NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2021
(Unaudited)
NOTE
1 - NATURE OF BUSINESS
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”)
applicable to interim reports of companies filing as a smaller reporting company. These financial statements should be read in conjunction
with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year
ended June 30, 2020 filed with the SEC on September 28, 2020. In the opinion of management, the accompanying condensed consolidated interim
financial statements include all adjustments necessary in order to make the financial statements not misleading. The results of operations
for interim periods are not necessarily indicative of the results to be expected for the full year or any other future period. Certain
notes to the financial statements that would substantially duplicate the disclosures contained in the audited financial statements for
the most recent fiscal year as reported in the Company’s Annual Report on Form 10-K have been omitted. The accompanying condensed
consolidated balance sheet at June 30, 2020 has been derived from the audited balance sheet at June 30, 2020 contained in such Form 10-K.
Nature
of Business
The
Company designs, develops, manufactures, and sells advanced rechargeable lithium-ion energy storage solutions for lift trucks, airport
ground support equipment (“GSE”), stationary energy storage, and other industrial and commercial applications. The Company’s
“LiFT” battery packs, including its proprietary battery management system (“BMS”), provide its customers with
a better performing, higher value, and more environmentally friendly alternative as compared to traditional lead acid and propane-based
solutions.
The
Company has received Underwriters Laboratory (“UL”) Listing on its lithium-ion packs for most Class 1,2, and 3 forklifts.
The Company believes that a UL Listing demonstrates the safety, reliability and durability of its products and gives it an important
competitive advantage over other lithium-ion energy suppliers. Additionally, the Company’s LiFT packs have been approved for use
by leading industrial motive manufacturers, including Toyota Material Handling USA, Inc., Crown Equipment Corporation, Raymond Corporation,
Clark Material Handling and others.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in
the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020. There have been no material changes in these
policies or their application.
Management
has considered all recent accounting pronouncements issued since the last audit of the Company’s consolidated financial statements
and believes that these recent pronouncements will not have a material effect on the Company’s condensed consolidated financial
statements.
Net
Loss Per Common Share
The
Company calculates basic loss per common share by dividing net loss by the weighted average number of common shares outstanding during
the periods. Diluted loss per common share is calculated by dividing net loss by the weighted average common shares and dilutive shares,
including shares issuable for convertible debt, options, warrants and other dilutive securities.
The
Company incurred a net loss for the three and nine months ended March 31, 2021 and 2020, and therefore, basic and diluted loss per share
for the periods are the same because potential common equivalent shares were excluded from diluted weighted-average common shares outstanding
during the period, as their inclusion would have been anti-dilutive.
For
the three months ended March 31, 2021 and 2020, basic and diluted weighted-average common shares outstanding were 12,499,870 and 5,107,845,
respectively. For the nine months ended March 31, 2021 and 2020, basic and diluted weighted-average common shares outstanding were 11,300,229
and 5,105,982, respectively. The total potentially dilutive common shares outstanding at March 31, 2021 and 2020, excluded from diluted
weighted-average common shares outstanding, were 897,646 and 581,996, respectively.
NOTE
3 – NOTES PAYABLE
Paycheck
Protection Program Loan
On
May 1, 2020, the Company applied for and received a loan from the Bank of America, NA (the “BOA”) in the aggregate
principal amount of approximately $1,297,000 (the “PPP Loan”) pursuant to the Paycheck Protection Program (the “PPP”)
under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan is evidenced by a promissory
note dated May 1, 2020, issued by Flux Power to the BOA (the “PPP Note”). The PPP Loan had a two-year term and bears
interest at a rate of 1.0% per annum. Monthly principal and interest payments were deferred for six months after the date of disbursement.
The Company received the funds on May 4, 2020. On February 9, 2021, the Company was notified that the Small Business Administration
(“SBA”) had forgiven repayment of the entire PPP Loan of approximately $1,297,000 in principal, together with all
accrued interest of approximately $10,000. The Company has recorded the entire amount of the forgiven loan totaling approximately
$1,307,000 as other income in its statement of operations during the current fiscal quarter. As of March 31, 2021, the outstanding
balance of the PPP Loan was $0.
The
SBA reserves the right to audit any PPP loan, regardless of size. These audits may occur after forgiveness has been granted. In accordance
with the CARES Act, all borrowers are required to maintain their PPP loan documentation for six years after the PPP loan was forgiven
or repaid in full and to provide that documentation to the SBA upon request.
