Flux Power(FLUX) - 2022 Q2 - Quarterly Report

PART I Condensed Consolidated Financial Statements (Unaudited) The unaudited condensed consolidated financial statements show a significant increase in total assets to $38.0 million, driven by higher cash and inventories, while the net loss widened to $5.1 million for the quarter and $9.2 million for the six-month period, compared to the prior year. Condensed Consolidated Balance Sheet Highlights (in millions) | Account | Dec 31, 2021 | June 30, 2021 | | :--- | :--- | :--- | | Cash | $7.9 | $4.7 | | Inventories, net | $19.6 | $10.5 | | Total Assets | $38.0 | $26.3 | | Accounts payable | $9.2 | $7.2 | | Line of credit | $3.5 | $0.0 | | Total Liabilities | $18.2 | $13.3 | | Accumulated deficit | $(75.4) | $(66.2) | | Total Stockholders' Equity | $19.8 | $13.0 | Condensed Consolidated Statements of Operations Highlights (in millions, except per share data) | Metric | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | Six Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $7.7 | $6.5 | $14.0 | $11.0 | | Gross Profit | $1.0 | $1.5 | $2.4 | $2.4 | | Operating Loss | $(5.0) | $(3.2) | $(9.2) | $(6.8) | | Net Loss | $(5.1) | $(3.4) | $(9.2) | $(7.3) | | Net Loss Per Share | $(0.32) | $(0.29) | $(0.62) | $(0.69) | Condensed Consolidated Statements of Cash Flows Highlights (in millions) | Cash Flow Activity | Six Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(15.4) | $(10.3) | | Net cash used in investing activities | $(0.5) | $(0.4) | | Net cash provided by financing activities | $19.1 | $14.6 | | Net change in cash | $3.1 | $3.9 | - The company has an accumulated deficit of $75.4 million as of December 31, 2021, and its recurring net losses raise substantial doubt about its ability to continue as a going concern, with continuation dependent on improving margins, reducing costs, and raising additional capital[33] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses significant revenue growth driven by increased demand for its lithium-ion energy solutions, particularly in the material handling sector, which is tempered by severe supply chain disruptions that have increased costs and led to a decline in gross profit margins, while the company's order backlog has surged to $31.4 million as of December 31, 2021, and operating expenses have also risen due to investments in personnel and R&D, raising liquidity concerns and the potential need for additional funding within the next twelve months. - The company's long-term strategy is to meet the growing demand for lithium-ion energy solutions by targeting large companies, expanding its product mix through R&D, and improving production capacity[105] - The company is facing significant supply chain disruptions due to the COVID-19 pandemic, leading to delivery delays and dramatic price increases for steel and electronic components, necessitating a price increase implemented in October 2021 to offset these rising costs[111] Order Backlog Trend (in millions) | Quarter End | Beginning Backlog | New Orders Received | Shipments | Ending Backlog | | :--- | :--- | :--- | :--- | :--- | | Sep 30, 2020 | $3.15 | $3.92 | $4.55 | $2.53 | | Dec 31, 2020 | $2.53 | $6.56 | $6.33 | $2.76 | | Mar 31, 2021 | $2.76 | $9.98 | $6.83 | $5.91 | | Jun 30, 2021 | $5.91 | $15.05 | $8.34 | $12.62 | | Sep 30, 2021 | $12.62 | $13.12 | $6.31 | $19.43 | | Dec 31, 2021 | $19.43 | $19.82 | $7.84 | $31.42 | - The order backlog continued to grow, reaching approximately $34.8 million as of February 7, 2022[109] Results of Operations - Three Months Ended December 31, 2021 vs 2020 For the quarter ended December 31, 2021, revenues increased by 19% to $7.7 million year-over-year, driven by higher sales volume and prices, while gross profit decreased by 30% to $1.0 million, with the gross margin falling from 23% to 14% due to increased material and component costs, and operating expenses rose 28%, primarily from higher personnel and R&D costs, consequently widening the net loss by 51% to $5.1 million. Q2 FY2022 vs Q2 FY2021 Performance (in millions) | Metric | Q2 FY2022 (ended Dec 31, 2021) | Q2 FY2021 (ended Dec 31, 2020) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $7.7 | $6.5 | +19% | | Gross Profit | $1.0 | $1.5 | -30% | | Gross Margin | 14% | 23% | -9 p.p. | | Operating Expenses | $6.1 | $4.7 | +28% | | Net Loss | $(5.1) | $(3.4) | +51% | - The increase in cost of sales (33%) outpaced revenue growth (19%), primarily due to supply chain interruptions causing higher costs for steel and electronic parts[124] - Selling and administrative expenses increased by 28% to $4.0 million due to higher personnel