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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>UNITED STATES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SECURITIES AND EXCHANGE COMMISSION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Washington, D.C. 20549</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>FORM 8-K</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>CURRENT REPORT</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Date of Report (Date of earliest event reported):
(June 14, 2012)</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B><U>FLUX POWER HOLDINGS, INC.</U></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(Exact name of registrant as specified in
its charter)</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font-family: Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 32%; font-size: 10pt; text-align: center"><B><U>Nevada<BR>
</U></B>(State or Other Jurisdiction of<BR>
Incorporation)</TD>
    <TD STYLE="width: 3%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 31%; font-size: 10pt; text-align: center"><B><U>000-25909<BR>
</U></B>(Commission File Number)</TD>
    <TD STYLE="width: 3%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 31%">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B><U>86-0931332</U></B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(IRS Employer<BR>
        Identification No.)</P></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font-family: Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 50%; font-size: 10pt; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 2%; font-size: 10pt; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 48%; font-size: 10pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><BR STYLE="mso-special-character: line-break">
        <BR STYLE="mso-special-character: line-break">
        </P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B><U>2240 Auto Park Way, Escondido, California
        </U></B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-indent: 0.5in">(Address of Principal
        Executive Offices)</P></TD>
    <TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B><U>92029</U></B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(Zip Code)</P></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B><U>877-505-3589</U></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(Registrant&rsquo;s telephone number, including
area code)</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction
A.2. below):</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 27pt; text-indent: -27pt"><FONT STYLE="font-family: Wingdings">&#168;</FONT>&#9;Written communications pursuant
to Rule 425 under the Securities Act (17 CFR 230.425)</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 27pt; text-indent: -27pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 27pt; text-indent: -27pt"><FONT STYLE="font-family: Wingdings">&#168;</FONT>&#9;Soliciting material pursuant
to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 27pt; text-indent: -27pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 27pt; text-indent: -27pt"><FONT STYLE="font-family: Wingdings">&#168;</FONT>&#9;Pre-commencement communications
pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 27pt; text-indent: -27pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 27pt; text-indent: -27pt"><FONT STYLE="font-family: Wingdings">&#168;</FONT>&#9;Pre-commencement communications
pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SPECIAL NOTE REGARDING FORWARD LOOKING
STATEMENTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">This report contains forward-looking statements. The forward-looking
statements are contained principally in the sections entitled &ldquo;Description of Business,&rdquo; &ldquo;Risk Factors,&rdquo;
and &ldquo;Management&rsquo;s Discussion and Analysis of Financial Condition and Results of Operations.&rdquo; These statements
involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements
to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.
These risks and uncertainties include, but are not limited to, the factors described in the section captioned &ldquo;Risk Factors&rdquo;
below. In some cases, you can identify forward-looking statements by terms such as &ldquo;anticipates,&rdquo; &ldquo;believes,&rdquo;
&ldquo;could,&rdquo; &ldquo;estimates,&rdquo; &ldquo;expects,&rdquo; &ldquo;intends,&rdquo; &ldquo;may,&rdquo; &ldquo;plans,&rdquo;
&ldquo;potential,&rdquo; &ldquo;predicts,&rdquo; &ldquo;projects,&rdquo; &ldquo;should,&rdquo; &ldquo;would,&rdquo; and similar
expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect
to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not
place undue reliance on these forward-looking statements. These forward-looking statements include, among other things, statements
relating to:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>our anticipated growth strategies and our ability to manage the expansion of our business operations effectively;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>our ability to maintain or increase our market share in the competitive markets in which we do business;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>our ability to keep up with rapidly changing technologies and evolving industry standards, including our ability to achieve
technological advances;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>our dependence on the growth in demand for our products;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>our ability to diversify our product offerings and capture new market opportunities;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>our ability to source our needs for skilled labor, machinery, parts, and raw materials economically; and</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>the loss of key members of our senior management.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Also, forward-looking statements represent
our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference
and file as exhibits to this report completely and with the understanding that our actual future results may be materially different
from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to
update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new
information becomes available in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Use of Certain Defined Terms</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Except where the context otherwise requires and for the purposes
of this report only:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">the &ldquo;Company,&rdquo; &ldquo;FPH,&rdquo; &ldquo;we,&rdquo; &ldquo;us,&rdquo; and &ldquo;our&rdquo;
refer to the combined business of Flux Power Holdings, Inc., formerly Lone Pine Holdings, Inc., a Nevada corporation and its subsidiary,
Flux Power, Inc. (&ldquo;Flux Power&rdquo;), a California corporation;</TD></TR>                                                                                <TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="text-align: justify">&nbsp;</TD></TR>
</TABLE>

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<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">&ldquo;Exchange Act&rdquo; refers the Securities Exchange Act of 1934, as amended;</TD></TR>                                                                                                                                                                                                                                           <TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="text-align: justify">&nbsp;</TD></TR>
</TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">&ldquo;SEC&rdquo; refers to the Securities and Exchange Commission; and</TD></TR>                                                                                                                                                                                                                                <TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="text-align: justify">&nbsp;</TD></TR>
</TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">&ldquo;Securities Act&rdquo; refers to the Securities Act of 1933, as amended.</TD></TR></TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Item 1.01 Entry Into A Definitive Agreement.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Amendment No. 1 to the Securities Exchange Agreement</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On June 13, 2012, we
entered into a certain Amendment No. 1 to the Securities Exchange Agreement (&ldquo;Amendment&rdquo;) by and among Flux Power Holdings,
Inc., formerly Lone Pine Holdings, Inc., a Nevada corporation (the &ldquo;Company&rdquo;), Flux Power, Inc., a California corporation
(&ldquo;Flux Power&rdquo;) and its shareholders, Mr. Chris Anthony, Esenjay Investments LLC, and Mr. James Gevarges (collectively
the &ldquo;Flux Shareholders&rdquo;), pursuant to which the parties amended Section 2.3 of that certain Securities Exchange Agreement
dated as of May 18, 2012 by and among the Company, Flux Power and the Flux Shareholders, to change the closing date to June 14,
2012 and amend the reference to the closing conditions</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Advisory Agreement</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On June 14, 2012, we entered into an Advisory
Agreement (&ldquo;Advisory Agreement&rdquo;) with Baytree Capital Associates, LLP (&ldquo;Baytree Capital&rdquo;) pursuant to which
Baytree Capital agreed to provide us with business and consulting 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, which shares will have
piggy-back registration rights, and a warrant to purchase 1,837,777 restricted shares of our common stock for a period of 5 years
at an exercise price of $.41 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Indemnification Agreement</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On June 14, 2012, in connection with the
appointment of Mr. Chris Anthony as our director, Chief Executive Officer and President, and Mr. Steve Jackson as our Chief Financial
Officer, and Mr. Craig Miller as our Secretary, we executed a standard form of indemnification agreement (&ldquo;Indemnification
Agreement&rdquo;) with each of them (the &ldquo;Indemnitee&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Pursuant to and subject to the terms, conditions
and limitations set forth in the Indemnification Agreement, we agreed to indemnify each Indemnitee, against any and all expenses
incurred in connection with the Indemnitee&rsquo;s service as our officer, director and or agent, or is or was serving at our request
as a director, officer, employee, agent or advisor of another corporation, partnership, joint venture, trust, limited liability
company, or other entity or enterprise but only if the Indemnitee acted in good faith and in a manner he reasonably believed to
be in or not opposed to our best interest, and in the case of a criminal proceeding, had no reasonable cause to believe that his
conduct was unlawful. In addition, the indemnification provided in the indemnification agreement is applicable whether or not negligence
or gross negligence of the Indemnitee is alleged or proven. Additionally, the Indemnification Agreement establishes processes and
procedures for indemnification claims, advancement of expenses and costs and contribution obligations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The foregoing description of the terms of
the Amendment, Advisory Agreement and the Indemnification Agreement, is not complete and is qualified in its entirety by reference
to the full text of the respective agreements filed as Exhibit 2.2, Exhibit 10.11 and Exhibit 10. 12 to this report, and incorporated
herein by reference thereto.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Item 2.01 Completion of Acquisition or Disposition of Assets</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On June 14, 2012, we completed the acquisition
of Flux Power, Inc., a California corporation (the &ldquo;Reverse Acquisition&rdquo;) pursuant to that certain Securities Exchange
Agreement dated May 18, 2012 (&ldquo;Exchange Agreement&rdquo;) by and among Flux Power, Inc., a California corporation (the &ldquo;Flux
Power&rdquo;) and its shareholders, Mr. Chris Anthony, Esenjay Investments, LLC, and Mr. James Gevarges (collectively the &ldquo;Flux
Shareholders&rdquo;). In connection with the Reverse Acquisition, we purchased 100% of the issued and outstanding shares of common
stock of Flux Power from the Flux Shareholders in exchange for 37,714,514 newly issued shares our common stock (&ldquo;Exchange
Shares&rdquo;) based on an exchange ratio of 2.9547039 (&ldquo;Share Exchange Ratio&rdquo;). As a result of the Reverse Acquisition,
the Flux Shareholders collectively own approximately 91% of the issued and outstanding shares of our common stock, and Flux Power
became our wholly-owned operating subsidiary.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: black">Upon the closing
of the Reverse Acquisition (the &ldquo;Closing&rdquo;), </FONT>Mr. Gianluca Cicogna Mozzoni, our Chief Executive Officer, President,
Chief Financial Officer, Treasurer, Secretary and sole director, submitted a resignation letter pursuant to which he resigned from
all offices that he held effective immediately; and from his position as our director that will become effective on the tenth day
following the mailing by us of an information statement to our stockholders that complies with the requirements of Section 14(f)
of the Exchange Act. In addition, our Board of Directors on June 14, 2012, increased the size of our Board of Directors to three
directors and appointed Mr. Chris Anthony (Chairman) to fill the vacancy created by the increase in board size, effective as of
the date of the Closing of the reverse acquisition. In addition, Messrs. Michael Johnson and James Gevarges were appointed to fill
the vacancies created upon the effective resignation of Mr. Mozzoni and the increase in the size of the board, with such appointments
and resignation to be effective in compliance with Section 14(f) of the Exchange Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">In connection with the Reverse Acquisition,
(a) we adopted amended and restated Bylaws, (b) changed our name to &ldquo;Flux Power Holdings, Inc.&rdquo; (c) we have assumed
the Flux Power 2010 Option Plan (&ldquo;Plan&rdquo;) and all of the stock options of Flux Power outstanding as of the closing of
the Reverse Acquisition, (d) each of the Flux Shareholders agreed not to offer, sell, assign, transfer, pledge, contract to sell,
or otherwise dispose of any shares of Exchange Shares for a period of 18 months from the Closing except during the period after
the first anniversary of the Closing and a period of 6 months thereafter, in such an amount which constitutes less than 3% in the
aggregate of such Flux Shareholder&rsquo;s beneficial ownership of our common stock per month, and (e) we agreed to use our best
efforts to conduct a private placement of our securities in a private placement 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 5 year warrants
to purchase one share of our common stock at an exercise price of $0.41 per share (the &ldquo;Private Placement&rdquo;), of which
Baytree Capital, its designees or assignees, has committed to investing at least $1,000,000 in the Private Placement. The securities
offered and sold in the Private Placement will not be or have not been registered under the Securities Act of 1933, as amended
(&ldquo;Securities Act&rdquo;), 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The acquisition was accounted for as a recapitalization
effected by a share exchange, wherein Flux Power is considered the acquirer for accounting and financial reporting purposes. The
assets and liabilities of the acquired entity have been brought forward at their book value and no goodwill has been recognized.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Form 10 Disclosure</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">As disclosed elsewhere in this report, on
June 14, 2012, we acquired Flux Power in a reverse acquisition transaction. Item 2.01(f) of Form 8-K states that if the registrant
was a shell company, as we were immediately before the reverse acquisition transaction disclosed under Item 2.01, then the registrant
must disclose the information that would be required if the registrant were filing a general form registration of securities on
Form 10.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Accordingly, we are providing information
that would be included in a Form 10 had we been required to file such form. Please note that the information provided below relates
to the combined entity after the acquisition of Flux Power, except that information relating to periods prior to the date of the
Exchange Agreement only relate to Flux Power unless otherwise specifically noted.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>OVERVIEW OF FLUX POWER, INC., OUR WHOLLY-OWNED SUBSIDIARY</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Flux Power, Inc., a California corporation,
was founded in 2009 to design, develop and sell rechargeable advanced energy storage systems. We have developed an innovative high
power battery cell management systems (&ldquo;BMS&rdquo;) and have structured our business around this core technology. Our proprietary
BMS provides three critical functions to our battery systems:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD><B><I>Cell Balancing</I></B>: This is performed by adjusting the capacity of each cell in a storage system according to temperature,
voltage, and internal impedance metrics. This cell balancing management assures longevity of the overall system.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD><B><I>Monitoring</I></B>: This is performed by way of a physical connection to individual cells for monitoring voltage and
performing calculations from basic metrics to determine remaining capacity and internal impedance. This monitoring assures accurate
measurements to best manage the system and assure longevity.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD><B><I>Error reporting</I></B>: This is performed by analyzing data from system monitoring and making decisions on whether the
system is operating out of normal specifications. This error reporting is crucial to system management as it ensures ancillary
devices are not damaging the storage system and will give the operator an opportunity to take corrective action to maintain long
overall system life.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Using our proprietary battery management
system technology, we are able to offer completely integrated energy storage solutions or custom modular standalone systems to
our clients. In addition, we have also developed a suite of complementary technologies and products that accompany and enhance
the abilities of our core BMS products to meet the needs of the growing advanced energy storage market.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">We sold our first product in the second
quarter of 2010 and have since delivered over 14 mega watt-hours of advanced energy storage to clients such as Crown Equipment
Corp., Damascus Corp., Columbia Parcar Corp., Wheego Electric Cars Inc., Epic Electric Vehicles, and TALHO. We also sell our Advanced
Energy Storage products through distributors such as Dukes Garage, Small Car Performance, Electric Motor Sports, MCelectric, Jungle
Motors and EV America.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>HISTORY OF FLUX POWER HOLDINGS, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Flux Power Holdings, Inc., formerly Lone
Pine Holdings, Inc. (&ldquo;FPH&rdquo;), through its former wholly owned subsidiary Integrated Forest Products Pty Ltd (&ldquo;Integrated&rdquo;),
previously operated a saw mill in Australia which cut pine timber into building products to supply the commercial and residential
industry along the eastern coast of Australia. In July 2007, Integrated&rsquo;s wholly owned subsidiary in Australia was put into
receivership and has formally discontinued its operations. In connection with the receivership, the receiver formed a new Australian
wholly owned subsidiary, Australian Forest Industries, Ltd., and exchanged all of the shares of Integrated for Australian Forest
Industries, Ltd. shares. On October 15, 2008, our Board of Directors approved the transfer of all the outstanding shares of Australian
Forest Industries, Ltd., its operating subsidiary that had been placed in receivership, to the principal shareholders and directors,
personally. Subsequent to the spin out, we became a non-operating shell company engaged in the business of seeking a suitable candidate
for acquisition or merger.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">In connection with the Reverse Acquisition,
we changed our name from &ldquo;Lone Pine Holdings, Inc.&rdquo; to &ldquo;Flux Power Holdings, Inc.&rdquo; The name change was
effective under Nevada corporate law on May 23, 2012 pursuant to Articles of Merger that was filed with the Nevada Secretary of
State. Pursuant to such Articles of Merger, we merged with our wholly-owned subsidiary, Flux Power Holdings, Inc. In accordance
with Section 92A.180 of the Nevada Revised Statutes, shareholder approval of the merger/name change was not required. The Articles
of Merger provided that, upon the effective date of the merger effective, our Articles of Incorporation would be amended as of
such date to change our name to &quot;Flux Power Holdings, Inc.&quot;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>REVERSE ACQUISITION OF FLUX POWER </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On June 14, 2012, we completed the acquisition
