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
☐ No
The number of shares of registrant’s common stock outstanding as of May 3, 2024 was .
FLUX POWER HOLDINGS, INC.
FORM 10-Q
For the Quarterly Period Ended March 31, 2024
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 | 21 |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 27 |
| ITEM 4. | CONTROLS AND PROCEDURES | 28 |
| PART II - Other Information | ||
| ITEM 1. | LEGAL PROCEEDINGS | 28 |
| ITEM 1A. | RISK FACTORS | 28 |
| 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 | |
| 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, 2023 filed with the SEC on September 21, 2023. 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:
| ● | our ability to continue as a going concern; |
| ● | our ability to secure sufficient funding to support our current and proposed operations; |
| ● | our ability to manage our working capital requirements efficiently; |
| ● | our ability to modify the financial covenants terms and to comply with the financial covenants and the other terms of our existing credit facility with Gibraltar Business Capital, LLC to obtain the necessary funds to meet our operating cash requirements; |
| ● | our ability to remediate our material weakness and maintain effective internal control over financial reporting, disclosures and procedures; |
| ● | our ability to obtain raw materials and other supplies for our products at existing or competitive prices and on a timely basis; |
| ● | our ability to devise and implement selling strategies to reach our projected sales targets in light of recent deferral of customer orders; |
| ● | our anticipated growth strategies and our ability to manage the expansion of our business operations effectively; |
| ● | our ability to maintain or increase our market share in the competitive markets in which we do business; |
| ● | our ability to grow our revenue, increase our gross profit margin and become a profitable business; |
| ● | our ability to fulfill our backlog of open sales orders while experiencing delays in the receipt of key component parts and other potential manufacturing disruptions; |
| 3 |
| ● | 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 us; |
| ● | our ability to shift to new suppliers and incorporate new component parts 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 mix and introduce new products while maintaining quality standards and reliable product support; |
| ● | our ability to identify and capture new market opportunities; |
| ● | our ability to attract and retain skilled labor given the competitive labor market; |
| ● | our ability to source our needs for machinery, parts, and raw materials economically; |
| ● | our ability to retain key members of our senior management; and |
| ● | our dependence on our 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 to 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. |
| 4 |
PART I - Financial Information
Item 1. Financial Statements
FLUX POWER HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, 2024 | June 30, 2023 | |||||||
| 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, 2024 and June 30, 2023, 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.
| 5 |
FLUX POWER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||||||
| Interest income (expense), net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 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.
| 6 |
FLUX POWER HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
| Common Stock | Additional | |||||||||||||||||||
| Shares | Capital Stock Amount | Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common stock – exercised options and warrants | ||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at September 30, 2023 | ( | ) | ||||||||||||||||||
| Issuance of common stock – exercised options and RSU settlement | ( | ) | ||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Fair value of warrants issued | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at December 31, 2023 | ( | ) | ||||||||||||||||||
| Issuance of common stock – exercised options and RSU settlement | ||||||||||||||||||||
| Issuance of common stock – ESPP | ||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common Stock | Additional | |||||||||||||||||||
| Shares | Capital Stock Amount | 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 | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at December 31, 2022 | ( | ) | ||||||||||||||||||
| Issuance of common stock – public offering, net of costs | ||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 7 |
FLUX POWER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation | ||||||||
| Stock-based compensation | ||||||||
| Fair value of warrants issued as debt issuance cost | ||||||||
| Amortization of debt issuance costs | ||||||||
| Noncash lease expense | ||||||||
| Allowance for inventory reserve | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Other 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 equipment | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of common stock in public offering, net of offering costs | ||||||||
| Proceeds from stock option exercises and employee stock purchase plan exercises | ||||||||
| Proceeds from revolving line of credit | ||||||||
| Payment of revolving line of credit | ( | ) | ( | ) | ||||
| Payment of finance 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.
| 8 |
FLUX POWER HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(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, 2023, filed with the SEC on September 21, 2023. 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, 2023 has been derived from the audited balance sheet at June 30, 2023 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 other commercial and industrial applications. We focus on providing lithium-ion products and service to large fleets of Fortune 500 customers. We believe our mobile and stationary energy storage solutions provide our 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 energy storage solutions and more environmentally friendly alternatives from commercial and industrial users 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 – GOING CONCERN
The
accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates
the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred an
accumulated deficit of $
The Company’s ability to continue as a going concern is dependent
upon its ability to meet order projections, ship open sales orders, further improve its margins, reduce operating costs and raise additional
capital, if needed, on a timely basis until such time as revenues and related cash flows are sufficient to fund its operations. As of
May 6, 2024, the Company had a cash balance of $
Management has undertaken steps to improve operations with the goal of sustaining its operations. These steps include actual and planned price increases for our energy storage solutions, a number of cost saving initiatives including product cost efficiencies and planned operating cost savings.
