UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification Number) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company | ||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
The number of shares of registrant’s common stock outstanding as of May 8, 2023 was .
FLUX POWER HOLDINGS, INC.
FORM 10-Q
For the Quarterly Period Ended March 31, 2023
Table of Contents
| PART I - Financial Information | |||
| ITEM 1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) | 5 | |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 20 | |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 28 | |
| ITEM 4. | CONTROLS AND PROCEDURES | 28 | |
| PART II - Other Information | |||
| ITEM 1. | LEGAL PROCEEDINGS | 29 | |
| ITEM 1A. | RISK FACTORS | 29 | |
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 29 | |
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | 29 | |
| ITEM 4. | MINE SAFETY DISCLOSURES | 29 | |
| ITEM 5. | OTHER INFORMATION | 29 | |
| ITEM 6. | EXHIBITS | 29 | |
| SIGNATURES | 30 | ||
| Page 2 |
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This report contains forward-looking statements. The forward-looking statements are contained principally in the section captioned “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the factors described in the section captioned “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022 filed with the SEC on September 28, 2022. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would,” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. You should read these factors and the other cautionary statements made in this report and in the documents we incorporate by reference into this report as being applicable to all related forward-looking statements wherever they appear in this report or the documents we incorporate by reference into this report. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements.
Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements include, among other things, statements relating to:
| ● | to date we have not generated sufficient cash to fund our operations. At March 31, 2023, we had a cash balance of $790,000, $10.5 million outstanding under a revolving line of credit, and an accumulated deficit of $87.1 million. Our operating plan and forecast include a number of estimates and assumptions including our ability to execute our proposed plans, to generate revenue from our current backlog, to increase both revenue and gross profit, to implement cost reductions and to maintain access to cash funder our existing two credit facilities. If we are not successful in executing our plans as expected, our ability to continue as a going concern will be adversely affected; | |
| ● | our ability to secure sufficient funding to support our current and proposed operations, which could be more difficult considering the negative impact of the COVID-19 pandemic on our operations, customer demand and supply chain, difficult stock market conditions as well as investor sentiment regarding our industry and our stock; | |
| ● | our ability to manage our working capital requirements efficiently; | |
| ● | our ability to maintain our credit facilities and obtain the necessary funds as needed; | |
| ● | our ability to maintain effective internal controls, our ability to record, process and report financial information timely and accurately could be adversely affected and could result in a material misstatement in our financial statements, which could subject us to litigation or investigations, require management resources, increase our expenses, negatively affect investor confidence in our financial statements and adversely impact the trading price of our common stock. | |
| ● | our ability to grow our revenue, increase our gross profit margin and become a profitable business; | |
| ● | our ability to realize revenue from the current backlog is dependent on among other things, the delivery of key parts from our vendors in a timely manner. Backlog may not be indicative of future operating results, and existing orders may be cancelled, modified or otherwise altered by customers. We can provide no assurance as to the profitability of the contracts reflected in our backlog; | |
| ● | our ability to fulfill our backlog of open sales orders given delays in the receipt of key component parts and other potential manufacturing disruptions posed by the ongoing COVID-19 pandemic and general supply chain issues; | |
| ● | our ability to obtain raw materials and other supplies for our products at existing or competitive prices and on a timely basis, particularly considering the impact of COVID-19 pandemic and inflation on our suppliers and supply chain; | |
| ● | our anticipated growth strategies and our ability to manage the expansion of our business operations effectively; |
| Page 3 |
| ● | our ability to maintain or increase our market share in the competitive markets in which we do business; | |
| ● | our ability to keep up with rapidly changing technologies and evolving industry standards, including our ability to achieve technological advances; | |
| ● | our dependence on the growth in demand for our products; | |
| ● | our ability to compete with larger companies with far greater resources than we have; | |
| ● | our ability to shift to new suppliers and incorporate new components into our products in a manner that is not disruptive to our business; | |
| ● | our ability to obtain and maintain UL Listings and OEM approvals for our energy storage solutions; | |
| ● | our ability to diversify our product offerings and capture new market opportunities; | |
| ● | our ability to source our needs for skilled labor, machinery, parts, and raw materials economically; | |
| ● | our ability to attract and retain key members of our senior management; | |
| ● | our ability to continue to operate safely and effectively during the COVID-19 pandemic; and | |
| ● | our dependence on few major customers. |
Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference, and file as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
Use of Certain Defined Terms
Except where the context otherwise requires and for the purposes of this report only:
| ● | the “Company,” “Flux,” “we,” “us,” and “our” refer to the combined business of Flux Power Holdings, Inc., a Nevada corporation and its wholly owned subsidiary, Flux Power, Inc., a California corporation (“Flux Power”); | |
| ● | “Exchange Act” refers the Securities Exchange Act of 1934, as amended; | |
| ● | “SEC” refers to the Securities and Exchange Commission; and | |
| ● | “Securities Act” refers to the Securities Act of 1933, as amended. |
| Page 4 |
PART I - Financial Information
Item 1. Financial Statements
FLUX POWER HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2023 | June 30, 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventories, net | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Right of use assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Line of credit | ||||||||
| Deferred revenue | ||||||||
| Customer deposits | ||||||||
| Finance lease payable, current portion | ||||||||
| Office lease payable, current portion | ||||||||
| Accrued interest | ||||||||
| Total current liabilities | ||||||||
| Office lease payable, less current portion | ||||||||
| Finance lease payable, less current portion | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ par value; shares authorized; issued and outstanding | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding at March 31, 2023 and June 30, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| Page 5 |
FLUX POWER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| Page 6 |
FLUX POWER HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
| Common Stock | ||||||||||||||||||||
| Shares | Capital Stock Amount | Additional Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common stock – exercised options and RSU settlement | ||||||||||||||||||||
| Stock based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at September 30, 2022 | ( | ) | ||||||||||||||||||
| Issuance of common stock – exercised options and RSU settlement | ||||||||||||||||||||
| Stock based compensation | - | - | 209,000 | - | 209,000 | |||||||||||||||
| Net loss | - | - | - | (1,681,000 | ) | (1,681,000 | ) | |||||||||||||
| Balance at December 31, 2022 | ( | ) | ||||||||||||||||||
| Issuance of common stock – public offering, net of costs | ||||||||||||||||||||
| Stock based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common Stock | ||||||||||||||||||||
| Shares | Capital Stock Amount | Additional Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common stock and warrants – registered direct offering, net of costs | ||||||||||||||||||||
| Issuance of common stock – public offering, net of costs | ||||||||||||||||||||
| Issuance of common stock – exercised options | ||||||||||||||||||||
| Stock based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at September 30, 2021 | ( | ) | ||||||||||||||||||
| Additional offering costs related to the registered direct offering | - | ( | ) | ( | ) | |||||||||||||||
| Stock based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at December 31, 2021 | ( | ) | ||||||||||||||||||
| Issuance of common stock – RSU settlement | ||||||||||||||||||||
| Stock based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| Page 7 |
FLUX POWER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation | ||||||||
| Stock-based compensation | ||||||||
| Amortization of debt issuance costs | ||||||||
| Noncash lease expense | ||||||||
| Allowance for inventory reserve | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ( | ) | ||||||
| Accrued interest | ||||||||
| Office lease payable | ( | ) | ( | ) | ||||
| Deferred revenue | ( | ) | ||||||
| Customer deposits | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchases of equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of fixed assets | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of common stock in registered direct offering, net of offering costs | ||||||||
| Proceeds from issuance of common stock in public offering, net of offering costs | ||||||||
| Proceeds from revolving line of credit | ||||||||
| Payment of revolving line of credit | ( | ) | ||||||
| Payment of financed leases | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental Disclosures of Non-Cash Investing and Financing Activities: | ||||||||
| Initial right of use asset recognition | $ | $ | ||||||
| Common stock issued for vested RSUs | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| Page 8 |
FLUX POWER HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(Unaudited)
NOTE 1 - NATURE OF BUSINESS
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) applicable to interim reports of companies filing as a smaller reporting company. These financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022 filed with the SEC on September 28, 2022. In the opinion of management, the accompanying condensed consolidated interim financial statements include all adjustments necessary in order to make the financial statements not misleading. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year or any other future period. Certain notes to the financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year as reported in the Company’s Annual Report on Form 10-K have been omitted. The accompanying condensed consolidated balance sheet at June 30, 2022 has been derived from the audited balance sheet at June 30, 2022 contained in such Form 10-K.
