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 subsidiaries, and was made known to them by others within those entities, particularly during the period when this report was being prepared. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2021. 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 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, 2021, 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 such assessment, management determined that the Company maintained effective internal control over financial reporting as of June 30, 2021, based on the COSO criteria. 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 year ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. ITEM 9B - OTHER INFORMATION None. ITEM 9C - DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENTS INSPECTIONS Not Applicable. 29 PART III ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 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 10, 2021. 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 equity grant for their services on the Board. Name Age Position Ronald F. Dutt 74 Director, Chief Executive Officer and President Charles A. Scheiwe 55 Chief Financial Officer and Secretary Jonathan A. Berry 53 Chief Operating Officer Michael Johnson 73 Director Lisa Walters-Hoffert (1)(2) 63 Director Dale Robinette (1)(3) 57 Director John A. Cosentino, Jr. (1)(4) 71 Director (1) Independent Director (2) Chairperson of the Audit Committee, Member of Compensation Committee and Governance Committee (3) Lead Independent Director, Chairperson of the Compensation Committee, Member of Audit Committee and Governance Committee (4) Mr. Cosentino was appointed to the Board on May 7, 2020 to fill a vacancy. Mr. Cosentino is the chairperson of the Nominating and Corporate Governance Committee (“Governance Committee”) and a member of the Audit Committee and Compensation 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. 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. 30 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 32.5% of our outstanding shares, including common stock underlying options, and warrants that were exercisable or convertible or which would become exercisable or convertible within sixty (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 was a co-founder of Daré Bioscience, Inc. and following the company’s merger with Cerulean Pharma, Inc. in July of 2017, became Chief Financial Officer of the surviving public company (NASDAQ: DARE). For over twenty-five (25) years, Ms. Walters-Hoffert was an investment banker focused on small-cap public companies in the technology and life science sectors. From 2003 to 2015, Ms. Walters-Hoffert worked at Roth Capital Partners 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 Directors of Planned Parenthood of the Pacific Southwest. Ms. Walters-Hoffert currently serves as a member of the Board of Directors of The Elementary Institute of Science in San Diego. 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 and our lead independent director on September 10, 2021. 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. 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 2007 to 2013 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. 31 John A. Cosentino, Jr., Director . Mr. Cosentino was appointed to our Board on May 7, 2020. 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, 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, Whitcraft LLC, Bilco Company, Chairman of North American Specialty Glass LLC, Vice-Chairman of Primary Steel LLC, and a director of the Wiremold Company. 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 was the Vice President-Operations of the Stanley Works (NYSE:SWK), President and Co-owner of PCI Group, Inc., CEO and Co-owner of Rau Fastener, LLC, President of the Otis Elevator-North America division of United Technologies Corporation (NYSE:UTX), and Group Executive of the Danaher Corporation (NYSE:DHR). Mr. Cosentino received an undergraduate degree from Harvard University and an MBA from the University of Pennsylvania. The Board believes that Mr. Cosentino’s extensive executive management, investment management and board experience qualify him to serve on the Board of Directors. 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 or her 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 Our Board of Directors (“Board”) recognizes that one of its key responsibilities is to evaluate and determine its optimal leadership structure to provide independent oversight of management. Our Board is currently led by a Chairman of the Board who also serves as our Chief Executive Officer. The Board understands that the right Board leadership structure may vary depending on the circumstances, and our independent directors periodically assess these roles and the Board leadership to ensure the leadership structure best serves the interests of the Company and stockholders. On September 10, 2021, the Board adopted the Lead Independent Director Guidelines (“Guidelines.). The Guidelines provide that when the positions of Chief Executive Officer and Chairman of the Board are combined or the Chairman is not an independent director, the independent directors will appoint a lead independent director to serve with the authority and responsibility described in these Guidelines, and as the Board and/or the independent directors may determine from time to time. The Guidelines are available on our website at www.fluxpower.com. Mr. Dutt currently holds the Chairman and Chief Executive Officer roles. Mr. Robinette currently serves as the Lead Independent Director elected by the majority of the Board on September 10, 2021. The responsibilities of the Lead Independent Director include, among others: (i) serving as primary intermediary between non-employee directors and management; (ii) working with the Chairman of the Board to approve the agenda and meeting schedules for the Board; (iii) working with the Chairman of the Board as to the quality, quantity and timeliness of the information provided to directors; (iv) in consultation with the Nominating and Governance Committee, reviewing and reporting on the results of the Board and Committee performance self-evaluations; (v) calling additional meetings of independent directors; and (vi) serving as liaison for consultation and communication with stockholders. We believe the current leadership structure, with combined Chairman and Chief Executive Officer roles and a Lead Independent Director, best serves the Company and its stockholders at this time. Mr. Robinette possesses understanding and knowledge of the business and affairs of the Company and has the ability to devote a substantial amount of time to serve in this capacity. In addition, we believe having one leader serving as both the Chairman and Chief Executive Officer provides decisive, consistent and effective leadership, as well as clear accountability to our stockholders and customers. This enhances our ability to communicate our message and strategy clearly and consistently to our stockholders, employees, customers and suppliers. The Board believes the appointment of a strong Lead Independent Director and the use of regular executive sessions of the non-management directors, along with a majority the Board being composed of independent directors, allow it to maintain effective oversight of management. We believe that the combination of the Chairman and Chief Executive Officer roles is appropriate in the current circumstances and, based on the relevant facts and circumstances, separation of these offices would not serve our best interests and the best interests of our stockholders at this time. 32 In addition, our Board as a whole has responsibility for risk oversight. Our Board exercises this risk oversight responsibility directly and through its committees. The risk oversight responsibility of our Board and its committees is informed by reports from our management teams to provide visibility to our Board about the identification, assessment and management of key risks, and our management’s risk mitigation strategies. Our Board has primary responsibility for evaluating strategic and operational risk, including related to significant transactions. Our audit committee has primary responsibility for overseeing our major financial and accounting risk exposures, and, among other things, discusses guidelines and policies with respect to assessing and managing risk with management and our independent auditor. Our compensation committee has responsibility for evaluating risks arising from our compensation and people policies and practices. Our nominating and corporate governance committee has responsibility for evaluating risks relating to our corporate governance practices. Our committees and management provide reports to our Board on these matters. In its governance role, and particularly in exercising its duty of care and diligence, our 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. 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 . 33 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 or other incentive equity awards 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 . We seek directors with established strong professional reputations and experience in areas relevant to the strategy and operations of our business. We seek directors who possess the qualities of integrity and candor, who have strong analytical skills and who are willing to engage management and each other in a constructive and collaborative fashion. We also seek directors who have the ability and commitment to devote significant time and energy to serve on the Board and its committees. We believe that all of our directors meet the foregoing qualifications. We do not have a formal policy with respect to diversity. 