The accompanying financial statements do not include any adjustments that would be necessary should the Company be unable to continue as a going concern and, therefore, be required to liquidate its assets and discharge its liabilities in other than the normal course of business and at amounts that may differ from those reflected in the accompanying condensed consolidated financial statements. There is no guarantee that additional funds will be available if needed on a timely basis or on acceptable terms. If such funds are not available when required, management will be required to curtail investments in new product development, which may have a material adverse effect on future cash flows and results of operations and the Company’s ability to continue operating as a going concern.
| 9 |
NOTE 3 - 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, 2023. There have been no material changes in these policies or their application.
Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which requires disclosure of incremental income tax information within the rate reconciliation and expanded disclosures of income taxes paid, among other disclosure requirements. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact that ASU 2023-09 will have on its consolidated financial statements and disclosures.
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 potentially dilutive common shares relating to outstanding convertible securities.
For the three months ended March 31, 2024 and 2023, basic and diluted weighted-average common shares outstanding were and , respectively. For the nine months ended March 31, 2024 and 2023, 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, 2024 and 2023, and therefore, basic and diluted loss per share for the periods were the same because potential common share equivalents would have been anti-dilutive. The total potentially dilutive common shares outstanding at March 31, 2024 and 2023 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, | ||||||||
| 2024 | 2023 | |||||||
| Stock options | ||||||||
| RSUs | ||||||||
| Warrants | ||||||||
| Total | ||||||||
| 10 |
NOTE 4 – ACCRUED EXPENSES
Accrued expenses consist of the following:
March 31, 2024 | June 30, 2023 | |||||||
| Payroll accrual | $ | $ | ||||||
| PTO accrual | ||||||||
| Warranty liability | ||||||||
| Other | ||||||||
| Total accrued expenses | $ | $ | ||||||
NOTE 5 – NOTES PAYABLE
Revolving Line of Credit
Gibraltar Business Capital Credit Facility
On
July 28, 2023, the Company entered into a Loan and Security Agreement (the “Agreement”) with GBC. The Agreement provides
the Company with a senior secured revolving loan facility for up to $
On
November 2, 2023, the Company entered into the First Amendment to Loan and Security Agreement (the “First Amendment”) with
Gibraltar Business Capital, LLC (“GBC”), which amended certain definition of the Subordinated Debt referenced in the Loan
and Security Agreement dated July 28, 2023 as Subordinated Debt owed by Borrower to Cleveland Capital L.P. pursuant to that certain Subordinated
Unsecured Promissory Note, dated as of November 1, 2023, in the aggregate principal amount of $
On
January 30, 2024, the Company entered into the Second Amendment to Loan and Security Agreement (the “Second Amendment”) with
GBC, which amended certain terms of the Loan and Security Agreement dated July 28, 2023, including but not limited to, (i) increasing
the commitment amount from $
| 11 |
The
loans and other obligations of the Company under the GBC Credit Facility are secured by substantially all of the tangible and intangible
assets of the Company (including, without limitation, intellectual property) pursuant to the terms of the Agreement and the Intellectual
Property Security Agreement entered into by and among the Company and GBC on July 28, 2023. During the nine months ended March 31, 2024,
the Company had multiple drawdowns under the GBC Credit Facility totaling $
As
of May 6, 2024, up to $
Silicon Valley Bank Credit Facility
On November 9, 2020, the Company entered into a Loan and Security Agreement (“Loan and Security 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 $
On
June 23, 2022, the Company entered into a Second Amendment to Loan and Security Agreement (“Second Amendment” and together
with the Loan Agreement, the “Second Amended Loan Agreement”) with SVB, which amended certain terms of the Loan Agreement,
including but not limited to, (i) increasing the amount of the revolving line of credit to $
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, the Company 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 $
| 12 |
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 $
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 ($
During
the nine months ended March 31, 2024, the Company had multiple Revolving LOC drawdowns totaling $
On July 28, 2023, the Company repaid in full all principal outstanding under the SVB Credit Facility, together with all accrued and unpaid interest and related fees, with a portion of the funds from the GBC Credit Facility and terminated the Loan and Security Agreement with SVB, as amended.
NOTE 6 - RELATED PARTY DEBT AGREEMENTS
As of March 31, 2024 and June 30, 2023, 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, 2024 and 2023.
