Flux Power Holdings, Inc. 10-K

ITEM 9A - CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, as of the end of the period covered by this report, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Act of 1934. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be included in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, relating to the Company, including our consolidated subsidiary, and was made known to them by others within those entities, particularly during the period when this report was being prepared. Based on the management’s assessment and review of our financial statements and results for the fiscal year ended June 30, 2020, we have concluded that our disclosure controls and procedures were effective for purposes stated above. The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurances with respect to financial statement preparation and presentation. Additionally, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management’s Report on Internal Control over Financial Reporting Our management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. As of June 30, 2020 management assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control - Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). Based on the assessment, management determined that the Company maintained effective internal control over financial reporting as of June 30, 2020 based on the COSO criteria. 35 This Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding the effectiveness of the Company’s internal control over financial reporting, as such report is not required due to the Company’s status as a smaller reporting company. Change in Internal Control over Financial Reporting There have been no changes in the Company’s internal controls over financial reporting during the fiscal year ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. ITEM 9B - OTHER INFORMATION None. PART III ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Directors, Executive Officers and Significant Employees Identification of Directors, Executive Officers and Significant Employees The following table and text set forth the names and ages of our current directors, executive officers and significant employees as of September 15, 2020. Our Board of Directors is comprised of only one class. All of the directors will serve until the next annual meeting of stockholders or until their successors are elected and qualified, or until their earlier death, retirement, resignation or removal. There are no family relationships among any of the directors and executive officers. From time to time, our directors have received compensation in the form of cash and stock grant for their services on the Board. Name Age Position Ronald F. Dutt (1) 73 Director, Chief Executive Officer and President Charles A. Scheiwe (1) 54 Chief Financial Officer and Secretary Jonathan A. Berry 52 Chief Operating Officer Michael Johnson 72 Director Lisa Walters-Hoffert (2)(3) 62 Director Dale Robinette (2)(4) 56 Director John A. Cosentino, Jr. (2)(5) 70 Director (1) Mr. Dutt resigned as our chief financial officer and secretary on December 16, 2018, and upon his resignation, Mr. Scheiwe was appointed as our chief financial officer and secretary on December 17, 2018. Mr. Ronald F. Dutt was appointed as Chairman of the Board of Directors on June 28, 2019 upon the resignation of Christopher Anthony. (2) Independent Director (3) Chairperson of the Audit Committee (4) Chairperson of the Compensation Committee (5) Mr. James Gevarges resigned as our director on May 6, 2020, and upon his resignation Mr. Cosentino was appointed to the Board on May 7, 2020. Mr. Cosentino is the chairperson of the Nominating and Corporate Governance Committee. There are no arrangements or understandings between our directors and executive officers and any other person pursuant to which any director or officer was or is to be selected as a director or officer. Business Experience Ronald F. Dutt . Chairman, Chief Executive Officer, President, and Director . Mr. Dutt has been our chief executive officer, former interim chief financial officer and director since March 19, 2014. He became our chairman on June 28, 2019. On September 19, 2017, he was also appointed as our president, chief financial officer and corporate secretary. He resigned as chief financial officer and corporate secretary as of December 16, 2018. Previously, he was our chief financial officer since December 7, 2012, and our interim chief executive officer since June 28, 2013. Mr. Dutt has served as the Company’s interim corporate secretary since June 28, 2013. Prior to Flux Power, Mr. Dutt provided chief financial officer and chief operating officer consulting services during 2008 through 2012. In this capacity Mr. Dutt provided financial consulting, including strategic business modeling and managed operations. Prior to 2008, Mr. Dutt served in several capacities as executive vice president, chief financial officer and treasurer for various public and private companies including SOLA International, Directed Electronics, Fritz Companies DHL Americas, Aptera Motors, Inc., and Visa International. Mr. Dutt holds an MBA in Finance from University of Washington and an undergraduate degree in Chemistry from the University of North Carolina. Additionally, Mr. Dutt served in the United States Navy and received an honorable discharge as a Lieutenant. 36 Charles A. Scheiwe, Chief Financial Officer and Secretary. Mr. Scheiwe joined the Company in July of 2018 and has been acting as the Company’s Controller since July 9, 2018. He was appointed as our chief financial officer and secretary on December 17, 2018. Prior to joining the Company, Mr. Scheiwe was the controller of Senstay, Inc. and provided financial and accounting consulting services to start-up companies from 2016 to 2018. From 2006 to 2016, Mr. Scheiwe was the vice president of finance and controller for GreatCall, Inc. Mr. Scheiwe’s experience in accounting, financial planning and analysis, business intelligence, cash management, and equity management has prepared and qualified him for the position of chief financial officer and secretary of the Company. Mr. Scheiwe has a Bachelor of Science degree in Business Management, with emphasis in Accounting, from the University of Colorado. Mr. Scheiwe also holds a CPA certificate. Jonathan A. Berry, Chief Operating Officer. Mr. Berry joined the Company in 2016 and has been our director of operations since 2016. On June 29, 2018, he was appointed as our chief operating officer. Prior to joining the Company in 2016, Mr. Berry was Clean Air Power, Inc.’s group operations director and general manager of the USA operations from 2014 to 2016, and operations director of the UK, Australia, and USA market from 2012 to 2014. Mr. Berry’s experience in the development, implementation, and management of all aspects of supply chain, production, and sales has prepared and qualified him for the position of chief operating officer. Mr. Berry attended the Senior Executive Program at Hult Ashridge Business School in London, England, and has an undergraduate degree in Electrical Engineering from the University of Leeds. Michael Johnson, Director. Mr. Johnson has been our director since July 12, 2012. Mr. Johnson has been a director of Flux Power since it was incorporated. Since 2002, Mr. Johnson has been a director and the chief executive officer of Esenjay Petroleum Corporation (Esenjay Petroleum), a Delaware company located in Corpus Christi, Texas, which is engaged in the business oil exploration and production. Mr. Johnson’s primary responsibility at Esenjay Petroleum is to manage the business and company as chief executive officer. Mr. Johnson is a director and beneficial owner of Esenjay Investments LLC, a Delaware limited liability company engaged in the business of investing in companies, and an affiliate of the Company owning approximately 40.2% of our outstanding shares, including common stock underlying options, warrants and convertible debt that were exercisable or convertible or which would become exercisable or convertible within 60 days. As a result of Mr. Johnson’s leadership and business experience, he is an industry expert in the natural gas exploration industry and brings a wealth of management and successful company building experience to the board. Mr. Johnson received a Bachelor of Science degree in mechanical engineering from the University of Southwestern Louisiana. Lisa Walters-Hoffert, Director. Ms. Walters-Hoffert was appointed to our Board on June 28, 2019. Ms. Walters-Hoffert co-founded Daré Bioscience Operations, Inc. (“Daré”) in 2015 and served as Daré’s Chief Business Officer. Following Daré’s business combination with Cerulean Pharma Inc. on July 19, 2017, she became the Chief Financial Officer of the renamed company, Daré Bioscience, Inc. During the 25 years prior to joining the team, Ms. Walters-Hoffert was an investment banker focused primarily on raising equity capital for, and providing advisory services to, small-cap public companies. From 2003 to 2015, Ms. Walters-Hoffert worked at Roth Capital Partners, serving as Managing Director in the Investment Banking Division. Ms. Walters-Hoffert has held various positions in the corporate finance and investment banking divisions of Citicorp Securities in San José, Costa Rica and Oppenheimer & Co, Inc. in New York City, New York. Ms. Walters-Hoffert has served as a member of the Board of Directors of the San Diego Venture Group, as Past Chair of the UCSD Librarian’s Advisory Board, and as Past Chair of the Board of Planned Parenthood of the Pacific Southwest. Ms. Walters-Hoffert graduated magna cum laude from Duke University with a B.S. in Management Sciences. As a senior financial executive with over twenty-five years of experience in investment banking and corporate finance and based on Ms. Walters-Hoffert’s expertise in audit, compliance, valuation, equity finance, mergers, and corporate strategy, the Company believes Ms. Walters-Hoffert is qualified to be on the Board. Dale T. Robinette, Director . Mr. Robinette was appointed to our Board on June 28, 2019. Mr. Robinette has been a CEO Coach and Master Chair since 2013 as an independent contractor to Vistage Worldwide, Inc., an executive coaching company. In addition, since 2013 Mr. Robinette has been providing business consulting related to top-line growth and bottom line improvement through his company EPIQ Development. Since 2016, Mr. Robinette has been a director of Lenslock, Inc., a mobile technology company that provides mobile video solutions to law enforcement agencies. From 2013 to 2019, Mr. Robinette was the Founder and CEO of EPIQ Space, a marketing website for the satellite industry, a member-based community of suppliers promoting their offerings. Mr. Robinette was with Peregrine Semiconductor, Inc., a manufacturer of high-performance RF CMOS integrated circuits, from 2013 to 2019 in two roles as a Director of Worldwide Sales as well as the Director of the High Reliability Business Unit. Mr. Robinette started his career from 1991 to 2007 at Tyco Electronics Ltd. (known today as TE Connectivity Ltd.), a passive electronics manufacturer, in various sales, sales leadership and product development leadership roles. Mr. Robinette received a Bachelor of Science degree in Business Administration, Marketing from San Diego State University. Based on the above qualifications, the Company believes Mr. Robinette is qualified to be on the Board. 37 John A. Cosentino, Jr., Director . Mr. Cosentino has been a director of Sturm, Ruger & Company, Inc. (NYSE: RGR), a firearm manufacturing company listed on the NYSE, since 2005 to the present. Mr. Cosentino has been a partner of Ironwood Manufacturing Fund, LP, a private equity fund, since 2002, a director of Simonds International, Inc., a cutting tools manufacturer, since 2001, the Chairman of the Board of Habco Industries LLC, an aerospace equipment and services supplier, since 2012, and Senior Advisor of Ironwood Capital Holdings LLC, a private equity firm, since 2012. He was a director of Addaero LLC, a metal alloy manufacturer, from 2014 to 2019, a director of Whitcraft LLC, a manufacturer of engine and other aerospace components, from 2011 to 2017, a director of the Bilco Company, a manufacturer of building products for commercial and residential construction, from 2007 to 2016, Chairman of North American Specialty Glass LLC, a specialty glass provider, from 2005 to 2012, Vice-Chairman of Primary Steel LLC, a national distribution and fabricator of steel products, from 2005 to 2007, and a director of the Wiremold Company, a manufacturer of wire management and power conditioning systems, from 1991 to 2000. Mr. Cosentino was a partner of Capital Resource Partners, LP, a private capital firm, from 1999 to 2000, and served as a director in a number of its portfolio companies. Mr. Cosentino received an undergraduate degree from Harvard University and an MBA from the University of Pennsylvania. Based on the above qualifications, the Company believes Mr. Cosentino is qualified to be on the Board. Involvement in Certain Legal Proceedings To the best of our knowledge, during the past ten years, none of our directors or executive officers were involved in any of the following: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated. Board Leadership Structure and Role in Risk Oversight The Board does not have a policy as to whether the roles of our chairman and chief executive officer should be separate. Instead, the Board makes this determination based on what best serves our Company’s needs at any given time. In its governance role, and particularly in exercising its duty of care and diligence, the Board is responsible for ensuring that appropriate risk management policies and procedures are in place to protect the Company’s assets and business. Our Board has broad and ultimate oversight responsibility for our risk management processes and programs and executive management is responsible for the day-to-day evaluation and management of risks to the Company. Board Composition, Committees and Independence Under the rules of NASDAQ, “independent” directors must make up a majority of a listed company’s board of directors. In addition, applicable NASDAQ rules require that, subject to specified exceptions, each member of a listed company’s audit and compensation committees be independent within the meaning of the applicable NASDAQ rules. