Flux Power Holdings, Inc. — Form 10-Q Summary
Business context and reporting period
Flux designs, manufactures and sells lithium-ion battery systems for lift trucks, airport ground-support equipment and other industrial applications. This unaudited report covers the quarter and six months ended December 31, 2019 (the second quarter and first half of fiscal 2020), compared with the corresponding 2018 periods.
Financial results and liquidity
| Metric | Three months ended Dec. 31, 2019 | Three months ended Dec. 31, 2018 | Six months ended Dec. 31, 2019 | Six months ended Dec. 31, 2018 |
|---|---|---|---|---|
| Revenue | $3.615 million | $2.711 million | $5.534 million | $4.547 million |
| Gross profit (margin) | $326,000 (9%) | $255,000 (9%) | $443,000 (8%) | $272,000 (6%) |
| Operating loss | $2.924 million | $2.231 million | $6.410 million | $4.358 million |
| Net loss | $3.307 million | $2.924 million | $7.121 million | $5.325 million |
| Loss per share, basic and diluted | $0.65 | $0.70 | $1.39 | $1.46 |
- Quarterly revenue increased 33%; first-half revenue increased 22%. Management attributed the growth to sales of Class 3 Walkie and newer L-series battery packs.
- First-half gross margin improved to 8% from 6%; quarterly margin remained 9%. Management cited lower inventory costs, improved workforce efficiency and lower warranty expense per pack.
- Operating expenses rose to $3.250 million for the quarter and $6.853 million for the half-year, driven by selling and administrative costs and research and development. First-half selling and administrative expense increased 45% and R&D increased 54% year over year.
- Cash was $136,000 at December 31, 2019, versus $102,000 at June 30, 2019. Current assets were $8.230 million and current liabilities were $18.160 million, a working-capital deficit of approximately $9.930 million. Total liabilities were $20.691 million; stockholders’ deficit was $9.360 million.
- For the six months, operating cash use was $3.987 million (versus $5.256 million in 2018), investing cash use was $122,000, and financing provided $4.143 million. Ending cash increased by $34,000. Management’s MD&A reports financing cash of $4.155 million, which differs from the cash-flow statement.
- At period-end, related-party credit-facility borrowings were $10.691 million, a related-party short-term loan was $1.074 million, and amounts due under the receivables factoring arrangement were $1.655 million. The credit facility carried 15% annual interest, was secured, and had a June 30, 2020 maturity after amendment; the short-term loan matured March 31, 2020. The factoring facility has fees and collateral requirements described in the filing.
Material changes, outlook and risks
- Management stated that revenue and operating cash flows have not been sufficient to sustain operations and disclosed substantial doubt about the company’s ability to continue as a going concern for the twelve months following the filing date. Additional capital is needed; its availability and terms are not assured. Management warned that a funding shortfall could require cuts to sales, marketing, product development and capital spending.
- The related-party credit facility’s maximum was increased to $12 million, accrued interest was added to principal, and maturity was extended to June 30, 2020. Lenders received conversion rights following a qualifying financing. A separate $1.074 million Cleveland loan also had its maturity extended.
- Subsequent to quarter-end, the company borrowed another $700,000 under the credit facility; remaining availability was reported as $609,000. This does not resolve the filing’s stated need for additional capital.
- Management reported commercial launch in December 2019 of products for Class 2 Narrow Aisle and Class 3 End Rider forklifts, and expected UL listings and equipment-manufacturer approvals across major product lines over the following months. It expects gross margin to improve with higher volumes, productivity gains and cost reductions, but provided no formal quantitative guidance.
- The filing cited a $300,000 airport GSE battery order and an approximately $800,000 order for stationary storage used with EV charging stations. Further airline orders were expected, but were not assured.
- Customer concentration remained significant: two customers represented 78% of quarterly revenue and three represented 74% of first-half revenue. A limited supplier base also creates sourcing exposure. Other stated risks include competition, technology and product-development execution, access to skilled labor and materials, and financing needs.
- A new seven-year-and-four-month facility lease began in 2019; the reported lease liability was $2.692 million at December 31. The company effected a 1-for-10 reverse stock split in July 2019; share and per-share data were retrospectively adjusted.
- Management reported effective disclosure controls and no material legal proceedings known to it. No off-balance-sheet arrangements were reported.
Key facts for investors to verify
- Whether the company obtained sufficient financing after the filing and can meet near-term loan and credit-facility maturities.
- Actual post-quarter borrowing, remaining facility availability, lender conversion terms and any resulting shareholder dilution.
- Whether reported orders convert to revenue and cash collections, and whether customer concentration changes.
- Progress on UL listings and manufacturer approvals, and whether margin improvement materializes despite continued high operating expenses.
- The cash-flow statement’s $4.143 million financing inflow versus the $4.155 million amount in MD&A.