Revolving
Line of Credit
On
November 9, 2020, the Company entered into a certain Loan and Security Agreement (“Agreement”) with Silicon Valley Bank (“SVB”).
The Agreement provides the Company with a senior secured revolving credit facility for up to $4.0 million available on a revolving basis
(“Credit Facility”) which matures on November 8, 2021. Outstanding principal under the Credit Facility accrues interest at
a floating per annum rate equal to the greater of (i) prime rate plus two and a half percent (2.50%) or (ii) five and three-quarters
percent (5.75%). Interest is due monthly on the last day of the month. In the event of default, the amounts due under the Agreement will
bear interest at a rate per annum equal to five percent (5.0%) above the rate that is otherwise applicable to such amounts. The Company
paid a non-refundable commitment fee of $15,000 upon execution of the Loan Agreement. In addition, the Company is required to pay a quarterly
unused facility fee equal to one-quarter percent (0.25%) per annum of the average daily unused portion of the commitments under the Credit
Facility, depending upon availability of borrowings under the Credit Facility. The loans and other obligations of the Company under the
Credit Facility are secured by substantially all of the tangible and intangible assets of the Company (including, without limitation,
intellectual property) pursuant to the terms of the Agreement and the Intellectual Property Security Agreement dated as of November 9,
2020. As of March 31, 2021, the Company had not utilized the line of credit.
NOTE
4 - RELATED PARTY DEBT AGREEMENTS
Esenjay
Loan
On
March 9, 2020, the Company and Esenjay Investments, LLC (“Esenjay”) entered into a certain convertible promissory note (“Original
Esenjay Note”) pursuant to which Esenjay provided the Company with a loan in the principal amount of $750,000 (the “Esenjay
Loan”). On June 2, 2020, the Original Esenjay Note was amended and restated to (i) extend the maturity date from June 30, 2020
to September 30, 2020, and (ii) to increase the principal amount outstanding under the Original Esenjay Note from $750,000 to $1,400,000
(the “Esenjay Note”).
On
June 26, 2020 and July 22, 2020, Esenjay assigned a total of $900,000 of the Esenjay Note to three (3) accredited investors. On June
30, 2020, in connection with the completion of the Company’s initial closing of its private placement offering, the principal amount
outstanding under the Esenjay Note became convertible into shares of common stock at $4.00 per share, which was the cash price per share
of such offering. The three note holders converted their notes into an aggregate 225,000 shares of common stock at $4.00 per share.
On
August 31, 2020, the Company entered into the Third Amended and Restated Credit Facility Agreement and pursuant to which the Company
further amended the Notes to, among other amended items, include outstanding obligations for an aggregate amount of approximately $564,000,
consisting of $500,000 in principal and approximately $64,000 in accrued interest, under the Esenjay Note, into the Credit Facility Agreement.
(See “Credit Facility” below).
Cleveland
Loan
On
July 3, 2019, the Company entered into a loan agreement with Cleveland, pursuant to which Cleveland agreed to loan the Company $1,000,000
(the “Cleveland Loan”). On July 9, 2020, the Company made a payment to Cleveland in the amount of $200,000 as a partial payment
of the outstanding principal balance of the Cleveland Loan.
On
July 27, 2020, pursuant to the Eighth Amendment to the Unsecured Promissory Note the maturity date of the note was extended from July
31, 2020 to August 31, 2020 and the Company 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 $978,000.
Credit
Facility
On
March 22, 2018, Flux Power entered into a credit facility agreement with Esenjay with a maximum borrowing amount of $5,000,000 (the “Original
Agreement”). The Original Agreement was amended multiple times to allow for, among other things, an increase in the maximum principal
amount available under line of credit (“LOC”) to $12,000,000, additional lenders and extensions of the maturity date to September
30, 2021. In August 2020, the Company paid down an aggregate principal amount of approximately $1,402,000 of the outstanding balance
under the LOC. On August 31, 2020, the Company entered into the Third Amended and Restated Credit Facility Agreement and pursuant to
which the Company further amended the Notes to (i) extend the maturity date from December 31, 2020 to September 30, 2021, and (ii) include
outstanding obligations under the Esenjay Note of approximately $564,000, consisting of $500,000 in principal and approximately $64,000
in accrued interest, into the LOC. In November 2020, the Lenders holding an aggregate of approximately $2,161,000 in principal and accrued
interest outstanding under the LOC elected to convert their Notes into 540,347 shares of common stock. In January and March 2021, the
Lenders holding an aggregate of approximately $2,632,000 in principal and accrued interest outstanding under the LOC elected to convert
their Notes into 658,103 shares of common stock of which approximately $1,045,000 was held by Esenjay and was converted to 261,133 shares
of common stock. As of March 31, 2021, the outstanding balance of the Notes was $0, and the entire line of credit of $12.0 million was
available for future draws.