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 https://www.fluxpower.com/corporate-governance. 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”). 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 year ended June 30, 2021, were timely filed. 34 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 Fiscal 2021 and Fiscal 2020 for services provided to the Company and its subsidiary. Name and Principal Position Year Salary ($) Bonus ($) Stock Awards (1) ($) Option Awards (2) ($) Non-Equity Incentive Plan Compensation ($) All Other Compensation ($) Total ($) Ronald F. Dutt, Chief Executive 2021 $ 242,288 $ 133,525 $ 234,681 $ - $ - $ - $ 610,494 Officer, President, and Chairman 2020 $ 195,000 $ 34,047 $ - $ - $ - $ - $ 229,047 Charles A. Scheiwe 2021 $ 187,635 $ 77,055 $ 124,853 $ - $ - $ - $ 389,543 Chief Financial Officer and Corporate Secretary 2020 $ 155,000 $ 27,063 $ - $ - $ - $ - $ 182,063 Jonathan Berry, Chief Operating Officer 2021 $ 188,077 $ 77,055 $ 124,853 $ - $ - $ - $ 389,985 2020 $ 160,000 $ 27,936 $ - $ - $ - $ - $ 187,936 (1) Represent the fair value of the RSUs granted on grant date. (2) 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. 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, 2021, the number of options outstanding to purchase common stock under the 2010 Option Plan was 22,536. No additional options to purchase common stock may be granted under the 2010 Option Plan. On February 17, 2015, our shareholders approved our 2014 Equity Incentive Plan (“2014 Option Plan”), which was amended on July 23, 2018 and on November 5, 2020. The 2014 Option Plan authorizes the issuance of awards for up to 1,000,000 shares of our common stock in the form of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock units, restricted stock awards and unrestricted stock awards to officers, directors and employees of, and consultants and advisors to, the Company or its affiliates. No options were granted during Fiscal 2021. We granted 153,177 restricted stock units under the 2014 Option Plan during Fiscal 2020. On April 29, 2021, at the Company’s annual stockholders meeting, the 2021 Equity Incentive Plan (the “2021 Plan”) was approved by our stockholders. The 2021 Plan authorizes the issuance of awards for up to 2,000,000 shares of our common stock in the form of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock units, restricted stock awards and unrestricted stock awards to officers, directors and employees of, and consultants and advisors to, the Company or its affiliates. No awards were granted under the 2021 Plan during Fiscal 2021.” 35 As of June 30, 2021, we had 490,323 options exercisable and 531,205 options outstanding, under the 2014 Option Plan and the 2010 Option Plan. There were no options outstanding under the 2021 Plan as of June 30, 2021. 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, 2021 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 40,625 9,375 9,375 $ 13.60 3/15/2029 - $ - - $ - 7/25/2018 33,527 - - 19.80 7/25/2028 - $ - - $ - 6/29/2018 50,000 - - 14.40 6/29/2028 - $ - - $ - 10/26/2017 50,000 - - 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 - $ - - $ - 11/12/2020 - - - - 11/11/2030 6,607 $ 58,670 6,607 $ 58,670 11/12/2020 - - - - 11/11/2030 6,607 $ 58,670 6,607 $ 58,670 11/12/2020 - - - - 11/11/2030 13,214 $ 117,340 13,214 $ 117,340 Charles Scheiwe 3/15/2019 24,375 5,625 5,625 13.60 3/15/2029 - $ - - $ - 11/12/2020 - - - - 11/11/2030 3,515 $ 31,213 3,515 $ 31,213 11/12/2020 - - - - 11/11/2030 3,515 $ 31,213 3,515 $ 31,213 11/12/2020 - - - - 11/11/2030 7,030 $ 62,426 7,030 $ 62,426 Jonathan Berry 3/15/2019 24,375 5,625 5,625 13.60 3/15/2029 - $ - - $ - 6/29/2018 45,500 - - 14.40 6/29/2028 - $ - - $ - 10/26/2017 22,500 - - 4.60 10/26/2027 - $ - - $ - 11/12/2020 - - - - 11/11/2030 3,515 $ 31,213 3,515 $ 31,213 11/12/2020 - - - - 11/11/2030 3,515 $ 31,213 3,515 $ 31,213 11/12/2020 - - - - 11/11/2030 7,030 $ 62,426 7,030 $ 62,426 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. The fair value of each restricted stock unit is the fair value of the Company’s common stock on the grant date. 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 Fiscal 2021. Long-term incentive plans No long term incentive awards were granted by us in Fiscal 2021. Employment Agreements with Executive Officers On February 12, 2021, we entered into an Amended and Restated Employment Agreement with the Company’s president and chief executive officer, Ronald F. Dutt (the “Dutt Employment Agreement”), which amends and restates the Employment Agreement effective December 11, 2012, as amended (the “Prior Agreement”). In addition to the inclusion of terms relating to change in control, termination, severance, benefits and the acceleration of vesting of options and restricted stock units upon certain events, the Dutt Employment Agreement memorialized Mr. Dutt’s continued services as the president and chief executive officer of the Company and its wholly-owned subsidiary, Flux Power, Inc. (“Flux Power”), and the terms pursuant to which he would provide such services. Pursuant to the terms of the Dutt Employment Agreement, Mr. Dutt’s annual base salary is $250,000. 36 On February 12, 2021, we entered into an Employment Agreement with the Company’s chief financial officer, treasurer and secretary, Charles A. Scheiwe (the “Scheiwe Employment Agreement”). In addition to the inclusion of terms relating to change in control, termination, severance, benefits and the acceleration of vesting of options and restricted stock units upon certain events, the Employment Agreement memorialized Mr. Scheiwe’s continued services as the chief financial officer and secretary of the Company, and as chief financial officer/treasurer and secretary of Flux Power. Pursuant to the terms of the Scheiwe Employment Agreement, Mr. Scheiwe’s annual base salary is $190,000. On February 12, 2021, we entered into an Employment Agreement with its chief operating officer, Jonathan Berry (the “Berry Employment Agreement”). In addition to the inclusion of terms relating to change in control, termination, severance, benefits and the acceleration of vesting of options and restricted stock units upon certain events, the Berry Employment Agreement memorialized Mr. Berry’s continued services as the chief operating officer of Flux Power. Pursuant to the terms of the Berry Employment Agreement, Mr. Berry’s annual base salary is $190,000. Under their respective employment agreement, Messrs. Dutt, Scheiwe and Berry, among other things, are (i) eligible for annual target cash bonus and awards of restricted stock units or other equity-based incentive compensation consistent with his position as determined by the Board of Directors (the “Board”) and the Compensation Committee; (ii) entitled to reimbursement for all reasonable business expenses incurred in performing services; and (iii) entitled to certain severance and change of control benefits contingent upon such employee’s agreement to a general release of claims in favor of the Company following termination of employment. Messrs. Dutt, Scheiwe and Berry are also eligible to participate in all customary employee benefit plans or programs generally made available to the senior executive officers. Messrs. Dutt, Scheiwe and Berry have each agreed to observe the terms of a standard confidentiality and non-compete agreement for a restricted period of two (2) years. Each of Messrs. Dutt, Scheiwe and Berry employment is “at-will” and may be terminated at any time for any reason. 2020 Gross Margin Bonus Plan On December 4, 2019, the Board of Directors 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 Mr. Dutt, $27,063 to Mr. Scheiwe, and $27,936 to Mr. Berry. The aggregate amount of such bonus payments was included in the accrued expenses in the accompanying balance sheet as of June 30, 2020. The Awards were calculated on the basis of increase in profit margins achieved during the first six (6) months of the calendar year 2020. Annual Bonus Plan On November 5, 2020, the Board approved an annual cash bonus plan (the “Annual Bonus Plan”) which allows the compensation committee and/or the Board of the Company to set the amount of bonus each fiscal year and the performance criteria. Executive officers and all employees (other than part-time employees and temporary employees) are eligible to participate in the Annual Bonus Plan (“Participants”) as long as the Participant remains an active regular employee of the Company. The Annual Bonus Plan is effective for Fiscal 2021 and each fiscal year thereafter (the “Plan Year”). For each Plan Year, the compensation committee will establish an aggregate amount of allocable Bonus under the Annual Bonus Plan and determine the performance goals applicable to a bonus during a Plan Year (the “Participation Criteria”). The Participation Criteria may differ from Participant to Participant and from bonus to bonus. The Participation Criteria for Fiscal 2021 is based on the Company achieving certain performance targets based on annual revenue, gross margin, operating expense and new business development. All of the Company’s executive officers are eligible to participate in the Annual Bonus Plan. 37 In addition, on November 5, 2020, the Board approved an annual cash bonus plan (the “Annual Bonus Plan”) which allows the compensation committee and/or the Board of the Company to set the amount of bonus each fiscal year and the performance criteria. Executive officers and all employees (other than part-time employees and temporary employees) are