FLUX POWER HOLDINGS, INC.
The discussion should be read in conjunction with the Consolidated Financial
Statements and Notes thereto contained in this Annual Report on Form 10-K. Some
of the statements contained in the following discussion of the Company's
financial condition and results of operations refer to future expectations or
include other "forward-looking" information. Those statements are subject to
known and unknown risks, uncertainties and other factors that could cause the
actual results to differ materially from those contemplated, including, but not
limited to, those discussed in Part I, Item 1A of this report under the heading
"Risk Factors," which are incorporated herein by reference. See "Special Note
regarding Forward-Looking Statements" included in this Report on Form 10-K for a
discussion of factors to be considered when evaluating forward-looking
information detailed below. These factors could cause our actual results to
differ materially from the forward-looking statements.
Business Overview
We design, develop, manufacture, and sell a portfolio of advanced lithium-ion
energy storage solutions for electrification of a range of industrial and
commercial sectors which include material handling, airport ground support
equipment ("GSE"), and stationary energy storage. We believe our mobile and
stationary energy storage solutions provide our customers a reliable, high
performing, cost effective, and more environmentally friendly alternative as
compared to traditional lead acid and propane-based solutions. Our modular and
scalable design allows different configurations of lithium-ion battery packs to
be paired with our proprietary wireless battery management system to provide the
level of energy storage required and "state of the art" real time monitoring of
pack performance. We believe that the increasing demand for lithium-ion battery
packs and more environmentally friendly energy storage solutions in the material
handling sector should continue to drive our revenue growth.
Our long-term strategy is to meet the rapidly growing demand for lithium-ion
energy solutions and to be the supplier of choice, targeting large companies
having energy storage needs. We have established selling relationships with
large fleets of forklifts and GSEs. We intend to reach this goal by investing in
research and development to expand our product mix, 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 have 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.
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 current
growth and further opportunities. We intend to continue to expand our supply
chain and customer partnerships and seek further partnerships and/or
acquisitions that provide synergy to meeting our growth and "building scale"
objectives.
The following table summarizes the new orders, shipments, and backlog activities for the last six (6) fiscal quarters:
Beginning Ending
Fiscal Quarter Ended Backlog New Orders Shipments Backlog
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
December 31, 2021 $ 19,433,000 $ 19,819,000 $ 7,837,000 $ 31,415,000
March 31, 2022 $ 31,415,000 $ 20,495,000 $ 13,317,000 $ 38,593,000
June 30, 2022 $ 38,593,000 $ 11,622,000 $ 15,195,000 $ 35,020,000
24
"Backlog" represents the amount of anticipated revenues we may recognize in the future from existing contractual orders with customers that are in progress and have not yet shipped. Backlog values may not be indicative of future operating results as orders may be cancelled, modified or otherwise altered by customers. In addition, our ability to realize revenue from our backlog will be dependent on the delivery of key parts from our suppliers and our ability to manufacture and ship our products to customers in a timely manner. There can be no assurance that outstanding customer orders will be fulfilled as expected and that our backlog will result in future revenues.
As of
Business Updates Due to the growth in orders for our energy storage solutions and accessories, coupled with supply chain disruptions due to COVID-19 delaying our ability to fulfill such orders, we have experienced an increase in our backlog of open orders during Fiscal 2022.
Supply
Due to COVID-19 pandemic, supply chain disruptions continue, notably with delivery delays at the ports ofLos Angeles andLong Beach . In addition, the price of steel and certain other electrical components used in our products have seen dramatic increases, along with increased shipping costs. It is impossible to predict how long the current disruptions to the cost and availability of raw materials and component parts will last. We implemented price increases on certain new product orders inOctober 2021 andApril 2022 to offset rising global costs of raw materials and component parts. In addition, we increased our inventory of raw materials and component parts to$16.3 million as ofJune 30, 2022 to mitigate supply chain disruptions and support timely deliveries. However, there can be no assurance that our price increases, inventory levels or any future steps we take will be sufficient to offset the rising procurement costs and manage sourcing of raw materials and component parts effectively.
To address some of these negative consequences and to support the future growth of our business, we have implemented a number of new strategic initiatives:
Strategic Initiatives. To support our high growth business and strategy, our first priority over the coming quarters is achieving "profitability," specifically, cash flow breakeven. Accordingly, we have strategic initiatives underway in two areas:
? Gross margin improvements
? Utilize lower cost, more reliable, and secondary suppliers of key components
including cells, steel, electronics, circuit boards and other key components.
