Flux Power Holdings, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Note 7 - Stockholders' Deficit

Note 7 - Stockholders' Deficit

9 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

NOTE

- STOCKHOLDERS

’ DEFICIT

Common Stock and Warrants

We issued the following shares of common stock during the

nine

months ended

March

31,2017:

	Value of Common Stock		Shares of Common Stock

Shares issued in 2016 Private Placement as Loan Conversion	$	400,000		10,000,000
Shares issued in 2016 Private Placement for Cash		1,075,000		26,875,000
Shares issued in 2016 Private Placement for Private Placement Subscription		-		2,500,000
Shares issued for Services Rendered		9,375		225,000
Shares issued in Warrant Exchange		10,089		1,633,950
Total	$	1,494,464		41,233,950

Private Placement

–2016

April

2016,

our Board of Directors approved the private placement of up to

77,500,000

shares of our common stock to select accredited investors for a total amount of

$3,100,000,

$0.04

per share of common stock. On

July

28,

2016,

our Board of Directors increased the aggregate amount offered up to

$4,000,000

and extended the termination date to

August

31,

2016

(the “Offering”). During the period from

July

2016

through

August

31,

2016,

$1,475,000

was raised of which

$1,075,000

was received in cash and

$400,000

was received via the settlement of outstanding debt. Esenjay, our controlling shareholder and primary credit line holder, participated in the Offering as an investor by purchasing

12,500,000

shares for cash proceeds of

$500,000

and

10,000,000

shares in exchange for the settlement of

$400,000

of debt owed to Esenjay by the Company. On

April

15,

2016,

we entered into an agreement with Esenjay, whereby Esenjay agreed to limit its right of conversion under the Unrestricted Line of Credit to such number of shares so that upon conversion, if any, it will not cause us to exceed our authorized number of shares of common stock. In addition, we sold

14,375,000

shares to unrelated accredited investors for

$575,000

in cash and issued

2,500,000

shares to an unrelated accredited investor, for which we had received cash proceeds prior to

June

30,

2016

$100,000.

Upon termination of the Offering on

August

31,

2016,

we had raised a total of

$3,900,000

of which

$2,125,000

was received in cash and

$1,775,000

was received via the settlement of outstanding debt and liabilities. The securities offered and sold in the 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.

Advisory Agreements

Boustead Securities.

December

2016,

we renewed our agreement with Boustead Securities, formerly known as Monarch Bay Securities, (“Boustead”) to assist us in raising capital. The arrangement is on a non-exclusive basis and has an initial term of

six

months. Pursuant to the arrangement, we have paid to Boustead a non-refundable cash retainer of

$10,000.

In addition, upon a successful closing of financing during the

six

-month period ending

June

2017,

we will pay Boustead a fee of

of gross proceeds raised in cash and warrants to purchase

of total number of shares issued and issuable by the Company to investors under each successful financing.

Catalyst Global LLC.

Effective

April

2016,

we entered into a renewal contract with Catalyst Global LLC (“CGL”) to provide investor relations services for

months in exchange for monthly fees of

$2,000

per month and

540,000

shares of restricted common stock issued as follows:

315,000

shares on

June

30,

2016

for services provided during the

three

months ended

June

30,

2016

and

75,000

shares issued upon each of the

six

nine

-, and

twelve

-month anniversaries of the contract. The initial tranche was valued at

$0.05

per share or approximately

$14,500

when issued on

June

30,

2016,

the

second

tranche of

75,000

shares was issued on

September

29,

2016

and was valued at

$0.04

per share or

$3,000,

the

third

tranche of

75,000

shares was issued on

January

23,

2017

and was valued at

$0.04

per share or

$3,000

and the

fourth

tranche of

75,000

shares was issued on

March

20,

2017

and was valued at

$0.045

per share or

$3,375.

During the

three

and

nine

months ended

March

31,

2017,

we recorded expense of

$3,375

and

$9,375,

respectively.

Warrant Activity

Warrant detail for the

nine

months ended

March

31,

2017

is reflected below:

	Number of Warrants			Weighted Average Exercise Price Per Warrant		Remaining Contract Term (# years)
Warrants outstanding and exercisable at June 30, 2016		28,040,096		$	0.20	0.39	-	2.50
Warrants issued		-		$	-		-
Warrants exchanged		( 2,714,197	)	$	0.14		-
Warrants outstanding and exercisable at March 31, 2017		25,325,900		$	0. 21	0.36	-	1. 70

2012,

we issued warrants to certain investors and a consultant (together, the

"2012

Warrant Holders") to purchase a total of

907,347

shares of our common stock at

$0.41

per share (the

"2012

Warrants"). On

August

23,

2016,

we offered our

2012

Warrant Holders the option to convert their

2012

Warrants for shares of our common stock at a conversion rate of

0.602

shares of common stock per warrant share (the "Warrant Exchange"). As of

March

31,

2017,

twenty

(20)

2012

Warrant Holder had accepted this offer and accordingly, we have exchanged warrant to purchase

2,714,197

shares of common stock at an exercise price of

$0.14

per share, valued at approximately

$10,000,

into

1,633,950

shares of common stock.

The Warrant Exchange was accounted for in accordance with the Financial Accounting Standards Board, Accounting Standards Codification Topic

No.480

Distinguishing Liabilities From Equities, Subsequent Measurement.

As such, the fair value of the warrants was calculated on the settlement date and recorded as a change in fair value of derivative liabilities. The common stock issued in exchange for the warrants was recorded at the fair value of the remaining warrant derivative liability.

Stock-based Compensation

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.

Activity in stock options during the

nine

months ended

March

31,

2017

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, 2016		9,004,020		$	0.11
Granted		-			-
Exercised		-			-
Forfeited and cancelled		( 1,841,249	)	$	0. 16
Outstanding at March 31, 2017		7,162,771		$	0.10		7. 34
Exercisable at March 31, 2017		5,624,351		$	0.11		7.00

Activity in stock options during the

nine

months ended

March

31,

2016,

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, 2015		6,101,357		$	0.15
Granted		4,385,000			0.05
Exercised		-			-
Forfeited and cancelled		( 1,239,837	)		0.1 3
Outstanding at March 31, 2016		9,246,520		$	0.11		6.70
Exercisable at March 31, 2016		6,467,999		$	0.1 3		5.55

Stock-based compensation expense recognized in our

condensed consolidated statements of operations for the

three

and

nine

months ended

March

31,

2017

and

2016,

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.

Our average stock price during the

nine

months ended

March

31,

2017,

was

$0.04,

and as a result the intrinsic value of the exercisable options at

March

31,

2017,

was

$2,000.

We allocated stock-based compensation expense included in the condensed consolidated statements of operations for employee option grants and non-employee option grants as follows:

	For the Three Months Ended				For the Nine Months Ended
	March 31, 2017		March 31, 2016		March 31, 2017		March 31, 2016
Research and development	$	3,000	$	4,000	$	10,000	$	18,000
General and administration		7,000		17,000		20,000		81,000
Total stock-based compensation expense	$	10,000	$	21,000	$	30,000	$	99,000

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:

Nine months ended March 31,	2017		2016
Expected volatility		100%		100%
Risk free interest rate		1.31%		1.31%
Forfeiture rate		23.0%		17%
Dividend yield		0%		0%
Expected term (years)		3		3

The remaining amount of unrecognized stock-based compensation expense at

March

31,

2017

relating to outstanding stock options, is approximately

$50,000,

which is expected to be recognized over the weighted average period of

1.45

years.