eligible to participate in the Annual Bonus Plan (“Participants”) as long as the Participant remains an active regular employee of the Company. The Annual Bonus Plan is effective for fiscal year 2021 and each fiscal year thereafter (the “Plan Year”). For each Plan Year, the compensation committee will establish an aggregate amount of allocable Bonus under the Annual Bonus Plan and determine the performance goals applicable to a bonus during a Plan Year (the “Participation Criteria”). The Participation Criteria may differ from Participant to Participant and from bonus to bonus. The Participation Criteria for fiscal year 2021 is based on the Company achieving certain performance targets based on annual revenue, gross margin, operation expense and new business development. All of the Company’s executive officers are eligible to participate in the Annual Bonus Plan. On November 5, 2020, the Board approved target cash bonuses under the Annual Bonus Plan for Fiscal 2021 (“2021 Bonus Grant”) to the following executive officers, which target bonus was calculated based on percentage of the executive’s current base salary: Name Position Current Base Salary Percentage of Salary Target Cash Bonus Ronald F. Dutt Chief Executive Officer $ 250,000 50 % $ 125,000 Charles Scheiwe Chief Financial Officer $ 190,000 35 % $ 66,500 Jonathan Berry Chief Operating Officer $ 190,000 35 % $ 66,500 Under the 2021 Bonus Grant, the Company’s executives are eligible to receive cash incentive bonus payments based on the target cash bonus amount and on the achievement of financial targets and corporate objectives as follows: Achievements Minimum Target Maximum Bonus payments based on Target Cash Bonus Amount 70 % 100 % 150 % On June 30, 2021, the Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of the Company amended the performance goals for the 2021 plan year (from July 1, 2020 through June 30, 2021) (the “2021 Plan Year”), under the Annual Cash Bonus Plan, which was previously approved by the Committee on November 5, 2020. The performance goals for the 2021 Plan Year were amended to the Company achieving certain performance targets measured by annual revenue, gross margin and new business development. The Committee made the equitable adjustment to better align the objectives and activities of the Company’s executives and employees with the goals of the Company during a very challenging 2021 Plan Year. On June 30, 2021, the Committee approved an addendum to the Performance Restricted Stock Unit Award under the 2014 Equity Incentive Plan approved by the Committee on November 5, 2020 to provide clarification for the calculation of vesting Amendment to 2014 Equity Incentive Plan On November 5, 2020, the Board approved an amendment to the 2014 Option Plan as amended to include the right to grant Restricted Stock Units (“RSUs”). All of the Company’s executive officers are eligible to participate in the 2014 Option Plan. Restricted Stock Unit Grants On November 5, 2020, the Board approved the grant of RSUs under the 2014 Option Plan to certain employees of the Company. The RSUs are subject to the terms and conditions provided in (i) the form of Restricted Stock Unit Award Agreement which is time based (“Time Based Awards”), and (ii) the form of Performance Restricted Stock Unit Award Agreement which is performance based (“Performance Based Awards”). In addition, the Committee approved the grant of one-time retention based RSUs pursuant to the form of the Restricted Stock Unit Award Agreement (“Retention Awards”). 38 The following executive officers and key employees of the Company were granted RSUs under the 2014 Option Plan in the amounts and according to the vesting schedule indicated below: Time Based Awards: Name Position No. of RSUs Vesting Schedule Ronald F. Dutt Chief Executive Officer 6,607 Three Years from Award’s grant date Charles Scheiwe Chief Financial Officer 3,515 Three Years from Award’s grant date Jonathan Berry Chief Operating Officer 3,515 Three Years from Award’s grant date Performance Based Awards: Name Position No. of RSUs Maximum Grant Vesting Schedule Ronald F. Dutt Chief Executive Officer 9,910 Vest in installments of up to one-third annually based on target performance goals Charles Scheiwe Chief Financial Officer 5,272 Vest in installments of up to one-third annually based on target performance goals Jonathan Berry Chief Operating Officer 5,272 Vest in installments of up to one-third annually based on target performance goals Retention Awards: Name Position No. of RSUs Vesting Schedule Ronald F. Dutt Chief Executive Officer 13,214 Four Years from Award’s grant date Charles Scheiwe Chief Financial Officer 7,030 Four Years from Award’s grant date Jonathan Berry Chief Operating Officer 7,030 Four Years from Award’s grant date Incentive Plans Management, the Committee and the Board 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 Committee. Below are the compensation packages for non-executive directors approved by the Board for 2020 calendar year: Independent Non-Executive Director Position Base Retainer Chair Fee Committee Member Stock Options Total Comp Lisa Walters-Hoffert X Audit Chair $ 35,000 $ 15,000 $ 8,750 $ 35,000 $ 93,750 Dale Robinette X Compensation Chair $ 35,000 $ 10,000 $ 11,250 $ 35,000 $ 91,250 John A. Cosentino Jr. X Governance Chair $ 35,000 $ 7,500 $ 12,500 $ 35,000 $ 90,000 Michael Johnson Board Member $ 35,000 $ - $ - $ 35,000 $ 70,000 39 In December 2020, pursuant to the recommendation and advice of the Committee, the Board approved the annual compensation package for non-executive directors of the Company for calendar year 2021 as follows: Independent Non-Executive Director Position Base Retainer Chair Fee Committee Member Total Comp Lisa Walters-Hoffert X Audit Chair $ 50,000 $ 7,500 $ - $ 57,500 Dale Robinette X Compensation Chair $ 50,000 $ 5,000 $ - $ 55,000 John A. Cosentino Jr. X Governance Chair $ 50,000 $ 5,000 $ - $ 55,000 Michael Johnson Board Member $ 50,000 $ - $ - $ 50,000 Restricted Stock Units In addition, our directors are eligible to receive an annual equity grant of RSUs, which terms are determined at the time of grant. Director Compensation Director Compensation Table Below is summary of compensation accrued or paid to our non-executive directors during Fiscal 2021 and Fiscal 2020. Mr. Dutt, our chief executive officer and president, received no compensation for his service as a director and is not included in the table. The compensation Mr. Dutt receives as an employee of the Company is included in the section titled “Executive Compensation.” Name Year Fees Earned or Paid in Cash ($) Stock Awards (2) ($) Option Awards (3) ($) All Other Compensation ($) Total ($) Lisa Walters-Hoffert 2021 $ 58,125 50,000 $ - - $ 108,125 2020 29,375 - 28,287 - 57,662 Dale Robinette 2021 $ 55,625 50,000 $ - - $ 105,625 2020 28,125 - 28,287 - 56,412 John A. Cosentino Jr. 2021 $ 55,000 50,000 $ - - $ 105,000 2020 13,750 - 23,095 - 36,845 Michael Johnson 2021 $ 42,500 50,000 $ - - $ 92,500 2020 17,500 - 28,287 - 45,787 James Gevarges (1) 2020 $ 13,750 - $ 28,287 - $ 42,037 (1) Mr. Gevarges resigned as our director on May 6, 2020. (2) Represent the fair value of the RSUs granted using the volume weighted average price of the ten days of trading prior to grant date. (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”). 40 The following table shows the aggregate number of stock options held by non-employee directors as of June 30, 2021 and June 30, 2020: Name Year Vested Stock Options Lisa Walters-Hoffert 2021 2,467 2020 493 Dale Robinette 2021 2,467 2020 493 John A. Cosentino Jr. 2021 1,740 2020 - Michael Johnson 2021 10,904 2020 8,180 James Gevarges (1) 2020 6,761 (1) Mr. Gevarges resigned as our director on May 6, 2020. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS BENEFICIAL OWNERSHIP Security Ownership of Principal Stockholders and Management As used in this section, the term beneficial ownership with respect to a security is defined by Rule 13d-3 under the Exchange Act, 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 10 , 2021, we had a total of 13,844,642 shares of common stock issued and outstanding. The following table sets forth, as of September 10, 2021, 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 five percent (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 five percent (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 4,498,033 (2) 32.5 % Ronald Dutt, Chief Executive Officer, President, and Director 237,640 (3) 1.7 % Charles A Scheiwe, Chief Financial Officer and Secretary 32,422 (4) * Jonathan A. Berry, Chief Operating Officer 97,308 (5) * John A. Cosentino, Director 65,280 (6) * Lisa Walters-Hoffert, Director 3,454 (7) * Dale Robinette, Director 3,454 (8) * All Officers and Directors as a group (7 people) 4,937,591 34.8 % 5% Stockholders Cleveland Capital Management L.L.C. 1250 Linda Street, Suite 304 Rocky River, OH 44116 842,529 (9) 6.0 % Invesco Ltd. 1555 Peachtree Street NE, Suite 1800 Atlanta, GA 30309 856,486 (10) 6.2 % * Represents less than 1% of shares outstanding. (1) All addresses above are 2685 S. Melrose Drive, Vista, California 92081, unless otherwise stated. (2) Includes 4,485,954 shares of common stock held by Esenjay Investments, LLC, of which Mr. Johnson is the sole director and beneficial owner, and (ii) 12,079 shares of common stock issuable to Mr. Johnson upon exercise of stock options. (3) Includes 21,660 shares of common stock and 215,980 shares of common stock issuable upon exercise of stock options and settlement of vested RSUs. (4) Includes 5,000 shares of common stock and 27,422 shares of common stock issuable upon exercise of stock options and settlement of vested RSUs. (5) Includes 1,875 shares of common stock and 95,433 shares of common stock issuable upon exercise of stock options and settlement of vested RSUs. (6) Includes 62,670 shares of common stock and 2,610 shares of common stock issuable upon exercise of stock options. (7) Includes 3,454 shares of common stock issuable upon exercise of stock options. (8) Includes 3,454 shares of common stock issuable upon exercise of stock options. (9) Based on Amendment No. 4 to Schedule 13G filed jointly by Cleveland, Wade Massad and Cleveland Capital Management, L.L.C. with the SEC on February 16, 2021. Reflects 842,529 shares of common stock beneficially owned by certain private funds managed by Cleveland Capital Management, L.L.C., or by its principals. (10) Based on Schedule 13G filed by Invesco Ltd. on February 16, 2021, Invesco Capital Management LLC is a subsidiary of Invesco Ltd. and it advises the Invesco WilderHill Clean Energy ETF which owns the common stock. However, no one individual has greater than 5% economic ownership. The stockholders of the fund have the right to receive or the power to direct the receipt of dividends and proceeds from the sale of securities. * Represents less than 1% of shares outstanding. 