Flux Power Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended March 31, 2018; filed May 14, 2018. Although the request labels the period “2017 Q3,” the filing covers fiscal 2018 Q3. Flux designs, develops and sells lithium-ion batteries for industrial equipment, including forklifts and airport ground-support equipment (GSE).
Financial performance and position
| Metric | Three months ended March 31, 2018 | Nine months ended March 31, 2018 | Comparable 2017 period |
|---|---|---|---|
| Revenue | $1.666 million | $3.020 million | $0.306 million; $0.781 million |
| Gross loss (margin) | $0.150 million (−9%) | $0.708 million (−23%) | $0.202 million (−66%); $0.603 million (−77%) |
| Operating loss | $1.542 million | $4.527 million | $1.111 million; $3.217 million |
| Net loss | $1.753 million | $5.039 million | $1.162 million; $3.377 million |
| Operating expenses | $1.392 million | $3.819 million | $0.909 million; $2.614 million |
Revenue increased 444% for the quarter and 287% for the nine-month period year over year. Gross margins improved substantially but remained negative. Management attributed the improvement to production efficiencies; ongoing costs included early-design and low-volume products, limited sourcing, and warranty expense. Selling and administrative costs and R&D rose as the company expanded sales staffing and product development.
For the nine months, operating cash outflow was $4.679 million, investing cash outflow $59,000, and financing cash inflow $4.745 million. Cash was $128,000 at March 31, 2018. The balance sheet reported current assets of $2.553 million and current liabilities of $11.894 million, including a $9.730 million related-party line of credit, a $500,000 related-party convertible note, and $774,000 accrued interest. Working capital deficit was $9.341 million; accumulated deficit was $24.736 million. Total liabilities were $12.000 million and stockholders’ deficit $9.344 million. The balance sheet comparison is to June 30, 2017, not March 31, 2017.
Changes, outlook and risks
- Quarterly revenue growth was driven by forklift customers and end users; two customers accounted for 92% of quarterly revenue and 85% of nine-month revenue. Two customers represented 91% of receivables at March 31.
- At March 31, the company reported approximately $1 million of sales orders for walkie pallet jack and GSE products combined. A 17-unit GSE order was expected to generate approximately $300,000 in revenue and ship in fiscal Q4. Class 1, Class 2 and Class 3 products remained in development, trials or evaluation; management anticipated additional Class 3 evaluation shipments beginning in May.
- Management said revenues in each of the prior two quarters exceeded fiscal 2017 revenue and expected a comparable fiscal fourth quarter. It anticipated further orders, production efficiencies and margin improvement, but provided no formal full-year revenue or earnings guidance.
- The filing states that recurring losses and inadequate operating cash flows raise substantial doubt about the company’s ability to continue as a going concern for the 12 months after filing. Management estimated approximately $5 million of financing was required for that period and said additional funding might be needed thereafter.
- Funding plans included equity and related-party credit facilities. A private placement terminated May 11 after raising $800,000 total ($200,000 by March 31). As of May 14, stated undrawn capacity was $2.025 million on the 8% unrestricted line and $3.245 million on the 15% inventory line. Both facilities are with a related party, secured by substantially all company assets, and advances are at the lender’s discretion. The unrestricted facility matures January 31, 2019; the inventory facility matures March 31, 2019.
- Other risks include supplier concentration (four suppliers represented 57% of nine-month inventory purchases), dependence on a small customer base, continued negative gross margins, and potential dilution or restrictive terms from future financing. No material legal proceedings were reported; management said disclosure controls were effective.
Investor verification priorities
- Confirm the financing position after May 14, including actual availability and terms of related-party credit draws and any subsequent capital raised.
- Track cash burn, working capital, and progress toward sustainable operating cash flow given the disclosed going-concern doubt.
- Verify conversion of reported orders and evaluations into shipments, revenue, collections, and positive gross margins; assess customer and supplier concentration.
- Reconcile the MD&A statement that approximately 90 LiFT Packs were sold in “Q3 2018” against the comparative-period context, which appears to indicate Q3 2017.
- Check the cash-flow discussion’s reference to nine-month net loss of $5.021 million against the financial statements, which report $5.039 million.