Flux Power Holdings, Inc. (OTCQB: FLUX) Page 1 Q2 ’14 Conference Call Transcript February 18, 2014

Thank you. Today's call will be available via online replay and on the I.R. section of Flux's Web

site, approximately three hours after the conclusion of today's call. Leading today's call is Ron Dutt, Flux Power's CEO and acting CFO, and he is joined by Kerri Taylor, Director Of Business Development.

I would like to remind everyone that comments Flux management may make on today's call may

include predictions, estimates, expectations and other forward-looking statements, which are based on the company's knowledge as of today.

These statements are subject to risks and uncertainties that could cause actual results to differ

materially from those anticipated. Flux disclaims any obligation to update such forward-looking statements and encourages investors to refer to Flux Power's recent SEC filings for a detailed list of such risk factors.

I will now turn the call over to Ron Dutt, Flux Power CEO.

Ron Dutt: Thanks, David, and thank you all for joining our call today. This call marks the launch of our plan to provide regular communication concerning Flux Power's business progress and future path to investors and prospective customers. We welcome your interest and are committed to keeping you informed on our progress.

I also encourage you to visit our Web site and social media outlets regularly. Please also provide

us with your contact information so that our I.R. team can ensure you receive timely updates. They can answer questions about the business and arrange a call with me, as I'm eager to speak with interested investors about the company.

The past six months have been very exciting and productive at Flux. I'm extremely proud of what

our team has accomplished as far as the development and commercialization of new energy storage products that leverage our core technology and expertise.

The positive response from customers trying our lithium battery pack is extremely encouraging

and I'm also grateful to the board for formalizing my role as CEO, as I believe my experience is well suited to leading the organization at this time.

Working together, the Flux team has developed and launched several new product lines and forged

important customer and distribution relationships that have put us on a solid track for new revenue streams and improving financial performance.

As an emerging company, building market credibility is also critical to our future and we have

increasing evidence of success in this area as well. Underlying the Flux organization is an uncompromising commitment to integrity, high quality products and customer satisfaction. It is essential that our customers come to know us for this discipline and our dedication to meeting their needs.

Flux Power Holdings, Inc. (OTCQB: FLUX) Page 2 Q2 ’14 Conference Call Transcript February 18, 2014 Fundamentally, Flux is taking a leadership role in energy storage technology that has been broadly

proven in small devices like phones and PCs. We have taken that proven technology and have scaled it up to meet the needs of larger applications and equipment. The secret sauce is delivering larger scale solutions (and) being able to effectively manage the inflow and outflow of power from a large number of cells, while still delivering peak performance.

We've proved ourselves in this regard in our fiscal 2011 and 2012 by delivering energy storage

solutions into the electric vehicle market. But when our key customers fell on hard times, we recognized the need to reposition our business. We identified markets where there is little or no competition and where we could leverage our storage expertise to provide solutions that perform better and deliver lower cost of ownership.

At the same time, we also had to execute a substantial round of personnel and cost reduction to

bring overhead in line within our means. While our strategy could have been implemented more quickly with a larger staff, the discipline required of our situation kept us focused on the key priorities that would have the greatest impact.

The financial performance reviewed in our Q2 release and 10-Q filings reflect our being in the

midst of our business realignment. We spent the past six months focused on pre-revenue (tasks), on product development, customer testing, and building relations needed to initiate sales.

Our recent approval by Toyota and Raymond, collectively the market leaders in the U.S. and

global forklift and lift truck market, is a major achievement and milestone that lends substantial credibility to Flux products and this and other markets and should help us focus on all fronts in sales and marketing.

The next six months should show a ramp in sales engagement, moving into the next fiscal year,

beginning July 1st, where we will have the potential to deliver meaningful product sales. For those new to Flux, let me give you a brief overview of our company and our competitive strengths that enable to us to compete effectively in our target markets.

First off, let's look at Flux proprietary technology and expertise. Flux was launched in 2009 and

developed 12 patents, primarily relating to our Battery Management System technology, or BMS. Flux's BMS uses electronics to efficiently control the charging and balancing of lithium cell power to achieve a useful life that is three to five times longer than that of lead-acid batteries.

Our BMS also enables longer run time and efficient charging. We have already developed our

second generation BMS and are working on added features and design improvements that reduce its cost to ensure we are first to market with key features and cost alternatives our customers want.

Chris Anthony (is) a technology visionary who founded Flux in 2009 and led the company's

commercialization. He continues to play a strong role as chairman of the board of directors. Our engineering team is led by Paulus Geantil, who brings 15 years of industry experience to our development efforts. Kerri Taylor, who has extensive product and marketing experience, is leading our business development efforts, including products and sales launches and the build-out of our distribution network.

