10-Q: Flux Power Q1 Loss Widens Amid Tariff Headwinds

Flux Power Holdings, Inc. reported an increased net loss for Q1 2026, driven by lower revenues and higher inventory costs, despite recent capital raises.

Summary

• Net loss increased to $(2,562,000) for the three months ended September 30, 2025, from $(1,669,000) in the prior year.
• Revenues decreased by 18% to $13,175,000 from $16,125,000 year-over-year.
• Gross profit margin decreased by 300 basis points to 29% from 32%.
• Operating loss widened to $(2,178,000) from $(1,212,000).
• Adjusted EBITDA loss increased to $(1,718,000) from $(372,000).
• Cash balance at September 30, 2025, was $1,588,000.
• Completed a Private Placement raising $4.6 million in net proceeds (cumulatively by October 6, 2025).
• Completed a Public Offering in November 2025, raising $9.2 million in net proceeds.
• Order backlog decreased significantly to $5.7 million as of September 30, 2025, from $9.9 million at June 30, 2025.
• Nasdaq compliance was regained for the Market Equity Requirement as of October 14, 2025, following prior non-compliance notices.
• Material weaknesses in internal controls over financial reporting persist.
• Settled a securities class action for $1.75 million (Company to contribute $600,000) and a stockholder derivative action for corporate governance reforms and $425,000 in attorney fees (Company insurers to fund $350,000).

Sentiment

Score: 3

Explanation: The company reported a substantial increase in net loss and a significant decline in revenue and gross profit margin, coupled with a sharp reduction in backlog. Persistent material weaknesses in internal controls and ongoing legal proceedings add to the negative sentiment. However, successful capital raises and regaining Nasdaq compliance provide some stability and a path forward for liquidity.

Positives

• Successfully completed a Private Placement, raising $4.6 million in net proceeds.
• Successfully completed a Public Offering in November 2025, raising $9.2 million in net proceeds, significantly improving liquidity and addressing Nasdaq compliance.
• Regained compliance with Nasdaq's Market Equity Requirement as of October 14, 2025, mitigating delisting risk.
• Net cash provided by operating activities was $889,000 for the quarter.
• Reduced selling and administrative expenses by 4% due to lower professional fees.
• Reduced research and development expenses by $278,000 due to decreased headcount and project activity.
• Secured a second tier-one OEM private label battery program, expanding product reach and including UL Type EE certified products.
• Improved sourcing and purchasing activity, expanding vendor strategy, minimizing stock-outs, and controlling delivery times.
• Management believes existing cash, GBC Credit Facility, and Public Offering proceeds will be sufficient to fund planned operations for the next 12 months.

Negatives

• Net loss increased to $(2,562,000) for the quarter, up from $(1,669,000) in the prior year.
• Revenues decreased by 18% to $13,175,000, primarily due to a sales mix shift to lower-priced products and lower volumes in the ground support market.
• Gross profit margin decreased by 300 basis points to 29%, attributed to lower average selling prices and higher inventory costs from import tariffs.
• Operating loss widened to $(2,178,000) from $(1,212,000).
• Adjusted EBITDA loss significantly increased to $(1,718,000) from $(372,000).
• Order backlog decreased substantially to $5.7 million from $9.9 million, reflecting customer deferrals due to economic uncertainty, higher interest rates, and global tariffs.
• Material weaknesses in internal controls over financial reporting persist, specifically related to insufficient personnel resources with technical accounting expertise and a lack of sufficiently designed controls to prevent fraud and management override.
• Incurred an accumulated deficit of $108.9 million through September 30, 2025.
• Reliance on a single battery cell manufacturer in China, which is subject to import tariffs and potential supply chain disruptions.

