What changed in this filing

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Item 9A. Controls and Procedures

2023-09-21 compared with 2022-09-28 · 1001 added, 1063 removed, 876 unchanged (70% of the section changed)

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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.

disclosure controls and procedures, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Act of 1934.

Our disclosure controls

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Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures

were not effective as of June 30, 2022 because of the material weaknesses identified in our internal controls over financial reporting.

were not effective as of June 30, 2023 because of the material weakness identified in our internal controls over financial reporting.

Report on Internal Control over Financial Reporting

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, 2022, 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”).

A Material weakness is a control deficiency (within the meaning of Public Company Accounting Oversight

Board (United States) Auditing Standard No.

2) or a combination of control deficiencies that result in more than a remote likelihood

that a material misstatement of the annual or interim financial statements will not be prevented or detected.

Based on such assessment,

management concluded that as of June 30, 2022, our internal control over financial reporting was not effective.

Management has identified

the following material weakness:

● Ineffective oversight of the Company’s internal control over financial

reporting and lack of sufficient review and approval of the underlying data used in the calculation of warranty reserve.

are implementing measures designed to improve our internal control over financial reporting to remediate material weaknesses, including

the following:

● We are implementing additional control procedures to strengthen the oversight

of the Company’s internal control over financial reporting through review and sign off by the senior management of all significant

assumptions and estimates being used and the underlying the data used in producing financial schedules/estimates and financial reporting.

We are also adding a second level of review and approval for all manual journal entries for significant estimates and assumptions made

by 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.

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.

the supervision of management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the

effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued

by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and subsequent guidance prepared by the Commission

specifically for smaller public companies as of June 30, 2023.

Based on that evaluation, our management concluded that our internal control

over financial reporting was not effective as of June 30,2023 due to an identified material weakness as a

result of not having sufficient personnel resources with technical accounting expertise related to certain aspects of the financial reporting

Until such time as we could have additional resources with such level of technical accounting expertise, management intends

to implement measures designed to improve our internal control over financial reporting to remediate material weaknesses, including the

use of third-party consultants and accounting experts.

Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm

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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.

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.

Chief Executive Officer and President

Financial Officer and Secretary

President of Operations

Walters-Hoffert (1)(2)

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Bo-Linn (1)(4)

of the Audit Committee, Member of Compensation Committee and Governance Committee

Independent Director, Chairperson of the Compensation Committee, Member of Audit Committee and Governance Committee

Bo-Linn was appointed to the Board on January 14, 2022.

Bo-Linn is the Chairperson of the Nominating and Corporate Governance

Committee (“Governance Committee”) and a Member of the Audit Committee and Compensation Committee.

Independent Director

Chairperson of the Audit Committee, Member of the Compensation

Committee and the Nominating and Governance Committee

Lead Independent Director, Chairperson of the Compensation Committee,

Member of the Audit Committee and the Nominating and Governance Committee

Chairperson of the Nominating and Governance Committee, Member of the

Audit Committee and the Compensation Committee.

On November 7, 2022, Mr.

Mason’s position was expanded to include additional Company authority and delegation.

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.

Chairman, Chief Executive Officer, President, and Director .

Dutt , Chairman, Chief Executive Officer, President, and Director .

Dutt has been our chief executive officer, former

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Scheiwe also holds a CPA certificate.

Mason, Vice President of Operations.

as the Director of Manufacturing of the Company from January 2021 to December 2021, and Vice President of Operations since December 2021.

On November 7, 2022, Mr.

Mason’s position was expanded to include additional Company authority and delegation.

Prior to joining

the Company, Mr.

Mason was the plant manager at NEO Tech from March 2017 to January 2021 after being promoted from Director of Operations

from December 2013 to March 2017.

Mason has also worked for Sumitomo Electric Interconnect Products, Inc., Radio Design Labs, Inc.,

and Motorola Inc.

during his career.

Mason received his Master of Business Administration in International Business in 2015 and his

Bachelor of Business Administration/Management in 2013 from North Central University.

Mason is also Total Productive Maintenance

(TPM) Instructor Certified by the Japan Institute of Plant Maintenance, Tokyo, Japan.

Johnson, Director.

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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.

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.

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.

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.

Robinette received a Bachelor of Science degree in Business Administration, Marketing from

San Diego State University.

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.

Robinette was with Peregrine Semiconductor, Inc., (known today as PSEMI, a division of Murata Manufacturing Co Ltd.), 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.

Robinette started his career from 1991 to 2007 at Tyco Electronics Ltd.

today as TE Connectivity Ltd.), a passive electronics manufacturer, in various sales, sales leadership and product development

leadership roles.

Robinette received a Bachelor of Science degree in Business Administration, Marketing from San Diego State

Based on the above qualifications, the Company believes Mr.

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Bo-Linn, Director.

Bo-Linn was appointed to our board January 14, 2022.

currently a director of Data I/O Corp (Nasdaq:

DAIO), a company in advanced security and data deployment, since

December 2021, as a director KORE Group Holdings, Inc.

KORE), an Internet of Things (“IoT”) solutions and connectivity-as-a-service

company since October 2021, and as a director of Blackline Safety Corp.

BLN), a Canadian public company specializing in

advanced security and data deployment, since November 2020.

In addition, Ms.

the Chief Executive Officer of Peritus Partners, Inc., a valuation accelerator and information technology operations and consulting company,

from 2013 to 2022.

Bo-Linn experience include 20+ years in multiple senior executive roles with International Business Machines Corporation

IBM), including leading global teams as IBM’s Vice-President, and has also held C-suite roles or board positions at small

to midcap public and private companies.

Bo-Linn holds a Doctorate in Education in “Computer-based Management Information Systems

and Organizational Change” from the University of Houston.

Bo-Linn was appointed to the Board of Directors on January 14, 2022.

She was the CEO of Peritus Partners,

a global valuation accelerator and information technology operations and consulting company from 2013 through 1Q2023.

Director experience spans Canada, the United States, and Australia, with Board leadership positions from Lead Independent Director

to Committee Chair of every major committee (Audit, Compensation, Nomination/Governance) and Chair of Technology, Cybersecurity, and

Sustainability, across eight prior public companies and multiple privates.

She held various executive and President roles in

multiple companies including Vice-President of IBM Corporation.

Her C-suite and Board roles include the lithium, ecommerce,

manufacturing and distribution, technology, healthcare, construction, software, and marketing sectors.

Bo-Linn was named The

Financial Times 2021 “Top 100 Diverse Directors”, NACD’s (National Association of Corporate Directors’)

“Top 50 Directors,” and inducted into the “Hall of Fame for Women in Technology.” Thru 2019, she was

Visiting Professor on digital tech (AI, data analytics, cybersecurity) and marketing at the joint Columbia University, London School

of Business and University of Hong Kong EMBA/MBA program.

She has been invited to speak at the United Nations, Dow Jones, and

British Chamber.

She earned her Doctorate Degree (EdD) in Computer based Information Systems and Organizational Change from the

University of Houston.

The Board believes that Dr.

Bo-Linn’s extensive executive management

and board experience in private and public companies qualifies her to serve on the Board of Directors.

Bo-Linn’s extensive senior executive management and board experience in

private and public companies qualifies her to serve on the Board of Directors.

in Certain Legal Proceedings

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and management of risks to the Company.

of Directors Diversity

Board of Directors is committed to fostering a diversity of backgrounds and perspectives so that our Board of Directors positions our

company for the future.

The members of our Board of Directors represent a mix of ages, genders, races, ethnicities, geographies, cultures,

and other perspectives that we believe expand our Board of Directors’ understanding of the needs and viewpoints of our partners,

employees, stockholders, and other stakeholders.

The matrix below provides certain information regarding the composition of our Board

of Directors as of the date of this report.

Each of the categories listed in the below table has the meaning as it is used in Nasdaq

Stock Market Rule 5605(f).

Diversity Matrix (as of September 8, 2023)

Number of Directors

Gender Identity

Demographic Background

Composition, Committees and Independence

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of each of the committees is described below.

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.

Walters-Hoffert is

the Chairperson of the Audit Committee and financial expert, and Mr.

Robinette and Ms.

Bo-Linn are the other directors who are members

of the Audit Committee.

The Audit Committee’s duties are to recommend to our Board of Directors the engagement of the independent

registered public accounting firm to audit our consolidated financial statements and to review our accounting and auditing principles.

The Audit Committee reviews the scope, timing and fees for the annual audit and the results of audit examinations performed by any internal

auditors and independent public accountants, including their recommendations to improve the system of accounting and internal controls.

The Audit Committee will at all times be composed exclusively of directors who are, in the opinion of our Board of Directors, free from

any relationship that would interfere with the exercise of independent judgment as a committee member and who possess an understanding

of consolidated financial statements and generally accepted accounting principles.

Our Audit Committee operates under a written charter,

which is available on our website at www.fluxpower.com .

Compensation Committee 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.

Robinette is the Chairperson

of the Compensation Committee, and Ms.

Walters-Hoffert and Ms.

Bo-Linn 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.

executive officer often makes recommendations to the Compensation Committee and the Board concerning compensation of other executive

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 .

The Audit Committee of

the Board of Directors currently consists of three independent directors of which at least one, the Chairperson of the Audit Committee,

qualifies as a qualified financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K.

Walters-Hoffert is the Chairperson

of the Audit Committee and financial expert.

Bo-Linn and Mr.

Robinette 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 .

The Compensation Committee

currently consists of three independent directors.

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.

Robinette is the Chairperson of the Compensation Committee, and Ms.

Walters-Hoffert and Dr.

Bo-Linn 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 .

and Governance Committee

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.

Bo-Linn is Chairperson of the Nominating and Governance Committee, and Ms.

Walters-Hoffert

Robinette are members.

Each of the members of our Nominating and Governance Committee is independent under NASDAQ’s independence

The Nominating and Governance Committee operates under a written charter, which was amended on January 14, 2022.

Nominating and Corporate Governance Committee Charter is available on our website at www.fluxpower.com .

The Nominating and Governance Committee currently consists of three independent directors.

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.

Bo-Linn is the Chairperson of the Nominating and Governance Committee.

Walters-Hoffert and Mr.

are members of the Nominating and Governance Committee.

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 .

seek directors with established strong professional reputations and experience in areas relevant to the strategy and operations of our

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for indemnification claims, advancement of expenses and costs and contribution obligations.

Delinquent Section 16(a)

Section 16(a) of the

Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a

registered class of our equity securities, to file with the SEC initial statements of beneficial ownership, reports of changes in

ownership and Annual Reports concerning their ownership, of Common Stock and other of our equity securities on Forms 3, 4, and 5,

respectively.

Executive officers, directors and greater than 10% stockholders are required by SEC regulations to furnish us with

copies of all Section 16(a) reports they file.

Based solely on our review of Forms 3, 4 and 5 and amendments thereto filed

electronically with the SEC during the most recent fiscal year, we believe that all reports required by Section 16(a) for

transactions in the fiscal year ended June 30, 2023, were timely filed except for one late filing of a Form 4 by Michael Johnson relating to a sale of 4,000 shares of common stock pursuant to a Rule 10b5-1 trading plan previously

adopted by Esenjay Investments, LLC on June 13,

2023, which was inadvertently filed one day late on June 16, 2023.

11 - EXECUTIVE COMPENSATION

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and Fiscal 2022 for services provided to the Company and its subsidiary.

and Principal

Incentive Plan Compensation

Other Compensation ($)

and Principal Position

Stock Awards (1)

Option Awards (2)

Non-Equity Incentive Plan Compensation

All Other Compensation ($)

Dutt, Chief Executive

President, and Chairman

Financial Officer and Corporate Secretary

Chief Operating Officer (3)

Officer, President, and Chairman

Chief Financial Officer and Corporate Secretary

Vice President of Operations

the fair value of the RSUs granted on grant date.

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model with assumptions described in more detail in the notes to our audited financial statements included in this report.

Berry separated from the Company on August 12, 2022.

On November 7, 2022, Mr.

Mason’s position was expanded to include additional Company authority and delegation.

do not have any profit-sharing plan or similar plans for the benefit of our officers, directors or employees.

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unrestricted stock awards to officers, directors and employees of, and consultants and advisors to, the Company or its affiliates.

options were granted during Fiscal 2022 and 2021.

We granted 250,786 and 153,177 restricted stock units under the 2014 Plan during Fiscal

2022 and 2021, respectively.

granted 0 and 175,265 stock options under the 2014 Plan during Fiscal 2022 and 2023, respectively.

We granted 72,566 and 250,786 restricted

stock units under the 2014 Plan during Fiscal 2023 and 2022, respectively.

April 29, 2021, at the Company’s annual stockholders meeting, the 2021 Equity Incentive Plan (the “2021 Plan”) was

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unrestricted stock awards to officers, directors and employees of, and consultants and advisors to, the Company or its affiliates.

awards were granted under the 2021 Plan during Fiscal 2022 and 2021.”

of June 30, 2022, we had 503,433 options outstanding and exercisable under the 2014 Plan and the 2010 Plan.

