Cleveland a three-year warrant (the Cleveland Warrant) to purchase our common stock in a number equal to one-half percent (0.5%) of the number of shares of common stock outstanding after giving effect to the total number of shares of common stock sold in a public offering. The Cleveland Warrant had an exercise price equal to the per share public offering price. On September 1, 2019, the Cleveland Warrant was amended and restated to change the warrant coverage from 0.5% to 1% of the number of shares of common stock outstanding after giving effect to the total number of shares of common stock sold in the next private or public offering (Offering). In addition, the exercise price was also changed to equal the per share price of common stock sold in the Offering. The closing of a private offering constituting the Offering occurred on July 24, 2020. Upon such closing, the Warrant represented a right to purchase up to 83,205 shares of common stock at $4.00 per share (subject to beneficial ownership limitations). The Warrant and the common stock underlying the Cleveland Warrant, as amended, have not been registered under the Securities Act of 1933, as amended (Securities Act), and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act. Such securities were offered and sold in reliance upon exemptions from registration pursuant to Rule 506(b) of Regulation D promulgated under Section 4(a)(2) under the Securities Act. Private Placements From May 2016 to August 2016, we sold 975,000 shares of common stock to eight (8) accredited investors, at $4.00 per share, for an aggregate of $3,900,000, of which $2,125,000 was in cash and $1,775,000 was settlement of outstanding loan. 25 From March 2018 to June 2018, we sold an aggregate of 571,429 shares of our common stock to fifteen (15) accredited investors, at $7.00 per share, for an aggregate purchase price of $4,000,000. From December 2018 to January 2019, we sold an aggregate of 399,257 shares of common stock to three (3) accredited investors, at $11.00 per share, for an aggregate purchase price of approximately $4,392,000. On April 22, 2020, we sold and issued an aggregate of 66,250 shares of common stock, at $4.00 per share, for an aggregate purchase price of $265,000 in cash to two (2) accredited investors. On June 30, 2020, we completed an initial closing of the private placement offering of up to 2,000,000 shares of our common stock, pursuant to which we sold an aggregate of 275,000 shares of our common stock at $4.00 per share, for an aggregate purchase price of $1,100,000 to six (6) accredited investors. The $1,100,000 aggregate purchase price for such shares was paid in cash. Esenjay and Mr. Dutt, our president and chief executive officer, participated in the initial closing in the amount of $300,000 and $50,000, respectively. On July 24. 2020, we completed an additional closing of the private placement offering of up to 2,000,000 shares of common stock, pursuant to which we sold an aggregate of 800,000 shares of our common stock at $4.00 per share, for an aggregate purchase price of $3,200,000, to twenty (20) accredited investors. The aggregate purchase price for such shares was paid in cash. Mr. Cosentino, our director, participated in the closing by acquiring 62,500 shares common stock at a purchase price of $250,000. The offers, sales, and issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act or Rule 506 of Regulation D promulgated thereunder as transactions by an issuer not involving a public offering. Each of the recipients of securities in these transactions was an accredited investor within the meaning of Rule 501 of Regulation D under the Securities Act. Conversion of Debt In October 2018, we issued 1,502,714 shares of common stock in connection with the conversion of an outstanding principal amount of $7,975,000 plus accrued and unpaid interest of $1,041,280. As an inducement for the conversion of principal and interest, we also issued 26,802 additional shares of common stock. In October 2018, we issued 50,209 shares of common stock in exchange for the cancellation of a loan in the amount of $500,000 plus accrued interest of $102,510. On June 30, 2020, we issued 1,845,830 shares of common stock to eight (8) accredited investors in connection with the conversion of approximately $7,383,000 in principal and accrued interest, under the LOC. On June 30, 2020, we issued 125,000 shares of common stock to two (2) accredited investors in connection with the conversion of $500,000 in principal under the Esenjay Note. On July 22, 2020, we issued 100,000 shares of common stock to one investor in connection with the conversion of $400,000 in principal under the Esenjay Note. The offers, sales, and issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act or Rule 506 of Regulation D promulgated thereunder as transactions by an issuer not involving a public offering. Each of the recipients of securities in these transactions was an accredited investor within the meaning of Rule 501 of Regulation D under the Securities Act. Convertible Notes On December 31, 2019, the promissory notes previously issued to the Lenders in connection with the LOC were amended to grant each of the Lenders a right convert their respective promissory note under the LOC into shares of our common stock at any time after the close of our next financing of at least $1,000,000 on or after December 31, 2019, and on or before the maturity date. The financing occurred on June 30, 2020 and, as a result, each of the Lenders had a right to convert the principal and accrued interest outstanding under their respective promissory notes into shares of common stock at $4.00 per share. As of August 31, 2020, there was approximately $4,396,000 in principal outstanding under such notes, which is convertible into approximately 1,099,000 shares of common stock at $4.00 per share (subject to any beneficial ownership limitations). 