Risks

• Ability to comply with terms of the GBC credit facility.
• Ability to meet projected revenue targets and generate cash from operations due to delays in new orders, lower capital spending, interest rate variability, and global tariff uncertainties.
• Ability to remediate material weaknesses in controls and procedures, which may adversely affect business and stock price.
• Ability to continue to meet Nasdaq listing standards (though compliance was regained, a monitoring period exists).
• Ability to secure sufficient funding to support current and proposed operations.
• Ability to manage working capital requirements efficiently.
• Ability to obtain raw materials and other supplies at competitive prices and on a timely basis, especially from a single supplier in China subject to tariffs.
• Anticipated growth strategies and ability to manage business expansion effectively.
• Ability to maintain or increase market share in competitive markets.
• Ability to grow revenue, increase gross profit margin, and achieve profitability.
• Ability to fulfill backlog due to delays in key component parts and manufacturing disruptions.
• Ability to keep up with rapidly changing technologies and evolving industry standards.
• Dependence on growth in demand for products.
• Competition with larger companies with greater resources.
• Ability to shift to new suppliers and incorporate new components without disruption.
• Ability to obtain and maintain UL Listings and OEM approvals for energy storage solutions.
• Ability to diversify product offerings and capture new market opportunities.
• Ability to source needs for skilled labor, machinery, parts, and raw materials economically.
• Ability to retain and/or successfully recruit key members of the senior management team.
• Dependence on major customers (two major customers represented 77% of Q1 2026 revenues).
• Impact of tariffs on ability to cost-effectively source battery packs and materials.
• Expense, timing, and outcome of legal proceedings relating to accounting practices, financial disclosures, and employment policies and practices.
• Unforeseen factors beyond management's control, including economic uncertainty and the impact of global tariff initiatives, could negatively impact the planned gross margin improvement plan.

Future Outlook

Management believes existing cash, available funding under the GBC Credit Facility, and the $9.2 million net proceeds from the recent Public Offering will be sufficient to fund planned operations for the next 12 months. The company is actively evaluating strategies to improve profitability and obtain additional funding, including planned price increases for energy storage solutions, cost-saving initiatives, and supply chain adjustments to drive down bill of material costs. Research and development efforts will continue to focus on adaptable, reliable, and cost-effective energy storage solutions, including new patents for optimizing charging cycles, understanding battery health, and applying AI for predictive cell balancing. The company intends to expand supply chain and customer partnerships and seek further partnerships and/or acquisitions for synergy and growth.

Management Comments

• "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."
• "We believe that the increasing demand for lithium-ion energy storage solutions and more environmentally friendly energy storage solutions in the material handling sector should continue to drive our revenue growth."
• "Management is actively evaluating ways to mitigate potential impacts of tariffs."
• "We expect to be able to offset some of the impact of the enacted tariffs with supply chain adjustments, alternative manufacturing locations and cost reduction actions."
• "At current and anticipated tariff levels, we will also need to increase the selling prices of our products to achieve an acceptable profit margin."
• "Management is evaluating strategies to improve profitability of operations and to obtain additional funding. These steps include actual and planned price increases for our energy storage solutions, a number cost-saving initiatives including product cost efficiencies and planned operating cost savings."
• "The planned gross margin improvement tasks include but are not limited to a plan to drive bill of material costs down while increasing the selling prices of our products for new orders."
• "We also continue to execute our cost reduction, sourcing and pricing recovery initiatives in efforts to increase our gross margins and improve cash flow from operations."
• "We are highly focused on expanding sales and marketing initiatives to secure new customer relationships and support the continued migration of current customers to lithium."
• "We have recently added our second tier-one OEM private label battery 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."

Industry Context

The company operates in the industrial and commercial sectors, focusing on lithium-ion energy storage solutions for material handling, airport ground support equipment (GSE), and other applications. The increasing demand for lithium-ion and environmentally friendly energy storage solutions in the material handling sector is seen as a driver for revenue growth. The industry is facing challenges from global tariff uncertainties, which impact raw material and component costs, particularly from China, and can lead to increased selling prices and potentially affect customer demand. Higher interest rates and lower capital spending by large customer fleets are impacting new orders and causing deferrals, reflecting broader economic concerns. The company is expanding its product offerings and OEM partnerships, indicating a competitive environment where product diversification and strong relationships are key.