of Flux Power, Inc., a California corporation (the &ldquo;Reverse Acquisition&rdquo;) pursuant to that certain Securities Exchange
Agreement dated May 18, 2012 (&ldquo;Exchange Agreement&rdquo;) by and among Flux Power, Inc., a California corporation (the &ldquo;Flux
Power&rdquo;) and its shareholders, Mr. Chris Anthony, Esenjay Investments, LLC, and Mr. James Gevarges (collectively the &ldquo;Flux
Shareholders&rdquo;). In connection with the Reverse Acquisition, we purchased 100% of the issued and outstanding shares of common
stock of Flux Power from the Flux Shareholders in exchange for 37,714,514 newly issued shares our common stock (&ldquo;Exchange
Shares&rdquo;) based on an exchange ratio of 2.9547039 (&ldquo;Share Exchange Ratio&rdquo;). As a result of the Reverse Acquisition,
the Flux Shareholders collectively own approximately 91% of the issued and outstanding shares of our common stock , and Flux Power
is our wholly-owned operating subsidiary.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: black">Upon the closing
of the Reverse Acquisition (the &ldquo;Closing&rdquo;), </FONT>Mr. Gianluca Cicogna Mozzoni, our Chief Executive Officer, President,
Chief Financial Officer, Treasurer, Secretary and a director, submitted a resignation letter pursuant to which he resigned from
all offices that he held effective immediately; and from his position as our director that will become effective on the tenth day
following the mailing by us of an information statement to our stockholders that complies with the requirements of Section 14(f)
of the Exchange Act. In addition, our Board of Directors on June 14, 2012, increased the size of our Board of Directors to three
directors and appointed Mr. Chris Anthony (Chairman) to fill the vacancy created by the increase in board size, effective as of
the date of the Closing of the reverse acquisition. In addition, Messrs. Michael Johnson and James Gevarges were appointed to fill
the vacancies created upon the effective resignation of Mr. Mozzoni and the increase in the size of the board, with such appointments
and resignation to be effective in compliance with Section 14(f) of the Exchange Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">In connection with the Reverse Acquisition,
(a) we adopted amended and restated Bylaws, (b) changed our name to &ldquo;Flux Power Holdings, Inc.&rdquo; (c) we have assumed
the Flux Power 2010 Option Plan (&ldquo;Plan&rdquo;) and all of the stock options of Flux Power outstanding as of the closing of
the Reverse Acquisition, (d) each of the Flux Shareholders agreed not to offer, sell, assign, transfer, pledge, contract to sell,
or otherwise dispose of any shares of Exchange Shares or securities convertible into or exercisable or exchangeable into our common
stock for a period of 18 months from the Closing except during the period after the first anniversary of the Closing and a period
of 6 months thereafter, in such an amount which constitutes less than 3% in the aggregate of such Flux Shareholder&rsquo;s beneficial
ownership of our common stock per month, and (e) we will use our best efforts to conduct a private placement of our securities
in an unregistered offering 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 5 year warrants to purchase one share of our common stock at an
exercise price of $0.41 per share (the &ldquo;Private Placement&rdquo;), of which Baytree Capital, its designees or assignees,
has committed to investing at least $1,000,000 in the Private Placement, and with the anticipation that the closing of the Private
Placement will occur in the amount of at least $3,000,000 on or before June 15, 2012, with any remaining unsold portions of the
Private Placement to close on or before June 30, 2012. The securities offered and sold in the Private Placement will not be or
have not been registered under the Securities Act of 1933, as amended (&ldquo;Securities Act&rdquo;), 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The acquisition was accounted for as a recapitalization
effected by a share exchange, wherein Flux Power is considered the acquirer for accounting and financial reporting purposes. The
assets and liabilities of the acquired entity have been brought forward at their book value and no goodwill has been recognized.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>OUR CORPORATE STRUCTURE</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">We were organized by the filing of articles
of incorporation with the Nevada Secretary of State on September 21, 1998 under the name Oleramma, Inc. The articles of incorporation
authorized the issuance of 105,000,000 shares, consisting of 100,000,000 shares of common stock, par value $0.001 per share, and
5,000,000 shares of preferred stock, par value $0.001 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On April 28, 1999, we changed our name to
BuckTV.Com, Inc. on the basis that we would market consumer products through an interactive website. We again changed our name
in November 2002 to Multi-Tech International, Corp. to pursue another venture.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On September 1, 2004, we entered into a
share exchange agreement with Timbermans Group Pty Ltd, an Australian corporation and its wholly-owned subsidiary, Integrated Forest
Products Pty Ltd, an Australian corporation. Pursuant to the share exchange agreement, we:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 1in"></TD><TD STYLE="width: 0.5in">&#9679;</TD><TD>completed a 200-1 reverse stock split of our outstanding shares of common stock,</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1.5in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 1in"></TD><TD STYLE="width: 0.5in">&#9679;</TD><TD>increased our authorized number of shares of common stock from 100,000,000 to 300,000,000 shares,</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1.5in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 1in"></TD><TD STYLE="width: 0.5in">&#9679;</TD><TD>changed our name from Multi-Tech International, Inc. to Australian Forest Industries,</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1.5in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 1in"></TD><TD STYLE="width: 0.5in">&#9679;</TD><TD>appointed five new directors to our Board of Directors, and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1.5in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 1in"></TD><TD STYLE="width: 0.5in">&#9679;</TD><TD>we issued 257,000,000 shares of our common stock to Timbermans pursuant to the terms of the share exchange agreement.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">As a result, upon completion of the share exchange, Integrated
became our wholly-owned subsidiary.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On July 31, 2007, PricewaterhouseCoopers
Australia was appointed receiver and manager of both Integrated and Timbermans. On the same date, Deloitte was appointed liquidator
of Timbermans. Romanis Cant was appointed liquidator of Integrated on October 18, 2007.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Business operations of Integrated were continued
until November 30, 2007, when all the assets of Integrated were offered for sale as a going concern. No offers capable of acceptance
by the receiver were submitted. As a result, the receiver entered into contracts to sell the land, plant and equipment of Integrated
as individual assets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Timbermans owned two major assets, a rural
property and shares of our common stock. The rural property was sold by auction on March 14, 2008. Timbermans entered into a contract
to sell its land and buildings for $9,556,357 and all of its manufacturing equipment for $964,403.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On July 31, 2007, both Timbermans and Integrated
were put into administration, the Australian equivalent of receivership, and PricewaterhouseCoopers Australia was appointed each
of their receiver and manager. In connection with the administration, the receiver formed a new Australian wholly-owned subsidiary,
Australian Forest Industries, Ltd., and exchanged all of the shares of Integrated for Australian Forest Industries, Ltd. shares.
On October 15, 2008, the Board of Directors of Australian Forest Industries approved the transfer of all the outstanding shares
of Australian Forest Industries, Ltd. to the principal shareholders and directors, who were also the shareholders of Timbermans.
As a result, the loan to Timbermans was removed from our books and there is currently no principal or interest due from us to Timbermans
or any other related party.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Since early 2010, we have been looking for
a merger candidate. Effective January 29, 2010, we:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 1in"></TD><TD STYLE="width: 0.5in">&#9679;</TD><TD>amended our articles of incorporation to change our name from &ldquo;Australian Forest Industries&rdquo; to &ldquo;Lone Pine
Holdings, Inc.&rdquo; Our management believes that the name change will disassociate us with our former business of operating a
saw mill in Australia.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1.5in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 1in"></TD><TD STYLE="width: 0.5in">&#9679;</TD><TD>amended our articles of incorporation to decrease the number of authorized shares of capital stock from 305,000,000 to 150,000,000
shares. Prior to the amendment, the articles of incorporation authorized 300,000,000 shares of common stock and, after the amendment,
the articles of incorporation authorize 145,000,000 shares of common stock. The articles of incorporation prior to the amendment
and after the amendment both authorize 5,000,000 shares of preferred stock.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1.5in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 1in"></TD><TD STYLE="width: 0.5in">&#9679;</TD><TD>enacted a reverse stock split so that for every 100 shares of our common stock outstanding on the record date, shareholders
received one share of common stock. Any fractional share of our common stock that would have existed as a result of the reverse
stock split was rounded up to a whole share. Every 100 shares of common stock issued and outstanding immediately prior to the record
date were reclassified as, and changed into, one share of common stock. Coupled with the decrease in our authorized share capital,
the reverse stock split increased the number of authorized and unissued shares of common stock from 14.1% of our authorized shares
prior to the amendment to 98.2% after the amendment.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1.5in; text-indent: -0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">In connection with the Reverse Acquisition,
on May 23, 2012, we effected a merger with our wholly-owned subsidiary pursuant to which we changed our name from &ldquo;Lone Pine
Holdings, Inc.&rdquo; to &ldquo;Flux Power Holdings, Inc.&rdquo; As a result of the Reverse Acquisition, all of our business operations
are conducted through our wholly-owned subsidiary, Flux Power, Inc., a California corporation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Flux Power was conceived in 2008 to develop
technologies for the advanced energy storage market. We were incorporated in the second quarter of fiscal year 2010 and began shipping
prototype product in the second quarter of 2010 while continuing to develop our intellectual property portfolio. In 2011 Wheego
obtained a Federal Motor Vehicle Safety Standards validation, which included our products and then we started shipping ancillary
products to enhance our overall product line.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&#9;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Our principal executive office is located
at 2240 Autopark Way, Escondido, CA 92029. The telephone number at our principal executive office is (877)-505-3589 (FLUX).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>DESCRIPTION OF BUSINESS OF FLUX POWER, OUR WHOLLY-OWNED SUBSIDIARY</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Our Business</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Flux Power, Inc. (&ldquo;Flux
Power&rdquo;), a California corporation and our wholly-owned subsidiary, is in the business of energy storage and battery management.
Flux Power was incorporated in October 2009 to develop technologies for the advanced energy storage market and began shipping prototype
product in the second quarter of 2010 while continuing to develop our intellectual property portfolio. In 2011, we began shipping
Federal Motor Vehicle Safety Standards validated products and then started shipping ancillary products to enhance our overall product
line.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Industry Background for the Energy Storage
Market</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="background-color: white">The
energy storage market has grown over recent years from one mostly reliant on lead acid technologies created in the 1800s to one
leveraging advanced chemistries and the corresponding ability to store more energy in less space. Back-up power has increasingly
grown to depend on telematics to accurately gauge system health. Electric vehicles have adopted lighter weight energy storage to
increase range and payload abilities and grid management applications have sought to increase the cycle life of their systems to
assure better returns on their investments over the long term. We believe that all of these needs will cause the advanced energy
storage market to grow exponentially over the next 5 to 10 years. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white"><B><I>Electric
Vehicles</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="background-color: white">Electric
vehicles are displacing traditional combustion vehicles for utility and passenger vehicle needs at an ever-growing rate as electric
vehicle technology becomes more advanced and costs come down. Utility vehicles like lift trucks and service vehicles are a natural
fit for electric power as they are often operated in confined or congested spaces where excess emissions from combustion vehicles
is difficult to manage. Moreover, lowering these combustion motor emissions is a goal of many Federal and state agencies, which
has also spurred adoption of electric technologies in this space. This adoption is further assisted by increased environmental
consciousness on the part of consumers, which has increased sales of both hybrid electric and all electric vehicles. With the decreased
costs per mile of electric vehicles and greatly reduced emissions we believe that this market segment will see fast growth.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white"><B><I>Grid
Management Solutions</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="background-color: white">Grid
management ranges from simple back-up power to devices that assure the performance and reliability of electric transmission and
distribution grids. In simple back-up power systems, the longevity of the system is crucial to maintaining up times and decreasing
maintenance costs. Typical lead acid battery back-up power systems need cell replacement every two years, whereas advanced energy
storage systems can last as long as ten years. Advanced energy storage has seen gains in storage for peak-shaving to lower electricity
costs and in shifting load demands in solar and wind power applications. Grid managements systems in transmission networks at every
level need frequency regulation to adjust for minute-to-minute frequency fluctuations in the grid due to demand and supply changes.
Buffering with advanced energy storage systems provide services that are more cost effective and efficient versus running power
plants at sub-optimal operating levels to meet demand. This practice also frees up power plant capacity normally reserved for frequency
regulation and standby to produce more electricity and correlated revenues.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white"><B><I><U>Battery
Types</U></I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="background-color: white">The
most common battery technologies currently available to address the electric vehicle and grid management markets include the following:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white"><I>&nbsp;</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="background-color: white"><B><I>Lead
Acid Batteries.</I></B><I> </I>Lead acid is one of the most developed battery technologies as it has been in use since the 1800s.
It is relatively easy to manufacture and is an inexpensive and ubiquitous energy storage medium. Automobile manufacturers use lead
acid for starter batteries and lead acid has been used widely in electric vehicle and grid management solutions. Unfortunately,
lead-acid batteries weigh more per unit of stored energy and have less power output per unit mass versus advanced energy storage
system technologies and thus are not well suited for advanced applications such as grid management devices and electric vehicles.
In addition, lead can be hazardous to the environment and there are efforts in many countries to phase this legacy technology out
over time.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white"><I>&nbsp;</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="background-color: white"><B><I>Nickel
Batteries</I></B><I>: </I> Nickel batteries, NiCd (nickel cadmium) or NiMH (nickel metal hydride) are durable and inexpensive technologies
with relatively high power. Unfortunately, cadmium is not a safe material and exposure can result in health hazard to humans and
damage to the environment. An alternative to the toxic NiCd battery is NiMH, which has greater energy versus lead-acid batteries
and is more suitable to a wider range of applications. These NiMH were used in early electric vehicles and some other bulk storage
applications. Unfortunately, these chemistries are not as energy dense as advanced lithium batteries and thus are now being leveraged
out of the advanced energy storage system market by more energy dense chemistries. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white"><I>&nbsp;</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="background-color: white"><B><I>Legacy
Lithium Chemistries</I></B><I>: </I>Lithium batteries are more energy dense versus lead-acid, NiCd or NiMH batteries and are more
volumetrically and weight efficient. Introduced in the 1990s, lithium batteries made their way into portable electronics devices
like laptop computers and cell phones. Unfortunately, early lithium cobalt was prone to heat issues when arranged in large groups
and if a battery cell were compromised a fire or explosion could result. This attribute made early lithium batteries unsuitable
for large grid management devices and electric vehicles. The cobalt in these early cells was also a more expensive metal versus
the compounds used in modern lithium batteries. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="background-color: white"><B><I>Advanced
Energy Storage Lithium Batteries</I></B><I>: </I>The current generation of advanced energy storage lithium batteries was developed
in the late 1990s. These new chemistries improve upon energy density, volumetrics and weight metrics. There have also been great
enhancements to the safety of these modern lithium batteries and heat and catastrophic failure issues do not plague advanced energy
storage systems today. There has also been a significant increase in modern lithium batteries&rsquo; cycle life. This makes todays&rsquo;
advanced energy storage systems the most conducive to electric vehicle and grid management use.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white"><I>&nbsp;</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="background-color: white"><B><I>Other
Technologies</I></B><I>: </I>Ultra capacitors and fuel cells have been proposed as potential replacements to lithium batteries.
Ultra capacitors deliver high power and have an extended cycle life but suffer from poor energy density. This makes them suitable
for small burst power needs but not for grid storage and electric vehicle devices. Fuel cells generate energy converting a fuel,
typically hydrogen to energy. Fuel cell systems offer good energy density but are poor performers in terms of power and cycle life.
Fuel cell systems are suitable for devices with small power needs and short life spans but are generally not suitable for use in
electric vehicles and grid management devices.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white"><B><I>&nbsp;</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white"><B><I><U>Current
Advanced Energy Storage Application Needs</U></I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="background-color: white">There
are a number of features required of advanced energy storage applications today, such as:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white"><I>&nbsp;</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="background-color: white"><B><I>Target
application power needs</I></B><I>: </I>An advanced energy storage system must be able to deliver the electrical power required.
Electrical power, measured in watts, is the rate at which electrical energy is delivered. Electric vehicles, in particular, need
enough power to assure smooth acceleration through a systems discharge curve and grid management systems need enough power to meet
load demands. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white"><I>&nbsp;</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="background-color: white"><B><I>Duration
of charge</I></B><I>: </I>An advanced energy storage system must be able to provide a certain total amount of electrical energy.