In addition, as of June 30,

2022, we had 304,221 RSUs outstanding under the 2014 Plan.

There were no options or RSUs issued or outstanding under the 2021 Plan as

of June 30, 2022.

awards were granted under the 2021 Plan during Fiscal 2022.

We granted 449,176 stock options under the 2021 Plan during Fiscal 2023.

of June 30, 2023, we had 398,922 options outstanding and exercisable under the 2021 Plan, the 2014 Plan and the 2010 Plan.

as of June 30, 2023, we had 193,749 RSUs outstanding under the 2014 Plan.

following table sets forth certain information concerning unexercised options, stock that has not vested, and equity compensation plan

awards outstanding as of June 30, 2023 for the named executive officers below:

of Securities Underlying Unexercised Options Exercisable

of Securities Underlying Unexercised Options Unexercisable

Incentive Plan Awards:

Option Awards (1)

Award Grant Date

Number of Securities Underlying Unexercised Options Exercisable

Number of Securities Underlying Unexercised Options Uexercisable

Equity Incentive Plan Awards:

Number of Securities Underlying Unexercised Unearned Options

Exercise Price ($)

Expiration Date

of Shares or Units of Stock That Have Not Vested

Value of Shares or Units of Stock That Have Not Vested ($)

Incentive Plan Awards:

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

Incentive Plan:

Equity Incentive Plan:

Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)

Charles Scheiwe

fair value of each option grant is estimated at the date of grant using the Black-Scholes option pricing model.

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the fair value of the Company’s common stock on the grant date.

Berry separated from the Company on August 12, 2022.

November 7, 2022, Mr.

Mason’s position was expanded to include additional Company authority and delegation.

Option/Stock Appreciation Right (“SAR”) exercised and Fiscal year-end Option/SAR value table

our executive officers nor the other individuals listed in the tables above, exercised options or SARs during Fiscal 2023.

Employee Stock Purchase Plan (the “2023 ESPP”)

2023 ESPP was approved by the Board on March 6, 2023 and approved by the Company’s stockholders on April 20, 2023.

The 2023 ESPP

enables eligible employees of the Company and certain of its subsidiaries (a “Participating Subsidiary”) to use payroll deductions

to purchase shares of the Company’s Common Stock and acquire an ownership interest in the Company.

The maximum aggregate number

of shares of the Company’s Common Stock that have been reserved as authorized for the grant of options under the 2023 ESPP is 350,000

shares, subject to adjustment as provided for in the 2023 ESPP.

Participation in the 2023 ESPP is voluntary and is limited to eligible

employees (as such term is defined in the 2023 ESPP) of the Company or a Participating Subsidiary who (i) has been employed by the Company

or a Participating Subsidiary for at least 90 days and (ii) is customarily employed for at least twenty (20) hours per week and more

than five (5) months in any calendar year.

Each eligible employee may authorize payroll deductions of 1-15% of the eligible employee’s

compensation on each pay day to be used to purchase up to 1,500 shares of Common Stock for the employee’s account occurring during

an offering period.

The 2023 ESPP has a term of ten (10) years commencing on April 20, 2023, the date of approval by the Company’s

stockholders, unless otherwise earlier terminated.

was no stock purchased under the 2023 ESPP during Fiscal 2023.

Agreements with Executive Officers

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participate in the Annual Bonus Plan.

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:

Executive Officer

Financial Officer

Operating Officer

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:

payments based on Target Cash Bonus Amount

June 30, 2021, the Compensation Committee 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 Compensation

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 Compensation 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.

June 30, 2021, the Compensation Committee approved an addendum to the Performance Restricted Stock Unit Award under the 2014 Equity Incentive

Plan approved by the Compensation Committee on November 5, 2020 to provide clarification for the calculation of vesting

the Company’s fiscal year ending on June 30, 2022, or Fiscal 2022, the performance goals applicable to a bonus are based on the

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executive officers, which target bonus was calculated based on percentage of the executive’s current base salary:

Executive Officer

Financial Officer

Operating Officer

Target Cash Bonus

Maximum Payout(1)

Chief Executive Officer

Charles Scheiwe

Chief Financial Officer

Vice President of Operations

are no bonus caps for achieving above set revenue target and gross margin target.

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of the TCB for such executive officers.

October 31, 2022, the Compensation Committee and the Board approved the following cash bonuses to the following executive officers, whereby

the final cash bonus payout was determined based on a payout percentage of the executive’s previous target cash bonus for fiscal

Chief Executive Officer

Charles Scheiwe

Chief Financial Officer

Vice President of Operations

October 31, 2022, the Compensation Committee also approved the bonus pool and performance criteria for the Annual Bonus Plan for the

fiscal year 2023 (the “2023 Bonus”).

For the Company’s fiscal year 2023, the performance goals applicable to a bonus

are based on the Company achieving certain targets based on the Company’s annual revenue, Adjusted EBITDA (earnings before interest,

income taxes, depreciation, amortization, and stock-based compensation), functional goals (the “Financial Targets”), in addition

to individual performance objectives and additional bonus amounts if the Company’s financial results exceeds certain thresholds

of the Financial Targets.

Compensation Committee approved the target cash bonuses under the 2023 Bonus based on the base salary for fiscal year 2023 for the following

executive officers:

Percentage of

Chief Executive Officer

$ 300,000 (2)

Charles Scheiwe

Chief Financial Officer

Vice President of Operations

to a bonus cap for achieving above set revenue target and a payout cap for achieving 10% positive Adjusted EBITDA.

be effective during the second fiscal quarter of 2023.

November 5, 2020, the Board approved an amendment to the 2014 Plan as amended to include the right to grant Restricted Stock Units (“RSUs”).

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Stock Unit Grants

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 Compensation Committee approved the grant of one-time retention based RSUs pursuant to the form

of the Restricted Stock Unit Award Agreement (“Retention Awards”).

following named executive officers of the Company were granted RSUs under the 2014 Option Plan in the amounts and according to the vesting

schedule indicated below:

Based Awards:

Executive Officer

Years from Award’s grant date

Financial Officer

Years from Award’s grant date

Operating Officer

Years from Award’s grant date

Based Awards:

Executive Officer

in installments of up to one-third annually based on target performance goals

Financial Officer

in installments of up to one-third annually based on target performance goals

Operating Officer

in installments of up to one-third annually based on target performance goals

Executive Officer

Years from Award’s grant date

Financial Officer

Years from Award’s grant date

Operating Officer

Years from Award’s grant date

did not grant any Restricted Stock Units (“RSUs”) to any of our executive officers in Fiscal 2023.

October 29, 2021, the Compensation Committee approved the grant of Restricted Stock Units (“RSUs”) under the Company’s

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Based Awards:

Executive Officer

annually over 3 years with the first vest date on October 27, 2022

Financial Officer

annually over 3 years with the first vest date on October 27, 2022

Operating Officer

annually over 3 years with the first vest date on October 27, 2022

Vesting Schedule

Chief Executive Officer

Vest annually over 3 years with the first vest date on October 27, 2022

Charles Scheiwe

Chief Financial Officer

Vest annually over 3 years with the first vest date on October 27, 2022

Vice President of Operations

Vest annually over 3 years with the first vest date on October 27, 2022

Based Awards:

Executive Officer

years from grant upon meeting performance target*

Financial Officer

years from grant upon meeting performance target *

Operating Officer

years from grant upon meeting performance target *

Vesting Schedule

Chief Executive Officer

Three years from grant upon meeting performance target*

Charles Scheiwe

Chief Financial Officer

Three years from grant upon meeting performance target *

Vice President of Operations

Three years from grant upon meeting performance target *

The performance target for the RSU to be based on EBITDAS (earnings before interest expense (excluding interest income), taxes, depreciation,

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June 30, 2022.

Option Grants

October 31, 2022 (the Grant Date”), the Compensation Committee approved the grant of incentive stock options (the “Options”)

under the Company’s 2014 Equity Incentive Plan (the “2014 Plan”) and the Company’s 2021 Equity Incentive Plan

(the “2021 Plan”) to certain employees of the Company or its subsidiary, Flux Power, Inc.

The Options are subject to the

terms and conditions provided in the form of Incentive Stock Option Agreement under the 2014 Plan (the “2014 Option Agreement”)

or the form of Incentive Stock Option Agreement under the 2021 Plan (the “2021 Option Agreement”).

The following named executive

officers of the Company were granted Stock Options under the 2021 Plan in such number and vesting schedule set forth as follows:

Vesting Schedule

Chief Executive Officer

Four (4) equal annual installments commencing one year after the Grant Date

Charles Scheiwe

Chief Financial Officer

Four (4) equal annual installments commencing one year after the Grant Date

Vice President of Operations

Four (4) equal annual installments commencing one year after the Grant Date

Subject to $100,000 ISO limitation under the 2021 Plan.

the Committee and the Board will continue to explore and evaluate different long-term and short-term incentives to help attract, retain

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of Non-Executive Directors

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:

Non-Executive

Walters-Hoffert

Cosentino Jr .(1)

Former director

January 14, 2022, pursuant to the recommendation and advice of the Compensation Committee of the Board of the Company, the Board approved

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Non-Executive

Walters-Hoffert

Independent Director

Lisa Walters-Hoffert

Dale Robinette

Compensation Chair

Cosentino Jr .(1)

Governance Chair

Cheemin Bo-Linn (2)

Michael Johnson

Cosentino resigned as our director on March 1, 2022.

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she is entitled to a Chair Fee of $5,000 for calendar year 2022.

was no change to the cash compensation package for non-executive director of the Company during Fiscal 2023.

March 8, 2023, pursuant to the recommendation and advice of the Compensation Committee of the Board of the Company, the Board approved

the following annual compensation package for non-executive directors of the Company for fiscal year ending June 30, 2024, as follows:

Non-Executive Director

Member Fee (1)

Lisa Walters-Hoffert

Dale Robinette

Compensation Chair

Cheemin Bo-Linn (2)

Michael Johnson

Committee Member Fees:

$3,750 for non-chair committee members of the Audit Committee, and $2,500 for non-chair committee members of

the Compensation Committee and the Nominating and Governance Committee.

Component of Non-Executive Director Compensation

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price prior to the grant issuance date.

April 2021, each of our non-executive directors were granted 4,578 RSUs, of which 1/3 of the RSUs vested on April 29, 2022, and each

subsequent 1/3 to vest every twelve (12) months thereafter until fully vested.

In April 2022, each of our non-executive directors were

granted 17,793 RSUs which are subject to fully vest on April 28, 2023.

In addition, in August 2022, as compensation for board services

provided during the last quarter of Fiscal 2022, Ms.

Bo-Linn was granted 5,034 RSUs, of which 1/3 vested immediately, each of the remaining

1/3 of the RSUs will vest on April 29, 2023, and April 29, 2024.

Bo-Linn’s s grant was consistent with the standard equity

component of Non-Executive Director Compensation Package as approved by the Board.

April 2022, each of our non-executive directors were granted 17,793 RSUs which are subject to fully vest on April 28, 2023.

in August 2022, as compensation for board services provided during the last quarter of Fiscal 2022, Ms.

Bo-Linn was granted 5,034 RSUs,

of which 1/3 vested immediately, each of the remaining 1/3 of the RSUs will vest on April 29, 2023, and April 29, 2024.

s grant was consistent with the standard equity component of Non-Executive Director Compensation Package as approved by the Board.

April 2023, each of our non-executive directors were granted 16,883 RSUs which are subject to fully vest on April 20, 2024.

Compensation Table

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Dutt receives as an employee of the Company is included in the section titled “Executive Compensation.”

Awards (2) ($)

Other Compensation ($)

Walters-Hoffert

Fees Earned or

Stock Awards (2) ($)

All Other Compensation ($)

Lisa Walters-Hoffert

Dale Robinette

Cosentino Jr.

Michael Johnson

Cheemin Bo-Linn (3)

Cosentino resigned as our director on March 1, 2022.

the fair value of the RSUs granted using the volume weighted average price of the ten days of trading prior to grant date.

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”).

Bo-Linn joined our board of director on January 14, 2022.

Bo-Linn joined our board of directors on January 14, 2022.

following table shows the aggregate number of vested stock options held by our non-employee directors as of June 30, 2023 and June 30,

Stock Options

Walters-Hoffert

Vested Stock Options

Lisa Walters-Hoffert

Dale Robinette

Cheemin Bo-Linn (1)

Michael Johnson

Cosentino Jr.

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common stock, except as otherwise indicated.

and Address of Beneficial Owner (1)

and Directors

Johnson, Director

Name and Address of Beneficial Owner (1)

Officers and Directors

Michael Johnson, Director

4,403,008 (2)

Dutt, Chief Executive Officer, President, and Director

A Scheiwe, Chief Financial Officer and Secretary

Bo-Linn, Director

Walters-Hoffert, Director

Robinette, Director

Officers and Directors as a group (6 people)

Capital Management L.L.C.