Subordinated Line of Credit Facilities
Cleveland Capital, L.P. Credit Facility
On
November 2, 2023, the Company entered into a Credit Facility Agreement (the “Credit Facility”) with Cleveland Capital,
L.P., (the “Lender”). The Credit Facility provides the Company with a line of credit of up to $
Pursuant
to the terms of the Credit Facility, the Lender agreed to make loans (each such loan, an “Advance”) up to such Lender’s
Commitment Amount to the Company from time to time, until August 15, 2025 (the “Due Date”). The Note accrues interest at
Secured Overnight Financing Rate plus nine percent (
As consideration of the Lender’s commitment to provide the Advances to the Company, the Company issued the Lender warrants to purchase shares of common stock (the “Warrants”) which rights are represented by a warrant certificate (“Warrant Certificate”). Subject to certain ownership limitations, the Warrants are exercisable immediately from the date of issuance, expire on the five (5) year anniversary of the date of issuance and have an exercise price of $ per share. The exercise price of the Warrants is subject to certain adjustments, including stock dividends, stock splits, combinations and reclassifications of the common stock. In the event of a Triggering Event (as defined in the Warrant Certificate), the holder of the Warrants will be entitled to exercise the Warrants and receive the same amount and kind of securities, cash or property as such holder would have been entitled to receive upon the occurrence of such Triggering Event if such holder had exercised the rights represented by the Warrant Certificate immediately prior to the Triggering Event. Additionally, upon the holder’s request, the continuing or surviving corporation as a result of such Triggering Event will issue to such holder a new warrant of like tenor evidencing the right to purchase the adjusted amount of securities, cash or property and the adjusted warrant price. (See Note 6 – Stockholders’ Equity, Warrants).
| 13 |
2022 Subordinated LOC
On
May 11, 2022, the Company entered into a Credit Facility Agreement (the “2022 Subordinated LOC”) with Cleveland, Herndon
Plant Oakley, Ltd., (“HPO”), and other lenders (together with Cleveland and HPO, the “Lenders”). The 2022 Subordinated
LOC provided the Company with a short-term line of credit not less than $
Pursuant to the terms of the 2022 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
2022 Subordinated LOC included 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 2022 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
On November 2, 2023, the 2022 Subordinated LOC was terminated.
| 14 |
NOTE 7 - 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”).
From
December 21, 2020 through October 5, 2023, the Company sold an aggregate of shares of common stock at an average price of $
per share for gross proceeds of approximately $
On October 5, 2023, the Company terminated the Sales Agreement with HCW pursuant to the terms of the Sales Agreement.
Warrants
In
connection with the Company’s registered direct offering (“RDO”), in September
2021 the Company issued warrants to the RDO investors to purchase up to
In
May 2022 and in conjunction with the entry into the 2022 Subordinated LOC, 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 twelve-year
warrants to SVB and its designee, SVB Financial Group, to purchase up to
In
November 2023 and in conjunction with the entry into the 2023 Subordinated LOC, the Company issued five-year warrants to Cleveland Capital,
L.P. to purchase up to shares of the Company’s common stock at an exercise price of $ per share with a fair value of
approximately $
Warrant detail for the nine months ended March 31, 2024 is reflected below:
| Number of Warrants | Weighted Average Exercise Price Per Warrant | Weighted Average Term (# years) | ||||||||||
| Warrants outstanding and exercisable at June 30, 2023 | $ | |||||||||||
| Warrants issued | ||||||||||||
| Warrants exercised | ( | ) | $ | |||||||||
| Warrants outstanding and exercisable at March 31, 2024 | $ | |||||||||||
| 15 |
Warrant detail for the nine months ended March 31, 2023 is reflected below:
| Number of Warrants | Weighted Average Exercise Price Per Warrant | Weighted Average Remaining Term | ||||||||||
| Warrants outstanding and exercisable at June 30, 2022 | $ | |||||||||||
| Warrants issued | $ | |||||||||||
| Warrants exercised | ||||||||||||
| Warrants outstanding and exercisable at March 31, 2023 | $ | |||||||||||
| Nine Months Ended March 31, | ||||||||
| 2024 | 2023(1) | |||||||
| Expected volatility | % | * | ||||||
| Risk free interest rate | % | * | ||||||
| Dividend yield | % | % | ||||||
| Expected term (years) | * | |||||||
| (1) |
Stock Options
In connection with the reverse acquisition of Flux Power, Inc. in 2012, the Company assumed the 2010 Plan. As of March 31, 2024, there was 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, 2024, 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, 2024, shares of the Company’s common stock were available for future grants under the 2021 Plan.
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.
On October 20, 2023, the Board of Directors authorized a total of stock options to be granted under the Company’s 2014 Plan and 2021 Plan.
On March 4, 2024, the Board of Directors authorized a stock option to be granted under the 2021 Plan for shares.
| 16 |
| Number of Shares | Weighted Average Exercise Price | Weighted Term | ||||||||||
| Outstanding at June 30, 2023 | $ | |||||||||||
| Granted | $ | |||||||||||
| Exercised | ( | ) | $ | |||||||||
| Forfeited and cancelled | ( | ) | $ | |||||||||
| Outstanding at March 31, 2024 | $ | |||||||||||
| Exercisable at March 31, 2024 | $ | |||||||||||
Activity in the Company’s stock options during the nine months ended March 31, 2023 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, 2022 | $ | |||||||||||
| Granted | $ | |||||||||||
| Exercised | ( | ) | $ | |||||||||
| Forfeited and cancelled | ( | ) | $ | |||||||||
| Outstanding at March 31, 2023 | $ | |||||||||||
| Exercisable at March 31, 2023 | $ | |||||||||||
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 April 29, 2021, a total of 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”). On April 20, 2023, a total of time-based RSUs were authorized by the Company’s Board of Directors to be granted to the Company’s four non-executive directors under the amended 2014 Option Plan.