Total electrical energy is measured in watt hours and is the product of power and time. Advanced energy storage systems with greater
energy can perform for a longer duration when compared to legacy technologies. The total electrical energy of an advanced energy
storage system determines an electric vehicle&rsquo;s range per charge and a grid management device&rsquo;s total power.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="background-color: white"><B><I>High
power needs</I></B><I>:</I> The energy that an advanced energy storage system can provide in total depends on the power requirements
of the device in which it is installed. When an advanced energy storage system delivers higher power, the available energy of the
advanced energy storage system is less than if it was delivering lower power. Advanced energy storage systems are better suited
to deliver high power versus legacy lead acid. For example, the higher power required to push a vehicle like an electrically propelled
boat through the water would be detrimental to legacy power technologies because their lack of ability to operate as efficiently
in high power applications. Advanced energy storage systems are able to supply a high power required without detriment to the energy
storage system.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white"><I>&nbsp;</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="background-color: white"><B><I>Safe
Operation</I></B><I>: </I>For almost all electric vehicle and grid management solutions the safety of an advanced energy storage
system is of upmost importance. Legacy lead acid batteries tend to get hot with heavy operation and the toxic nature of these legacy
chemistries can be troublesome in the event of a cell breach. Advanced energy storage systems focus on chemistries that do not
violently react with oxygen so a cell breach is less likely to result in an explosion or fire. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white"><I>&nbsp;</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="background-color: white"><B><I>Extended
Life</I></B><I>:</I> The cycle life of an advanced energy storage system is the total number of times the system can be charged
and discharged while still performing to specification in the device installed. Legacy lead acid technologies often do not perform
to specification past a few hundred cycles in electric vehicle or grid management devices. In comparison, an advanced energy storage
system can last five to ten times as long in the same device.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white"><I>&nbsp;</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="background-color: white"><B><I>Volumetrics
and weight</I></B><I>:</I> The weight and size of advanced energy storage systems are of crucial importance to both electric vehicle
and grid management devices. In electric vehicles, where packaging space is precious, a lightweight system can greatly enhance
range. In grid management devices that seek to extend current back-up power time benefit from better volumetrics and devices that
shift load or peak-shave for improved average energy costs benefit from small advanced energy storage systems that keep connections
between cells at a minimum. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="background-color: white"><I>&nbsp;</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="background-color: white"><B><I>Lowest
Cost</I></B><I>:</I> Advanced energy storage systems provide power dense solutions with extended cycle life which, together, equate
to very cost conscious solutions for most applications in the electric vehicle and grid management market segments. We believe
that, in our products, advanced energy storage systems can cost much less than legacy lead acid technologies over the course of
device operation. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Our Products and Services</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We seek to gain market
share in the advanced energy storage segment with our system technologies that extend life, add much needed safety mechanisms,
and communication and cycle life memory tools. We are focused on cell and system management tools. From our modular 12v energy
storage solutions to stackable charging, we provide the building blocks to create custom systems designed for a diverse set of
applications. Whether it is vehicle or grid storage systems, we provide capable systems that meet cost and performance targets
and in many cases outperform traditional lead acid technologies on both metrics. Through our Battery Management System, we have
enhanced battery systems overall to provide safer, more reliable and extended life rechargeable energy storage systems for applications
including motive, marine, industrial, military, stationary, and grid management markets. We believe that the benefits of our advanced
BMS and cell technologies, and our worldwide intellectual property portfolio along with our experienced and seasoned management
team and staff will allow us to become a global leader in advanced energy storage.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Based on our experience,
we believe that, compared to our competitors, our expertise in the large format energy storage market segment is paving the way
for lower cost and higher performance solutions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B></B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%">
<TR STYLE="vertical-align: top; text-align: left">
    <TD STYLE="width: 25%"><IMG SRC="image_008.jpg" ALT="">&nbsp;</TD>
    <TD STYLE="width: 75%"><FONT STYLE="font-size: 10pt"><B>Battery Management System (BMS).</B> Our proprietary Battery Management
    System (BMS) product provides three critical functions for battery systems: cell balancing, monitoring parameters and reporting
    errors to the system. Our BMS monitors parameters and reports errors to other devices, which can then determine the best action
    to take to prevent failure. Another BMS function is system cell balancing. The BMS will analyze each battery cell in the system
    during charge and discharge to determine which cells to balance to prevent overcharging and allow the other batteries to catching
    up and equalize capacity throughout the system.&nbsp;</FONT></TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%">
<TR STYLE="vertical-align: top; text-align: left">
    <TD STYLE="width: 25%"><IMG SRC="image_009.jpg" ALT="">&nbsp;</TD>
    <TD STYLE="width: 75%"><FONT STYLE="font-size: 10pt"><B><I>Battery
Modules</I></B><I>. </I>We supply high-power, energy-dense advanced energy storage modules for the electrical vehicles, industrial,
governmental and grid storage applications. Our primary product consists of the Flux Power 12 V lithium module but we offer varying
chemistries and configurations based on the applications. Our battery modules are designed for our BMS. </FONT>&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%">
<TR STYLE="vertical-align: top; text-align: left">
    <TD STYLE="width: 25%"><IMG SRC="image_010.jpg" ALT="">&nbsp;</TD>
    <TD STYLE="width: 75%"><FONT STYLE="font-size: 10pt"><B><I>Diagnostic</I></B><I>. </I>Our Handheld Diagnostic Units (HDU)
    is a handheld instrument that displays critical system information allowing the user to access necessary information and monitor
    overall system health. The HDU is also capable of programming system parameters, features and offsets. The HDU can be useful
    in the field for system programming or troubleshooting as well as day-to-day monitoring.</FONT>&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%">
<TR STYLE="vertical-align: top; text-align: left">
    <TD STYLE="width: 25%"><IMG SRC="image_011.jpg" ALT=""><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 75%"><FONT STYLE="font-size: 10pt"><B><I>Chargers</I>.</B> Our smart charging solutions are designed to
    interface with our battery management system. Our smart chargers consist of both air-cooled and liquid-cooled chargers. These
    modular chargers can be stacked from 3KW &ndash; 300KW.</FONT>&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I></I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Technology</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our cell management
and communication tools dramatically extend battery system life and improve system performance by managing individual cells in
a system, communicating individual cell conditions to ancillary devices, and communicating individual cell conditions to other
devices which either require or supply power:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Managing individual cells within a system to maximize</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: 0in"><FONT STYLE="font-family: Wingdings">&Oslash;</FONT><FONT STYLE="font-family: Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;
</FONT>Life Cycles</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: 0in"><FONT STYLE="font-family: Wingdings">&Oslash;</FONT><FONT STYLE="font-family: Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;
</FONT>Discharge Rate</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: 0in"><FONT STYLE="font-family: Wingdings">&Oslash;</FONT><FONT STYLE="font-family: Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;
</FONT>Depth of Discharge Per Cycle</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Allowing Cells to Communicate their State of Health to</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: 0in"><FONT STYLE="font-family: Wingdings">&Oslash;</FONT><FONT STYLE="font-family: Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;
</FONT>Ensure Proper Charging</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: 0in"><FONT STYLE="font-family: Wingdings">&Oslash;</FONT><FONT STYLE="font-family: Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;
</FONT>Protect the Cells from Over Discharge</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: 0in"><FONT STYLE="font-family: Wingdings">&Oslash;</FONT><FONT STYLE="font-family: Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;
</FONT>Adjust System Parameters During Varying Temperature</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Enabling other system components to adjust their functions to</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: 0in"><FONT STYLE="font-family: Wingdings">&Oslash;</FONT><FONT STYLE="font-family: Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;
</FONT>Protect Drive Components from Damage</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: 0in"><FONT STYLE="font-family: Wingdings">&Oslash;</FONT><FONT STYLE="font-family: Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;
</FONT>Tie Properly to Grid Power Systems</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: 0in"><FONT STYLE="font-family: Wingdings">&Oslash;</FONT><FONT STYLE="font-family: Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;
</FONT>Optimize Charge Efficiency</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Marketing and Sales</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We currently sell products
direct or through one of several retail distributors in North America. Our direct customers are mostly large companies while our
distributors primarily distribute to smaller retail customers.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">During the nine month
period ended March 31, 2012, the Company had four major customers that combined represented 87% or $2,616,000 of the Company&rsquo;s
total revenues. During the nine month period ended March 31, 2011 the Company had two major customers that accounted for 37% or
$216,000 of the Company&rsquo;s total revenues. For the year ended June 30, 2011, one customer accounted for 19% of total revenues,
or $187,000. For the eight month period ended June 30, 2010, the Company had four customers that combined accounted for 79% of
total revenues, or $164,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Production process</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Except for some of
the charger components, we design all of our own products in-house and outsource manufacturing and assembly when possible. We have
established strategic partner relationships with contract manufacturers and continue to leverage their engineering and production
resources.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>In-House Product Assembly:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>BMS units, Chargers
and CAN Current Sensors</I></B>: Units are outsourced and programmed and tested at our facility before shipping.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>12v Modules</I></B>:
We receive completed 12v module cases and lids. Cells are packed in the module cases, connected to BMS, and secured in place. Lids
with BMS installed are programmed and calibrated. Each full unit is sealed and tested before shipping.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Hand Held Diagnostic
Units</I></B>: We receive cases and build these HDUs in small batches. HDUs are programmed and tested before shipping.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Strategic Relationship
with LHV Power</I></B>: LHV Power is one of our early business supporters. LHV&rsquo;s CEO, James Gevarges, sits on our Board of
Directors and is one of our major shareholders. LHV has an advanced engineering team that has produced products for Hewlett Packard,
Dell, Black and Decker, Train, and Carrier. LHV has several manufacturing facilities in China and Taiwan. Currently our BMS units,
chargers and CAN Current Sensor Builds are outsourced to LHV Power where they are built to industry standards. In addition, LHV
assists us with manufacturing assessments of our other products. Our relationship with LHV gives us an enhanced ability to produce
validated volume manufacturing designs and the ability to scale quickly to meet our customers&rsquo; volume and cost targets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Volume sales will enable cost reductions
by: </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Manufacturability
Optimization</I></B>: We are currently building products to be as robust and full-featured as possible to meet prototype and small
quantity needs that are not cost-sensitive. With investment in design, these premium components hopefully can be value-engineered
with the goal to continue to offer full-featured devices at less than 50% of the cost.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Low Cost Version
Designs</I></B><I>:</I> We will have a growing number of clients that do not need full-featured devices to make their products
perform well. With working capital, we believe that we can design low cost options for customers which can be marketed at a deeper
discount to our current full-featured products.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Advanced Manufacturing
Capabilities</I></B>: We currently leverage our relationship with LHV Power for manufacturing resources. We intend to seek out
other advanced manufacturing relationships to further enhance our abilities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Suppliers </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For the nine month
period ended March, 31, 2012, and 2011, one vendor that accounted for 53% and 79%, respectively, of our total purchases. For the
year ended June 30, 2011, and for the eight month period ended June 30, 2010, one vendor accounted for 67% and 70%, respectively,
of total purchases.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Research and Development</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="color: black">Research
and development expenses for the nine months ended March 31, 2012 and 2011 were approximately $400,000 and $316,000, respectively.
Such expenses consist primarily of materials, supplies, salaries and personnel related expenses, consulting costs and other expenses.
</FONT>For the years ended June 30, 2011, and for the eight month period ended June 30, 2010, we incurred $382,064 and $197,478,
respectively, on research and development.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For the year ended
June 30, 2011, we also completed grant work worth $52,606 with the California Center for Sustainable Energy, Aerovironment, the
University of California at Berkeley, and San Diego Gas and Electric on repurposing advanced energy storage systems from electric
vehicles to household energy storage. We will continue to seek out grant work that is compelling and aligns with our growth efforts.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We currently perform
our research and development at our facility in Escondido, California. We seek to develop innovative new and improved products
for cell and system management along with associated communication, display, current sensing and charging tools.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Cell and System
Management Tools</I></B>: We will continue to innovate with lower cost, less power consuming and more capable devices. Some of
these devices will be specialized for certain market segments.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Communication</I></B>:
We will continue to innovate tools for remote and local communication with our energy storage and ancillary components. These devices
and software components will be applicable in both motive and stationary storage markets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Display</I></B>:
We will continue to innovate new and more user friendly tools to accurately and quickly display information on our energy storage
metrics.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Current Sensing</I></B>:
We will continue to innovate with more accurate and detailed current data capability with our sensing modules. These devices will
become ever more important to an industry that depends on accurate state of charge calculations to make decisions on power use
and creation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Charging</I></B>:
Together with our suppliers, we will continue to innovate with new charging solutions for both AC voltage for electric vehicles
and DC to DC power conversion for grid, solar, wind, and back-up power solutions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Competition</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our competitors are
major domestic and international companies such as LG Chem, Matsushita Industrial Co., Ltd. (Panasonic), Sony, Toshiba and SAFT,
A123 Systems, Valence, Dow - Kokam, Thundersky. Winston Battery, Altair Nanotechnologies, and Ener1. A123 Systems and Ener1 have
received significant financial support from private investors, public offerings and Federal, state, and local grants, subsidies,
and incentives and have heavily invested in manufacturing capacity for their chosen markets. Our competitors, in general, have
more funding and bigger sales, marketing and research efforts than we do.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#9;We believe that we have several technological
and business advantages over our competitors, which will lead to our success in the advanced energy storage market. Our concentration
on cell and system management tools has allowed us to compete with a much lower capitalization structure. Further, our flexibility
in cell sourcing allows us to provide complete storage systems at much lower cost versus our current competition.&#9;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Our pricing advantages over industry comparable
are illustrated below:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"><IMG SRC="image_012.jpg" ALT=""></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"><IMG SRC="image_013.jpg" ALT=""><BR>
</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Source: <U>www.seekingalfa.com</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Growth Strategy</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We currently sell into
the motive, marine, industrial, and stationary markets, some of which are replacing their lead acid solution with our products
and are positioned for aggressive growth and volume. We will seek to soon move into the military and grid management markets segments.
We plan to accomplish this through an aggressive sales effort and by seeding products with customers who require our technologies
but who are slow to move on integration. Considering the size of the grid management market segment, we believe we can grow considerably
over the next two years.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our marketing and sales
strategy is to actively pursue the following market segments:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Electric Vehicles</I></B><I>:
</I> Our products&rsquo; cost advantage, easy integration, automotive quality design, and Federal Motor Vehicle Safety Standards
(&ldquo;FMVSS&rdquo;) compliance make the Electric Vehicles Segment a desirable target. After small volume manufacturers, we will
push into larger manufacturers.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Military and
Municipal</I></B><I>: </I>Our products&rsquo; longevity, easy integration and telematics make it a fit for energy storage applications
for both the military and municipal markets. These markets have longer integration timelines but will become a healthy addition
to our revenue mix over the next two years.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Grid Management
Solutions</I></B><I>:</I> Our products&rsquo; telematics, modularity, longevity and low cost solutions fit with smart grid management
solutions, peak shaving devices, bulk storage, back-up power, and frequency modulation devices at every level of grid management.
