Annual report pursuant to Section 13 and 15(d)

STOCKHOLDERS' EQUITY

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STOCKHOLDERS' EQUITY
 12 Months Ended
Jun. 30, 2012
STOCKHOLDERS' EQUITY

NOTE 7 - STOCKHOLDERS’ EQUITY

 

At June 30, 2012 the Company had 145,000,000 shares of common stock, par value of $0.001 authorized for issuance.

 

 

We may issue up to 5,000,000 shares of preferred stock, par value of $0.001 in one or more classes or series within a class pursuant to our Articles of Incorporation. There are currently no shares of preferred stock issued and outstanding.

 

Holders of common stock are entitled to receive dividends, when, as, and if declared by the Board of Directors, out of any assets legally available to the Company. Dividends are declared and paid in an equal per-share amount on the outstanding shares of each series of common stock. During fiscal years ended June 30, 2012 and 2011, the Board of Directors neither declared nor paid common stock dividends to shareholders.

 

Sale of Common Stock and Warrants

 

As discussed in Note 1, in connection with the Reverse Acquisition, we purchased 100% of the issued and outstanding shares of common stock of Flux Power Inc. from the Flux Power Shareholders in exchange for 37,714,514 newly issued Exchange Shares based on an exchange ratio of 2.9547039.

 

As discussed in Note 1, through June 30, 2012, the Company issued 2,813,000 shares of common stock and 563,000 warrants as part of its Private Placement. The Company additionally issued 2,294,000 shares of common stock and 468,000 warrants during July and August 2012 for a total approximating $924,000 net proceeds.

 

On June 14, 2012, the Company entered into an Advisory Agreement (“Advisory Agreement”) with Baytree Capital Associates, LLP (“Baytree Capital”) pursuant to which Baytree Capital agreed to provide business and advisory services for 24 months in exchange for 100,000 restricted shares of our newly issued common stock at the commencement of each six month period in return for its services, and a warrant to purchase 1,837,777 restricted shares of our common stock for a period of five (5) years at an exercise price of $.41 per share. We recorded a prepaid asset totaling $3,258,000 based on the value of the warrants and a corresponding liability which is included as part of derivative liabilities since the warrants have anti-dilution protection features.

 

The common stock purchased in the Private Placement and the common stock issuable upon exercise of warrants have piggyback registration rights. The securities offered and sold in the Private Placement have not been registered under the Securities Act of 1933, as amended (“Securities Act”), and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act.

 

Warrant Activity

 

Warrant activity during the fiscal year ended June 30, 2012 and related balances outstanding as of that date are reflected below:

 

    Number     Average Purchase
Price Per Share		  
Shares purchasable under outstanding warrants at July 1, 2010     —     $ —  
Shares purchasable under outstanding warrants at June 30, 2011     —     $ —  
Stock purchase warrants issued     2,400,328     $ 0.41  
Stock purchase warrants exercised     —     $   
Shares purchasable under outstanding warrants at June 30, 2012   2,400,328     $ 0.41  

 

 

Stock-based Compensation

 

Flux Power has adopted the 2010 Stock Option Plan (“Option Plan”) which reserved 2,000,000 shares of common stock for issuance upon exercise of options. As of June 14, 2012, the number of shares of common stock outstanding under the Option Plan was 1,535,500, and as of June 30, 2011, the number of shares of common stock outstanding under the Option Plan was 710,000 (as adjusted 2,097,841).

 

As part of the Reverse Acquisition, we adopted the Flux Power Option Plan and all stock options of Flux’s outstanding as of June 14, 2012, whether or not exercised and whether or not vested were substituted by us with 4,536,949 new Company options based on the Share Exchange Ratio. The new options substituted by us shall continue to have, and be subject to, the substantially the same terms and conditions as before, but will be convertible into shares of our common stock, as adjusted given effect to the Share Exchange Ratio. However, we will not be able to grant additional options under the Option Plan.

 

Stock option activity during the fiscal year ended June 30, 2012 and 2011 and related balances outstanding as of that date are reflected below:

 

    Number of
Shares		     Weighted Average
Exercise Price		     Weighted Average
Remaining Contract
Term (# years)		  
Outstanding at July 1 ,2010, as adjusted*     2,097,841     $ 0.04          
Outstanding at June 30, 2011, as adjusted*     2,097,841     $ 0.04          
Granted     2,734,578       0.25          
Exercised     -       -          
Forfeited and cancelled     (295,470 )     0.04          
                         
Outstanding at June 30, 2012     4,536,949     $ 0.17       7.61  
                         
Exercisable at June 30, 2012     1,916,712     $ 0.04       5.54  

 

(*based on a ratio of 2.9547039- See Note 1)

 

The following table summarizes by price range the number, weighted average exercise price and weighted average life (in years) of options outstanding and the number and weighted average exercise price of exercisable options as of June 30, 2012.

 

Price Range   Total Outstanding     Total Exercisable  
    Number
of
Shares		     Weighted
Average		     Number
of
Shares		     Weighted
Average
Exercise
Price		  
          Exercise
Price		     Life              
$0.04 – $0.410     4,536,949     $ 0.17       7.61       1,916,712     $ 0.04  
                                         
Total     4,536,949     $ 0.17       7.61       1,916,712     $ 0.04  

 

 

 

The Company uses the Black-Scholes valuation model to calculate the fair value of stock options. The fair value of stock options was measured at the grant date using the assumptions (annualized percentages) in the table below:

 

    2012     2011  
Expected volatility     100%     100%
Risk free interest rate     0.8% to 3.0%       3.0%
Forfeiture rate     5%     5%
Dividend yield     0%     0%
Expected term     5-10 years       10 years  

 

During the fiscal year ended June 30, 2012, total stock-based compensation expense included in the statement of operations was approximately $45,000. Approximately $37,000 of this expense was recorded to selling, general and administrative expense and approximately $8,000 was recorded to research and development expense.

 

During the fiscal year ended June 30, 2011, total stock-based compensation expense included in the statement of operations was approximately $58,000. Of this expense $22,000 was recorded to general and administrative expense and approximately $36,000 was recorded to research and development expense.