Ronald Dutt, Chief Executive Officer, President, and Director

Charles A Scheiwe, Chief Financial Officer and Secretary

Mason, Vice President of Operations

Cheemin Bo-Linn, Director

Lisa Walters-Hoffert, Director

Dale Robinette, Director

All Officers and Directors as a group (7 people)

5% Stockholders

Esenjay Investments LLC

4,369,215 (2)

Cleveland Capital Management L.L.C.

1250 Linda Street, Suite 304

Rocky River, OH 44116

Formindable Asset Management, LLC

221 E Fourth Street, Suite 2700

Cincinnati OH 45202

1,598,228 (10)

Represents less than 1% of shares outstanding.

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Melrose Drive, Vista, California 92081, unless otherwise stated.

4,465,755 shares of common stock held by Esenjay Investments, LLC, of which Mr.

Johnson is the sole director and beneficial owner,

and (ii) 12,948 shares of common stock issuable to Mr.

Johnson upon exercise of stock options.

(i) 20,845 shares of common stock held by Mr.

Johnson and 4,369,215 shares of common stock held by Esenjay Investments LLC, of which

Johnson is the sole director and beneficial owner, and (ii) 12,948 shares of common stock issuable to Mr.

Johnson upon exercise

of stock options.

33,030 shares of common stock and 213,155 shares of common stock issuable upon exercise of stock options and settlement of vested

8,018 shares of common stock and 32,100 shares of common stock issuable upon exercise of stock options and settlement of vested RSUs.

10,118 shares of common stock and 35,615 shares of common stock issuable upon exercise of stock options and settlement of vested

1,376 shares of common stock and 1,280 shares of common stock issuable upon settlement of vested RSUs.

22,618 shares of common stock.

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on Amendment No.

5 to Schedule 13G filed jointly by Cleveland, Wade Massad and Cleveland Capital Management, L.L.C.

on February 14, 2022.

Reflects 811,419 shares of common stock beneficially owned by certain private funds managed by Cleveland Capital

Management, L.L.C., or by its principals.

5 to Schedule 13G filed jointly by Cleveland, Rocky River Specific Opportunities Fund LLC, Wade Massad and Cleveland

Capital Management, L.L.C.

with the SEC on February 13, 2023.

Reflects 945,214 shares of common stock beneficially owned by certain

private funds managed by Cleveland Capital Management, L.L.C., or by its principals.

on Amendment No.

1 to Schedule 13G filed by Formidable Asset Management, LLC with the SEC on May 4, 2023.

Represents less than 1% of shares outstanding.

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the commitment amount from each such Lender placed by HPO in cash.

Private Placement

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.

Cosentino, a former director, also participated in the offering in the amount of $250,000.

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

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 to $1,400,000 (the “Esenjay

June 26, 2020 and July 22, 2020, Esenjay assigned a total of $900,000 of the Esenjay Note to three (3) accredited investors and the $900,000

note balance was converted into shares of common stock at $4.00 per share, which was the cash price per share, and resulted in the issuance

of 225,000 shares of common stock.

August 31, 2020, the Company entered into the Third Amended and Restated Credit Facility Agreement and pursuant to which the Company

further amended the Esenjay Note to, among other items, transfer all remaining principal and accrued interest outstanding of approximately

$564,000 into the amended Credit Facility Agreement.

(See “Credit Facility” below).

March 22, 2018, we entered into a credit facility agreement with Esenjay with a maximum borrowing amount of $5,000,000 (the “Original

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, the inclusion of additional lenders and extension of the maturity

date to September 30, 2021.

August 2020, we paid down an aggregate principal amount of approximately $1,402,000 of the outstanding balance under the LOC.

31, 2020, we entered into the Third Amended and Restated Credit Facility Agreement (“Third Amended and Restated Facility Agreement”)

pursuant to which we (i) extended the maturity date to September 30, 2021, and (ii) allowed for the transfer of outstanding obligations

under the Esenjay Note of approximately $564,000 into the LOC as noted above.

In November 2020, lenders holding an aggregate of approximately

$2,161,000 in principal and accrued interest elected to convert their notes into 540,347 shares of common stock at a price of $4.00 per

In January and March 2021, the lenders holding an aggregate of approximately $2,632,000 in principal and accrued interest elected

to convert their notes into 658,103 shares of common stock at a price of $4.00 per share of which approximately $1,045,000 was held by

Esenjay and converted to 261,133 shares of common stock.

June 10, 2021, we repaid all obligations in full and without additional fees or termination penalties, and the Third Amended and Restated

Credit Facility Agreement and the related Second Amended and Restated Security Agreement were terminated.

July 3, 2019, we entered into a loan agreement with Cleveland, pursuant to which Cleveland agreed to loan the Company $1,000,000 (the

“Cleveland Loan”) and issued Cleveland an unsecured short-term promissory note in the amount of $1,000,000 (the “Unsecured

Promissory Note”).

The Unsecured Promissory Note had an interest rate of 15.0% per annum and was originally due on September 1,

2019, unless repaid earlier from a percentage of proceeds from certain identified accounts receivable.

In connection with the Cleveland

Loan, we issued Cleveland a three-year warrant (the “Cleveland Warrant”) to purchase 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 shares of common stock sold in

a contemplated public offering and with an exercise price equal to the per share price of the common stock sold in the public offering.

September 1, 2019, we entered into the First Amendment to the Unsecured Promissory Note pursuant to which the maturity date was extended

to December 1, 2019 (the “First Amendment”) and the Cleveland Warrant terms were amended (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 shares of common stock sold in the next private or public offering and with an exercise price equal to the per share price of

common stock sold in such private or public offering, as the case may be.

July 9, 2020, we made a payment to Cleveland in the amount of $200,000 as a partial payment of the Cleveland Loan.

On July 27, 2020,

in connection with the outstanding loan from Cleveland to us in the principal amount of $957,000, we entered into the Eighth Amendment

to the Unsecured Promissory Note which extended the maturity date from July 31, 2020 to August 31, 2020, and capitalized all accrued

and unpaid interest as of July 27, 2020 to the principal amount.

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

On December 15, 2022, the Board of Directors of the Company elected

to extend the Due Date to December 31, 2023 and the Company paid the Lenders an extension fee in the aggregate amount of $80,000.

14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES

the fiscal years ended June 30, 2022 and 2021, 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).

the fiscal years ended June 30, 2023 and 2022, the Company’s independent public accounting firm was Baker Tilly US, LLP

Paid to Principal Independent Registered Public Accounting Firm

aggregate fees billed by our Independent Registered Public Accounting Firm, for the fiscal years ended June 30, 2023 and 2022 are as

related fees(2)

other fees(4)

Audit fees(1)

Audit related fees(2)

All other fees(4)

fees represent fees for professional services provided in connection with the audit of our annual financial statements and the review

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firm, are included in this report:

of Independent Registered Public Accounting Firm – (Baker Tilly US, LLP, San Diego, CA PCAOB Firm ID# 23 )

Balance Sheets as of June 30, 2022 and 2021

Statements of Operations for the Years Ended June 30, 2022 and 2021

Statements of Stockholders’ Equity (Deficit) for the Years Ended June 30, 2022 and 2021

Statements of Cash Flows for the Years Ended June 30, 2022 and 2021

to the Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm – (Baker Tilly US, LLP, San Diego, CA PCAOB Firm ID# 23 )

Consolidated Balance Sheets as of June 30, 2023 and 2022

Consolidated Statements of Operations for the Years Ended June 30, 2023 and 2022

Consolidated Statements of Stockholders’ Equity for the Years Ended June 30, 2023 and 2022

Consolidated Statements of Cash Flows for the Years Ended June 30, 2023 and 2022

Notes to the Consolidated Financial Statements

Financial Statement Schedules:

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The following exhibits are filed as part of this Report

Exchange Agreement dated May 18, 2012.

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.

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.

Articles of Incorporation.

Incorporated by reference to Exhibit 2.2 on Form 8-K filed with the SEC on June 18, 2012.

Restated Articles of Incorporation.

Incorporated by reference to Exhibit 3.1 on Form 8-K filed with the SEC on February 19, 2015.

and Restated Bylaws of Flux Power Holdings, Inc.

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.

of Amendment to Articles of Incorporation.

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.

Certificate of Change.

Incorporated by reference to Exhibit 3.1 on Form 8-K filed with the SEC on July 12, 2019.

of Securities.

Description of Securities.

Incorporated by reference to Exhibit 4(vi) on Form 10-K filed with the SEC on September 28, 2020.

Form of Warrant.

Incorporated by reference to Exhibit 4.1 on Form 8-K filed with the SEC on September 23, 2021.

of Warrant Certificate.

Form of Warrant Certificate.

Incorporated by reference to Exhibit 4.1 on Form 8-K filed with the SEC on May 13, 2022.

to Purchase Stock issued to Silicon Valley Bank, dated June 23, 2022.

Incorporated by reference to Exhibit 4.1 on Form 8-K filed

with the SEC on June 28, 2022.

of Indemnification Agreement.

Warrant to Purchase Stock issued to Silicon Valley Bank, dated June 23, 2022.

Incorporated by reference to Exhibit 4.1 on Form 8-K filed with the SEC on June 28, 2022.

Form of Indemnification Agreement.

Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on April 9, 2019.

Agreement dated April 25, 2019.

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.

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.

of Representative Warrant.

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.

Form of Representative Warrant.

Incorporated by reference to Exhibit 10.1 on Form 10-Q filed with the SEC on November 12, 2020.

Power Holdings, Inc.

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.

Incorporated by reference to Exhibit 10.6 on Form 8-K filed with the SEC on June 18, 2012.

2014 Equity Incentive Plan.

Incorporated by reference to Exhibit 10.23 on Form 10-Q filed with the SEC on May 15, 2015.

to the Flux Power Holdings Inc.

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.

Incorporated by reference to Exhibit 10.20 on Form 10-K filed with the SEC on September 27, 2018.

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.

of Restricted Stock Unit Award Agreement.

Incorporated by reference to Exhibit 10.2 on Form 8-K filed with the SEC on November 9,

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.

Cash Bonus Plan.

2014 Equity Incentive Plan Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on November 9, 2020.

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.

and Security Agreement with Silicon Valley Bank.

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.

Property Security Agreement.

Annual Cash Bonus Plan.

Incorporated by reference to Exhibit 10.4 on Form 8-K filed with the SEC on November 9, 2020.

and Restated Employment Agreement by and between Flux Power Holdings, Inc.

Amended and Restated Employment Agreement by and between Flux Power Holdings, Inc.

and Ronald F.

Incorporated by reference to Exhibit

10.1 on Form 8-K filed with the SEC on February 17, 2021.

Agreement by and between Flux Power Holdings, Inc.

Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on February 17, 2021.

Employment Agreement by and between Flux Power Holdings, Inc.

and Charles A.

Incorporated by reference to Exhibit 10.2 on Form 8-K

filed with the SEC on February 17, 2021.

Incorporated by reference to Exhibit 10.2 on Form 8-K filed with the SEC on February 17, 2021.

2021 Equity Incentive Plan.

Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on May 4, 2021.

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.

of Securities Purchase Agreement.

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.

Form of Securities Purchase Agreement.

Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on September 23, 2021.

of Performance Restricted Stock Unit Award.

Form of Performance Restricted Stock Unit Award.

Incorporated by reference to Exhibit 10.3 on Form 8-K filed with the SEC on November 2, 2021

Amendment to 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 3, 2021

Facility Agreement dated May 11, 2022.

Credit Facility Agreement dated May 11, 2022.

Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on May 13, 2022.

of Subordinated Unsecured Promissory Note.

Form of Subordinated Unsecured Promissory Note.

Incorporated by reference to Exhibit 10.2 on Form 8-K filed with the SEC on May 13, 2022.

Amendment to Loan and Security Agreement with Silicon Valley Bank.

Incorporated by reference to Exhibit 10.1 on Form 8-K filed with

the SEC on June 28, 2022.

Separation and Release with Jonathan Berry dated August 24, 2022.

Incorporated by reference to Exhibit 10.1 on Form 8-K/A filed with

the SEC on August 26, 2022.

of Business Conduct and Ethics.

Employee Separation and Release with Jonathan Berry dated August 24, 2022.

Incorporated by reference to Exhibit 10.1 on Form 8-K/A filed with the SEC on August 26, 2022.

Flux Power Holdings, Inc.

2023 Employee Stock Purchase Plan.

Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on April 21, 2023

Loan and Security Agreement.

Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on August 3, 2023.

Intellectual Property Security Agreement.

Incorporated by reference to Exhibit 10.2 on Form 8-K filed with the SEC on August 3, 2023.

Form of Revolving Note.

Incorporated by reference to Exhibit 10.3 on Form 8-K filed with the SEC on August 3, 2023.

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.

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Incorporated by reference to Exhibit 21.1 on Form 8-K filed with the SEC on June 18, 2012

of Independent Registered Public Accounting Firm

Certifications

of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act.

Certifications

of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act.

Certifications

of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act.

Certifications

of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act.

Consent of Independent Registered Public Accounting Firm

Certifications of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act.

Certifications of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act.

Certifications of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act.

Certifications of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act.