| Number of Shares | Weighted Grant date Fair Value | Weighted Term (# years) | ||||||||||
| Outstanding at June 30, 2023 | $ | |||||||||||
| Granted | $ | |||||||||||
| Vested and settled | ( | ) | $ | |||||||||
| Forfeited and cancelled | ( | ) | $ | |||||||||
| Outstanding at March 31, 2024 | $ | |||||||||||
| 17 |
Activity in RSUs during the nine months ended March 31, 2023 and related balances outstanding as of that date are reflected below:
| Number of Shares | Weighted Grant date Fair Value | Weighted (# years) | ||||||||||
| Outstanding at June 30, 2022 | $ | |||||||||||
| Granted | $ | |||||||||||
| Vested and settled | ( | ) | $ | |||||||||
| Forfeited and cancelled | ( | ) | $ | |||||||||
| Outstanding at March 31, 2023 | $ | |||||||||||
Employee Stock Purchase Plan
On
March 6, 2023, the Company’s Board of Directors approved the 2023 Employee Stock Purchase Plan (the “2023 ESPP”), and
on April 20, 2023, the 2023 ESPP was approved by the Company’s stockholders. 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 the grant of options 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
On March 28, 2024, participants in the 2023 ESPP purchased an aggregate total of shares of common stock at a price equal to% of $, which was the closing price of the Company’s common stock on the offering date pursuant to the provisions of the 2023 ESPP. At March 31, 2024, shares of the Company’s common stock were available for future grants under the 2023 ESPP.
Stock-based Compensation
Stock-based compensation expense for the three and nine months ended March 31, 2024 and 2023 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, 2024, the aggregate intrinsic value of exercisable stock options was approximately $.
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| Selling and administrative | ||||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | $ | ||||||||||||
| Nine Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Expected volatility | % | % | ||||||
| Risk free interest rate | % | % | ||||||
| Forfeiture rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Expected term (years) | ||||||||
| 18 |
At March 31, 2024, 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 8 - 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 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 $
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, 2024, 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, 2023, the Company had three (3) 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, 2024, the Company had one (1) supplier that accounted for more than 10% of total purchases and represented approximately $
During the three months ended March 31, 2023, the Company had one (1) supplier that accounted for more than 10% of total purchases and represented approximately $ or % of total purchases. During the nine months ended March 31, 2023, the Company had one (1) supplier that accounted for more than 10% of total purchases and represented approximately $ or% of total purchases.
NOTE 9 - 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.
| 19 |
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 $
Finance Leases
The Company’s leased properties as of March 31, 2024 are as follows:
| Lease Date | Property Leased | Lease Term (months) | Commencement Date | Monthly Lease Payment(1) | ||||||||
| 9/2/2022 | Vehicle | 9/10/2022 | $ | |||||||||
| 10/17/2022 | Manufacturing equipment | 10/17/2022 | $ | |||||||||
| 1/24/2023 | Manufacturing equipment | 1/24/2023 | $ | |||||||||
| 3/2/2023 | Manufacturing equipment | 3/2/2023 | $ | |||||||||
| (1) |
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, 2024 are as follows:
| Operating Leases | Finance Leases | |||||||
| Year Ending June 30, | ||||||||
| 2024 (remaining three months) | $ | $ | ||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Total Future Minimum Lease Payments | ||||||||
| Less: discount | ( | ) | ( | ) | ||||
| Total lease liability | $ | $ | ||||||
NOTE 10 - SUBSEQUENT EVENTS
Grant of Restricted Stock Units to Non-Executive Directors
On
April 18, 2024, the Company’s four non-executive directors were granted RSUs covering a total of shares of common stock
under the 2014 Plan and 2021 Plan, with each receiving RSUs based on aggregate grant date value of $
Waiver to Loan and Security Agreement with Gibraltar Business Capital
The
Company notified GBC of a certain event of default with respect to the Company’s anticipated failure to maintain the EBITDA
covenant for the trailing three (3) month period ended April 30, 2024, or Default. On May 8, 2024,
| 20 |
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, 2023.
