Annual report pursuant to Section 13 and 15(d)

STOCKHOLDERS' EQUITY

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STOCKHOLDERS' EQUITY
 12 Months Ended
Jun. 30, 2015
Stockholders' Equity Note [Abstract]  
STOCKHOLDERS' EQUITY
NOTE 8 - STOCKHOLDERS’ EQUITY
 
At June 30, 2015 the Company had 300,000,000 shares of common stock, par value of $0.001 authorized for issuance, of which 99,464,112 shares were issued and outstanding. At the annual shareholders meeting held on February 17, 2015, the total authorized shares were increased from 145,000,000 to 300,000,000 as part of an approved amendment to the articles of incorporation. In addition the shareholders also approved the Company’s 2014 Equity Plan reserving 10,000,000 shares for issuance of stock options and restricted stock.
 
In addition, at June 30, 2015, the Company is authorized to 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 the Company’s Amended and Restated Articles of Incorporation. As of June 30, 2015 and 2014 there were 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. To date the Board of Directors has neither declared nor paid common stock dividends to shareholders.
 
Common Stock and Warrants
 
Private Placements – 2015
 
On July 31, 2014, the board of directors approved a private placement equity financing that is intended to raise up to a total of $990,000. In connection with this private placement, the Company is offering accredited investors units, consisting of 1,000,000 shares of common stock and 500,000 warrants at a purchase price of $90,000 per unit. As of June 30, 2015, we have sold 5.95 units to 14 investors for total gross proceeds of approximately $536,000, pursuant to which we issued 5,949,999 shares of common stock and warrants to purchase up to 2,974,999 shares of common stock. The warrants are exercisable for three years and each warrant entitles the holder to purchase one share of common stock at $0.25 per share. SRA served as our placement agent and earned a cash commission of approximately $35,000 based on 9% of gross proceeds and have earned warrants to purchase 385,500 shares of our common stock at an exercise price of $0.09 for its services. The cash commission of approximately $35,000 was recorded as a cost of equity financing. The securities offered and sold in the Offering have not been registered under the Securities Act of 1933, as amended (“Securities Act”). The securities were offered and sold to accredited investors in reliance upon exemptions from registration pursuant to Rule 506 promulgated thereunder.
 
Private Placements – 2014
 
From January to March 2014, the Company conducted a private placement equity financing, pursuant to which the Company issued to accredited investors a total of 32.4 units, which consisted of 1,000,000 shares of common stock and 500,000 warrants at a purchase price of $60,000 per unit. The warrants are exercisable for 5 years and each warrant entitles the holder to purchase one share of common stock at an exercise price of $0.20 per share. This offering resulted in the receipt by the Company of gross proceeds totaling approximately $1,394,000 and the conversion of previously outstanding related party debt to equity in the amount of $550,000, and the issuance of 32,400,000 shares of common stock and warrants to purchase up to 16,200,000 shares of common stock. In connection with this offering a total of 12.5 Units were sold to Esenjay for total of $750,000. Of the total purchase price, Esenjay paid cash in the aggregate amount of $200,000 and converted a total of $550,000 of previously outstanding debt principal (See Note 5).
 
SRA served as Company’s placement agent in connection with this offering and received cash compensation in the amount of 9% of the gross proceeds raised and a warrant to purchase the number of shares of common stock equal to 9% of the aggregate gross proceeds from the offering received by the Company from all investors placed by SRA divided by $0.06 per share. The Company paid SRA $107,460 and issued a warrant to purchase 1,791,000 shares of our common stock at an exercise price of $0.06 for its services as the Company’s private placement agent in this offering.
 
The securities offered and sold in this offering have not been registered under the Securities Act. The securities were offered and sold to accredited investors in reliance upon exemptions from registration pursuant to Rule 506 promulgated thereunder.
 
Option Exercise
 
In connection with a cashless exercise by one of the Company’s option holder, on April 28, 2014, the Company issued 258,536 shares of common stock, based on per share price of $0.32. The shares of common stock issued have not been registered under the Securities Act and have been issued pursuant to exemption available under Section 4(a)(2) of the Securities Act.
 
Advisory Agreements
 
Baytree Capital On June 14, 2012, the Company entered into an Advisory Agreement (“Advisory Agreement”) with Baytree Capital, a significant shareholder of the Company, 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 (6) 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 $0.41 per share (“Advisory Agreement Warrants”). In connection with this agreement, the estimated fair value of the warrants issued in the approximate amount of $3,258,000 was recorded as prepaid advisory fees, which is expected to be amortized on a pro-rata basis over the term of the agreement. During the twelve months ended June 30, 2014, we recorded expense of approximately $1,561,000 based on the amortization of the prepaid advisory fees. As of June 30, 2015 and 2014, there was no remaining unamortized balance of the prepaid advisory fees.
 