Instance Document*

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Taxonomy Extension Presentation Linkbase

Cover Page Interactive Data File, formatted in Inline XBRL (included as Exhibit 101)

management contract or compensatory plan or arrangement.

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OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Shareholders and Board of Directors of Flux Power Holdings, Inc.

the Shareholders and the Board of Directors of Flux Power Holdings, Inc.

on the Financial Statements

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(the “Company”) as of June 30, 2023

and 2021, 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 referred to as the “consolidated financial

statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position

of the Company as of June 30, 2022 and 2021, 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.

and 2022, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows, for each of the two

years in the period ended June 30, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company

as of June 30, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended June

30, 2023, in conformity with accounting principles generally accepted in the United States of America.

consolidated financial statements are the responsibility of the Company’s management.

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We believe that our audits provide a reasonable basis for our opinion.

critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was 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 judgments.

The communication of critical audit matters

does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the

critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Concern Assessment

Audit Matter Description

described in Note 2 to the consolidated financial statements, the financial statements have been prepared assuming the Company will continue

as a going concern.

For the year ended June 30, 2022, the Company generated negative cash flows from operations of $23.9 million and

had an accumulated deficit of $81.8 million.

Historically the Company has not generated sufficient cash to fund its operations.

has concluded that management’s plans and forecasts illustrate their ability to meet the obligations through revenue growth and

cost reductions as well as available financing under existing debt agreements, which alleviates the substantial doubt about the entity’s

ability to continue as a going concern.

identified management’s assessment of the Company’s ability to continue as a going concern as a critical audit matter due

to the high degree of auditor judgment and related to the reasonableness of the cash flow forecasts and assumptions used in the Company’s

going concern analysis.

We Addressed the Matter in Our Audit

primary procedures we performed to address this critical audit matter included:

and evaluating management’s plans for dealing with the adverse effects of the conditions

the completeness, accuracy, and relevance of underlying data used by management in the cash

flow forecast

the reasonableness of management’s significant assumptions and judgments used in the

preparation of the forecast

audit evidence supporting the reasonableness of management’s assumptions, including

consideration of contrary evidence impacting managements forecasts.

sensitivity analysis regarding the significant assumptions used by management including revenue

growth, operating expenses, and gross margin improvements.

● Corroborating

management assertions related to the significant assumptions to audit evidence obtained during

the course or our audit.

the availability of the sources of financing utilized in the forecast, including financing

in place as of the report date, and the related covenants.

the adequacy of the disclosure included in the notes to the financial statements.

TILLY US, LLP

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 judgments.

We determined that there are no critical audit matters.

BAKER TILLY US, LLP

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Current assets:

current assets

plant and equipment, net

AND STOCKHOLDERS’ EQUITY

line of credit

lease payable, current portion

Accounts receivable

Inventories, net

Other current assets

Total current assets

Right of use asset

Property, plant and equipment, net

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

term liabilities:

lease payable, less current portion

Stockholders’

stock, $ 0.001 par

500,000 shares

and outstanding

stock, $ 0.001 par

30,000,000 shares

15,996,658 and

13,652,164 shares

issued and outstanding at June 30, 2022 and June 30, 2021, respectively

paid-in capital

Accounts payable

Accrued expenses

Revolving line of credit

Deferred revenue

Customer deposits

Finance lease payable, current portion

Office lease payable, current portion

Accrued interest

Total current liabilities

Long term liabilities:

Finance lease payable, less current portion

Office lease payable, less current portion

Total liabilities

Stockholders’ equity:

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;

16,462,215 and 15,996,658 shares issued and outstanding at June 30, 2023 and June 30, 2022, respectively

Additional paid-in capital

Accumulated deficit

( 88,555,000 )

( 81,814,000 )

stockholders’ equity

liabilities and stockholders’ equity

Total stockholders’ equity

Total liabilities and stockholders’ equity

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

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STATEMENTS OF OPERATIONS

and administrative

and development

Cost of sales

Operating expenses:

Selling and administrative

Research and development

Total operating expenses

Operating loss

( 5,410,000 )

( 15,357,000 )

income (expense):

Other income (expense):

Interest expense

( 1,339,000 )

$ ( 6,741,000 )

loss per share - basic and diluted

average number of common shares outstanding - basic and diluted

$ ( 15,609,000 )

Net loss per share - basic and diluted

Net loss per share - basic

Weighted average number of common shares outstanding - basic and diluted

Weighted average number of common shares outstanding - basic

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

POWER HOLDING, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

at June 30, 2021

STATEMENTS OF STOCKHOLDERS’ EQUITY

Capital Stock

Balance at June 30, 2022

$ ( 81,814,000 )

of common stock and warrants - registered direct offering, net of costs

of common stock - public offering, net of costs

of common stock, exercised options and RSU settlement

Fair value of warrants

Issuance of common stock - public offering, net of costs

Issuance of common stock - exercised options and RSU settlement

Stock-based compensation

( 6,741,000 )

at June 30, 2022

Balance at June 30, 2023

$ ( 88,555,000 )

at June 30, 2020

Capital Stock

Balance at June 30, 2021

$ ( 66,205,000 )

of common stock - exercised options and warrants

Fair value of warrants

of common stock, net of costs

of common stock - private placement transactions, net

of Common Stock - Debt Conversion

Issuance of common stock and warrants - registered direct offering, net of costs

Issuance of common stock - public offering, net of costs

Issuance of common stock, exercised options and RSU settlement

Fair value of warrants issued

Stock-based compensation

( 15,609,000 )

at June 30, 2021

Balance at June 30, 2022

$ ( 81,814,000 )

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

1 unchanged sentence

STATEMENTS OF CASH FLOWS

ended June 30,

flows from operating activities:

$ ( 15,609,000 )

$ ( 12,793,000 )

to reconcile net loss to net cash used in operating activities:

Loan principal and accrued interest forgiveness

( 1,307,000 )

value of warrants issued as debt discount cost

interest expense

for inventory reserve

of prepaid offering costs

in operating assets and liabilities:

( 2,512,000 )

Year ended June 30,

Cash flows from operating activities:

$ ( 6,741,000 )

$ ( 15,609,000 )

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation

Fair value of warrants issued as debt discount cost

Amortization of debt issuance costs

Noncash lease expense

Allowance for inventory reserve

Changes in operating assets and liabilities:

Accounts receivable

( 2,512,000 )

current assets

lease payable

( 2,734,000 )

cash used in operating activities

( 5,810,000 )

Other current assets

Accounts payable

Accrued expenses

Deferred revenue

Accrued interest

Office lease payable

Customer deposits

Net cash used in operating activities

( 3,574,000 )

flows from investing activities

( 23,893,000 )

cash used in investing activities

Cash flows from investing activities

Purchases of equipment

( 1,032,000 )

flows from financing activities:

from the issuance of common stock in registered direct offering, net of offering costs

from the issuance of common stock in public offering, net of offering costs

from the issuance of common stock in private placement

from revolving line of credit

of short-term loan - related party

Proceeds from sale of fixed assets

Net cash used in investing activities

( 1,024,000 )

of line of credit - related party

Cash flows from financing activities:

Proceeds from the issuance of common stock in registered direct offering, net of offering costs

Proceeds from the issuance of common stock in public offering, net of offering costs

Proceeds from revolving line of credit

Payment of revolving line of credit

( 58,377,000 )

of revolving line of credit

( 3,561,000 )

payments of financing lease payable

cash provided by financing activities

change in cash

Payment of financed leases

Net cash provided by financing activities

Net change in cash

( 4,228,000 )

beginning of period

end of period

Disclosures of Non-Cash Investing and Financing Activities:

stock issued for conversion of related party debt

interest converted into principal

stock issued for vested RSUs

cash flow information:

Cash, beginning of period

Cash, end of period

Supplemental Disclosures of Non-Cash Investing and Financing Activities:

Initial right of use asset recognition

Common stock issued for vested RSUs

Supplemental cash flow information:

Interest paid

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

1 unchanged sentence

TO CONSOLIDATED FINANCIAL STATEMENTS

30, 2022 and 2021

30, 2023 and JUNE 30, 2022

1 - NATURE OF BUSINESS

3 unchanged sentences

(“Flux Power”), a California corporation (collectively, the “Company”).

design, develop, manufacture, and sell a portfolio of advanced lithium-ion energy storage solutions for electrification of a range of

industrial commercial sectors which include material handling, airport ground support equipment (“GSE”), and stationary energy

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

to provide the level of energy storage required and “state of the art” real time monitoring of pack performance.

that the increasing demand for lithium-ion battery packs and more environmentally friendly energy storage solutions in the material handling

sector should continue to drive our revenue growth.

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.

Company designs, develops, manufactures, and sells a portfolio of advanced lithium-ion

energy storage solutions for electrification of a range of industrial commercial sectors which include material handling, airport

ground support equipment (“GSE”), and stationary energy storage.

The Company believes its 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.

The Company’s modular and scalable design allows different configurations of

lithium-ion battery packs to be paired with our proprietary wireless battery management system to provide the level of energy

storage required and “state of the art” real time monitoring of pack performance.

The Company believes that the increasing demand

for lithium-ion battery packs and more environmentally friendly energy storage solutions in the material handling sector should

continue to drive revenue growth.

2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 unchanged sentences

For the year ended

June 30, 2022, the Company generated negative cash flows from operations of $ 23.9

million and had an accumulated deficit of $ 81.8

Management has evaluated the Company’s expected

cash requirements over the next twelve (12) months, including investments in additional sales and marketing and research and development,

capital expenditures, and working capital requirements.

Management believes the Company’s existing cash and funding available under

the SVB Credit Facility and the Subordinated LOC, along with the forecasted gross margin will be sufficient to meet the Company’s

anticipated capital resources to fund planned operations for the next twelve (12) months.

June 30, 2023, the Company generated negative cash flows from operations of $ 3.6 million and had an accumulated deficit of $ 88.6 million.

Management has evaluated the Company’s expected cash requirements over the next twelve (12) months, including investments in additional

sales and marketing and research and development, capital expenditures, and working capital requirements.

Management believes the Company’s

existing cash and funding available under the Gibraltar Business Capital Revolving Line of Credit and the Subordinated LOC, along with

the forecasted gross margin will be sufficient to meet the Company’s anticipated capital resources to fund planned operations for

the next twelve (12) months.

the Company has not generated sufficient cash to fund its operations.

Based on the Company’s ability to recognize revenue from

its existing backlog, management anticipates increased revenues along with the planned improvements in its gross margin over the next

twelve (12) months.

Based on the Company’s existing backlog and customer

orders, management anticipates increased revenues, together with the improvements in its gross margin will move it closer to

profitability.

The planned gross margin improvement tasks include, but is not limited to, a plan to drive bill of material costs

down while increasing price of our products for new orders.

The Company has received new orders in fiscal year ended June 30, 2022, of

approximately $ 65 million

and believes through conversations with customers that its anticipation of continued new order increases is probable.

The Company has received new orders in Fiscal 2023, of approximately

million and believes through conversations with its customers that its anticipation of continued increase of new orders is

of September 8, 2023, $ 4.0

million remained available under the SVB Credit Facility and $ 4.0

million was available for future draws under the Subordinated

million remained available under the GBC Credit Facility and $ 4.0

million was available for future draws under the Subordinated LOC.

As of September 8, 2023, $ 4.1

million remained available under the Company’s ATM agreement

that could be utilized if necessary.

In addition, to support our operations and anticipated growth, we intend to explore additional sources

of capital as needed.

We also continue to execute our cost reduction, sourcing, pricing recovery initiatives in efforts to increase our

gross margins and improve cash flow from operations.

Any, unforeseen factors in the general economy beyond management’s control

could potentially have negative impact on the planned gross margin improvement plan.

million remained available under the Company’s ATM agreement that could be utilized if necessary.

In addition, to support our

operations and anticipated growth, we intend to explore additional sources of capital as needed.

We also continue to execute our

cost reduction, sourcing, and pricing recovery initiatives in efforts to increase our gross margins and improve cash flow from

Unforeseen factors in the general economy beyond management’s control could potentially have negative impact

on the planned gross margin improvement plan.

preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”)

5 unchanged sentences

and Cash Equivalents

of June 30, 2022 and June 30, 2021, cash was approximately $ 485,000

and $ 4,713,000 ,

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, 2022 and 2021.

of June 30, 2023 and June 30, 2022, cash was approximately $ 2.4 million and $ 485,000 , 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, 2023 and 2022.

Values of Financial Instruments

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.

carrying amount of our cash, accounts payable, accounts receivable, and accrued liabilities approximate 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

5 unchanged sentences

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, 2022 and 2021.

receivable and has not recorded an allowance for doubtful accounts during the fiscal years ended June 30, 2023 and 2022.

consist primarily of battery management systems and the related subcomponents and are stated at the lower of cost or net realizable value.

2 unchanged sentences

The Company recorded

adjustments to inventory reserve related to obsolete and slow moving inventory in the amount of approximately $ 61,000

and $ 195,000

during the years ended June 30, 2022 and 2021,

respectively.

adjustments related to obsolete inventory in the amount of approximately $ 354,000 and

$ 111,000 during the fiscal years ended June 30, 2023 and 2022, respectively.