Management Changes

Corporate Governance

Legal Proceedings

• **Securities Class Action (Kassam v. Flux Power Holdings, Inc. et al.):** Filed November 1, 2024, alleging false and misleading statements. A settlement term sheet was entered on July 11, 2025, for a $1.75 million escrowed fund, covering purchases between November 15, 2021, and February 14, 2025. The company expects to contribute $600,000, with insurers funding $1.15 million. Final settlement is subject to court approval, with a hearing continued to December 4, 2025.
• **Stockholder Derivative Action (Pearl v. Dutt, et al.):** Filed January 7, 2025, alleging breach of fiduciary duties. An agreement was reached on July 11, 2025, for corporate governance reforms and $425,000 in attorney fees/service award, with insurers expected to fund $350,000. Final settlement is subject to court approval, with a hearing continued to December 4, 2025.
• **Employment-Related Actions (Class Action and PAGA Proceeding):** Filed April 30, 2024, and July 5, 2024, respectively, by a former employee for wage and labor law violations. The cases have been consolidated, and a motion to compel arbitration was granted, with arbitration scheduled for March 26, 2026. The company intends to vigorously defend against these claims, and final outcomes and loss estimates are not reasonably assessable at this time.

Related Party Transactions

• Cleveland Capital, L.P. (Cleveland), a related party, purchased Prefunded Preferred Stock Warrants and Common Stock Warrants for approximately $1,730,000 as part of the Private Placement on September 15, 2025.
• Approximately $1,173,000 of Cleveland's payment was made by converting the outstanding principal and accrued interest of the Cleveland Credit Facility into equity via a Debt Satisfaction Agreement.
• Certain executives and affiliates of the Company, including the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, and two directors, also participated in the Private Placement.

Stakeholder Impact

• **Shareholders:** Negative impact from increased net loss, revenue decline, and reduced backlog. Positive impact from successful capital raises and regaining Nasdaq compliance, which reduces delisting risk. Potential dilution from new share issuances. Settlement of legal proceedings removes some uncertainty.
• **Employees:** Employment-related lawsuits are ongoing, creating uncertainty. Changes in R&D headcount.
• **Customers:** Delays in new orders and deferrals of purchases due to economic uncertainty and tariffs. Potential for increased product selling prices due to tariffs. New OEM private label program and expanded distribution network could benefit customers.
• **Suppliers:** Temporary pause in imports from the primary battery cell supplier in China due to tariffs, though modified terms were agreed upon. Continued reliance on a single major supplier for battery cells poses supply chain risk.
• **Creditors:** GBC Credit Facility maturity extended to July 31, 2027, providing more stability. Subordinated debt to Cleveland Capital L.P. was converted to equity.

Next Steps

• Remediate identified material weaknesses in internal controls over financial reporting and strengthen internal processes and procedures.
• Actively evaluate strategies to improve profitability and obtain additional funding.
• Implement actual and planned price increases for energy storage solutions.
• Execute cost-saving initiatives, including product cost efficiencies and planned operating cost savings.
• Drive bill of material costs down and increase selling prices for new orders.
• Expand sales and marketing initiatives to secure new customer relationships and support the continued migration of current customers to lithium.
• Continue research and development efforts to expand product mix and achieve technological advances, including new patents for optimizing charging cycles, understanding battery health, and applying AI for predictive cell balancing.
• Expand supply chain and customer partnerships and seek further partnerships and/or acquisitions that provide synergy.
• Attend continued court hearings for class action and derivative settlements on December 4, 2025.
• Proceed with arbitration for employment-related claims scheduled for March 26, 2026.
• Nasdaq will monitor compliance with continued listing requirements for one year.

Key Dates

Recommendation

The company reported a substantial deterioration in key financial metrics, including an 18% revenue decline, a 300 basis point drop in gross margin, and a significantly widened net loss and Adjusted EBITDA loss. The order backlog has sharply decreased, indicating weakening demand. While recent capital raises and regaining Nasdaq compliance provide short-term liquidity and mitigate delisting risk, the persistent material weaknesses in internal controls over financial reporting, ongoing legal proceedings, and vulnerability to tariffs and supply chain disruptions present significant operational and financial risks. The overall trend of declining performance and unresolved internal issues suggests a challenging outlook, making the stock a "Sell" for a seasoned investor.

Keywords

Lithium-ion energy storage, Material handling, Airport ground support equipment (GSE), Battery management system (BMS), SEC filing, 10-Q, Financial results, Net loss, Revenue decline, Gross profit margin, Tariffs, Supply chain, Nasdaq listing, Capital raise, Private placement, Public offering, Legal proceedings, Internal controls, Risk factors, Industrial electrification