Nature of Business
Flux Power Holdings, Inc. (“Flux”) was incorporated in 2009 in the State of Nevada, and Flux’s operations are conducted through its wholly owned subsidiary, Flux Power, Inc. (“Flux Power”), a California corporation (collectively, the “Company”).
We design, develop, manufacture, and sell a portfolio of advanced lithium-ion energy storage solutions for electrification of a range of industrial commercial sectors which include material handling, airport ground support equipment (“GSE”), and stationary energy storage. We believe our mobile and stationary energy storage solutions provide customers with a reliable, high performing, cost effective, and more environmentally friendly alternative as compared to traditional lead acid and propane-based solutions. Our modular and scalable design allows different configurations of lithium-ion battery packs to be paired with our proprietary wireless battery management system to provide the level of energy storage required and “state of the art” real time monitoring of pack performance. We believe that the increasing demand for lithium-ion battery packs and more environmentally friendly energy storage solutions in the material handling sector should continue to drive our revenue growth.
As used herein, the terms “we,” “us,” “our,” “Flux,” and “Company” mean Flux Power Holdings, Inc., unless otherwise indicated. All dollar amounts herein are in U.S. dollars unless otherwise stated.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022. There have been no material changes in these policies or their application.
Management has considered all recent accounting pronouncements issued since the last audit of the Company’s consolidated financial statements and believes that these recent pronouncements will not have a material effect on the Company’s condensed consolidated financial statements.
The Company calculates basic loss per common share by dividing net loss by the weighted average number of common shares outstanding during the periods. Diluted loss per common share includes the impact from all dilutive potential common shares relating to outstanding convertible securities.
For the three months ended March 31, 2023 and 2022, basic and diluted weighted-average common shares outstanding were and , respectively. For the nine months ended March 31, 2023 and 2022, basic and diluted weighted-average common shares outstanding were and , respectively. The Company incurred a net loss for the three and nine months ended March 31, 2023 and 2022, and therefore, basic and diluted loss per share for the periods were the same because potential common share equivalent would have been anti-dilutive. The total potentially dilutive common shares outstanding at March 31, 2023 and 2022 that were excluded from diluted weighted-average common shares outstanding represent shares underlying outstanding stock options, RSUs, and warrants, and totaled and , respectively.
March 31, 2023 | March 31, 2022 | |||||||
| Stock options | ||||||||
| RSUs | ||||||||
| Warrants | ||||||||
| Total | ||||||||
| Page 9 |
Liquidity Considerations
The
accompanying financial statements and notes have been prepared assuming the Company will continue as a going concern. For the nine months
ended March 31, 2023 and the year ended June 30, 2022, the Company generated negative cash flows from operations of $
Historically,
the Company has not generated sufficient cash to fund its operations. The Company is continuing efforts to improve operational efficiencies
and to generate revenue from its existing backlog. Management currently anticipates increased revenues as well as improvements in the
Company’s gross margin over the next twelve (12) months. The Company has received new orders in the twelve-month period ended March
31, 2023 of approximately $
As
of May 10, 2023, the Company had a cash balance of $
NOTE 3 – ACCRUED EXPENSES
Accrued expenses consist of the following:
March 31, 2023 | June 30, 2022 | |||||||
| Payroll and bonus accrual | $ | $ | ||||||
| PTO accrual | ||||||||
| Warranty liability | ||||||||
| Other | ||||||||
| Total Accrued expenses | $ | $ | ||||||
NOTE 4 – NOTES PAYABLE
Revolving Line of Credit
On November 9, 2020, the Company entered into a Loan and Security Agreement (“Agreement”) with Silicon Valley Bank (“SVB”).
On
October 29, 2021, the Company entered into a First Amendment to Loan and Security Agreement (“First Amendment” and together
with the Agreement, the “Loan Agreement”) with SVB which amended certain terms of the Agreement including, but not limited
to, increasing the amount of the revolving line of credit from $
| Page 10 |
In
addition, under the Second Amendment, the interest rate terms for the outstanding principal under the Revolving LOC were amended to accrue
interest at a floating per annum rate equal to the greater of either
In
connection with the Second Amendment, the Company issued a warrant to SVB and its designee, SVB Financial Group, to purchase
up to
On
November 7, 2022, we entered into a Third Amendment to Loan and Security Agreement (“Third Amendment”) with SVB, which amended
certain terms of the Second Amended Loan Agreement (together with the Third Amendment, the “Third Amended Loan Agreement”),
including but not limited to, (i) extending the maturity date from November 7, 2022 to May 7, 2023 (the “Extension Period”),
(ii) amending the financial covenants of the Company to cover the Extension Period and to include a liquidity ratio financial covenant,
and (iii) amending the definition of Permitted Liens (as defined in the Third Amendment). Pursuant to the Third Amendment, the Company
paid SVB a non-refundable amendment fee of $
On
January 10, 2023, the Company entered into a Fourth Amendment to Loan and Security Agreement (the “Fourth Amendment”) with
SVB, which amended certain terms of the Third Amended Loan Agreement including but not limited to, (i) increasing the amount of the SVB
Credit Facility from $
The
Company has used the SVB Credit Facility to fund its operations and working capital requirements. Amounts outstanding under the Revolving
LOC are secured by substantially all tangible and intangible assets of the Company (including, without limitation, intellectual property)
pursuant to the terms of the Fourth Amended Loan Agreement, and the Intellectual Property Security Agreement dated as of October 29,
2021. During the nine months ended March 31, 2023, the Company had multiple Revolving LOC drawdowns totaling $
On
April 27, 2023, the Company entered into a Fifth Amendment to Loan and Security Agreement (the “Fifth Amendment”) with SVB
which further amended certain terms of the credit facility (together with the Fifth Amendment, the “Agreement”), including
but not limited to, (i) extending the maturity date from May 7, 2023 to December 31, 2023 (the “2023 Extension Period”),
(ii) amending the EBITDA financial covenant of the Company to cover the 2023 Extension Period, and (iii) amending the definition of EBITDA
(as defined in the Fifth Amendment). Pursuant to the Fifth Amendment, the Company agreed to pay SVB a non-refundable amendment fee of
Thirty Thousand Dollars ($
As
of May 10, 2023, $
| Page 11 |
NOTE 5 - RELATED PARTY DEBT AGREEMENTS
As of March 31, 2023 and June 30, 2022, the Company had no related party debt balance outstanding. Below are the activities for the Company’s related party debt agreements that existed during the periods ended March 31, 2023 and 2022 covered by the accompanying unaudited condensed consolidated financial statements.