These devices have the longest integration timelines, but have the potential to become our largest revenue component over time.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Intellectual Property</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our success depends,
at least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination
of patents pending, patent applications, trade secrets, including know-how, employee and third party nondisclosure agreements,
copyright laws, trademarks, intellectual property licenses and other contractual rights to establish and protect our proprietary
rights in our technology. As of March 31, 2012, we filed patent applications in the United States, EU &amp; China including:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 80%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold">Patents</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 80%; padding-right: 5.4pt; padding-left: 5.4pt; text-decoration: underline">Title</TD>
    <TD STYLE="width: 20%; padding-right: 5.4pt; padding-left: 5.4pt; text-decoration: underline">Status</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Battery Management Unit</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Patent Pending</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Power Control Module for Battery Pack Using a Thermistor</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Patent Pending</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">System and Method for Pulsing the Bleed Off Resistor within a Battery Management System</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Patent Pending</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Battery (Design)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Patent Pending</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Power Control Module</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Patent Pending</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Battery Display</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Patent Pending</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Battery Management System</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Patent Pending</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are actively perfecting
patent applications relating to determining battery life and remaining battery life cycles. Patent applications relating to these
inventions will soon be filed with the U.S. Patent &amp; Trademark Office. For certain applications represented above, foreign
filings are in process in key markets like the European Union and China. In addition, we have a number of trademark applications
and registrations protecting the Flux Power name and logo. These include Flux, Flux Power, and the Flux Power logo.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, we intend
to continue to file additional patent applications with respect to our technology and to seek protection of our intellectual property
internationally in a broad range of areas. We do not know whether any of our pending patent applications will result in the issuance
of patents or whether the examination process will require us to narrow our claims. Even if granted, there can be no assurance
that these pending patent applications will provide us with protection.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Competitive Strengths</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We believe that we
have advantages over our competitors as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><B><I>Field Tested, Consumer Validated Technology</I></B>. We have delivered over 14MWh of product
to customers since the fourth quarter of 2010. FMVSS certified in a production vehicle. Automotive and Industrial quality products.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><B><I>Experienced
                                                                                                              team</I></B><I>.
                                                                                                              </I>80 years of
                                                                                                              high tech and transportation
                                                                                                              industry experience.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><B><I>Strong growth potential</I></B>. Market size significantly increasing over next 4 years.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><B><I>Comprehensive IP Portfolio</I></B><I>. </I>Protecting key aspects of system and components.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><B><I>More Capital Efficient Revenue Model</I></B>. Focused on advanced cell management to improve
overall economics rather than cell chemistry.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Government Regulations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Product Safety
Regulations</I></B><I>. </I>Our products are subject to product safety regulations by Federal, state, and local organizations.
Accordingly, we may be required, or may voluntarily determine to obtain approval of our products from one or more of the organizations
engaged in regulating product safety. These approvals could require significant time and resources from our technical staff and,
if redesign were necessary, could result in a delay in the introduction of our products in various markets and applications.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Environmental
Regulations</I></B><I>. </I>Federal, state, and local regulations impose significant environmental requirements on the manufacture,
storage, transportation, and disposal of various components of advanced energy storage systems. Although we believe that our operations
are in material compliance with current applicable environmental regulations, there can be no assurance that changes in such laws
and regulations will not impose costly compliance requirements on us or otherwise subject us to future liabilities. Moreover, Federal,
state, and local governments may enact additional regulations relating to the manufacture, storage, transportation, and disposal
of components of advanced energy storage systems. Compliance with such additional regulations could require us to devote significant
time and resources and could adversely affect demand for our products. There can be no assurance that additional or modified regulations
relating to the manufacture, storage, transportation, and disposal of components of advanced energy systems will not be imposed.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Occupational
Safety and Health Regulations</I></B><I>. </I>The California Division of Occupational Safety and Health (&ldquo;Cal/OSHA&rdquo;)
and other regulatory agencies have jurisdiction over the operations of our Escondido, California facility. Because of the risks
generally associated with the assembly of advanced energy storage systems we expect rigorous enforcement of applicable health and
safety regulations. Frequent audits by or changes, in the regulations issued by Cal/OSHA, or other regulatory agencies with jurisdiction
over our operations, may cause unforeseen delays and require significant time and resources from our technical staff.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Employees</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of March 31, 2012,
we employed 15 employees. None of our employees are currently represented by a trade union. We consider our relations with our
employees to be good.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Property</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our headquarters are
located in 15,400 square feet of leased office, engineering, and development space in Escondido, California. This lease commenced
on June 16, 2010 and expires on June 30, 2012. The annual base rent under the lease, payable on a monthly basis, is approximately
$12,950. The lease also provides for an option to renew for a term of one year.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Legal Proceedings</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">We are not currently involved in any legal
proceedings.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"></P>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>RISK FACTORS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>An investment in our common stock involves
a high degree of risk. You should carefully consider the risks described below, together with all of the other information included
in this report, before making an investment decision. If any of the following risks actually occur, our business, financial condition
or results of operations could suffer. In that case, the trading price of our common stock could decline, and you may lose all
or part of your investment. You should read the section entitled &ldquo;Special Note Regarding Forward Looking Statements&rdquo;
above for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements
in the context of this report. </I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Risk Factors Relating to Our Business</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><B><I>Flux Power has incurred Net Losses
since our inception. </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Flux Power<B><I> </I></B>has
incurred net losses since our inception. For the nine month period ended March 31, 2012, year ended June 30, 2011 and eight months
ended June 30, 2010, Flux Power has incurred net losses of approximately ($1,139,000), ($1,313,000), and ($630,000), respectively.
No assurance can be given that we will achieve profitability in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Flux Power had
negative working capital. </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of March 31, 2012,
and June 30, 2011, Flux Power had a negative working capital of approximately $278,000 and $1,140,000, meaning Flux Power&rsquo;s
current liabilities exceeds its current assets. This negative working capital may limit our growth since the majority of our net
income, if any, will be used to pay accounts payable and existing debts. No assurance can be given that we will be able to pay
our liabilities when they become due.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Our ability to
obtain additional financing may be limited, which could delay or prevent the completion of one or more of our strategies. </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Flux Power has, to
date, financed its working capital and capital expenditure needs primarily from investments and credit lines. Flux Power expects
its working capital needs and its capital expenditure needs to increase in the future as it continues to expand and enhance its
production facilities, increase its design, research and development capabilities and as Flux Power continue to implement its other
strategies. Our ability to raise additional capital will depend on the financial success of Flux Power&rsquo;s current business
and the successful implementation of Flux Power&rsquo;s key strategic initiatives, as well as financial, economic and market conditions
and other factors, some of which are beyond our control. We may not be successful in raising any required capital on reasonable
terms and at required times, or at all. Further, equity financings may have a further dilutive effect on our stockholders. If we
require additional debt financing, the lenders may require us to agree on restrictive covenants that could limit our flexibility
in conducting future business activities, and the debt service payments may be a significant drain on our free capital allocated
for<B> </B>research and other activities. If we are unsuccessful in raising additional capital or if new capital funding costs
are higher than our prior capital funding costs, our business operations and our development programs may be materially and adversely
impacted, with similar effects on our results of operations and financial condition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Flux Power&rsquo;s
limited operating history makes evaluating its business and future prospects difficult and may increase the risk of your investment.
</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Flux Power was formed
during the 2010 fiscal year. You must consider the risks and difficulties Flux Power faces as an early stage company with limited
operating history. If Flux Power does not successfully address these risks, its business, prospects, operating results and financial
condition will be materially and adversely harmed. Flux Power began delivering its first battery product and battery management
system (BMS) in the second quarter of 2010, and as of December 2011, Flux Power has have 46 customers, almost all of which are
in the Electric Vehicle, Emergency Back-Up Power Supply, or Solar Storage market segments. Flux Power&rsquo;s revenues for the
nine month periods ended March 31, 2012 and 2011 were $3,008,000 and $583,000, respectively. Flux Power&rsquo;s revenues for the
year ended June 30, 2011, and for the eight month period ended June 30, 2010, were approximately $984,000 and $207,000, respectively.
Flux Power has a very limited operating history on which investors can base an evaluation of its business, operating results and
prospects.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">To date, substantially
all of Flux Power&rsquo;s revenues derive principally from sales of its battery products and BMS for use in electric vehicles.
However, Flux Power intends to extend the application of its battery products and BMS for industrial energy storage, government
applications, and hobby and specialty applications. Flux Power is currently testing its battery products and BMS for other applications
but Flux Power has not yet sold any of its products for use in other than electric vehicles. There are no assurances that Flux
Power will be able to successfully extend the application of our battery products and BMS outside of the electrical vehicle industry.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Our business
depends in large part on the growth in demand for electric vehicles.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Many of our battery
products and BMS are used to power electric vehicles in the commercial and industrial spaces. Therefore, the demand for our rechargeable
batteries and systems is substantially tied to the market demand for electric vehicles. A growth in the demand for electric vehicles
will be essential to the expansion of our business. Our results of operations may be adversely affected by decreases in the general
level of economic activity. Decreases in consumer spending that may result from the current global economic downturn may weaken
demand for items that use our battery products and BMS. A decrease in the demand for electric vehicles would likely have a material
adverse effect on our results of operations. We are unable to predict the duration and severity of the current disruption in financial
markets and the global adverse economic conditions and the effect such events might have on our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Our success depends
on the success of manufacturers of the end applications that use our battery products and BMS.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Because our products
are designed to be used in other products such as electric vehicles, our success depends on whether end application manufacturers
will incorporate our battery products and BMS in their products. Although we strive to produce high quality battery products and
BMS, there is no guarantee that end application manufacturers will accept our products. Our failure to gain acceptance of our products
from these manufacturers could result in a material adverse effect on our results of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Additionally, even
if a manufacturer decides to use our batteries, the manufacturer may not be able to market and sell its products successfully.
The manufacturer&rsquo;s inability to market and sell its products successfully could materially and adversely affect our business
and prospects because this manufacturer may not order new products from us. Therefore, our business, financial condition, results
of operations and future success would be materially and adversely affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B>Lithium-ion battery
modules have been observed to catch fire or vent smoke and flame, and such events have raised concerns over the use of high-power
batteries in electric vehicles. </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We sell and supply
high-power lithium based battery modules for the electrical vehicles and we intend to supply these lithium modules for industrial,
governmental and grid storage applications. Historically, lithium-ion batteries in laptops and cellphones have been reported to
catch fire or vent smoke and flames, and more recently, news have been reported that several electric vehicles that use high-power
lithium-ion batteries have caught fire which trigger investigation as to the cause of the fires. As such, any adverse publicity
and issues as to the use of high-power batteries in automotive applications will affect our business and prospects since we sell
and supply high-power lithium based battery modules for electric vehicle application. In addition, any failure of our battery modules
may cause damage to the vehicle or lead to personal injury or death and may subject us to lawsuits. We may have to recall our battery
modules, which would be time consuming and expensive.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Current economic
conditions may adversely affect consumer spending and the overall general health of our retail customers, which, in turn, may adversely
affect our financial condition, results of operations and cash resources. </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Uncertainty about the
current and future global economic conditions may cause our customers to defer purchases or cancel purchase orders for our products
in response to tighter credit, decreased cash availability and weakened consumer confidence. Our financial success is sensitive
to changes in general economic conditions, both globally and nationally. Recessionary economic cycles, higher interest borrowing
rates, higher fuel and other energy costs, inflation, increases in commodity prices, higher levels of unemployment, higher consumer
debt levels, higher tax rates and other changes in tax laws or other economic factors that may affect consumer spending or buying
habits could continue to adversely affect the demand for our products. In addition, a number of our customers may be impacted by
the significant decrease in available credit that has resulted from the current financial crisis. If credit pressures or other
financial difficulties result in insolvency for our customers it could adversely impact our financial results. There can be no
assurances that government and consumer responses to the disruptions in the financial markets will restore consumer confidence.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>We are dependent
on a limited number of suppliers for our battery cells, and the inability of these suppliers to continue to deliver, or their refusal
to deliver, our battery cells at prices and volumes acceptable to us would have a material adverse effect on our business, prospects
and operating results. </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our battery cells,
which are an integral part of our battery products and systems, are currently sourced from three manufacturers, two located in
China and one located in the United States. While we obtain components for our products and systems from multiple sources whenever
possible, we have spent a great deal of time in developing and testing our battery cells that we receive from these three manufacturers.
We refer to these battery cell suppliers as our limited source suppliers. To date we have no qualified alternative sources for
our battery cells and we generally do not maintain long-term agreements with our limited source suppliers. While we believe that
we will be able to establish alternate supply relationships for our battery cells, we may be unable to do so in the short term
or at all at prices, quality or costs that are favorable to us.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Changes in business
conditions, wars, governmental changes and other factors beyond our control or which we do not presently anticipate, could also
affect our suppliers&rsquo; ability to deliver components to us on a timely basis. Furthermore, if we experience significant increased
demand, or need to replace our existing suppliers, there can be no assurance that additional supplies of component parts will be
available when required on terms that are favorable to us, at all, or that any supplier would allocate sufficient supplies to us
in order to meet our requirements or fill our orders in a timely manner. In the past, we have replaced certain suppliers because
of their failure to provide components that met our quality control standards. The loss of any limited source supplier or the disruption
in the supply of components from these suppliers could lead to delays in the deliveries of our battery products and systems to
our customers, which could hurt our relationships with our customers and also materially adversely affect our business, prospects
and operating results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Increases in
costs, disruption of supply or shortage of raw materials, in particular lithium-iron phosphate cells, could harm our business.
</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We may experience increases
in the costs or a sustained interruption in the supply or shortage of raw materials. Any such an increase or supply interruption
could materially negatively impact our business, prospects, financial condition and operating results. For instance, we are exposed
to multiple risks relating to price fluctuations for lithium-iron phosphate cells. These risks include:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD STYLE="text-align: justify">the inability or unwillingness of current battery manufacturers to supply the number of lithium-iron
phosphate cells required to support our sales as demand for such rechargeable battery cells increases;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD STYLE="text-align: justify">disruption in the supply of cells due to quality issues or recalls by the battery cell manufacturers;
and</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD STYLE="text-align: justify">an increase in the cost of raw materials, such as iron and phosphate, used in lithium-iron phosphate
cells.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>We may be unable
to successfully execute our long-term growth strategy or maintain our current revenue levels. </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Although we exhibited
significant growth from our inception to the present day, we can provide no assurance that our revenues will continue to grow.
Our ability to maintain our revenue levels or to grow in the future depends upon, among other things, the continued success of
our efforts to maintain our brand image and bring new products to market and our ability to expand within our current distribution
channels.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Our success is
highly dependent on continually developing new and advanced products, technologies, and processes and failure to do so may cause
us to lose our competitiveness in the battery industry and may cause our profits to decline.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">To remain competitive
in the battery industry, it is important to continually develop new and advanced products, technologies, and processes. There is
no assurance that competitors&rsquo; new products, technologies, and processes will not render our existing products obsolete or
non-competitive. Alternately, changes in legislative, regulatory or industry requirements or in competitive technologies may render
certain of our products obsolete or less attractive. Our competitiveness in the renewable battery market therefore relies upon
our ability to enhance our current products, introduce new products, and develop and implement new technologies and processes.
Our battery system predominately uses lithium-iron phosphate cells. If our competitors develop alternative products with more enhanced
features than our battery system, our financial condition and results of operations would be materially and adversely affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The research and development
of new products and technologies is costly and time consuming, and there are no assurances that our research and development of
new products will be either successful or completed within anticipated timeframes, if at all. Our failure to technologically evolve
and/or develop new or enhanced products may cause us to lose competitiveness in the battery market. In addition, in order to compete
effectively in the renewable battery industry, we must be able to launch new products to meet our customers&rsquo; demands in a
timely manner. However, we cannot provide assurance that we will be able to install and certify any equipment needed to produce
new products in a timely manner, or that the transitioning of our manufacturing facility and resources to full production under
any new product programs will not impact production rates or other operational efficiency measures at our manufacturing facility.