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 focus on providing lithium-ion products and service to large fleets of Fortune 500 customers. 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 energy storage solutions and more environmentally friendly energy alternatives from commercial and industrial users 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 energy storage needs. We have established selling relationships with 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 technology and product mix, our sales and marketing efforts, by improving our customer support efforts, and by 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 to improve asset management for our customers. We have filed three new patents on advanced technology related to lithium-ion battery packs. The technology behind these pending patents is designed to:
| ● | increase battery life by optimizing the charging cycle, | |
| ● | give users a better understanding of the health of their battery in use, and | |
| ● | apply artificial intelligence to predictively balance the cells for optimal performance. |
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.
| 21 |
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, 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 | ||||||||
| June 30, 2023 | $ | 25,016,000 | $ | 19,780,000 | $ | 16,252,000 | $ | 28,544,000 | ||||||||
| September 30, 2023 | $ | 28,544,000 | $ | 8,102,000 | $ | 14,797,000 | $ | 21,849,000 | ||||||||
| December 31, 2023 | $ | 21,849,000 | $ | 26,552,000 | $ | 18,344,000 | $ | 30,057,000 | ||||||||
| March 31, 2024 | $ | 30,057,000 | $ | 4,030,000 | $ | 14,457,000 | $ | 19,630,000 | ||||||||
“Backlog” represents the amount of anticipated revenues, at a given point in time, 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 6, 2024, our order backlog was approximately $18.5 million and, in part, reflects current delays in orders of new forklifts due to a general slowing of capital spending by our customers.
Business Updates
We have recently experienced some delays in new orders of our energy storage solutions due to corresponding deferrals of new forklift purchases mainly caused by lower capital spending in the market sector that we serve and interest rate variability affecting selected large customer fleets. While we have had very few cancellations of existing purchase orders, some customers have revised their order terms to the July – December 2024 period. Causal rationale for delays is speculative and not definitive, but some customer feedback indicates concerns over the economy and the uncertainty of interest rates. The impact of order deferrals has required additional selling strategies to support our targeted sales trajectory.
We have seen improvements in our sourcing and purchasing activity, reflecting our efforts to expand and optimize our vendor strategy. Additional improvements include more secondary sources to minimize stock-outs, lower costs from increasing sources, and controlled delivery times, as evidenced in our maintaining inventory levels. With strategic supply chain and profitability improvement initiatives, lower costs and higher volume purchasing, we are targeting gross margin improvement to continue. We are highly focused on expanding sales and marketing initiatives to secure new customer relationships and support continued migration to lithium of current customers. We recently have added our second tier one OEM private label program to supplement our strong OEM relationships and approvals. We are also working with our distribution network to expand customer acquisition with direct-to-customer initiatives.
Recent Corporate Developments
The Company notified GBC of a certain event of default with respect to the Company’s anticipated failure to maintain the EBITDA covenant for the trailing three (3) month period ended April 30, 2024 (the “Default”). On May 8, 2024, the Company received a waiver to the Loan and Security Agreement with GBC dated July 28, 2023, as amended (the “Agreement”), which waived the Default, subject to satisfaction of the following conditions: (i) receipt of a counterpart of the Waiver duly executed by the Company; (ii) receipt of the waiver fee of $20,000; (iii) receipt of the representations and warranties from the Company that after giving effect to the Waiver, the representations and warranties contained in the Agreement, the Waiver and the other Loan Documents (as defined in the Agreement) shall be true and correct; and (iv) after giving effect to the Waiver, additional or event of default shall have occurred and be continuing on and as of the effective date of the Waiver. The Company is working with GBC to modify the financial covenants in the Agreement to prevent future defaults.
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, 2024 and March 31, 2023.
| Three Months Ended March 31, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| $ | % of Revenues | $ | % of Revenues | |||||||||||||
| Revenues | $ | 14,457,000 | 100 | % | $ | 15,087,000 | 100 | % | ||||||||
| Cost of sales | 10,067,000 | 70 | % | 10,368,000 | 69 | % | ||||||||||
| Gross profit | 4,390,000 | 30 | % | 4,719,000 | 31 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and administrative | 5,311,000 | 36 | % | 4,724,000 | 31 | % | ||||||||||
| Research and development | 1,286,000 | 9 | % | 1,182,000 | 8 | % | ||||||||||
| Total operating expenses | 6,597,000 | 45 | % | 5,906,000 | 39 | % | ||||||||||
| Operating loss | (2,207,000 | ) | -15 | % | (1,187,000 | ) | -8 | % | ||||||||
| Interest income (expense), net | (433,000 | ) | -3 | % | (258,000 | ) | -2 | % | ||||||||
| Net loss | $ | (2,640,000 | ) | -18 | % | $ | (1,445,000 | ) | -10 | % | ||||||
| 22 |
Revenues
Revenues for the quarter ended March 31, 2024, decreased by $630,000 or 4% to $14,457,000, compared to $15,087,000 for the quarter ended March 31, 2023. The decrease in revenues was primarily due to lower capital spending in the market sectors that we serve resulting in shipments of fewer units during the quarter ended March 31, 2024, partially offset by price increases for certain energy storage units.
Cost of Sales
Cost of sales for the quarter ended March 31, 2024, decreased by $301,000 or 3% to $10,067,000 compared to $10,368,000 for the quarter ended March 31, 2023. The decrease in cost of sales was directly associated with a decrease in units of energy storage packs sold during the current quarter, and lower average cost of sales per unit achieved during the current quarter as a result of our product cost improvement initiatives, offset by higher warranty costs. Cost of sales as a percent of revenues for the quarter ended March 31, 2024 was 70%, an increase of only 1 percentage point compared to 69% for the quarter ended March 31, 2023.