41 ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The following includes a summary of certain relationships and transactions, including transactions since July 1, 2019 to June 30, 2021 and any currently proposed transactions, to which we were or are to be a participant, in which (1) the amount involved exceeded or will exceed the lesser of (i) $120,000 or (ii) one percent (1%) of the average of our total assets for the last two completed fiscal years, and (2) any of our directors, executive officers or holders of more than five percent (5%) of our capital stock, or any affiliate or member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest other than compensation and other arrangements that are described under the section titled “Executive Compensation.” Pursuant to the Audit Committee’s written charter, our Audit Committee has the responsibility to review, approve and oversee transactions between the Company and any related person (as defined in Item 404 of Regulation S-K) and any potential conflict of interest situations on an ongoing basis, in accordance with our policies and procedures, and to develop policies and procedures for the Audit Committee’s approval of related party transactions. 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, our major stockholder and an entity controlled by our director, Mr. Johnson, participated in the offering in the amount of $300,000. In addition, Mr. Cosentino, one of our directors, also participated in the offering in the amount of $250,000. Credit Facility Agreement On March 22, 2018, we entered into a credit facility agreement with Esenjay with a maximum borrowing amount of $5,000,000 (the “Original Credit Facility Agreement”). The Original Credit Facility Agreement and secured notes issued (the “LOC Notes”) to the lenders (the “Lenders”) in connection with the credit facility was subsequently amended and restated multiple times to allow for, among other things, an increase in the maximum principal amount available under line of credit (“LOC”) to $12,000,000, additional lenders (including Cleveland Capital, L.P., or Cleveland) and extensions of the maturity date to September 30, 2021. Advances and obligations under the LOC were secured by a security interest in collateral of the Company. As an inducement to the Lenders for entering into amended notes, on December 31, 2019, we granted the Lenders the right to convert, in whole or in parts, all of the outstanding principal amount and accrued and unpaid interest into 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. As of June 30, 2019, there was $6,405,00 outstanding under the LOC consisting of advances of $2,405,000 by Esenjay, $2,000,000 by Cleveland, and the balance of $2,000,000 by other Lenders. 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. As a result of the initial closing of the Offering, the conversion price under their respective LOC Notes became fixed at $4.00 per share, which was the price per share of common stock sold under the Offering. On June 30, 2020, Esenjay converted $4,400,000 of its LOC Note, which consisted of principal plus accrued interest, into 1,100,000 shares of common stock at $4.00 per share (“Conversion”). On June 26, 2020, Esenjay partially assigned $1,350,000 of its LOC Note to certain creditors of Esenjay as settlement of obligations owed by Esenjay to such creditors. As of June 30, 2020, there was approximately $5,290,000 in principal outstanding under the LOC, consisting of advances of $984,000 by Esenjay, $1,720,000 by Cleveland, and $2,586,000 by other Lenders. 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 LOC Notes. On August 31, 2020, we entered into a certain Third Amended and Restated Credit Facility Agreement (“Third Amended and Restated Credit Facility Agreement”) 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 (“Notes Consolidation”). As of August 31, 2020, after the Notes Consolidation there was approximately $4,396,000 in principal outstanding. 42 In November 2020 and January 2021, six (6) note holders holding an aggregate of approximately $3,749,000 in principal and accrued interest outstanding under the LOC elected to convert their Notes into 937,317 shares of common stock, which included conversion of approximately $1,824,000 into 456,074 shares of common stock by Cleveland. As of March 1, 2021, there was approximately $884,000 in principal outstanding under Esenjay’s LOC Note, and $11,116,000 available for draw under the LOC. The Esenjay’s LOC Note had an interest rate of 15% per annum and a maturity date of September 30, 2021. To secure the obligations under the LOC Notes, we 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 the Company and Esenjay, to among other things, amend such agreement to include Cleveland and the other Lenders as additional secured parties to the Amended Security Agreement and appoint Esenjay as collateral agent. On June 10, 2021, the Third Amended and Restated Credit Facility Agreement and the related Second Amended and Restated Security Agreement dated August 31, 2020 by and among the Company and the Lenders (the “Security Agreement”) were terminated. Cleveland Loan On July 3, 2019, we entered into a loan agreement with Cleveland for $1,000,000 (the “Cleveland Loan”). In connection with the Cleveland Loan, on July 3, 2019, we issued Cleveland an unsecured short-term promissory note in the amount of $1,000,000, bearing an interest rate of 15% (the “Unsecured Promissory Note”). 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, we 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. Subsequent to December 2019, we entered into seven (7) amendments pursuant to which the maturity date was extended from time to time (with the final amendment reflecting a maturity date of August 31, 2020), and all accrued and unpaid interest as of the time of the respective amendment was capitalized to the principal amount. As of June 30, 2020, there was $1,157,000 in principal outstanding under the Cleveland Note. On August 19, 2020, we 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 a loan in the principal amount of $750,000, bearing an interest rate of 15% per annum (the “Esenjay Loan”). 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”). The outstanding obligations under the Esenjay Note were 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 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. On June 26, 2020 and July 22, 2020, Esenjay assigned an aggregate of $900,000 of the Esenjay Note (“Esenjay Assignment”) to three (3) accredited investors, which were converted into an aggregate of 225,000 shares of common stock at $4.00 per share. On August 31, 2020, the outstanding obligations under the Esenjay Note of approximately $564,000, consisting of $500,000 in principal and approximately $64,000 in accrued interest, was consolidated into the LOC. See Credit Facility Agreement above . 43 ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES Independent Auditor For the years ended June 30, 2021 and 2020, the Company’s independent public accounting firm was Baker Tilly US, LLP (formerly Squar Milner LLP, which, effective as of November 1, 2020, merged with Baker Tilly US, 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, 2021 and 2020 are as follows: 2021 2020 Audit fees(1) $ 107 ,000 $ 212,000 Audit related fees(2) 103,000 - Tax fees(3) - - All other fees(4) - - Total $ 210 ,000 $ 212,000 (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, 2021 or 2020. (3) Baker Tilly US, LLP did 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, 2021 or 2020. Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm Our audit committee’s policy is to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm, the scope of services provided by our independent registered public accounting firm and the fees for the services to be performed. These services may include audit services, audit-related services, tax services and other services. Pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. Our independent registered public accounting firm and management are required to periodically report to the audit committee regarding the extent of services provided by our independent registered public accounting firm in accordance with this preapproval, and the fees for the services performed to date. All of the services relating to the fees described in the table above were approved by our audit committee. 