? Actively manage our suppliers to avoid supply chain disruptions and related
risks.
? Introduce new designs, including a simplified "platform" that reduces part
count, lowers cost, improves manufacturability and serviceability.
? Focus on ensuring profitability of all product lines including managing mix of
products.
? Seek more competitive carriers to reduce shipping costs.
? Implement Lean Manufacturing process to enhance capacity utilization,
efficiency, quality.? Introduce comprehensive "cost of quality" initiative to ensure effective and
robust processes.
? Implement "automated cell module assembly" to assemble purchased "individual"
battery cells into a "module" for the battery pack. This will enable lower
inventory from simplified SKU count and lower costs.
? Business expansion to accelerate gross margin
? Leverage current high-profile "proven customer relationships" to respond to
growing demand of large fleets for lithium-ion value proposition.
? Pursue new market that can leverage our technology and manufacturing
capabilities.
? Expand features of our popular "SkyBMS" (telemetry) which provides customized
fleet management, and real time reports.
? Expand our manufacturing and service capacities to ensure customer satisfaction
from increased deliveries, and service.
? Capitalize on our leadership position with new offerings.
? While we are "agnostic to the type of lithium chemistry," ensure our research
to support other chemistries as they may become available. Ensure we have
leadership with our core technology, without dependence on purchasing critical
technology.
There can be no assurance that these initiatives and efforts will be successful.
New Product Update During the second half of the Fiscal 2022, we introduced new product designs to respond to customer requests and to allow for greater operational efficiencies for us. Some of the improvements included higher capacities for extra-long and demanding shifts, easier servicing, cost efficiencies, and other features to solve a variety of existing performance challenges of customer operations. We intend to continue to develop and to introduce new product designs for margin enhancement, part commonality and improved serviceability.
In
Product Description
? L36 lithium-ion battery ? The L36 addresses the 3-wheel forklift market.
pack, a 36-volt option for According to our OEM partners the 3-wheel
3-wheel forklifts; forklift offerings are some of their best
selling products. We are now strategically
placed to fully address this market.
? C48 lithium-ion battery ? The improved robustness and environmentalpack for Automated Guided protections mean it is no longer just a solar
Vehicles (AGV) and battery, but is now being sold into tugs and
Autonomous Mobile Robots other types of industrial equipment, expanding
(AMR); and our product offerings.
? S24 lithium-ion battery ? The S24-210Ah is a new high-capacity variant of
pack providing twice the our 'slim' walkie battery and addresses some of
capacity (210Ah) for the toughest walkie applications in the market,
Walkie Pallet Jacks for giving exceptional runtime and fast recharge heavy duty times when paired with an external high-powered charger. 25
Overview of 2022 Financing Activities
Registered Direct Offering
OnSeptember 22, 2021 , we entered into a securities purchase agreement (the "Purchase Agreement") with several institutional and accredited investors (the "Purchasers"), pursuant to which we sold in a registered direct offering an aggregate of 2,142,860 shares of or Common Stock (the "Shares") and warrants to purchase up to 1,071,430 shares of our common stock (the "Warrants"), at a combined purchase price of$7.00 per share and related Warrant. The aggregate gross proceeds of the Registered Offering were approximately$15 million , before deducting placement agent fees and offering expenses (the "Registered Offering").H.C. Wainwright & Co., LLC ("HCW" or the "Placement Agent") acted as our exclusive Placement Agent in connection with the Registered Offering and was paid a cash fee equal to 6.0% of the gross proceeds of the Registered Offering. The net proceeds from the Registered Offering, after deducting Placement Agent fees and other offering expenses, were approximately$13.7 million . The Registered Offering closed onSeptember 27, 2021 . At-The-Market Offering OnOctober 16, 2020 , we filed a shelf registration on Form S-3 for up to$50 million to support our ability to raise capital to support our business growth. In connection with the shelf registration statement, inDecember 2020 , we entered into a Sales Agreement withH.C. Wainwright & Co., LLC enabling us to sell shares of our common stock in an "At-The-Market" offering from time to time. OnMay 27, 2021 we filed an amendment to the prospectus supplement datedDecember 21, 2020 allowing us to sell up to$20 million of shares under the At-The-Market offering