Gross Profit
Gross profit for the quarter ended March 31, 2024 decreased by $329,000 or 7%, to $4,390,000 compared to $4,719,000 for the quarter ended March 31, 2023. The gross profit margin (gross profit as a percent of revenues) decreased to 30% for the quarter ended March 31, 2024 compared to 31% for the quarter ended March 31, 2023. Gross profit margin decreased nominally by 100 basis points as a result of higher warranty expense during the current quarter, partially offset by lower average cost of sales per unit achieved during the quarter ended March 31, 2024 as a result of our product cost improvement initiatives.
Selling and Administrative Expenses
Selling and administrative expenses for the quarter ended March 31, 2024 increased by $587,000 or 12%, to $5,311,000 compared to $4,724,000 for the quarter ended March 31, 2023. The increase was primarily attributable to higher staff related expenses including certain severance expenses and increases in stock-based compensation, recruiting expenses, outbound shipping costs, and professional service fees, partially offset by decreases in sales commissions, D&O insurance expense, travel expense, and depreciation expense.
Research and Development Expense
Research and development expenses for the quarter ended March 31, 2024 increased by $104,000 or 9%, to $1,286,000 compared to $1,182,000 for the quarter ended March 31, 2023. 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 increase in research and development expense was primarily due to higher staff related expense including severance expense, stock-based compensation, travel expense, and general research and development costs, partially offset by a decrease in equipment rental fees.
Interest Expense, net
Interest expense for the quarter ended March 31, 2024 increased by $175,000 or 68% to $433,000 compared to $258,000 for the quarter ended March 31, 2023. The increase in interest expense was primarily related to higher balances outstanding under our credit facility. The interest expense for the quarter ended March 31, 2024 and 2023 included amortization of debt issuance costs related to our existing credit facility of $41,000 and $20,000, respectively. In addition, approximately $23,000 of other financing costs were included in interest expense during the quarter ended March 31, 2024.
| 23 |
Net Loss
Net loss for the quarter ended March 31, 2024 increased by $1,195,000 or 83%, to $2,640,000 as compared to $1,445,000 for the quarter ended March 31, 2023. The increase in net loss for the three months ended March 31, 2024 was primarily attributable to decreased gross profit, and increases in operating expenses and interest expense.
The following table represents our unaudited condensed consolidated statement of operations for the nine months ended March 31, 2024 and March 31, 2023.
| Nine Months Ended March 31, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| $ | % of Revenues | $ | % of Revenues | |||||||||||||
| Revenues | $ | 47,598,000 | 100 | % | $ | 50,085,000 | 100 | % | ||||||||
| Cost of sales | 33,229,000 | 70 | % | 37,310,000 | 74 | % | ||||||||||
| Gross profit | 14,369,000 | 30 | % | 12,775,000 | 26 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and administrative | 14,629,000 | 31 | % | 13,510,000 | 28 | % | ||||||||||
| Research and development | 4,021,000 | 8 | % | 3,567,000 | 7 | % | ||||||||||
| Total operating expenses | 18,650,000 | 39 | % | 17,077,000 | 35 | % | ||||||||||
| Operating loss | (4,281,000 | ) | -9 | % | (4,302,000 | ) | -9 | % | ||||||||
| Other income | - | 0 | % | 8,000 | 0 | % | ||||||||||
| Interest income (expense), net | (1,285,000 | ) | -3 | % | (971,000 | ) | -2 | % | ||||||||
| Net loss | $ | (5,566,000 | ) | -12 | % | $ | (5,265,000 | ) | -11 | % | ||||||
Revenues
Revenues for the nine months ended March 31, 2024, decreased by $2,487,000 or 5% to $47,598,000, compared to $50,085,000 for the nine months ended March 31, 2023. The decrease in revenues was due to lower capital spending in the market sectors that we serve resulting in shipments of fewer units during this fiscal year and a larger mix of lower capacity models.
Cost of Sales
Cost of sales for the nine months ended March 31, 2024, decreased by $4,081,000 or 11% to $33,229,000 compared to $37,310,000 for the nine months ended March 31, 2023. The decrease in cost of sales was directly associated with fewer units sold due to delays in the delivery and ordering of forklifts, partially offset by lower average cost of sales per unit achieved during the current period as a result of our product cost improvement initiatives. Cost of sales as a percent of revenues for the nine months ended March 31, 2024 was 70%, an improvement of 4 percentage points compared to 74% for the nine months ended March 31, 2023.