Plant and Equipment

1 unchanged sentence

Depreciation and amortization are provided using the straight-line

method over the estimated useful lives, of the related assets ranging from three

years , or, in the case of leasehold improvements,

method over the estimated useful lives, of the related assets ranging from three to five years , or, in the case of leasehold improvements,

over the lesser of the useful life of the related asset or the lease term.

32 unchanged sentences

As of June 30, 2023 and 2022, the Company carried warranty

liability of approximately $ 1,012,000 and

respectively, which is included in accrued expenses on the Company’s consolidated balance sheets.

liability of approximately $ 1,600,000 and $ 1,012,000 , respectively, which is included in accrued expenses on the Company’s consolidated

balance sheets.

of Long-lived Assets

5 unchanged sentences

The Company believes that no impairment indicators were

present, and accordingly no

impairment losses were recognized during the fiscal years ended

June 30, 2022 and 2021.

present, and accordingly no impairment losses were recognized during the fiscal years ended June 30, 2023 and 2022.

and Development

8 unchanged sentences

income tax returns, as well as all open tax years in these jurisdictions.

As a result, no

unrecognized tax benefits have been identified

As a result, no unrecognized tax benefits have been identified

as of June 30, 2023 or June 30, 2022, and accordingly, no additional tax liabilities have been recorded.

5 unchanged sentences

Diluted loss per common share includes the impact from all dilutive potential common shares relating to outstanding convertible

the years ended June 30, 2022 and 2021, basic and diluted weighted-average common shares outstanding were 15,439,530

the fiscal years ended June 30, 2023 and 2022, basic and diluted weighted-average common shares outstanding were 16,055,256

and 15,439,530 ,

respectively.

The Company incurred a net loss for the years ended June 30, 2022 and 2021, and therefore, basic and diluted loss per share

for each fiscal year were the same because potential common share equivalent would have been anti-dilutive.

The total potentially dilutive

common shares outstanding at June 30, 2022 and 2021 that were excluded from diluted weighted-average common shares outstanding represent

shares underlying outstanding convertible debt, stock options, RSUs, and warrants, and totaled 2,262,773

The Company incurred a net loss for the fiscal years ended June 30, 2023 and 2022, and therefore, basic and diluted

loss per share for each fiscal year were the same because potential common share equivalents would have been anti-dilutive.

total potentially dilutive common shares outstanding at June 30, 2023 and 2022 that were excluded from diluted weighted-average

common shares outstanding represent shares underlying outstanding stock options, RSUs, and warrants, and totaled 2,622,268

and 2,262,773 ,

respectively.

June 30, 2023 and 2022 potentially dilutive common shares outstanding that were excluded from diluted weighted-average common shares

outstanding were as follows:

SCHEDULE OF DILUTIVE COMMON SHARES OUTSTANDING EXCLUDED FROM DILUTIVE WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

Stock options

Antidilutive securities

Accounting Standards

5 unchanged sentences

OF INVENTORIES

Raw materials

Work in process

Finished goods

Total Inventories

consist primarily of our energy storage systems and the related subcomponents, and are stated at the lower of cost or net realizable

2 unchanged sentences

OF OTHER CURRENT ASSETS

issuance costs

other current assets

Prepaid insurance

Prepaid expenses

Total other current assets

5 – ACCRUED EXPENSES

1 unchanged sentence

OF ACCRUED EXPENSES

and bonus accrual

accrued expenses

Payroll and bonus accrual

Warranty liability

Total accrued expenses

6 - PROPERTY, PLANT AND EQUIPMENT, NET

1 unchanged sentence

OF PROPERTY PLANT AND EQUIPMENT NET

and equipment

and Equipment

plant and equipment, gross

Machinery and equipment

Office equipment

Furniture and Equipment

Leasehold improvements

Property, plant and equipment, gross

Accumulated depreciation

( 1,930,000 )

property, plant and equipment, net

expense was approximately $ 575,000 and

for the years ended June 30, 2022 and 2021, respectively, and is included in selling and administrative expenses in the accompanying

( 1,136,000 )

Total property, plant and equipment, net

expense was approximately $ 899,000

and $ 575,000 , for the

fiscal years ended June 30, 2023 and 2022, respectively, and is included in selling and administrative expenses in the accompanying

consolidated statements of operations.

7 – Notes Payable

Protection Program Loan

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 was evidenced by a promissory note dated May 1, 2020, issued by Flux Power to the BOA (the “PPP Note”).

PPP Loan had a two-year

term and bore interest at a rate of 1.0 %

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 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, 2022, the outstanding balance of the PPP Loan was $ 0 .

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.

Line of Credit

November 9, 2020, the Company entered into a Loan and Security Agreement (“Loan Agreement”) with Silicon Valley Bank (“SVB”).

On October 29, 2021, the Company entered into a First Amendment to Loan and Security Agreement (“First Amendment”) with SVB

which amended certain terms of the Loan Agreement including, but not limited to, increasing the amount of the revolving line of credit

million to $ 6.0

million, and extending the maturity date to November

The First Amendment provided the Company

with a senior secured credit facility for up to $ 6.0

million available on a revolving basis (“Revolving

Outstanding principal under the Revolving LOC accrued interest at a floating rate per annum 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%).

The Company paid a non-refundable commitment

fee of $ 15,000

upon execution of the Loan Agreement and an additional non-refundable commitment fee of $22,500 in connection with the First Amendment On

November 9, 2020, the Company entered into a Loan and Security Agreement (“Agreement”) with Silicon Valley Bank (“SVB”).

October 29, 2021, the Company entered into a First Amendment to Loan and Security Agreement (“First Amendment” and together

with the Agreement, the “Loan Agreement”) with SVB which amended certain terms of the Agreement including, but not limited

to, increasing the amount of the revolving line of credit from $ 4.0 million to $ 6.0 million, and extending the maturity date to November

The First Amendment provided the Company with a senior secured credit facility for up to $ 6.0 million available on a revolving

basis (“Revolving LOC”).

Outstanding principal under the Revolving LOC accrued interest at a floating rate per annum 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%).

The Company paid

a non-refundable commitment fee of $ 15,000 upon execution of the Agreement and an additional non-refundable commitment fee of $22,500

in connection with the First Amendment.

June 23, 2022, the Company entered into a Second Amendment to Loan and Security Agreement (“Second Amendment” and together

with the Loan Agreement and First Amendment the “Amended Loan Agreement”) with Silicon Valley Bank (“SVB”), which

amended certain terms of the Loan and Security Agreement dated November 9, 2020, as amended on October 29, 2021, including but not limited

to, (i) to increase the amount of the revolving line of credit to $8.0 million, (ii) to change the financial covenants of the Company

from tangible net worth of the Company to adjusted EBITDA (as defined in the Second Amendment) on a trailing six (6) month basis and

liquidity ratio certified as of the end of each month pursuant to the calculations set forth therein, and (iii) to allow for the assignment

and transfer by SVB of all of its obligations, rights and benefits under the Agreement and Loan Documents (as defined in the Agreement

and except for the Warrants) .

addition, under the Second Amendment, the interest rate terms for the outstanding principal under the Revolving LOC was amended to accrue

interest at a floating per annum rate equal to the greater of either (A)

Prime Rate plus three and one-half of one percent (3.50%) or (B) seven and one-half of one percent (7.50%).

Interest payment is due monthly

on the last day of the month.

In addition, the Company is required to pay a quarterly unused facility fee equal to one-quarter of one

percent (0.25%) per annum of the average daily unused portion of the $6.0 million commitment under the Revolving LOC, depending upon

availability of borrowings under the Revolving LOC .

Pursuant to the Second Amendment, the Company agreed to pay SVB a non-refundable amendment fee of Five Thousand Dollars ($ 5,000.00 )

and SVB’s legal fees and expenses incurred in connection with the Second Amendment.

connection with the Second Amendment, the Company issued a twelve-year

warrant to SVB and its designee, SVB Financial

Group, to purchase up to 40,806

shares of common stock of the Company at an exercise

price of $ 2.23

per share pursuant to the terms set forth therein.

outstanding under the Revolving LOC 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 Amended Loan Agreement and the Intellectual Property Security

Agreement dated as of October 29, 2021.

As of June 30, 2022 the outstanding balance under the Revolving LOC was approximately $ 4,889,000 ,

with approximately $ 3,111,000

remained available for future draws through November

7, 2022, unless the credit facility is renewed and its term is extended prior to its expiration.

with the Loan Agreement, the “Second Amended Loan Agreement”) with SVB, which amended certain terms of the Loan Agreement, including but not limited to, (i) increasing the amount of the revolving line of credit to $8.0 million, (ii) changing the financial

covenants of the Company from one based on tangible net worth to another based on adjusted EBITDA (as defined in the Second Amendment)

on a trailing six (6) month basis and liquidity ratio certified as of the end of each month pursuant to the calculations set forth therein,

and (iii) allowing for the assignment and transfer by SVB of all of its obligations, rights and benefits under the Agreement and Loan

Documents (as defined in the Agreement and except for the Warrants).

addition, under the Second Amendment, the interest rate terms for the outstanding principal under the Revolving LOC were amended to accrue

interest at a floating per annum rate equal to the greater of either (A) Prime Rate plus three and one-half of one percent (3.50%) or

(B) seven and one-half of one percent (7.50%).

Interest payments are due monthly on the last day of the month.

In addition, the Company

is required to pay a quarterly unused facility fee equal to one-quarter of one percent (0.25%) per annum of the average daily unused

portion of the $8.0 million commitment under the SVB Credit Facility, depending upon availability of borrowings under the Revolving LOC.

Pursuant to the Second Amendment, the Company paid SVB a non-refundable amendment fee of $ 5,000 and SVB’s legal fees and expenses

incurred in connection with the Second Amendment.

connection with the Second Amendment, the Company issued a twelve-year warrant to SVB and its designee, SVB Financial Group, to purchase

up to 40,806 shares of common stock of the Company at an exercise price of $ 2.23 per share pursuant to the terms set forth therein.

November 7, 2022, we entered into a Third Amendment to Loan and Security Agreement (“Third Amendment”) with SVB, which amended

certain terms of the Second Amended Loan Agreement (together with the Second Amended Loan Agreement, the “Third Amended Loan Agreement”),

including but not limited to, (i) extending the maturity date from November 7, 2022 to May 7, 2023 (the “Extension Period”),

(ii) amending the financial covenants of the Company to cover the Extension Period and to include a liquidity ratio financial covenant,

and (iii) amending the definition of Permitted Liens (as defined in the Third Amendment).

Pursuant to the Third Amendment, the Company

paid SVB a non-refundable amendment fee of $ 12,500 and SVB’s legal fees and expenses incurred in connection with the Third Amendment.

January 10, 2023, the Company entered into a Fourth Amendment to Loan and Security Agreement (the “Fourth Amendment”) with

SVB, which amended certain terms of the Third Amended Loan Agreement including but not limited to, (i) increasing the amount of the SVB

Credit Facility from $ 8.0 million to $ 14.0 million, (ii) removing the liquidity ratio financial covenant of the Company under Section

6.9 of the Third Amended Loan Agreement, (iii) amending the definition of Borrowing Base (as defined in the Fourth Amendment), which

includes a new defined term for Net Orderly Liquidation Value (as defined in the Fourth Amendment), and (iv) removing certain defined

liquidity terms under Section 13.1 of the Third Amended Loan Agreement.

Pursuant to the Fourth Amendment, the Company paid SVB a non-refundable

amendment fee of $ 10,000 and SVB’s legal fees and expenses incurred in connection with the Fourth Amendment.

April 27, 2023, the Company entered into a Fifth Amendment to Loan and Security Agreement (the “Fifth Amendment”) with SVB

which further amended certain terms of the credit facility (together with the Fourth Amended Loan Agreement, the “Fifth Amended

Loan Agreement Agreement”), including but not limited to, (i) extending the maturity date from May 7, 2023 to December 31, 2023

(the “2023 Extension Period”), (ii) amending the EBITDA financial covenant of the Company to cover the 2023 Extension Period,

and (iii) amending the definition of EBITDA (as defined in the Fifth Amendment).

Pursuant to the Fifth Amendment, the Company agreed

to pay SVB a non-refundable amendment fee of $ 30,000 and SVB’s legal fees and expenses incurred in connection with the Fifth Amendment.

In addition, SVB also agreed to waive compliance by the Company of the former EBIDTA financial covenant as of the month ended March 31,

Company has used the SVB Credit Facility to fund its operations and working capital requirements.

Amounts outstanding under the Revolving

LOC are secured by substantially all tangible and intangible assets of the Company (including, without limitation, intellectual property)

pursuant to the terms of the Fifth Amended Loan Agreement, and the Intellectual Property Security Agreement dated as of October 29, 2021.

During the year ended June 30, 2023, the Company had multiple Revolving LOC drawdowns totaling $ 63.4 million and multiple Revolving LOC

payments totaling $ 58.4 million.

