FLUX POWER HOLDINGS, INC. 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 endedJune 30, 2021 . Business Overview We design, develop, manufacture, and sell a portfolio of advanced lithium-ion energy storage solutions for the material handling sector which includes lift trucks, airport ground support equipment ("GSE"), and other industrial and commercial applications. We believe our mobile and stationary energy storage solutions provide our customers a reliable, high performing, cost effective, and more environmentally friendly alternative as compared to traditional lead acid and propane-based solutions. Our modular and scalable design allows different configurations of lithium-ion battery packs to be paired with our proprietary wireless battery management system to provide the level of energy storage required and "state of the art" real time monitoring of pack performance. We believe that the increasing demand for lithium-ion battery packs in the material handling sector will continue to drive our current 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 fleets of forklifts and GSEs as a priority. We intend to reach this goal by investing in research and development to expand our product mix, and by expanding our sales and marketing efforts, improving our customer support efforts and continuing our efforts to improve production capacity and efficiencies. Our research and development efforts will continue to focus on providing adaptable, reliable and cost-effective energy storage solutions for our customers. We recently filed three new patents on advanced technology related to lithium-ion battery packs. The technology behind these pending patents are 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.
We currently focus on 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, provide further 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 growthand "building scale" objectives.
The following table summarizes the new orders, shipments, and backlog activities for the last six (6) fiscal quarters:
Fiscal Quarter Ended Beginning Backlog New Orders Shipments Ending Backlog June 30, 2020 $ 6,581,000$ 2,667,000 $ 6,097,000 $ 3,151,000 September 30, 2020 $ 3,151,000$ 3,924,000 $ 4,547,000 $ 2,528,000 December 31, 2020 $ 2,528,000$ 6,561,000 $ 6,330,000 $ 2,759,000 March 31, 2021 $ 2,759,000$ 9,977,000 $ 6,826,000 $ 5,910,000 June 30, 2021 $ 5,910,000$ 15,053,000 $ 8,339,000 $ 12,624,000 September 30, 2021$ 12,624,000 $ 13,122,000 $ 6,313,000 $ 19,433,000
In addition, as ofNovember 10, 2021 , our current backlog was approximately$28.4 million .Our recent business growth in orders received, revenues and backlog reflects our expanded product line, additional OEM relationships and supply contracts, production capacity increases, and an expanded nation-wide service footprint. Backlog represents the amount of revenues we expect to recognize in the future from purchase orders received from customers. The backlog values we disclose include anticipated revenues associated with the original customer orders; and adjustments for any change orders for which we have received written confirmations from the applicable customers. Backlog may not be indicative of future operating results, and projects in our backlog may be cancelled, modified or otherwise altered by customers. Our ability to realize revenue from the current backlog is dependent on the delivery of key parts from our vendors in a timely manner. We can provide no assurance as to the profitability of our orders reflected in backlog. Page 19 Recent Developments Recent Financing OnSeptember 27, 2021 , we closed a registered direct offering, priced at-the-market under Nasdaq rules, for the sale of 2,142,860 shares of our common stock and warrants to purchase up to an aggregate of 1,071,430 shares of common stock, at an offering price of$7.00 per share and associated warrant for gross proceeds of approximately$15.0 million prior to deducting offering expenses. The Company received net proceeds of approximately$14.1 million , net of commissions and other offering related expenses The associated warrants have an exercise price of$7.00 per share and are exercisable upon issuance and expire in five years. COVID-19 Update The COVID-19 pandemic has spread across the globe and is impacting worldwide economic activity. While the Company implemented COVID-19 measures inMarch 2020 as recommended by the CDC and governmental authorities, since the start of the pandemic the Company has been notified that a limited number of employees had tested positive for COVID-19. Our manufacturing operations have not experienced production stoppages and have not been materially impacted; however, future operations could be affected by continuation of the COVID-19 pandemic.