In addition, new product introductions and applications are risky, and may suffer from a lack of market acceptance, delays in related
product development and failure of new products to operate properly. Any failure by us to successfully launch new products, or
a failure by our customers to accept such products, could adversely affect our results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Flux Power has
historically depended on a limited number of customers for a significant portion of its revenues and this dependence is likely
to continue.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Flux Power has historically
depended on a limited number of customers for a significant portion of its revenues. During the nine month period ended March 31,
2012, Flux Power had four major customers that combined represented 87% or $2,616,000 of its total revenues. During the nine month
period ended March 31, 2011 Flux Power had two major customers that accounted for 37% or $216,000 of its total revenues. For the
year ended June 30, 2011, one customer accounted for 19% of total revenues, or $187,000. For the eight month period ended June
30, 2010, Flux Power had four customers that combined accounted for 79% of total revenues, or $164,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We anticipate that
a limited number of customers will continue to contribute to a significant portion of our revenues in the future. Maintaining the
relationships with these significant customers is vital to the expansion and success of our business as the loss of a major customer
could expose us to risk of substantial losses. Our revenues could decline and our results of operations could be materially adversely
affected if one or more of these significant customers stops or reduces its purchasing of our products, or if we fail to expand
our customer base for our products.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>The market for
our products and services is very competitive and, if we cannot effectively compete, our business will be harmed.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The market for our
products and services is very competitive and subject to rapid technological change. Many of our competitors are larger and have
significantly greater assets, name recognition and financial, personnel and other resources than we have. As a result, our competitors
may be in a stronger position to respond quickly to potential acquisitions and other market opportunities, new or emerging technologies
and changes in customer requirements. We cannot assure you that we will be able to maintain or increase our market share against
the emergence of these or other sources of competition. Failure to maintain and enhance our competitive position could materially
adversely affect our business and prospects.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Our business
may be adversely affected by the global economic downturn, in addition to the continuing uncertainties in the financial markets.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The global economy
is currently in a pronounced economic downturn. Global financial markets are continuing to experience disruptions, including severely
diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment
rates, and uncertainty about economic stability. Given these uncertainties, there is no assurance that there will not be further
deterioration in the global economy, the global financial markets and consumer confidence. If economic conditions deteriorate further,
our business and results of operations could be materially and adversely affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Additionally, the automobile
industry in particular was severely impacted by the poor economic conditions and several vehicle manufacturing companies, including
General Motors and Chrysler, were forced to file for bankruptcy. Sales of new automobiles generally have dropped during this global
economic downturn. Sales of consumer products such as electric vehicles have slowed along with this downturn. Our future results
of operations may experience substantial fluctuations from period to period as a consequence of these factors, and such conditions
and other factors affecting consumer spending may affect the timing of orders. Thus, any economic downturns generally would have
a material adverse effect on our business, cash flows, financial condition and results of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Warranty claims,
product liability claims and product recalls could harm our business, results of operations and financial condition.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our business inherently
exposes us to potential warranty and product liability claims, in the event that our products fail to perform as expected or such
failure of our products results, or is alleged to result, in bodily injury or property damage (or both). Such claims may arise
despite our quality controls, proper testing and instruction for use of our products, either due to a defect during manufacturing
or due to the individual&rsquo;s improper use of the product. In addition, if any of our designed products are, or are alleged,
to be defective, then we may be required to participate in a recall of them.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Although we have product
liability insurance for our products, this may be inadequate to cover all potential product liability claims. In addition, while
we often seek to limit our product liability in our contracts, such limits may not be enforceable or may be subject to exceptions.
Any product recall or lawsuit seeking significant monetary damages either in excess of our coverage, or outside of our coverage,
may have a material adverse effect on our business and financial condition. We may not be able to secure additional product liability
insurance coverage on acceptable terms or at reasonable costs when needed. If we were to experience a large insured loss, it might
exceed our coverage limits, or our insurance carriers could decline to further cover us or raise our insurance rates to unacceptable
levels, any of which could impair our financial position and results of operations. A successful product liability claim against
us could require us to pay a substantial monetary award. We cannot be assured that such claims will not be made in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>We may need to
defend ourselves against patent or trademark infringement claims, which may be time-consuming and would cause us to incur substantial
costs. </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Companies, organizations
or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent,
limit or interfere with our ability to make, use, develop or sell our battery products and BMS, which could make it more difficult
for us to operate our business. Companies holding patents or other intellectual property rights relating to battery packs or electronic
power management systems may bring suits alleging infringement of such rights or otherwise asserting their rights and seeking licenses.
In addition, if we are determined to have infringed upon a third party&rsquo;s intellectual property rights, we may be required
to do one or more of the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD STYLE="text-align: justify">cease selling, incorporating or using products that incorporate the challenged intellectual property;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD STYLE="text-align: justify">pay substantial damages;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD STYLE="text-align: justify">obtain a license from the holder of the infringed intellectual property right, which license may
not be available on reasonable terms or at all; or</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD STYLE="text-align: justify">redesign our battery management systems.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif; text-align: left">&nbsp;</P>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif; text-align: left"></P>

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<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In the event of a successful
claim of infringement against us and our failure or inability to obtain a license to the infringed technology, our business, prospects,
operating results and financial condition could be materially adversely affected. In addition, any litigation or claims, whether
or not valid, could result in substantial costs and diversion of resources and management attention.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We may license patents
and other intellectual property from third parties, and we may face claims that our use of this in-licensed technology infringes
the rights of others. In that case, we may seek indemnification from our licensors under our license contracts with them. However,
our rights to indemnification may be unavailable or insufficient to cover our costs and losses, depending on our use of the technology,
whether we choose to retain control over conduct of the litigation, and other factors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Our business
will be adversely affected if we are unable to protect our intellectual property rights from unauthorized use or infringement by
third parties. </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Any failure to protect
our proprietary rights adequately could result in our competitors offering similar products, potentially resulting in the loss
of some of our competitive advantage and a decrease in our revenue, which would adversely affect our business, prospects, financial
condition and operating results. Our success depends, at least in part, on our ability to protect our core technology and intellectual
property. To accomplish this, we rely on a combination of patents, patent applications, trade secrets, including know-how, employee
and third party nondisclosure agreements, copyright laws, trademarks, intellectual property licenses and other contractual rights
to establish and protect our proprietary rights in our technology.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The protection provided
by the patent laws is and will be important to our future opportunities. However, such patents and agreements and various other
measures we take to protect our intellectual property from use by others may not be effective for various reasons, including the
following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD STYLE="text-align: justify">our pending patent applications may not result in the issuance of patents;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD STYLE="text-align: justify">our patents, if issued, may not be broad enough to protect our proprietary rights;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD STYLE="text-align: justify">the patents we have been granted may be challenged, invalidated or circumvented because of the
pre-existence of similar patented or unpatented intellectual property rights or for other reasons;</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD STYLE="text-align: justify">the costs associated with enforcing patents, confidentiality and invention agreements or other
intellectual property rights may make aggressive enforcement impracticable; and</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD STYLE="text-align: justify">current and future competitors may independently develop similar technology and/or duplicate our
systems in a way that circumvents our patents.</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Our patent applications
may not result in issued patents, which may have a material adverse effect on our ability to prevent others from commercially exploiting
products similar to ours. </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our patent applications
may not result in issued patents, which may have a material adverse effect on our ability to prevent others from commercially exploiting
products similar to ours.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We cannot be certain
that we are the first creator of inventions covered by pending patent applications or the first to file patent applications on
these inventions, nor can we be certain that our pending patent applications will result in issued patents or that any of our issued
patents will afford protection against a competitor. In addition, patent applications that we intend to file in foreign countries
are subject to laws, rules and procedures that differ from those of the United States, and thus we cannot be certain that foreign
patent applications related to issued United States patents will be issued. Furthermore, if these patent applications issue, some
foreign countries provide significantly less effective patent enforcement than in the United States.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The status of patents
involves complex legal and factual questions and the breadth of claims allowed is uncertain. As a result, we cannot be certain
that the patent applications that we file will result in patents being issued, or that our patents and any patents that may be
issued to us in the near future will afford protection against competitors with similar technology. In addition, patents issued
to us may be infringed upon or designed around by others and others may obtain patents that we need to license or design around,
either of which would increase costs and may adversely affect our business, prospects, financial condition and operating results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>We rely on trade
secret protections through confidentiality agreements with our employees, customers and other parties; the breach of such agreements
could adversely affect our business and results of operations.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We rely on trade secrets,
which we seek to protect, in part, through confidentiality and non-disclosure agreements with our employees, customers and other
parties. There can be no assurance that these agreements will not be breached, that we would have adequate remedies for any such
breach or that our trade secrets will not otherwise become known to or independently developed by competitors. To the extent that
consultants, key employees or other third parties apply technological information independently developed by them or by others
to our proposed projects, disputes may arise as to the proprietary rights to such information that may not be resolved in our favor.
We may be involved from time to time in litigation to determine the enforceability, scope and validity of our proprietary rights.
Any such litigation could result in substantial cost and diversion of effort by our management and technical personnel.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Our production
capacity might not be able to meet with growing market demand or changing market conditions. </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We cannot give assurance
that our production capacity will be able to meet our obligations and the growing market demand for our products in the future.
Furthermore, we may not be able to expand our production capacity in response to the changing market conditions. If we fail to
meet demand from our customers, we may lose our market share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Our business
depends substantially on the continuing efforts of our executive officers, and our business may be severely disrupted if we lose
their services. </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We believe that our
success is largely dependent up on the continued service of the members of our management team, who are critical to establishing
our corporate strategies and focus, and ensuring our continued growth. In particular, our Chairman and Chief Executive Officer,
Chris Anthony, is crucial to our success. Our continued success will depend on our ability to attract and retain a qualified and
competent management team in order to manage our existing operations and support our expansion plans. Although we are not aware
of any change, if any of our executive officers are unable or unwilling to continue in their present positions, we may not be able
to replace them readily, if at all. Therefore, our business may be severely disrupted, and we may incur additional expenses to
recruit and retain new officers. In addition, if any of our executives joins a competitor or forms a competing company, we may
lose some of our customers.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Our management
team has limited experience in public company matters, which could impair our ability to comply with legal and regulatory requirements.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our management team
has only limited public company management experience or responsibilities, which could impair our ability to comply with legal
and regulatory requirements such as the Sarbanes-Oxley Act of 2002 and applicable federal securities laws including filing required
reports and other information required on a timely basis. There can be no assurance that our management team will be able to implement
and affect programs and policies in an effective and timely manner that adequately respond to increased legal, regulatory compliance
and reporting requirements imposed by such laws and regulations. Our failure to comply with such laws and regulations could lead
to the imposition of fines and penalties and further result in the deterioration of our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Compliance with
changing regulations concerning corporate governance and public disclosure may result in additional expenses.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">There have been changing
laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002
(&ldquo;Sarbanes-Oxley&rdquo;), new regulations promulgated by the SEC and rules promulgated by the national securities exchanges.
These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of
specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and
governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing
revisions to disclosure and governance practices. As a result, our efforts to comply with evolving laws, regulations and standards
are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention
from revenue-generating activities to compliance activities. Members of our Board of Directors and our Chief Executive Officer
and Chief Financial Officer could face an increased risk of personal liability in connection with the performance of their duties.
As a result, we may have difficulty attracting and retaining qualified directors and executive officers, which could harm our business.
If the actions we take in our efforts to comply with new or changed laws, regulations and standards differ from the actions intended
by regulatory or governing bodies, we could be subject to liability under applicable laws or our reputation may be harmed.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, Sarbanes-Oxley
specifically requires, among other things, that we maintain effective internal controls for financial reporting and disclosure
of controls and procedures. In particular, we must perform system and process evaluation and testing of our internal controls over
financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting, as required
by Section&nbsp;404 of Sarbanes-Oxley. Our testing, or the subsequent testing by our independent registered public accounting firm,
when required, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses.
Our compliance with Section&nbsp;404 will require that we incur substantial accounting expense and expend significant management
efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with
appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements
of Section&nbsp;404 in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in
our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline,
and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional
financial and management resources.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>We may be required
to obtain the approval of various government agencies to market our products.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#9;Our products are subject to product
safety regulations by Federal, state, and local organizations. Accordingly, we may be required, or may voluntarily determine to,
obtain approval of our products from one or more of the organizations engaged in regulating product safety. These approvals could
require significant time and resources from our technical staff, and, if redesign were necessary, could result in a delay in the
introduction of our products in various markets and applications. There can be no assurance that we will obtain any or all of the
approvals that may be required to market our products. &#9;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>We may face significant
costs relating to environmental regulations.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Federal, state, and
local regulations impose significant environmental requirements on the manufacture, storage, transportation, and disposal of various
components of advanced energy storage systems. Although we believe that our operations are in material compliance with current
applicable environmental regulations, there can be no assurance that changes in such laws and regulations will not impose costly
compliance requirements on us or otherwise subject us to future liabilities. Moreover, Federal, state, and local governments may
enact additional regulations relating to the manufacture, storage, transportation, and disposal of components of advanced energy
storage systems. Compliance with such additional regulations could require us to devote significant time and resources and could
adversely affect demand for our products. There can be no assurance that additional or modified regulations relating to the manufacture,
storage, transportation, and disposal of components of advanced energy systems will not be imposed.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>We may face significant
costs relating to Occupational Safety and Health Regulations</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The California Division
of Occupational Safety and Health (&ldquo;Cal/OSHA&rdquo;) and other regulatory agencies have jurisdiction over the operations
of our Escondido, California facility. Because of the risks generally associated with the assembly of advanced energy storage systems,
we expect rigorous enforcement of applicable health and safety regulations. Frequent audits by or changes in the regulations issued
by Cal/OSHA, or other regulatory agencies with jurisdiction over our operations, may cause unforeseen delays and require significant
time and resources from our technical staff.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Risks Related to Our Common Stock and
Market</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>The market price
of our common stock can become volatile, leading to the possibility of its value being depressed at a time when you may want to
sell your holdings. </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The market price of
our common stock can become volatile. Numerous factors, many of which are beyond our control, may cause the market price of our
common stock to fluctuate significantly. These factors include:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">our earnings releases, actual or anticipated changes in our earnings, fluctuations in our operating
results or our failure to meet the expectations of financial market analysts and investors;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">changes in financial estimates by us or by any securities analysts who might cover our stock;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">speculation about our business in the press or the investment community;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">significant developments relating to our relationships with our customers or suppliers;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">stock market price and volume fluctuations of other publicly traded companies and, in particular,
those that are in our industry;</TD></TR>                                         <TR STYLE="vertical-align: top">
<TD></TD></TR></TABLE>

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<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top"><TD>&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="text-align: justify">&nbsp;</TD></TR>
</TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">limited &ldquo;public float&rdquo; in the hands of a small number of persons whose sales or lack
of sales could result in positive or negative pricing pressure on the market price for our common stock;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">customer demand for our products;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">investor perceptions of our industry in general and our Company in particular;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">the operating and stock performance of comparable companies;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">general economic conditions and trends;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">announcements by us or our competitors of new products, significant acquisitions, strategic partnerships
or divestitures;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">changes in accounting standards, policies, guidance, interpretation or principles;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">loss of external funding sources;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">sales of our common stock, including sales by our directors, officers or significant stockholders;
and</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">additions or departures of key personnel.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><B><I>The ownership of our stock is highly
concentrated in our management.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As of&nbsp; June 14,
2012, our present directors and executive officers, and their respective affiliates beneficially owned approximately 92% of our
outstanding common stock, including underlying options that were exercisable or which would become exercisable within 60 days.&nbsp;&nbsp;As
a result of their ownership, our directors and executive officers and their respective affiliates collectively are able to significantly
influence all matters requiring stockholder approval, including the election of directors and approval of significant corporate
transactions.&nbsp;&nbsp;This concentration of ownership may also have the effect of delaying or preventing a change in control.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>We do not intend
to pay dividends on shares of our common stock for the foreseeable future. </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have never declared
