Flux Power Holdings, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2013 (fiscal third quarter). The filing describes Flux Power’s rechargeable advanced energy-storage systems and battery-management technology. Financial statements are unaudited.
Financial performance and position
| Metric | Three months ended March 31, 2013 | Nine months ended March 31, 2013 | Comparable 2012 period |
|---|---|---|---|
| Revenue | $108,000 | $700,000 | $594,000 and $3,009,000, respectively |
| Gross profit (loss); margin | ($20,000); (19%) | $69,000; 10% | $157,000; 26%, and $578,000; 19%, respectively |
| Operating loss | ($1,319,000) | ($3,987,000) | ($492,000) and ($1,093,000), respectively |
| Net loss | ($1,098,000) | ($231,000) | ($496,000) and ($1,139,000), respectively |
| Operating cash flow | Not presented as a quarterly figure | ($2,864,000) | ($941,000) for the nine-month period |
- Quarterly revenue fell 82% year over year; nine-month revenue fell 77%. Nine-month gross margin declined to 10% from 19%, while the quarter recorded a gross loss as lower volume reduced manufacturing efficiency and overhead absorption.
- Nine-month operating expenses were $4,056,000, including $1,275,000 of amortization of prepaid advisory fees. Research and development expense rose to $806,000 from $392,000; selling and administrative expense rose to $1,975,000 from $1,279,000.
- The nine-month net loss narrowed despite a substantially larger operating loss, principally because a $3,826,000 noncash gain from the change in fair value of warrant derivative liabilities was recorded. The warrant liability was $2,048,000 at March 31, 2013, down from $4,943,000 at June 30, 2012.
- At March 31, cash was $45,000, working capital was negative $1,894,000, total assets were $2,515,000, and total liabilities were $4,661,000. Stockholders’ deficit was $2,146,000. Accumulated deficit was $4,559,000.
- Stockholder notes payable totaled $1,985,000: $1,250,000 current and $735,000 long term. The notes bear 8% interest. The company reported $765,000 available under existing credit facilities at March 31; it subsequently drew another $263,000 under the stockholder line of credit.
- Nine-month financing cash flow was $2,138,000, including approximately $981,000 net proceeds from stock and warrant sales, $22,000 from option exercises, and $1,135,000 of stockholder-note and credit-line proceeds. Cash declined by $767,000 during the period.
Changes, outlook, and risks
- Management shifted emphasis away from lengthy, customized OEM programs toward lift equipment and micro-grid energy storage, including applications using batteries as alternatives to legacy lead-acid systems. It cited NACCO’s decision to pursue a larger supplier as an example of the challenges of OEM programs.
- Management said additional financing was needed by June 30, 2013 to support operations and plans. An effort to raise $3.0 million had not yet produced funding; the company was pursuing another advisor and other financing structures. No specific revenue or earnings guidance was provided.
- The filing states that substantial doubt exists about the company’s ability to continue as a going concern. Management said failure to obtain financing could require cuts to sales, marketing, product development, and capital spending. Financing could also dilute shareholders or include restrictive terms.
- Liquidity risk increased as operating cash use reached $2,864,000 for nine months while cash ended at $45,000. The May 2013 amendment to the stockholder credit line made additional borrowing conditional on lender-accepted evidence of repayment within 90 days; no advances under the amended terms had been made as of filing.
- Revenue was highly concentrated: four customers accounted for 82% of quarterly sales. For the nine-month period, the filing attributes 69% of revenue to Wheego, largely from recognition of approximately $478,000 of previously deferred revenue after the right of return was waived.
- Related-party matters include stockholder financing and a Baytree Capital advisory agreement. The company recorded substantial prepaid advisory-fee amortization; warrant valuations rely on Level 3 inputs and a Monte Carlo model.
- Management reported no material pending legal proceedings, no defaults upon senior securities, and effective disclosure controls as of period-end.
Important facts for investors to verify
- Whether the company obtained sufficient new capital after filing and whether the amended stockholder credit line remained available on usable terms.
- Actual cash burn, working-capital needs, and progress toward sustainable operating cash flow, excluding noncash warrant revaluation gains.
- Whether lift-equipment and micro-grid opportunities convert into recurring orders, given steep sales declines and customer concentration.
- The terms, valuation, and continuing expense impact of related-party advisory arrangements and derivative-classified warrants, including potential share dilution.
- The timing and collectability of customer billings and deferred-revenue recognition, particularly the completed Wheego sell-through transaction.