Subordinated Line of Credit Facility
On
May 11, 2022, the Company entered into a Credit Facility Agreement (the “Subordinated LOC”) with Cleveland Capital, L.P.,
a Delaware limited partnership (“Cleveland”), Herndon Plant Oakley, Ltd., (“HPO”), and other lenders (together
with Cleveland and HPO, the “Lenders”). The Subordinated LOC provides the Company with a short-term line of credit not less
than $
Pursuant to the terms of the Subordinated LOC, each Lender severally agrees to make loans (each such loan, an “Advance”) up to such Lender’s Commitment Amount to the Company from time to time, until December 31, 2022 (the “Due Date”). On December 15, 2022, the Board of Directors of the Company elected to extend the Due Date to December 31, 2023. The Company may, from time to time, prior to the Due Date, draw down, repay, and re-borrow on the Note, by giving notice to the Lenders of the amount to be requested to be drawn down.
Each
Note bears an interest rate of
The
Subordinated LOC includes customary representations, warranties and covenants by the Company and the Lenders. The Company has also agreed
to pay the legal fees of Cleveland’s counsel in an amount up to $
In
connection with entry into the Subordinated LOC, the Company paid to each Lender a one-time commitment fee in cash equal to
Pursuant
to a selling agreement, dated as of May 11, 2022, the Company retained HPO as its placement agent in connection with the Subordinated
LOC. As compensation for services rendered in conjunction with the Subordinated LOC, the Company paid HPO a finder fee equal to
| Page 12 |
NOTE 6 - STOCKHOLDERS’ EQUITY
At-The-Market (“ATM”) Offering
On December 21, 2020 the Company entered into a Sales Agreement (the “Sales Agreement”) with H.C. Wainwright & Co., LLC (“HCW”) to sell shares of its common stock, par value $ (the “Common Stock”) from time to time, through an “at-the-market offering” program (the “ATM Offering”).
The
Company agreed to pay HCW a commission in an amount equal to
On
May 27, 2021, the Company filed Amendment No. 1 (the “Amendment”) to the prospectus supplement dated December 21, 2020 (the
“Prospectus Supplement”) to increase the size of the ATM Offering from an aggregate offering price of up to $
From
December 21, 2020 through March 31, 2023, the Company sold an aggregate of shares of common stock at an average price of $
per share for gross proceeds of approximately $
The Shares was registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the Company’s Registration Statement on Form S-3 (File No. 333-249521), declared effective by the Securities and Exchange Commission (the “Commission”) on October 26, 2020, and the Prospectus. Sales of the Shares, if any, may be made by any method permitted by law deemed to be an “at-the-market offering” as defined in Rule 415(a)(4) of the Securities Act. The Company or the HCW may, upon written notice to the other party in accordance with the terms of the Sales Agreement, suspend offers and sales of the Shares. The Company and HCW each have the right, in its sole discretion, to terminate the Sales Agreement at any time upon prior written notice pursuant to the terms and subject to the conditions set forth in the Sales Agreement.
Registered Direct Offering
On
September 27, 2021, the Company closed a registered direct offering, priced at-the-market under Nasdaq rules (“RDO”) for
the sale of shares of common stock and warrants to purchase up to an aggregate of
The securities sold in the RDO were sold pursuant to a “shelf” registration statement on Form S-3 (File No. 333-249521), including a base prospectus, previously filed with the Securities and Exchange Commission (the “SEC”) on October 16, 2020 and declared effective by the SEC on October 26, 2020. The registered direct offering of the securities was made by means of a prospectus supplement dated September 22, 2021 and filed with the SEC, that forms a part of the effective registration statement.
| Page 13 |
Warrants
In
connection with the Company’s RDO, in September 2021 the Company issued warrants to the RDO investors to purchase up
to
In
May 2022 and in conjunction with entry into a credit facility with Cleveland, HPO, and other lenders (together with Cleveland and HPO,
the “Lenders”), the Company issued warrants to the Lenders to purchase up to
In
June 2022 and in conjunction with the entry into the Second Amendment to Loan and Security Agreement with SVB, the Company issued
warrants to SVB and its designee, SVB Financial Group, to purchase up to
Warrant detail for the nine months ended March 31, 2023 is reflected below:
| Number of Warrants | Weighted Average Exercise Price Per Warrant | Weighted Average Term (# years) | ||||||||||
| Warrants outstanding and exercisable at June 30, 2022 | $ | |||||||||||
| Warrants cancelled | $ | |||||||||||
| Warrants outstanding and exercisable at March 31, 2023 | $ | |||||||||||
Warrant detail for the nine months ended March 31, 2022 is reflected below:
| Number of Warrants | Weighted Average Exercise Price Per Warrant | Remaining Term (# years) | ||||||||||
| Warrants outstanding and exercisable at June 30, 2021 | $ | |||||||||||
| Warrants issued | $ | |||||||||||
| Warrants outstanding and exercisable at March 31, 2022 | $ | |||||||||||
Stock Options
In connection with the reverse acquisition of Flux Power, Inc. in 2012, the Company assumed the 2010 Plan. As of March 31, 2023, there were options to purchase common stock outstanding under the 2010 Plan. No additional options may be granted under the 2010 Plan.
On February 17, 2015 the Company’s stockholders approved the 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan offers certain employees, directors, and consultants the opportunity to acquire the Company’s common stock subject to vesting requirements and serves to encourage such persons to remain employed by the Company and to attract new employees. The 2014 Plan allows for the award of the Company’s common stock and stock options, up to shares of the Company’s common stock. As of March 31, 2023, shares of the Company’s common stock were available for future grants under the 2014 Plan.
On April 29, 2021, the Company’s stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan authorizes the issuance of awards for up to shares of common stock in the form of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock units, restricted stock awards and unrestricted stock awards to officers, directors and employees of, and consultants and advisors to, the Company or its affiliates. As of March 31, 2023, shares of the Company’s common stock were available for future grants under the 2021 Plan.
| Page 14 |
On October 31, 2022, the Board of Directors authorized a total of stock options to be granted under the Company’s 2014 Plan and 2021 Plan.