or paid any cash dividends on shares of our common stock. We intend to retain any future earnings to fund the operation and expansion
of our business and, therefore, we do not anticipate paying cash dividends on shares of our common stock in the foreseeable future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Our common stock
is illiquid and this low trading volume may adversely affect the price of our common stock.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our common stock currently
is quoted on the OTCQB under the symbol &ldquo;FLUX.&rdquo; However, with very little trading history, a trading market that does
not represent an &ldquo;established trading market,&rdquo; a limited current public float, volatility in the bid and asked prices
and the fact that our common stock is very thinly traded, you could lose all or a substantial portion of your funds if you make
an investment in us. In addition, potential dilutive effects of future sales of shares of common stock by us and our shareholders,
and subsequent sale of common stock by the holders of warrants and options, could have an adverse effect on the price of our securities,
which could hinder our ability to raise additional capital to fully implement our business, operating and development plans.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Penny stock regulations
affect our stock price, which may make it more difficult for investors to sell their stock.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Broker-dealer practices
in connection with transactions in &ldquo;penny stocks&rdquo; are regulated by certain penny stock rules adopted by the SEC. Penny
stocks generally are equity securities with a price per share of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on the NASDAQ Stock Market, provided that current price and volume information with respect to transactions
in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction
in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information
about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid and
offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly
account statements showing the market value of each penny stock held in the customer&rsquo;s account. In addition, the penny stock
rules generally require that prior to a transaction in a penny stock the broker-dealer make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the purchaser&rsquo;s written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock
that becomes subject to the penny stock rules. our securities are subject to the penny stock rules, and investors may find it more
difficult to sell their securities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>Preferred Stock
may be issued under our Articles of Incorporation. </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our Articles of Incorporation
authorize the issuance of up to 5,000,000 shares of preferred stock. The preferred stock may be issued in one or more series, the
terms of which may be determined at the time of issuance. These terms may include voting rights including the right to vote as
a series on particular matters, preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund
provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce
the value of such common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>We were a &ldquo;shell
company&rdquo; and are subject to additional restrictions under Rule 144 on resales of our Restricted Securities.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following is a
quotation from subparagraph (i)(B)(2) of Rule 144: &ldquo;Notwithstanding paragraph (i)(1), if the issuer of the securities previously
had been an issuer described in paragraph (i)(1)(i) but has ceased to be an issuer described in paragraph (i)(1)(i); is subject
to the reporting requirements of section 13 or 15(d) of the Exchange Act; has filed all reports and other materials required to
be filed by section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months (or for such shorter period
that the issue was required to file such reports and materials), other than Form 8-K reports (&sect;249.308 of this chapter); and
has filed current &ldquo;Form 10 information&rdquo; with the Commission reflecting its status as an entity that is no longer an
issuer described in paragraph (i)(1)(i), then those securities may be sold subject to the requirements of this section after one
year has elapsed from the date that the issuer filed &ldquo;Form 10 information&rdquo; with the Commission.&rdquo; As a &ldquo;shell
company&rdquo; immediately prior to the Reverse Acquisition, we will be subject to additional restrictions under Rule 144 which
provides that no sales of our restricted securities could be sold until we have complied with subparagraph (i)(B)(2) of Rule 144.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>MANAGEMENT&rsquo;S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><I>The following discussion
of our financial condition and results of operations should be read in conjunction with our financial statements and the related
notes and other financial information appearing elsewhere in this report. In addition to historical financial information, the
following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could
differ materially from those discussed in the forward-looking statements. Readers are also urged to carefully review and consider
the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including
without limitation, the disclosures made under &ldquo;Risk Factors.&rdquo;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following discussion
and analysis relates to the results of Flux Power, our wholly-owned subsidiary, only and should be read in conjunction with the
financial statements and the related notes thereto and other financial information contained elsewhere in this Form 8-K. Please
see our unaudited pro forma combined financial information of FPH and its subsidiaries filed as Exhibit 99.1. For a discussion
and analysis related to the results of FPH, please see our Form 10-K for the fiscal year ended December 31, 2011 filed with the
SEC on March 23, 2012, and Form 10-Q for the quarter ended March 31, 2012 filed with the SEC on May 11, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Overview</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Flux Power was founded
in 2009 to design, develop and sell rechargeable advanced energy storage systems. We have developed an innovative high power battery
cell management system (&ldquo;BMS&rdquo;) and have structured our business around this core technology. Our proprietary BMS provides
three critical functions to our battery systems:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><I>Cell Balancing</I>: This is performed by continuously adjusting the capacity of each cell in
a storage system according to temperature, voltage, and internal impedance metrics. This management assures longevity of the overall
system.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1.5in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><I>Monitoring</I>: This is performed through temperature probes, a physical connection to individual
cells for voltage and calculations from basic metrics to determine remaining capacity and internal impedance. This monitoring assures
accurate measurements to best manage the system and assure longevity.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1.5in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><I>Error reporting</I>: This is performed by analyzing data from system monitoring and making decision
on whether the system is operating out of normal specifications. This error reporting is crucial to system management as it ensures
ancillary devices are not damaging your storage system and will give the operator an opportunity to take corrective action to maintain
long overall system life.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Using our proprietary
battery management technology, we are able to offer completely integrated energy storage solutions or custom modular standalone
systems to our clients. In addition, we have also developed a suite of complementary technologies and products that accompany and
enhance the abilities of our BMS to meet the needs of the growing advanced energy storage market.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We sold our first validated
product in the second quarter of 2010 and have since delivered over 14 mega watt-hours of <FONT STYLE="background-color: white">Advanced
Energy Storage </FONT>to clients such as Crown Equipment Corp., Damascus Corp., Columbia Parcar Corp., Wheego Electric Cars Inc.,
Epic Electric Vehicles, and TALHO. This places us amongst the top tier of <FONT STYLE="background-color: white">Advanced Energy
Storage providers in North America. We also sell our Advanced Energy Storage products through distributors such as Dukes Garage,
Small Car Performance, Electric Motor Sports, MCelectric, Jungle Motors and EV America.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Recent Developments and Events</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I><U>New Agreements</U></I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">NACCO Prototype Agreement.
On February 6, 2012, Flux entered into a Prototype Agreement with NACCO Materials Handling Group, Inc. to develop and provide three
(3) prototype battery packs for NACCO&rsquo;s lift trucks.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">GTA Terms &amp; Conditions.
On September 21, 2011, Flux and GreenTech Automotive, Inc. (GTA) entered into terms and conditions for future purchase orders.
All sales from Flux to GTA that include Flux&rsquo;s product for production of GTA&rsquo;s electronic vehicle shall be governed
under this agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I><U>Notes Payable</U></I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In October 2011, the
Company entered into a new revolving promissory note agreement (Secondary Operating Capital) with a stockholder for $1,000,000.
The revolving promissory note bears interest at 8%, is due September 30, 2013, as amended, and is secured by substantially all
of the assets of the Company. As of March 31, 2012 the balance outstanding was $500,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In March 2012, the
Company entered into an additional note payable agreement with the same stockholder for $250,000. The note matures in March 2014
and bears interest at 8% per annum.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Critical Accounting Policies and Estimates </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font-size: 10pt; color: black">Our
financial statements are prepared in accordance with generally accepted accounting principles. The preparation of these financial
statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses
and related disclosures.</FONT> <FONT STYLE="font-size: 10pt">The Company has used significant estimates in its determination of
the reserve for inventory, sales returns, and warranty claims<FONT STYLE="color: black">. We evaluate our estimates and assumptions
on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable
under the circumstances. Our actual results could differ from these estimates.</FONT></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We believe the following
accounting policies and estimates are most critical to aid in understanding and evaluating our reported financial results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Inventories and prepaid inventory</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Inventories consist
primarily of battery management systems and the related subcomponents, and are stated at the lower of cost (first-in, first-out)
or market. Prepaid inventory represents deposits made by us for inventory purchases. We evaluate inventories to determine if write-downs
are necessary due to obsolescence or if the inventory levels are in excess of anticipated demand at market value based on consideration
of historical sales and product development plans.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Revenue recognition</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We recognize revenue
when persuasive evidence of an arrangement exists, delivery has occurred, price is fixed or determinable and collectability of
the selling price is reasonably assured. Delivery occurs when risk of loss is passed to the customer, as specified by the terms
of the applicable customer agreements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">When implied right
of return exists, the Company recognizes revenue on the sell through-method. Under this method, revenue is not recognized upon
delivery of the inventory components. Instead, the Company records deferred revenue upon delivery and recognizes revenue when the
inventory components are sold through to the end user.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We evaluate our exposure
to sales returns and warranty issues based on historical information.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"><B></B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Results of Operations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Nine Month Period Ended March 31, 2012 compared to the
Nine Month Period Ended March 31, 2011</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="width: 80%; border-collapse: collapse; font-family: Times New Roman, Times, Serif">
<TR>
    <TD NOWRAP COLSPAN="4" STYLE="border-top: #4F81BD 1pt solid; border-bottom: #4F81BD 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; font-weight: bold; text-align: center">For the nine month periods ended</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="width: 55%; padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; font-style: italic; font-weight: bold; text-align: right">&nbsp;</TD>
    <TD STYLE="width: 19%; padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; font-weight: bold; text-align: right">31-Mar-12</TD>
    <TD STYLE="width: 3%; padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 23%; padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; font-weight: bold; text-align: right">31-Mar-11</TD></TR>
<TR STYLE="background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; font-style: italic; font-weight: bold; text-align: right"><B><I>in thousands</I></B></TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; font-weight: bold">Revenues</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; text-align: right">$3,008</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; text-align: right">$583</TD></TR>
<TR STYLE="background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; font-weight: bold">Cost of sales</TD>
    <TD NOWRAP STYLE="border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; text-align: right">2,431</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt">&nbsp;</TD>
    <TD NOWRAP STYLE="border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; text-align: right">473</TD></TR>
<TR STYLE="background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; font-weight: bold">Gross Profit</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; text-align: right">577</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; text-align: right">110</TD></TR>
<TR STYLE="background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; font-weight: bold">Selling, general, and administrative</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; text-align: right">1,271</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; text-align: right">774</TD></TR>
<TR STYLE="background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; font-weight: bold">Research and development</TD>
    <TD NOWRAP STYLE="border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; text-align: right">400</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt">&nbsp;</TD>
    <TD NOWRAP STYLE="border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; text-align: right">316</TD></TR>
<TR STYLE="background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; font-weight: bold">Total Operating Expenses</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; text-align: right">1,671</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; text-align: right">1,090</TD></TR>
<TR STYLE="background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; font-weight: bold">Interest expense</TD>
    <TD NOWRAP STYLE="border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; text-align: right">45</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt">&nbsp;</TD>
    <TD NOWRAP STYLE="border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; text-align: right">25</TD></TR>
<TR STYLE="background-color: White">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; font-weight: bold">Net Loss</TD>
    <TD NOWRAP STYLE="border-bottom: #4F81BD 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; text-align: right">($1,139)</TD>
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt">&nbsp;</TD>
    <TD NOWRAP STYLE="border-bottom: #4F81BD 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; text-align: right">($1,005)</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Revenues</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Revenues for the nine
months ended March 31, 2012, increased approximately $2,425,000, or 416%, compared to the nine months ended March 31, 2011. This
increase is the result of an increase in new customers and volume increases on existing customer orders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Cost of Revenues</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Cost of revenues for
the nine months ended March 31, 2012, increased approximately $1,958,000, or 414%, compared to the nine months ended March 31,
2011. This increase is the result of an increase in sales volume for new customers and sales volume increases on existing customer
orders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Gross Profit</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="color: black">Gross
profit for the nine months ended March 31, 2012, increased by approximately $467,000, or 425%, compared to the nine months ended
March 31, 2011. Gross profit as a percentage of revenue for the nine months ended March 31, 2012, increased slightly by 0.3% compared
to</FONT> the n<FONT STYLE="color: black">ine months ended March 31, 2011.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Selling, and General and Administrative
Expenses</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Sales and general and
administrative expenses for the nine months ended March 31, 2012 and 2011 were approximately $1,271,000 and $774,000, respectively.
Such expenses consist primarily of salaries and personnel related expenses, occupancy expenses, sales travel, consulting costs
and other expenses. The increase of approximately $497,000 was due to an increase in salaries related to increase in employee headcount
and for other professional fees, some of which were incurred for reverse merger preparation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"><I></I></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Research and Development Expense</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Research and development
expenses for the nine months ended March 31, 2012 and 2011 were approximately $400,000 and $316,000, respectively. Such expenses
consist primarily of materials, supplies, salaries and personnel related expenses, consulting costs and other expenses. The increase
of approximately $84,000 was due to an increase in personnel costs and benefits, and an increase in material and supplies consumption
related to new and ongoing research programs.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Interest Expense</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Interest expense for
the nine months ended March 31, 2012 and 2011 was approximately $45,000 and $25,000, respectively. The interest expense relates
to our outstanding notes payable to one of our major shareholders, of which balances increased throughout 2012. Certain of the
notes were converted into shares of our common stock during December 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>For the year ended June 30, 2011
and the eight month period ended June 30, 2010 </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font-family: Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 10pt; color: #365F91; font-weight: bold; font-style: italic">&nbsp;</TD><TD STYLE="font-size: 10pt; color: #365F91; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; color: #365F91; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">For the year ended June 30, 2011</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; color: #365F91; font-weight: bold">&nbsp;</TD><TD STYLE="font-size: 10pt; color: #365F91; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; color: #365F91; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">For the eight <BR> months ended <BR> June 30, 2010</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; color: #365F91; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="6">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 64%; font-size: 10pt; color: #365F91; font-weight: bold; padding-left: 5.4pt">Revenues</TD><TD STYLE="width: 2%; font-size: 10pt; color: #365F91">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; color: #365F91; text-align: left">$</TD><TD STYLE="width: 14%; font-size: 10pt; color: #365F91; text-align: right">984,000</TD><TD STYLE="width: 1%; font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt; color: #365F91">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; color: #365F91; text-align: left">$</TD><TD STYLE="width: 14%; font-size: 10pt; color: #365F91; text-align: right">207,000</TD><TD STYLE="width: 1%; font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; color: #365F91; font-weight: bold; padding-left: 5.4pt">Cost of sales</TD><TD STYLE="font-size: 10pt; color: #365F91">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; color: #365F91; text-align: right">846,000</TD><TD STYLE="font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; color: #365F91">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; color: #365F91; text-align: right">228,000</TD><TD STYLE="font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; color: #365F91; font-weight: bold; text-align: left; padding-left: 5.4pt">Gross Profit</TD><TD STYLE="font-size: 10pt; color: #365F91">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; color: #365F91; text-align: right">138,000</TD><TD STYLE="font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; color: #365F91">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; color: #365F91; text-align: right">(21,000</TD><TD STYLE="font-size: 10pt; color: #365F91; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; color: #365F91; font-weight: bold; text-align: left; padding-left: 5.4pt">Selling, general, and administrative</TD><TD STYLE="font-size: 10pt; color: #365F91">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; color: #365F91; text-align: right">1,027,000</TD><TD STYLE="font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; color: #365F91">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; color: #365F91; text-align: right">412,000</TD><TD STYLE="font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; color: #365F91; font-weight: bold; text-align: left; padding-left: 5.4pt">&nbsp;</TD><TD STYLE="font-size: 10pt; color: #365F91">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; color: #365F91; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; color: #365F91">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; color: #365F91; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; color: #365F91; font-weight: bold; text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Research and development</TD><TD STYLE="font-size: 10pt; color: #365F91; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; color: #365F91; text-align: right">382,000</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; color: #365F91; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; color: #365F91; text-align: right">197,000</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; color: #365F91; font-weight: bold; text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Total Operating Expenses</TD><TD STYLE="font-size: 10pt; color: #365F91; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; color: #365F91; text-align: right">1,409,000</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; color: #365F91; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; color: #365F91; text-align: right">609,000</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; color: #365F91; font-weight: bold; text-align: left; padding-left: 5.4pt">Interest expense</TD><TD STYLE="font-size: 10pt; color: #365F91">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; color: #365F91; text-align: right">42,000</TD><TD STYLE="font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; color: #365F91">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; color: #365F91; text-align: right">-</TD><TD STYLE="font-size: 10pt; color: #365F91; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; color: #365F91; font-weight: bold; text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Net Loss</TD><TD STYLE="font-size: 10pt; color: #365F91; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; color: #365F91; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; color: #365F91; text-align: right">(1,313,000</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; color: #365F91; text-align: left">)</TD><TD STYLE="font-size: 10pt; color: #365F91; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; color: #365F91; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; color: #365F91; text-align: right">(630,000</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; color: #365F91; text-align: left">)</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We began our operations
in October of 2009. Accordingly, our first period of operations is for only eight months and may not be an appropriate comparative
value had we been in operations for an entire year.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"><I></I></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Revenues </I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Revenues for the year
ended June 30, 2011, increased approximately $777,000, or 375%, compared to the eight month period ended June 30, 2010. This large
increase in sales was attributable to the increase in customers and the full operating period in fiscal year 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Cost of Revenues</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Cost of revenues for
the year ended June 30, 2011, increased approximately $618,000 or 271% compared to the eight month period ended June 30, 2010.