NOTE
5 – FACTORING ARRANGEMENT
On
August 23, 2019, the Company entered into a Factoring Agreement (“Factoring Agreement”) with CSNK Working Capital Finance
Corp. d/b/a Bay View Funding (“CSNK”) for a factoring facility under which CSNK would, from time to time, buy approved receivables
from the Company. The Company gave termination notice to CSNK and accordingly, effective August 30, 2020 has terminated the Factoring
Agreement. As of March 31, 2021 and June 30, 2020, an outstanding balance of $0 and $469,000, respectively, was due to CNSK under the
Factoring Agreement. The section below describes the terms of such factoring agreement prior to its termination.
NOTE
6 - STOCKHOLDERS’ EQUITY (DEFICIT)
At-The-Market
(“ATM”) Offering
2020
ATM Offering
On
December 21, 2020 the Company entered into a Sales Agreement (the “Sales Agreement”) with H.C. Wainwright & Co., LLC
(“HCW”) to sell shares of its common stock, par value $0.001 (the “Common Stock”) from time to time, through
an “at-the-market offering” program (the “ATM Offering”) under which HCW will act as sales agent.
The
Company agreed to pay HCW a commission in an amount equal to 3.0% of the gross sales proceeds of the shares sold under the Sales Agreement.
In addition, the Company agreed to reimburse HCW for certain legal and other expenses incurred up to a maximum of $50,000 to establish
the ATM Offering, and $2,500 per quarter thereafter to maintain such program under the Sales Agreement. The Company has also agreed pursuant
to the Sales Agreement to indemnify and provide contribution to HCW against certain liabilities, including liabilities under the Securities
Act.
In
December 2020, the Company sold an aggregate of 226,737 shares of common stock at an average price of $15.40 per share for gross proceeds
of approximately $3.5 million in the ATM Offering, prior to deducting commissions and other offering related expenses. In February 2021,
the Company sold an aggregate of 77,962 shares of common stock at an average price of $16.66 per share for gross proceeds of approximately
$1.2 million in the ATM Offering, prior to deducting commissions and other offering related expenses. In March 2021, the Company sold
an additional 36,944 shares of common stock at an average price of $15.22 per share for gross proceeds of approximately $562,000 in the
ATM Offering, prior to deducting commissions and other offering related expenses. The offer and sale of the Shares were made pursuant
to the Company’s effective “shelf” registration statement on Form S-3 filed with the Securities and Exchange Commission
(the “SEC”) on October 16, 2020, and declared effective by the SEC on October 26, 2020, and a prospectus supplement related
to the ATM Offering, dated December 21, 2020 (see Note 9).
Public
Offering
2020
Public Offering and NASDAQ Capital Market Uplisting
In
August 2020, the Company closed an underwritten public offering of its common stock at a public offering price of $4.00 per share for
gross proceeds of approximately $12.4 million, which included the full exercise of the underwriters’ over-allotment option to purchase
additional shares, prior to deducting underwriting discounts and commissions and offering expenses. A total of 3,099,250 shares of common
stock were issued by the Company in the offering, including the full exercise of the over-allotment option. The securities were offered
pursuant to a registration statement on Form S-1 (File No. 333-231766), which was declared effective by the SEC on August 12, 2020.
Concurrent
with the announcement of the public offering, on August 14, 2020, the Company’s common stock commenced trading on The NASDAQ Capital
Market under the symbol “FLUX.”