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. Our Board has undertaken a review of the independence of each director and considered whether any director has a material relationship with us that could compromise the director’s ability to exercise independent judgment in carrying out his or her responsibilities. As a result of this review, our Board determined that Ms. Walters-Hoffert, Mr. Cosentino and Mr. Robinette are independent directors as defined in the listing standards of NASDAQ and SEC rules and regulations. A majority of our directors are independent, as required under applicable NASDAQ rules. As required under applicable NASDAQ rules, our independent directors will meet in regularly scheduled executive sessions at which only independent directors are present. 38 Board Committees Our Board has established an Audit Committee, a Compensation Committee, and a Nominating and Governance Committee. The composition and responsibilities of each of the committees is described below. Audit Committee Audit Committee . The Audit Committee of the Board of Directors currently consists of three independent directors of which at least one, the Chairman of the Audit Committee, qualifies as a qualified financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Ms. Walters-Hoffert is the Chairperson of the Audit Committee and financial expert, and Mr. Robinette and Mr. Cosentino are the other directors who are members of the Audit Committee. The Audit Committee’s duties are to recommend to our Board of Directors the engagement of the independent registered public accounting firm to audit our consolidated financial statements and to review our accounting and auditing principles. The Audit Committee reviews the scope, timing and fees for the annual audit and the results of audit examinations performed by any internal auditors and independent public accountants, including their recommendations to improve the system of accounting and internal controls. The Audit Committee will at all times be composed exclusively of directors who are, in the opinion of our Board of Directors, free from any relationship that would interfere with the exercise of independent judgment as a committee member and who possess an understanding of consolidated financial statements and generally accepted accounting principles. Our Audit Committee operates under a written charter, which is available on our website at www.fluxpower.com . Compensation Committee Compensation Committee . The Compensation Committee establishes our executive compensation policy, determines the salary and bonuses of our executive officers and recommends to the Board stock option grants for our executive officers. Mr. Robinette is the Chairperson of the Compensation Committee, and Ms. Walters-Hoffert and Mr. Cosentino are members of the Compensation Committee. Each of the members of our Compensation Committee are independent under NASDAQ’s independence standards for compensation committee members. Our chief executive officer often makes recommendations to the Compensation Committee and the Board concerning compensation of other executive officers. The Compensation Committee seeks input on certain compensation policies from the chief executive officer. Our Compensation Committee operates under a written charter, which is available on our website at www.fluxpower.com Nominating and Governance Committee Nominating and Governance Committee . The Nominating and Governance Committee is responsible for matters relating to the corporate governance of our Company and the nomination of members of the Board and committees of the Board. Mr. Cosentino is Chairperson of the Nominating and Governance Committee, and Ms. Walters-Hoffert and Mr. Robinette are members. Each of the members of our Nominating and Governance Committee is independent under NASDAQ’s independence standards. The Nominating and Governance Committee operates under a written charter, which is available on our website at www.fluxpower.com . Code of Business Conduct and Ethics Our Board has adopted a Code of Business Conduct and Ethics (the “Code”) that applies to all of our directors, officers, and employees. Any waivers of any provision of this Code for our directors or officers may be granted only by the Board or a committee appointed by the Board. Any waivers of any provisions of this Code for an employee or a representative may be granted only by our chief executive officer or principal accounting officer. We have filed a copy of the Code with the SEC and have made it available on our website at www.fluxpower.com. In addition, we will provide any person, without charge, a copy of this Code. Requests for a copy of the Code may be made by writing to the Company at is c/o Flux Power Holdings, Inc., 2685 S. Melrose Drive, Vista, California 92081. Indemnification Agreements We executed a standard form of indemnification agreement (“Indemnification Agreement”) with each of our Board members and executive officers (each, an “Indemnitee”). 39 Pursuant to and subject to the terms, conditions and limitations set forth in the Indemnification Agreement, we agreed to indemnify each Indemnitee, against any and all expenses incurred in connection with the Indemnitee’s service as our officer, director and or agent, or is or was serving at our request as a director, officer, employee, agent or advisor of another corporation, partnership, joint venture, trust, limited liability company, or other entity or enterprise but only if the Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to our best interest, and in the case of a criminal proceeding, had no reasonable cause to believe that his conduct was unlawful. In addition, the indemnification provided in the indemnification agreement is applicable whether or not negligence or gross negligence of the Indemnitee is alleged or proven. Additionally, the Indemnification Agreement establishes processes and procedures for indemnification claims, advancement of expenses and costs and contribution obligations. Delinquent Section 16(a) Reports Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities, to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and Annual Reports concerning their ownership, of Common Stock and other of our equity securities on Forms 3, 4, and 5, respectively. Executive officers, directors and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based solely on our review of Forms 3, 4 and 5 and amendments thereto filed electronically with the SEC during the most recent fiscal year, we believe that all reports required by Section 16(a) for transactions in the fiscal year ended June 30, 2020, were timely filed except for a late filing of a Form 4 by Michael Johnson for a transaction dated June 2, 2020. ITEM 11 - EXECUTIVE COMPENSATION Compensation for our Named Executive Officers The following table sets forth information concerning all forms of compensation earned by our named executive officers during the fiscal years ended June 30, 2020 and 2019 for services provided to the Company and its subsidiary. Name and Principal Position Year Salary ($) Bonus ($) Stock Awards ($) Option Awards ($) (1) Non-Equity Incentive Plan Compensation ($) All Other Compensation ($) Total ($) Ronald F. Dutt, Chief Executive Officer 2020 $ 195,000 $ - $ - $ - $ - $ - $ 195,000 Officer, President, and Chairman 2019 $ 178,654 $ - $ - $ 1,484,356 $ - $ - $ 1,663,010 Charles A. Scheiwe (2) 2020 $ 155,000 $ - $ - $ - $ - $ - $ 155,000 Chief Financial Officer and Corporate Secretary 2019 $ 131,231 $ - $ - $ 338,021 $ - $ - $ 469,252 Jonathan Berry, Chief Operating Officer 2020 $ 160,000 $ - $ - $ - $ - $ - $ 160,000 2019 $ 152,500 $ - $ - $ 338,021 $ - $ - $ 490,521 (1) The grant date fair value was determined in accordance with the provisions of FASB ASC Topic No. 718 using the Black-Scholes valuation model with assumptions described in more detail in the notes to our audited financial statements included in this report. (2) Mr. Scheiwe became our chief financial officer and secretary on December 17, 2018. 40 Benefit Plans We do not have any profit sharing plan or similar plans for the benefit of our officers, directors or employees. However, we may establish such plan in the future. Equity Compensation Plan Information In connection with the reverse acquisition of Flux Power, Inc in 2012, we assumed the 2010 Option Plan. As of June 30, 2020, the number of options outstanding to purchase common stock under the 2010 Option Plan was 29,482. No additional options to purchase common stock may be granted under the 2010 Option Plan. On November 26, 2014, our board of directors approved our 2014 Equity Incentive Plan (“2014 Option Plan”), which was approved by our stockholders on February 17, 2015. The 2014 Option Plan was amended by our board of directors on October 26, 2017 and approved by our stockholders on July 23, 2018. The 2014 Option Plan offers selected employees, directors, and consultants the opportunity to acquire our common stock, and serves to encourage such persons to remain employed by us and to attract new employees. The 2014 Option Plan allows for the award of stock and options, up to 1,000,000 shares of our common stock. We granted 43,850 incentive stock options under the 2014 Option Plan during Fiscal 2016, of which 31,650 remain outstanding at June 30, 2019. No options were granted during Fiscal 2017. We granted 211,800 incentive stock options and 80,700 non-qualified stock options under the 2014 Option Plan during Fiscal 2018. We granted 147,411 incentive stock options and 97,616 non-qualified stock options under the 2014 plan during Fiscal 2019. We granted 15,324 incentive stock options and 3,948 non-qualified stock options under the 2014 plan during Fiscal 2020. As of June 30, 2020, we had 454,156 and 579,584 options, exercisable and outstanding, respectively, which were granted from the 2014 Option Plan and 2010 Option Plan. The following table sets forth certain information concerning unexercised options, stock that has not vested, and equity compensation plan awards outstanding as of June 30, 2020 for the named executive officers below: Option Awards (1) Stock Awards Name Award Grant Date Number of Securities Underlying Unexercised Options Exercisable Number of Securities Underlying Unexercised Options Unexercisable Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options Option Exercise Price ($) Option Expiration Date Number of Shares or Units of Stock That Have Not Vested Market Value of Shares or Units of Stock That Have Not Vested ($) Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested Equity Incentive Plan: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) Ronald Dutt 3/15/2019 28,125 21,875 21,875 $ 13.60 3/15/2029 - $ - - $ - 7/25/2018 29,336 4,191 4,191 19.80 7/25/2028 - $ - - $ - 6/29/2018 50,000 - - 14.40 6/29/2028 - $ - - $ - 10/26/2017 43,750 6,250 6,250 4.60 10/26/2027 - $ - - $ - 12/22/2015 19,000 - - 5.00 12/22/2025 - $ - - $ - 7/30/2013 17,500 - - 10.00 7/29/2023 - $ - - $ - Charles Scheiwe 3/15/2019 16,875 13,125 13,125 13.60 3/15/2029 - $ - - $ - Jonathan Berry 3/15/2019 16,875 13,125 13,125 13.60 3/15/2029 - $ - - $ - 6/29/2018 45,500 - - 14.40 6/29/2028 - $ - - $ - 10/26/2017 19,687 2,813 2,813 4.60 10/26/2027 - $ - - $ - (1) The fair value of each option grant is estimated at the date of grant using the Black-Scholes option pricing model. Expected volatility is calculated based on the historical volatility of the Company’s stock. The risk free interest rate is based on the U.S. Treasury yield for a term equal to the expected life of the options at the time of grant. 41 Aggregated Option/Stock Appreciation Right (“SAR”) exercised and Fiscal year-end Option/SAR value table Neither our executive officers nor the other individuals listed in the tables above, exercised options or SARs during the fiscal year ended June 30, 2020. Long-term incentive plans No long term incentive awards were granted by us in the fiscal year ended June 30, 2020. Employment Agreements with Executive Officers We entered into an Employment Agreement with our chief executive officer, Ronald F. Dutt, effective December 11, 2012. Mr. Dutt is an “at-will” employee. The Employment Agreement provided for an annual salary of $170,000. On February 15, 2019, Flux Power Holdings, Inc. entered into an amendment to the Employment Agreement (“Amendment”) with the Company’s president and chief executive officer, Ronald F. Dutt, dated December 7, 2012. The Amendment confirmed Mr. Dutt’s continued services as the president and chief executive officer of the Company and its wholly-owned subsidiary, Flux Power, Inc., and setting Mr. Dutt’s new annual base salary to $195,000. Effective August 30, 2020, our compensation committee approved a new annual base salary of $250,000. On December 17, 2018, the Board of Directors of the Company appointed Charles A. Scheiwe to serve as our chief financial officer and secretary. In connection with his appointment as the Company’s chief financial officer and secretary, Mr. Scheiwe received an annual base salary of $145,000. Mr. Scheiwe currently receives an annual base salary of $190,000. Mr. Scheiwe is an “at-will” employee . On June 29, 2018, the Board of Directors of the Company appointed Jonathan Berry to serve as our chief operating officer. In connection with his appointment as the Company’s chief operating officer, Mr. Berry received an annual base salary of $145,000. Mr. Berry currently receives an annual base salary of $190,000. Mr. Berry is an “at-will” employee . There were no performance based bonuses paid in the fiscal years ended June 30, 2020 and 2019. 