Flux Power Holdings, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2020, with fiscal 2019 comparative figures. The request metadata says “2019 Q4,” but the filing is an annual report for FY2020, not a quarterly filing.
Business context
Flux designs, manufactures and sells lithium-ion battery packs and battery management systems for lift trucks and other industrial uses, including airport ground-support equipment and solar-related applications. It sells principally through OEMs, dealers and battery distributors. The company reported 103 employees at June 30, 2020 and operated from its Vista, California facility.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $16.842 million | $9.317 million |
| Gross profit / margin | $2.186 million / 13% | $0.549 million / 6% |
| Operating expenses | $14.734 million | $11.800 million |
| Operating loss | $12.548 million | $11.251 million |
| Net loss | $14.336 million | $12.414 million |
| Net cash used in operations | $8.344 million | $10.712 million |
| Cash at year-end | $0.726 million | $0.102 million |
Revenue increased 81%, primarily from sales of larger packs to existing customers, narrow-aisle forklift packs and adjacent applications. Cost of sales rose 67%, but fell from 94% to 87% of revenue; management attributed the margin improvement to product design and material-cost reductions, volume discounts and product mix. R&D expense increased 22% to $4.973 million, and selling and administrative expense increased 27% to $9.761 million. Interest expense was $1.788 million.
At June 30, 2020, current assets were $9.838 million and current liabilities were $15.797 million, a negative working capital position of approximately $5.959 million. Total liabilities were $20.395 million, against total assets of $13.975 million, and stockholders’ deficit was $6.420 million. Cash used in investing was $0.323 million; financing provided $9.291 million. The company reported an accumulated deficit of $53.412 million.
Year-end debt included $5.290 million under a secured related-party line of credit bearing 15% interest, $2.057 million in short-term related-party loans, and a $1.297 million PPP loan bearing 1% interest. The filing says PPP loan forgiveness was not assured. The secured line had $6.710 million available for draws at year-end, subject to lender discretion.
Material changes and subsequent events
- Three customers represented approximately 60% of FY2020 revenue, compared with four customers representing 87% in FY2019. Two suppliers represented 35% of FY2020 purchases, versus three suppliers representing 62% in FY2019.
- On June 30, 2020, lenders converted approximately $7.383 million of line-of-credit principal and accrued interest into 1,845,830 shares at $4.00 per share. The company also raised cash in private placements.
- After year-end, Flux raised $3.2 million in a July 2020 private placement and approximately $12.4 million gross in an August 2020 public offering of 3,099,250 shares at $4.00 per share. Shares began trading on Nasdaq under FLUX on August 14, 2020.
- In August 2020, the company repaid Cleveland approximately $978,000, made a $1.0 million partial payment to certain line-of-credit lenders, and amended the $12 million credit facility to extend its maturity to September 30, 2021. At August 31, approximately $4.396 million of principal remained outstanding and approximately $7.604 million was available for future draws. The outstanding balance was convertible at the holder’s option at $4.00 per share.
- The company adopted lease accounting in FY2020 and recorded approximately $2.7 million of right-of-use assets and lease liabilities at adoption. At year-end, office lease liabilities totaled $3.589 million.
Outlook, risks and unusual items
Management said year-end cash, credit facilities and proceeds from subsequent financings were expected to fund planned operations for at least 12 months after the filing date. It also said further capital could be needed to support growth and planned to seek a bank revolving line of credit. Management expects R&D to remain a significant expense and anticipates further gross-margin improvement from design optimization, vendor pricing, lower-cost components and labor-cost reductions. No quantified revenue or earnings guidance was provided.
- The company has a history of losses, negative working capital and substantial cash use. Its ability to draw on the secured facility depends on lender discretion; further financing could dilute shareholders or be unavailable on acceptable terms.
- COVID-19 could affect customer demand, sales cycles, manufacturing, staffing and supply chains. Airline customers requested delays or reductions to some orders; two employees tested positive in July 2020, without material manufacturing impact reported at that time.
- Revenue concentration, lack of long-term customer contracts, reliance on a limited number of Chinese battery-cell suppliers and potential tariffs create customer, supply and cost risks.
- Product safety, quality, warranty and liability risks remain relevant. Warranty liabilities increased to $726,000 from $361,000; the company recorded a $317,000 inventory reserve in FY2020.
- The company reported three issued patents? The filing states two issued patents and three trademark registrations; planned additional patent filings were not yet granted. UL testing/listing for certain product lines remained in progress.
- Approximately $4.396 million of line-of-credit principal outstanding at August 31, 2020 was convertible into about 1.099 million shares at $4.00, subject to ownership limits. Management beneficially owned 42.7% of shares as of September 25, 2020, including securities exercisable or convertible within 60 days; Michael Johnson’s reported beneficial ownership was 40.2%.
- The auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective at June 30, 2020; the auditor did not provide an internal-control attestation.
Most important facts for investors to verify
- Whether post-year-end equity proceeds and available credit are sufficient to fund operations, and the terms and actual availability of remaining credit-facility capacity.
- Current debt balances, interest costs, maturity dates and potential dilution from convertible debt, warrants and equity compensation.
- Whether gross-margin gains persist as sales scale, and whether operating expenses and cash burn decline relative to revenue.
- Customer retention and concentration, order trends—particularly in airport GSE—and effects of COVID-19 on demand and fulfillment.
- Battery-cell sourcing alternatives, tariff exposure, product certifications, warranty experience and inventory obsolescence.
- Whether PPP loan forgiveness was obtained; the filing provided no assurance of forgiveness.