Flux Power Holdings, Inc. (OTCQB: FLUX) Page 3 Q2 ’14 Conference Call Transcript February 18, 2014 We currently purchase lithium iron phosphate cells from a leading Chinese supplier that utilizes

the industry-favored pouch design. We have been exploring expansion of our relationship with this supplier and other potential sources to include manufactured key components to our design and engineering specifications. We look to develop sourcing and design efficiencies through such relationships at significantly improved gross margins as we build volume.

Additionally, in June, we entered a nonbinding letter of intent to merge with KleenSpeed, an early

stage Silicon Valley company with industry expertise, patented grid storage technology, commercial relationships, and marketing strengths that complement Flux's and provides new revenue potential. We continue to have strong interest in executing that merger, following completion of related fundraising.

As I mentioned earlier, Flux initial pursuits with electric automobiles led to a development of the

lithium energy pack that could be adapted to a long list of verticals. After some research, we decided to target the industrial motive power market, including lift equipment and tug and tow equipment.

This market was attractive to us because of its size; well over 600 million in total annual potential

revenue in just the walkie pallet trucks market alone, and a substantial existing installed base that requires a reliable power source, yet is reliant on lead-acid technology that has a range of performance challenges. We have developed a solution that provides both better performance and lower total cost over the equipment life.

To conserve working capital and accelerate the launch of new Flux products, we first focused on

the lower end of the price power curve, beginning with the 24-volt walkie pallet truck that you will notice – that you will now notice are integral to the supply chain and present in and around delivery trucks and (warehouses).

Ron Dutt: Because our products are scalable, we can add cells (and) series to produce higher power 36-volt

and 48-volt packs to meet more challenging demands of larger scale industrial equipment, including robotic vehicles and ride-on lift trucks. Accordingly, our product roadmap is moving to those opportunities and their potential for improved margin, as our initial products gain traction.

We have found that the key to gaining interest in securing orders is to provide dealers with a

demonstration pack that they can use to gain comfort with our solution. And we also provide sales and marketing training to dealers to help get our pack into a customer's sales ordering cycle, which can be 90 days or more for new equipment.

The sales cycle for lead-acid battery (replacement) is expected to be much shorter, especially once

we have developed industry comfort with our new solution. Importantly, we are making good headway in building word of mouth. As we alluded in our news announcement, we have had customer feedback that our lifts will revolutionize the lift equipment industry. And users at another major customer wanted to know, and I quote on this; why aren't all our packs like the Flux packs we have?

Flux Power Holdings, Inc. (OTCQB: FLUX) Page 4 Q2 ’14 Conference Call Transcript February 18, 2014 As you might imagine, securing OEM approval for your products as you enter a new market is the

strongest enabler to sales, visibility and distribution. But it does involve time and investment. As you know we secured our first such approval last week and we are currently pursuing two other major OEMs. On the dealer front, we are forging dealer relationships in eight states and in several major metropolitan areas. We will continue this effort as expeditiously as possible.

Portable power is another vertical we are pursuing, including powering lighting for on-location

movie and entertainment productions. Our packs are valued in this application for their reliability, silence, lack of exhaust normally associated with remote generator power. One movie set director said he would never shoot another movie without a lithium pack. For the same user benefits, we're working with a military integrator (in) an offering to the Army and Marines to support powering gear in remote locations.

And in the grid realm, we are already building on projects with KleenSpeed, where we would

provide our packs for larger scale energy storage. These are far larger opportunities, however, with their scale come increased challenges and potential competition, which makes these the hardest projects to handicap. But we're confident we have a compelling solution at a competitive price.

Our business model has been structured to minimize capital expenditures, as we complete

assembly locally and purchase components that we design and engineer. Our gross margins are currently below 30 percent, but we plan to improve them with volume, design efficiencies and strategic relationships with suppliers. Our goal is 40 percent margins when we reach scale and achieve these design efficiencies.

Additionally, several Chinese cell manufacturers has – have approached us with an interest to

license our BMS for their sales in China. Should we be able to structure such an agreement, it'd be very beneficial to our overall (blended) margins.

From a cash management standpoint, we reduced our burn rate by more than 50 percent last June,

to support our strategic product transition. We have a philosophy of strict cost controls, balanced with focused spending to enable execution of key priorities that offer the best opportunity for the ramping of revenue.

As for financing, of course a major majority – I'm sorry; a major priority has been to put in place

sufficient financing to fund our restart and growth. Candidly, Flux was in pretty tough financial shape as we embarked on our business restart last year. However, we have had strong support from our largest shareholder, which reflects his growing confidence in our new direction and progress.

We still have work to do in this regard, but are confident in the financing strategy we are

implementing. Regulations prevent us from providing further details on our efforts, but clearly the Flux story is far more attractive today than it was 6 or 12 months ago, and we have much in the works that should continue to improve our outlook.

Flux Power Holdings, Inc. (OTCQB: FLUX) Page 5 Q2 ’14 Conference Call Transcript February 18, 2014 As for our fiscal 2014 Q2 results, our recent product launches are not yet at a stage to

meaningfully benefit revenue, yet our year-ago Q2 revenue comparison reflected noncash deferred revenue recognition from prior electric vehicle installment sales. And our Q2 net loss reflects over $400,000 in noncash amortization, the fair value of derivative liabilities from warrants issued in 2012.

Those warrants have an anti-dilution feature, which may require re-pricing, depending on the

stock price and issue price of future issuances. Importantly, during Q2, we were able to restructure our debt, held entirely by our largest shareholder, increasing it by $500,000 in size, extending its maturity to December 31st, 2015, enabling it to be classified as long term and reducing its interest rate to 6 percent from 8 percent; all a real sign of support for the company.

So with that review, let's open the call to your questions. Please limit yourself to two questions so

we can get to as many callers as possible and feel free to queue up for follow-ups as long as time allows.

Operator: Your first question comes from the line of Jim Fuller with Baytree Capital. Your line is open.

Jim Fuller: Yes, Ron, how – tell us about your staffing. Are you – are you adequately staffed to move

forward and grow the company?

Ron Dutt: Jim thanks for the question; yes. We – as I mentioned, we had to dramatically cut our staff last June. We cut it to what we thought was core capabilities to do what we needed to do. With our current line of financing, we are – we have lined up some added resources to add as we bring on orders.

That means particularly right now, we need to strengthen our sales and marketing effort and we

can add production workers as orders come in. So I think we're – I think we're nimble enough to bring on those resources as the business comes on.

Operator: We do have a follow-up question from the line of Jim Fuller. Your line is open.

Jim Fuller: Yes, Ron, where are you on the financing? I had to leave for a second; you may have covered it.

Ron Dutt: Regarding the financing, we're kind of midway through the placement. As I mentioned, the

regulators prevent us from really discussing that in detail, as it's a private placement and we're a public company, so I will say it's going well and we look forward to completing that round and providing the working capital we need to grow – to grow the business, for inventory and also for increasing our sales and marketing effort as we build out our distribution network.

Operator: Again, if you would like to ask a question, press star then the number one on your telephone

keypad. There are no further questions at this time. I turn the call back over to the presenters.

Ron Dutt: I thought I might mention a couple questions that we tend to get and provide some information. One is just giving you an update on some of the press releases that we have put out with several of our key customer initiatives.

Flux Power Holdings, Inc. (OTCQB: FLUX) Page 6 Q2 ’14 Conference Call Transcript February 18, 2014 Our project with Penguin, the maker of robotic mining equipment, is progressing well. We're on

track with their timeline in April and May and they're interested in working with us on other vehicles.

HDT, as we mentioned in one of our press releases, which provides portable power with the

military, does carry a longer timeline and it's actually difficult to project the timing. Wesley International, a maker of tug and tow equipment, is very enthusiastic with our product and

has taken it to one of – one of their customers in their dealer network and our prototype with them is going well and they're anxious to expand.

Raymond is part of the same Toyota ownership group as its sister company, Toyota Materiel

Handling North America Group; however the two are separate brands and compete accordingly. So we are progressing with both of those organizations (with) – and establishing key contacts with their sales and marketing people and really look forward to communicating to that entire dealer network.

One other item I might – I might mention that you know I seem to get quite a few questions on,

everyone is curious as to, well, what's our guidance for revenue or revenue forecast. Well forecasting orders at this point is very difficult, given that we are early in our market entry and do not yet have sufficient experience to accurately gauge where we are in the sales cycle.

We will get increasingly better at forecasting over the next (few) quarters, but to provide a

window on the opportunity, we estimate that the market for Class 3 walkies is as much as 600 million total opportunity to sell packs with new equipment and for battery replacement. While we do anticipate early orders to be smaller, as customers and dealers kick the tires on our solutions, once they have developed comfort there's the potential for significant sales.

To further scale, walkie users range from one to two unit businesses to global businesses that can

have 50 to one and upwards of several hundred units. Clearly, landing one of the mids to large size enterprise, both for their new units and replacement, which takes time, would drive rapid acceleration of our business and so that's where we're focusing our energies.

And we have begun to ship prototype packs for tug and tow equipment, which we believe

represents a similar size opportunity (to) Class 3. In Class 1, ride-on forklifts represent another broadly similar size market at much higher price points and margins.

Thank you, operator, and thanks to our shareholders and prospective investors on the call today.

We do appreciate your support and look forward to reporting to you on our company's future progress. And with that, we'll conclude today's call.

END