2020 Gross Margin Bonus Plan On December 4, 2019, the Board adopted a 2020 Gross Margin Plan (“GM Plan”) which provided its executives and key senior employees (“Key Executives”) with a cash bonus equal to 2% of base pay for every additional 1% profit margin achieved based on the increase gross profits for calendar year 2020 and to be paid in the first quarter of calendar year 2021. On August 4, 2020, the compensation committee amended the 2020 GM Plan to allow for the early payment of cash bonuses to Key Executives equal to 2% of base pay for every additional 1% profit margin achieved based on (1) the increase in profit margin first half of calendar year 2020, and (2) an adjustment to the bonuses to be paid in the first quarter of calendar year 2021 based on the profit margin achieved during the second half of calendar year 2020 (“Amended GM Plan”). On August 7, 2020, the Company made cash bonus payments in the aggregate amount of $225,710 to certain Key Executives (the “Awards”) pursuant to the Amended GM Plan, which included payments of $34,047 to Ronald Dutt, Chief Executive Officer, $27,063 to Chuck Scheiwe, Chief Financial Officer, and $27,936 to Jonathan Berry, Chief Operating Officer. The aggregate amount of such bonus payments was included in the accrued expenses in the accompanying balance sheet as of June 30, 2020. (See Note 5) The Awards were calculated on the basis of increase in profit margins achieved during the first six months of the calendar year 2020. Incentive Plans We will continue to explore and evaluate different long-term and short-term incentives to help attract, retain and motivate our employees to align their interest to our business and financial success through the use of equity award and cash bonuses. Compensation of Non-Executive Directors In December 2019, our Board approved non-executive director compensation packages as recommended by the Compensation Committee. Below is the compensation packages for non-executive directors approved by the Board for each fiscal year: Position Cash Compensation Equity Compensation Board Member Compensation Annual Baseline Compensation $ 35,000 $ 35,000 Additional Chairperson Compensation Audit $ 15,000 $ - Compensation $ 10,000 $ - Nominating/Governance $ 7,500 $ - Additional Committee Member Compensation Audit $ 7,500 $ - Compensation $ 5,000 $ - Nominating/Governance $ 3,750 $ - 42 Below is summary of compensation accrued or paid to our non-executive directors during fiscal years ended June 30, 2020 and 2019. Name Year Fees Earned or Paid in Cash ($) Stock Awards ($) Option Awards (3) ($) All Other Compensation ($) Total ($) Christopher Anthony (1) 2020 - - $ - - $ - 2019 - - $ 33,802 - $ 33,802 James Gevarges (2) 2020 $ 13,750 - $ 28,287 - $ 42,037 2019 - - $ 33,802 - $ 33,802 Lisa Walters-Hoffert 2020 $ 29,375 - $ 28,287 - $ 57,662 Dale Robinette 2020 $ 28,125 - $ 28,287 - $ 56,412 John Cosentino 2020 $ 13,750 - $ 23,095 - $ 36,845 Michael Johnson 2020 $ 17,500 - $ 28,287 - $ 45,787 (1) Mr. Anthony resigned as our director on June 28, 2019. (2) Mr. Gevarges resigned as our director on May 6, 2020. (3) The amounts shown in this column represent the full grant date fair value of the award granted, excluding any as computed in accordance with Financial Accounting Standards Board (“FASB”).The following table shows the aggregate number of stock options held by non-employee directors as of June 30, 2020 and June 30, 2019: Name Year Vested Stock Option Christopher Anthony (1) 2020 1,500 2019 2,437 James Gevarges (2) 2020 6,761 2019 2,437 Michael Johnson 2020 1,993 2019 2,437 Lisa Walters-Hoffert 2020 493 Dale Robinette 2020 493 (1) Mr. Anthony resigned as our director on June 28, 2019. (2) Mr. Gevarges resigned as our director on May 6, 2020. 43 ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS As used in this section, the term beneficial ownership with respect to a security is defined by Rule 13d-3 under the Securities Exchange Act of 1934, as amended, as consisting of sole or shared voting power (including the power to vote or direct the vote) and/or sole or shared investment power (including the power to dispose of or direct the disposition of) with respect to the security through any contract, arrangement, understanding, relationship or otherwise, subject to community property laws where applicable. As of September 25, 2020, we had a total of 11,419,737 shares of common stock issued and outstanding. The following table sets forth, as of September 25, 2020, information concerning the beneficial ownership of shares of our common stock held by our directors, our named executive officers, our directors and executive officers as a group, and each person known by us to be a beneficial owner of more than 5% of our outstanding common stock. Unless otherwise indicated, the business address of each of our directors, executive officers and beneficial owners of more than 5% of our outstanding common stock is c/o Flux Power Holdings, Inc., 2685 S. Melrose Drive, Vista, California 92081. Each person has sole voting and investment power with respect to the shares of our common stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated. Name and Address of Beneficial Owner (1) Shares Beneficially Owned % of Ownership Officers and Directors Michael Johnson, Director 4,687,004 (2) 40.2 % Ronald Dutt, Chief Executive Officer, President, and Director 222,938 (3) 1.9 % Charles A Scheiwe, Chief Financial Officer and Secretary 23,750 (4) * Jonathan A. Berry, Chief Operating Officer 88,636 (5) * John A. Cosentino, Director 88,370 (6) * Lisa Walters-Hoffert, Director 1,480 (7) * Dale Robinette, Director 1,480 (8) * All Officers and Directors as a group (7 people) 5,113,658 42.7 % 5% Stockholders Cleveland Capital, L.P. 1250 Linda Street, Suite 304 Rocky River, OH 44116 1,187,260 (9) 9.9 % * Represents less than 1% of shares outstanding. (1) All addresses above are 2685 S. Melrose Drive, Vista, California 92081, unless otherwise stated. (2) Includes 4,453,757 shares of common stock held by Esenjay Investments, LLC, of which Mr. Johnson is the sole director and beneficial owner, (ii) 12,310 shares of common stock issuable to Mr. Johnson upon exercise of stock options, and (iii) 220,937 shares of common stock issuable to Esenjay upon conversion of outstanding principal under the LOC. (3) Includes 21,660 shares of common stock and 201,278 shares of common stock issuable upon exercise of stock options. (4) Includes 5,000 shares of common stock and 18,750 shares of common stock issuable upon exercise of stock options. (5) Includes 1,875 shares of common stock and 86,761 shares of common stock issuable upon exercise of stock options. (6) Includes 87,500 shares of common stock and 870 shares of common stock issuable upon exercise of stock options. 44 (7) Includes 1,480 shares of common stock issuable upon exercise of stock options. (8) Includes 1,480 shares of common stock issuable upon exercise of stock options. (9) Includes 17,500 shares of common stock held by Wade Massad, 710,855 shares of common stock held by Cleveland and up to approximately 375,700 shares of common stock issuable to Cleveland upon partial conversion of outstanding principal under the LOC (the Cleveland convertible note under the LOC limits the conversion to beneficial ownership of 9.99%), and 83,205 shares of common stock underlying warrant issued to Cleveland, which number became fixed upon closing of the private placement on July 24, 2020 pursuant to the terms of the warrant. Wade Massad is the Co-Managing Member at Cleveland Capital Management LLC, which is the general partner of Cleveland. The convertible notes and warrant limit the conversion such that the beneficial ownership does not exceed 9.99%. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE 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 offering in the amount of $300,000 and $50,000, respectively. In addition, Mr. Cosentino, one of our directors, also participated in the offering in the amount of $250,000. Credit Facility Agreement On March 28, 2019, Flux Power, entered into an Amended and Restated Credit Facility Agreement with Esenjay, Cleveland and other lenders (Cleveland and Esenjay, together with additional parties that joined and may join as additional lenders, collectively the “Lenders”) relating to a line of credit (“LOC”) to amend and restate the terms of the Credit Facility Agreement dated March 22, 2018 between Flux Power and Esenjay (the Original Credit Facility Agreement) in its entirety to (i) increase the maximum principal amount available under the LOC from $5,000,000 to $7,000,000, (ii) add Cleveland as an additional lender to the LOC pursuant to which each lender has a right to advance a pro rata amount of the principal amount available under the LOC, (iii) extend the maturity date from March 31, 2019 to December 31, 2019, and (iv) to provide for additional parties to become a Lender under the LOC. Mr. Michael Johnson, a member of our board of directors and a major stockholder, is the beneficial owner and director of Esenjay. To secure the obligations under the secured notes issued under the LOC (LOC Notes), Flux Power entered into an Amended and Restated Security Agreement dated March 28, 2019 with the Lenders (the “Amended Security Agreement”). The Amended Security Agreement amended and restated the Guaranty and Security Agreement dated March 22, 2018, by and between Flux Power and Esenjay, to among other things, amend such agreement to include Cleveland and the other Lender as additional secured parties to the Amended Security Agreement and appoint Esenjay as collateral agent. In connection with the LOC, on March 28, 2019, we issued a secured promissory note to Cleveland (the “Original Cleveland Note”), and an amended and restated secured promissory note to Esenjay, which amended and superseded the secured promissory note dated March 22, 2018 (the “Original Esenjay Note” and together with the Original Cleveland Note, the “Original Notes”). The Original Notes were issued for the aggregate principal amount of $7,000,000 or such lesser principal amount advanced by the respective Lender under the LOC. The Original Credit Facility Agreement was amended and restated on October 10, 2019 (the “Second Restated Credit Facility Agreement”) to amend and restate the terms of the LOC to increase the line of credit under the LOC from $7,000,000 to $10,000,000 (the “LOC Increase”). In addition, Flux Power and the Lenders amended the Amended Security Agreement to reflect the Second Restated Credit Facility. In connection therewith, each Lender and Flux also entered into an amendment to amend their Original Notes to reflect the LOC Increase (the “Amended Notes”). On December 31, 2019, the Amended Notes were further amended to (i) increase the LOC from $10,000,000 to $12,000,000, (ii) extend the maturity date of their respective secured promissory note under the Credit Facility from December 31, 2019 to June 30, 2020, and (iii) capitalize all accrued and unpaid interest to the principal amount as of December 31, 2019 (the “Second Amended Notes”). As an inducement to the Lenders for entering into the Second Amended Notes, we granted the Lenders the right to convert, in whole or in parts, all of the outstanding principal amount and accrued and unpaid interest under the Second Amended Notes for shares of common stock, $0.001 par value, at the conversion price equal to the purchase price at the next financing of at least $1,000,000 on or after December 31, 2019. 45 On June 30, 2020, Flux Power and the Lenders executed the Third Amendment to the Amended and Restated Secured Promissory Note which (i) extended the maturity date of the Secured Notes from June 30, 2020 to December 31, 2020, and (ii) capitalized all accrued and unpaid interest to the principal amount as of June 30, 2020 (the Third Amendment and with the Amended Notes, the Notes. In addition, in connection with our private placement of up to 2,000,000 shares of our common stock, par value $0.001 to accredited investors for an aggregate amount of up to approximately $8,000,000, or $4.00 per share of Common Stock (the “Offering”), we completed an initial closing of the Offering on June 30, 2020 pursuant to which an aggregate of 275,000 shares were issued for $1,100,000 of shares of common stock for cash. As a result of the initial closing of the Offering, each of the Lenders has a right to convert the principal and accrued interest outstanding under their respective Notes into shares of common stock at $4.00 per share, which was the price per share of common stock sold under the Offering. Following the initial closing of the Offering, Esenjay converted $4,400,000 of its Esenjay LOC Note, which consisted of principal plus accrued interest, into shares of common stock at $4.00 per share, for an aggregate of 1,100,000 shares of common stock (“Conversion”). In addition, on June 26, 2020, Esenjay partially assigned $1,350,000 of its Esenjay LOC Note to certain creditors of Esenjay as settlement of obligations owed by Esenjay to such creditors. As of June 30, 2020, and following the Conversion, Esenjay had approximately $984,000 outstanding under its Note, and Cleveland and the other Lenders had approximately $4,306,000 outstanding under their respective Notes, for a combined total of approximately $5,290,000 outstanding under the LOC. 