Private
Placements
2020
Private Placement
On
April 22, 2020, the Company sold and issued an aggregate of 66,250 shares of common stock, at $4.00 per share, for an aggregate purchase
price of $265,000 in cash to two (2) accredited investors (the “2020 Private Placement”). On June 30, 2020, the Company completed
an initial closing of the 2020 Private Placement offering of up to 2,000,000 shares of common stock, pursuant to which the Company sold
an aggregate of 275,000 shares of common stock at $4.00 per share, for an aggregate purchase price of $1,100,000 to six (6) accredited
investors. The $1,100,000 aggregate purchase price for such shares was paid in cash. Esenjay and Mr. Dutt, the Company’s president
and chief executive officer, participated in the initial closing in the amount of $300,000 and $50,000, respectively. On July 24, 2020,
the Company sold and issued an aggregate of 800,000 shares of common stock, at $4.00 per share, for an aggregate purchase price of $3,200,000
in cash to accredited investors, including Mr. Cosentino, one of our directors, who participated in the offering in the amount of $250,000.
The
shares offered and sold in the 2020 Private Placement described above were sold to accredited investors in reliance upon exemptions from
registration pursuant to Rule 506(b) of Regulation D promulgated under Section 4(a)(2) under the Securities Act. Such shares were not
registered under the Securities Act of 1933, as amended (“Securities Act”), and could not be offered or sold in the United
States absent registration or an applicable exemption from the registration requirements of the Securities Act. Pursuant to a registration
statement on Form S-3 filed with the SEC on October 16, 2020 which became effective on October 26, 2020, such shares were registered.
Debt
Conversion
LOC
Conversion
On
June 30, 2020, there was a partial conversion of the debt underlying the secured promissory notes issued to lenders under the LOC at
a conversion price of $4.00 per share (the “Conversion”). At the option of the lenders, on June 30, 2020, an aggregate of
approximately $7,383,000 in principal and accrued interest outstanding under the LOC was converted into 1,845,830 shares of common stock,
which consisted of (a) partial conversion of Principal plus interest under the Esenjay LOC Note in the amount of $4,400,000 into 1,100,000
shares of common stock at $4.00 per share, and (b) conversion of approximately $2,983,000 of the secured promissory notes issued in connection
with the LOC, principal plus accrued interest, by other lenders, including certain assignees of the Esenjay LOC Note, into 745,830 shares
of common stock.
On
November 6, 2020, there was a partial conversion of the debt underlying the secured promissory notes issued to lenders under the LOC
at a conversion price of $4.00 per share (the “November 2020 Conversion”). At the option of the lenders, on November 6, 2020,
an aggregate of approximately $2,161,000 in principal and accrued interest outstanding under the LOC was converted into 540,347 shares
of common stock.
In
January and March 2021, there was a conversion of the remaining debt underlying the secured promissory notes issued to lenders under
the LOC at a conversion price of $4.00 per share. At the option of the lenders, an aggregate of approximately $2,632,000 in principal
and accrued interest outstanding under the LOC was converted into 658,103 shares of common stock.
Esenjay
Note Conversion
On
June 30, 2020, two (2) accredited individuals, who became note holders to the Esenjay Note pursuant to the assignment of such notes by
Esenjay to the note holders, converted $500,000 in principal into 125,000 shares of common stock at $4.00 per share.
On
July 22, 2020, one accredited individual, who became note holder to the Esenjay Note pursuant to the assignment of such note by Esenjay
to the note holder, converted $400,000 in principal into 100,000 shares of common stock at $4.00 per share.
Warrant
Activity
On
July 3, 2019, the Company issued a three-year warrant to Cleveland Capital, L.P. (“Cleveland Warrant”) to
purchase our common stock in a number equal to one-half percent (0.5%) of the number of shares of common stock outstanding
after giving effect to the total number of shares of common stock sold in a public offering at an exercise price equal to the
per share public offering price. On September 1, 2019, the Cleveland Warrant was amended and restated to change the warrant
coverage from 0.5% to 1% of the number of shares of common stock outstanding after giving effect to the total number of
shares of common stock sold in the next private or public offering (“Offering”) at an exercise price equal the
per share price of common stock sold in the Offering. The closing of a private offering constituting the Offering occurred on
July 24, 2020. Upon such closing, the number and the exercise price of the Cleveland Warrant became determinable, and
represented as a right to purchase up to 83,205 shares of common stock at $4.00 per share and had a fair value of
approximately $174,000. As of March 31, 2021, all 83,205 warrants remained outstanding and exercisable.
In
August 2020 and in conjunction with the Company’s public offering, the Company issued five-year warrants to the underwriters to
purchase up to 185,955 shares of the Company’s common stock at an exercise price of $4.80 per share and had a fair value of approximately
$513,000. The underwriters’ warrants became exercisable on February 8, 2021.