| Number of Shares | Weighted Average Exercise Price | Weighted Term | ||||||||||
| Outstanding at June 30, 2022 | $ | |||||||||||
| Granted | $ | |||||||||||
| Exercised | ( | ) | $ | |||||||||
| Forfeited and cancelled | ( | ) | $ | |||||||||
| Outstanding at March 31, 2023 | $ | |||||||||||
| Exercisable at March 31, 2023 | $ | |||||||||||
Activity in the Company’s stock options during the nine months ended March 31, 2022 and related balances outstanding as of that date are reflected below:
| Number of Shares | Weighted Average Exercise Price | Weighted Term (# years) | ||||||||||
| Outstanding at June 30, 2021 | $ | |||||||||||
| Granted | $ | |||||||||||
| Exercised | ( | ) | $ | |||||||||
| Forfeited and cancelled | ( | ) | $ | |||||||||
| Outstanding and exercisable at March 31, 2022 | $ | |||||||||||
Restricted Stock Units
On November 5, 2020, the Company’s Board of Directors approved an amendment to the 2014 Plan, to allow for grants of Restricted Stock Units (“RSUs”). Subject to vesting requirements set forth in the RSU Award Agreement, one share of common stock is issuable for one vested RSU. On November 5, 2020, the Board of Directors authorized the following RSUs to be granted under the amended 2014 Option Plan: (i) a total of RSUs to certain executive officers as one-time retention incentive awards, and (ii) a total of RSUs to certain key employees as annual equity compensation of which were performance-based RSUs and were time-based RSUs. On April 29, 2021, an additional time-based RSUs were authorized by the Company’s Board of Directors to be granted under the amended 2014 Option Plan. On October 29, 2021, the Board of Directors authorized the following RSUs to be granted under the amended 2014 Option Plan: (i) a total of RSUs to certain executive officers of which were performance-based RSUs and were time-based RSUs, and (ii) a total of time-based RSUs to certain other key employees. The RSUs are subject to the terms and conditions provided in (i) the Restricted Stock Unit Award Agreement for time-based awards (“Time-based Award Agreement”), and (ii) the Performance Restricted Stock Unit Award Agreement for performance-based awards (“Performance-based Award Agreement”).
| Page 15 |
| Number of Shares | Weighted Average Grant date Fair Value | Weighted Term (# years) | ||||||||||
| Outstanding at June 30, 2022 | $ | |||||||||||
| Granted | $ | |||||||||||
| Vested and settled | ( | ) | $ | |||||||||
| Forfeited and cancelled | ( | ) | $ | |||||||||
| Outstanding at March 31, 2023 | $ | |||||||||||
Activity in RSUs during the nine months ended March 31, 2022 and related balances outstanding as of that date are reflected below:
| Number of Shares | Weighted Average Grant date Fair Value | Weighted (# years) | ||||||||||
| Outstanding at June 30, 2021 | $ | |||||||||||
| Granted | $ | |||||||||||
| Vested and settled | ( | ) | $ | |||||||||
| Forfeited and cancelled | ( | ) | $ | |||||||||
| Outstanding at March 31, 2022 | $ | |||||||||||
Stock-based Compensation
Stock-based compensation expense for the three and nine months ended March 31, 2023 and 2022 represents the estimated fair value of stock options and RSUs at the time of grant amortized under the straight-line method over the expected vesting period and reduced for estimated forfeitures of options and RSUs. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from original estimates. At March 31, 2023, the aggregate intrinsic value of exercisable stock options was approximately $.
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| Selling and administrative | ||||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | $ | ||||||||||||
| Page 16 |
| Nine Months Ended March 31, | ||||||||
| 2023 | 2022(1) | |||||||
| Expected volatility | % | |||||||
| Risk free interest rate | % | |||||||
| Forfeiture rate | % | |||||||
| Dividend yield | % | |||||||
| Expected term (years) | ||||||||
| (1) |
At March 31, 2023, the unamortized stock-based compensation expense related to outstanding stock options and RSUs was approximately $ and $, respectively, and these amounts are expected to be expensed over the weighted-average remaining recognition period of years and years, respectively.
NOTE 7 - CONCENTRATIONS
Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and unsecured trade accounts
receivable. The Company maintains cash balances in non-interest bearing bank deposit accounts at a California commercial bank. The Company’s
cash balance at this institution is secured by the Federal Deposit Insurance Corporation up to $
On March 10, 2023, the Federal Deposit Insurance Corporation (the “FDIC”) issued a press release stating that Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. In a joint statement issued by the Department of the Treasury, Board of Governors of the Federal Reserve System and Federal Deposit Insurance Corporation on March 12, 2023, the Department of Treasury took actions to enable the FDIC to complete its resolution of SVB in a manner that fully protects all depositors. According to the joint statement (the “Statement”), depositors will have access to all of their money starting Monday, March 13, 2023. On March 13, 2023, Silicon Valley Bridge Bank, N.A., the new entity formed by the FDIC announced appointment of a new CEO, who provided assurance of immediate restoration of full banking services. On March 27, 2023, First Citizens BancShares, Inc. announced that it has entered into an agreement with the FDIC to purchase all of the assets and liabilities of Silicon Valley Bridge Bank, N.A.
The Company has not experienced any losses in such accounts. Management believes that the Company is not exposed to any significant credit risk with respect to its cash.
Customer Concentrations
During
the three months ended March 31, 2023, the Company had three (3) major customers that each represented more than 10% of revenues on an
individual basis, and together represented approximately $
During
the three months ended March 31, 2022, the Company had four (4) major customers that each represented more than 10% of revenues on an
individual basis, and together represented approximately $
Suppliers/Vendor Concentrations
The
Company obtains several components and supplies included in its products from a group of suppliers. During the three months ended March
31, 2023, the Company had one (1) supplier who accounted for more than 10% of total purchases and represented approximately $
| Page 17 |
During
the three months ended March 31, 2022, the Company had three (3) suppliers who accounted for more than 10% of total purchases on an individual
basis, and together represented approximately $
NOTE 8 - COMMITMENTS AND CONTINGENCIES
From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm the Company’s business. The Company is not aware of any material legal proceedings currently pending or expected against the Company.
Operating Leases
On
April 25, 2019 the Company signed a Standard Industrial/Commercial Multi-Tenant Lease (“Lease”) with Accutek to rent approximately
On
February 26, 2020, the Company entered into the First Amendment to Standard Industrial/Commercial Multi-Tenant Lease dated April 25,
2019 (the “Amendment”) with Accutek to rent an additional
On
December 16, 2022 the Company signed a Lease Agreement with MM Parker Court Associates, LLC to rent approximately
Total
rent expense was approximately $
Capital Leases
On
September 2, 2022 the Company leased a vehicle to be used for corporate transportation activities. The lease has a term of sixty (
On
October 17, 2022 the Company leased certain equipment to be used for manufacturing and testing our products. The lease has a term of
thirty-six (
On
January 24, 2023, the Company leased certain equipment to be used for manufacturing and testing our products. The lease has a term
of thirty-six (
| Page 18 |
On
March 2, 2023, the Company leased certain equipment to be used for manufacturing and testing our products. The lease has a term of
thirty-six (
Lease
costs are amortized on a straight-line basis over their respective lease terms. Depreciation expense related to leased assets was approximately
$
The Future Minimum Lease Payments as of March 31, 2023 are as follows:
Operating Leases | Finance Leases | |||||||
| Year Ending June 30, | ||||||||
| 2023 (remaining three months) | $ | $ | ||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| Thereafter | ||||||||
| Total Future Minimum Lease Payments | ||||||||
| Less: discount | ( | ) | ( | ) | ||||
| Total lease liability | $ | $ | ||||||
NOTE 9 - SUBSEQUENT EVENTS
Flux Power Holdings, Inc. 2023 Employee Stock Purchase Plan
At the 2023 Annual Meeting of Stockholders of the Company held on April 20, 2023 (the “Annual Meeting”), the Company’s stockholders approved the Flux Power Holdings, Inc. 2023 Employee Stock Purchase Plan (the “2023 ESPP”). The 2023 ESPP was approved by the Board on March 6, 2023, subject to stockholder approval. The 2023 ESPP enables eligible employees of the Company and certain of its subsidiaries (a “Participating Subsidiary”) to use payroll deductions to purchase shares of the Company’s Common Stock and acquire an ownership interest in the Company. The maximum aggregate number of shares of the Company’s Common Stock that have been reserved as authorized for grant under the 2023 ESPP is shares, subject to adjustment as provided for in the 2023 ESPP. Participation in the 2023 ESPP is voluntary and is limited to eligible employees (as such term is defined in the 2023 ESPP) of the Company or a Participating Subsidiary who (i) has been employed by the Company or a Participating Subsidiary for at least 90 days and (ii) is customarily employed for at least twenty (20) hours per week and more than five (5) months in any calendar year. Each eligible employee may authorize payroll deductions of 1-15% of the eligible employee’s compensation on each pay day to be used to purchase up to shares of Common Stock for the employee’s account occurring during an offering period. The 2023 ESPP has a term of ten (10) years commencing on April 20, 2023, the date of approval by the Company’s stockholders, unless otherwise earlier terminated.
