Small Cap Strategist is published by Crystal Equity Research an independent research resource on small capitalization stocks. Follow along as we discuss the most recent trends in the small-cap sector, investigate interesting companies and pan a few not-so-promising stocks.
electric and thermal management of advanced battery packs is imperative.During operation, voltage and temperature
differences in the battery cells can lead to electrical imbalances and decrease
system performance.A good battery
management system can ensure strong power delivery and extend battery life.Dozens of battery management systems have
cropped up to fill this need for the lithium ion batteries used in new electric
vehicles and alternative energy applications.The highly populated field has not intimidated the newest competitor, Flux Power Holdings, Inc.
is a 2008 spin-off of sorts of LHV
Power Corporation (formerly HiTek Power Corporation).The two companies still have common
management as Flux’s chief executive officer is the president of LHV
Power.A series of distribution,
development and manufacturing agreements also link the two companies.
Flux product line consists of a battery management system (BMS), battery
modules and chargers. The first
prototype was shipped in 2010 and the next year Flux landed its first customer,
electric vehicle producer Wheego
Electric Cars.Four new customers in the electric vehicle market have come along over
the last year:Greentech Automotive, Epic Boats,
and Boulder EV.
modules represented 74% of total sales in the fiscal year ending June 2012 and
sales of BMS represented 17% of total sales.The technology behind Flux’s BMS was acquired in late 2009 from Joseph
Gottlieb, notably of the pinball Gottlieb family.He served as Flux’s chief technology officer
for a time.Seven patent applications
are pending covering among other achievements, a method and apparatus for
management of individual cells in a battery system and the composition of the
BMS as a cell, a microcontroller, a bleed-off resistor and an analog circuit
with a powered gate.
patents have been awarded yet, so any technological edge relied upon by Flux
hinges on trade secret protection.Many
technology companies benefit from being able to sequester critical process
knowledge within the group that cannot be duplicated even if an employee or two
decides to go out on their own.With
only four years of experience behind it, Flux probably does not yet have that ‘technological
has yet to turn a profit.Total sales in
fiscal year 2012 were $5.9 million, of which $1.5 million was sidelined on the
balance sheet as deferred revenue.Investors should also note that $1.1 million of 2012 sales were to Epic
Boats, which is 35% owned by Chris Anthony of member of Flux’s leadership.Flux reported a negative 37% net margin in
the year and used $2.2 million in cash to support operations.
is no secret that cash is in short supply at Flux.The company had $812,000 on its balance sheet
at the end of June 2012, just after completing a $1.1 million private placement
of 1.7 million shares of common stock and warrants.Since the fiscal year closed Flux has raised
another $950,000 and issued 2.3 million new shares.A disclosure in the company’s annual report
indicates Flux management plans to continue trying to raise capital.
limited resources, Flux management has to worry about competition from a host of
lithium ion battery producers.Flux’s
battery is not particularly differentiated from any other lithium ion
offerings.The company markets it as a
lower-cost alternative to lead-acid batteries.
might note that Flux Power has spent $972,000 on research and development over
the last two fiscal years.Of course,
the company acquired a good portion of its technology in 2009 from Gottlieb
Inventions through the issuance of an unspecified number of options to acquire
common stock.Flux Power reported in its
fiscal year 2012 annual report that Gottlieb owned at least 782,997 options
with an exercise price of $0.04 per share.
Power became public through a reverse merger earlier this year.Insiders own 83% of the company’s 46.3
million shares outstanding, giving them complete control over the company’s
strategic direction.The control issue
is made particularly salient given that there are a number of related party
arrangements with customers and suppliers that are also control by members of
management.Two suppliers, Current Ways
and LHV Power, are owned and/or managed by Flux’s CEO James Gevarges and Chairman
of the Board Chris Anthony is a significant owner of Epic Boats, a
customer.At least insiders have signed
lock-up agreements, which sequester their shares for eighteen months from the
date of the reverse merger.This gives
minority shareholders some protection from a flood of shares coming on the market.
a closely held company, it is not surprising that Flux Power shares rarely
trade.That leaves a wide spread between
bid and ask prices and few shares available to build positions.This is never a good situation for minority
investors.Flux Power has moved into the
advanced battery market at top speed.Investors will have to move at a much slower pace to accumulate FLUX
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Cap Strategist web log, Crystal Equity
Research nor its affiliates have a beneficial interest in the companies