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. As of August 31, 2020, Esenjay had approximately $884,000 outstanding under its Note, which includes the consolidation of the amount previously due under the Esenjay Note, and Cleveland and the other Lenders had approximately $3,512,000 outstanding under their respective Notes, for a combined total of approximately $4,396,000 outstanding under the LOC. The LOC Notes bear an interest rate of 15% per annum and have a maturity date of September 30, 2021. Cleveland Loan On July 3, 2019, Flux Power entered into a loan agreement with Cleveland, pursuant to which Cleveland agreed to provide a loan for $1,000,000 (the “Cleveland Loan”). In connection with the Cleveland Loan, on July 3, 2019, Flux Power issued Cleveland an unsecured short-term promissory note in the amount of $1,000,000 (the “Unsecured Promissory Note”). The Unsecured Promissory Note bears an interest rate of 15.0% per annum and was originally due on September 1, 2019, unless repaid earlier from a percentage of proceeds from certain identified accounts receivable. In connection with the Cleveland Loan, we issued Cleveland a three-year warrant (the “Cleveland Warrant”) to purchase common stock in a number equal to 0.5% of the number of shares of common stock outstanding after giving effect to the total number of shares of common stock to be sold in a contemplated public offering and with an exercise price equal to the per share public offering price. On September 1, 2019, Flux Power entered into the First Amendment to the Unsecured Promissory Note pursuant to which the maturity date of the Unsecured Promissory Note was modified from September 1, 2019 to December 1, 2019 (the “First Amendment”). In connection with the First Amendment, we replaced the Cleveland Warrant with the Amended and Restated Warrant Certificate (the “Amended Warrant”). The Amended Warrant increased 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. In addition, the exercise price was also changed to equal the per share price of common stock sold in such offering. 46 On December 3, 2019, Flux Power entered into the Second Amendment to the Unsecured Promissory Note pursuant to which the maturity date was modified from December 1, 2019 to December 31, 2019 and waived any Event of Default (as defined in the Unsecured Promissory Note) arising from the failure of Flux Power to make the requirement payment due on December 1, 2019 under the First Amendment (the “Second Amendment”). On December 31, 2019, Flux Power entered into the Third Amendment to the Unsecured Promissory Note pursuant to which the maturity date was modified from December 31, 2019 to March 31, 2020, and all accrued and unpaid interest as of December 31, 2019 was capitalized to the principal amount (the “Third Amendment”). On March 31, 2020, Flux Power entered into the Fourth Amendment to the Unsecured Promissory Note pursuant to which the maturity date was modified from March 31, 2020 to April 30, 2020, and all accrued and unpaid interest as of March 31, 2020 was capitalized to the principal amount (the “Fourth Amendment”). On April 30, 2020 Flux Power entered into the Fifth Amendment to the Unsecured Promissory Note pursuant to which extended the maturity date from April 30, 2020 to May 31, 2020, and capitalized all accrued and unpaid interest to the principal amount as of April 30, 2020 (the “Fifth Amendment”). On May 29, 2020, Flux Power entered into the Sixth Amendment to the Unsecured Promissory Note pursuant to which extended the maturity date from May 31, 2020 to June 30, 2020, and capitalized all accrued and unpaid interest to the principal amount (the “Sixth Amendment”). On June 30, 2020, Flux Power entered into the Seventh Amendment to the Unsecured Promissory Note which extended the maturity date from June 30, 2020 to July 31, 2020, and capitalized all accrued and unpaid interest to the principal amount (the “Seventh Amendment”). As of June 30, 2020, there was $1,157,000 in principal outstanding under the Cleveland Note. On July 27, 2020, in connection with the outstanding loan from Cleveland to the Company in the principal amount of $1,157,000, the Company entered into the Eighth Amendment to the Unsecured Promissory Note which extended the maturity date from July 31, 2020 to August 31, 2020, and capitalized all accrued and unpaid interest as of July 27, 2020 to the principal amount (the “Eighth Amendment” and together with the Original Note, the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment, the Sixth Amendment and the Seventh Amendment, the “Cleveland Note”). On August 19, 2020, the Company paid Cleveland the entire remaining principal balance due under the Cleveland Loan, together with all accrued interest payable as of August 19, 2020, in an aggregate amount of approximately $978,000. Esenjay Loan On March 9, 2020, we entered into a convertible promissory note with Esenjay (“Original Esenjay Note”) pursuant to which Esenjay provided us with a loan in the principal amount of $750,000 (the “Esenjay Loan”). The Original Esenjay Note bears an interest rate of 15% per annum and was originally due on the earlier of: (i) June 30, 2020, unless extended pursuant to the terms thereunder, or (ii) an occurrence of an event of default. The outstanding obligations under the Original Esenjay Note are convertible into shares of common stock at the cash price per share of the equity securities paid by purchasers in the offering at any time upon consummation of an offering of equity securities of at least $1,000,000 before the maturity date. On June 2, 2020, the Original Esenjay Note was amended and restated to (i) extend the maturity date from June 30, 2020 to September 30, 2020, and (ii) to increase the principal amount outstanding under the Esenjay Note from $750,000 to $1,400,000 (the “Esenjay Note”). On June 26, 2020, Esenjay assigned $500,000 of the Esenjay Note to two (2) accredited investors. On June 30, 2020, in connection with the completion of our initial closing of the Offering, the principal amount outstanding under the Esenjay Note became convertible into shares of common stock at $4.00 per share, which was the cash price per share of the Offering (“Esenjay Initial Conversion”). The two note holders converted their notes into shares of common stock at $4.00 per share. In addition, on July 22, 2020, one 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 the 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. LOC and Esenjay Note Consolidation 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 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. 47 Other Loan Agreements With Esenjay Between October 2011 and September 2012, we entered into three debt agreements with Esenjay. The three debt agreements consisted of a Bridge Loan Promissory Note (“Bridge Note”), a Secondary Revolving Promissory Note (“Revolving Note”) and an Unrestricted Line of Credit (“Unrestricted LOC”). On December 31, 2015, the Bridge Note and the Revolving Note expired, leaving the Unrestricted LOC available for future draws. The Unrestricted LOC had a maximum borrowing amount of $10,000,000, was convertible at a rate of $6.00 per share, bore interest at 8% per annum and was to mature on January 31, 2019. On October 31, 2018, we entered into an Early Note Conversion Agreement pursuant to which Esenjay converted the outstanding principal amount of $7,975,000 plus accrued and unpaid interest of $1,041,280 under the Bridge Note, Revolving Note and the Unrestricted LOC into 1,502,714 shares of our common stock. In connection with the Early Note Conversion Agreement, we issued an additional 26,802 shares of common stock to Esenjay and recorded the issuance as interest expense at the stock’s fair value of approximately $466,000. On March 22, 2018, Flux Power entered into a Credit Facility Agreement with Esenjay with a maximum borrowing amount of $5,000,000. Proceeds from the Original Credit Facility Agreement were to be used to purchase inventory and related operational expenses and accrued interest at a rate of 15% per annum. The outstanding balance of the Original Credit Facility and accrued interest was due and payable on March 31, 2019. Funds received from Esenjay since December 5, 2017 and prior to the Original Credit Facility Agreement were consolidated under the Original Credit Facility. As disclosed above, the Original Credit Facility was subsequently amended and restated. Stockholder Short Term Lines of Credit On October 26, 2018, we entered into a credit facility agreement with a related party, pursuant to which Cleveland agreed to make available to Flux a line of credit (“2018 Cleveland LOC”) in a maximum principal amount at any time outstanding of up to $2,000,000 with a maturity date of December 31, 2018. The 2018 Cleveland LOC has an origination fee in the amount of $20,000, which represents 1% of the 2018 Cleveland LOC, and carries a simple interest of 12% per annum. Interest is calculated on the basis of the actual daily balances outstanding under the 2018 Cleveland LOC. The 2018 Cleveland LOC was repaid on December 27, 2018. Transactions with Epic Boats The Company subleased office and manufacturing space to Epic Boats (an entity founded and controlled by Chris Anthony, our former board member and former Chief Executive Officer) in our facility in Vista, California pursuant to a month-to-month sublease agreement. Pursuant to this agreement, Epic Boats paid Flux Power 10% of facility costs through the end of our lease agreement which was June 30, 2019. The Company received $18,000 for the year ended June 30, 2019 from Epic Boats under the sublease rental agreement which is recorded as a reduction to rent expense and the customer deposits discussed below. As of June 30, 2019, the customer deposit totaling approximately $84,000 was recognized as Other Income since Epic Boats has released that deposit liability. There were no customer deposits related to such products as of June 30, 2019 and there were no receivables outstanding from Epic Boats as of June 30, 2019. ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES Independent Auditor For the years ended June 30, 2020 and 2019, the Company’s independent public accounting firm was Squar Milner LLP. Fees Paid to Principal Independent Registered Public Accounting Firm The aggregate fees billed by our Independent Registered Public Accounting Firm, for the years ended June 30, 2020 and 2019 are as follows: 2020 2019 Audit fees(1) $ 212,000 $ 175,000 Audit related fees(2) - - Tax fees(3) - - All other fees(4) - - Total $ 212,000 $ 175,000 48 (1) Audit fees represent fees for professional services provided in connection with the audit of our annual financial statements and the review of our quarterly financial statements and those services normally provided in connection with statutory or regulatory filings or engagements including comfort letters, consents and other services related to SEC matters. This information is presented as of the latest practicable date for this annual report. (2) Audit-related fees represent fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and not reported above under “Audit Fees.” No such fees were incurred during the fiscal years ended June 30, 2020 or 2019. (3) Squar Milner LLP does not provide us with tax compliance, tax advice or tax planning services. (4) All other fees include fees billed by our independent auditors for products or services other than as described in the immediately preceding three categories. No such fees were incurred during the fiscal years ended June 30, 2020 or 2019. PART IV ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Financial Statements and Financial Statement Schedules. The following financial statements of Flux Power Holdings, Inc., and Report of Squar Milner LLP, independent registered public accounting firm, are included in this report: Page Report of Independent Registered Public Accounting Firm - Squar Milner LLP F-1 Consolidated Balance Sheets as of June 30, 2020 and 2019 F-2 Consolidated Statements of Operations for the Years Ended June 30, 2020 and 2019 F-3 Consolidated Statements of Stockholders’ Deficit for the Years Ended June 30, 2020 and 2019 F-4 Consolidated Statements of Cash Flows for the Years Ended June 30, 2020 and 2019 F-5 Notes to the Consolidated Financial Statements F-6 Financial Statement Schedules: All schedules have been omitted because the required information is included in the financial statements or notes thereto or because they are not required. (b) Exhibits: The following exhibits are filed as part of this Report Exhibit No. Description 2.1 Securities Exchange Agreement dated May 18, 2012. Incorporated by reference to Exhibit 2.1 on Form 8-K filed with the SEC on May 24, 2012. 2.2 Amendment No. 1 to the Securities Exchange Agreement dated June 13, 2012. Incorporated by reference to Exhibit 2.2 on Form 8-K filed with the SEC on June 18, 2012. 3.1 Restated Articles of Incorporation. Incorporated by reference to Exhibit 3.1 on Form 8-K filed with the SEC on February 19, 2015. 