program ("ATM Offering"). In Fiscal 2021 we sold an aggregate of 978,782 shares of common stock at an average price of$12.93 per share for gross proceeds of approximately$12.7 million in the ATM Offering, prior to deducting commissions and other offering related expenses. In Fiscal 2022, we sold an additional 190,782 shares of common stock at average price of$8.70 per share for gross proceeds of approximately$1.7 million in the ATM Offering, prior to deducting commissions and other offering related expenses. As ofJune 30, 2022 , approximately$5.7 million remained available under the ATM Offering for future sales of our common stock. SVB Revolving Line of Credit OnJune 23, 2022 , we entered into a Second Amendment to Loan and Security Agreement ("Second Amendment") withSilicon Valley Bank ("SVB"), which amended certain terms of the Loan and Security Agreement datedNovember 9, 2020 , as amended onOctober 29, 2021 (together with the Second Amendment, the "Agreement"), including but not limited to, (i) to increase the amount of the revolving line of credit from$6.0 million to$8.0 million (the "SVB Credit Facility"), (ii) to change the financial covenants of the Company from tangible net worth to adjusted EBITDA (as defined in the Second Amendment) on a trailing six (6) month basis and liquidity ratio certified as of the end of each month pursuant to the calculations set forth therein, and (iii) to allow for the assignment and transfer by SVB of all of its obligations, rights and benefits under the Agreement and Loan Documents (as defined in the Agreement and except for the Warrants). We have used the SVB Credit Facility from-time-to-time. As ofJune 30, 2022 , the outstanding balance of the revolving line of credit was approximately$4.9 million , with approximately$3.1 million of the SVB Credit Facility remained available for future draws throughNovember 7, 2022 , unless the credit facility is renewed and its term is extended prior to its expiration. 26 Subordinate Line of Credit OnMay 11, 2022 , we entered into a subordinated Credit Facility Agreement withCleveland Capital, L.P. , aDelaware limited partnership ("Cleveland"),Herndon Plant Oakley, Ltd. , ("HPO"), and other lenders (together with Cleveland and HPO, the "Lenders") which provided us with a short-term line of credit (the "LOC") of not less than$3,000,000 and not more than$5,000,000 , the proceeds of which are to be used by us for working capital purposes. Each Lender severally agreed to make loans (each such loan, an "Advance") up to such Lender's Commitment Amount ("Commitment Amount") to the Company from time to time, until theDecember 31, 2022 (the "Due Date"). Pursuant to the LOC and Form of Promissory Note, Advances made by any Lender, while outstanding, will bear an interest rate of 15.0% per annum in favor of each respective Lender. Amount due under the LOC, if any, is due and payable on (i) the "Due Date in cash or shares of common stock of the Company (the "Common Stock") at the sole election of the Company, unless extended, or (ii) on occurrence of an event of Default (as defined in the Form of Promissory Note). The Due Date may be extended (i) at the sole election of the Company for one (1) additional year from the Due Date upon the payment of a commitment fee equal to two percent (2%) of the Commitment Amount to the Lender within thirty (30) days prior to the original Due Date, or (ii) by the Lender in writing. In addition, each Lender subordinated their respective right to payment under the LOC to SVB's indebtedness under the SVB Credit Facility. As ofJune 30, 2022 , the Lenders' commitment was for an aggregate amount of$4,000,000 , with no outstanding balance under the LOC. In connection with entry into the LOC, we paid each Lender a one-time committee fee in cash equal to 3.5% of such Lender's Commitment Amount for an aggregate amount of$140,000 . In addition, in consideration of the Lenders' commitment to provide the Advances to the Company, we issued each Lender warrants to purchase the number of shares of common stock equal to the product of (i) 160,000 shares of common stock multiplied by (ii) the ratio represented by each Lender's Commitment Amount divided by the$5,000,000 (the "Warrants"). Subject to certain ownership limitations, the Warrants became exercisable immediately from the date of issuance, and expire on the five (5) year anniversary of the date of issuance and subject to adjustments, has an exercise price of$2.53 per share. Pursuant to a selling agreement, dated as ofMay 11, 2022 , we retained HPO as our placement agent in connection with the Credit Facility. As compensation for services rendered in conjunction with the Credit Facility, we paid HPO a finder fee equal to three percent (3%) of the Commitment Amount from each such Lender placed by HPO in cash.
Segment and Related Information
We operate as a single reportable segment.
