Flux Power Holdings, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2013; compared with fiscal 2012. The request metadata says “2012 Q4,” but the filing is an annual report for FY2013, not a quarterly filing. Filed October 15, 2013.
Business context
Flux designs, develops and sells lithium-based energy storage systems and battery management systems (BMS), with products including battery modules, packs and chargers. It shifted its commercial focus from lengthy OEM development projects toward lift-equipment dealers and distributors, and secondarily non-OEM micro-grid applications. The company reported ten full-time employees at June 30, 2013.
Financial performance and position
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $772,000 | $5,930,000 |
| Gross profit | $16,000; 2% margin | $1,161,000; 20% margin |
| Operating expenses | $5,280,000 | $2,958,000 |
| Operating loss | $(5,264,000) | $(1,797,000) |
| Net income (loss) | $351,000 | $(2,385,000) |
| Net cash used in operations | $(3,371,000) | $(1,494,000) |
| Cash at year-end | $20,000 | $812,000 |
| Working capital | $(408,000) | Not clearly stated |
| Total assets | $1,976,000 | $4,966,000 |
| Total liabilities | $3,470,000 | $7,110,000 |
| Stockholders’ deficit | $(1,494,000) | $(2,144,000) |
- Revenue fell approximately 87%, and gross profit fell approximately 99%. Management attributed the sales decline mainly to major customers not reaching expected production levels. Fixed costs did not decline in line with revenue, sharply reducing gross margin.
- FY2013 net income was driven by a $5.731 million favorable change in the fair value of warrant derivative liabilities. Excluding this non-cash gain, management stated the company would have reported a net loss of approximately $5.380 million.
- Operating expenses included $1.719 million of amortization of prepaid advisory fees and $992,000 of research and development, up from $590,000 in FY2012. Selling and administrative expenses were $2.569 million, compared with $2.368 million.
- Financing activities provided $2.620 million, including $1.618 million of stockholder-note and line-of-credit borrowings and $978,000 of net proceeds from stock and warrant sales. Investing activities used $41,000.
- Stockholder debt totaled $2.468 million at June 30, 2013: $1.250 million current and $1.218 million long-term. The debt was secured by substantially all company assets. No credit-facility availability remained at year-end.
Material changes, outlook and risks
- One customer accounted for $480,000, or 62% of FY2013 revenue; this was recognition of previously deferred Wheego revenue after the right of return was waived. Four customers accounted for 81% of FY2012 revenue.
- The independent auditor included a going-concern explanatory paragraph, citing accumulated losses, limited working capital and the need for additional financing. The filing says existing cash resources were not sufficient for the next twelve months; management estimated approximately $2.5 million of financing was needed to fund planned operations through June 30, 2014, with further funding needed thereafter.
- After year-end, Flux borrowed an additional $403,000 under the Esenjay credit facility. As of September 30, 2013, it had not repaid the $1 million revolving note at maturity and was in default; the unpaid balance was subject to an 18% default rate, and the lender had secured-party rights. As of October 15, 2013, an extension and revised terms were under negotiation, not finalized.
- The company was pursuing equity financing and other funding structures. Proposed terms discussed with Esenjay included extending maturities through December 31, 2015 and potential debt conversion into common stock; formal approval and documentation were still pending. Additional equity could materially dilute shareholders.
- A June 2013 non-binding LOI proposed acquiring KleenSpeed Technologies for 11 million Flux shares, subject to customary conditions and a separate $800,000–$2.5 million private placement. The filing said no definitive agreement had been executed as of September 9, 2013.
- Other principal risks include customer and supplier concentration, dependence on limited battery-cell sources, competition from larger, better-funded companies, product safety and liability exposure, lengthy market adoption and product-development cycles, and dependence on additional capital. The filing also disclosed that federal and state income tax returns had not been filed through FY2013 and were being prepared.
- Management reported disclosure controls and internal control over financial reporting as effective at June 30, 2013; the auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Whether the proposed Esenjay debt extensions, reduced borrowing rates or conversion options were formally approved and completed, and the current status of the default and secured collateral.
- Whether Flux obtained the financing it said it needed, on what terms, and how much dilution or additional debt resulted.
- Whether the KleenSpeed LOI became a definitive acquisition, including final consideration, financing conditions and share issuance.
- Whether revenue recovered beyond the one-time $480,000 deferred-revenue recognition, and whether customer and supplier concentrations changed.
- The assumptions and valuation effects behind the $5.731 million warrant-liability gain, and the company’s operating cash burn and runway excluding non-cash accounting items.
- Whether overdue federal and state tax returns were filed and whether any net operating loss limitations or other tax obligations arose.