Increase in Revolving Line of Credit with
OnOctober 29, 2021 , we entered into a First Amendment to Loan and Security Agreement ("First Amendment") withSilicon Valley Bank , or SVB, which amended certain terms of the Loan and Security Agreement datedNovember 9, 2020 (the "Loan Agreement") including but not limited, the amount of the revolving line of credit from$4.0 million to$6.0 million (the "Revolving LOC"), and the maturity date toNovember 7, 2022 . Outstanding principal under the Revolving LOC accrues interest at a floating rate per annum equal to the greater of (i) Prime Rate plus two and a half percent (2.50%) or (ii) five and three-quarters percent (5.75%). Interest payment is due monthly on the last day of the month. In the event of default, the amounts due under the Loan Agreement will bear interest at a rate per annum equal to five percent (5.0%) above the rate that is otherwise applicable to such amounts. We paid a non-refundable commitment fee of$15,000 upon execution of the Loan Agreement, and agreed to pay an additional non-refundable commitment fee of$22,500 in connection with the First Amendment. In addition, we are required to pay a quarterly unused facility fee equal to one-quarter of one percent (0.25%) per annum of the average daily unused portion of the commitments under the Revolving LOC, depending upon availability of borrowings under the Revolving LOC. The loans and other obligations of the Company under the Loan Agreement 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 Loan Agreement and the Intellectual Property Security Agreement dated as ofNovember 9, 2020 .
Segment and Related Information
We operate as a single reportable segment.
Page 20
Results of Operations and Financial Condition
The following table represents our unaudited condensed consolidated statement of operations for the three months endedSeptember 30, 2021 andSeptember 30, 2020 . Three Months Ended September 30, 2021 2020 % of % of $ Revenues $ Revenues Revenues$ 6,271,000 100 %$ 4,499,000 100 % Cost of sales 4,933,000 79 % 3,626,000 81 % Gross profit 1,338,000 21 % 873,000 19 % Operating expenses: Selling and administrative 3,498,000 56 % 2,920,000 65 % Research and development 1,967,000 31 % 1,507,000 33 % Total operating expenses 5,465,000 87 % 4,427,000 98 % Operating loss (4,127,000 ) -66 % (3,554,000 ) -79 % Interest expense, net (3,000 ) -0 % (430,000 ) -10 % Net loss$ (4,130,000 ) -66 %$ (3,984,000 ) -89 % Revenues
Revenues for the quarter endedSeptember 30, 2021 , increased by$1,772,000 or 39% to$6,271,000 , compared to$4,499,000 for the quarter endedSeptember 30, 2020 . The increase in revenues was due to sales of packs with higher selling prices and a higher unit volume of packs sold. The increase in revenues included both greater sales to existing customers as well as initial sales to new customers. Cost of Sales Cost of sales for the quarter endedSeptember 30, 2021 , increased by$1,307,000 , or 36%, to$4,933,000 compared to$3,626,000 for the quarter endedSeptember 30, 2020 . The increase in cost of sales was due to higher sales of energy solutions, partially offset by improved overall cost of sales efficiencies. Cost of sales as a percent of revenue for the quarter endedSeptember 30, 2021 was 79%, an improvement of 2% over 81% for the same period last year. Page 21 Gross Profit
Gross profit for the quarter endedSeptember 30, 2021 increased by$465,000 or 53%, to$1,338,000 compared to$873,000 for the quarter endedSeptember 30, 2020 , and gross profit margin (gross profit as a percent of revenues) increased to 21% compared to 19%. Improvement in the gross profit was primarily attributable to higher unit volume of sales to both new and existing customers, and to improved overall cost of sales efficiencies. However, gross profit was impacted by higher costs for steel, electronic parts, and common off the shelf parts during quarter endedSeptember 30, 2021 .
Selling and Administrative Expenses
Selling and administrative expenses for the quarter endedSeptember 30, 2021 increased by$578,000 or 20%, to$3,498,000 compared to$2,920,000 for the quarter endedSeptember 30, 2020 . The increase was primarily attributable to increases in personnel expenses related to new hires and temporary labor, an increase in insurance premiums, higher sales and marketing and IR/PR expenses, and outbound shipping costs, partially offset by a decrease in professional services including accounting and legal expenses.