Catalyst Global LLC. On October 14, 2013, the Company entered into a contract with Catalyst Global LLC (“CGL”), pursuant to which CGL agreed to provide investor relations services for 12 months in exchange for monthly fees of $2,000 per month and 450,000 shares of restricted common stock issued as follows: 180,000 shares upon signing and 90,000 shares on each of the subsequent three-, six-, and nine-month anniversaries of the contract. The fair value of the shares on the issuance date was recorded as a prepaid expense and amortized over the contract period. The initial tranche was valued at $0.05 per share or $9,000 when issued on November 8, 2013, the second tranche of 90,000 shares was issued on March 19, 2014 and was valued at $0.38 per share, or $34,000, the third tranche of 90,000 shares was issued on April 23, 2014 and was valued at $0.30 per share, or $27,000 and the fourth tranche of 90,000 shares was issued on October 15, 2014 and was valued at $0.12 per share, or $10,800. During the twelve months ended June 30, 2015 and 2014, we recorded expense of approximately $44,000 and $37,000, respectively, in connection with this agreement. As of June, 2015, the total remaining balance of the prepaid investor relation services was $0.
 
On February 11, 2015, the Company signed a renewal contract with CGL, pursuant to which CGL agreed to provide investor relations services for 12 months in exchange for monthly fees of $2,000 per month and 450,000 shares of restricted common stock issued as follows: 150,000 shares upon signing and the balance vesting pro rata upon each of the three-, six-, nine-, and twelve-month anniversaries of the contract. The initial tranche was valued at $0.07 per share or $10,500 when issued on February 17, 2015 and the second tranche of 75,000 shares was issued on May 11, 2015 and was valued at $0.06 per share, or $4,500. During the twelve months ended June 30, 2015, we recorded expense of approximately $5,000. As of June 30, 2015, the total remaining balance of the prepaid investor relation services was approximately $10,000.
 
Security Research Associates, Inc. On June 26, 2013, the Company entered into an agreement with SRA pursuant to which SRA agreed to provide business and advisory services. SRA served as our placement agent in connection with the Company’s 2014 and 2015 private placement offerings described above. In connection with these private placements, SRA was paid aggregate cash compensation in the amount of $142,155 and warrants to purchase a total of 2,176,500 at exercise prices ranging from $0.06 - $0.09 per share. Compensation under the SRA agreement is based on 9% of the gross proceeds raised and a warrant to purchase the number of shares of our common stock equal to 9% of the aggregate gross proceeds from the offerings received from all investors (excluding Esenjay) placed by SRA divided by $0.06 per share.
 
The Company entered into a renewal agreement with SRA on March 18, 2015 pursuant to which it retained SRA as the Company’s exclusive placement agent on a “best-efforts” basis in connection with private placement of stock or convertible securities by the Company. The engagement period commenced on the date of the renewal agreement and will terminate upon the earlier of the termination of the renewal agreement or July 31, 2015 and no changes were made to terms of compensation., During the engagement period, the Company agreed that it will not retain any additional placement agents to perform the same or similar services to be performed by SRA under the renewal agreement and the Company will refer to SRA all offers and inquiries with respect to the financing by any person or entity, with the exception of participation by Esenjay Investment LLC.
 
Institutional Analyst Holdings, Inc. On December 18, 2013, the Company entered into a contract with Institutional Analyst Holdings, Inc. (“IA”), pursuant to which IA agreed to provide investor relations and report writing services for six months in exchange for an initial payment of $2,500 and 400,000 restricted shares of the Company’s common stock upon execution of the contract. In addition, under the agreement, an additional 400,000 restricted shares of the Company’s common stock would be issued 60 days from the date of the contract. The initial tranche was valued at $24,000 based on the share price of $0.06 per share on the date of issuance, December 18, 2013. During the year ended June 30, 2014, we recorded expense of approximately $24,000. As of June 30, 2014, there was no remaining unamortized balance of the prepaid investor relation services. On February 18, 2014, an agreement was reached between the Company and IA to convert the remaining compensation of 400,000 common stock shares owed under the agreement to 400,000 non-qualified stock options at an exercise price of $0.06. These 400,000 options, which were valued at $76,000, were formally issued on July 14, 2014, and were fully vested upon issuance. An accrual of $76,000 was made at June 30, 2014 relating to this option grant. The value of the accrual was determined by using the Black-Scholes model on the day the options were granted.
 
Warrant Activity
 
Warrant activity during the twelve months ended June 30, 2015 and related balances outstanding as of that date are reflected below:
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
 
 
Average
 
Remaining
 
 
 
 
 
 
 
Exercise
 
Contract
 
 
 
 
 
 
 
Price Per
 
Term (#
 
 
 
Number
 
 
Share
 
years)
 
Shares purchasable under outstanding warrants at June 30, 2014
 
 
22,798,347
 
 
$
0.21
 
1.95 – 3.70
 
Stock purchase warrants issued
 
 
5,241,749
 
 
 
0.22
 
1.53 – 2.54
 
Stock purchase warrants exercised
 
 
-
 
 
 
-
 
 
 
Shares purchasable under outstanding warrants at June 30, 2015
 
 
28,040,096
 
 
$
0.21
 
1.53 – 3.70
 
 
Stock-based Compensation
 
We adopted the Flux Power Option Plan in June 2012, under which 2,000,000 shares of common stock were reserved for issuance, 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 at that time, with 4,536,949 new Company options based on the Share Exchange Ratio. The substituted options continue to have, and are subject to, the substantially the same terms and conditions as before, but are 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. All additional subsequent option grants have been “non-qualified options”.
 