As of June 30, 2023, the outstanding balance under the Revolving LOC was approximately $ 9.9 million.

July 28, 2023, the Company terminated the Loan and Security Agreement, dated as of November 9, 2020, as amended, by and among SVB and

the Company, and concurrent with the entry into the Loan and Security Agreement, by and among Gibraltar Business Capital and the Company.

The Company repaid the entire outstanding principal balance of the SVB Credit Facility plus all accrued and unpaid interest and related

fees through the date of termination with a portion of the funds from the GBC Credit Facility on July 28, 2023.

(See Note 13 –

Subsequent Events)

8 - RELATED PARTY DEBT AGREEMENTS

of June 30, 2023 and June 30, 2022, the Company had no related party debt balance outstanding.

Below are the activities for the Company’s

related party debt agreements that existed during the periods ended June 30, 2023 and 2022.

Line of Credit Facility

2 unchanged sentences

with Cleveland and HPO, the “Lenders”).

The Subordinated LOC provides the Company with a short-term line of credit (the “LOC”)

not less than $ 3,000,000

and not more than $ 5,000,000 ,

the proceeds of which shall be used by the Company for working capital purposes.

In connection with the LOC, the Company issued a separate

subordinated unsecured promissory note in favor of each respective Lender (each promissory note, a “Note”) for each Lender’s

commitment amount (each such commitment amount, a “Commitment Amount”).

As of June 30, 2022, the Lenders committed an aggregate

of $ 4,000,000 .

The Subordinated LOC provides the Company with a short-term line of credit not less

than $ 3,000,000 and not more than $ 5,000,000 , the proceeds of which shall be used by the Company for working capital purposes.

In connection

with the Subordinated LOC, the Company issued a separate subordinated unsecured promissory note in favor of each respective Lender (each

promissory note, a “Note”) for each Lender’s commitment amount (each such commitment amount, a “Commitment Amount”).

As of June 30, 2023, the Lenders committed to an aggregate commitment of $ 4,000,000 .

to the terms of the Subordinated LOC, each Lender severally agrees to make loans (each such loan, an “Advance”) up to such

Lender’s Commitment Amount to the Company from time to time, until December 31, 2022 (the “Due Date”).

may, from time to time, prior to the Due Date, draw down, repay, and re-borrow on the Note, by giving notice to the Lenders of the amount

to be requested to be drawn down.

15, 2022, the Board of Directors of the Company elected to extend the Due Date to December 31, 2023.

The Company may, from time to time,

prior to the Due Date, draw down, repay, and re-borrow on the Note, by giving notice to the Lenders of the amount to be requested to

be drawn down.

Note bears an interest rate of 15.0 %

per annum on each Advance from and after the date of disbursement of such Advance and is payable on (i) the Due Date in cash or shares

of common stock of the Company (the “Common Stock”) at the sole election of the Company, unless such Due Date extended pursuant

to the Note, or (ii) on occurrence of an event of Default (as defined in the Note).

The Due Date may be extended (i) at the sole election

of the Company for one (1) additional year period from the Due Date upon the payment of a commitment fee equal to two percent ( 2 %)

per annum on each Advance from and after the date of disbursement of such Advance and is payable on (i) the Due Date in cash or

shares of common stock of the Company (the “Common Stock”) at the sole election of the Company, unless such Due Date is

extended pursuant to the Note, or (ii) on occurrence of an event of Default (as defined in the Note).

The Due Date may be extended

(i) at the sole election of the Company for one (1) additional year period from the Due Date upon the payment of a commitment fee

equal to two percent ( 2 %)

of the Commitment Amount to the Lender within thirty (30) days prior to the original Due Date, or (ii) by the Lender in writing.

each Lender signed a Subordination Agreement by and between the Lenders and Silicon Valley Bank, a California corporation (“SVB”),

dated as of May 11, 2022 (the “Subordination Agreement”) for the purposes of subordinating the right to payment under the

Note to SVB’s indebtedness by the Company now outstanding or hereinafter incurred.

addition, each Lender signed a Subordination Agreement by and between the Lenders and SVB dated as of May 11, 2022 (the

“Subordination Agreement”) for the purposes of subordinating the right to payment under the Note to SVB’s

indebtedness by the Company now outstanding or hereinafter incurred.

On December 15, 2022, the Board of Directors of the Company

elected to extend the Due Date to December 31, 2023 and the Company paid the Lenders an extension fee in the aggregate amount of

On July 28, 2023, in conjunction with the concurrent termination of the SVB Revolving LOC and the entry into a new credit facility

with Gibraltar Business Capital (“GBC”), each Lender signed a Subordination Agreement by and between the Lenders and GBC

dated as of July 28, 2023 (the “GBC Subordination Agreement”) for the purposes of subordinating the right to payment

under the Note to GBC’s indebtedness by the Company then incurred and outstanding or thereinafter incurred.

– Subsequent Events)

Subordinated LOC includes customary representations, warranties and covenants by the Company and the Lenders.

1 unchanged sentence

to pay the legal fees of Cleveland’s counsel in an amount up to $ 10,000 .

In addition, each Note also provides that, upon the occurrence of a Default, at the option of the Lender, the entire outstanding principal

balance, all accrued but unpaid interest and/or Late Charges (as defined in the Note) at once will become due and payable upon written

notice to the Company by the Lender.

connection with entry into the Subordinated LOC, the Company paid to each Lender a one-time committee fee in cash equal to 3.5 %

of such Lender’s Commitment Amount.

In addition, in consideration of the Lenders’ commitment to provide the Advances to the

Company, the Company issued the Lenders five-year warrants to purchase an aggregate of 128,000

shares of common stock at an exercise price of

per share that are, subject to certain ownership

limitations, exercisable immediately (the “Warrants”) ( the

number of warrants issued to each Lender is equal to the product of (i) 160,000 shares of common stock multiplied by (ii) the ratio represented

In addition, each Note also provides that, upon the occurrence

of a Default, at the option of the Lender, the entire outstanding principal balance, all accrued but unpaid interest and/or Late Charges

(as defined in the Note) at once will become due and payable upon written notice to the Company by the Lender.

connection with entry into the Subordinated LOC, the Company paid to each Lender a one-time commitment fee in cash equal to 3.5 % of such

Lender’s Commitment Amount.

In addition, in consideration of the Lenders’ commitment to provide the Advances to the Company,

the Company issued the Lenders five-year warrants to purchase an aggregate of 128,000 shares of common stock at an exercise price of

$ 2.53 per share that are, subject to certain ownership limitations, exercisable immediately (the “Warrants”) (the number

of warrants issued to each Lender is equal to the product of (i) 160,000 shares of common stock multiplied by (ii) the ratio represented

by each Lender’s Commitment Amount divided by the $5,000,000).

to a selling agreement, dated as of May 11, 2022, the Company retained HPO as its placement agent in connection with the Subordinated

As compensation for services rendered in conjunction with the Subordinated LOC, the Company paid HPO a finder fee equal to 3 %

of the Commitment Amount from each such Lender placed by HPO in cash.

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”).

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 to $ 1,400,000

(the “Esenjay Note”).

June 26, 2020 and July 22, 2020, Esenjay assigned a total of $ 900,000

of the Esenjay Note to three (3) accredited investors

and the $ 900,000

note balance was converted into shares of common

stock at $ 4.00

per share, which was the cash price per share,

and resulted in the issuance of 225,000

shares of common stock.

August 31, 2020, the Company entered into the Third Amended and Restated Credit Facility Agreement and pursuant to which the Company

further amended the Esenjay Note to, among other items, transfer all remaining principal and accrued interest outstanding of approximately

into the amended Credit Facility Agreement.

“Credit Facility” below).

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”) and issued

Cleveland an unsecured short-term promissory note in the amount of $ 1,000,000

(the “Unsecured Promissory Note”).

The Unsecured Promissory Note had 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 shares of common stock sold in a contemplated public offering and with

an exercise price equal to the per share price of the common stock sold in the public offering.

September 1, 2019, the Company entered into the First Amendment to the Unsecured Promissory Note pursuant to which the maturity date

was extended to December

1, 2019 (the “First Amendment”) and

the Cleveland Warrant terms were amended (the “Amended Warrant”).

The Amended Warrant increased the warrant coverage from

of the number of shares of common stock outstanding after giving effect to the shares of common stock sold in the next private or public

offering and with an exercise price equal to the per share price of common stock sold in such private or public offering, as the case

July 9, 2020, the Company made a payment to Cleveland in the amount of $ 200,000

as a partial payment of the Cleveland Loan.

July 27, 2020, in connection with the outstanding loan from Cleveland to the Company in the principal amount of $ 957,000 ,

the Company entered into the Eighth Amendment to the Unsecured Promissory Note which extended the maturity date from July

31, 2020 to August

31, 2020 , and capitalized all accrued and unpaid

interest as of July 27, 2020 to the principal amount.

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

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”).

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 ,

the inclusion of additional lenders and extension of the maturity date to September

August 2020, the Company paid down an aggregate principal amount of approximately $ 1,402,000

of the outstanding balance under the LOC.

August 31, 2020, the Company entered into the Third Amended and Restated Credit Facility Agreement (“Third Amended and Restated

Facility Agreement”) pursuant to which the Company (i) extended the maturity date to September

30, 2021 , and (ii) allowed for the transfer of

outstanding obligations under the Esenjay Note of approximately $ 564,000

into the LOC as noted above.

In November 2020,

lenders holding an aggregate of approximately $ 2,161,000

in principal and accrued interest elected to

convert their notes into 540,347

shares of common stock at a price of $ 4.00

In January and March 2021, the lenders

holding an aggregate of approximately $ 2,632,000

in principal and accrued interest elected to

convert their notes into 658,103

shares of common stock at a price of $ 4.00

per share of which approximately $ 1,045,000

was held by Esenjay and converted to 261,133

shares of common stock.

June 10, 2021, the Company repaid all obligations in full and without additional fees or termination penalties, and the Third Amended

and Restated Credit Facility Agreement and the related Second Amended and Restated Security Agreement were terminated.

As compensation for services rendered in conjunction with the Subordinated LOC, the Company paid HPO a finder fee equal to 3 % of

the Commitment Amount from each such Lender placed by HPO in cash.

9 - STOCKHOLDERS’ EQUITY

3 unchanged sentences

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”).

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.

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.

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.

(“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”).

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

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

“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 the Company has 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”).

December 21, 2020 through June 30, 2022, the Company sold an aggregate of 1,169,564

shares of common stock at an average price of

per share for gross proceeds of approximately

million under the ATM Offering.

The Company received

net proceeds of approximately $ 13.7

million, net of commissions and other offering

related expenses.

Shares was registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the Company’s

December 21, 2020 through June 30, 2023, the Company sold an aggregate of 1,524,873 shares of common stock at an average price of $ 10.45

per share for gross proceeds of approximately $ 15.9 million under the ATM Offering.

The Company received net proceeds of approximately

$ 15.3 million, net of commissions and other offering related expenses.

Shares were 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.

3 unchanged sentences

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

The Company or 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.

4 unchanged sentences

September 27, 2021, the Company closed a registered direct offering, priced at-the-market under Nasdaq rules (“RDO”) for

the sale of 2,142,860

shares of common stock and warrants to purchase

up to an aggregate of 1,071,430

shares of common stock, at an offering price

per share and associated warrant for gross proceeds

of approximately $ 15.0

million prior to deducting offering expenses

totaling approximately $ 1.0

The associated warrants have an exercise

price equal to $ 7.00

per share and are exercisable upon issuance and

expire in five years.

the sale of 2,142,860 shares of common stock and warrants to purchase up to an aggregate of 1,071,430 shares of common stock, at an offering

price of $ 7.00 per share and associated warrant for gross proceeds of approximately $ 15.0 million prior to deducting offering expenses

totaling approximately $ 1.0 million.

The associated warrants have an exercise price equal to $ 7.00 per share and are exercisable upon

issuance and expire in five years.

HCW acted as the exclusive placement agent for the registered direct offering.

5 unchanged sentences

dated September 22, 2021 and filed with the SEC, that forms a part of the effective registration statement.

Public Offering and NASDAQ Capital Market Uplisting

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

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 totaling approximately $ 1.7

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.

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

Private Placement

April 22, 2020, the Company sold an aggregate of 66,250

shares of common stock, at $ 4.00

per share, for an aggregate purchase price of

in cash to two (2) accredited investors.

30, 2020, the Company sold an additional 275,000

shares of common stock at $ 4.00

per share in its June closing of the offering,

for an aggregate purchase price of $ 1,100,000

to six (6) accredited investors (“June

Esenjay and Mr.

Dutt, the Company’s president and chief executive officer, participated in the June Closing in

the amount of $ 300,000

and $ 50,000 ,

respectively.

On July 24, 2020, the Company sold an aggregate of 800,000

shares under the 2020 Private Placement at $ 4.00

per share, for an aggregate purchase price of

in cash to accredited investors, including Mr.

Cosentino, a former director, who participated in the offering in the amount of $ 250,000 .

shares offered and sold in the private placement offerings 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.