3.2 Amended and Restated Bylaws of Flux Power Holdings, Inc. Incorporated by reference to Exhibit 3.1 on Form 8-K filed with the SEC on May 31, 2012. 3.3 Certificate of Amendment to Articles of Incorporation. Incorporated by reference to Exhibit 3.1 on Form 8-K filed with the SEC on August 18, 2017. 3.4 Certificate of Change. Incorporated by reference to Exhibit 3.1 on Form 8-K filed with the SEC on July 12, 2019. 49 4(vi). Description of Securities* 10.1 Flux Power Holdings, Inc. 2010 Stock Plan. Incorporated by reference to Exhibit 10.5 on Form 8-K filed with the SEC on June 18, 2012. 10.2 Flux Power Holdings, Inc. 2010 Stock Plan: Form of Stock Option Agreement. Incorporated by reference to Exhibit 10.6 on Form 8-K filed with the SEC on June 18, 2012. 10.3 Form of Indemnification Agreement. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on April 9, 2019. 10.4 Terms of Employment with Ronald F. Dutt. Incorporated by reference to Exhibit 10.16 on Form 8-K filed with the SEC on December 13, 2012. 10.5 Amendment to the Employment Agreement, dated February 15, 2019 by and between Flux Power Holdings, Inc. and Ronald F. Dutt. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on February 19, 2019. 10.6 2014 Equity Incentive Plan. Incorporated by reference to Exhibit 10.23 on Form 10-Q filed with the SEC on May 15, 2015. 10.7 Amendment to the Flux Power Holdings Inc. 2014 Equity Incentive Plan. Incorporated by reference to Exhibit 10.20 on Form 10-K filed with the SEC on September 27, 2018. 10.8 Lease Agreement dated April 25, 2019. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on April 30, 2019. 10.9 Amended and Restated Warrant Certificate (Cleveland) dated July 3, 2019. Incorporated by reference to Exhibit 10.2 on Form 8-K filed with the SEC on September 6, 2019. 10.10 First Amendment to Standard Industrial/Commercial Multi Tenant Lease with Accutek dated March 1, 2020. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on March 5, 2020. 10.11 Promissory Note with Bank of America, NA dated May 1, 2020. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on May 7, 2020. 10.12 Third Amended and Restated Credit Facility Agreement. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on September 4, 2020. 10.13 Second Amended and Restated Security Agreement. Incorporated by reference to Exhibit 10.2 on Form 8-K filed with the SEC on September 4, 2020. 10.14 Form of Amended and Restated Promissory Note (LOC Lenders) Incorporated by reference to Exhibit 10.4 on Form 8-K filed with the SEC on September 4, 2020. 10.15 Second Amended and Restated Convertible Promissory Note (Esenjay). Incorporated by reference to Exhibit 10.3 on Form 8-K filed with the SEC on September 4, 2020. 14.1 Code of Business Conduct and Ethics. Incorporated by reference to Exhibit 99.4 on Form 8-K filed with the SEC on July 2, 2019. 21.1 Subsidiaries. Incorporated by reference to Exhibit 21.1 on Form 8-K filed with the SEC on June 18, 2012 23.1 Consent of Independent Registered Public Accounting Firm* 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. ITEM 16 – FORM 10-K SUMMARY None . 50 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and 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 Holdings, Inc. Dated: September 28, 2020 By: /s/ Ronald F. Dutt Ronald F. Dutt Chief Executive Officer (Principal Executive Officer) By: /s/ Charles A. Scheiwe Charles A. Scheiwe Chief Financial Officer ( Principal Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Ronald F. Dutt Director, Chief Executive Officer, September 28, 2020 Ronald F. Dutt President and Director (Principal Executive Officer) /s/ Charles A. Scheiwe Chief Financial Officer September 28, 2020 Charles A. Scheiwe (Principal Financial Officer) /s/ Michael Johnson Director September 28, 2020 Michael Johnson /s/ John A. Cosentino, Jr. Director September 28, 2020 John A. Cosentino, Jr. /s/ Lisa Walters-Hoffert Director September 28, 2020 Lisa Walters-Hoffert /s/ Dale Robinette Director September 28, 2020 Dale Robinette 51 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Flux Power Holdings, Inc. and its subsidiary (the Company) as of June 30, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. SQUAR MILNER LLP /s/ SQUAR MILNER LLP We have served as the Company’s auditor since 2012. San Diego, California September 28, 2020 F- 1 FLUX POWER HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS June 30, 2020 June 30, 2019 ASSETS Current assets: Cash $ 726,000 $ 102,000 Accounts receivable 3,069,000 2,416,000 Inventories 5,256,000 3,813,000 Other current assets 787,000 371,000 Total current assets 9,838,000 6,702,000 Right of use asset 3,435,000 - Other assets 174,000 158,000 Property, plant and equipment, net 528,000 346,000 Total assets $ 13,975,000 $ 7,206,000 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable $ 4,648,000 $ 2,483,000 Accrued expenses 1,400,000 858,000 Deferred revenue 4,000 - Customer deposits 1,563,000 - Due to factor 469,000 - Short-term loans – related party 2,057,000 - Line of credit - related party 5,290,000 6,405,000 Financing lease payable, current portion 28,000 29,000 Office lease payable, current portion 288,000 - Accrued interest 50,000 571,000 Total current liabilities 15,797,000 10,346,000 Long term liabilities: Financing lease payable, less current portion - 29,000 Paycheck Protection Program loan payable 1,297,000 - Office lease payable, less current portion 3,301,000 - Total liabilities 20,395,000 10,375,000 Stockholders’ deficit: Preferred stock, $0.001 par value; 500,000 shares authorized; none issued and outstanding - - Common stock, $0.001 par value; 30,000,000 shares authorized; 7,420,487 and 5,101,580 shares issued and outstanding at June 30, 2020 and June 30, 2019, respectively 7,000 5,000 Additional paid-in capital 46,985,000 35,902,000 Accumulated deficit (53,412,000 ) (39,076,000 ) Total stockholders’ deficit (6,420,000 ) (3,169,000 ) Total liabilities and stockholders’ deficit $ 13,975,000 $ 7,206,000 The accompanying notes are an integral part of these consolidated financial statements. F- 2 FLUX POWER HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Years ended June 30, 2020 2019 Net revenue $ 16,842,000 $ 9,317,000 Cost of sales 14,656,000 8,768,000 Gross profit 2,186,000 549,000 Operating expenses: Selling and administrative expenses 9,761,000 7,712,000 Research and development 4,973,000 4,088,000 Total operating expenses 14,734,000 11,800,000 Operating loss (12,548,000 ) (11,251,000 ) Other income - 84,000 Interest expense (1,788,000 ) (1,247,000 ) Net loss $ (14,336,000 ) $ (12,414,000 ) Net loss per share - basic and diluted $ (2.80 ) $ (2.84 ) Weighted average number of common shares outstanding - basic and diluted 5,118,713 4,364,271 The accompanying notes are an integral part of these consolidated financial statements. F- 3 FLUX POWER HOLDING, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT Common Stock Shares Capital Stock Amount Additional Paid-in Capital Accumulated Deficit Total Balance at June 30, 2019 5,101,580 $ 5,000 $ 35,902,000 $ (39,076,000 ) $ (3,169,000 ) Issuance of common stock – exercised options 3,706 - 4,000 - 4,000 Issuance of common stock - services 3,121 - 30,000 - 30,000 Issuance of common stock - private placement transactions, net 341,250 - 1,365,000 - 1,365,000 Issuance of Common Stock - Debt Conversion 1,970,830 2,000 7,881,000 - 7,883,000 Stock-based compensation - - 1,803,000 - 1,803,000 Net loss - - - (14,336,000 ) (14,336,000 ) Balance at June 30, 2020 7,420,487 $ 7,000 $ 46,985,000 $ (53,412,000 ) $ (6,420,000 ) Common Stock Shares Capital Stock Amount Additional Paid-in Capital Accumulated Deficit Total Balance at June 30, 2018 3,106,103 $ 3,000 $ 19,224,000 $ (26,662,000 ) $ (7,435,000 ) Issuance of common stock – services 11,390 - 261,000 - 261,000 Warrant exchange for common stock 3,713 - - - - Issuance of common stock - private placement transactions, net 399,256 - 4,390,000 - 4,390,000 Issuance of Common Stock - Loan Conversion 1,581,118 2,000 10,083,000 - 10,085,000 Stock based compensation - - 1,944,000 - 1,944,000 Net loss - - - (12,414,000 ) (12,414,000 ) Balance at June 30, 2019 5,101,580 $ 5,000 $ 35,902,000 $ (39,076,000 ) $ (3,169,000 ) The accompanying notes are an integral part of these consolidated financial statements. F- 4 FLUX POWER HOLDING, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Year ended June 30, 2020 2019 Cash flows from operating activities: Net loss $ (14,336,000 ) $ (12,414,000 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 141,000 81,000 Stock-based compensation 1,803,000 1,944,000 Stock issuance for services 30,000 261,000 Interest expense on conversion - 699,000 Noncash interest expense 1,599,000 - Noncash rent expense 323,000 - Allowance for inventory reserve 317,000 - Changes in operating assets and liabilities: Accounts receivable (653,000 ) (1,470,000 ) Inventories (1,760,000 ) (2,301,000 ) Other current assets (432,000 ) (411,000 ) Accounts payable 2,165,000 2,065,000 Accrued expenses 542,000 385,000 Due to factor 469,000 - Deferred revenue 4,000 - Accrued interest 50,000 551,000 Office lease payable (169,000 ) - Customer deposits 1,563,000 (102,000 ) Net cash used in operating activities (8,344,000 ) (10,712,000 ) Cash flows from investing activities Purchases of equipment (323,000 ) (275,000 ) Net cash used in investing activities (323,000 ) (275,000 ) Cash flows from financing activities: Proceeds from the sale of common stock 1,369,000 4,390,000 Proceeds from Payment Protection Program 1,297,000 - Repayment of line of credit - related party debt - (2,500,000 ) Borrowings from short-term loan - related party debt 2,400,000 - Borrowings from line of credit - related party debt 4,255,000 6,500,000 Principal payments of financing lease payable (30,000 ) (7,000 ) Net cash provided by financing activities 9,291,000 8,383,000 Net change in cash 624,000 (2,604,000 ) Cash, beginning of period 102,000 2,706,000 Cash, end of period $ 726,000 $ 102,000 Supplemental Disclosures of Non-Cash Investing and Financing Activities: Initial recognition of right-of-use lease asset and lease liability $ 2,706,000 $ - Accrued interest converted into principal $ 2,170,000 $ - Interest paid $ 137,000 $ - Common stock issued for conversion of related party debt $ 7,883,000 $ 8,475,000 Common stock issued for conversion of accrued interest $ - $ 1,610,000 Stock issuance for services $ 30,000 $ 261,000 Equipment purchase through capital lease $ - $ 65,000 The accompanying notes are an integral part of these consolidated financial statements. F- 5 FLUX POWER HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2020 and 2019 NOTE 1 - NATURE OF BUSINESS AND REVERSE STOCK SPLIT Nature of Business Flux Power Holdings, Inc. (“Flux”) was incorporated in 1998 in the State of Nevada. On June 14, 2012, we changed our name to Flux Power Holdings, Inc. Flux’s operations are conducted through its wholly owned subsidiary, Flux Power, Inc. (“Flux Power”), a California corporation (collectively, the “Company”). We design, develop, manufacture, and sell advanced rechargeable lithium-ion energy storage solutions for lift trucks, airport ground support equipment (“GSE”) and other industrial motive applications. Our “LiFT” battery packs, including our proprietary battery management system (“BMS”), provide our customers with a better performing, cheaper 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 (“Class 3 Walkie”) LiFT pack product line in 2016 and expect to finalize UL listing during calendar 2020 for our other product lines, which include Class 1 Counterbalance/Sit down/Ride-on (“Class 1 Ride-on”) LiFT packs, Class 2 Narrow Aisle LiFT packs, and Class 3 End Rider LiFT packs. 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. Our Class 3 Walkie LiFT packs have been approved for use by leading industrial motive manufacturers, including Toyota Material Handling USA, Inc., Crown Equipment Corporation, and Raymond Corporation. As used herein, the terms “we,” “us,” “our,” “Flux,” and “Company” mean Flux Power Holdings, Inc., unless otherwise indicated. All dollar amounts herein are in U.S. dollars unless otherwise stated Reverse Stock Split The Company effected a 1-for-10 reverse split of its 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 as of June 30, 2019. 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 the Company’s stock remained unchanged at $0.001. In addition, by reducing the number of the Company’s outstanding shares, the Company’s loss per share in all periods presented was increased by a factor of ten. As the par value per share of the Company’s common stock remained unchanged at $0.001 per share, a total of $46,000 was reclassified from common stock to additional paid-in capital. In connection with the Reverse Stock Split, proportionate adjustments have been made to the per share exercise price and the number of shares issuable upon the exercise or conversion of all outstanding options, warrants, convertible or exchangeable securities entitling the holders to purchase, exchange for, or convert into, shares of common stock. All references to shares of common stock and per share data for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted to reflect the Reverse Stock Split on a retroactive basis. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the Company’s significant accounting policies which have been consistently applied in the preparation of the accompanying consolidated financial statements follows: Principles of Consolidation The consolidated financial statements include Flux Power Holdings, Inc. and its wholly-owned subsidiary Flux Power, Inc. after elimination of all intercompany accounts and transactions. F- 6 Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation for comparative purposes. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as certain financial statement disclosures. Significant estimates include valuation allowances relating to inventory and deferred tax assets. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from these estimates. Cash and Cash Equivalents As of June 30, 2020, cash totaled approximately $726,000 and consists of funds held in a non-interest bearing bank deposit account. The Company considers all liquid short-term investments with maturities of less than three months when acquired to be cash equivalents. The Company had no cash equivalents at June 30, 2020 and 2019. Fair Values of Financial Instruments The carrying amount of our cash, accounts payable, accounts receivable, and accrued liabilities approximates their estimated fair values due to the short-term maturities of those financial instruments. The carrying amount of the line of credit agreement approximates its fair values as interest approximates current market interest rates for similar instruments. Management has concluded that it is not practical to determine the estimated fair value of amounts due to related parties because the transactions cannot be assumed to have been consummated at arm’s length, the terms are not deemed to be market terms, there are no quoted values available for these instruments, and an independent valuation would not be practical due to the lack of data regarding similar instruments, if any, and the associated potential costs. The Company does not have any other assets or liabilities that are measured at fair value on a recurring or non-recurring basis. Accounts Receivable Accounts receivable are carried at their estimated collectible amounts. The Company has not experienced collection issues related to its accounts receivable and has not recorded an allowance for doubtful accounts during the fiscal year ended June 30, 2020 and 2019. 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 to inventory reserve related to obsolete and slow moving inventory in the amount of approximately $317,000 during the year ended June 30, 2020. Property, Plant and Equipment Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation and amortization are provided using the straight-line method over the estimated useful lives, of the related assets ranging from three to ten years, or, in the case of leasehold improvements, over the lesser of the useful life of the related asset or the lease term. F- 7 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. 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 for the Company’s three major customers represents the point in time that they receive delivery of the products, and for all other customers represents the point in time that the Company ships 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. Impairment of Long-lived Assets In accordance with authoritative guidance for the impairment or disposal of long-lived assets, if indicators of impairment exist, the Company assesses the recoverability of the affected long-lived assets by determining whether the carrying value of such assets can be recovered through the undiscounted future operating cash flows. If impairment is indicated, the Company measures the amount of such impairment by comparing the carrying value of the asset to the present value of the expected future cash flows associated with the use of the asset. The Company believes that no impairment indicators were present, and accordingly no impairment losses were recognized during the fiscal years ended June 30, 2020 and 2019. Research and Development The Company is actively engaged in new product development efforts. Research and development cost relating to possible future products are expensed as incurred. F- 8 Income Taxes Pursuant to FASB ASC Topic No. 740, Income Taxes, deferred tax assets or liabilities are recorded to reflect the future tax consequences of temporary differences between the financial reporting basis of assets and liabilities and their tax basis at each year-end. These amounts are adjusted, as appropriate, to reflect enacted changes in tax rates expected to be in effect when the temporary differences reverse. The Company has analyzed filing positions in all of the federal and state jurisdictions where the Company is required to file income tax returns, as well as all open tax years in these jurisdictions. As a result, no unrecognized tax benefits have been identified as of June 30, 2020 or June 30, 2019, and accordingly, no additional tax liabilities have been recorded. The Company records deferred tax assets and liabilities based on the differences between the financial statement and tax bases of assets and liabilities and on operating loss carry forwards using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. Net Loss Per Common Share The Company calculates basic loss per common share by dividing net loss by the weighted average number of common shares outstanding during the periods. Diluted loss per common share includes the impact from all dilutive potential common shares relating to outstanding convertible securities. For the years ended June 30, 2020 and 2019, basic and diluted weighted-average common shares outstanding were 5,118,713 and 4,364,271, respectively. The Company incurred a net loss for the years ended June 30, 2020 and 2019, and therefore, basic and diluted loss per share for each fiscal year are the same because the inclusion of potential common equivalent shares were excluded from diluted weighted-average common shares outstanding during the period, as the inclusion of such shares would be anti-dilutive. The total potentially dilutive common shares outstanding at June 30, 2020 and 2019, excluded from diluted weighted-average common shares outstanding, which include common shares underlying outstanding convertible debt, stock options and warrants, were 2,210,216 and 588,504, respectively. New Accounting Standards 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 Accounting Standards Update (ASU) 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. 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. 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. F- 9 NOTE 3 - INVENTORIES Inventories consist of the following: June 30, 2020 June 30, 2019 Raw materials $ 4,231,000 $ 2,118,000 Work in process 332,000 645,000 Finished goods 693,000 1,050,000 Total Inventories $ 5,256,000 $ 3,813,000 Inventories consist primarily of our energy storage systems and the related subcomponents, and are stated at the lower of cost or net realizable value. Inventory held at consignment locations is included in our finished goods inventory and totaled $0 and $19,000 as of June 30, 2020 and 2019, respectively. NOTE 4 – OTHER CURRENT ASSETS Other current assets consist of the following: June 30, 2020 June 30, 2019 Prepaid insurance $ 160,000 $ 28,000 Prepaid inventory 32,000 59,000 Prepaid rent - 42,000 Prepaid offering costs 547,000 198,000 Prepaid expenses 48,000 44,000 Total Other current assets $ 787,000 $ 371,000 NOTE 5 – ACCRUED EXPENSES Accrued expenses consist of the following: June 30, 2020 June 30, 2019 Payroll and bonus accrual $ 403,000 $ 294,000 PTO accrual 270,000 200,000 Warranty liability 726,000 361,000 Sales tax payable - 2,000 Garnishments 1,000 1,000 Total Accrued expenses $ 1,400,000 $ 858,000 NOTE 6 - PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, net consist of the following: June 30, 2020 June 30, 2019 Vehicles $ 20,000 $ 20,000 Machinery and equipment 323,000 246,000 Office equipment 290,000 233,000 Furniture and Equipment 154,000 116,000 Leasehold improvements 54,000 - 841,000 615,000 Less: Accumulated depreciation (313,000 ) (269,000 ) Total property, plant and equipment, net $ 528,000 $ 346,000 Depreciation expense was approximately $141,000 and $81,000, for the years ended June 30, 2020 and 2019, respectively, and is included in selling and administrative expenses in the accompanying consolidated statements of operations. F- 10 NOTE 7 – Paycheck Protection Program Loan On May 1, 2020, the Company applied for and received a loan from the Bank of America, NA (the “BOA”) in the aggregate principal amount of approximately $1,297,000 (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 Company received the funds on or around May 4, 2020. The PPP Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Proceeds from the PPP Loan are available to the Company 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, subject to specific limitations, 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. The Company 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 the Company 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 June 30, 2020, the outstanding balance of the PPP Loan was approximately $1,297,000. NOTE 8 - RELATED PARTY DEBT AGREEMENTS Esenjay Loan On March 9, 2020, the Company and Esenjay entered into a certain convertible promissory note (“Original Esenjay Note”) pursuant to which Esenjay provided the Company with a loan in the principal amount of $750,000 (the “Esenjay Loan”). The Original Esenjay Note bears an interest rate of 15% per annum and was originally due on the earlier of: (i) June 30, 2020, unless extended pursuant to the terms thereunder, or (ii) an occurrence of an event of default. The outstanding obligations under the Original Esenjay Note are convertible into shares of common stock of the Company at the cash price per share of the equity securities paid by purchasers in the offering at any time upon consummation of an offering of equity securities of at least $1,000,000 before the maturity date. On June 2, 2020, the Original Esenjay Note was amended and restated to (i) extend the maturity date from June 30, 2020 to September 30, 2020, and (ii) to increase the principal amount outstanding under the Original Esenjay Note from $750,000 to $1,400,000 (the “Esenjay Note”). On June 26, 2020, Esenjay assigned $500,000 of the Esenjay Note to two (2) accredited investors. On June 30, 2020, in connection with the completion of the Company’s initial closing of its 2020 Private Placement offering, the principal amount outstanding under the Esenjay Note became convertible into shares of common stock at $4.00 per share, which was the cash price per share of the Offering (“Esenjay Initial Conversion”). The two note holders converted their notes into shares of common stock at $4.00 per share. As June 30, 2020, the outstanding principal balance of the Esenjay Loan was $900,000. Cleveland Loan On July 3, 2019, the Company entered into a loan agreement with Cleveland, pursuant to which Cleveland agreed to loan the Company $1,000,000 (the “Cleveland Loan”). In connection with the Cleveland Loan, on July 3, 2019, the Company issued Cleveland an unsecured short-term promissory note in the amount of $1,000,000 (the “Unsecured Promissory Note”). The Unsecured Promissory Note bears an interest rate of 15.0% per annum and was originally due on September 1, 2019, unless repaid earlier from a percentage of proceeds from certain identified accounts receivable. In connection with the Cleveland Loan, the Company issued Cleveland a three-year warrant (the “Cleveland Warrant”) to purchase the Company’s common stock in a number equal to 0.5% of the number of shares of common stock outstanding after giving effect to the total number of shares of common stock to be sold in a contemplated public offering and with an exercise price equal to the per share public offering price. F- 11 On September 1, 2019, the Company entered into the First Amendment to the Unsecured Promissory Note pursuant to which the maturity date of the Unsecured Promissory Note was modified from September 1, 2019 to December 1, 2019 (the “First Amendment”). In connection with the First Amendment, the Company replaced the Cleveland Warrant with the Amended and Restated Warrant Certificate (the “Amended Warrant”). The Amended Warrant increased 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. In addition, the exercise price was also changed to equal the per share price of common stock sold in such offering. The fair value of such warrants was not significant. (See Note 9) On December 3, 2019, the Company entered into the Second Amendment to the Unsecured Promissory Note pursuant to which the maturity date was modified from December 1, 2019 to December 31, 2019 and waived any Event of Default (as defined in the Unsecured Promissory Note) arising from the failure of the Company to make the requirement payment due on December 1, 2019 under the First Amendment (the “Second Amendment”). On December 31, 2019, the Company entered into the Third Amendment to the Unsecured Promissory Note pursuant to which the maturity date was modified from December 31, 2019 to March 31, 2020, and all accrued and unpaid interest as of December 31, 2019 was capitalized to the principal amount (the Third Amendment). On March 31, 2020, the Company entered into the Fourth Amendment to the Unsecured Promissory Note pursuant to which the maturity date was modified from March 31, 2020 to April 30, 2020, and all accrued and unpaid interest as of March 31, 2020 was capitalized to the principal amount (the Fourth Amendment). On April 30, 2020 the Company entered into the Fifth Amendment to the Unsecured Promissory Note pursuant to which extended the maturity date from April 30, 2020 to May 31, 2020, and capitalized all accrued and unpaid interest as of April 30, 2020 to the principal amount (the Fifth