Research and Development Expense
Research and development expenses for the quarter endedSeptember 30, 2021 increased by$460,000 or 31%, to$1,967,000 compared to$1,507,000 for the quarter endedSeptember 30, 2020 . Such expenses consisted primarily of materials, supplies, salaries and personnel related expenses, product testing, consulting, and other expenses associated with development. The increase in research and development expenses was primarily due to new product development activities including expenses related to UL certifications, higher personnel expenses related to new hires and temporary labor. Interest Expense Interest expense for the quarter endedSeptember 30, 2021 decreased by$427,000 or 99% to$3,000 compared to$430,000 for the quarter endedSeptember 30, 2020 . Interest expense consisted primarily of interest expense related to our outstanding lines of credit and convertible promissory note. Also included in interest expense during the quarter endedSeptember 30, 2020 is additional interest expense of approximately$174,000 representing the amortization of debt discount related toCleveland Loan that was paid off during that quarter. (see Note 4 to the condensed consolidated financial statements). Net Loss Net loss for the quarter endedSeptember 30, 2021 increased nominally by$146,000 or 4%, to$4,130,000 as compared to$3,984,000 for the quarter endedSeptember 30, 2020 . The increase is primarily attributable to increased operating expenses, partially offset by a decrease in interest expense and
an increase in gross profit.
Liquidity and Capital Resources
Overview As ofSeptember 30, 2021 , we had a cash balance of$15,737,000 and an accumulated deficit of$70,335,000 . Our business has not generated sufficient cash to fund our planned operations, and we may need additional cash and capital resources to support our continued operations and to execute our business plan. However, we believe that our existing cash and additional funding available under our revolving line of credit for up to$6.0 million withSilicon Valley Bank , will be sufficient to meet our anticipated capital resources to fund planned operations for the next twelve months. See "Future Liquidity Needs"
below.
Page 22
Cash Flows
Cash Flow Summary
Three Months Ended September 30,
2021 2020
Net cash used in operating activities
(238,000 ) (214,000 )
Net cash provided by financing activities 15,678,000 11,308,000
Net change in cash $ 11,024,000 $ 5,424,000
Operating Activities
Net cash used in operating activities was$4,416,000 for the quarter endedSeptember 30, 2021 , compared to net cash used in operating activities of$5,670,000 for the same period in prior year. The net cash used in operating activities for the quarter endedSeptember 30, 2021 reflects the net loss of$4,130,000 . The primary usages of cash were increases in inventory and other assets, and an increase in net loss (as adjusted for noncash costs and expenses), partially offset by a decrease in accounts receivable and an increase in accounts payable.
Net cash used in operating activities was$5,670,000 for the quarter endedSeptember 30, 2020 . The net cash used in operating activities for the quarter endedSeptember 30, 2020 reflects the net loss of$3,984,000 . The primary usages of cash were increases in accounts receivable, inventory, and other assets, as well as an increase in net loss (as adjusted for noncash costs and expenses), and decreases in accounts payable, due to factor, and customer deposits. Investing Activities
Net cash used in investing activities was
Net cash used in investing activities was
Financing Activities Net cash provided by financing activities was$15,678,000 for the quarter endedSeptember 30, 2021 , which primarily consisted of$14,076,000 in net proceeds from issuances of common stock in the registered direct offering closed onSeptember 27, 2021 , and net proceeds from sales of common stock under our ATM Offering. Net cash provided by financing activities was$11,308,000 for the quarter endedSeptember 30, 2020 , which primarily consisted of$13,898,000 in net proceeds from issuances of common stock in the public offering and the private placement, which were partially offset by$2,580,000 in payments of outstanding related party borrowings. Page 23 Future Liquidity Needs We have evaluated our expected cash requirements over the next twelve months, which include, but are not limited to, investments in additional sales and marketing and research and development, capital expenditures, and working capital requirements. We believe that our existing cash and additional funding available under our revolving line of credit withSilicon Valley Bank for up to$6.0 million , will be sufficient to meet our anticipated capital resources to fund planned operations for the next twelve months. We continue to have positive gross margin which has improved cash flow from operations. 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. In the event we are required to obtain additional funds, there is no guarantee that we will be able to raise or obtain the additional funds or that the funds will be available to us on favorable terms.
Off-Balance Sheet Arrangements
None. Critical Accounting Policies
The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted inthe 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 endedJune 30, 2021 .
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