Recent Accounting Pronouncements
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.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our Financial Statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America ("GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and the related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates based on its historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies and estimates affect the preparation of our financial statements:
27 Accounts Receivable
Accounts receivable are carried at their estimated collectible amounts. The
Company has not experienced collections issues related to its accounts
receivable and has not recorded an allowance for doubtful accounts during the
years ended
Inventories
Inventories consist primarily of battery management systems and the related subcomponents and are stated at the lower of cost (first-in, first-out) or net realizable value. The Company evaluates inventories to determine if write-downs are necessary due to obsolescence or if the inventory levels are in excess of anticipated demand at market value based on consideration of historical sales and product development plans. The Company has no adjustment related to obsolete inventory during the years endedJune 30, 2022 and 2021. Revenue Recognition The Company recognizes revenue in accordance to the Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("ASC 606") for all contracts. The Company derives its revenue from the sale of products to customers. The Company sells its products primarily through a distribution network of equipment dealers, OEMs and battery distributors in primarilyNorth America . The Company recognizes revenue for the products when all significant risks and rewards have been transferred to the customer, there is no continuing managerial involvement associated with ownership of the goods sold is retained, no effective control over the goods sold is retained, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transactions will flow to the Company and the costs incurred or to be incurred with respect to the transaction can be measured reliably. Product revenue is recognized as a distinct single performance obligation which represents the point in time that our customer receives delivery of the products. Our customers do have a right to return product, but our returns
have historically been minimal. Product Warranties
The Company evaluates its exposure to product warranty obligations based on historical experience. Our products, primarily lift equipment packs, are warrantied for five years unless modified by a separate agreement. As ofJune 30, 2022 and 2021, the Company carried warranty liability of approximately$1,012,000 and$895,000 , respectively, which is included in accrued expenses on the Company's consolidated balance sheets. Stock-based Compensation Pursuant to the provisions of theFinancial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic No. 718-10, Compensation-Stock Compensation, which establishes accounting for equity instruments exchanged for employee service, we utilize the Black-Scholes option pricing model to estimate the fair value of employee stock option awards at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected life. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our share-based compensation. These assumptions are subjective and generally require significant analysis and judgment to develop. When estimating fair value, some of the assumptions will be based on, or determined from, external data and other assumptions may be derived from our historical experience with stock-based payment arrangements. The appropriate weight to place on historical experience is a matter of judgment, based on relevant facts and circumstances. Common stock or equity instruments such as warrants issued for services to non-employees are valued at their estimated fair value at the measurement date (the date when a firm commitment for performance of the services is reached, typically the date of issuance, or when performance is complete). If the total value exceeds the par value of the stock issued, the value in excess of the par value is added to the additional paid-in-capital. 28
Recently Adopted Accounting Pronouncements
The Company did not adopt any new accounting pronouncements for the year ended
Results of Operations
Comparison of Results of Operations of the Years ended
The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this Annual Report.
The following table represents our statement of operations for the years ended
Year Ended June 30, Year Ended June 30,
2022 2021
$ % of Revenues $ % of Revenues
Revenues $ 42,333,000 100 % $ 26,257,000 100 %
Cost of sales 35,034,000 83 % 20,467,000 78 %
Gross profit 7,299,000 17 % 5,790,000 22 %
Operating expenses:
Selling and administrative 15,515,000 37 % 12,599,000 48 %
Research and development 7,141,000 17 % 6,669,000 25 %
Total operating expenses 22,656,000 54 % 19,268,000 73 %
Operating loss (15,357,000 ) -36 % (13,478,000 ) -51 %
Other income (expense):
Other income - - % 1,307,000 4 %
Interest expense (252,000 ) -1 % (622,000 ) -2 %
Net loss $ (15,609,000 ) -37 % $ (12,793,000 ) -49 %
Revenues