Grant of Restricted Stock Units to Non-Executive Directors
On
April 20, 2023, the Company’s four non-executive directors were granted RSUs covering a total of shares of common stock
under the 2014 Plan, with each receiving RSUs based on aggregate grant date value of $
SVB Revolving Line of Credit Modification
On
April 27, 2023, the Company entered into a Fifth Amendment to Loan and Security Agreement (the “Fifth Amendment”) with SVB
which further amended certain terms of the credit facility (together with the Fifth Amendment, the “Agreement”), including
but not limited to, (i) extending the maturity date from May 7, 2023 to December 31, 2023 (the “2023 Extension Period”),
(ii) amending the EBITDA financial covenant of the Company to cover the 2023 Extension Period, and (iii) amending the definition of EBITDA
(as defined in the Fifth Amendment). Pursuant to the Fifth Amendment, the Company agreed to pay SVB a non-refundable amendment fee of
Thirty Thousand Dollars ($
Additional Sales from ATM Offering
From
April 1, 2023 to May 8, 2023, the Company sold an aggregate of shares of common stock at an average price of $ per share for
gross proceeds of approximately $
| Page 19 |
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information which management believes is relevant to an assessment and understanding of the Company’s results of operations and financial condition. The discussion should be read in conjunction with the unaudited interim condensed consolidated Financial Statements and Notes thereto and Part II, Item 7, Management’s Discussion and Analysis of Financial condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022.
Business Overview
We design, develop, manufacture, and sell a portfolio of advanced lithium-ion energy storage solutions for electrification of a range of industrial commercial sectors which include material handling, airport ground support equipment (“GSE”), and other commercial and industrial applications. We believe our mobile and stationary energy storage solutions provide our customers a reliable, high performing, cost effective, and more environmentally friendly alternative as compared to traditional lead acid and propane-based solutions. Our modular and scalable design allows different configurations of lithium-ion battery packs to be paired with our proprietary wireless battery management system to provide the level of energy storage required and “state of the art” real time monitoring of pack performance. We believe that the increasing demand for lithium-ion battery packs and more environmentally friendly energy storage solutions in the material handling sector should continue to drive our revenue growth.
Our long-term strategy is to meet the rapidly growing demand for lithium-ion energy solutions and to be the supplier of choice, targeting large companies having demanding energy storage needs. We have established selling relationships equipment OEMs and customers with large fleets of forklifts and GSEs. We intend to reach this goal by investing in research and development to expand our product mix, expanding our sales and marketing efforts, improving our customer support efforts and continuing our efforts to improve production capacity and efficiencies. Our research and development efforts will continue to focus on providing adaptable, reliable and cost-effective energy storage solutions for our customers.
Our largest sector of penetration thus far has been the material handling sector which we believe is a multi-billion dollar addressable market. We believe the sector will provide us with an opportunity to grow our business as we enhance our product mix and service levels and grow our sales to large fleets of forklifts and GSEs. Applications of our modular packs for other industrial and commercial uses, such as solar energy storage, are providing additional growth opportunities. We intend to continue to expand our supply chain and customer partnerships and seek further partnerships and/or acquisitions that provide synergy to meeting our growth and “building scale” objectives.
The following table summarizes the new orders, shipments, and backlog activities for the last six (6) fiscal quarters:
Fiscal Quarter Ended | Beginning Backlog | New Orders | Shipments | Ending Backlog | ||||||||||||
| December 31, 2021 | $ | 19,433,000 | $ | 19,819,000 | $ | 7,837,000 | $ | 31,415,000 | ||||||||
| March 31, 2022 | $ | 31,415,000 | $ | 20,495,000 | $ | 13,317,000 | $ | 38,593,000 | ||||||||
| June 30, 2022 | $ | 38,593,000 | $ | 11,622,000 | $ | 15,195,000 | $ | 35,020,000 | ||||||||
| September 30, 2022 | $ | 35,020,000 | $ | 9,678,000 | $ | 17,840,000 | $ | 26,858,000 | ||||||||
| December 31, 2022 | $ | 26,858,000 | $ | 20,652,000 | $ | 17,158,000 | $ | 30,352,000 | ||||||||
| March 31, 2023 | $ | 30,352,000 | $ | 9,751,000 | $ | 15,087,000 | $ | 25,016,000 | ||||||||
| Page 20 |
“Backlog” represents the amount of anticipated revenues we may recognize in the future from existing contractual orders with customers that are in progress and have not yet shipped. Backlog values may not be indicative of future operating results as orders may be cancelled, modified or otherwise altered by customers. In addition, our ability to realize revenue from our backlog will be dependent on the delivery of key parts from our suppliers and our ability to manufacture and ship our products to customers in a timely manner. There can be no assurance that outstanding customer orders will be fulfilled as expected and that our backlog will result in future revenues.
As of May 8, 2023, our order backlog was approximately $31.4 million.
Business Updates
The supply chain disruptions related to the COVID-19 pandemic continue to abate. The delivery delays of purchased components and the shortage of components to production timing have improved. The price increases during the pandemic for steel and domestic freight have lessened but still remain higher than pre-pandemic. Price recovery of increased pandemic-related costs have now begun to be realized in shipments during the quarter ended March 31, 2023.
Lead times for forklifts and GSE Equipment have been extended for certain model lines of major OEMs. These extended lead times have resulted in some shipment deferrals and delays in receiving anticipated orders. Not all product lines are impacted but the impact has required additional selling efforts to maintain our sales trajectory.
Recent Corporate Developments
Closing of Silicon Valley Bank
On March 10, 2023, the Federal Deposit Insurance Corporation (the “FDIC”) issued a press release stating that Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. In a joint statement issued by the Department of the Treasury, Board of Governors of the Federal Reserve System and Federal Deposit Insurance Corporation on March 12, 2023, the Department of Treasury took actions to enable the FDIC to complete its resolution of SVB in a manner that fully protects all depositors. According to the joint statement (the “Statement”), depositors will have access to all of their money starting Monday, March 13, 2023. On March 13, 2023, Silicon Valley Bridge Bank, N.A., the new entity formed by the FDIC announced appointment of a new CEO, who provided assurance of immediate restoration of full banking services. On March 27, 2023, First Citizens BancShares, Inc. announced that it had entered into an agreement with the FDIC to purchase all of the assets and liabilities of Silicon Valley Bridge Bank, N.A.