26 On March 9, 2020, we issued Esenjay a convertible promissory note in the amount of $750,000 (the “Esenjay Note”). The Esenjay Note was convertible into shares of common stock at any time after the close of the next financing of at least $1,000,000 on or after December 31, 2019, and on or before the maturity date. The financing occurred on June 30, 2020 and, as a result, Esenjay has a right to convert the principal and accrued interest outstanding under the Esenjay Note into shares of common stock at $4.00 per share. On June 2, 2020, the convertible promissory note was amended to increase the principal amount to $1,400,000. As of July 28, 2020, following the conversion of $900,000 under the Esenjay Note into 225,000 shares of common stock at $4.00 per share, there was approximately $500,000 in principal outstanding under the Esenjay Note. In connection with the Third Amended and Restated Credit Facility Agreement, the outstanding principal and accrued interest was consolidated into the LOC, which obligations continue to be convertible into shares of common stock at $4.00 per share at the option of the note holder. The offers, sales, and issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act or Rule 506 of Regulation D promulgated thereunder as transactions by an issuer not involving a public offering. Each of the recipients of securities in these transactions was an accredited investor within the meaning of Rule 501 of Regulation D under the Securities Act. Advisory Agreements On April 1, 2016, we agreed to issue 5,400 shares of common stock; on April 1, 2017, we agreed to issue 9,333 shares of common stock; and on April 1, 2018, we agreed to issue 3,884 to an entity to provide investor relations services. All shares of common stock issued to the entity was issued in reliance upon exemption from registration pursuant to Section 4(a)(2). From March 14, 2018 to October 24, 2019, we issued an aggregate of 17,468 shares of restricted common stock, valued at approximately $233,000, to a consultant for services provided to us relating to the identification of strategic partners, suppliers and manufacturers in China. The common stock was issued in reliance upon exemption from registration pursuant to Section 4(a)(2) or Regulation S promulgated thereunder. Options From July 1, 2017 through June 30, 2020, we granted to our directors, officers and employee options to purchase an aggregate of 556,811 shares of our common stock under our equity compensation plans. Of such total options granted, options that were granted prior to February 13, 2019, in an aggregate of 326,039 shares at exercise prices ranging from approximately $4.60 to $19.80 per share were issued in reliance upon exemption from registration pursuant to Section 4(a)(2) or Rule 506 of Regulation D. None of the foregoing transactions involved any underwriters, underwriting discounts or commissions or any public offering. All recipients had adequate access, through their relationships with us, to information about us. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions. The sales of these securities were made without any general solicitation or advertising. Purchases of Equity Securities We have never repurchased any of our equity securities. Dividends We did not declare or pay dividends on our common stock during fiscal years 2020 and 2019 and we presently do not expect to declare or pay such dividends in the foreseeable future and expect to reinvest all undistributed earnings to expand our operations, which the management believes would be of the most benefit to our stockholders. The declaration of dividends, if any, will be subject to the discretion of our Board of Directors, which may consider such factors as our results of operations, financial condition, capital needs and acquisition strategy, among others. 27 Equity Compensation Plan Information Information for our equity compensation plans in effect as of June 30, 2020 is as follows: (a) (b) (c) Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column a) Equity compensation plans approved by security holders(1) 550,694 $ 11.10 444,057 Equity compensation plans not approved by security holders(2) 28,890 $ 9.11 - Total 579,584 $ 11.00 444,057 (1) 211,800 incentive stock options (“ISO”) and 80,700 non-qualified stock options (“NQSO”) of our common stock were granted under the 2014 Option Plan during the fiscal year ended June 30, 2018. We granted 147,411 incentive stock options and 97,616 non-qualified stock options under the 2014 plan during fiscal year ended June 30, 2019. We granted 15,324 incentive stock options and 3,948 non-qualified stock options under the 2014 plan during the fiscal year ended June 30, 2020. The 2014 Option Plan was approved February 17, 2015, and was amended on October 25, 2017. (2) Consists of 7,200 options granted under the 2010 Stock Option Plan (“2010 Option Plan”) and assumed by us in the reverse acquisition. An additional 30,700 non-qualified options were issued. At June 30, 2020 there was 28,890 options outstanding. ITEM 6 - SELECTED FINANCIAL DATA As a Smaller Reporting Company as defined by Rule12b-2 of the Exchange Act and in item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item. ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion provides information which management believes is relevant to an assessment and understanding of the Company’s results of operations and financial condition. The discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in this Annual Report on Form 10-K. Some of the statements contained in the following discussion of the Company’s financial condition and results of operations refer to future expectations or include other “forward-looking” information. Those statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated, including, but not limited to, those discussed in Part I, Item 1A of this report under the heading “Risk Factors,” which are incorporated herein by reference. See “Special Note regarding Forward-Looking Statements” included in this Report on Form 10-K for a discussion of factors to be considered when evaluating forward-looking information detailed below. These factors could cause our actual results to differ materially from the forward-looking statements. 28 Overview We design, develop, manufacture, and sell advanced rechargeable lithium-ion energy storage solutions for lift trucks, and other industrial equipment including airport ground support equipment (“GSE”), energy storage for solar applications, and industrial robotic applications. Our “LiFT Pack” battery packs, including our proprietary battery management system (“BMS”), provide our customers with a better performing, lower cost of ownership, and more environmentally friendly alternative, in many instances, to traditional lead acid and propane-based solutions. We have received Underwriters Laboratory (“UL”) Listing on our Class 3 Walkie Pallet Jack LiFT Pack product line, our Class 1 Counterbalance/Sit down/Ride-on LiFT Packs, currently have in testing our Class 2 Narrow Aisle LiFT Packs, and are scheduling this year our Class 3 End Rider LiFT Pack. We believe that a UL Listing demonstrates the safety, reliability and durability of our products and gives us an important competitive advantage over other lithium-ion energy suppliers. Many of our LiFT Packs have been approved for use by leading industrial motive manufacturers, including Toyota Material Handling USA, Inc., Crown Equipment Corporation, and Raymond Corporation. Reverse Stock Split We effected a 1-for-10 reverse split of our common stock and preferred stock on July 11, 2019 (“2019 Reverse Split”). No fractional shares were issued in connection with the 2019 Reverse Split. If, as a result of the 2019 Reverse Split, a stockholder would otherwise have been entitled to a fractional share, each fractional share was rounded up. The 2019 Reverse Split resulted in a reduction of our outstanding shares of common stock from 51,000,868 to 5,101,580. In addition, it resulted in a reduction of our authorized shares of common stock from 300,000,000 to 30,000,000, and a reduction of our authorized shares of preferred stock from 5,000,000 to 500,000. The par value of our stock remained unchanged at $0.001. In addition, by reducing the number of our outstanding shares, our loss per share in all periods presented was increased by a factor of ten. Recent Financing Activities 2020 Private Placement . From April 2020 to July 2020, pursuant to private placement offerings, we sold and issued an aggregate of 1,141,250 shares of common stock, at $4.00 per share, for an aggregate purchase price of $4,565,000 in cash to twenty-seven (27) accredited investors. Esenjay and Mr. Dutt, our president and chief executive officer, participated in the initial closing in the amount of $300,000 and $50,000, respectively. Mr. Cosentino, our director, also participated in the offering in the amount of $250,000. LOC Conversion . On June 30, 2020, there was a partial conversion of the debt underlying the secured promissory notes issued to lenders under the LOC at a conversion price of $4.00 per share (the “Conversion”). Immediately prior to the Conversion, there was an aggregate of approximately $11,791,000 in principal and accrued interest outstanding under all the secured promissory notes evidencing the advance under the LOC. At the option of the lenders, on June 30, 2020, an aggregate of approximately $7,383,000 in principal and accrued interest outstanding under the LOC was converted into 1,845,830 shares of common stock, which consisted of (a) partial conversion of Principal plus interest under the Esenjay LOC Note in the amount of $4,400,000 into 1,100,000 shares of common stock at $4.00 per share, and (b) conversion of approximately $2,983,000 of the secured promissory notes issued in connection with the LOC, principal plus accrued interest, by other lenders, including certain assignees of the Esenjay LOC Note, into 745,830 shares of common stock. Immediately after the Conversion, there was approximately $5,289,709, principal, of which approximately $984,000 was outstanding under the Esenjay LOC Note and