Flux Power Holdings, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2018, the company’s fiscal first quarter of 2019 (Q1 2019); comparisons are with the three months ended September 30, 2017. Flux designs, develops, and sells lithium-ion battery systems for industrial equipment, including forklifts and airport ground-support equipment.
Key financial results
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $1.835 million | $153,000 |
| Gross profit (loss) | $18,000; 1% margin | ($161,000); (105%) margin |
| Operating expenses | $2.145 million | $1.149 million |
| Operating loss | ($2.127 million) | ($1.310 million) |
| Interest expense | $274,000 | $136,000 |
| Net loss | ($2.401 million); $0.08 per share | ($1.446 million); $0.06 per share |
| Cash used in operating activities | $2.158 million | $1.549 million |
- Revenue grew 1,099%, driven by increased orders for LiFT forklift batteries and airport GSE batteries. Cost of sales rose 479% with higher sales volume.
- Management cited product and production improvements, lower inventory costs, better workforce efficiency, and lower warranty expense per pack as factors improving gross margin; it expects further improvement as volume and productivity rise and costs decline.
- Selling and administrative expense increased 121% to $1.483 million, mainly from added staff, stock-based compensation, and professional fees. Research and development expense rose 38% to $662,000 as the company continued product development, including packs for Class 1 and Class 2 forklifts.
- Net loss increased 66%, primarily reflecting higher operating expenses and interest expense. The filing reports no formal revenue or earnings guidance.
Financial position and liquidity
- At September 30, 2018, cash was $504,000, down from $2.706 million at June 30. Current assets were $3.701 million; current liabilities were $13.269 million. Total liabilities were $13.367 million, and stockholders’ deficit was $9.520 million.
- Operating cash outflow was $2.158 million; investing outflow was $44,000, primarily for leasehold improvements and warehouse equipment. There were no financing cash flows during the quarter.
- Related-party debt included a $7.975 million unrestricted line of credit and a $2.405 million inventory line of credit; the latter accrued interest at 15% and had $2.595 million of remaining availability, subject to lender approval. The company also reported a $500,000 related-party convertible note. Accrued interest on the balance sheet was $1.288 million.
- Management stated existing resources were insufficient for the next 12 months and estimated approximately $7.8 million in financing proceeds would be needed to fund current and planned operations during that period. The filing states substantial doubt exists about the company’s ability to continue as a going concern.
Material developments, outlook, and risks
- After quarter-end, Esenjay agreed to convert $7.975 million of principal and $1.041 million of accrued interest into 15,027,134 common shares; the company also agreed to issue 268,018 additional shares as an inducement. The shareholder convertible note converted into the right to receive 502,091 shares. These transactions materially changed the capital structure and reduced those obligations.
- After quarter-end, the company entered into short-term credit facilities of up to $2 million with Cleveland Capital and up to $500,000 with a private investor. Both carry 12% interest and are due December 31, 2018; the filing does not establish how much was drawn.
- Management expects to continue seeking equity and debt financing. If it cannot raise funds on acceptable terms, it may have to curtail sales, marketing, product development, and capital spending, potentially harming operations and its ability to continue as a going concern. New financing may dilute shareholders or include restrictive covenants.
- Customer concentration was significant: three customers represented approximately 89% of quarterly revenue. Two suppliers accounted for approximately 56% of inventory purchases. Management also identified funding access, growth execution, competition, technology changes, supply availability, and key-person retention as risks.
- The company reported no material legal proceedings as of September 30, 2018, no off-balance-sheet arrangements, and effective disclosure controls and procedures.
Important facts for investors to verify
- Whether the company obtained the estimated $7.8 million of financing and how much of the post-quarter credit facilities was drawn.
- The terms, completion, and share-count effects of the debt conversions; the filing reports 46,932,368 common shares outstanding as of November 13, 2018.
- Whether higher sales translate into sustained gross-margin improvement and reduced operating cash burn.
- Customer and supplier concentration, inventory levels, and the company’s ability to fund operations through the next 12 months.