Quarterly report pursuant to Section 13 or 15(d)

STOCKHOLDERS' EQUITY

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STOCKHOLDERS' EQUITY
 3 Months Ended
Sep. 30, 2012
Stockholders' Equity Note [Abstract]  
STOCKHOLDERS' EQUITY

NOTE 6 - STOCKHOLDERS’ EQUITY

 

At September 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. To date the Board of Directors has neither declared nor paid common stock dividends to shareholders.

 

Common Stock and Warrants

 

(a) Private Placement – June and July 2012

 

In June 2012, we initiated a private placement of our common stock and warrants to accredited investors to purchase up to 8 Units, at a price of $500,000 per Unit, with each Unit consisting of 1,207,185 shares of our common stock and 241,437 five (5) year warrants to purchase one share of our common stock at an exercise price of $0.41 per share. The Company issued 2,813,000 shares and 562,551 warrants (“June 2012 Warrants”) raising approximately $1,126,000 in net proceeds through June 30, 2012, and in July 2012 the Company issued 1,690,063 shares and 338,013 warrants (“July 2012 Warrants”) raising net proceeds of approximately $672,000.

 

(b) Private Placement– August 2012

 

In August 2012, the Company commenced a private placement of its common stock and warrants to accredited investors to purchase up to 8 Units for a purchase price of $250,000 per Unit for an aggregate amount of $2,000,000, with each Unit consisting of 603,594 shares of our common stock and 120,719 five (5) year warrants to purchase one share of common stock at an exercise price of $0.41 per share (“August 2012 Warrants”). In connection with this private placement, on August 31, 2012, we sold an aggregate of 603,594 shares of common stock and issued 120,719 warrants raising net proceeds of approximately $231,000.

  

The common stock purchased in the private placements 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 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.

 

Advisory Agreement – Related Party

 

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 three months ended September 30, 2012, we recorded expense of approximately $407,000 based on the amortization of the prepaid advisory fees, and as of September 30, 2012 the total remaining balance of the prepaid advisory fees was approximately $2,783,000.

 

Warrant Activity

 

Warrant activity during the three months ended September 30, 2012 and related balances outstanding as of that date are reflected below:

 

    Number     Weighted
Average
Exercise
Price Per Share		     Weighted Average
Remaining
Contract
Term (# years)		  
Shares purchasable under outstanding warrants at June 30, 2012     2,400,328     $ 0.41        
Stock purchase warrants issued     458,732       0.41          
Stock purchase warrants exercised     —       —          
Shares purchasable under outstanding warrants at September 30, 2012     2,859,060     $ 0.41       4.74  

 

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.

 

Activity in options during the three month period ended September 30, 2012 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 June 30, 2012     4,536,949     $ 0.17          
Granted     —                  
Exercised     —                  
Forfeited and cancelled     —                  
Outstanding at September 30, 2012     4,536,949     $ 0.17       7.35  
Exercisable at September 30, 2012     2,213,413     $ 0.17       5.58  

 

The Company uses the Black-Scholes valuation model to calculate the fair value of stock options. The Black-Scholes model assumptions for the three months ended September 30, 2012 set forth below are as follows:

 

    Employees     Non-Employees  
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 three months ended September 30, 2012, total stock-based compensation expense included in the condensed consolidated statement of operations was approximately $45,000. Of this expense approximately $41,000 was recorded to selling, general and administrative expense and approximately $4,000 was recorded to research and development expense. The remaining amount of unrecognized stock options expense at September 30, 2012 is approximately $406,000, which is expected to be recognized over a weighted-average period of 5.83 years. The intrinsic value of outstanding as well as exercisable options at September 30, 2012 was $0.

 

During the three months ended September 30, 2011, total stock-based compensation expense included in the condensed consolidated statement of operations was approximately $1,000. Of this expense approximately $300 was recorded to selling, general and administrative expense and approximately $700 was recorded to research and development expense.