Historically our product focus has been on lift equipment, reflecting a mix of walkie pallet jacks and higher capacity packs for Class 1, 2, and 3 forklifts. Over the past two years, we expanded our product offering into adjacent applications, including airport GSE, stationary energy storage and other solutions for industrial and commercial applications. The launch of larger packs over the past two years has shifted our portfolio mix to include packs with higher selling prices as compared to our historical mix. We believe that we are well positioned to address the needs of many segments within the material handling sector in light of our modular and scalable battery pack design coupled with our proprietary battery management system that can be coupled with our telemetry based "SkyBMS" product offering. We sell our products through a number of different channels including OEMs, lift equipment dealers and battery distributors as well as directly to end users, primarily inNorth America . The channels sell principally to large company, national accounts. We sell certain battery packs directly to other accounts including industrial equipment manufacturers and end users. 29 Revenues for Fiscal 2022 increased$16,076,000 or 61%, to$42,333,000 , compared to$26,257,000 for Fiscal 2021. The increase in revenues was due to sales of energy storage solutions with higher average selling prices and a higher volume of units sold. The increase in revenues included both greater sales to existing customers as well as initial sales to new customers. Cost of Sales
Cost of sales for Fiscal 2022 increased
Gross Profit Gross profit for Fiscal 2022 increased$1,509,000 or 26%, to$7,299,000 , compared to$5,790,000 for the Fiscal 2021. The gross profit margin (gross profit as a percent of revenues) decreased to 17% for Fiscal 2022 compared to 22% for Fiscal 2021. Gross profit was negatively impacted by higher costs for steel, electronic parts, and common off the shelf parts during Fiscal 2022, partially offset by higher revenues associated with increased sales of energy storage solutions. Selling and Administrative
Selling and administrative expenses for Fiscal 2022 increased$2,916,000 or 23%, to$15,515,000 , compared to$12,599,000 for Fiscal 2021. The increase was primarily attributable to increases in personnel expenses related to new hires and temporary labor of approximately$1,400,000 , outbound shipping costs of$248,000 , insurance premiums of$440,000 , marketing expenses of$273,000 , depreciation expense of$301,000 , travel expenses of$153,000 , facility related expenses of$131,000 , bad debt expense of$76,000 , and total other administrative operating expenses of$218,000 , partially offset by decreases in stock-based compensation of$49,000 and accounting and legal expenses of$226,000 . Research and Development
Research and development expenses for Fiscal 2022 increased$472,000 or 7%, to$7,141,000 , compared to$6,669,000 for Fiscal 2021. 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 expenses was primarily due to expenses related to development of new products and UL certifications of approximately$233,000 , higher personnel expenses related to new hires and temporary labor of$204,000 , travel expenses of$15,000 , and facility related expenses of$58,000 , partially offset by a decrease in stock-based compensation of$33,000 . Other Income
Other income for Fiscal 2021 represented the forgiveness of the entire PPP Loan of approximately$1,297,000 in principal, together with all accrued interest of approximately$10,000 .The Small Business Administration notified us that our loan and accrued interest had been forgiven onFebruary 9, 2021 . Interest Expense Interest expense for Fiscal 2022 decreased$370,000 or 59%, to$252,000 , compared to$622,000 for Fiscal 2021. Interest expense was primarily related to our outstanding lines of credit and convertible promissory note. Also included in interest expense during Fiscal 2021 was additional interest expense of approximately$174,000 representing the amortization of debt discount related toCleveland Loan that was paid off during Fiscal 2021. 30 Net Loss
Net loss during Fiscal 2022 increased
Adjusted EBITDA Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA is calculated taking net income and adding back the expenses related to interest, income taxes, depreciation, amortization, and stock-based compensation, each of which has been calculated in accordance with GAAP. Adjusted EBITDA was a loss of approximately$14,071,000 for the Fiscal 2022 compared to a loss of$11,100,000 for the Fiscal 2021. Management believes that Adjusted EBITDA, when viewed with our results under GAAP and the accompanying reconciliations, provides useful information about our period-over-period results. Adjusted EBITDA is presented because management believes it provides additional information with respect to the performance of our fundamental business activities and is also frequently used by securities analysts, investors and other interested parties in the evaluation of comparable companies. We also rely on Adjusted EBITDA as a primary measure to review and assess the operating performance of our company and our management team. As Adjusted EBITDA is a non-GAAP financial measure, it should not be construed as a substitute for Net income (loss) (as determined in accordance with GAAP) for the purpose of analyzing our operating performance or financial position. A reconciliation of our Adjusted EBITDA to Net loss is included in the table below: Years Ended June 30, 2022 2021 Net loss$ (15,609,000 ) $ (12,793,000 ) Interest, net 252,000 622,000 Income tax provision - - Depreciation and amortization 575,000 274,000 EBITDA (14,782,000 ) (11,897,000 ) Stock-based compensation 711,000 797,000 Adjusted EBITDA$ (14,071,000 ) $ (11,100,000 )
Liquidity and Capital Resources
