Flux Power Holdings Inc

ITEM 1A - RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the risks set forth below and in the section captioned Risk Factors in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025, filed with the SEC on September 17, 2025, before making an investment decision. If any of the risks actually occur, our business, financial condition or results of operations could suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. You should read the section captioned Special Note Regarding Forward Looking Statements above for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this report. There have been no material changes to the risk factors included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025, eas updated by our Quarterly Report on Form 10-Q for the period ended December 31, 2025, filed with the SEC on February 12, 2026, except that the following risk factors replaces the similarly titled risk factor containin our Annual Report on Form 10-K for the fiscal year ended June 30, 2025.

Our independent registered public accounting firm has included in oan explanatory paragraph relating to our Quarterly ability to continue as a going concern in its report on our audited financial statements included in our Annual Report on Form 10-QK for the periodfiscal year ended SeptemberJune 30, 2025, fil. Our audited with the SEC on November 13financial statements at June 30, 2025.

In , and for the past we have not been inyear then ended, were prepared assuming that we will continue as a going compliance with the continued listing ncern.

Management has evaluated the Companys expected cash requirements, including investments in additional sales and marketing, research and development, capital expenditures and working capital requirements for T, and believes the Nasdaq Capital Market. If we failCompanys existing cash, along with the forecasted gross margin, will not be sufficient to meet the continuCompanys anticipated listingcapital requirements, our Common Stock may be delisted to fund planned operations for the next twelve months following the filing date of this Quarterly Report on Form 10-Q. As described below, our ability to continue as a going concern is partially contingent upon the availability of the GBC Credit Facility, which could affect may become unavailable due to a covenant breach by the market price ofCompany.

The report from our Common Stock, negatively impact stockholderindependent registered public accounting firm for the year ended June 30, 2025 includes ability to sell shares and negatively impacn explanatory paragraph stating that our current liquidity position and projected cash needs raise substantial doubt about our ability to access tcontinue as a going concern, along with managements assessment and strategies. The capital markets.

On October 14, 2025, we received a notification (the Notification) from the Listing Qualifications Departmperception that we may not be able to continue as a going concern may make it difficult for us to raise new funds and to operate our business due to concerns about our ability to meet our contractual obligations. There is no assurance that sufficient financing will be available when needed or on reasonable terms to allow us to continue our operations. Our ability to continue as a going concern is contingent (upon, among othe Staff)r factors, the availability of Nasdaq that the GBC Credit Facility or obtaining alternate financing. On March 31, 2026, we had regaindetermined that we failed to compliy with the minimum EBITDA finance with Nasdaqs cial covenant for the trailing three-montinued listing rules becaush period ended March 31, 2026 under the GBC Credit Facility, which resulted in an event of default under the GBC Credit Facility. We are we meorking with GBC to negotiate an amendment to the requirementGBC Credit Facility or otherwise obtain a waiver from GBC. GBC has allowed us to continue to have a market valuccess to our line of listed securities of at least $35,000,000 (tcredit under the GBC Credit Facility while negotiations continue, however, GBC can choose to limit this access at any time until we can successfully negotiate an amendment to the Market EquiGBC Credit Facility Requirement). Nasdaq requiresor obtain a waiver from GBC. While we have in the past successfully renegotiated that for continued lie terms of the GBC Credit Facility, and are optimisting onc about our ability to do so again, the Nasdaq Capital Market, tre can be no assurances that we will be able to negotiate an amendment to the Company must continue to meet all GBC Credit Facility or obtain a waiver from GBC on terms favorable to us or at all. In addition, upon the occurrence of an event of default under the requiremGBC Credit Facility, GBC may, at its option, declare its commitments set forth in Rule 5550(a) and at least one of the stto us terminated and all our obligations under the GBC Credit Facility immediately due and payable, all without demandards set forth in Rule 5550(b). T, notice or further action of any kind required on the stpart of GBC, andards set forth in 5550(b) i/or exercise other remedies available to it, which include (i) havi, among a minimum of $2,500,000 in stockholders equity (the Stockholders Equity Requirement), (ii) other things, its rights as a secured party under the GBC Credit Facility. Since GBC can choose to limit our access to our line of credit under the Market EquiGBC Credit Facility Requireat any time and successful negotiation of an amendment, or (iii) net income from to the GBC Credit Facility or a waiver from GBC cannot be guaranteed, substantial doubt exists about our ability to continue as a going operaconcern. In additions of $500,000 in the most recently compl, we cannot provide any assurance that we will be able to raise additional capital.