44 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 Baker Tilly US, LLP, independent registered public accounting firm, are included in this report: Page Report of Independent Registered Public Accounting Firm – Baker Tilly US, LLP F-1 Consolidated Balance Sheets as of June 30, 2021 and 2020 F-2 Consolidated Statements of Operations for the Years Ended June 30, 2021 and 2020 F-3 Consolidated Statements of Stockholders’ Deficit for the Years Ended June 30, 2021 and 2020 F-4 Consolidated Statements of Cash Flows for the Years Ended June 30, 2021 and 2020 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. 4(vi) Description of Securities. Incorporated by reference to Exhibit 4(vi) on Form 10-K filed with the SEC on September 28, 2020. 4.1 Form of Warrant. Incorporated by reference to Exhibit 4.1 on Form 8-K filed with the SEC on September 23, 2021. 10.1# Form of Indemnification Agreement. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on April 9, 2019. 10.2 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. 10.3 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. 10.4 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. 10.5 Form of Representative Warrant. Incorporated by reference to Exhibit 10.1 on Form 10-Q filed with the SEC on November 12, 2020. 10.6# 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. 10.7# 2014 Equity Incentive Plan. Incorporated by reference to Exhibit 10.23 on Form 10-Q filed with the SEC on May 15, 2015. 10.8# 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. 10.9# Amendment No. 2 to the Flux Power Holdings Inc. 2014 Equity Incentive Plan Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on November 9, 2020. 10.10# Form of Restricted Stock Unit Award Agreement. Incorporated by reference to Exhibit 10.2 on Form 8-K filed with the SEC on November 9, 2020. 45 10.11# Form of Performance Restricted Stock Unit Award Agreement. Incorporated by reference to Exhibit 10.3 on Form 8-K filed with the SEC on November 9, 2020. 10.12# Annual Cash Bonus Plan. Incorporated by reference to Exhibit 10.4 on Form 8-K filed with the SEC on November 9, 2020. 10.13 Loan and Security Agreement with Silicon Valley Bank. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on November 12, 2020. 10.14 Intellectual Property Security Agreement. Incorporated by reference to Exhibit 10.2 on Form 8-K filed with the SEC on November 12, 2020. 10.15 Sales Agreement with H.C. Wainwright & Co., LLC. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on December 21, 2020. 10.16# Amended and Restated Employment Agreement 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 17, 2021. 10.17# Employment Agreement by and between Flux Power Holdings, Inc. and Charles A. Scheiwe. Incorporated by reference to Exhibit 10.2 on Form 8-K filed with the SEC on February 17, 2021. 10.18# Employment Agreement by and between Flux Power, Inc. and Jonathan Berry. Incorporated by reference to Exhibit 10.3 on Form 8-K filed with the SEC on February 17, 2021. 10.19# 2021 Equity Incentive Plan. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on May 4, 2021. 10.20# Form of Restricted Stock Unit Award Agreement – Non-Executive Director. Incorporated by reference to Exhibit 10.2 on Form 8-K filed with the SEC on May 4, 2021. 10.21 Form of Securities Purchase Agreement. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on September 23, 2021. 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. # Indicates management contract or compensatory plan or arrangement. ITEM 16 – FORM 10-K SUMMARY None . 46 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 27, 2021 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 27, 2021 Ronald F. Dutt President and Director (Principal Executive Officer) /s/ Charles A. Scheiwe Chief Financial Officer September 27, 2021 Charles A. Scheiwe (Principal Financial Officer) /s/ Michael Johnson Director September 27, 2021 Michael Johnson /s/ John A. Cosentino, Jr. Director September 27, 2021 John A. Cosentino, Jr. /s/ Lisa Walters-Hoffert Director September 27, 2021 Lisa Walters-Hoffert /s/ Dale Robinette Director September 27, 2021 Dale Robinette 47 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Flux Powe Holdings, Inc. 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, 2021 and 2020, the related consolidated statements of operations, changes in stockholders’ equity, 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, 2021 and 2020, 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. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements. We determined that there are no critical audit matters. BAKER TILLY US, LLP /s/ BAKER TILLY US, LLP We have served as the Company’s auditor since 2012. San Diego, California September 27, 2021 F- 1 FLUX POWER HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS June 30, 2021 June 30, 2020 ASSETS Current assets: Cash $ 4,713,000 $ 726,000 Accounts receivable 6,097,000 3,069,000 Inventories 10,513,000 5,256,000 Other current assets 417,000 787,000 Total current assets 21,740,000 9,838,000 Right of use asset 3,035,000 3,435,000 Other assets 131,000 174,000 Property, plant and equipment, net 1,356,000 528,000 Total assets $ 26,262,000 $ 13,975,000 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) Current liabilities: Accounts payable $ 7,175,000 $ 4,648,000 Accrued expenses 2,583,000 1,400,000 Deferred revenue 24,000 4,000 Customer deposits 171,000 1,563,000 Due to factor - 469,000 Short-term loans – related party - 2,057,000 Line of credit - related party - 5,290,000 Financing lease payable, current portion - 28,000 Office lease payable, current portion 435,000 288,000 Accrued interest 2,000 50,000 Total current liabilities 10,390,000 15,797,000 Long term liabilities: Paycheck Protection Program loan payable - 1,297,000 Office lease payable, less current portion 2,866,000 3,301,000 Total liabilities 13,256,000 20,395,000 Stockholders’ equity (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; 13,652,164 and 7,420,487 shares issued and outstanding at June 30, 2021 and June 30, 2020, respectively 14,000 7,000 Additional paid-in capital 79,197,000 46,985,000 Accumulated deficit (66,205,000 ) (53,412,000 ) Total stockholders’ equity (deficit) 13,006,000 (6,420,000 ) Total liabilities and stockholders’ equity (deficit) $ 26,262,000 $ 13,975,000 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, 2021 2020 Revenues $ 26,257,000 $ 16,842,000 Cost of sales 20,467,000 14,656,000 Gross profit 5,790,000 2,186,000 Operating expenses: Selling and administrative 12,599,000 9,761,000 Research and development 6,669,000 4,973,000 Total operating expenses 19,268,000 14,734,000 Operating loss (13,478,000 ) (12,548,000 ) Other income (expense): Other income 1,307,000 - Interest expense (622,000 ) (1,788,000 ) Net loss $ (12,793,000 ) $ (14,336,000 ) Net loss per share - basic and diluted $ (1.08 ) $ (2.80 ) Weighted average number of common shares outstanding - basic and diluted 11,796,217 5,118,713 The accompanying notes are an integral part of these consolidated financial statements. F- 3 FLUX POWER HOLDING, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) Common Stock Additional Shares Capital Stock Amount Paid-in Capital Accumulated Deficit Total Balance at June 30, 2020 7,420,487 $ 7,000 $ 46,985,000 $ (53,412,000 ) $ (6,420,000 ) Issuance of common stock – exercised options and warrants 55,195 - 55,000 - 55,000 Fair value of warrants issued - - 174,000 - 174,000 Issuance of common stock, net of costs 4,078,032 4,000 22,796,000 - 22,800,000 Issuance of common stock - private placement transactions, net 800,000 1,000 3,199,000 - 3,200,000 Issuance of Common Stock - Debt Conversion 1,298,450 2,000 5,191,000 - 5,193,000 Stock-based compensation - - 797,000 - 797,000 Net loss - - - (12,793,000 ) (12,793,000 ) Balance at June 30, 2021 13,652,164 $ 14,000 $ 79,197,000 $ (66,205,000 ) $ 13,006,000 Common Stock Additional Shares Capital Stock Amount 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 – services 3,121 - 30,000 - 30,000 Issuance of common stock – exercised options 3,706 - 4,000 - 4,000 Issuance of common stock - private placement transactions, net 341,250 - 1,365,000 - 1,365,000 Issuance of Common Stock - Loan 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 ) 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, 2021 2020 Cash flows from operating activities: Net loss $ (12,793,000 ) $ (14,336,000 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 274,000 141,000 Stock-based compensation 797,000 1,803,000 Stock issuance for services - 30,000 PPP Loan principal and accrued interest forgiveness (1,307,000 ) - Fair value of warrants issued as debt discount cost 174,000 - Noncash interest expense 426,000 1,599,000 Noncash rent expense 400,000 323,000 Allowance for inventory reserve (195,000 ) 317,000 Amortization of prepaid offering costs 547,000 - Changes in operating assets and liabilities: Accounts receivable (3,028,000 ) (653,000 ) Inventories (5,062,000 ) (1,760,000 ) Other current assets (134,000 ) (432,000 ) Accounts payable 2,527,000 2,165,000 Accrued expenses 1,183,000 542,000 Due to factor (469,000 ) 469,000 Deferred revenue 20,000 4,000 Accrued interest (38,000 ) 50,000 Office lease payable (288,000 ) (169,000 ) Customer deposits (1,392,000 ) 1,563,000 Net cash used in operating activities (18,358,000 ) (8,344,000 ) Cash flows from investing activities Purchases of equipment (1,102,000 ) (323,000 ) Net cash used in investing activities (1,102,000 ) (323,000 ) Cash flows from financing activities: Proceeds from the issuance of common stock, net of costs 22,855,000 1,369,000 Proceeds from the issuance of common stock in private placement 3,200,000 - Proceeds