Gross Profit
Gross profit for the nine months ended March 31, 2024 increased by $1,594,000 or 11%, to $14,369,000, compared to $12,775,000 for the nine months ended March 31, 2023. The gross profit margin (gross profit as a percent of revenues) increased to 30% for the nine months ended March 31, 2024 compared to 26% for the nine months ended March 31, 2023. Gross profit margin improved by 400 basis points as a result of lower average cost of sales per unit achieved during the nine months ended March 31, 2024 as a result of our gross margin improvement initiatives, partially offset by a revenue decrease during the period.
| 24 |
Selling and Administrative Expenses
Selling and administrative expenses for the nine months ended March 31, 2024 increased by $1,119,000 or 8%, to $14,629,000, compared to $13,510,000 for the nine months ended March 31, 2023. The increase was primarily attributable to higher staff related expenses, including certain severance expenses and increases in stock-based compensation, recruiting costs, professional service fees, depreciation expense, public relation costs, and travel expense, partially offset by decreases in sales commissions, D&O insurance expense, sales and marketing expenses, and consulting fees.
Research and Development Expense
Research and development expenses for the nine months ended March 31, 2024 increased by $454,000 or 13%, to $4,021,000 compared to $3,567,000 for the nine months ended March 31, 2023. Such expenses consisted primarily of materials, supplies, salaries and personnel related expenses, product testing, consulting, and other expenses associated with revisions to new product development and existing product designs. The increase in research and development expenses was primarily due to higher staff related expenses, partially offset by decreases in equipment rental fees and general research and development costs.
Interest Expense, net
Interest expense, net for the nine months ended March 31, 2024 increased by $314,000 or 32% to $1,285,000 compared to $971,000 for the nine months ended March 31, 2023. The increase in interest expense was primarily related to higher balances outstanding under our credit facilities. The interest expense for the nine months ended March 31, 2024 and 2023 included additional interest expense of $175,000 and $445,000, respectively, representing the amortization of debt issuance costs related to our existing credit facilities. In addition, approximately $87,000 of other financing costs were included in interest expense during the nine months ended March 31, 2024.
Net Loss
Net loss for the nine months ended March 31, 2024 increased by $301,000 or 6%, to $5,566,000 as compared to $5,265,000 for the nine months ended March 31, 2023. The increase in net loss for the nine months ended March 31, 2024 was primarily attributable to increased gross profit, offset by increases in operating expenses and 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 $1,380,000 for the three months ended March 31, 2024 an increase of $704,000 compared to a loss of $676,000 for the three months ended March 31, 2023. Adjusted EBITDA was a loss of approximately $2,261,000 for the nine months ended March 31, 2024 and improved by $847,000 from a loss of $3,108,000 for the nine months ended March 31, 2023.
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.
| 25 |
A reconciliation of our Adjusted EBITDA to net loss is included in the table below:
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net loss | $ | (2,640,000 | ) | $ | (1,445,000 | ) | $ | (5,566,000 | ) | $ | (5,265,000 | ) | ||||
| Add/Subtract: | ||||||||||||||||
| Interest, net | 433,000 | 258,000 | 1,285,000 | 971,000 | ||||||||||||
| Depreciation and amortization | 264,000 | 276,000 | 787,000 | 647,000 | ||||||||||||
| EBITDA | (1,943,000 | ) | (911,000 | ) | (3,494,000 | ) | (3,647,000 | ) | ||||||||
| Add/Subtract: | ||||||||||||||||
| Stock-based compensation | 563,000 | 235,000 | 1,233,000 | 539,000 | ||||||||||||
| Adjusted EBITDA | $ | (1,380,000 | ) | $ | (676,000 | ) | $ | (2,261,000 | ) | $ | (3,108,000 | ) | ||||
Liquidity and Capital Resources
Overview
For the nine months ended March 31, 2024, the Company generated negative cash flows from operations of $4.3 million. As of March 31, 2024, the Company had an accumulated deficit of $94.1 million. To date, our business has not generated sufficient cash to fund our operations. However, given our existing backlog, we anticipate that revenue growth coupled with improvement in our gross margin and lower operating expenses will move us closer to profitability and improve our cash flow. Our gross margin improvement plan includes, but is not limited to, efforts to reduce product costs while increasing the price of our products for new orders. We have received new orders during the twelve (12) months period ended March 31, 2024, of approximately $58.5 million.
As of March 31, 2024, we have an existing cash balance of $1.3 million, the $2.4 million available under our $16.0 million GBC Credit Facility subject to borrowing base limitations, and the $2.0 million available from Cleveland Capital under our 2023 Subordinated LOC. However, if the Company continues the covenant non-compliance that was experienced for the trailing three (3) month period ended April 30, 2024, or the revised covenants set by GBC will not be met, there may not be additional funds available under the GBC LOC. (See Note 2 – Going Concern).