Amendment). On May 29, 2020, the Company entered into the Sixth Amendment to the Unsecured Promissory Note pursuant to which extended the maturity date from May 31, 2020 to June 30, 2020, and capitalized all accrued and unpaid interest as of May 31, 2020 to the principal amount (the Sixth Amendment). On June 30, 2020, the Company entered into the Seventh Amendment to the Unsecured Promissory Note which extended the maturity date from June 30, 2020 to July 31, 2020, and capitalized all accrued and unpaid interest as of June 30, 2020 to the principal amount (the Seventh Amendment). The outstanding principal balance of the Cleveland Loan as of June 30, 2020 was approximately $1,157,000 . On August 19, 2020, the Company paid Cleveland the entire remaining principal balance, together with all accrued interest payable due under the Cleveland Loan. (See Note 14) Credit Facility On March 22, 2018, Flux Power entered into a credit facility agreement with Esenjay with a maximum borrowing amount of $5,000,000. Proceeds from the credit facility were to be used to purchase inventory and related operational expenses and accrue interest at a rate of 15% per annum (the “Original Agreement”). The outstanding balance of the Original Agreement and all accrued interest was due and payable on March 31, 2019. On March 28, 2019, Flux Power entered into an amended and restated credit facility agreement (“Amended and Restated Credit Facility Agreement”) with Esenjay and Cleveland (Cleveland and Esenjay, together with additional parties that may join as a lender, the Lenders) to amend and restate the terms of the Original Agreement in its entirety. To secure the obligations under the Notes, Flux Power entered into an Amended and Restated Security Agreement dated March 28, 2019 with the Lenders (as amended, the “Amended Security Agreement”). The Amended Security Agreement amends and restates the Guaranty and Security Agreement dated March 22, 2018 by and between Esenjay and the Company, and added Cleveland and other Lenders as additional secured parties to the Amended Security Agreement and appointing Esenjay as collateral agent. The Original Agreement was amended, among other things, to (i) increase the maximum principal amount available under line of credit from $5,000,000 to $7,000,000 (“LOC”), (ii) add Cleveland as additional lender to the LOC pursuant to which each lender has a right to advance a pro rata amount of the principal amount available under the LOC, (iii) extend the maturity date from March 31, 2019 to December 31, 2019, and (iv) to provide for additional parties to become a “Lender” under the Amended and Restated Credit Facility Agreement. In connection with the LOC, on March 28, 2019 the Company issued a secured promissory note to Cleveland (the “Cleveland Note”), and an amended and restated secured promissory note to Esenjay which amended and superseded the secured promissory note dated March 22, 2018 (“Esenjay Note” and together with the Cleveland Note and other secured promissory notes to Lenders (the “Notes”). The Notes were issued for the principal amount of $7,000,000 or such lesser principal amount advanced by the respective Lender under the Amended and Restated Credit Facility Agreement. The Notes bear an interest of fifteen percent (15%) per annum and a maturity date of December 31, 2019. On October 10, 2019, the Company entered into a Second Amended and Restated Credit Facility Agreement and pursuant to which the Company further amended its line of credit and Notes to increase the maximum principal amount available under line of credit from $7,000,000 to $10,000,000. On December 31, 2019, the Company further amended the Notes to (i) increase the maximum principal amount available under line of credit from $10,000,000 to $12,000,000, (ii) capitalize all accrued and unpaid interest to the principal amount as of December 31, 2019, and (iii) extend the maturity date from December 31, 2019 to June 30, 2020. In addition, on December 31, 2019, the Company granted a right to each of the Lenders to convert their respective Note under the LOC into shares of the Company’s common stock at any time after the close of the next financing of the Company of at least $1,000,000 on or after December 31, 2019, and on or before the maturity date. F- 12 On June 30, 2020, Flux Power and the Lenders executed the Third Amendment to the Amended and Restated Secured Promissory Note which (i) extended the maturity date of the Secured Notes from June 30, 2020 to December 31, 2020, and (ii) capitalized all accrued and unpaid interest to the principal amount as of June 30, 2020 (the Third Amendment and with the Amended Notes, the “Notes”). In addition, in connection with our private placement of up to 2,000,000 shares of our common stock, par value $0.001 to accredited investors for an aggregate amount of up to approximately $8,000,000, or $4.00 per share of Common Stock (the “Offering”), we completed an initial closing of the Offering on June 30, 2020 pursuant to which an aggregate of 275,000 shares were issued for $1,100,000 of shares of common stock for cash. As a result of the initial closing of the Offering, each of the Lenders has a right to convert the principal and accrued interest outstanding under their respective Notes into shares of common stock at $4.00 per share, which was the price per share of common stock sold under the Offering. 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. The outstanding principal balance as of June 30, 2020 was approximately $5,290,000 of which Esenjay has $984,000 outstanding, Cleveland has $1,720,000 outstanding, and other lenders have an aggregate of $2,586,000 outstanding. As of June 30, 2020, there was approximately $6,710,000 available for draw under the LOC. NOTE 9 - STOCKHOLDERS’ DEFICIT Private Placements 2019 Private Placement In December 2018, our Board of Directors approved the private placement of up to 454,546 shares of common stock to select accredited investors for a total amount of $5,000,000, or $11.00 per share of common stock with the right of the Board to increase the offering amount to $7,000,000 (the “Offering”). On December 26, 2018, the Company completed an initial closing of the Offering, pursuant to which it sold an aggregate of 335,910 shares of common stock, at $11.00 per share, for an aggregate purchase price of approximately $3,695,000 in cash. A portion of the proceeds from the Offering was used to repay in full approximately $2.6 million in borrowings and accrued interest under two short-term credit facilities provided by Cleveland Capital, L.P. and a stockholder. On January 29, 2019, the Company conducted its final closing (the “Final Closing”) to its round of private placement to accredited investors that initially closed on December 26, 2018 (“Initial Closing”). Following the Initial Closing to the Final Closing, the Company sold an additional 63,347 shares of its Common Stock (“Shares”), at $11.00 per share, for an aggregate purchase price of approximately $697,000 to two accredited investors. The shares offered and sold in the Offering 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. The shares were offered and sold to the accredited investors in reliance upon exemptions from registration pursuant to Rule 506(c) of Regulation D promulgated under Section 4(a)(2) under the Securities Act. In the aggregate, the Company issued 399,257 shares of its common stock for an aggregate gross proceeds of approximately $4,392,000 during Fiscal 2019. The Shares were issued on identical terms to those previously reported for the Initial Closing on the Company’s Form 8-K filed with the Securities and Exchange Commission (“SEC”) on December 28, 2018. The Company relied on the exemption from registration pursuant to Rule 506(c) of Regulation D promulgated under Section 4(a)(2) under the Securities Act of 1933, as amended. F- 13 2020 Private Placement On April 22, 2020, the Company 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 (the “2020 Private Placement”). On June 30, 2020, we completed an initial closing of the 2020 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. The shares offered and sold in the 2020 Private Placement offering described above 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. The shares were offered and sold to the accredited investors in reliance upon exemptions from registration pursuant to Rule 506(b) of Regulation D promulgated under Section 4(a)(2) under the Securities Act Debt Conversion 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”). 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. 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. Advisory Agreements Catalyst Global LLC. Effective April 1, 2018, the Company entered into a renewal contract (the “2018 Renewal”) with Catalyst Global LLC to provide investor relations services for 12 months in exchange for monthly fees of $4,500 per month and 3,484 shares of restricted common stock to be issued over the course of the 12-month term. The initial tranche of 871 shares was valued at $15.50 or $13,500 when issued on June 21, 2018, the second tranche of 871 shares was valued at $20.10 or $17,507 when issued September 28, 2018, the third tranche of 871 shares was valued at $17.50 per share or $15,243 when issued on December 31, 2018, and the fourth tranche of 871 shares was valued at $13.10 per share or $11,410 when issued on March 27, 2019. Shenzhen Reach Investment Development Co. (“SRID”). On March 14, 2018, the Company entered into a consulting agreement with SRID to assist us with identifying strategic partners, suppliers and manufacturers in China for a term of 12 months. Included with the services is a two-week trip to China to meet with potential manufacturers, which took place in April 2018. In consideration for the services, we agreed to issue to SRID, up to 17,468 shares of restricted common stock over the course of the 12-month term. As of June 30, 2019, 17,468 shares have been issued. The initial tranche of 5,765 shares was valued at $5.20 or $29,978 when issued on April 26, 2018, the second tranche of 2,926 shares was valued at $17.00 or $49,742 when issued June 21, 2018, the third tranche of 2,926 shares was valued at $20.10 or $58,813 when issued September 28, 2018, the fourth tranche of 2,926 shares was valued at $13.90 per share or $40,671 when issued on January 4, 2019 and the fifth tranche of 2,926 shares was valued at $13.60 per share or $39,794 when issued on March 22, 2019. F- 14 Warrant Activity Warrant detail for the year ended June 30, 2020 is reflected below: Number of Warrants Weighted Average Exercise Price Per Warrant Remaining Contract Term (# years) Warrants outstanding and exercisable at June 30, 2019 8,333 $ 20.00 0.25 Warrants issued 83,205 $ 4.00 3.00 Warrants exchanged - $ - - Warrants forfeited (8,333 ) $ 20.00 Warrants outstanding and exercisable at June 30, 2020 83,205 $ 4.00 2.01 Warrant detail for the year ended June 30, 2019 is reflected below: Number of Warrants Weighted Average Exercise Price Per Warrant Remaining Contract Term (# years) Warrants outstanding and exercisable at June 30, 2018 174,079 $ 20.30 0.74 Warrants issued - $ - - Warrants exchanged (7,996 ) $ 14.80 - Warrants forfeited (157,750 ) $ 19.93 - Warrants outstanding and exercisable at June 30, 2019 8,333 $ 20.00 0.25 On July 3, 2019, we issued Cleveland a three-year warrant (the Cleveland Warrant) to purchase the Company’s 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). Stock-based Compensation On November 26, 2014, the board of directors approved the 2014 Equity Incentive Plan (the “2014 Plan”), which was approved by the Company’s stockholders on February 17, 2015. The 2014 Plan offers selected employees, directors, and consultants the opportunity to acquire our common stock, and serves to encourage such persons to remain employed by us and to attract new employees. The 2014 Plan allows for the award of stock and options, up to 1,000,000 shares of our common stock. Activity in stock options during the year ended June 30, 2020 and related balances outstanding as of that date are reflected below: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contract Term (# years) Outstanding at June 30, 2019 580,171 $ 11.05 8.59 Granted 19,272 $ 8.45 Exercised (5,249 ) $ 4.68 Forfeited and cancelled (14,610 ) $ 11.86 Outstanding at June 30, 2020 579,584 $ 11.00 7.55 Exercisable at June 30, 2020 454,156 $ 10.77 7.27 Activity in stock options during the year ended June 30, 2019 and related balances outstanding as of that date are reflected below: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contract Term (# years) Outstanding at June 30, 2018 350,726 $ 8.38 8.87 Granted 245,027 $ 14.45 Exercised - $ - Forfeited and cancelled (15,582 ) $ 4.64 Outstanding at June 30, 2019 580,171 $ 11.05 8.59 Exercisable at June 30, 2019 303,611 $ 10.02 8.01 F- 15 Stock-based compensation expense recognized in the consolidated statements of operations for the year ended June 30, 2020 and 2019, includes compensation expense for stock-based options and awards granted based on the grant date fair value. For options and awards granted, expenses are amortized under the straight-line method over the expected vesting period. Stock-based compensation expense recognized in the consolidated statements of operations has been reduced for estimated forfeitures of options that are subject to vesting. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. At June 30, 2020, the aggregate intrinsic value of exercisable options was approximately $608,000. We allocated stock-based compensation expense included in the consolidated statements of operations for employee option grants and non-employee option grants as follows: Years ended June 30, 2020 2019 Research and development $ 215,000 $ 314,000 Selling and administrative 1,588,000 1,630,000 Total stock-based compensation expense $ 1,803,000 $ 1,944,000 The Company uses the Black-Scholes valuation model to calculate the fair value of stock options. The fair value of stock options was measured at the grant date using the assumptions (annualized percentages) in the table below: Years ended June 30, 2020 2019 Expected volatility 100.6% - 119.6 % 111.4% -112.2 % Risk free interest rate 0.35% - 2.00 % 2.43% - 2.45 % Forfeiture rate 20 % 20 % Dividend yield 0 % 0 % Expected term (years) 6.35 5.61 The remaining amount of unrecognized stock-based compensation expense at June 30, 2020 relating to outstanding stock options, is approximately $933,000, which is expected to be recognized over the weighted average period of 1.39 years. NOTE 10 - INCOME TAXES Pursuant to the provisions of FASB ASC Topic No. 740 Income Taxes (“ASC 740”), deferred income taxes reflect the net effect of (a) temporary difference between carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating loss carryforwards. No net provision for refundable Federal income taxes has been made in the accompanying statement of operations because no recoverable taxes were paid previously. Significant components of the Company’s net deferred tax assets at June 30, 2020 and 2019 are shown below. A valuation allowance of approximately $15,174,000 and $11,636,000 has been established to offset the net deferred tax assets as of June 30, 2020 and 2019, respectively, due to uncertainties surrounding the Company’s ability to generate future taxable income to realize these assets. The Company is subject to taxation in the United States and California. The Company’s tax years for 2010 and forward are subject to examination by the United States and California tax authorities due to the carry forward of unutilized net operating losses and research and development credits (if any). F- 16 The Company has incurred losses since inception, so no current income tax provision or benefit has been recorded. Significant components of the Company’s net deferred tax assets are shown in the table below. Year Ended June 30, 2020 2019 Deferred Tax Assets: Net operating loss carryforwards $ 12,865,000 $ 10,028,000 Stock compensation 1,652,000 1,407,000 Interest expense Sec. 163 261.000 55,000 Lease liability 1,004,000 - Other, net 353,000 146,000 Net deferred tax assets 16,135,000 11,636,000 Valuation allowance for deferred tax assets (15,174,000 ) (11,636,000 ) Total deferred tax assets $ 961,000 $ - Deferred Tax Liabilities: Right of use asset $ (961,000 ) $ - Total deferred tax liabilities (961,000 ) - Net deferred tax liabilities $ - $ - At June 30, 2020, the Company had unused net operating loss carryovers of approximately $45,675,000 and $46,873,000 that are available to offset future federal and state taxable income, respectively. These operating losses begin to expire in 2030. The provision for income taxes on earnings subject to income taxes differs from the statutory federal rate at June 30, 2020 and 2019, due to the following: Year Ended June 30, 2020 2019 Federal income taxes at 21% $ (3,011,000 ) $ (2,607,000 ) State income taxes, net (1,001,000 ) (867,000 ) Permanent differences and other 474,000 450,000 Other true ups, if any - (23,000 ) Change in federal tax rate - - Change in valuation allowance (3,538,000 ) (3,047,000 ) Provision for income taxes $ - $ - Internal Revenue Code Sections 382 limits the use of our net operating loss carryforwards if there has been a cumulative change in ownership of more than 50% within a three-year period. The Company has not yet completed a Section 382 net operating loss analysis. In the event that such analysis determines there is a limitation on the use on net operating loss carryforwards to offset future taxable income, the recorded deferred tax asset relating to such net operating loss carryforwards will be reduced. However, as the Company has recorded a full valuation allowance against its net deferred tax assets, there is no impact on the Company’s consolidated financial statements as of June 30, 2020 and 2019. Under ASC 740, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. In accordance with ASC 740, there are no unrecognized tax benefits as of June 30, 2020 or June 30, 2019. F- 17 NOTE 11 - OTHER RELATED PARTY TRANSACTIONS The Company subleased office and manufacturing space to Epic Boats (an entity founded and controlled by Chris Anthony, our board member and former Chief Executive Officer) in our facility in Vista, California pursuant to a month-to-month sublease agreement. Pursuant to this agreement, Epic Boats paid Flux Power 10% of facility costs through the end of our lease agreement which was June 30, 2019. The Company received $18,000 for the year ended June 30, 2019 from Epic Boats under the sublease rental agreement which is recorded as a reduction to rent expense and the customer deposits discussed below. As of June 30, 2019 the customer deposit totaling approximately $84,000 was recognized as Other Income since Epic Boats has released that deposit liability. There were no customer deposits related to such products as of June 30, 2019 and there were no receivables outstanding from Epic Boats as of June 30, 2019. NOTE 12 - CONCENTRATIONS Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and unsecured trade accounts receivable. The Company maintains cash balances at a financial institution in San Diego, California. Our cash balance at this institution is secured by the Federal Deposit Insurance Corporation up to $250,000. As of June 30, 2020, cash totaled approximately $726,000, which consists of funds held in a non-interest bearing bank deposit account. The Company has not experienced any losses in such accounts. Management believes that the Company is not exposed to any significant credit risk with respect to its cash. Customer Concentrations During the year ended June 30, 2020, the Company had three (3) major customers that each represented more than 10% of its revenues, on an individual basis, and together represented approximately $10,045,000 or 60% of its total revenues. During the year ended June 30, 2019, the Company had four (4) major customers that each represented more than 10% of its revenues, on an individual basis, and together represented approximately $8,072,000 or 87% of its total revenues. Suppliers/Vendor Concentrations The Company obtains a limited number of components and supplies included in its products from a small group of suppliers. During the year ended June 30, 2020 the Company had two (2) suppliers who accounted for more than 10% of its total purchases, on an individual basis, and together represented approximately $6,598,000 or 35% of its total purchases. During the year ended June 30, 2019 the Company had three (3) suppliers who accounted for more than 10% of its total purchases, on an individual basis, and together represented approximately $6,855,000 or 62% of its total purchases. NOTE 13 - COMMITMENTS AND CONTINGENCIES From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. To the best knowledge of management, there are no material legal proceedings pending against the Company. F- 18 Operating Leases On April 25, 2019 the Company signed a Standard Industrial/Commercial Multi-Tenant Lease (“Lease”) with Accutek to rent approximately 45,600 square feet of industrial space at 2685 S. Melrose Drive, Vista, California. The Lease has an initial term of seven years and four months, commencing on or about June 28, 2019. The lease contains an option to extend the term for two periods of 24 months, and the right of first refusal to lease an additional approximate 15,300 square feet. The monthly rental rate is $42,400 for the first 12 months, escalating at 3% each year. On February 26, 2020, the Company entered into the First Amendment to Standard Industrial/Commercial Multi-Tenant Lease dated April 25, 2019 (the “Amendment”) with Accutek to rent an additional 16,309 rentable square feet of space plus a residential unit of approximately 1,230 rentable square feet (for a total of approximately 17,539 rentable square feet). The lease for the additional space commenced 30 days following the occupancy date of the additional space, and terminates concurrently with the term for the lease of the original lease, which expires on November 20, 2026. The base rent for the additional space is the same rate as the space rented under the terms of the original lease, $0.93 per rentable square (subject to 3% annual increase). In connection with the Amendment, the Company purchased certain existing office furniture for a total purchase price of $8,300. Total rent expense was approximately $673,000 and $168,000 for the years ended June 30, 2020 and 2019, respectively, net of sublease income. The Future Minimum Lease Payments are: 2021 $ 594,000 2022 704,000 2023 726,000 2024 791,000 2025 815,000 Thereafter 1,198,000 Total Future Minimum Lease Payments 4,828,000 Less: discount (1,239,000 ) Total lease liability $ 3,589,000 NOTE 14 - SUBSEQUENT EVENTS Cleveland Loan On July 9, 2020, the Company made a payment to Cleveland in the amount of $200,000 as a partial payment of the outstanding principal balance of the Cleveland Loan. On July 27, 2020, in connection with the outstanding loan from Cleveland to the Company in the principal amount of $1,157,000, the Company entered into the Eighth Amendment to the Unsecured Promissory Note which extended the maturity date from July 31, 2020 to August 31, 2020, and capitalized all accrued and unpaid interest as of July 27, 2020 to the principal amount (the Eighth Amendment and together with the Original Note, the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment, the Sixth Amendment and the Seventh Amendment, the “Cleveland Note”). All accrued and unpaid interest as of July 27, 2020 was capitalized to the principal amount. On August 19, 2020, the Company paid Cleveland the entire remaining principal balance due under the Cleveland Loan, together with all accrued interest payable as of August 19, 2020, in an aggregate amount of approximately $978,000. Conversion of debt On July 22, 2020, one 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. F- 19 Private Placement On July 24, 2020, the Company sold and issued an aggregate of 800,000 shares of common stock, at $4.00 per share, for an aggregate purchase price of $3,200,000 in cash to accredited investors (the “Offering”). The shares offered and sold in the Offering 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. The shares were offered and sold to the accredited investors in reliance upon exemptions from registration pursuant to Rule 506(b) of Regulation D promulgated under Section 4(a)(2) under the Securities Act. 2020 Gross Margin Bonus Plan On December 4, 2019, the Board adopted a 2020 Gross Margin Plan (“GM Plan”) which provided its executives and key senior employees (“Key Executives”) with a cash bonus equal to 2% of base pay for every additional 1% profit margin achieved based on the increase gross profits for calendar year 2020 and to be paid in the first quarter of calendar year 2021. On August 4, 2020, the compensation committee amended the 2020 GM Plan to allow for the early payment of cash bonuses to Key Executives equal to 2% of base pay for every additional 1% profit margin achieved based on (1) the increase in profit margin first half of calendar year 2020, and (2) an adjustment to the bonuses to be paid in the first quarter of calendar year 2021 based on the profit margin achieved during the second half of calendar year 2020 (“Amended GM Plan”). On August 7, 2020, the Company made cash bonus payments in the aggregate amount of $225,710 to certain Key Executives (the “Awards”) pursuant to the Amended GM Plan, which included payments of $34,047 to Ronald Dutt, Chief Executive Officer, $27,063 to Chuck Scheiwe, Chief Financial Officer, and $27,936 to Jonathan Berry, Chief Operating Officer. The aggregate amount of such bonus payments was included in the accrued expenses in the accompanying balance sheet as of June 30, 2020. (See Note 5) The Awards were calculated on the basis of increase in profit margins achieved during the first six months of the calendar year 2020. Uplisting on the NASDAQ Capital Market On August 14, 2020, 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. Partial Repayment of LOC In August 2020, the Company paid down an aggregate principal amount of $1,000,000 of the outstanding balance under the LOC. Public Offering On August 18, 2020, the Company closed an underwritten public offering of its common stock priced at a public offering price of $4.00 per share for gross proceeds of approximately $12.4 million, which included the full exercise of the underwriter’s over-allotment option to purchase additional shares, prior to deducting underwriting discounts and commissions and offering expenses payable by Flux Power. The offering was comprised of shares of common stock priced at a public offering price of $4.00 per share. A total of 3,099,250 shares of common stock were issued in the offering, including the full exercise of the over-allotment option. The securities 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. Debt Consolidation On August 31, 2020, the Company 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, there was approximately $4,396,000 in principal outstanding under the LOC and approximately $7,604,000 available for future draws. F- 20