from Payment Protection Program - 1,297,000 Borrowings from revolving line of credit 700,000 - Payment of short-term loan - related party (1,178,000 ) - Payment of line of credit - related party (1,402,000 ) - Payment of revolving line of credit (700,000 ) - Borrowings from short-term loan - related party debt - 2,400,000 Borrowings from line of credit - related party debt - 4,255,000 Principal payments of financing lease payable (28,000 ) (30,000 ) Net cash provided by financing activities 23,447,000 9,291,000 Net change in cash 3,987,000 624,000 Cash, beginning of period 726,000 102,000 Cash, end of period $ 4,713,000 $ 726,000 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 $ 358,000 $ 2,170,000 Interest paid $ 59,000 $ 137,000 Common stock issued for conversion of related party debt $ 5,193,000 $ 7,883,000 Stock issuance for services $ - $ 30,000 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, 2021 and 2020 NOTE 1 - NATURE OF BUSINESS 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 a portfolio of advanced lithium-ion energy storage solutions for the material handling sector which includes lift trucks, airport ground support equipment (“GSE”), and other industrial and commercial applications. We believe our mobile and stationary energy storage solutions provide customers with a reliable, high performing, cost effective, and more environmentally friendly alternative as compared to traditional lead acid and propane-based solutions. Our modular and scalable design allows different configurations of lithium-ion battery packs to be paired with our proprietary wireless battery management system (“SkyBMS”) to provide the level of energy storage required and “state of the art” real time monitoring of pack performance. 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. 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. 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, 2021 and June 30, 2020, cash was approximately $4,713,000 and $726,000, respectively. Cash consisted 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, 2021 and 2020. 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. F- 6 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 years ended June 30, 2021 and 2020. Inventories Inventories consist primarily of battery management systems and the related subcomponents and are stated at the lower of cost 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 adjustments to inventory reserve related to obsolete and slow moving inventory in the amount of approximately $195,000 and $317,000 during the years ended June 30, 2021 and 2020, respectively. 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. 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 The Company recognizes revenue in accordance to the Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”) for all contracts. 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 primarily North America. The Company recognizes revenue for the products when all significant risks and rewards have been transferred to the customer, there is no continuing managerial involvement associated with ownership of the goods sold 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 with respect to the transaction can be measured reliably. F- 7 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 minimal. 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, 2021 and 2020, the Company carried warranty liability of approximately $895,000 and $726,000, 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, 2021 and 2020. 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. 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, 2021 or June 30, 2020, 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, 2021 and 2020, basic and diluted weighted-average common shares outstanding were 11,796,217 and 5,118,713, respectively. The Company incurred a net loss for the years ended June 30, 2021 and 2020, 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, 2021 and 2020, excluded from diluted weighted-average common shares outstanding, which include common shares underlying outstanding convertible debt, stock options, RSUs, and warrants, were 891,659 and 2,210,216, respectively. F- 8 New Accounting Standards Recently Adopted Accounting Pronouncements The Company did not adopt any new accounting pronouncements for the year ended June 30, 2021. During the year ended June 30, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (“ASU 2016-02”) and ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”) effective July 1, 2019, neither of which had 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. NOTE 3 - INVENTORIES Inventories consist of the following: June 30, 2021 June 30, 2020 Raw materials $ 8,185,000 $ 4,231,000 Work in process 918,000 332,000 Finished goods 1,410,000 693,000 Total Inventories $ 10,513,000 $ 5,256,000 Inventories consist primarily of our energy storage systems and the related subcomponents, and are stated at the lower of cost or net realizable value. NOTE 4 – OTHER CURRENT ASSETS Other current assets consist of the following: June 30, 2021 June 30, 2020 Prepaid insurance $ 249,000 $ 160,000 Prepaid inventory 73,000 32,000 Prepaid offering costs - 547,000 Prepaid expenses 95,000 48,000 Total Other current assets $ 417,000 $ 787,000 NOTE 5 – ACCRUED EXPENSES Accrued expenses consist of the following: June 30, 2021 June 30, 2020 Payroll and bonus accrual $ 1,271,000 $ 403,000 PTO accrual 417,000 270,000 Warranty liability 895,000 726,000 Garnishments - 1,000 Total Accrued expenses $ 2,583,000 $ 1,400,000 NOTE 6 - PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, net consist of the following: June 30, 2021 June 30, 2020 Vehicles $ 20,000 $ 20,000 Machinery and equipment 593,000 323,000 Office equipment 1,027,000 290,000 Furniture and Equipment 220,000 154,000 Leasehold improvements 56,000 54,000 1,916,000 841,000 Less: Accumulated depreciation (560,000 ) (313,000 ) Total property, plant and equipment, net $ 1,356,000 $ 528,000 Depreciation expense was approximately $274,000 and $141,000, for the years ended June 30, 2021 and 2020, respectively, and is included in selling and administrative expenses in the accompanying consolidated statements of operations. F- 9 NOTE 7 – Notes Payable 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 had a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments were deferred for six months after the date of disbursement. The Company received the funds on May 4, 2020. On February 9, 2021, the Company was notified that the Small Business Administration (“SBA”) had forgiven repayment of the entire PPP Loan of approximately $1,297,000 in principal, together with all accrued interest of approximately $10,000. The Company has recorded the entire forgiven principal and accrued interest amount of approximately $1,307,000 as other income in its statement of operations on February 9, 2021. As of June 30, 2021, the outstanding balance of the PPP Loan was $0. The SBA reserves the right to audit any PPP loan, regardless of size. These audits may occur after forgiveness has been granted. In accordance with the CARES Act, all borrowers are required to maintain their PPP loan documentation for six years after the PPP loan was forgiven or repaid in full and to provide that documentation to the SBA upon request. Revolving Line of Credit On November 9, 2020, the Company entered into a certain Loan and Security Agreement (“Agreement”) with Silicon Valley Bank (“SVB”). The Agreement provides the Company with a senior secured revolving credit facility for up to $4.0 million available on a revolving basis (“Credit Facility”). Outstanding principal under the Credit Facility accrues interest at a floating per annum rate equal to the greater of (i) prime rate plus two and a half percent (2.50%) or (ii) five and three-quarters percent (5.75%). Interest is due monthly on the last day of the month. In the event of default, the amounts due under the Agreement will bear interest at a rate per annum equal to five percent (5.0%) above the rate that is otherwise applicable to such amounts. The Company paid a non-refundable commitment fee of $15,000 upon execution of the Loan Agreement. In addition, the Company is required to pay a quarterly unused facility fee equal to one-quarter percent (0.25%) per annum of the average daily unused portion of the commitments under the Credit Facility, depending upon availability of borrowings under the Credit Facility. The loans and other obligations of the Company under the Credit Facility are secured by substantially all of the tangible and intangible assets of the Company (including, without limitation, intellectual property) pursuant to the terms of the Agreement and the Intellectual Property Security Agreement dated as of November 9, 2020. The Company has utilized the line of credit from-time-to-time, however as of June 30, 2021, the outstanding balance of the line of credit was $0 and the entire $4.0 million of the facility was available for future draws through November 8, 2021, unless the credit facility is renewed and its term is extended prior to its expiration. NOTE 8 - RELATED PARTY DEBT AGREEMENTS Esenjay Loan On March 9, 2020, the Company and Esenjay Investments, LLC (“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”). 