Overview As ofJune 30, 2022 , we had a cash balance of$485,000 and an accumulated deficit of$81,814,000 . For the year endedJune 30, 2022 , we had negative cash flow of$23.9 million . Historically our business has not generated sufficient cash to fund our operations. However, based on our ability to recognize revenue from our existing backlog we anticipate increased revenues along with the planned improvements in our gross margin over the next twelve (12) months. Our planned gross margin improvement tasks include, but is not limited to, a plan to drive bill of material costs down while increasing price of our products for new orders. We have received new orders in fiscal year endedJune 30, 2022 , of approximately$65 million and believe through conversations with our customers that our anticipation of continued new order increases is probable. We believe that our existing cash, together with$3.2 million that currently remains available under our$8.0 million revolving line of credit withSilicon Valley Bank ("SVB Credit Facility"), and$4.0 million available under the subordinated line of credit ("Subordinated LOC") as ofSeptember 12, 2022 , will be sufficient to meet our anticipated capital resources to fund planned operations for the next twelve (12) months. See "Future Liquidity Needs" below. Cash Flow Summary Year EndedJune 30, 2022 2021
Net cash used in operating activities
(797,000 ) (1,102,000 )
Net cash provided by financing activities 20,462,000 23,447,000
Net change in cash $ (4,228,000 ) $ 3,987,000
31
Operating Activities
Net cash used in operating activities was $23,893,000 for Fiscal 2022, compared
to net cash used in operating activities of $18,358,000 for Fiscal 2021. The
primary usages of cash for the Fiscal 2022 were the net loss of $15,609,000 and
increases in accounts receivable, inventory, and other assets, and decreases in
accounts payable, accrued expenses and office lease payable, that were partially
offset by increases in customer deposits, deferred revenue and non-cash
operating costs. The primary usages of cash for the Fiscal 2021 were the net
loss of $12,793,000 , increases in accounts receivable, inventory, and other
assets, and decreases in customer deposits, amount due to factoring facility,
accrued interest, and office lease payable, that were partially offset by
increases in accounts payable, accrued expenses, deferred revenue, and non-cash
operating costs.
Investing Activities
Net cash used in investing activities for Fiscal 2022 was $797,000 and consisted
primarily of the costs of internally developed software, purchase of furniture
and office equipment, and warehouse equipment.
Net cash used in investing activities for Fiscal 2021 was
Financing Activities Net cash provided by financing activities was$20,462,000 for Fiscal 2022, and primarily consisted of$13,971,000 in net proceeds from the issuance of common stock in the registered offering completed inSeptember 2021 ,$4,889,000 in net borrowings under the SVB Credit Facility, and$1,602,000 in net proceeds from sales of common stock under our ATM Offering. Net cash provided by financing activities was$23,447,000 for the Fiscal 2021, and primarily consisted of$10,698,000 in net proceeds from issuances of common stock in the public offering completed inAugust 2020 ,$3,200,000 from a private placement completed inJuly 2021 ,$12,102,000 in net proceeds from sales of common stock under our ATM Offering, and$55,000 proceeds from stock option and warrant exercises, which were partially offset by$2,580,000 in payments of outstanding related party borrowings, and$28,000 in payment of financing lease payable. 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. We believe that our existing cash and additional funding available under our SVB Credit Facility, combined with funds available to us under our Subordinated LOC of up to$4.0 million will be sufficient to meet our anticipated capital resources to fund planned operations for the next twelve (12) months. As ofSeptember 12, 2022 ,$3.2 million remained available under the SVB Credit Facility and$4.0 million was available for future draws under the Subordinated LOC. In addition, to support our operations and anticipated growth, we intend to continue our efforts to secure additional capital from a variety of current and new sources including, but not limited to, sales of our equity securities. We also continue to execute our cost reduction, sourcing, pricing recovery initiatives in efforts to increase our gross margins and improve cash flow from operations. Although management believes that our existing cash and the additional funding sources currently available to us under the lines of credit are sufficient to fund planned operations, our ability to draw funds from the line of credit are subject to certain restrictions and covenants. If we are unable to meet the conditions provided in the loan documents, the funds will not be available to us. In addition, should there be any delays in the receipts of key component parts, due in part to supply change disruptions, our ability to fulfil the backlog of sales orders will be negatively impacted resulting in lower availability of cash resources from operations. In that event, we may be required to raise additional funds by issuing equity or convertible debt securities. If such funds are not available when required, management will be required to curtail investments in additional sales and marketing and product development, which may have a material adverse effect on future cash flows and results of operations. In addition, any, unforeseen factors in the general economy beyond management's control could potentially have negative impact on the planned gross margin improvement plan. 32 In the event we are required to obtain additional funds, there is no guarantee that additional funds will be available on a timely basis or on acceptable terms. To the extent that we raise additional funds by issuing equity or convertible debt securities, our stockholders may experience additional dilution and such financing may involve restrictive covenants.
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