Amendment to Revolving Line of Credit with Silicon Valley Bank
On April 27, 2023, the Company entered into a Fifth Amendment to Loan and Security Agreement (the “Fifth Amendment”) with Silicon Valley Bank (“SVB”) which further amended certain terms of the Loan and Security Agreement dated November 9, 2020 which has been amended from time to time (together with the Fifth Amendment, the “Agreement”), including but not limited to, (i) extending the maturity date from May 7, 2023 to December 31, 2023 (the “2023 Extension Period”), (ii) amending the EBITDA financial covenant of the Company to cover the 2023 Extension Period, and (iii) amending the definition of EBITDA (as defined in the Fifth Amendment). Pursuant to the Fifth Amendment, the Company agreed to pay SVB a non-refundable amendment fee of Thirty Thousand Dollars ($30,000) and SVB’s legal fees and expenses incurred in connection with the Fifth Amendment. In addition, SVB also agreed to waive compliance by the Company of the former EBIDTA financial covenant as of the month ended March 31, 2023.
| Page 21 |
Flux Power Holdings, Inc. 2023 Employee Stock Purchase Plan
At the 2023 Annual Meeting of Stockholders of the Company held on April 20, 2023 (the “Annual Meeting”), the Company’s stockholders approved the Flux Power Holdings, Inc. 2023 Employee Stock Purchase Plan (the “2023 ESPP”). The 2023 ESPP was approved by the Board on March 6, 2023, subject to stockholder approval. The 2023 ESPP enables eligible employees of the Company and certain of its subsidiaries (a “Participating Subsidiary”) to use payroll deductions to purchase shares of the Company’s Common Stock and acquire an ownership interest in the Company. The maximum aggregate number of shares of the Company’s Common Stock that have been reserved as authorized for grant under the 2023 ESPP is 350,000 shares, subject to adjustment as provided for in the 2023 ESPP. Participation in the 2023 ESPP is voluntary and is limited to eligible employees (as such term is defined in the 2023 ESPP) of the Company or a Participating Subsidiary who (i) has been employed by the Company or a Participating Subsidiary for at least 90 days and (ii) is customarily employed for at least twenty (20) hours per week and more than five (5) months in any calendar year. Each eligible employee may authorize payroll deductions of 1-15% of the eligible employee’s compensation on each pay day to be used to purchase up to 1,500 shares of Common Stock for the employee’s account occurring during an offering period. The 2023 ESPP has a term of ten (10) years commencing on April 20, 2023, the date of approval by the Company’s stockholders, unless otherwise earlier terminated.
Grant of Restricted Stock Units to Non-Executive Directors
On April 20, 2023, the Company’s four non-executive directors were granted RSUs covering a total of 67,532 shares of common stock under the 2014 Plan, with each receiving 16,883 RSUs based on aggregate grant date value of $65,000 divided by $3.85 per share. The RSUs will all vest on April 20, 2024 in accordance to the vesting service criteria. The awards are subject to the terms and conditions of the 2014 Plan and the terms and conditions of an applicable award agreement covering each grant. The awards were recommended by the compensation committee of the Company and approved by the Board prior to being granted.
Segment and Related Information
We operate as a single reportable segment.
Results of Operations and Financial Condition
The following table represents our unaudited condensed consolidated statement of operations for the three months ended March 31, 2023 and March 31, 2022.
| Three Months Ended March 31, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| $ | % of Revenues | $ | % of Revenues | |||||||||||||
| Revenues | $ | 15,087,000 | 100 | % | $ | 13,177,000 | 100 | % | ||||||||
| Cost of sales | 10,368,000 | 69 | % | 11,257,000 | 85 | % | ||||||||||
| Gross profit | 4,719,000 | 31 | % | 1,920,000 | 15 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and administrative | 4,724,000 | 31 | % | 3,904,000 | 30 | % | ||||||||||
| Research and development | 1,182,000 | 8 | % | 1,713,000 | 13 | % | ||||||||||
| Total operating expenses | 5,906,000 | 39 | % | 5,617,000 | 43 | % | ||||||||||
| Operating loss | (1,187,000 | ) | -8 | % | (3,697,000 | ) | -28 | % | ||||||||
| Other income | - | 0 | % | - | 0 | % | ||||||||||
| Interest expense, net | (258,000 | ) | -2 | % | (52,000 | ) | -0 | % | ||||||||
| Net loss | $ | (1,445,000 | ) | -10 | % | $ | (3,749,000 | ) | -28 | % | ||||||
| Page 22 |
Revenues
Revenues for the quarter ended March 31, 2023, increased by $1,910,000 or 14% to $15,087,000, compared to $13,177,000 for the quarter ended March 31, 2022. The increase in revenues was due to sales of energy storage solutions with higher average selling prices and a higher volume of units sold, driven by significant increases in Ground Support Equipment sales. The increase in revenues included both greater sales to existing and new Material Handling customers as well as an increase in Ground Support Equipment sales.
Cost of Sales
Cost of sales for the quarter ended March 31, 2023, decreased by $889,000, or 8%, to $10,368,000 compared to $11,257,000 for the quarter ended March 31, 2022. The decrease in cost of sales was directly associated with higher sales of energy storage solutions, partially offset by lower average cost of sales per unit achieved during the current quarter as a result of our gross margin improvement initiatives, including design enhancements to lower cost, improve serviceability, simplify bill of materials and supply chain initiatives to improve inventory turns and create part commonality across multiple product line. Cost of sales as a percent of revenues for the quarter ended March 31, 2023 was 69%, an improvement of 16percentage points compared to 85% for the quarter ended March 31, 2022.
Gross Profit
Gross profit for the quarter ended March 31, 2023 increased by $2,799,000 or 146%, to $4,719,000 compared to $1,920,000 for the quarter ended March 31, 2022. The gross profit margin (gross profit as a percent of revenues) increased to 31% for the quarter ended March 31, 2023 compared to 15% for the quarter ended March 31, 2022. Gross profit improved by 16 percentage points as a result of a higher volume of units sold with greater gross margin and lower cost of sales as a result of the gross margin improvement initiatives as noted above.
Selling and Administrative Expenses
Selling and administrative expenses for the quarter ended March 31, 2023 increased by $820,000 or 21%, to $4,724,000 compared to $3,904,000 for the quarter ended March 31, 2022. The increase was primarily attributable to higher staff related expenses and increases in marketing expenses, commissions, depreciation, professional service fees, stock-based compensation, and travel expenses, partially offset by decreases in outbound shipping costs, public relation expenses, recruiting costs, and consulting fees.
Research and Development Expense
Research and development expenses for the quarter ended March 31, 2023 decreased by $531,000 or 31%, to $1,182,000 compared to $1,713,000 for the quarter ended March 31, 2022. Such expenses consisted primarily of materials, supplies, salaries and personnel related expenses, product testing, consulting, and other expenses associated with revisions to existing product designs and new product development. The decrease in research and development expenses was primarily due to lower staff related expenses and expenses related to the development of new products.
Interest Expense
Interest expense for the quarter ended March 31, 2023 increased by $206,000 to $258,000 compared to $52,000 for the quarter ended March 31, 2022. The increase in interest expense was primarily related to higher balances outstanding under our SVB Credit Facility as well as higher interest rates. Also included in interest expense during quarter ended March 31, 2023 was additional interest expense of approximately $20,000 representing the amortization of debt issuance costs related to our existing lines of credit.