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”). F- 10 On June 26, 2020 and July 22, 2020, Esenjay assigned a total of $900,000 of the Esenjay Note to three (3) accredited investors. On June 30, 2020, in connection with the completion of the Company’s initial closing of its 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 such offering. The three note holders converted their notes into an aggregate 225,000 shares of common stock at $4.00 per share. On August 31, 2020, the Company entered into the Third Amended and Restated Credit Facility Agreement and pursuant to which the Company further amended the Notes to, among other amended items, 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 Credit Facility Agreement. (See “Credit Facility” below). 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. 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. 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. Subsequently, the Company entered into seven (7) additional amendments pursuant to which the maturity date was extended from time to time (with the final amendment reflecting a maturity date of August 31, 2020), and all accrued and unpaid interest as of the time of the respective amendment was capitalized to the principal amount. As of June 30, 2020, there was $1,157,000 in principal outstanding under 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. 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 (the “Original Agreement”). The Original Agreement was amended multiple times to allow for, among other things, an increase in the maximum principal amount available under line of credit (“LOC”) to $12,000,000, additional lenders and extensions of the maturity date to September 30, 2021. In August 2020, the Company paid down an aggregate principal amount of approximately $1,402,000 of the outstanding balance under the LOC. On August 31, 2020, the Company entered into the Third Amended and Restated Credit Facility Agreement (“Third Amended and Restated Facility Agreement”) and pursuant to which the Company further amended the Notes to (i) extend the maturity date from December 31, 2020 to September 30, 2021, and (ii) include outstanding obligations under the Esenjay Note of approximately $564,000, consisting of $500,000 in principal and approximately $64,000 in accrued interest, into the LOC. In November 2020, the Lenders holding an aggregate of approximately $2,161,000 in principal and accrued interest outstanding under the LOC elected to convert their Notes into 540,347 shares of common stock. In January and March 2021, the Lenders holding an aggregate of approximately $2,632,000 in principal and accrued interest outstanding under the LOC elected to convert their Notes into 658,103 shares of common stock of which approximately $1,045,000 was held by Esenjay and was converted to 261,133 shares of common stock. F- 11 On June 10, 2021, the Third Amended and Restated Credit Facility Agreement by and among Flux Power, Inc. Esenjay, Cleveland Capital, L.P., Otto Candies, Jr., Paul Candies, Brett Candies, Winn Interest, Ltd., Tabone Family Partnership (as assignee to the interests, rights and obligations of Helen M. Tabone) and additional lenders who became a party to such agreement pursuant to Section 15 thereof (collectively, the “Lenders”); and the related Second Amended and Restated Security Agreement (“Security Agreement”) were terminated. As of the termination date, all payments due under the related notes have been made in full and all obligations under such notes and the Credit Facility have been paid or discharged in full. In addition, the Company did not incur any early termination penalties in connection with the termination of the Third Amended and Restated Credit Agreement or Security Agreement. NOTE 9 - STOCKHOLDERS’ EQUITY (DEFICIT) At-The-Market (“ATM”) Offering On December 21, 2020 the Company entered into a Sales Agreement (the “Sales Agreement”) with H.C. Wainwright & Co., LLC (“HCW”) to sell shares of its common stock, par value $0.001 (the “Common Stock”) from time to time, through an “at-the-market offering” program (the “ATM Offering”) under which HCW will act as sales agent. The Company agreed to pay HCW a commission in an amount equal to 3.0% of the gross sales proceeds of the shares sold under the Sales Agreement. In addition, the Company agreed to reimburse HCW for certain legal and other expenses incurred up to a maximum of $50,000 to establish the ATM Offering, and $2,500 per quarter thereafter to maintain such program under the Sales Agreement. The Company has also agreed pursuant to the Sales Agreement to indemnify and provide contribution to HCW against certain liabilities, including liabilities under the Securities Act. On May 27, 2021, the Company filed Amendment No. 1 (the “Amendment”) to the prospectus supplement dated December 21, 2020 (the “Prospectus Supplement”) to increase the size of the ATM Offering from an aggregate offering price of up to $10 million in the Prospectus Supplement to an amended maximum aggregate offering price of up to $20 million of shares of the Company’s common stock (the “Shares”) (which amount includes the value of shares we have already sold prior to the date of the Amendment) pursuant to the base prospectus dated October 26, 2020, the Prospectus Supplement, and the Amendment (collectively, the “Prospectus”). From December 21, 2020 to June 30, 2021, the Company sold an aggregate of 978,782 shares of common stock at an average price of $12.93 per share for gross proceeds of approximately $12.7 million in the ATM Offering, prior to deducting commissions and other offering related expenses. The Shares have been registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the Company’s Registration Statement on Form S-3 (File No. 333-249521), declared effective by the Securities and Exchange Commission (the “Commission”) on October 26, 2020, and the Prospectus. Sales of the Shares, if any, may be made by any method permitted by law deemed to be an “at-the-market offering” as defined in Rule 415(a)(4) of the Securities Act. The Company or the HCW may, upon written notice to the other party in accordance with the terms of the Sales Agreement, suspend offers and sales of the Shares. The Company and HCW each have the right, in its sole discretion, to terminate the Sales Agreement at any time upon prior written notice pursuant to the terms and subject to the conditions set forth in the Sales Agreement. Public Offering 2020 Public Offering and NASDAQ Capital Market Uplisting In August 2020, the Company closed an underwritten public offering of its common stock 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 underwriters’ over-allotment option to purchase additional shares, prior to deducting underwriting discounts and commissions and offering expenses. A total of 3,099,250 shares of common stock were issued by the Company 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 SEC on August 12, 2020. F- 12 Concurrent with the announcement of the public offering, on August 14, 2020, the Company’s common stock commenced trading on The NASDAQ Capital Market under the symbol “FLUX.” Private Placements 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, the Company completed an initial closing of the 2020 Private Placement offering of up to 2,000,000 shares of common stock, pursuant to which the Company sold an aggregate of 275,000 shares of 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, the Company’s president and chief executive officer, participated in the initial closing in the amount of $300,000 and $50,000, respectively. 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, including Mr. Cosentino, one of our directors, who participated in the offering in the amount of $250,000. The shares offered and sold in the 2020 Private Placement described above were sold to 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. Such shares were not registered under the Securities Act of 1933, as amended (“Securities Act”), and could not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act. Pursuant to a registration statement on Form S-3 filed with the SEC on October 16, 2020 which became effective on October 26, 2020, such shares were registered. 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. On November 6, 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 “November 2020 Conversion”). At the option of the lenders, on November 6, 2020, an aggregate of approximately $2,161,000 in principal and accrued interest outstanding under the LOC was converted into 540,347 shares of common stock. In January and March 2021, there was a conversion of the remaining debt underlying the secured promissory notes issued to lenders under the LOC at a conversion price of $4.00 per share. At the option of the lenders, an aggregate of approximately $2,632,000 in principal and accrued interest outstanding under the LOC was converted into 658,103 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. On July 22, 2020, one accredited individual, who became note holder to the Esenjay Note pursuant to the assignment of such note by Esenjay to the note holder, converted $400,000 in principal into 100,000 shares of common stock at $4.00 per share. F- 13 Warrants On July 3, 2019, the Company issued a three-year warrant to Cleveland Capital, L.P. (“Cleveland Warrant”) to purchase our common stock in a number equal to one-half percent (0.5%) of the number of shares of common stock outstanding after giving effect to the total number of shares of common stock sold in a public offering at 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”) at an exercise price 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 number and the exercise price of the Cleveland Warrant became determinable, and represented as a right to purchase up to 83,205 shares of common stock at $4.00 per share and had a fair value of approximately $174,000. As of June 30, 2021, all 83,205 warrants remained outstanding and exercisable. In August 2020 and in conjunction with the Company’s