Cash Flows
Cash Flow Summary
Nine Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | (4,274,000 | ) | $ | (5,197,000 | ) | ||
| Net cash used in investing activities | (588,000 | ) | (745,000 | ) | ||||
| Net cash provided by financing activities | 3,733,000 | 6,247,000 | ||||||
| Net change in cash | $ | (1,129,000 | ) | $ | 305,000 | |||
Operating Activities
Net cash used in operating activities was $4,274,000 for the nine months ended March 31, 2024, compared to net cash used in operating activities of $5,197,000 for the nine months ended March 31, 2023, primarily reflecting increases in working capital requirements. The primary usages of cash for the nine months ended March 31, 2024 were the net loss of $5,566,000 and increases in accounts receivable, inventory, and other assets and decreases in office lease payable and customer deposits, that were partially offset by non-cash operating costs, and increases in accounts payable, accrued expenses, deferred revenue, and accrued interest. 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.
Investing Activities
Net cash used in investing activities was $588,000 for the nine months ended March 31, 2024 and consisted primarily of the costs of internal software development and other capital equipment.
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.
| 26 |
Financing Activities
Net cash provided by financing activities was $3,733,000 for the nine months ended March 31, 2024, which primarily consisted of $3,733,000 in net borrowing under the GBC Credit Facility and SVB Credit Facility, $110,000 proceeds from issuance of common stock, partially offset by payments of financed leases of $110,000.
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.
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 and have determined that our existing cash resources are not sufficient to meet our anticipated needs during the next twelve (12) months, from the filing of this quarterly report, and that additional financing is required to support current operations.
As of May 6, 2024, we had a cash balance of $1.7 million, funding available under our GBC Credit Facility under which up to $3.2 million is currently available, subject to borrowing base limitations, and funds available under our 2023 Subordinated LOC of up to $2.0 million. Our operations have relied on our ability to successfully maintain and draw on our credit facilities. In light of the recent Default under the GBC Credit Facility, we are working with GBC to modify the financial covenants in Agreement to prevent future defaults. However, there is no guarantee that we will be able to modify the terms in a manner that is favorable to us. If we are unable to modify the terms or otherwise meet the conditions provided in the Agreement, the funds may not be available to us.
Our ability to draw funds from the GBC Credit Facility is subject to certain restrictions, covenants and borrowing base limitations. If we are unable to modify the terms or otherwise meet the conditions provided in the loan documents, the funds may not be available to us. In addition, the Company’s operations have been impacted by delays in new orders of its energy storage solutions due to corresponding deferrals of new forklift purchases mainly caused by lower capital spending in the market sector that we serve and interest rate variability affecting selected large customer fleets which have impacted its ability to meet projected revenue targets and generate cash from operations. Further, these events have placed pressure on the Company’s cash resources and raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve months following the filing date of this Quarterly Report on Form 10-Q .
Furthermore, should there be any delays in the receipts of key component parts, due in part to supply change disruptions, our ability to fulfill 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 new product development, which may have a material adverse effect on future cash flows and results of operations and the Company’s ability to continue operating as a going concern.
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.
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, 2023 filed with the SEC on September 21, 2023.
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.
| 27 |
ITEM 4 - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision of management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and subsequent guidance prepared by the Commission specifically for smaller public companies as of March 31, 2024. Based on that evaluation, our management concluded that our internal control over financial reporting was not effective as of March 31, 2024 due to previously identified material weaknesses as a result of not having sufficient personnel resources with technical accounting expertise related to certain aspects of the financial reporting process. Management engaged a financial consultant during the quarter ended March 31, 2024 with extensive technical accounting expertise in order to provide the technical advice needed. Management has also strengthened the Company’s financial expertise by recently hiring an experienced chief financial officer in early March 2024. Management believes that such staff and consultant additions have improved our internal control over financial reporting and has moved us towards remediating previously identified material weaknesses.
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, 2023, 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, 2023, our internal control over financial reporting was not effective due to an identified material weakness as a result of not having sufficient personnel resources with technical accounting expertise related to certain aspects of the financial reporting process. 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 fiscal quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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, 2023, filed with the SEC on September 21, 2023, 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.
| 28 |
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
The Company notified GBC of a certain event of default with respect to the Company’s anticipated failure to maintain the EBITDA covenant for the trailing three (3) month period ended April 30, 2024 (the “Default”). On May 8, 2024, the Company received a waiver to the Loan and Security Agreement with GBC dated July 28, 2023, as amended (the “Agreement”), which waived the Default, subject to satisfaction of the following conditions: (i) receipt of a counterpart of the Waiver duly executed by the Company; (ii) receipt of the waiver fee of $20,000; (iii) receipt of the representations and warranties from the Company that after giving effect to the Waiver, the representations and warranties contained in the Agreement, the Waiver and the other Loan Documents (as defined in the Agreement) shall be true and correct; (iv) after giving effect to the Waiver, no additional event of default shall have occurred and be continuing on and as of the effective date of the Waiver.
ITEM 6 - EXHIBITS
The following exhibits are filed as part of this Report.
| * | Filed herewith |
| 29 |
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 13, 2024 | By: | /s/ Ronald F. Dutt |
| Ronald F. Dutt | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Kevin Royal | |
| Kevin Royal | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||
| 30 |