Net Loss
Net loss for the quarter ended March 31, 2023 decreased by $2,304,000 or 61%, to $1,445,000 as compared to $3,749,000 for the quarter ended March 31, 2022. The lower net loss for the three months ended March 31, 2023 was primarily attributable to increased gross profit, partially offset by increases in operating expenses and interest expense.
| Page 23 |
The following table represents our unaudited condensed consolidated statement of operations for the nine months ended March 31, 2023 and March 31, 2022.
| Nine Months Ended March 31, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| $ | % of Revenues | $ | % of Revenues | |||||||||||||
| Revenues | $ | 50,085,000 | 100 | % | $ | 27,138,000 | 100 | % | ||||||||
| Cost of sales | 37,310,000 | 74 | % | 22,838,000 | 84 | % | ||||||||||
| Gross profit | 12,775,000 | 26 | % | 4,300,000 | 16 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and administrative | 13,510,000 | 27 | % | 11,402,000 | 42 | % | ||||||||||
| Research and development | 3,567,000 | 7 | % | 5,768,000 | 21 | % | ||||||||||
| Total operating expenses | 17,077,000 | 34 | % | 17,170,000 | 63 | % | ||||||||||
| Operating loss | (4,302,000 | ) | -9 | % | (12,870,000 | ) | -47 | % | ||||||||
| Other income | 8,000 | 0 | % | - | 0 | % | ||||||||||
| Interest expense, net | (971,000 | ) | -2 | % | (86,000 | ) | -1 | % | ||||||||
| Net loss | $ | (5,265,000 | ) | -11 | % | $ | (12,956,000 | ) | -48 | % | ||||||
Revenues
Revenues for the nine months ended March 31, 2023, increased by $22,947,000 or 85% to $50,085,000, compared to $27,138,000 for the nine months ended March 31, 2022. The increase in revenues was due to sales of energy storage solutions with higher average selling prices and a higher volume of units sold. The increase in revenues included both greater sales to existing customers as well as initial sales to new customers. Though volume growth was consistent across all Material Handling product lines, high-powered Class 1 product saw the biggest volume increase from the year ago same period. Additionally, we further diversified our sales channels, and saw considerable volume and price improvement in Ground Support Equipment sales as domestic airlines resumed operations with a reinvigorated focus on sustainably scaling their own operations with our environmentally friendly and cost-effective solutions.
Cost of Sales
Cost of sales for the nine months ended March 31, 2023, increased by $14,472,000, or 63%, to $37,310,000 compared to $22,838,000 for the nine months ended March 31, 2022. The increase in cost of sales was directly associated with higher sales volume of our energy storage solutions, as well as increased costs of steel, and electronic parts, largely due to supply chain interruptions within our supply base. Cost of sales as a percent of revenues for the nine months ended March 31, 2023 was 74%, an improvement of 10 percentage points compared to 84% for the nine months ended March 31, 2022.
Gross Profit
Gross profit for the nine months ended March 31, 2023 increased by $8,475,000 or 197%, to $12,775,000 compared to $4,300,000 for the nine months ended March 31, 2022. The gross profit margin (gross profit as a percent of revenues) increased to 26% for the nine months ended March 31, 2023 compared to 16% for the nine months ended March 31, 2022. Gross profit improved by 10 percentage points due to a higher volume of units sold with greater gross margins and lower cost of sales as a result of the gross margin improvement initiatives.
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Selling and Administrative Expenses
Selling and administrative expenses for the nine months ended March 31, 2023 increased by $2,108,000 or 18%, to $13,510,000 compared to $11,402,000 for the nine months ended March 31, 2022. The increase was primarily attributable to increases in personnel expenses related to new hires and temporary labor, severance expenses incurred, and recruiting costs, and increases in depreciation expense, outbound shipping costs, insurance premiums, commissions, travel expenses, marketing expenses, and facilities related costs, partially offset by decreases in bad debt expenses, consulting fees, public relations expenses, and stock-based compensation.
Research and Development Expense
Research and development expenses for the nine months ended March 31, 2023 decreased by $2,201,000 or 38%, to $3,567,000 compared to $5,768,000 for the nine months ended March 31, 2022. Such expenses consisted primarily of materials, supplies, salaries and personnel related expenses, product testing, consulting, and other expenses associated with revisions to existing product designs and new product development. The decrease in research and development expenses was primarily due to lower staff related expenses and expenses related to development of new products.
Interest Expense
Interest expense for the nine months ended March 31, 2023 increased by $885,000 to $971,000 compared to $86,000 for the nine months ended March 31, 2022. The increase in interest expense was primarily related to higher balances outstanding under our SVB Credit Facility as well as higher interest rates. Also included in interest expense during the nine months ended March 31, 2023 was additional interest expense of approximately $445,000 representing the amortization of debt issuance costs related to our existing lines of credit.
Net Loss
Net loss for the nine months ended March 31, 2023 decreased by $7,691,000 or 59%, to $5,265,000 as compared to $12,956,000 for the nine months ended March 31, 2022. The lower net loss for the nine months ended March 31, 2023 was primarily attributable to increased gross profit, and decreased operating expenses, partially offset by increased interest expense.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA is calculated by taking net income and adding back the expenses related to interest, income taxes, depreciation, amortization, and stock-based compensation, each of which has been calculated in accordance with GAAP. Adjusted EBITDA was a loss of approximately $3,108,000 for the nine months ended March 31, 2023 compared to a loss of $11,857,000 for the nine months ended March 31, 2022.
Management believes that Adjusted EBITDA, when viewed with our results under GAAP and the accompanying reconciliations, provides useful information about our period-over-period results. Adjusted EBITDA is presented because management believes it provides additional information with respect to the performance of our fundamental business activities and is also frequently used by securities analysts, investors and other interested parties in the evaluation of comparable companies. We also rely on Adjusted EBITDA as a primary measure to review and assess the operating performance of our company and our management team.
As Adjusted EBITDA is a non-GAAP financial measure, it should not be construed as a substitute for EBITDA and net income (loss) (as determined in accordance with GAAP) for the purpose of analyzing our operating performance or financial position.
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A reconciliation of our Adjusted EBITDA to net loss is included in the table below:
| Nine Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net loss | $ | (5,265,000 | ) | $ | (12,956,000 | ) | ||
| Add/Subtract: | ||||||||
| Interest, net | 971,000 | 86,000 | ||||||
| Income tax provision | - | - | ||||||
| Depreciation and amortization | 647,000 | 412,000 | ||||||
| EBITDA | (3,647,000 | ) | (12,458,000 | ) | ||||
| Add/Subtract: | ||||||||
| Stock-based compensation | 539,000 | 601,000 | ||||||
| Adjusted EBITDA | $ | (3,108,000 | ) | $ | (11,857,000 | ) | ||
Liquidity and Capital Resources
Overview
For the nine months ended March 31, 2023 and the year ended June 30, 2022, we generated negative cash flows from operations of $5.2 million and $23.9 million, respectively. To date our business has not generated sufficient cash to fund our operations. However, based on our ability to recognize revenue from our existing backlog, we anticipate increased revenues as well as planned improvements in our gross margin over the next twelve (12) months. Our gross margin improvement plan includes, but is not limited to, efforts to drive bill of material costs down while increasing the price of our products for new orders. We have received new orders during the twelve (12) months period ended March 31, 2023, of approximately $51.7 million.
