Flux Power(FLUX) - 2020 Q2 - Quarterly Report

Part I - Financial Information Financial Statements This section presents Flux Power Holdings, Inc.'s unaudited condensed consolidated financial statements, revealing increased liabilities, widening net losses, and a critical going concern warning due to insufficient operating cash flow Condensed Consolidated Balance Sheets As of December 31, 2019, the company's total assets were $11.3 million, a significant increase from $7.2 million at June 30, 2019, primarily due to the recognition of a $2.6 million right-of-use asset Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2019 (Unaudited) | June 30, 2019 | | :--- | :--- | :--- | | Total Assets | $11,331 | $7,206 | | Total Current Assets | $8,230 | $6,702 | | Right of use asset | $2,553 | $0 | | Total Liabilities | $20,691 | $10,375 | | Line of credit - related party | $10,691 | $6,405 | | Office lease payable (current & long-term) | $2,692 | $0 | | Total Stockholders' Deficit | $(9,360) | $(3,169) | | Accumulated Deficit | $(46,197) | $(39,076) | Condensed Consolidated Statements of Operations For the three months ended December 31, 2019, net revenue grew 33% year-over-year to $3.6 million, but net loss also increased to $3.3 million from $2.9 million Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $3,615 | $2,711 | $5,534 | $4,547 | | Gross Profit | $326 | $255 | $443 | $272 | | Operating Loss | $(2,924) | $(2,231) | $(6,410) | $(4,358) | | Net Loss | $(3,307) | $(2,924) | $(7,121) | $(5,325) | | Net Loss Per Share | $(0.65) | $(0.70) | $(1.39) | $(1.46) | Condensed Consolidated Statements of Cash Flows For the six months ended December 31, 2019, net cash used in operating activities was $4.0 million, an improvement from $5.3 million used in the prior year period Cash Flow Summary - Six Months Ended Dec 31 (in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,987) | $(5,256) | | Net cash used in investing activities | $(122) | $(101) | | Net cash provided by financing activities | $4,143 | $3,695 | | Net change in cash | $34 | $(1,662) | | Cash, end of period | $136 | $1,044 | Notes to Condensed Consolidated Financial Statements The notes detail the company's business, accounting policies, and significant financial events, including a reverse stock split, going concern warning, related-party debt, and customer/supplier concentrations - The company designs, develops, manufactures, and sells advanced rechargeable lithium-ion energy storage solutions for industrial applications like lift trucks and airport ground support equipment[26] - A 1-for-10 reverse stock split was effected on July 11, 2019, reducing outstanding common stock from ~51.0 million to ~5.1 million shares All share and per-share data have been retroactively adjusted[29] - There is substantial doubt about the Company's ability to continue as a going concern due to an accumulated deficit of $46.2 million and insufficient cash flow from operations The company had only $136,000 in cash as of December 31, 2019, and is dependent on raising additional capital[32] - The related-party line of credit was amended to increase the maximum principal from $10 million to $12 million and extend the maturity to June 30, 2020 The outstanding balance was $10.7 million as of December 31, 2019[35][50] - For the six months ended December 31, 2019, three major customers accounted for 74% of total revenues, and two suppliers accounted for 34% of total purchases[65][69] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses financial results, highlighting revenue growth offset by widening net losses due to increased operating expenses and critical liquidity issues requiring significant additional capital Recent Developments The company is expanding its product line with larger LiFT Packs for Class 1, 2, and 3 forklifts, and secured significant orders for airport GSE and stationary power storage batteries - Successfully launched new LiFT Pack batteries for Class 2 Narrow Aisle and Class 3 End Rider forklifts in December 2019[81] - Received a $300,000 order for airport GSE batteries in October 2019 and an $800,000 order for stationary storage batteries for EV charging stations in December 2019[82][83] Results of Operations For the quarter ended Dec 31, 2019, revenue increased 33% YoY to $3.6 million, but net loss grew 13% to $3.3 million, primarily due to higher operating expenses Comparison of Three Months Ended December 31, 2019 and 2018 (in thousands) | Metric | Q2 2020 | Q2 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenue | $3,615 | $2,711 | +33% | | Gross Profit | $326 | $255 | +28% | | Selling & Admin Expenses | $2,229 | $1,604 | +39% | | R&D Expenses | $1,021 | $882 | +16% | | Net Loss | $(3,307) | $(2,924) | +13% | Comparison of Six Months Ended December 31, 2019 and 2018 (in thousands) | Metric | 2019 | 2018 | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenue | $5,534 | $4,547 | +22% | | Gross Profit | $443 | $272 | +63% | | Selling & Admin Expenses | $4,492 | $3,097 | +45% | | R&D Expenses | $2,361 | $1,533 | +54% | | Net Loss | $(7,121) | $(5,325) | +34% | Liquidity and Capital Resources The company's liquidity position is precarious, with a cash balance of only $136,000, requiring significant additional financing to sustain operations - As of December 31, 2019, the company had a cash balance of $136,000 and an accumulated deficit of $46.2 million[104] - Management has determined that existing cash resources are not sufficient for the next twelve months and that additional financing is required to support current operations[109] - The company intends to seek capital through equity sales, convertible debt, and its credit facility, which was increased to $12 million As of Dec 31, 2019, $10.7 million was outstanding under this facility[110] Quantitative and Qualitative Disclosures About Market Risk The company is a smaller reporting company and is not required to provide the information for this item - As a smaller reporting company, Flux Power is not required to provide quantitative and qualitative disclosures about market risk[117] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of the end of the period, with no material changes to internal controls over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2019[118] - There were no changes in internal controls over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[120] Part II - Other Information Legal Proceedings To the best of management's knowledge, there are no material legal proceedings pending against the company - The company reports no material pending legal proceedings[122] Risk Factors The report states that an investment in the company's common stock involves a high degree of risk and refers investors to the detailed risk factors described in its Annual Report on Form 10-K - Investors are directed to the risk factors section of the company's Annual Report on Form 10-K for a comprehensive understanding of the risks involved[123] Unregistered Sales of Equity Securities and Use of Proceeds None reported for the period - The company reported no unregistered sales of equity securities during the period[124] Exhibits This section lists the exhibits filed with the 10-Q report, including amendments to credit and security agreements, promissory notes, and Sarbanes-Oxley Act certifications - Exhibits filed include amendments to the credit facility and promissory notes with related parties, as well as required CEO and CFO certifications[129]