Flux Power Holdings, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2021, compared with fiscal 2020. The request metadata refers to “2020 Q4,” but this filing is an annual report for fiscal 2021, not a quarterly filing.
Business context
Flux designs, develops, assembles and sells lithium-ion battery packs and related battery-management technology, primarily for forklifts and other material-handling equipment, airport ground support equipment and selected industrial and commercial uses. Products are sold mainly in North America through OEMs, dealers, distributors and direct sales. The company uses battery cells sourced from a limited number of suppliers in China and assembles products in Vista, California.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $26.257 million | $16.842 million |
| Gross profit / margin | $5.790 million / 22% | $2.186 million / 13% |
| Operating expenses | $19.268 million | $14.734 million |
| Operating loss | $(13.478) million | $(12.548) million |
| Net loss | $(12.793) million | $(14.336) million |
| Adjusted EBITDA loss | $(11.100) million | $(10.604) million |
| Cash used in operating activities | $(18.358) million | $(8.344) million |
Revenue increased 56%, attributed to higher unit sales, a higher average selling price and a mix shift toward larger, higher-priced packs. Gross margin improved as management cited simplified designs, lower material costs, reduced warranty expense and lower personnel-related costs. Selling and administrative expense rose 29% to $12.599 million; research and development expense increased 34% to $6.669 million, including costs for product development and UL certification. Despite the lower GAAP net loss, adjusted EBITDA loss widened year over year.
At June 30, 2021, cash was $4.713 million, accounts receivable $6.097 million, inventory $10.513 million, current assets $21.740 million and current liabilities $10.390 million. Total assets were $26.262 million; total liabilities were $13.256 million. Stockholders’ equity was $13.006 million, compared with a deficit of $6.420 million a year earlier. The related-party credit facility debt was eliminated by year-end through repayments and conversion to equity. The $4 million Silicon Valley Bank revolving facility had no balance outstanding at year-end and was available for draws, subject to its terms and renewal or extension beyond November 8, 2021. The company reported no off-balance-sheet arrangements.
Changes, financing and unusual items
- Operating cash outflow more than doubled, primarily reflecting working-capital investment, including increases in receivables and inventory. Investing cash outflow was $1.102 million; financing provided $23.447 million.
- FY2021 financing included equity proceeds from public and private offerings and the ATM program. At June 30, approximately $7.3 million remained available under the $20 million ATM authorization.
- During fiscal 2021, lenders converted approximately $2.632 million of remaining credit-facility principal and accrued interest into 658,103 shares; the broader related-party facility was terminated in June after obligations were paid or discharged. Debt conversion and equity issuance increased shares outstanding and diluted existing holders.
- The company recognized $1.307 million of other income after the SBA forgave the PPP loan and accrued interest in February 2021. Interest expense fell 65% to $622,000, largely due to lower average debt.
- After year-end, a registered direct offering closed September 27, 2021: 2,142,860 shares and warrants for up to 1,071,430 shares were sold for approximately $15 million gross, or approximately $14 million net. Warrants have a $7 exercise price and a five-year term, subject to stated conditions.
Outlook, risks and management commentary
Management’s strategy is to expand products, sales, customer support and production capacity, while investing in research and development and pursuing large forklift and GSE fleets. It described lithium-ion adoption as a growth opportunity and cited plans for technology development, including battery-life optimization, battery-health reporting and predictive cell balancing. The filing provides no quantified revenue, earnings or margin guidance.
Management stated that cash, the SVB facility, September 2021 offering proceeds and potential ATM sales should fund planned operations for the next twelve months, while also noting that additional capital may be needed to support growth. This assessment should be considered alongside the continuing losses, $18.358 million operating cash outflow and accumulated deficit of $66.205 million at year-end.
- Customer concentration is substantial: three customers represented 61% of FY2021 revenue, and the company has no long-term customer contracts.
- Battery cells depend on a limited number of Chinese suppliers; the filing reports no qualified alternative cell sources. Supply interruptions, transportation constraints, tariffs, component prices and recertification requirements could affect deliveries and margins.
- COVID-19-related demand, manufacturing, workforce and supply-chain disruptions remain risks. The company also identifies product safety, quality, warranty and liability exposure; warranty liability was $895,000 at year-end.
- Competition, product development and UL/OEM approval requirements, dependence on key personnel, cybersecurity, environmental and workplace regulation, and reliance on a single California production facility are additional disclosed risks.
- The company reported that management considered disclosure controls and internal control over financial reporting effective at June 30, 2021. The auditor gave an unqualified opinion on the financial statements and reported no critical audit matters; it did not opine on internal-control effectiveness.
Important facts for investors to verify
- Whether the September offering proceeds and remaining ATM capacity, together with available credit, provide adequate liquidity given the operating cash burn and planned expansion.
- Whether revenue growth and margin improvement can continue without worsening adjusted EBITDA losses or requiring further dilutive financing.
- The durability of demand from the three major customers and the terms and renewal prospects of customer relationships that are not protected by long-term contracts.
- Availability and cost of battery cells, supplier alternatives, tariff exposure, and any effects on production, certifications or gross margins.
- The status and terms of the SVB facility after its stated November 8, 2021 availability period, and the company’s debt and working-capital position after year-end.
- The financial statements are introduced as audited, but the cash-flow statement heading in the supplied filing text says “Unaudited”; verify the filed version and relevant audit presentation.