On November 26, 2014, our board of directors approved our 2014 Equity Incentive Plan (the “2014 Plan”), which was approved by our shareholders on February 17, 2015. The 2014 Plan offers selected employees, directors, and consultants the opportunity to acquire our common stock, and serves to encourage such persons to remain employed by us and to attract new employees. The 2014 Plan allows for the award of stock and options, up to 10,000,000 shares of our common stock. We have not issued any options or stock under the 2014 Plan.
 
During the twelve months ended June 30, 2015, the Company issued 400,000 non-qualified stock options of the Company’s common stock to a consultant, pursuant to a consulting agreement entered into in December 2013. These options were valued using the Black-Scholes model on the day they were originally due to be issued per agreement, and the Company recorded an accrual in the amount of $76,000 during the year ended June 30, 2014. Such options were issued in July 2014 when the current fair value of $64,000 was determined using the Black-Scholes model. The change in fair value of $12,000 was recorded as a reduction to stock based compensation expense during the twelve month period ended June 30, 2015. The Company has not registered the shares of common stock underlying stock options outstanding as of June 30, 2015.
 
Activity in stock options during the twelve months ended June 30, 2015 and related balances outstanding as of that date are reflected below:
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
Average
 
 
 
 
 
Weighted
 
Remaining
 
 
 
Number of
 
Average
 
Contract
 
 
 
Shares
 
Exercise Price
 
Term (# years)
 
Outstanding at June 30, 2014
 
 
6,335,695
 
$
0.19
 
 
8.04
 
Granted
 
 
400,000
 
 
 
 
 
 
 
Exercised
 
 
-
 
 
 
 
 
 
 
Forfeited and cancelled
 
 
(634,338)
 
 
 
 
 
 
 
Outstanding at June 30, 2015
 
 
6,101,357
 
$
0.16
 
 
7.48
 
Exercisable at June 30, 2015
 
 
4,749,859
 
$
0.16
 
 
7.25
 
 
 
Activity in stock options during the twelve months ended June 30, 2014 and related balances outstanding as of that date are reflected below:
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
Average
 
 
 
 
 
Weighted
 
Remaining
 
 
 
Number of
 
Average
 
Contract
 
 
 
Shares
 
Exercise Price
 
Term (# years)
 
Outstanding at June 30, 2013
 
 
2,527,388
 
$
0.15
 
 
5.85
 
Granted
 
 
4,910,973
 
 
 
 
 
 
 
Exercised
 
 
(295,470)
 
 
 
 
 
 
 
Forfeited and cancelled
 
 
(807,196)
 
 
 
 
 
 
 
Outstanding at June 30, 2014
 
 
6,335,695
 
$
0.19
 
 
8.04
 
Exercisable at June 30, 2014
 
 
3,272,169
 
$
0.16
 
 
6.98
 
 
Stock-based compensation expense recognized in our condensed consolidated statements of operations for the twelve months ended June 30, 2015 and 2014, includes compensation expense for stock-based options and awards granted based on the grant date fair value. For options and awards granted, expenses are amortized under the straight-line method over the expected vesting period. Stock-based compensation expense recognized in the condensed consolidated statements of operations has been reduced for estimated forfeitures of options that are subject to vesting. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
 
We allocated stock-based compensation expense included in the consolidated statements of operations for employee option grants and non-employee option grants as follows:
 
Years ended June 30,
 
2015
 
2014
 
Research and development
 
$
12,000
 
$
9,000
 
General and administration
 
 
225,000
 
 
306,000
 
Total stock-based compensation expense
 
$
237,000
 
$
315,000
 
 
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:
 
 
 
2015
 
2014
Expected volatility
 
100%
 
100%
Risk free interest rate
 
0.96%
 
1.7% to 1.8%
Forfeiture rate
 
0%
 
17%
Dividend yield
 
0%
 
0%
Expected term
 
3 years
 
5 years
 
The remaining amount of unrecognized stock-based compensation expense at June 30, 2015 relating to outstanding stock options, is approximately $169,000, which is expected to be recognized over the weighted average period of 1.18 years.
 
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, 2015.
 
Exercise Price Range
 
Total Outstanding
 
Total Exercisable
 
 
 
 
 
 
 
 
 
Weighted
 
 
 
Number
 
 
 
Number
 
Average
 
 
 
of
 
Weighted
 
of
 
Exercise
 
 
 
Shares
 
Average
 
Shares
 
Price
 
 
 
 
 
Exercise
 
 
 
 
 
 
 
 
 
 
 
Price
 
Life
 
 
 
 
 
$0.04 - $0.41
 
 
6,101,357
 
$
0.16
 
 
7.48
 
 
4,749,859
 
$
0.16
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
6,101,357
 
$
0.16
 
 
7.48
 
 
4,749,859
 
$
0.16
 
 
The closing price of our stock at June 30, 2015, was $0.05, and as a result the intrinsic value of exercisable options at June 30, 2015, was approximately $7,000.