approximately $4,306,000 was outstanding under the other lender’s respective notes. Esenjay Note Conversion . On June 30, 2020, two (2) accredited individuals, who became note holders to the Esenjay Note pursuant to the assignment of such notes by Esenjay to the note holders, converted $500,000 in principal into 125,000 shares of common stock at $4.00 per share (“Esenjay Initial Conversion”). In addition, on July 22, 2020, one (1) individual, who became a note holder to the Esenjay Note pursuant to the assignment of such note to the note holder, elected to convert $400,000 in principal, into 100,000 shares of common stock at $4.00 per share (together with Esenjay Initial Conversion, the “Esenjay Note Conversion”). Immediately prior to the Esenjay Initial Conversion, there was an aggregate of approximately $1,400,000 in principal outstanding under the Esenjay Note. Immediately after the Esenjay Note Conversion, there was approximately $500,000 in principal outstanding under the Esenjay Note, which is convertible into approximately 125,000 shares of common stock at the option of the note holder(s) at $4.00 per share. 29 Completed Public Offering. On August 14, 2020, we priced an underwritten public offering of our common stock, and as a result of this equity offering and our compliance with other listing requirements, shares of our common stock commenced trading on The NASDAQ Capital Market under the symbol “FLUX.” Prior to the listing on The NASDAQ Capital Market, our common stock was quoted on the OTCQB. On August 18, 2020, we closed this underwritten offering which represented 3,099,250 shares of our common stock at a public offering price of $4.00 per share for gross proceeds of approximately $12.4 million to us prior to deducting underwriting discounts and commissions and offering expenses payable by us, and included the full exercise of the underwriters’ over-allotment option. The shares of common stock offered by us through this underwritten offering were offered pursuant to a registration statement on Form S-1 (File No. 333-231766), which was declared effective by the United States Securities and Exchange Commission on August 12, 2020. LOC and Esenjay Note Consolidation. In August 2020, we made a payment of $1,000,000 to some of our lenders, including $600,000 to Esenjay, as partial repayment of outstanding principal under the Notes relating to the LOC. On August 31, 2020, we entered into a certain Third Amended and Restated Credit Facility Agreement relating to a secured line of credit for up to a principal amount of $12,000,000 to (i) extend the maturity date from December 31, 2020 to September 30, 2021, and (ii) to include outstanding obligations for an aggregate amount of approximately $564,000, consisting of $500,000 in principal and approximately $64,000 in accrued interest, under the Esenjay Note, into the LOC. As of August 31, 2020, after the consolidation there was approximately $4,396,000 in principal outstanding under the LOC which is convertible, at the option of the note holder, into approximately 1,099,000 shares of common stock (subject to any beneficial ownership limitations) at $4.00 per share. As of August 31, 2020, there was approximately $7,604,000 available for future draws. PPP Loan. On May 1, 2020, Flux Power applied for and received a loan from the Bank of America, NA (the “BOA”) in the aggregate principal amount of $1,297,083 (the “PPP Loan”) pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan is evidenced by a promissory note dated May 1, 2020, issued by Flux Power to the BOA (the “PPP Note”). The PPP Loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The Borrower received the funds on or around May 4, 2020. The PPP Note may be prepaid by Flux Power at any time prior to maturity with no prepayment penalties. Proceeds from the PPP Loan are available to Flux Power to fund designated expenses, including certain payroll costs, group health care benefits and other permitted expenses, in accordance with the PPP. Under the terms of the PPP, up to the entire amount of principal and accrued interest may be forgiven to the extent PPP Loan proceeds are used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued by the U.S. Small Business Administration under the PPP. Flux Power intends to use the entire PPP Loan amount for designated qualifying expenses and to apply for forgiveness of the PPP Loan in accordance with the terms of the PPP. No assurance can be given that Flux Power will obtain forgiveness of the PPP Loan in whole or in part. With respect to any portion of the PPP Loan that is not forgiven, the PPP Loan will be subject to customary provisions for a loan of this type, including customary events of default relating to, among other things, payment defaults, and breaches of the provisions of the PPP Note. As of September 25, 2020, the outstanding balance was approximately $1,297,000. Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and the related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates based on its historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies and estimates affect the preparation of our financial statements: Accounts Receivable Accounts receivable are carried at their estimated collectible amounts. The Company has not experienced collections issues related to its accounts receivable and has not recorded an allowance for doubtful accounts during the fiscal years ended June 30, 2020 and 2019. 