September 7, 2016
Greetings Flux Stakeholders:
While Tesla’s Elon Musk seems to grab all the media attention – here at Flux there is great momentum building for new battery technologies for industrial motive equipment. The prospect of new lithium-ion power is a similarly transformative opportunity for those who have had to get by on decades old lead-acid energy storage.
Flux Power is a leader in bringing new efficient, cost effective and environmentally sensitive battery solutions to industrial uses, with a current focus on forklifts and more recently extending our capabilities to airport ground support vehicles.
My purpose in writing today is to update you on how we are advancing Flux’s products and market opportunities in a very meaningful way. It is really quite remarkable that just 3 years ago – we had not yet entered the industrial energy storage market, yet now we are a clear leader in this developing space.
Flux battery technology is well received in our target markets where we have built close relationships with leading OEMs, distribution partners and end-users. After several years of hard work by our team introducing partners and customers to our prototype and production models, we now have state-of-the-art products and technology and in-depth expertise that we build into our newest solutions. Each day the capabilities and potential of our organization grows, while also positioning Flux to pursue an even larger segment of the industrial motive power market.
A meaningful amount of resources have been spent the last few months addressing product warranty issues in our earlier prototype models. However, there is a very tangible benefit from these client service costs by demonstrating our loyalty and credibility as a long-term partner in the eyes of our customers, distributors and OEMs. The overwhelming majority of our largest customer opportunities remain solidly engaged with Flux and are eager to move forward with final trials and deployments as our production capacity ramps to commercial levels over the balance of calendar 2016. At the same time, we are also adding significant new prospects to our pipeline.
Class III Walkie Forklifts
As you know, our primary focus has been with our entry-level LiFT Pack line to power walkie pallet jack forklifts. The pace of sales the last few quarters has been limited by our focus on converting Flux’s production from small-run production and prototyping into large scale production of our UL-listed products. But what our revenues do not show is the deliberate piloting of Flux LiFT Packs by marquee accounts with significant material handling demands that require them to maintain large fleets of forklifts.
We purposely dialed down production over the last two quarters in order to incorporate all the improvements gleaned from the UL review process last winter as well implement important engineering features that stem from our model changeover. We have also spent the past several months building specialized assembly and testing stations that are designed to speed production time frames by automating many facets of testing and assembly.
Flux has recently begun to ramp production levels on our factory floor, and despite some expected hiccups along the way, we believe we remain on target to meet our goal of producing 100 packs per month by early September. Many of our design and production enhancements, including relationships with new manufacturing partners, should contribute substantially to our gross margins; financial improvements you should start to see in our fiscal 2nd quarter ending December 2016, with further improvements thereafter.
Airport Ground Support Vehicles
We recently completed a very successful three-month pilot of Flux’s ‘Airport Pack’ for ground support vehicles by a leading regional airline at Los Angeles International Airport (LAX). This exciting business development initiative for larger, higher power storage solutions was spearheaded by Averest, Inc., a leading distributor of industrial batteries and chargers for aviation ground support.
The successful development and 3-month pilot highlights the scalability of Flux Power’s design and engineering capabilities as well as our proprietary battery management technology for a broad array of motive power applications. Importantly it also moves us into a customer price point of roughly $20,000 to $25,000 per pack for several power rating alternatives, creating an excellent new leg of growth potential.
Interest in the benefits of lithium-ion storage in Airport ground support equipment seems strong, as we have redeployed this same Airport Pack to another major airline carrier, also at LAX, for internal piloting over the next few months. And Averest is also working on a third pilot opportunity in the Pacific Northwest for an additional Airport Pack that we just completed.
To build visibility and interest in this compelling new alternative to lead-acid batteries for ground support equipment, Flux will be exhibiting at the International Airport Ground Support Expo in Las Vegas with our industry partner Averest. This expo is the most significant annual forum for the ground support equipment industry, providing significant visibility for Flux in global market with an estimated 20,000 ground support vehicles that could benefit from better and lower total cost power source.
Class I Forklift Opportunity Emerges
An exciting byproduct of our work in the Class III Lift Truck market has been a recent rise in OEM interest for Flux to develop, larger and more powerful lithium-ion solutions to address the far larger Class I forklift market. This interest is not without precedent, as Flux has already demonstrated its ability to scale its solutions in much higher performance requirements needed to address the Class I opportunity. While we still have much work to do on executing on our Class III LiFT Pack opportunity, we are encouraged to see interest in a Class I opportunity and feel confident our ground support equipment success provides a clear path to larger forklift solutions.
As our recent public filings indicate, Flux has been successful in attracting additional capital to fund our product development and to move into full-scale production and commercialization. Over the past few months Flux has successfully raised over $3 million, comprised of $2.1 million in new equity investment, along with the conversion of $1.7 million of debt held by our largest shareholder Esenjay Investments into common stock, all priced at $0.04 per share with no warrants.
Flux greatly appreciates the financial commitment from both existing and new shareholders to help fund Flux’s move into large scale commercial production. Particular thanks go to Michael Johnson, a Flux Director and via Esenjay, the Company’s largest investor, for his tremendous financial and strategic support of the Flux mission the past several years.
In summary, Flux has propelled itself to a leadership position in the emerging market for lithium-ion to replace lead-acid in industrial motive power. Over the next year it is our singular focus to convert this position into a significant and growing revenue stream with solid and improving gross profit margins.
I look forward to updating you further on our progress in late September when we expect to report our annual results for fiscal year 2016. We will likely forgo the expense of a conference call once again but welcome any questions answers for which will be published here on the Flux Currents blog.