June 30, 2020, there was a partial conversion of $ 7,383,000

in principal and accrued interest outstanding

under the secured promissory notes at a conversion price of $ 4.00

per share that resulted in the issuance of 1,845,830

shares of common stock.

November 6, 2020, there was a partial conversion of $ 2,161,000

in principal and accrued interest outstanding

under the secured promissory notes at $ 4.00

per share that resulted in the issuance of 540,347

shares of common stock.

January and March 2021, there were conversions of the remaining balance of approximately $ 2,632,000

in principal and accrued interest outstanding

under the secured promissory notes that resulted in the issuance of 658,103

shares of common stock.

conversions were at the option of the lenders, and all outstanding secured promissory notes were converted into shares of common stock.

Note Conversion

June 30, 2020, two (2) accredited individuals, who had been assigned $ 500,000

of the Esenjay Note, converted all principal

shares of common stock at $ 4.00

On July 22, 2020, one accredited individual,

who had been assigned $ 400,000

of the Esenjay Note converted all principal into

shares of common stock at $ 4.00

July 3, 2019, the Company issued a three-year

warrant to Cleveland Capital, L.P.

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 %

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

As of June 30, 2021, all 83,205

warrants remained outstanding and exercisable.

August 2020 and in conjunction with the Company’s public offering, the Company issued five-year

warrants to the underwriters to purchase up to

shares of the Company’s common stock at

an exercise price of $ 4.80

per share and had a fair value of approximately

The underwriters’ warrants became exercisable on February 8, 2021.

connection with the Company’s RDO, in September 2021 the Company issued five-year

warrants to the RDO investors to purchase up

shares of the Company’s common stock at

an exercise price of $ 7.00

per share and were estimated to have a fair value

The “shelf” registration

statement will expire on October 26, 2023.

connection with the Company’s RDO, in September 2021 the Company issued five-year warrants to the RDO investors to purchase up

to 1,071,430 shares of the Company’s common stock at an exercise price of $ 7.00 per share and were estimated to have a fair value

of approximately $ 3,874,000 .

The warrants were exercisable immediately and are limited to beneficial ownership of 4.99 %

at any point in time in accordance with the warrant agreement.

May 2022 and in conjunction with entry into a credit facility with Cleveland Capital, L.P.

(“Cleveland”), Herndon Plant Oakley,

(“HPO”), and other lenders (together with Cleveland and HPO, the “Lenders”), the Company issued five-year

warrants to the Lenders to purchase up to 128,000

shares of the Company’s common stock at

an exercise price of $ 2.53

per share and had a fair value of approximately

June 2022 and in conjunction with the entry into the Second Amendment to Loan and Security Agreement with Silicon Valley Bank (“SVB”),

the Company issued twelve-year

warrants to SVB and its designee, SVB Financial

Group, to purchase up to 40,806

shares of the Company’s common stock at

an exercise price of $ 2.23

per share and had a fair value of approximately

The warrants were exercisable immediately and are limited to beneficial ownership of 4.99 % at any point

in time in accordance with the warrant agreement.

May 2022 and in conjunction with entry into a credit facility with Cleveland, HPO, and other lenders (together with Cleveland and HPO,

the “Lenders”), the Company issued five-year warrants to the Lenders to purchase up to 128,000 shares of the Company’s

common stock at an exercise price of $ 2.53 per share and had a fair value of approximately $ 173,000 .

June 2022 and in conjunction with the entry into the Second Amendment to Loan and Security Agreement with SVB, the Company issued twelve-year

warrants to SVB and its designee, SVB Financial Group, to purchase up to 40,806 shares of the Company’s common stock at an exercise

price of $ 2.23 per share and had a fair value of approximately $ 80,000 .

detail for the year ended June 30, 2023 is reflected below:

OF STOCK WARRANT ACTIVITY

outstanding and exercisable at June 30, 2021

outstanding and exercisable at June 30, 2022

Warrants outstanding and exercisable at June 30, 2022

Warrants issued

Warrants outstanding and exercisable at June 30, 2023

detail for the year ended June 30, 2022 is reflected below:

outstanding and exercisable at June 30, 2020

outstanding and exercisable at June 30, 2021

connection with the reverse acquisition of Flux Power, Inc in 2012, the Company assumed the 2010 Plan.

Warrants outstanding and exercisable at June 30, 2021

Warrants issued

Warrants outstanding and exercisable at June 30, 2022

connection with the reverse acquisition of Flux Power, Inc.

in 2012, the Company assumed the 2010 Plan.

As of June 30, 2023, there were

options to purchase common stock outstanding

under the 2010 Plan.

21,944 options to purchase common stock outstanding under the 2010 Plan.

No additional options may be granted under the 2010 Plan.

4 unchanged sentences

The 2014 Plan allows for the award

of the Company’s common stock and options, up to 1,000,000

shares of the Company’s common stock.

of June 30, 2022, 170,725

shares of the Company’s common stock were

available for future grants under the 2014 Plan.

of the Company’s common stock and stock options, up to 1,000,000 shares of the Company’s common stock.

As of June 30, 2023,

91,907 shares of the Company’s common stock were available for future grants under the 2014 Plan.

April 29, 2021, the Company’s stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”).

The 2021 Plan

authorizes the issuance of awards for up to 2,000,000

shares of 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.

As of June 30,

2022, no awards had been granted under the 2021 Plan.

authorizes the issuance of awards for up to 2,000,000 shares of 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.

As of June 30, 2023, 1,587,147 shares of the Company’s

common stock were available for future grants under the 2021 Plan.

October 31, 2022, the Board of Directors authorized a total of 624,441 stock options to be granted under the Company’s 2014 Plan

and 2021 Plan.

in stock options during the year ended June 30, 2023 and related balances outstanding as of that date are reflected below:

OF STOCK OPTIONS ACTIVITY

at June 30, 2021

and cancelled

and exercisable at June 30, 2022

Weighted Average

Exercise Price

Outstanding at June 30, 2022

Forfeited and cancelled

Outstanding at June 30, 2023

Exercisable at June 30, 2023

in stock options during the year ended June 30, 2022 and related balances outstanding as of that date are reflected below:

at June 30, 2020

and cancelled

at June 30, 2021

November 5, 2020, the Company’s Board of Directors approved an amendment to the 2014 Plan, to allow grants of Restricted Stock

Exercise Price

Outstanding at June 30, 2021

Forfeited and cancelled

Outstanding and exercisable at June 30, 2022

November 5, 2020, the Company’s Board of Directors approved an amendment to the 2014 Plan, to allow for grants of Restricted Stock

Units (“RSUs”).

1 unchanged sentence

for one vested RSU.

On November 5, 2020, the Board of Directors authorized the following RSUs to be granted under the amended 2014 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

time-based RSUs were authorized by the Company’s

Board of Directors to be granted under the amended 2014 Plan.

On October 29, 2021, the Board of Directors authorized the following RSUs

to be granted under the amended 2014 Plan:

(i) a total of 97,828

RSUs to certain executive officers of which 48,914

were performance-based RSUs and 48,914

were time-based RSUs, and (ii) a total of 81,786

time-based RSUs to certain other key employees.

The RSUs are subject to the terms and conditions provided in (i) the Restricted Stock Unit Award Agreement for time-based awards (“Time-based

Award Agreement”), and (ii) the Performance Restricted Stock Unit Award Agreement for performance-based awards (“Performance-based

Award Agreement”).

On April 29, 2021, a total of 18,312 time-based RSUs were authorized by the Company’s Board of Directors to

be granted under the amended 2014 Option Plan.

On October 29, 2021, the Board of Directors authorized the following RSUs to be granted

under the amended 2014 Option Plan:

(i) a total of 97,828 RSUs to certain executive officers of which 48,914 were performance-based RSUs

and 48,914 were time-based RSUs, and (ii) a total of 81,786 time-based RSUs to certain other key employees.

The RSUs are subject to the

terms and conditions provided in (i) the Restricted Stock Unit Award Agreement for time-based awards (“Time-based Award Agreement”),

and (ii) the Performance Restricted Stock Unit Award Agreement for performance-based awards (“Performance-based Award Agreement”).

On April 20, 2023, a total of 67,532 time-based RSUs were authorized by the Company’s Board of Directors to be granted to the Company’s

four non-executive directors under the amended 2014 Option Plan.

in RSUs during the year ended June 30, 2023 and related balances outstanding as of that date are reflected below:

OF RESTRICTED STOCK UNITS ACTIVITY

Average Grant date Fair Value

Average Remaining Contract Term

at June 30, 2021

Vested/Settled

and cancelled

at June 30, 2022

Number of Shares

Weighted Average

Outstanding at June 30, 2022

Vested and settled

Forfeited and cancelled

Outstanding at June 30, 2023

in RSUs during the year ended June 30, 2022 and related balances outstanding as of that date are reflected below:

Average Grant date Fair Value

Number of Shares

Weighted Average Grant date Fair Value

Average Remaining Contract Term

Outstanding at June 30, 2021

and cancelled

at June 30, 2021

compensation expense for the years ended June 30, 2022 and 2021 represents the estimated fair value of stock options and RSUs at the

time of grant amortized under the straight-line method over the expected vesting period and reduced for estimated forfeitures of options

Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ

from original estimates.

At June 30, 2022, the aggregate intrinsic value of exercisable options was $ 0 .

Vested/Settled

Forfeited and cancelled

Outstanding at June 30, 2022

Stock Purchase Plan

March 6, 2023, the Company’s Board of Directors approved the 2023 Employee Stock Purchase Plan (the “2023 ESPP”).which

subsequently was approved by the Company’s stockholders on April 20, 2023.

The 2023 ESPP enables eligible employees of the Company

and certain of its subsidiaries (a “Participating Subsidiary”) to use payroll deductions to purchase shares of the Company’s

Common Stock and acquire an ownership interest in the Company.

The maximum aggregate number of shares of the Company’s Common Stock

that have been reserved as authorized for the grant of options under the 2023 ESPP is 350,000 shares, subject to adjustment as provided

for in the 2023 ESPP.

Participation in the 2023 ESPP is voluntary and is limited to eligible employees (as such term is defined in the

2023 ESPP) of the Company or a Participating Subsidiary who (i) has been employed by the Company or a Participating Subsidiary for at

least 90 days and (ii) is customarily employed for at least twenty (20) hours per week and more than five (5) months in any calendar

Each eligible employee may authorize payroll deductions of 1-15% of the eligible employee’s compensation on each pay day

to be used to purchase up to 1,500 shares of Common Stock for the employee’s account occurring during an offering period.

ESPP has a term of ten (10) years commencing on April 20, 2023, the date of approval by the Company’s stockholders, unless otherwise

earlier terminated.

was no stock purchased under the 2023 ESPP during Fiscal 2023.

compensation expense for the fiscal years ended June 30, 2023 and 2022 represents the estimated fair value of stock options and RSUs

at the time of grant amortized under the straight-line method over the expected vesting period and reduced for estimated forfeitures

of options and RSUs.

Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual

forfeitures differ from original estimates.

At June 30, 2023, the aggregate intrinsic value of the outstanding options and the

exercisable options were approximately $ 506,000

respectively.

following table summarizes stock-based compensation expense for employee and non-employee option and RSU grants:

OF STOCK-BASED COMPENSATION EXPENSES

ended June 30,

and development

and administrative

stock-based compensation expense

Year Ended June 30,

Research and development

Selling and administrative

Total stock-based compensation expense

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:

SCHEDULE OF FAIR VALUE ASSUMPTIONS OF STOCK OPTIONS

Year Ended June 30,

Expected volatility

Risk free interest rate

Forfeiture rate

Dividend yield

Expected term (years)

stock options were granted during the year ended June 30, 2022.

June 30, 2023, the unamortized stock-based compensation expense relating to outstanding stock options and RSUs was approximately $ 876,000

and $ 983,000 ,

respectively.

The unamortized amount related to RSUs is expected to be expensed over the weighted-average remaining recognition period

and $ 474,000 , respectively, and these amounts are expected to be expensed over the weighted-average remaining recognition period of 3.34

years and 0.98 years, respectively.

10 - INCOME TAXES

2 unchanged sentences

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.

A valuation allowance of approximately $ 22,951,000

and $ 18,839,000

has been established to offset the net deferred

tax assets as of June 30, 2022 and 2021, respectively, due to uncertainties surrounding the Company’s ability to generate future

taxable income to realize these assets.

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

purposes, and (b) net operating loss and tax credit carryforwards.

A valuation allowance of approximately $ 23,923,000 and $ 22,951,000

has been established to offset the net deferred tax assets as of June 30, 2023 and 2022, respectively, due to uncertainties surrounding

the Company’s ability to generate future taxable income to realize these assets.

Company is subject to taxation in the United States, California and Georgia.

The Company’s tax years for 2010 and forward are subject

to examination by the United States and state taxing authorities due to the carry forward of unutilized net operating losses and research

and development credits (if any).

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.

Company has incurred losses since inception.