This large increase in cost of revenues was attributable to the increase in customers and the full operating period in fiscal year
2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Gross Profit</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Gross profit for the
year ended June 30, 2011, increased by approximately $159,000 or 757%, compared to the eight month period ended June 30, 2010.
Gross profit as a percentage of revenue for the year ended June 30, 2011, increased to 14% compared to (10%) in the eight month
period ended June 30, 2010. Sales traction during the year ended June 30, 2011 allowed us to perform more efficiently on managing
product cost and we were able to negotiate customer agreements at normalized margins.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Selling, and General and Administrative
Expenses</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Sales and general and
administrative expenses for the year ended June 30, 2011 and the eight month period ended June 30, 2010 were approximately $1,027,000
and approximately $412,000, respectively. Such expenses consist primarily of salaries and personnel related expenses, stock-based
compensation expense, sales travel, consulting costs and other expenses. The increase of approximately $615,000 was due to an increase
in personnel and consulting costs that were required to manage our business as it grew.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Research and Development Expense</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Research and development
expenses for the year ended June 30, 2011 and the eight month period ended June 30, 2010 were approximately $382,000 and approximately
$197,000, respectively. Such expenses consist primarily of materials, supplies, salaries and personnel related expenses, stock-based
compensation expense, consulting costs and other expenses. The increase of approximately $185,000 was due to an increase in personnel
costs and benefits, and an increase in material and supplies consumption.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Interest Expense</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Interest expense for
the year ended June 30, 2011 and eight month period ended June 30, 2010 was approximately $42,000 and $0, respectively. The interest
expense relates to our outstanding notes payable to one of our major shareholders. As discussed above, certain of the notes payable
were converted into shares of our common stock during December 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Liquidity and Capital Resources </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>For the nine month periods ended
March 31, 2012 and 2011 </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of March 31, 2012,
we had a cash balance of approximately $141,000, negative working capital of approximately $278,000, and an accumulated deficit
of approximately $3,082,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Cash Flows from Operating Activities</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our operating activities
resulted in net cash used in operations of approximately $941,000 for the nine months ended March 31, 2012, compared to net cash
used in operations of approximately $458,000 for the nine months ended March 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The net cash used in
operating activities for the nine month period ended March 31, 2012 reflects a net loss of approximately $1,139,000 offset by depreciation
and amortization of approximately $23,000 and stock-based compensation of approximately $22,000. Changes in operating assets and
liabilities included a decrease in accounts receivable of approximately $2,000, a decrease in inventories of approximately $313,000,
an increase in prepaid inventory of approximately $932,000, an increase in accrued expenses of approximately $165,000, an increase
in customer deposits of approximately $841,000, an increase in customer deposits from related party of approximately $629,000,
a decrease in deferred revenue of approximately $1,173,000, an increase in accounts payable of approximately $293,000 and other
minor factors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The net cash used in
operating activities for the nine month period ended March 31, 2011 reflects a net loss of approximately $1,005,000 offset by depreciation
and amortization of approximately $16,000 and stock-based compensation of approximately $58,000. Changes in operating assets and
liabilities included an increase in inventories of approximately $1,703,000, a decrease in prepaid inventory of approximately $482,000,
an increase in accounts payable of approximately $41,000, a decrease in customer deposits of approximately $508,000, an increase
in customer deposits from related party of approximately $58,000, an increase in deferred revenue of approximately $2,098,000,
and other minor factors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Cash Flows from Investing Activities</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The net cash used in
investing activities for the nine month periods ended March 31, 2012 and 2011 consist primarily of purchases of equipment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Cash Flows from Financing Activities</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Net cash provided by
financing activities for the nine months ended March 31, 2012 and the nine months ended March 31, 2011 was $900,000 and $680,000,
respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">During nine months
ended March 31, 2012, we received $900,000 from the issuance of notes payable to a shareholder. During the nine months ended March
31, 2011, we received $680,000 from the issuance of notes payable to a shareholder.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>For the year ended June 30, 2011 and the eight month period
ended June 30, 2010 </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of June 30, 2011,
we had a cash balance of approximately $240,000, negative working capital of approximately $1,140,000 and an accumulated deficit
of approximately $1,943,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Cash Flows from Operating Activities</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our operating activities
resulted in net cash used in operations of approximately $743,000 for the year ended June 30, 2011 compared to net cash used in
operations of approximately $433,000 for the eight months ended June 30, 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The net cash used in
operating activities for the year ended June 30, 2011 reflects a net loss of approximately $1,313,000 offset by depreciation and
amortization of approximately $23,000 and stock-based compensation of approximately $58,000. Changes in operating assets and liabilities
included an increase in accounts receivable of approximately $41,000, an increase in inventories of approximately $1,697,000, a
decrease in prepaid inventory of approximately $550,000, an increase in accrued expenses of approximately $30,000, a decrease in
customer deposits of approximately $347,000, an increase in customer deposits from related party of approximately $208,000, an
increase in deferred revenue of approximately $1,802,000, and other minor factors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The net cash used in
operating activities for the eight months ended June 30, 2010 reflects a net loss of approximately $630,000 offset by loss on disposal
of leasehold improvements of approximately $20,000, depreciation and amortization of approximately $14,000, and stock-based compensation
of approximately $68,000. Changes in operating assets and liabilities included an increase in inventories of approximately $117,000,
an increase in prepaid inventory of approximately $484,000, an increase in other current assets of approximately $39,000, an increase
is customer deposits of approximately $556,000, an increase in customer deposits from related party of approximately $159,000 and
other minor factors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Cash Flows from Investing Activities</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The net cash used in
investing activities for the year ended June 30, 2011 and the eight months ended June 30, 2010 consist primarily of purchases of
equipment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Cash Flows from Financing Activities</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Net cash provided by
financing activities for the year ended June 30, 2011 and the eight months ended June 30, 2011 was approximately $930,000 and $560,000,
respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">During the year ended
June 30, 2011, we received $930,000 from the issuance of notes payable to a shareholder, and we received $400 from the collection
of a note receivable from a shareholder. During the eight month period ended June 30, 2010, we received $460,000 from the issuance
of 4,000,000 shares of our common stock, and we received $100,000 from the issuance of a note payable to a shareholder.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Future Liquidity Needs</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have evaluated our
expected cash requirements over the next twelve months, which includes, but is not limited to, investments in additional sales
and marketing and product development resources, capital expenditures, and working capital requirements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We expect to require
additional financing in the future. The timing of our need for additional capital will depend in part on our future operating performance
in terms of revenue growth and the level of operating expenses maintained.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">One of our <FONT STYLE="color: black">shareholder</FONT>s
has agreed to support our capital requirements through loan agreements. In October 2011, we entered into a revolving promissory
note agreement with this <FONT STYLE="color: black">shareholder</FONT> for $1,000,000. The revolving promissory note bears interest
at 8%, is due September 30, 2013, as amended, and is secured by substantially all of our assets. As of June 14, 2012, $400,000
is available under this revolving promissory note. <FONT STYLE="color: black">We believe our cash, accounts receivables, and the
$1,000,000 commitment from Baytree Capital, its designees or assignees, and our revolving promissory note are adequate to satisfy
our working capital needs and sustain our ongoing operations for at least the next twelve months.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">However, there is no
guarantee we will be able to obtain additional funds in the future or that funds will be available on terms acceptable to us. If
such funds are not available, management will be required to curtail its investments in additional sales and marketing and product
development resources, and capital expenditures, which may have an adverse effect on our future cash flows and results of operations,
and our ability to fund operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">To the extent that
we raise additional funds by issuing equity or debt securities, our shareholders may experience additional significant dilution
and such financing may involve restrictive covenants. To the extent that we raise additional funds through collaboration and licensing
arrangements, it may be necessary to relinquish some rights to our technologies or our product candidates, or grant licenses on
terms that may not be favorable to us. Such actions may have a material adverse effect on our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Additionally, recent
global market and economic conditions have been unprecedented and challenging with tighter credit conditions and recession in most
major economies. As a result of these market conditions, the cost and availability of credit has been and may continue to be adversely
affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength
of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease to provide
credit to businesses and consumers. These factors have led to a decrease in spending by businesses and consumers alike, and a corresponding
decrease in global infrastructure spending. Continued turbulence in the U.S. and international markets and economies and prolonged
declines in business and consumer spending may adversely affect our liquidity and financial condition, including our ability to
access the capital markets to meet liquidity needs.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Off-Balance Sheet Arrangements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have no off-balance
sheet arrangements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Recent Accounting Pronouncements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Refer to Note 3, &ldquo;Summary
of Significant Accounting Polices,&rdquo; in the accompanying notes to the financial statements for a discussion of recent accounting
pronouncements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>DIRECTORS AND EXECUTIVE OFFICERS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><BR>
<B><I>Identification of Directors, Executive Officers and Significant Employees</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table
and text set forth the names and ages of Flux Power&rsquo;s directors, executive officers and significant employees as of the date
of this report. Flux Power&rsquo;s Board of Directors is comprised of only one class. All of the directors will serve until the
next annual meeting of stockholders and until their successors are elected and qualified, or until their earlier death, retirement,
resignation or removal. There are no family relationships among any of the directors and executive officers.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="width: 80%; border-collapse: collapse; font-family: Times New Roman, Times, Serif">
<TR>
    <TD STYLE="width: 30%; vertical-align: bottom; border: windowtext 1pt solid; font-size: 10pt; font-weight: bold">Name</TD>
    <TD STYLE="width: 3%; vertical-align: top; border: windowtext 1pt solid; font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 15%; vertical-align: bottom; border: windowtext 1pt solid; font-size: 10pt; font-weight: bold; text-align: center">Age</TD>
    <TD STYLE="width: 3%; vertical-align: top; border: windowtext 1pt solid; font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 49%; vertical-align: bottom; border: windowtext 1pt solid; font-size: 10pt; font-weight: bold">Position</TD></TR>
<TR>
    <TD STYLE="border: windowtext 1pt solid; vertical-align: bottom; font-size: 10pt">Chris Anthony</TD>
    <TD STYLE="border-right: windowtext 1pt solid; vertical-align: top; border-bottom: windowtext 1pt solid; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="border-right: windowtext 1pt solid; vertical-align: bottom; border-bottom: windowtext 1pt solid; font-size: 10pt; text-align: center">35</TD>
    <TD STYLE="border-right: windowtext 1pt solid; vertical-align: top; border-bottom: windowtext 1pt solid; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="border-right: windowtext 1pt solid; vertical-align: bottom; border-bottom: windowtext 1pt solid; font-size: 10pt">Chairman and Chief Executive Officer</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border: windowtext 1pt solid; font-size: 10pt">Steve Jackson<B>&sup1;</B></TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; font-size: 10pt; text-align: center">48</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; font-size: 10pt">Chief Financial Officer and Chief Operating Officer</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border: windowtext 1pt solid; font-size: 10pt">Michael Johnson</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; font-size: 10pt; text-align: center">60</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; font-size: 10pt">Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border: windowtext 1pt solid; font-size: 10pt">James Gevarges</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; font-size: 10pt; text-align: center">46</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; font-size: 10pt">Director</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">___________________________</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&sup1;Steve Jackson
has signed an employee agreement to be the Chief Financial Officer and the Chief Operating Officer as of January 2, 2012. In connection
with Mr. Jackson&rsquo;s services to our Company, on January 25, 2012, Mr. Jackson was granted options to purchase 300,000 shares
of common stock, none of which are vested.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">There are no arrangements
or understandings between our directors and executive officers and any other person pursuant to which any director or officer was
or is to be selected as a director or officer.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Business Experience </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B>Chris Anthony, Chief
Executive Officer, and Director. </B>Mr. Anthony has been Chairman and Chief Executive Officer of Flux Power since it was incorporated.
Since November 2010, Mr. Anthony has also served as an R&amp;D Advisor to Epic Boats, LLC, which he founded in 2002 and where he
served as Chief Executive Officer until October 2010. From 2005 to 2009 Mr. Anthony served as the Chief Operating Officer of Aptera
Motors, Inc. (&ldquo;Aptera Motors&rdquo;) and was a Director of that company from 2005 to 2010. Mr. Anthony is an expert in energy
storage, electric propulsion systems, and advanced composite manufacturing processes. He has significant experience building advanced
products in the marine and commuter vehicle industries. Mr. Anthony has a Bachelor&rsquo;s of Science degree in finance from the<B>
</B>Cameron School of Business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white"><B>Steve
Jackson, Chief Financial Officer and Chief Operating Officer. </B>Mr. Jackson has been providing services to Flux Power since November
2011 and joined the Company as a full time employee in January 2012. Prior to joining Flux Power, Mr. Jackson served as the Chief
Financial Officer and Chief Operating Officer for Verdezyne Inc, an alternative energy bio-fuel company from 2008 to 2011. Mr.
Jackson is a Certified Public Accountant and <FONT STYLE="color: black">has more than 20 years finance and operations experience,
including 7 years at SAIC where he held several significant financial management positions, and 3 years at PriceWaterhouse LLP.
He received his Bachelor of Business Administration degree in Accounting from the&nbsp;University of Texas at Austin and a Master
of Science degree in Accountancy from San Diego&nbsp;State University.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B>Michael Johnson,
Director. </B>Mr. Johnson has been a director of Flux Power since it was incorporated. Mr. Johnson has been a director and the
Chief Executive Officer of Esenjay Petroleum Corporation in Corpus Christi, Texas since 2002. He is an industry expert in the natural
gas exploration industry and brings a wealth of management and successful company building experience to the board. Mr. Johnson
currently serves on the Board of Directors at Aptera Motors. Mr. Johnson received a BS degree in mechanical engineering from the
University of Southwestern Louisiana in 1971.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B>James Gevarges,
Director. </B>Mr. Gevarges has been a director of Flux Power since it was incorporated. Mr. Gevarges is the Chief Executive Officer,
and a Director of Current Ways, Inc., a company he founded in 2010. Since 1991 James has also been a Director and the Chief Executive
Officer of LHV Power Corporation (formerly known as HiTek Power, Corp) located in Santee, California. Mr. Gevarges is a power supply
industry expert and brings an enormous amount of manufacturing and successful company management experience to the Company. Mr.