costs, shipping, and insurance premiums[126] - Research and development expenses rose 31% to $2.1 million, driven by UL certification costs and increased personnel expenses[127][128] Results of Operations - Six Months Ended December 31, 2021 vs 2020 For the six months ended December 31, 2021, revenues grew 27% to $14.0 million compared to the prior-year period, while gross profit remained flat at $2.4 million, but the gross margin declined from 22% to 17% due to higher input costs, and total operating expenses increased by 26% to $11.6 million, driven by investments in personnel, R&D, and higher shipping costs, resulting in a 25% increase in net loss to $9.2 million. First Half FY2022 vs First Half FY2021 Performance (in millions) | Metric | H1 FY2022 (ended Dec 31, 2021) | H1 FY2021 (ended Dec 31, 2020) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $14.0 | $11.0 | +27% | | Gross Profit | $2.4 | $2.4 | +1% | | Gross Margin | 17% | 22% | -5 p.p. | | Operating Expenses | $11.6 | $9.2 | +26% | | Net Loss | $(9.2) | $(7.3) | +25% | - Cost of sales increased by 35% to $11.6 million, outpacing the 27% revenue growth, reflecting the impact of supply chain-related cost pressures[134] - Interest expense decreased significantly by 94% to $34 thousand, primarily because related party debt was paid off or converted in the prior year[140] Liquidity and Capital Resources As of December 31, 2021, the company had a cash balance of $7.9 million, with net cash used in operating activities at $15.4 million for the six-month period, a significant increase from the prior year, mainly due to the net loss and a $9.2 million increase in inventory, while financing activities provided $19.1 million in cash, primarily from a registered direct offering ($14.0 million net), borrowings under a line of credit ($3.5 million), and an ATM offering ($1.6 million net), but despite this financing, management has determined that anticipated cash resources may not be sufficient for the next twelve months, raising substantial doubt about its ability to continue as a going concern without additional funding. - The company had a cash balance of $7.9 million and an accumulated deficit of $75.4 million as of December 31, 2021[142] - Net cash used in operating activities for the six months ended Dec 31, 2021, was $15.4 million, primarily due to a net loss of $9.2 million and a significant increase in inventory[143] - Net cash from financing activities was $19.1 million, sourced from a registered direct offering, a working capital line of credit, and an ATM offering[147] - Management believes existing cash and available credit may not be sufficient to fund operations for the next twelve months due to potential supply chain delays impacting order fulfillment, and additional financing may be required[149] Quantitative and Qualitative Disclosures About Market Risk The company is a smaller reporting company and is therefore not required to provide the information for this item. - As a smaller reporting company defined by Rule 12b-2 of the Exchange Act, the company is not required to provide quantitative and qualitative disclosures about market risk[154] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of December 31, 2021, with no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls. - Based on an evaluation as of the end of the period, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[155] - There were no changes in the company's internal controls over financial reporting during the six months ended December 31, 2021, that have materially affected, or are reasonably likely to materially affect, the controls[157] PART II - Other Information Legal Proceedings The company is not aware of any material legal proceedings currently pending or expected against it, and while it may become involved in various lawsuits in the ordinary course of business, none are currently material. - To the best of management's knowledge, there are no material legal proceedings pending against the Company[159] Risk Factors This section directs investors to the risk factors detailed in the company's Annual Report on Form 10-K for the fiscal year ended June 30, 2021, with no new or updated risk factors presented in this quarterly report. - Investors are advised to consider the risks set forth in the "Risk Factors" section of the Annual Report on Form 10-K for the fiscal year ended June 30, 2021[160] Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period covered by this report. - None reported for the period[162] Other Information There is no other information to report for the period. - None reported for the period[164]