Warrant
detail for the nine months ended March 31, 2021 is reflected below:
|
|
Number of Warrants
|
|
|
Weighted Average Exercise Price Per
Warrant
|
|
|
Remaining Contract Term (# years)
|
|
Warrants outstanding and exercisable at June 30, 2020
|
|
|
83,205
|
|
|
$
|
4.00
|
|
|
|
2.01
|
|
Warrants issued
|
|
|
185,955
|
|
|
$
|
4.80
|
|
|
|
5.00
|
|
Warrants exercised
|
|
|
(32,977
|
)
|
|
$
|
4.80
|
|
|
|
|
|
Warrants forfeited
|
|
|
(11,700
|
)
|
|
$
|
4.80
|
|
|
|
-
|
|
Warrants outstanding and exercisable at March 31, 2021
|
|
|
224,483
|
|
|
$
|
4.50
|
|
|
|
3.22
|
|
Warrant
detail for the nine months ended March 31, 2020 is reflected below:
|
|
Number of Warrants
|
|
|
Weighted Average Exercise Price Per
Warrant
|
|
|
Remaining Contract Term (# years)
|
|
Warrants outstanding and exercisable at June 30, 2019
|
|
|
8,333
|
|
|
$
|
20.00
|
|
|
|
0.25
|
|
Warrants forfeited
|
|
|
(8,333
|
)
|
|
$
|
20.00
|
|
|
|
-
|
|
Warrants outstanding and exercisable at March 31, 2020
|
|
|
-
|
|
|
|
$
|
|
|
|
|
|
Stock-based
Compensation
Stock
Options
On
November 26, 2014, the board of directors approved the 2014 Equity Incentive Plan (the “2014 Plan”), and the Company’s
stockholders subsequently approved the 2014 Plan on February 17, 2015. The 2014 Plan enables the Company to grant stock options and other
forms of equity incentives of the Company to its employees. Equity incentives are used to retain existing employees and to attract new
employees. In addition, the 2014 Plan provides for grants of stock options and other forms of equity incentives to the Company’s
directors and consultants. The 2014 Plan allows for the award of stock and options, up to 1,000,000 shares of common stock (See Note
9).
Activity
in stock options during the nine months ended March 31, 2021 and related balances outstanding as of that date are reflected below:
|
|
Number of
Shares
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Contract Term
(#
years)
|
|
Outstanding at June 30, 2020
|
|
|
579,584
|
|
|
$
|
11.00
|
|
|
|
7.55
|
|
Exercised
|
|
|
(15,812
|
)
|
|
$
|
5.77
|
|
|
|
-
|
|
Forfeited and cancelled
|
|
|
(18,932
|
)
|
|
$
|
12.45
|
|
|
|
-
|
|
Outstanding at March 31, 2021
|
|
|
544,840
|
|
|
$
|
11.10
|
|
|
|
6.81
|
|
Exercisable at March 31, 2021
|
|
|
490,493
|
|
|
$
|
10.91
|
|
|
|
6.67
|
|
Activity
in stock options during the nine months ended March 31, 2020 and related balances outstanding as of that date are reflected below:
|
|
Number of
Shares
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining
Contract
Term
(#
years)
|
|
Outstanding at June 30, 2019
|
|
|
580,171
|
|
|
$
|
11.05
|
|
|
|
8.59
|
|
Granted
|
|
|
15,792
|
|
|
$
|
8.87
|
|
|
|
-
|
|
Exercised
|
|
|
(5,249
|
)
|
|
$
|
4.68
|
|
|
|
-
|
|
Forfeited and cancelled
|
|
|
(8,718
|
)
|
|
$
|
12.56
|
|
|
|
-
|
|
Outstanding at March 31, 2020
|
|
|
581,996
|
|
|
$
|
11.02
|
|
|
|
7.87
|
|
Exercisable at March 31, 2020
|
|
|
414,720
|
|
|
$
|
10.65
|
|
|
|
7.53
|
|
Restricted
Stock Units
On
November 5, 2020, the Company’s Board of Directors approved an amendment to the Company’s 2014 Plan, to allow grants of Restricted
Stock Units (“RSUs”). Subject to vesting requirements set forth in the RSU Award Agreement, one share of common stock is
issuable for one vested RSU. On November 5, 2020, the Board of Directors authorized the following RSUs to be granted under the amended
2014 Plan: (i) a total of 43,527 RSUs to certain executive officers as one-time retention incentive awards, (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.