Weted fiscal year will need to raise additional capital or in two of thfinancing to continue three most recently completed fiscal years (the Net Income Requirement). The Notification also provideo execute and expand our business.

We expect that our existing cash, additional funding which we believe is available under our GBC Credit Facility, and cash generated from our operations, will not be sufficient to meet our anticipated capital resources and that, for a o fund our planned operiod of one year,ations for the Staff of Nasdaq will monitor our compliance withnext twelve months (see Liquidity and Financial Condition in Note 2 Summary of Significant Accounting Policies to the audited continued listing requisolidated financial statements for additional information). Further, the use of our GBC Credit Facility rements. If, during such one-year period, ains subject to performance metrics, certain restrictions and compliance with loan covenants. On March 31, 2026, we determined that we failed to comply with Rule 5550(b),the minimum EBITDA financial covenant for the Staff of Nasdaq will issue a delist determination lettertrailing three-month period ended March 31, 2026 under the GBC Credit Facility, which resulted in an event of default under the GBC Credit Facility. We are working with GBC to negotiate and we will  amendment to the GBC Credit Facility or otherwise obtain a waiver from GBC. GBC has allowed us to continue to have an opportunity to request a new hearing.

As previously disclosed, on January 31, 2025 the Staff of Nasdaq notified us that we did not comply with tccess to our line of credit under the GBC Credit Facility while negotiations continue, however, GBC can choose to limit this access at any time until we can successfully negotiate an amendment to the GBC Credit Facility or obtain a waiver from GBC. Upon the occurrence of an event of default under the GBC Credit Facility, GBC may also, at its option, declare its commitments to us terminated and all our obligations under the GBC Credit Facility immediately due and payable, all without demand, notice or further action of any kind required on the part of GBC, and/or exercise other remedies available to it, which include, among other things, its rights as a secured party under the Stockholders Equity RequiremGBC Credit Facility. In addition, should there be any delays in the receipts of key component. On March 17, 2025, we filed our plan with Nasdaq parts, due in part to supply chain disruptions, our ability to fulfil the backlog of sales orders will be negatively impacted resulting in lower availability of cash resources from operations. We may be required to regain compliance with the Stockholders Equiaccess other forms of capital to support our expanded operations and execute our business plan by issuing equity or convertible debt securities, or by entering into another form of structured financing or strategic transaction. Our ability Requirement, whichto access such forms of capital will be impacted by investor confidence included requesting an extension through July  our business strategy as well as market conditions. In addition, our failure to timely file certain of our interim quarterly reports on Form 10-Q during the fiscal year ended June 30, 2025. On July 31 and our amendment on Form 10-K/A to our Annual Report for the fiscal year ended June 30, 2025, due  means that we currently are ineligible to non-compliance with the Stockholders Equity Ruse a registration statement on Form S-3. We will not be eligible to use a registration statement on Form S-3 again until we have timely filed all materials and reports requirement, d to be filed pursuant to Section 13, 14 or 15(d) of the Staff inecurities Exchange Act of 1934 formed us tha a period of at least trawelve (12) calendar months immediately preceding the filing of the Companys comma new registration statement on Form S-3. The inability to use a Form S-3 registration stock would be suspended at atement will limit our ability to raise capital through sales of our securities in a timely and cost-efficient manner.

In the opening of business on August 11, 2025, unless we requested aevent we are required to obtain additional funds, there is no guarantee that additional funds will be available on a timely basis or on appeal ofcceptable terms. To the Staffs determinaextent that we raise additional funds by issuing equity or convertible debt securities, our stockholders may experience addition to a Nasdaq Hearings Panel (al dilution and such financing may involve restrictive covenants. Newly issued securities may include preferences, superior voting rights, and the Panel). We requested an appeal hearing withissuance of warrants or other convertible securities that will have additional dilutive effects. We cannot assure you that additional funds will be available when needed from any source or, if available, will be available on terms the Panel and at are acceptable to us. Furthe Panel determinr, we may incur substantial costs in pursuing future capital and/or financing. We may also be required to grant us an exception to demonstrate compliancrecognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition and results of operations. Our ability to obtain needed financing may be impaired by such factors as the with the Stockholders Eeakness of capital markets, and the fact that we have not been profitable, which could impact the availability and cost of future financings. If such funds are not available when requity Rered, management will be required to curtail investment and granted us our request for continued listing, which extension was subjs in additional sales and marketing and product development, which may have a material adverse effect on future cash flows and results of operations.

We are currently in default under the Revolving Note under the GBC Credit Facility, and such default could adversely affect to, among other reour business, financial condition, results of operations or liquirements, dity.

The loans and other obligations of the Company demonstrating compliance under the GBC Credit Facility are secured by substantially all of our tangible and intangible assets, including, with the Stockholders Equout limitation, intellectual property, pursuant to the terms of a Loan and Security RequireAgreement on or before October 31, 2025. However, as disclosed above, with GBC dated July 28, 2023 (the Loan Agreement) and an Intellectual Property Security Agreement (the IP Security Agreement). The GBC Credit Facility is evidenced by a revolving note (the Company Revolving Note), which maturity date was ableutomatically extended to compJuly with 31, 2027 (the Maturity Date), upon the conversion of all the Market Equity Routstanding obligations under the Cleveland Note into equirement.

Asty of the Company at the closing of Dethe Private Placement on September 3115, 2025, we also satisfy the Stockholders Equity Require. Provided that there is no event of default, the Maturity Date can automatically be extended for one (1) year period upon payment, however, we can provide no assurances that we of a renewal fee for each such extension in the amount of three-quarters of one percent (0.75%) of the Revolving Loan Commitment (as defined below), which fee will be adue and payable to continue to comply with either on or before the applicable Maturity Date. The holder of the Market Equity Requirement orRevolving Note is entitled to all of the Stockholders Equbenefits and security Requireprovided for in the Loan Agreement. If we fail to cAll Revolving Loans shall be repaid by the Comply withany on the Nasdaq continued listing requireMaturity Date, unless payable sooner pursuant to the provisions of the Loan Agreements, our common stock . As a secured party, upon an event of default, GBC will be subject to delisting by Nasdaq. In the event ohave a first priority right to the collateral granted to them under the Loan Agreement and IP Security Agreement, and we may lose our common stock is delisted, our stock price and market liquidity of our stock will be adversely affectedownership interest in the assets pledged as security interest.

On March 31, 2026, we determined that we failed to comply with the minimum EBITDA financial covenant for the trailing three-month period ended March 31, 2026 under the GBC Credit Facility, which will impacresulted in an event our abf default under the GBC Credit Facility to sell se. We are curities in trently working with GBC to negotiate an amendment to the market. FurGBC Credit Facility or other, delisting wise obtain a waiver from Nasdaq could alsGBC. GBC has allowed us to continue to have other access to our line of credit under the GBC Credit Facility while negotiative effects, including poteons continue, however, GBC can choose to limit this access at any time untial loss of confidence by partners, lenders,l we can successfully negotiate an amendment to the GBC Credit Facility or obtain a waiver from GBC. While we have in the past suppliers accessfully renegotiated the terms of the GBC Credit Facility, and employees.

Tare optimistic about our ability to do so again, there can be no assurances that our common stock will continue to trade on Nasdaqwe will be able to negotiate an amendment to the GBC Credit Facility or obtain a waiver from GBC on terms favorable to us or trade at all. In addition, upon the over-the counter markeccurrence of an event of default under the GBC Credit Facility, GBC may also, at its option, declare its orcommitments to us terminated any pud all our oblic market in the future. In the event our common stock is delisted, our stock price and market liquidity of our gations under the GBC Credit Facility immediately due and payable, all without demand, notice or further action of any kind required on the part of GBC, and/or exercise other remedies available to it, which include, among other things, its rights as a secured party under the GBC Credit Facility. If GBC were to terminate their common stock willitments under the GBC Credit Facility and foreclose against substantially all our assets, we would likely be adversely affected which will impact yforced to seek bankruptcy protection and our investors could lose the full value of their investment in our Common Stock. As such, our loss of access to our abline of credit under the GBC Credit Facility to sell your securities in the marketor our collateral will have a material adverse effect on our operations, business and financial condition.