Business context and reporting period
Flux Power Holdings, Inc. designs, develops, manufactures, and sells lithium-ion battery systems for industrial equipment, including lift trucks, airport ground-support equipment, and stationary-power applications. This 10-Q covers the three months ended September 30, 2020—the company’s fiscal 2021 first quarter—and compares results with the three months ended September 30, 2019.
Financial performance and position
| Metric | Quarter ended Sep. 30, 2020 | Quarter ended Sep. 30, 2019 |
|---|---|---|
| Revenue | $4.499 million | $1.919 million |
| Gross profit / margin | $873,000 / 19% | $117,000 / 6% |
| Operating loss | $3.554 million | $3.486 million |
| Interest expense | $430,000 | $328,000 |
| Net loss | $3.984 million | $3.814 million |
| Basic and diluted loss per share | $0.42 | $0.75 |
| Cash used in operating activities | $5.670 million | $1.423 million |
At September 30, 2020, cash was $6.150 million, total current assets were $15.849 million, current liabilities were $11.219 million, and total liabilities were $15.713 million. Stockholders’ equity was $4.293 million, versus a $6.420 million deficit at June 30, 2020. The accumulated deficit was $57.396 million.
Related-party line-of-credit principal was $4.396 million at quarter-end, with $7.604 million available to draw; the facility’s maturity was extended to September 30, 2021. The company also had a $1.297 million Paycheck Protection Program loan outstanding and $3.542 million in office lease liabilities. It terminated its factoring arrangement effective August 30, 2020.
Changes versus the prior comparable period
- Revenue grew 134%, primarily from higher battery-pack sales across Class 1 and Class 2 lift equipment, airport GSE, and stationary-storage applications, including growth from existing and new customers.
- Cost of sales increased 101%, slower than revenue growth; gross margin rose to 19% from 6%. Management attributed improvement to design simplification, purchasing efficiencies, lower warranty costs, and reduced personnel costs.
- Operating expenses increased 23% to $4.427 million. Selling and administrative costs rose 29%, and research and development costs rose 12%.
- Net loss increased 4%, as higher operating and interest costs largely offset improved gross profit. Interest expense included approximately $174,000 of amortized debt discount associated with the Cleveland note, which was paid off during the quarter.
- Operating cash use increased to $5.670 million, reflecting the loss and working-capital outflows, including inventory growth, lower accounts payable, and reduced customer deposits. Financing activities provided $11.308 million, largely from equity proceeds, partly offset by debt repayments.
Outlook, risks, and notable items
Management said existing cash, available capacity under the related-party credit facility, and a new commercial-bank revolver were expected to fund planned operations for the next 12 months. It also said it intended to pursue additional capital. Further equity or convertible-debt financing could dilute shareholders or impose restrictive covenants. Research and development is expected to remain significant, though management expects it to decline as a percentage of revenue.
COVID-19 had reduced demand for airport GSE products amid lower air travel. Management reported no material supply impact as of the filing, but warned that China-related supplier disruptions could affect component availability and costs. The company depends on a limited supplier base; two suppliers represented 28% of purchases in the quarter. Three customers represented 66% of revenue. Battery cells account for roughly 30% to more than 50% of pack unit costs, depending on product size.
After quarter-end, holders converted approximately $2.161 million of credit-facility principal and interest into 540,347 shares. As of November 10, 2020, approximately $2.403 million remained outstanding and $9.597 million was available under that facility. On November 9, the company entered a separate senior secured SVB revolver of up to $4.0 million, maturing November 8, 2021, secured by substantially all company assets. The PPP loan’s potential forgiveness was not assured. Management reported no material pending legal proceedings and stated disclosure controls were effective.
Most important facts for investors to verify
- Whether margin improvement and revenue growth are sustainable, particularly given the continuing operating losses and cash burn.
- Customer concentration, supplier availability, and the effects of COVID-19 on airport GSE demand and the supply chain.
- Actual borrowing availability, maturity terms, collateral requirements, and costs under the related-party facility and SVB revolver.
- Whether the PPP loan is forgiven, and the company’s funding needs if operations consume cash faster than expected.
- The dilution impact of recent equity issuances, debt conversions, warrants, and newly adopted compensation awards.