Activity
in RSUs during the nine months ended March 31, 2021 and related balances outstanding as of that date are reflected below:
|
|
Number of
Shares
|
|
|
Weighted
Average Grant date Fair Value
|
|
|
Weighted
Average Remaining Contract Term
(#
years)
|
|
Outstanding at June 30, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Granted
|
|
|
134,865
|
|
|
$
|
8.88
|
|
|
|
-
|
|
Forfeited and cancelled
|
|
|
(6,542
|
)
|
|
$
|
8.88
|
|
|
|
-
|
|
Outstanding at March 31, 2021
|
|
|
128,323
|
|
|
$
|
8.88
|
|
|
|
2.91
|
|
There
were no RSUs granted or outstanding during the nine months ended March 31, 2020 (See Note 9).
Stock-based
compensation
Stock-based
compensation expense recognized in the condensed consolidated statements of operations for the three and nine months ended March 31,
2021 and 2020, includes compensation expense for stock-based options and awards granted, including RSUs, based on the grant date fair
value. For options and awards granted, expenses are amortized under the straight-line method over the expected vesting period. Stock-based
compensation expense recognized in the condensed consolidated statements of operations has been reduced for estimated forfeitures of
options and awards that are subject to vesting. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates.
At
March 31, 2021, the aggregate intrinsic value of exercisable options were approximately $1,582,000.
The
following table summarizes stock-based compensation expense for employee and non-employee option grants and RSUs:
|
|
Three Months Ended
March 31,
|
|
|
Nine Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Research and development
|
|
$
|
48,000
|
|
|
$
|
54,000
|
|
|
$
|
146,000
|
|
|
$
|
162,000
|
|
Selling and administrative
|
|
|
180,000
|
|
|
|
402,000
|
|
|
|
504,000
|
|
|
|
1,194,000
|
|
Total stock-based compensation expense
|
|
$
|
228,000
|
|
|
$
|
456,000
|
|
|
$
|
650,000
|
|
|
$
|
1,356,000
|
|
The
Company uses the Black-Scholes valuation model to calculate the fair value of stock options. The fair value of stock options was measured
at the grant date using the assumptions (annualized percentages) in the table below:
|
|
Nine Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Expected volatility
|
|
|
0
|
%
|
|
|
100.60
|
%
|
Risk free interest rate
|
|
|
0
|
%
|
|
|
1.73
|
%
|
Forfeiture rate
|
|
|
20
|
%
|
|
|
20
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected term (years)
|
|
|
0
|
|
|
|
5.56
|
|
At
March 31, 2021, the unamortized stock-based compensation expense relating to outstanding stock options and RSUs was approximately $476,000
and $570,000, respectively, and these amounts are expected to be expensed over the weighted-average remaining recognition period of 0.94
years and 2.91 years, respectively.
NOTE
7 - CONCENTRATIONS
Credit
Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and unsecured trade accounts
receivable. The Company maintains its cash in checking and savings accounts at federally insured financial institutions in excess of
federally insured limits. As of March 31, 2021, the Company’s cash balance was approximately $2,432,000. Management believes that
the Company is not exposed to any significant credit risk with respect to its cash.
Customer
Concentrations
During
the three months ended March 31, 2021, the Company had four (4) major customers that each represented 10% or more of its total
revenues on an individual basis, and together represented approximately $5,352,000 or 77% of total revenues. During the
nine months ended March 31, 2021, the Company had three (3) major customers that each represented more than 10% of its total revenues
on an individual basis, and together represented approximately $10,594,000 or 59% of total revenues.
During
the three months ended March 31, 2020, the Company had two (2) major customers that each represented 10% or more of its total revenues
on an individual basis, and together represented approximately $3,373,000 or 67% of total revenues. During the nine months ended March
31, 2020, the Company had three (3) major customers that each represented more than 10% of its total revenues on an individual basis,
and together represented approximately $7,991,000 or 76% of total revenues.
Suppliers/Vendor
Concentrations
The
Company obtains a limited number of components and supplies included in its products from a small group of suppliers. During the three
months ended March 31, 2021, the Company had two (2) suppliers who accounted for 10% or more of total component and supply purchases
on an individual basis, and together represented approximately $2,252,000 or 26% of total component and supply purchases. During the
nine months ended March 31, 2021 the Company had two (2) suppliers that represented more than 10% of total component and supply purchases
on an individual basis, and together represented approximately $6,229,000 or 27% of total component and supply purchases.
