Flux Power Holdings, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended June 30, 2022, compared with the year ended June 30, 2021. The request metadata says “2021 Q4,” but this filing reports FY2022, not a standalone quarter.
Business context
Flux designs, manufactures and sells lithium-ion energy storage systems for material handling, airport ground support equipment, stationary storage and other industrial uses. It assembles products in Vista, California, using battery cells sourced from a limited number of manufacturers in China. Revenue is concentrated among a small number of customers and sales channels.
Key financial results
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $42.333 million | $26.257 million |
| Gross profit / margin | $7.299 million / 17% | $5.790 million / 22% |
| Operating loss | $(15.357) million | $(13.478) million |
| Net loss | $(15.609) million | $(12.793) million |
| Adjusted EBITDA loss (non-GAAP) | $(14.071) million | $(11.100) million |
| Cash used in operating activities | $(23.893) million | $(18.358) million |
Revenue grew 61%, attributed to higher unit volumes, higher average selling prices and sales to existing and new customers. Cost of sales rose 71%, faster than revenue, reflecting higher sales and increased component, steel and shipping costs; gross margin fell five percentage points. Operating expenses increased 18% to $22.656 million. Net loss widened 22%; FY2021 included $1.307 million of PPP loan forgiveness recorded as other income, while FY2022 had no other income.
Cash was $0.485 million at June 30, 2022, down from $4.713 million a year earlier. Total assets were $30.881 million; current assets were $26.617 million and current liabilities $14.586 million. Inventory rose to $16.262 million from $10.513 million, including $12.989 million of raw materials. Stockholders’ equity was $13.934 million and accumulated deficit was $81.814 million.
At year-end, $4.889 million was drawn on the $8 million Silicon Valley Bank (SVB) revolving facility, with approximately $3.111 million available. The facility is secured by substantially all company assets, bears interest at the greater of prime plus 3.5% or 7.5%, and was due to mature November 7, 2022 unless extended. A subordinated credit line had $4 million committed and no outstanding balance at June 30; advances bear 15% interest. Operating cash burn was partly funded by $20.462 million of net financing cash flow, including equity proceeds and SVB borrowings.
Material changes and business developments
- New orders totaled approximately $65 million in FY2022. Backlog was $35.020 million at June 30, 2022, after $15.195 million of shipments in the quarter; it was approximately $29.4 million as of September 12, 2022. The company cautions that orders may be cancelled or changed and that backlog depends on timely component supply and fulfillment.
- Inventory increased substantially as a supply-chain mitigation measure. The company reported delays, higher steel and electrical-component costs, and increased shipping expense. Price increases on certain new orders took effect in October 2021 and April 2022.
- Flux introduced the L36 forklift pack, C48 pack for automated vehicles and other industrial uses, and higher-capacity S24-210Ah pack during FY2022.
- In September 2021, Flux raised approximately $15 million gross in a registered direct offering of shares and warrants. It also sold approximately $1.7 million gross through its ATM program during FY2022; approximately $5.7 million remained available under the program at year-end. These financings increased share count and potential dilution.
Outlook, risks and unusual items
Management’s stated near-term priority is achieving cash-flow breakeven. Initiatives include reducing bill-of-material and shipping costs, sourcing alternative suppliers, product redesign, lean manufacturing and pricing recovery. Management expected existing cash, available credit and forecast margin improvements to fund planned operations for the next 12 months; this depends on revenue growth, backlog conversion, financing availability and successful cost actions. The filing provides no numerical revenue or earnings guidance.
The auditor identified the going-concern assessment as a critical audit matter, citing $23.9 million of operating cash outflow and an $81.8 million accumulated deficit. Management concluded its plans and available financing alleviated substantial doubt for the following 12 months. The auditor issued an unqualified opinion on the financial statements, but did not opine on internal-control effectiveness. Management reported internal controls over financial reporting were ineffective due to material weaknesses in oversight and review of data used to calculate the warranty reserve; remediation was underway.
Principal risks include continued losses and cash needs; dependence on a few customers (four customers represented 69% of FY2022 revenue) and a concentrated supplier base (one supplier represented 28% of purchases); reliance on Chinese battery-cell suppliers without qualified alternative sources; supply delays, inflation and tariffs; customer cancellations and backlog conversion; product safety, warranty and liability exposure; and financing restrictions, covenant compliance and potential shareholder dilution. The company reported no material pending legal proceedings.
Important facts for investors to verify
- Whether the SVB facility was renewed or replaced, and whether the company met its borrowing covenants and liquidity requirements.
- Subsequent cash balances, operating cash burn and any additional equity or debt financing after June 30, 2022.
- Backlog conversion, cancellations, delivery timing and the profitability of orders, particularly given component constraints.
- Whether gross margin improved and cash-flow-breakeven initiatives produced measurable results.
- Customer and supplier concentration, alternative cell-supplier qualification, and progress remediating the warranty-reserve control weakness.
- Potential dilution from outstanding warrants, equity plans and remaining ATM capacity.