public offering, the Company issued five-year warrants to the underwriters to purchase up to 185,955 shares of the Company’s common stock at an exercise price of $4.80 per share and had a fair value of approximately $513,000. The underwriters’ warrants became exercisable on February 8, 2021. Warrant detail for the year ended June 30, 2021 is reflected below: Number of Warrants Weighted Average Exercise Price Per Warrant Remaining Contract Term (# years) Warrants outstanding and exercisable at June 30, 2020 83,205 $ 4.00 2.01 Warrants issued 185,955 $ 4.80 5.00 Warrants exercised (40,993 ) $ 4.80 - Warrants forfeited (13,284 ) $ 4.80 - Warrants outstanding and exercisable at June 30, 2021 214,883 $ 4.49 2.92 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 forfeited (8,333 ) $ 20.00 - Warrants outstanding and exercisable at June 30, 2020 83,205 $ 4.00 2.01 Stock Options In connection with the reverse acquisition of Flux Power, Inc in 2012, we assumed the 2010 Option Plan. As of June 30, 2021, the number of options outstanding to purchase common stock under the 2010 Option Plan was 22,536. No additional options to purchase common stock may be granted under the 2010 Option Plan. On November 26, 2014, the Board of Directors approved the 2014 Equity Incentive Plan (the “2014 Option Plan”), which was approved by the Company’s stockholders on February 17, 2015. The 2014 Option Plan offers selected employees, directors, and consultants the opportunity to acquire our common stock subject to vesting requirements 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. F- 14 Activity in stock options during the year ended June 30, 2021 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, 2020 579,584 $ 11.00 7.55 Exercised (22,760 ) $ 6.16 Forfeited and cancelled (25,619 ) $ 14.62 Outstanding at June 30, 2021 531,205 $ 11.02 6.73 Exercisable at June 30, 2021 490,323 $ 10.87 6.64 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 Restricted Stock Units On November 5, 2020, the Company’s Board of Directors approved an amendment to the Company’s 2014 Option Plan, to allow grants of Restricted Stock Units (“RSUs”). Subject to vesting requirements set forth in the RSU Award Agreement, one share of common stock is issuable for one vested RSU. On November 5, 2020, the Board of Directors authorized the following RSUs to be granted under the amended 2014 Option Plan: (i) a total of 43,527 RSUs to certain executive officers as one-time retention incentive awards, and (ii) a total of 91,338 RSUs to certain key employees as annual equity compensation of which 45,652 were performance-based RSUs and 45,686 were time-based RSUs. On April 29, 2021, an additional 18,312 time-based RSUs were authorized by the Company’s Board of Directors to be granted under the amended 2014 Option Plan. Activity in RSUs during the year ended June 30, 2021 and related balances outstanding as of that date are reflected below: Number of Shares Weighted Average Grant date Fair Value Weighted Average Remaining Contract Term (# years) Outstanding at June 30, 2020 - $ - - Granted 153,177 $ 9.20 - Forfeited and cancelled (21,525 ) $ 8.88 - Outstanding at June 30, 2021 131,652 $ 9.25 2.72 There were no RSUs granted or outstanding during the year ended June 30, 2020. F- 15 Stock-based Compensation Stock-based compensation expense recognized in the consolidated statements of operations for the year ended June 30, 2021 and 2020, 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, 2021, the aggregate intrinsic value of exercisable options was approximately $1,278,000. 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, 2021 2020 Research and development $ 178,000 $ 215,000 Selling and administrative 619,000 1,588,000 Total stock-based compensation expense $ 797,000 $ 1,803,000 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, 2021 2020 Expected volatility 0 % 100.6% - 119.6 % Risk free interest rate 0 % 0.35% - 2.00 % Forfeiture rate 20 % 20 % Dividend yield 0 % 0 % Expected term (years) 0 6.35 At June 30, 2021, the unamortized stock-based compensation expense relating to outstanding stock options and RSUs was approximately $361,000 and $687,000, respectively, and these amounts are expected to be expensed over the weighted-average remaining recognition period of 0.69 years and 2.69years, respectively. 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, 2021 and 2020 are shown below. A valuation allowance of approximately $18,839,000 and $15,174,000 has been established to offset the net deferred tax assets as of June 30, 2021 and 2020, 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, 2021 2020 Deferred Tax Assets: Net operating loss carryforwards $ 16,111,000 $ 12,865,000 Research & development credit carryforward 27,000 - Stock compensation 1,696,000 1,652,000 Interest expense Sec. 163 366.000 261,000 Lease liability 924,000 1,004,000 Other, net 564,000 353,000 Net deferred tax assets 19,688,000 16,135,000 Valuation allowance for deferred tax assets (18,839,000 ) (15,174,000 ) Total deferred tax assets $ 849,000 $ 961,000 Deferred Tax Liabilities: Right of use asset $ (849,000 ) $ (961,000 ) Total deferred tax liabilities (849,000 ) (961,000 ) Net deferred tax liabilities $ - $ - At June 30, 2021, the Company had unused net operating loss (“NOL”) carryovers of approximately $57,472,000 and $57,871,000 that are available to offset future federal and state taxable income, respectively. Federal NOL carryforwards arising after 2017 of approximately $35,064,000 do not expire. Federal NOL carryforwards arrising before 2018 of approximately $22,408,000 and all of the state NOL carryforward 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, 2021 and 2020, due to the following: Year Ended June 30, 2021 2020 Federal income taxes at 21% $ (2,686,000 ) $ (3,011,000 ) State income taxes, net (894,000 ) (1,001,000 ) Permanent differences and other (58,000 ) 474,000 Other true ups, if any (27,000 ) - Change in federal tax rate - - Change in valuation allowance (3,665,000 ) (3,538,000 ) 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, 2021 and 2020. 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, 2021 or June 30, 2020 NOTE 11 - 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 California commercial bank. Our cash balance at this institution is secured by the Federal Deposit Insurance Corporation up to $250,000. As of June 30, 2021 and 2020, cash was approximately $4,713,000, and $726,000 respectively, which consisted 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. F- 17 Customer Concentrations During the year ended June 30, 2021, the Company had three (3) major customers that each represented more than 10% of its revenues, on an individual basis, and together represented approximately $16,004,000 or 61% of its total revenues. 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. 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, 2021 the Company had two (2) suppliers who accounted for more than 10% of its total purchases, on an individual basis, and together represented approximately $9,260,000 or 27% of its total purchases. 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. NOTE 12 - 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. 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 was $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 $841,000 and $673,000 for the years ended June 30, 2021 and 2020, respectively, net of sublease income. The Future Minimum Lease Payments are: 2022 $ 746,000 2023 768,000 2024 791,000 2025 815,000 2026 840,000 Thereafter 359,000 Total Future Minimum Lease Payments 4,319,000 Less: discount (1,018,000 ) Total lease liability $ 3,301,000 NOTE 13 - SUBSEQUENT EVENTS On September 22, 2021, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with several institutional and accredited investors (the “Purchasers”), pursuant to which the Company agreed to sell in a registered direct offering an aggregate of 2,142,860 shares of Common Stock of the Company (the “Shares”) and warrants to purchase up to 1,071,430 shares of its common stock (the “Warrants”), at a combined purchase price of $7.00 per share and related Warrant, for aggregate gross proceeds to the Company of approximately $15 million, before deducting placement agent fees and offering expenses payable by the Company (the “Registered Offering”). Subject to certain ownership limitations, the Warrants will be exercisable immediately from the date of issuance, will expire on the five (5) year anniversary of the date of issuance and will have an exercise price of $7.00 per share. The exercise price of the Warrants is subject to certain adjustments, including stock dividends, stock splits, combinations and reclassifications of the Company’s common stock. The Registered Offering is anticipated to close on or about September 27, 2021. Pursuant to an engagement letter, dated as of September 22, 2021, we have engaged H.C. Wainwright & Co., LLC (“HCW” or the “Placement Agent”) to act as our exclusive Placement Agent in connection with the Registered Offering. As compensation in connection with the Registered Offering, the Company paid HCW a cash fee equal to 6.0% of the gross proceeds of the Registered Offering. The net proceeds from the Registered Offering, after deducting placement agent fees and offering expenses, are approximately $14 million. The Shares and the Warrants and the shares issuable upon exercise of the Warrants were offered and are being sold by the Company pursuant to an effective shelf registration statements on Form S-3 (File No. 333-249521), which was originally filed with the SEC on October 16, 2020 and declared effective on October 26, 2020. F- 18