30 Inventories Inventories consist primarily of battery management systems and the related subcomponents, and are stated at the lower of cost (first-in, first-out) or net realizable value. The Company evaluates inventories to determine if write-downs are necessary due to obsolescence or if the inventory levels are in excess of anticipated demand at market value based on consideration of historical sales and product development plans. The Company recorded an adjustment related to obsolete inventory in the amount of approximately $15,000 and $90,000 during the years ended June 30, 2020 and 2019, respectively. Revenue Recognition On July 1, 2018, the Company adopted the new accounting standard FASB Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”) for all contracts using the modified retrospective method. Based on the Company’s analysis of contracts with customers in prior periods, there was no cumulative effect adjustment to the opening balance of the Company’s accumulated deficit as a result of the adoption of this new standard. The Company derives its revenue from the sale of products to customers. The Company sells its products primarily through a distribution network of equipment dealers, OEMs and battery distributors in North America. The Company recognizes revenue for products when all the significant risks and rewards have been transferred to the customer, no continuing managerial involvement usually associated with ownership of the goods is retained, no effective control over the goods sold is retained, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transactions will flow to the Company and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Product revenue is recognized as a distinct single performance obligation which represents the point in time that our customer receives delivery of the products. Our customers do have a right to return product but our returns have historically been insignificant. Product Warranties The Company evaluates its exposure to product warranty obligations based on historical experience. Our products, primarily lift equipment packs, are warrantied for five years unless modified by a separate agreement. As of June 30, 2020 and 2019, the Company carried warranty liability of approximately $726,000 and $361,000, respectively, which is included in accrued expenses on the Company’s consolidated balance sheets. Stock-based Compensation Pursuant to the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 718-10, Compensation-Stock Compensation , which establishes accounting for equity instruments exchanged for employee service, we utilize the Black-Scholes option pricing model to estimate the fair value of employee stock option awards at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected life. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our share-based compensation. These assumptions are subjective and generally require significant analysis and judgment to develop. When estimating fair value, some of the assumptions will be based on, or determined from, external data and other assumptions may be derived from our historical experience with stock-based payment arrangements. The appropriate weight to place on historical experience is a matter of judgment, based on relevant facts and circumstances. Common stock or equity instruments such as warrants issued for services to non-employees are valued at their estimated fair value at the measurement date (the date when a firm commitment for performance of the services is reached, typically the date of issuance, or when performance is complete). If the total value exceeds the par value of the stock issued, the value in excess of the par value is added to the additional paid-in-capital. Segment and Related Information We operate as a single reportable segment. Comparison of Results of Operations of the Years ended June 30, 2020 and 2019 The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this Annual Report. 31 The following table represents our statement of operations for the years ended June 30, 2020 (“Fiscal 2020”) and June 30, 2019 (“Fiscal 2019”). Fiscal 2020 Fiscal 2019 $ % of Revenues $ % of Revenues Revenues $ 16,842,000 100 % $ 9,317,000 100 % Cost of goods sold 14,656,000 87 % 8,768,000 94 % Gross profit (loss) 2,186,000 13 % 549,000 6 % Operating expenses: Selling and administrative expenses 9,761,000 58 % 7,712,000 83 % Research and development 4,973,000 29 % 4,088,000 44 % Total operating expenses 14,734,000 87 % 11,800,000 127 % Operating loss (12,548,000 ) -74 % (11,251,000 ) -121 % Other income (expense): Other Income - - % 84,000 1 % Interest expense, net (1,788,000 ) -11 % (1,247,000 ) -13 % Net loss $ (14,336,000 ) -85 % $ (12,414,000 ) -133 % Revenues Our product focus is primarily on lift equipment, reflecting our current products for walkie pallet jacks, and higher capacity packs for Class 1, 2, and 3 forklifts. We are also expanding on an opportunistic basis to adjacent applications, including airport ground support equipment (“GSE”). We feel that we are well positioned to address these markets, which would utilize our modular and scalable battery pack design and technology. We currently sell most of our products through a distribution network of equipment dealers, OEMs