A current state income tax provision of $ 2,000 has been recorded for state minimum and net

Significant components of the Company’s net deferred tax assets are shown in the table below.

OF DEFERRED TAX ASSETS AND LIABILITIES

Ended June 30,

operating loss carryforwards

& development credit carryforward

deferred tax assets

allowance for deferred tax assets

( 22,951,000 )

( 18,839,000 )

Year Ended June 30,

Deferred Tax Assets:

Tax Liabilities:

Net operating loss carryforwards

Research & development credit carryforward

Capitalized research and development expenses

Stock compensation

Lease liability

Gross deferred tax assets

Less Valuation allowance

( 23,923,000 )

( 22,951,000 )

deferred tax liabilities

Total deferred tax assets

Deferred Tax Liabilities:

June 30, 2022, the Company had unused net operating loss (“NOL”) carryovers of approximately $ 74,150,000

and $ 72,776,000

that are available to offset future federal and

state taxable income, respectively.

Right of use asset

Total deferred tax liabilities

Net deferred tax liabilities

June 30, 2023, the Company had unused net operating loss (“NOL”) carryovers of approximately $ 72,677,000 and $ 77,993,000

that are available to offset future federal and state taxable income, respectively.

Federal NOL carryforwards arising after 2017 of approximately

$ 50,269,000 do not expire.

Federal NOL carryforwards arising

before 2018 of approximately $ 22,408,000

and all of the state NOL carryforward begin to

expire in 2030 .

Federal NOL carryforwards arising before 2018 of approximately $ 22,408,000 and all of the state NOL carryforward

begin to expire in 2030 .

provision for income taxes on earnings subject to income taxes differs from the statutory federal rate at June 30, 2023 and 2022, due

1 unchanged sentence

OF EFFECTIVE INCOME TAX RATE RECONCILIATION

Ended June 30,

income taxes at 21 %

$ ( 3,278,000 )

$ ( 2,686,000 )

income taxes, net

Year Ended June 30,

Federal income taxes at 21 %

$ ( 1,415,000 )

differences and other

true ups, if any

in valuation allowance

$ ( 3,278,000 )

State income taxes, net

( 1,090,000 )

for income taxes

Permanent differences and other

Other true ups, if any

Change in valuation allowance

Provision for income taxes

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.

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, 2022 and 2021.

The Company has not yet completed a Section 382 net operating loss analysis.

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, 2023 and 2022.

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

4 unchanged sentences

accounting in interim periods, disclosure and transition.

accordance with ASC 740, there are no

unrecognized tax benefits as of June 30, 2022 or June 30, 2021.

accordance with ASC 740, there are no unrecognized tax benefits as of June 30, 2023 or June 30, 2022.

Tax Cuts and Jobs Act resulted in significant changes to the treatment of research or experimental (“R&E”) expenditures

under Section 174.

For tax years beginning after December 31, 2021, taxpayers are required to capitalize and amortize all R&E expenditures

that are paid or incurred in connection with their trade or business which represent costs in the experimental or laboratory sense.

Specifically,

costs for U.S.

based R&E activities must be amortized over five years and costs for foreign R&E activities must be amortized

over 15 years;

both using a half year convention.

The Company has incorporated the impact of this new tax legislation into its financial

statements as of June 30, 2023 and established a $ 1.4 million deferred tax asset for the remaining amortizable tax basis in its R&E

costs in the table of net deferred tax assets above.

The impact on the Company’s financial statements was immaterial given the full valuation

allowance against the Company’s U.S.

net deferred tax assets.

11 - CONCENTRATIONS

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, 2022 and 2021, cash was approximately $ 485,000 ,

and $ 4,713,000 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.

instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and unsecured trade accounts

The Company maintains cash balances in non-interest-bearing bank deposit accounts at a California commercial bank.

The Company’s

cash balance at this institution is secured by the Federal Deposit Insurance Corporation up to $ 250,000 .

As of June 30, 2023 and 2022,

cash was approximately $ 2.4 million and $ 485,000 , respectively.

On March 10, 2023, the Federal Deposit Insurance Corporation (the “FDIC”) issued a press release stating that Silicon Valley

Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as

In a joint statement issued by the Department of the Treasury, Board of Governors of the Federal Reserve System and Federal

Deposit Insurance Corporation on March 12, 2023, the Department of Treasury took actions to enable the FDIC to complete its resolution

of SVB in a manner that fully protects all depositors.

According to the joint statement (the “Statement”), depositors will

have access to all of their money starting Monday, March 13, 2023.

On March 13, 2023, Silicon Valley Bridge Bank, N.A., the new entity

formed by the FDIC announced appointment of a new CEO, who provided assurance of immediate restoration of full banking services.

27, 2023, First Citizens BancShares, Inc.

announced that it has entered into an agreement with the FDIC to purchase all of the assets

and liabilities of Silicon Valley Bridge Bank, N.A.

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.

Concentrations

the year ended June 30, 2023, the Company had two (2) major customers that each represented more than 10% of its revenues, on an individual

basis, and together represented approximately $ 38,035,000 or 57 % of its total revenues.

the year ended June 30, 2022, the Company had four (4) major customers that each represented more than 10% of its revenues, on an individual

basis, and together represented approximately $ 29,254,000

of its total revenues.

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

of its total revenues.

basis, and together represented approximately $ 29,254,000 or 69 % of its total revenues.

Suppliers/Vendor

2 unchanged sentences

During the year

ended June 30, 2022 the Company had one (1) supplier who accounted for more than 10 %

of its total purchases which represented approximately $ 13,884,000

of its total purchases.

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

of its total purchases.

ended June 30, 2023 the Company had one (1) supplier who accounted for more than 10% of its total purchases which represented approximately

$ 17,022,000 or 31 % of its total purchases.

the year ended June 30, 2022 the Company had one (1) supplier who accounted for more than 10% of its total purchases which represented

approximately $ 13,884,000 or 28 % of its total purchases.

12 - COMMITMENTS AND CONTINGENCIES

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.

However, litigation is subject to inherent uncertainties and an adverse result in any legal proceedings that may arise from time to time

may harm the Company’s business.

The Company is not aware of any material legal proceedings currently pending or expected against

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,

Lease has an initial term of seven years and four months, commencing on or about June 28, 2019.

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 %

Melrose Drive, Vista, California.

The Lease has an initial term of seven years and

four months and commenced on or about June 28, 2019 .

The lease contains an option to extend the term for two periods of 24 months each,

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.

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

rentable square feet).

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

The base rent for the additional space is the same rate as the space rented under the terms of the original lease, $ 0.93

rentable square (subject to 3% annual increase).

during the year ended June 30, 2022 was approximately $ 62,000

In connection with the Amendment,

the Company purchased certain existing office furniture for a total purchase price of $ 8,300 .

rent expense was approximately $ 867,000 and

$ 841,000 for

the years ended June 30, 2022 and 2021, respectively.

Future Minimum Lease Payments are:

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 will terminate concurrently with the term 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 .

December 16, 2022 the Company signed a Lease Agreement with MM Parker Court Associates, LLC to rent approximately 4,892 square feet of

office space at Building 1959 Parker Court, Suite E, Atlanta, Georgia.

The Lease has an initial term of five years and three months and

commenced on or about February 1, 2023.

The monthly rental rate was approximately $ 2,300 for the first 6 months, and $ 4,700 for months

7 to 12, escalating at 5 % each year.

rent expense was approximately $ 899,000

and $ 867,000 for the fiscal

years ended June 30, 2023 and 2022, respectively.

OF FINANCED LEASES

Company leased entered several financed leases during the year ended June 30, 2023 as follows:

Property Leased

Lease Term (months)

Commencement Date

Monthly Lease Payment (1)

Manufacturing equipment

Excludes sales tax and other fees.

costs are amortized on a straight-line basis over their respective lease terms.

Depreciation expense related to leased assets was approximately

$ 86,000 for the year ended June 30, 2023.

Interest expense on leased liabilities was approximately $ 23,000 for the year ended June 30,

The Company had no financed leases during the year ended June 30, 2022.

Future Minimum Lease Payments as of June 30, 2023 are as follows:

OF FUTURE MINIMUM LEASE PAYMENTS

Future Minimum Lease Payments

lease liability

Year Ending June 30,

Total Future Minimum Lease Payments

Total lease liability

13 - SUBSEQUENT EVENTS

August 12, 2022, Jonathan Berry, the Company’s Chief Operating Officer, separated from the Company and entered into an Employee

Separation and Release agreement dated August 24, 2022 (“Separation Agreement”).

Under the Separation Agreement, the Company

agreed to provide Mr.

Berry with certain payments and benefits comprising of:

(i) a separation payment of two hundred five thousand two

hundred dollars, less required payroll withholdings, (ii) twenty-eight thousand nine hundred seven and 52/100 dollars, less required

payroll withholdings, to defray costs for COBRA coverage, and (iii) reimbursement for an amount equal to twelve months for life insurance

continuation (collectively, the “Separation Benefits”).

In exchange for the Separation Benefits, among other things as set

forth in the Separation Agreement, Mr.

Berry agreed to a release of claims and waivers in favor of the Company and to certain restrictive

covenant obligations, and also reaffirmed his commitment to comply with his existing restrictive covenant obligations.

August 26, 2022, as compensation for board services provided during the last quarter of Fiscal 2022, Ms.

Bo-Linn, a director of the Company,

was granted 5,034

which 1/3 vested immediately, each of the remaining 1/3 of the RSUs will vest on April 29, 2023, and April 29, 2024 .

Bo-Linn’s grant was consistent with the standard equity component of Non-Executive Director Compensation Package as approved

by the Board.

Credit Facility

July 28, 2023, we entered into a certain Loan and Security Agreement (the “Agreement”) with Gibraltar Business Capital, LLC,

a Delaware limited liability company (“GBC”).

The Agreement provides us with a senior secured revolving loan facility (the

“GBC Credit Facility”) for up to $ 15 million (the “Revolving Loan Commitment”).

The revolving amount available

under the GBC Credit Facility is equal to the lesser of the Revolving Loan Commitment and the borrowing base amount (as defined in the

The GBC Credit Facility is evidenced by a revolving note, which matures on July 28, 2025 (the “Maturity Date”),

unless extended, modified or renewed (the “Revolving Note”).

Provided that there is no event of default, the Maturity Date

can automatically be extended for one (1) year period upon payment of a renewal fee for each such extension in the amount of three-quarters

of one percent ( 0.75 %) of the Revolving Loan Commitment, which fee will be due and payable on or before the applicable Maturity Date.

In addition, subject to conditions and terms set forth in the Agreement, the we may request an increase in the Revolving Loan Commitment

from time to time upon not less than 30 days’ notice to GBC which increase may be made at the sole discretion of GBC, as long as:

(a) the requested increase is in a minimum amount of $ 1.0 million, and (b) the total increases do not exceed $ 5.0 million and no more

than five (5) increases are made.

Outstanding principal under the GBC Credit Facility accrues interest at Secured Overnight Financing Rate (“SOFR”, as defined in the Agreement)

plus five and one half of one percent ( 5.50 %) per annum with such interest payment is due monthly on the last day of the month.

event of default, the amounts due under the Agreement bears interest at a rate per annum equal to three percent ( 3.0 %) above the rate

that is otherwise applicable to such amounts.

We paid GBC a non-refundable closing fee for the GBC Credit Facility of $ 112,500 upon the execution of the Agreement.

In addition, the Company is required to pay a monthly unused line fee equal to one-half of one

percent ( 0.50 %) per annum on the difference between the Revolving Loan Commitment and the average outstanding principal balance of the

revolving loan(s) for such month.

The obligations under the GBC Credit Facility may be prepaid in whole or in part at any time upon an

exit fee of (a) two percent ( 2.00 %) of the Revolving Loan Commitment if the obligations are paid in full during the first year after

the closing date, or (b) one percent ( 1.00 %) of the Revolving Loan Commitment if the obligations are paid in full one year after the closing date, provided, that, the exit fee will be waived if such prepayment occurs in connection with the

refinancing of the obligations with Bank of America, N.A., as lender.

Agreement contains customary representations and warranties, events of default, negative and affirmative covenants and financial covenants

including maintaining minimum tangible net worth, and certain limitations on dispositions of assets.

The Agreement also contains usual

and customary events of default (with customary grace periods, as applicable) and provides that, upon the occurrence of an event of default,

payment of all amounts payable under the GBC Credit Facility may be accelerated and/or GBC’s commitment may be terminated by GBC

without any action by GBC.

loans and other obligations of the Company under the GBC 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 entered into by and among the Company and GBC on July 28, 2023.

of Silicon Valley Bank LOC

July 28, 2023, the Company terminated the Loan and Security Agreement, by and among the Company and SVB, dated as of November 9, 2020,

as amended, and concurrent with the entry into the Loan and Security Agreement, by and among Gibraltar Business Capital and the Company,

as noted above.

The Company repaid the entire outstanding principal balance of the SVB Credit Facility plus all accrued and unpaid interest

and related fees through the date of termination with a portion of the funds from the GBC Credit Facility on July 28, 2023.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures