Flux Power Holdings, Inc. — Form 10-Q Summary
Reporting period: The filing covers the three and nine months ended March 31, 2020, with comparative periods ended March 31, 2019. This is fiscal 2020 Q3; the request metadata’s “2019 Q3” does not match the filing. Financial statements are unaudited. Flux designs, manufactures and sells lithium-ion battery systems for forklifts, airport ground support equipment and other industrial uses.
Financial performance
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | 2020: $5.051 million; 2019: $1.751 million | 2020: $10.585 million; 2019: $6.297 million |
| Gross profit / margin | 2020: $649,000 / 13%; 2019: $61,000 / 3% | 2020: $1.124 million / 11%; 2019: $329,000 / 5% |
| Operating expenses | 2020: $4.111 million; 2019: $3.785 million | 2020: $10.996 million; 2019: $8.410 million |
| Operating loss | 2020: $3.462 million; 2019: $3.724 million | 2020: $9.872 million; 2019: $8.081 million |
| Interest expense | 2020: $503,000; 2019: $90,000 | 2020: $1.214 million; 2019: $1.058 million |
| Net loss | 2020: $3.965 million; 2019: $3.814 million | 2020: $11.086 million; 2019: $9.139 million |
Quarterly revenue rose 188%; nine-month revenue rose 68%, mainly from increased battery-pack sales across product lines. Gross margin improved, which management attributed to lower material costs, simplified designs and reduced warranty expense. Operating expenses increased, including from hiring, facility costs, product development and, for the nine-month period, UL-listing work. Net losses widened despite improved gross profit.
Balance sheet, cash flow and liquidity
- At March 31, 2020, cash was $106,000, current assets were $8.697 million and current liabilities were $22.171 million. Total liabilities were $24.526 million; stockholders’ deficit was $12.760 million. The company reported an accumulated deficit of $50.162 million.
- Debt included $11.591 million outstanding under a related-party line of credit, plus $1.865 million in related-party short-term loans. The line’s stated maximum was $12 million and maturity was June 30, 2020. The Cleveland loan maturity was later extended to May 31, 2020. A factoring balance of $399,000 was also reported.
- For the nine months, operating cash use was $5.744 million, investing cash use was $145,000, and financing provided $5.893 million. Cash increased by $4,000 from $102,000 at June 30, 2019.
- Management stated existing resources were insufficient to fund planned operations for the 12 months following the May 12, 2020 filing date. The filing says these conditions raise substantial doubt about the company’s ability to continue as a going concern and that additional capital is needed.
Changes, outlook and risks
- Management expects gross-margin improvement from design optimization, vendor pricing, lower-cost battery-management electronics, product redesign and labor-cost reductions. It expects R&D to remain a significant expense. The filing provides no quantified earnings or revenue guidance.
- The company was shipping newer, larger battery products for Class 1, Class 2 and Class 3 forklift applications and expected to finalize UL listings for additional product lines during calendar 2020. A solar/EV-charging customer order was approximately $800,000, of which $240,000 had been delivered by March 31, 2020.
- COVID-19 created uncertainty around demand, manufacturing, staffing, supply chains and access to financing. An airline customer reduced a January 2020 GSE battery order from $4.68 million to approximately $2.7 million and requested monthly deliveries through November 2020. Two customers accounted for 67% of quarterly revenue; three accounted for 76% of nine-month revenue.
- Subsequent events: Flux received $265,000 from a private stock sale on April 22, 2020. It received a $1.297 million Paycheck Protection Program loan in May, at 1% interest, with potential forgiveness subject to program conditions; forgiveness was not assured. Management warned that equity or convertible-debt financing could dilute shareholders and that unavailable financing could force spending reductions.
- The company expanded its facility lease, with the additional space available from April 1, 2020. The filing reported no material pending legal proceedings and no off-balance-sheet arrangements. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether Flux obtained sufficient financing after the filing, and the status and repayment or conversion terms of its related-party debt and other near-term obligations.
- Whether the going-concern uncertainty was resolved and whether the PPP loan qualified for full or partial forgiveness.
- Whether the reduced airline order and other customer demand translated into shipments, revenue and cash collections, particularly given customer concentration and COVID-19 risks.
- Whether gross-margin improvements and additional UL listings were achieved, and whether operating cash use declined without relying on debt, customer deposits or other working-capital inflows.
- Potential dilution from subsequent equity sales, debt conversions, stock options and future capital raising.