and battery distributors in North America. This distribution network mostly sells to large company, national accounts. However, we do sell certain battery packs directly to other accounts including industrial equipment manufacturers and the ultimate end-user. Revenues for Fiscal 2020 increased $7,525,000 or 81%, to $16,842,000, compared to $9,317,000 for Fiscal 2019. This increase in revenues during Fiscal 2020 was primarily attributable to expansion into larger equipment that is part of the fleets of existing customers. Revenue increases also came from selling packs for narrow aisle forklifts and natural business extensions like stationary energy storage. The increase in revenue was also attributable to the increase in battery pack sales across several of the different series of batteries as we continue to add new product lines. Cost of Sales Cost of sales for Fiscal 2020 increased $5,888,000 or 67%, to $14,656,000 compared to $8,768,000 for Fiscal 2019. The increase in cost of sales was directly attributable to the substantial increase in sales as discussed above. Cost of sales as a percentage of revenue for Fiscal 2020 was 87%, a decrease of 7%, compared to 94% for Fiscal 2019. The material cost per LiFT Pack in Fiscal 2020 decreased compared to Fiscal 2019 as new design innovation and volume discounts resulted in lower costs of materials per pack. The improvement in lower costs per pack and the higher mix of larger pack sales provided a gross profit during Fiscal 2020 as compared to Fiscal 2019. Warranty expense for Fiscal 2020 increased as a result of the higher sales volume. As of June 30, 2020, we had approximately $726,000 accrued for product warranty liability. The decrease in cost of sales as a percent of revenue is directly related the Company’s gross margin improvement initiative that has resulted in reductions in material costs, simplified component design, decrease in labor expense, and decreased warranty expense per pack. We expect continued improvements to the gross margin as a result of the initiative. 32 Selling and Administrative Expenses Selling and administrative expenses for Fiscal 2020 increased $2,049,000 or 27%, to $9,761,000 compared to $7,712,000 for Fiscal 2019. Such expenses consist primarily of salaries and personnel related expenses, stock-based compensation expense, public company costs, consulting costs, professional fees and other expenses. The increase is primarily attributable to increases in stock-based compensation, payroll costs related to additional new hires, and rent expenses associated with our new facility. Research and Development Research and development expenses for Fiscal 2020 increased $885,000 or 22%, to $4,973,000 compared to $4,088,000 for Fiscal 2019. Such expenses consist primarily of materials, supplies, salaries and personnel related expenses, testing costs, consulting costs, and other expenses associated with the continued development of our packs, as well as, research into new product opportunities. The increase in expenses was primarily due to the UL listing expenses and additional headcount. We anticipate research and development expenses will remain a significant portion of our expenses as we continue to develop, expand and add new and improved products to our product line-up. Other Income Other income during Fiscal 2019 was $84,000 and was related to the liability release of a related party customer deposit. Interest Expense Interest expense for Fiscal 2020 increased $541,000 or 43%, to $1,788,000 compared to $1,247,000 for Fiscal 2019. Interest expense consist primarily of interest expense related to our outstanding lines of credit and promissory notes. Interest expense for the year ended June 30, 2019 included additional interest expense of approximately $466,000 agreed to be paid under the Early Conversion Agreement with Esenjay as well as origination fees of $25,000 for the shareholder lines of credit. Net Loss Net loss during Fiscal 2020 increased $1,922,000 or 15%, to $14,336,000 compared to $12,414,000 for Fiscal 2019. The increase is primarily attributable to increased research and development costs, selling and administrative expenses, and interest expense, partially offset by improved gross profit. Liquidity and Capital Resources Overview As of June 30, 2020, we had a cash balance of $726,000 and an accumulated deficit of $53,412,000. We believe our current cash balance, combined with the net proceeds from our recent private placement financing and public offering, will provide sufficient liquidity and capital resources to fund planned operations for at least the twelve months following the filing date of this Annual Report. The Company continues to work on securing additional capital from a variety of current and new sources including, but not limited to, working capital line of credit facilities, private placements of convertible debt and/or equity securities and public offerings of our equity. See “Future Liquidity Needs” below. Cash Flows Operating Activities Our operating activities resulted in net cash used in operations of $8,344,000 for Fiscal 2020, compared to net cash used in operations of $10,712,000 for Fiscal 2019. The primary reason for the decrease in net cash used in operations was a lower increases in inventory on hand and accounts receivable, as well as higher increases in accounts payable, accrued liabilities, due to factor, and significant customer deposits, partially offset by increase in net loss as adjusted for noncash operating activities and a decrease in accrued interest. The net cash used in operating activities for Fiscal 2020 reflects the net loss of $14,336,000 for the period offset primarily by non-cash items in aggregate amount of approximately $4,213,000, including stock-based compensation, non-cash interest expense, non-cash facility lease expense, allowance for inventory reserve, depreciation, and stock issued for services. 