Business context and reporting period
Flux Power Holdings, Inc. designs, manufactures and sells lithium-ion energy storage systems, primarily for material handling and airport ground-support equipment, with additional stationary-storage applications. This Form 10-Q covers the fiscal quarter and six months ended December 31, 2021; comparisons are with the corresponding 2020 periods.
Financial performance and position
| Metric | Three months ended Dec. 31, 2021 | Three months ended Dec. 31, 2020 | Six months ended Dec. 31, 2021 | Six months ended Dec. 31, 2020 |
|---|---|---|---|---|
| Revenue | $7.69 million | $6.47 million | $13.96 million | $10.97 million |
| Gross profit / margin | $1.04 million / 14% | $1.49 million / 23% | $2.38 million / 17% | $2.36 million / 22% |
| Operating loss | $(5.05) million | $(3.24) million | $(9.17) million | $(6.79) million |
| Net loss | $(5.08) million | $(3.36) million | $(9.21) million | $(7.35) million |
| Loss per share, basic and diluted | $(0.32) | $(0.29) | $(0.62) | $(0.69) |
- Quarterly revenue increased 19%; six-month revenue increased 27%, reflecting higher selling prices, greater unit volumes, and sales to new and existing customers.
- Cost of sales rose faster than revenue: 33% in the quarter and 35% for six months. Management attributed margin pressure to higher steel, electronics, other component and shipping costs amid supply-chain disruption.
- Operating expenses increased 29% for the quarter and 26% for six months, including higher personnel, shipping, insurance, R&D and UL-certification costs. Six-month interest expense fell to $34,000 from $554,000, partly because the prior-year period included debt-discount amortization.
- At December 31, cash was $7.86 million; current assets were $33.49 million and current liabilities $15.58 million. Inventory was $19.58 million, up from $10.51 million at June 30, 2021.
- The company had $3.50 million drawn on its $6.0 million senior secured revolving credit facility, leaving $2.50 million available. The facility matures November 7, 2022; interest is floating-rate. Total liabilities were $18.21 million, including $3.09 million in lease liabilities.
- For the six months, operating cash use was $15.40 million, investing cash use $0.53 million, and financing cash inflow $19.07 million; cash increased $3.14 million. Operating cash use included a $9.24 million increase in inventory.
Material changes, outlook and risks
- Backlog rose to $31.42 million at December 31, 2021, from $12.62 million at June 30; new orders in the December quarter were $19.82 million and shipments were $7.84 million. Backlog was approximately $34.8 million as of February 7, 2022. The filing cautions that orders can be cancelled or changed and backlog depends on component availability and timely production and shipment.
- Management cited ongoing COVID-19-related supply delays, including port congestion, higher material and freight costs, and component shortages. It reported no manufacturing shutdowns but said disruption and cost increases could continue; no near-term abatement was anticipated.
- Actions include price increases on certain new orders, product redesigns and cost savings, expanding supply and production capacity, transitioning product lines to new cell technology, and growing customer relationships. Management cautioned that these initiatives may not succeed. The company also reported three pending patents related to battery life, battery-health information and predictive cell balancing.
- Going concern: The filing states that recurring losses, accumulated deficit of $75.41 million, cash demands and supply-chain-related fulfillment delays raise substantial doubt about the company’s ability to continue as a going concern for the twelve months following filing. Management said cash and remaining credit availability were expected to support planned operations, but also said additional financing may be needed in the near future and funding is not assured. Failure to obtain funds could require cuts to sales, marketing or product development; equity or convertible financing could dilute shareholders.
- The company raised net proceeds of approximately $13.97 million in a September 2021 registered direct offering and $1.60 million through its ATM program during the six-month period. The direct offering included warrants to purchase 1,071,430 shares at $7.00 per share.
- Customer concentration remained significant: three customers represented 55% of six-month revenue. Two suppliers represented 26% of six-month purchases. The filing reported no material pending legal proceedings and stated that disclosure controls were effective.
- No formal numerical revenue or earnings guidance is provided.
Key facts investors should verify
- Whether supply-chain constraints, component costs and shipping delays are easing, and whether price increases are sufficient to restore gross margins.
- Whether the company can convert its reported backlog into shipments and cash collections, including the status and terms of orders that may change or be cancelled.
- Cash burn, working-capital needs—especially inventory—and availability and borrowing conditions under the credit facility as its 2022 maturity approaches.
- Management’s going-concern assessment and any subsequent financing, including potential dilution and warrant-related share issuance.
- Customer and supplier concentration, and progress on production capacity, product redesigns, certifications and cost-saving initiatives.