During
the three months ended March 31, 2020, the Company had two (2) suppliers who accounted for 10% or more of total component and supply
purchases on an individual basis, and together represented approximately $2,581,000 or 39% of total component and supply purchases. During
the nine months ended March 31, 2020 the Company had two (2) suppliers that each represented more than 10% of total component and supply
purchases on an individual basis, and together represented approximately $4,802,000 or 37% of total component and supply purchases.
NOTE
8 - COMMITMENTS AND CONTINGENCIES
From
time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.
However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time
that may harm the Company’s business. To the best knowledge of management, there are no material legal proceedings pending against
the Company.
Operating
Leases
On
April 25, 2019 the Company signed a Standard Industrial/Commercial Multi-Tenant Lease (“Lease”) with Accutek to rent approximately
45,600 square feet of industrial space at 2685 S. Melrose Drive, Vista, California. The Lease has an initial term of seven years and
four months, commencing on or about June 28, 2019. The lease contains an option to extend the term for two periods of 24 months, and
the right of first refusal to lease an additional approximate 15,300 square feet. The monthly rental rate is $42,400 for the first 12
months, escalating at 3% each year.
On
February 26, 2020, the Company entered into the First Amendment to Standard Industrial/Commercial Multi-Tenant Lease dated April 25,
2019 (the “Amendment”) with Accutek to rent an additional 17,539 rentable square feet of space. The lease for the additional
space commenced on April 1, 2020 (30 days following the occupancy date of the additional space) and will terminate concurrently with
the term of the original lease on November 20, 2026. The base rent for the additional space is the same rate as the space rented under
the terms of the original lease, $0.93 per rentable square (subject to 3% annual increase). In connection with the Amendment, the Company
purchased certain existing office furniture for a total purchase price of $8,300.
Total
rent expense was approximately $214,000 and $635,000 for the three and nine month periods ended March 31, 2021, respectively.
Total
rent expense was approximately $160,000 and $458,000 for the three and nine month periods ended March 31, 2020, respectively.
The
Future Minimum Lease Payments as of March 31, 2021 are as follows:
Year Ending June 30,
|
|
|
|
2021 (remaining three months)
|
|
$
|
181,000
|
|
2022
|
|
|
746,000
|
|
2023
|
|
|
768,000
|
|
2024
|
|
|
791,000
|
|
2025
|
|
|
815,000
|
|
Thereafter
|
|
|
1,199,000
|
|
Total Future Minimum Lease Payments
|
|
|
4,500,000
|
|
|
|
|
|
|
Less: discount
|
|
|
(1,102,000
|
)
|
Total Lease Liability
|
|
$
|
3,398,000
|
|
NOTE
9 - SUBSEQUENT EVENTS
ATM
Offering
In
April 2021, the Company sold an aggregate of 149,696 shares of common stock (the “Shares”) through the ATM Offering at an
average price of $12.04 per share for gross proceeds of approximately $1.8 million, prior to deducting commissions and other offering
related expenses. The offers and sales of the Shares were made pursuant to the Company’s effective “shelf” registration
statement on Form S-3 filed with the SEC on October 16, 2020, and declared effective by the SEC on October 26, 2020, and the related
prospectus supplement for the ATM Offering dated December 21, 2020.
2021
Equity Incentive Plan
On
April 29, 2021, at the Company’s annual stockholders meeting, the 2021 Equity Incentive Plan (“2021 Plan”) was approved
by the stockholders of the Company. As of May 10, 2021, there were no awards granted under the 2021 Plan, and 2,000,000 shares of common
stock were available for issuance under the 2021 Plan.
Grant
of Restricted Stock Units to Non-Executive Directors
On
April 29, 2021, the Company’s four non-executive directors were awarded RSUs covering a total of 18,312 shares of
common stock under the 2014 Plan. The RSUs vest annually over a three-year vesting period with the first one third of the RSUs
to be vested on April 29, 2022. The awards are subject to the terms and conditions of the 2014 Plan and the terms and conditions
of an applicable award agreement covering each grant. The awards were approved by the compensation committee of the Company and
the Board of Directors prior to being granted.