33 The net cash used in operating activities for Fiscal 2019 reflects the net loss of $12,414,000 for the period offset primarily by non-cash items in aggregate amount of approximately $2,985,000, including depreciation, stock-based compensation, stock issued for services, and non-cash interest expense on conversion. Investing Activities Net cash used in investing activities for Fiscal 2020 and Fiscal 2019 totaled $323,000 and $275,000, respectively, which consisted primarily of office and warehouse equipment purchases and the cost of internally developed software. Financing Activities Net cash provided by financing activities during Fiscals 2020 and 2019 was $9,291,000 and $8,383,000, respectively. The increase in cash provided by financing activities primarily results from the increase in net borrowings from our lines of credit and short-term promissory notes, and proceeds from the Paycheck Protection Program loan, partially offset by a decrease in proceeds from private placement sale of our common stock. 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, combined with the net proceeds from our recent private placement financing and public offering, will be sufficient to meet our anticipated capital resources to fund planned operations for the next twelve months. To provide capital for anticipated growth, we intend to seek a revolving line of credit from a bank. In addition, to support our operations and execute on our business plan, we intend to continue to work on securing additional capital from a variety of current and new sources including, but not limited to, working capital line of credit facilities, private placements of convertible debt and/or equity securities and public offerings of our equity. In addition to raising additional capital, the Company has a gross margin improvement initiative in place to improve cash flow from operations. The initiative includes design optimization, improved vendor pricing, lower cost electronic boards for the battery management system, a total redesign of the end rider battery pack, and labor cost reductions. To the extent that we raise additional funds by issuing equity or convertible debt securities, our shareholders may experience additional significant dilution and such financing may involve restrictive covenants. Off-Balance Sheet Arrangements As of June 30, 2020, we did not have any other relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 requires a lessee to recognize a lease asset representing its right to use the underlying asset for the lease term, and a lease liability for the payments to be made to lessor, on its balance sheet for all operating leases with a term greater than 12 months. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Although ASU 2016-02 is required to be adopted at the earliest period presented using a modified retrospective approach, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018- 11”), which allows for an alternative transition method of adoption by recognizing a cumulative-effect adjustment, if any, to the opening balance of retained earnings in the period of adoption. The Company adopted ASU 2016-02 on July 1, 2019, utilizing the alternative transition method allowed under ASU 2018-11. As a result, the Company recorded right-of-use assets and the lease liability of approximately $2.7 million and $2.7 million, respectively, on its balance sheet as of July 1, 2019. The lease liability represents the present value of the remaining lease payments of the Company’s facility lease (see Note 10), discounted using the Company’s incremental borrowing rate as of July 1, 2019. The corresponding right-of-use lease asset is recorded based on the lease liability, adjusted for the unamortized lease incentives received and the cumulative difference between rent expense and amounts paid under the facility lease. The adoption of this guidance by the Company, effective July 1, 2019, did not have a material impact on the Company’s consolidated financial statements. On June 20, 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 is intended to reduce the cost and complexity and to improve financial reporting for share-based payments to nonemployees for goods and services. The amendments in ASU 2018-07 are effective for fiscal years beginning after December 15, 2018, including interim periods therein. The adoption of this guidance by the Company, effective July 1, 2019, did not have a material impact on the Company’s consolidated financial statements. 34 ITEM 7A - 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 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements required by this item begin on page F-1 with the index to financial statements followed by the financial statements. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None