As of May 10, 2023, we believe that our existing cash of $1.4 million, our $14.0 million revolving line of credit with Silicon Valley Bank (“SVB Credit Facility”), under which $3.8 million is currently available, our $4.0 million Subordinated LOC, along with the forecasted gross margin improvement will enable us to fund our planned operations for the next twelve (12) months. See “Future Liquidity Needs” below.
Cash Flows
Cash Flow Summary
| Nine Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (5,197,000 | ) | $ | (19,338,000 | ) | ||
| Net cash used in investing activities | (745,000 | ) | (644,000 | ) | ||||
| Net cash provided by financing activities | 6,247,000 | 19,073,000 | ||||||
| Net change in cash | $ | 305,000 | $ | (909,000 | ) | |||
Operating Activities
Net cash used in operating activities was $5,197,000 for the nine months ended March 31, 2023, compared to net cash used in operating activities of $19,338,000 for the nine months ended March 31, 2022. The primary usages of cash for the nine months ended March 31, 2023 were the net loss of $5,265,000 and increases in accounts receivable, and inventory, and decreases in deferred revenue, customer deposits and office lease payable, that were partially offset by non-cash operating costs, and increases in accounts payable and accrued expenses and a decrease in other assets. The primary usages of cash for the nine months ended March 31, 2022 were the net loss of $12,956,000 and increases in accounts receivable, inventory, and other assets, and decreases in accrued expenses and office lease payable, that were partially offset by increases in accounts payable, customer deposits, deferred revenue and non-cash operating costs.
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Investing Activities
Net cash used in investing activities was $745,000 for the nine months ended March 31, 2023 and consisted primarily of the costs of internal software development and other capital equipment.
Net cash used in investing activities was $644,000 for the nine months ended March 31, 2022 and consisted primarily of the costs of internal software development and purchase of furniture and equipment and warehouse equipment.
Financing Activities
Net cash provided by financing activities was $6,247,000 for the nine months ended March 31, 2023, which primarily consisted of $5,602,000 in net borrowing under the working capital line of credit, and $697,000 in net proceeds from sales of common stock under our ATM offering.
Net cash provided by financing activities was $19,073,000 for the nine months ended March 31, 2022, which primarily consisted of $13,971,000 in net proceeds from issuances of common stock in the registered direct offering closed on September 27, 2021, $3,500,000 in borrowing under the working capital line of credit, and $1,602,000 in net proceeds from sales of 126,954 shares of common stock under our ATM offering.
Future Liquidity Needs
We have evaluated our expected cash requirements over the next twelve (12) months, which include, but are not limited to, investments in additional sales and marketing and research and development, capital expenditures, and working capital requirements. As of May 10, 2023, we believe that our existing cash of $1.4 million, cash from our future operations, funding available under our $14 million SVB Credit Facility, under which $3.8 million is currently available, which maturity date has been extended to December 31, 2023, funds available under our Subordinated LOC of up to $4.0 million, along with the forecasted improvement in the gross margin will enable us to fund our planned operations for at least the next twelve (12) months. As of May 10, 2023, $4.6 million remained available under our existing ATM offering that may be utilized if necessary subject to the volume of trading and price of our stock and market conditions. In addition, to support our operations and anticipated growth, we intend to continue to explore alternatives to secure additional capital from a variety of current and new sources including, but not limited to, sales of our equity securities. We also continue to execute our cost reduction, sourcing, pricing recovery initiatives in efforts to increase our gross margins and improve cash flow from operations.
Although management believes that our existing cash and the additional funding sources currently available to us under the lines of credit are sufficient to fund planned operations for the next twelve (12) months, this is dependent our ability to successfully maintain and draw on our credit facilities. Our ability to draw funds from the SVB Credit Facility are subject to certain restrictions and covenants. In addition, under the current arrangement our SVB Credit Facility matures on December 31, 2023, and we will need to renew or replace it at that time. If we are unable to meet the conditions provided in the loan documents and further extend the maturity date, the funds will not be available to us. In addition, should there be any delays in the receipts of key component parts, due in part to supply change disruptions, our ability to fulfil the backlog of sales orders will be negatively impacted resulting in lower availability of cash resources from operations. In that event, we may be required to raise additional funds by issuing equity or convertible debt securities. If such funds are not available when required, management will be required to curtail investments in additional sales and marketing and product development, which may have a material adverse effect on future cash flows and results of operations. In addition, any unforeseen factors in the general economy beyond management’s control could potentially have negative impact on the planned gross margin improvement plan.
In the event we are required to obtain additional funds, there is no guarantee that additional funds will be available on a timely basis or on acceptable terms. To the extent that we raise additional funds by issuing equity or convertible debt securities, our stockholders may experience additional dilution and such financing may involve restrictive covenants.
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Critical Accounting Policies
The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Information with respect to our critical accounting policies which we believe could have the most significant effect on our reported results and require subjective or complex judgments by management is contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended June 30, 2022 filed with the SEC on September 28, 2022.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.
ITEM 4 - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, as of the end of the period covered by this report, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Act of 1934. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be included in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, relating to the Company, including our consolidated subsidiaries, and was made known to them by others within those entities, particularly during the period when this report was being prepared. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2023.
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurances with respect to financial statement preparation and presentation. Additionally, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in the Company’s 10-K for the fiscal year ended June 30, 2022, management assessed the effectiveness of the Company’s internal control over financial reporting and based on such assessment, management concluded that as of June 30, 2022, our internal control over financial reporting was not effective due to material weakness related to ineffective oversight of the Company’s internal control over financial reporting and lack of sufficient review and approval of the underlying data used in the calculation of warranty reserve. We believe we have remediated the material weaknesses. We plan to continue to assess our internal controls and control procedures and intend to take further action as necessary or appropriate to address any other matters we identify or are brought to our attention.
Changes in Internal Control Over Financial Reporting
Except as discussed above, there have been no changes in the Company’s internal controls over financial reporting during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. To the best knowledge of management, there are no material legal proceedings pending against the Company.
ITEM 1A - RISK FACTORS
An investment in our common stock involves a high degree of risk. You should carefully consider the risks set forth in the section captioned “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022, filed with the SEC on September 28, 2022, before making an investment decision. If any of the risks actually occur, our business, financial condition or results of operations could suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. You should read the section captioned “Special Note Regarding Forward Looking Statements” above for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this report.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS
The following exhibits are filed as part of this Report.
| Exhibit No. | Description | |
| 31.1 | Certifications of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act.* | |
| 31.2 | Certifications of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act.* | |
| 32.1 | Certifications of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act.* | |
| 32.2 | Certifications of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act.* | |
| 101.INS | XBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document* | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document* | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document* | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document* | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document* | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document* | |
| 104 | Cover Page Interactive Data File, formatted in Inline XBRL (included as Exhibit 101) |
| * | Filed herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Flux Power Holdings, Inc. | ||
| Date: May 11, 2023 | By: | /s/ Ronald F. Dutt |
| Ronald F. Dutt | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Charles A. Scheiwe | |
| Charles A. Scheiwe | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) |
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