Gevarges has a Bachelor&rsquo;s of Science degree in electrical engineering from Louisiana State University.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Involvement in Certain Legal Proceedings</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">To the best of our
knowledge, during the past ten years, none of our directors or executive officers were involved in any of the following: (1) any
bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at
the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject
to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment,
or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;
and (4) being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodities
Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed,
suspended or vacated.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Audit Committee</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have not adopted
an audit committee charter. Our Board of Directors will serve the function of the audit committee. The Board of Directors intends
to establish an audit committee in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Compensation Committee and Governance
and Nomination Committee</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have not adopted
a compensation committee and governance committee charters. The Board of Directors currently serves these functions. The Board
of Directors will consider establishing a compensation committee and governance committee in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Code of Conduct and Ethics</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have not adopted
a Code of Conduct for our CEO and Senior Executive Officers.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Indemnification Agreements</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On June 14, 2012, in
connection with the appointment of Mr. Chris Anthony as a director, Chief Executive Officer and President, and Mr. Steve Jackson
as our Chief Financial Officer, and Mr. Craig Miller as our Secretary, we executed a standard form of indemnification agreement
(&ldquo;Indemnification Agreement&rdquo;) with each of them (each, an &ldquo;Indemnitee&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to and subject
to the terms, conditions and limitations set forth in the Indemnification Agreement, we agreed to indemnify each Indemnitee, against
any and all expenses incurred in connection with the Indemnitee&rsquo;s service as our officer, director and or agent, or is or
was serving at our request as a director, officer, employee, agent or advisor of another corporation, partnership, joint venture,
trust, limited liability company, or other entity or enterprise but only if the Indemnitee acted in good faith and in a manner
he reasonably believed to be in or not opposed to our best interest, and in the case of a criminal proceeding, had no reasonable
cause to believe that his conduct was unlawful. In addition, the indemnification provided in the indemnification agreement is applicable
whether or not negligence or gross negligence of the Indemnitee is alleged or proven. Additionally, the Indemnification Agreement
establishes processes and procedures for indemnification claims, advancement of expenses and costs and contribution obligations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We intend to enter into such Indemnification
Agreements with Messrs. Johnson and Mr. Gevarges upon the effectiveness of their respective appointment as our directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B>&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>EXECUTIVE COMPENSATION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Summary Compensation Table </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table
sets forth the information, on an accrual basis, with respect to the compensation of Flux Power&rsquo;s principal executive officers
for the fiscal year ended June 30, 2011 and for the eight months ended June 30, 2010. No other employee made over $100,000 for
the year ended June 30, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.8pt 0pt 0; text-align: center"><B>Name&nbsp;and</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.8pt 0pt 0; text-align: center"><B>Principal&nbsp;Position</B></P></TD>
    <TD STYLE="padding-right: 0.8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; font-weight: bold; text-align: center"><B>Year</B></TD>
    <TD STYLE="padding-right: 0.8pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Salary</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>($)</B></P></TD>
    <TD STYLE="padding-right: 0.8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Bonus</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>($)</B></P></TD>
    <TD STYLE="padding-right: 0.8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Stock</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Awards</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>($)</B></P></TD>
    <TD STYLE="padding-right: 0.8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Option</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Awards</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>($)(1)</B></P></TD>
    <TD STYLE="padding-right: 0.8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Non-</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Equity&nbsp;</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Incentive&nbsp;</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Plan&nbsp;</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Compensation&nbsp;</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>($)</B></P></TD>
    <TD STYLE="padding-right: 0.8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Non-&nbsp;Qualified</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Deferred</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Compensation</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Earnings</B></P></TD>
    <TD STYLE="padding-right: 0.8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>All&nbsp;Other</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Compensation</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>($)</B></P></TD>
    <TD STYLE="padding-right: 0.8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>Total</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1.8pt 0pt 0; text-align: center"><B>($)</B></P></TD>
    <TD STYLE="padding-right: 0.8pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 1.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 1.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 1.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 1.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 1.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 1.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 1.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 1.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 8%; padding-right: 0.8pt">Chris Anthony</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 3%; padding-right: 0.8pt; text-align: center">2011</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt">$</TD>
    <TD STYLE="width: 15%; padding-right: 0.8pt; text-align: right">60,000</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 5%; padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 5%; padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 5%; padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="width: 5%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 6%; padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="width: 5%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 6%; padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="width: 3%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 6%; padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt">$</TD>
    <TD STYLE="width: 6%; padding-right: 0.8pt; text-align: right">60,000</TD>
    <TD STYLE="width: 1%; padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="padding-right: 0.8pt">Chairman and CEO</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: center">2010</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">$</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">60,000</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">-</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">-</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">-</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">-</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">-</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">-</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">$</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">60,000</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">-</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="padding-right: 0.8pt">Joseph Gottlieb (2)</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: center">2011</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">$</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">172,918</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">26,500</TD>
    <TD STYLE="padding-right: 0.8pt">(2)</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">75,000</TD>
    <TD STYLE="padding-right: 0.8pt">(2)</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">$</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">274,418</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="padding-right: 0.8pt">Chief Technology Officer</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: center">2010</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">$</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">150,000</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">-</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">-</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">-</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">-</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">-</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">-</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">$</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">150,000</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="padding-right: 0.8pt">Jason Touhy(3)</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: center">2011</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">$</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">10,000</TD>
    <TD STYLE="padding-right: 0.8pt">(3)</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">69,000</TD>
    <TD STYLE="padding-right: 0.8pt">(3)</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">$</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">79,000</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="padding-right: 0.8pt">Chief Operations Officer</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: center">2010</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">$</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">97,500</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">-</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">-</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">-</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">-</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">-</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">$</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">97,500</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">____________________________________</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">(1) Reflects the grant date fair value
of the awards calculated in accordance with FASB ASC Topic 718 &ndash; Stock Compensation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">(2) Mr. Gottlieb resigned as Chief Technology
Officer on July 31, 2011 and was paid a severance of $75,000. On December 3, 2010 Mr. Gottlieb was granted fully vested options
to purchase 265,000 shares of our common stock at $0.13 per share. The options expire on January 27, 2013. The fair value of the
option award is $26,500.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">(3) Mr. Touhy resigned as Chief Operations
Officer on December 31, 2010 and was paid a severance of $69,000. On December 2, 2010, Mr. Touhy was granted options to purchase
100,000 shares of our common stock at $0.13 per share. All of the options became exercisable on December 3, 2010. The options expired
on February 29, 2012. The fair value of the option award is $10,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Benefit Plans</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Flux Power does not
have any profit sharing plan or similar plans for the benefit of our officers, directors or employees. However, we may establish
such plan in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Stock Option Plan</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Flux Power has adopted
a 2010 Stock Option Plan (&ldquo;Option Plan&rdquo;) that reserves 2,000,000 shares of our common stock for issuance upon exercise
of options. As of June 30, 2011, the number of shares of common stock outstanding under the Option Plan was 710,000 and as of the
Effective Date of the Reverse Acquisition, the number of shares of common stock outstanding under the Option Plan was 1,535,500.
As part of the Reverse Acquisition, we adopted the Option Plan and all 1,535,500 stock options of Flux Power outstanding as of
the Effective Date, whether or not exercised and whether or not vested, will be substituted by us with 4,536,948 new options based
on a ratio of 2.9547039 (&ldquo;Share Exchange Ratio&rdquo;) in a manner that complies with Sections 424(a) and 409A of the Internal
Revenue Code. 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Outstanding Equity Awards</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table
sets forth certain information concerning Flux Power&rsquo;s unexercised options, stock that has not vested, and equity incentive
plan awards outstanding as of June 30, 2011 for the named executive officers below:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="18" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Option&nbsp;Awards(1)</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="14" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Stock&nbsp;Awards</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Name</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Number&nbsp;of <BR> Securities <BR> Underlying <BR> Unexercised <BR> Options <BR> Exercisable</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Number&nbsp;of <BR> Securities <BR> Underlying <BR> Unexercised <BR> Options <BR> Unexercisable</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Equity <BR> Incentive Plan <BR> Awards: <BR> Number&nbsp;of <BR> Securities <BR> Underlying <BR> Unexercised <BR> Unearned <BR> Options</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Option <BR> Exercise <BR> Price <BR> ($)</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Option <BR> Expiration <BR> Date</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Number&nbsp;of <BR> Shares&nbsp;or <BR> Units&nbsp;of <BR> Stock&nbsp;That <BR> Have&nbsp;Not <BR> Vested</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Market&nbsp;Value <BR> of&nbsp;Shares&nbsp;or <BR> Units&nbsp;of&nbsp;Stock <BR> That&nbsp;Have&nbsp;Not <BR> Vested <BR> ($)</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Equity&nbsp;Incentive <BR> Plan <BR> Awards: <BR> Number&nbsp;of <BR> Unearned <BR> Shares, <BR> Units&nbsp;or <BR> Other <BR> Rights <BR> That <BR> Have&nbsp;Not <BR> Vested</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Equity&nbsp;Incentive <BR> Plan <BR> Awards: <BR> Market&nbsp;or <BR> Payout&nbsp; <BR> Value&nbsp;of <BR> Unearned <BR> Shares, <BR> Units&nbsp;or <BR> Other <BR> Rights <BR> That&nbsp;Have <BR> Not <BR> Vested <BR> ($)</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 7%; padding-left: 0.5pt">Joseph Gottlieb(2)</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 9%; text-align: right">265,000</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 7%">&nbsp;</TD>
    <TD STYLE="width: 3%; text-align: center">0</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 8%; text-align: right">0</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 5%; text-align: right">$0.13</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 9%; text-align: right">1/27/2013</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 8%; text-align: right">&ndash;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 10%; text-align: right">&ndash;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: -3mm; text-align: right">&ndash;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 11%; text-align: right">&ndash;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="background-color: #CCFFCC">
    <TD STYLE="vertical-align: bottom; padding-left: 0.5pt">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Jason Touhy(3)</P></TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">100,000<SUP>(5)</SUP></TD>
    <TD STYLE="vertical-align: super">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">0</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">0</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">$0.13</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">2/29/2012</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">-</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">-</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">-</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">-</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="padding-left: 0.5pt">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">__________________</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(1)&nbsp;The options have not been adjusted based on the Share
Exchange Ratio.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(2) Mr. Gottlieb resigned on July 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(3) Mr. Touhy resigned on December 31, 2010 and his options
were forfeited on February 29, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;<B>Compensation of Non-Executive
Directors</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">As of June 30, 2011, no equity awards were
issued to any non-executive directors by Flux Power.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Aggregated Option/SAR exercised and Fiscal year-end Option/SAR
value table</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Neither the executive
officers of Flux Power nor the other individuals listed in the tables above, exercised options or SARs during the last fiscal year.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Long-term incentive plans</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">No Long Term Incentive awards were granted
by Flux Power in the last fiscal year.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Employment contracts and termination of employment and
change-in-control arrangements</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Flux Power has entered
into an employment agreement, as amended, with its Chief Executive Officer, Chris Anthony. Pursuant to the terms of his employment
agreement, Mr. Anthony is an &ldquo;at-will&rdquo; employee. Mr. Anthony is paid an annual salary of $168,000. Further, Mr. Anthony
is entitled to a $10,000 end of fiscal year bonus for every $10,000,000 in sales with at least a 10% gross margin and a 20% salary
bonus for every $20,000,000 in sales with at least a 10% gross margin.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Flux Power has entered
into an employment agreement with our Chief Financial Officer and Chief Operating Officer Steve Jackson. Pursuant to the terms
of his employment agreement, Mr. Jackson is an &ldquo;at-will&rdquo; employee. Mr. Jackson is currently paid an annual salary of
$142,000. Moreover, after reaching the booking/sales milestones listed below, Mr. Jackson will be entitled to quarterly compensation
adjustments, both up and down, based on the previous quarter&rsquo;s sales as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" ALIGN="CENTER" STYLE="width: 50%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 52%; border: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Quarterly Sales Milestones</TD>
    <TD STYLE="width: 48%; border: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Annualized Compensation</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">$3,000,000</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">$164,500</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">$5,000,000</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">$188,000</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">$10,000,000</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">$211,500</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">$15,000,000</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">$235,000</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Employment contracts and termination of employment and
change-in-control arrangements</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Flux Power has entered
into an employment agreement with Chris Anthony that states that in the event Mr. Anthony is terminated for any reason other than
criminal activity, Flux Power agrees to provide Mr. Anthony with a severance payout equal to six (6) months of employment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Flux Power has entered
into an employment agreement with Steve Jackson that states that in the event Mr. Jackson is terminated after the Probation Period
for any reason other than for cause, Flux Power agrees to provide Mr. Jackson with a severance payout equal to six (6) months of
employment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The only officer or
employee who has contractual rights triggered by a change in control of the company is Mr. Jackson. Mr. Jackson&rsquo;s stock option
agreement states that in the event of a change in control, after the effective date of the agreement, any and all unvested stock
options held by Mr. Jackson shall become 100% vested and exercisable.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Compensation Committee Interlocks and Insider Participation</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have not established
a Compensation Committee and our Board of Directors will serve this function.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Director Independence</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We currently do not
have any independent directors as the term &ldquo;independent&rdquo; is defined by the rules of the Nasdaq Stock Market.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As used in this section,
the term beneficial ownership with respect to a security is defined by Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, as consisting of sole or shared voting power (including the power to vote or direct the vote) and/or sole or shared investment
power (including the power to dispose of or direct the disposition of) with respect to the security through any contract, arrangement,
understanding, relationship or otherwise, subject to community property laws where applicable. As of June 14, 2012 (post Reverse
Acquisition), we had a total of<FONT STYLE="font-family: Times New Roman, Times, Serif"> </FONT>41,258,185 shares of common stock
outstanding.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table
sets forth, as of June 14, 2012 (post Reverse Acquisition): (a) the names and addresses of each beneficial owner of more than five
percent of our common stock known to us, the number of shares of common stock beneficially owned by each such person, and the percent
of our common stock so owned; and (b) the names and addresses of each director and executive officer, the number of shares our
common stock beneficially owned, and the percentage of our common stock so owned, by each such person, and by all of our directors
and executive officers as a group. Unless otherwise indicated, the business address of each of our directors and executive officers
is c/o Flux Power, Inc., 2240 Auto Park Way, Escondido, California 92029. Each person has sole voting and investment power with
respect to the shares of our common stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in
the shares of common stock, except as otherwise indicated.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 46%; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-decoration: underline; text-align: justify">Name and Address of Beneficial Owner</TD>
    <TD STYLE="width: 31%; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-decoration: underline; text-align: center"><B><U>Amount
    and Nature of <BR>
    Beneficial Ownership</U><SUP>(1)</SUP></B></TD>
    <TD STYLE="width: 23%; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-decoration: underline; text-align: center">Percentage of <BR>
Ownership</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: justify">Directors and Named Executive Officers</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Chris Anthony, Director and Executive Officer</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">11,929,697<SUP>(2)</SUP></TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">28.8%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Steve Jackson, Chief Financial Officer</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">-</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">-</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Gianluca Cicogna Mozzoni, Director<SUP>(5)</SUP></TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">-</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">-</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Michael Johnson<SUP>(5)</SUP></TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">20,097,171<SUP>(3)</SUP></TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">48.6%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">James Gevarges<SUP>(5)</SUP> </TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">6,204,878<SUP>(4)</SUP></TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">15.0%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">All Officers &amp; Directors as a Group (4 people)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">38,231,746</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">92.4%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: justify">5% Beneficial Owners</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P></TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Baytree Capital Associates, LLC<SUP> (6)</SUP></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">40 Wall Street, 58th Floor</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">New York, New York 1000</P></TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">4,122,777<SUP>(5)</SUP></TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">9.5%</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">__________________________________</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">(1) &#9;As used in this section, the term
beneficial ownership with respect to a security is defined by Rule 13d-3 under the Securities Exchange Act of 1934, as amended,
as consisting of sole or shared voting power (including the power to vote or direct the vote) and/or sole or shared investment
power (including the power to dispose of or direct the disposition of) with respect to the security through any contract, &#9;arrangement,
understanding, relationship or otherwise, subject to community property laws where applicable. Accordingly, shares of common stock
which an individual or group has a right to acquire within 60 days pursuant to the exercise of options or warrants are deemed to
be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be beneficially
owned and outstanding for the purpose of computing the percentage ownership of any other person shown in the table.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">(2) Includes 110,881 stock options, all
of which are vested. The options have been adjusted given effect to the Share Exchange Ratio.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">(3) Includes shares held by Esenjay Investments,
LLC, a Texas limited liability company of which Mr. Johnson is the sole director and beneficial owner. Includes 110,881 stock options,
all of which are vested. The options have been adjusted given effect to the Share Exchange Ratio.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">(4) Includes 110,881 stock options, all
of which are vested. The options have been adjusted given effect to the Share Exchange Ratio.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">(5) Upon the closing of the Reverse Acquisition,
Mr. Gianluca Cicogna Mozzoni submitted a resignation letter pursuant to which he resigned from all offices that he held effective
immediately; and from his position as our director that will become effective on the tenth day following the mailing by us of an
information statement to our stockholders that complies with the requirements of Section 14(f) of the Exchange Act. In addition,
Messrs. Michael Johnson and James Gevarges were appointed to our Board, effective upon compliance with Section 14(f) of the Exchange
Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">(6) Includes 1,837,777 shares of common
stock underlying warrants for a term of 5 years and at an exercise price of $0.41 per share of common stock for financial advisory
services.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Transactions with Related Persons</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In connection with
the Reverse Acquisition, Mr. Anthony, our President, Chief Executive Officer, and director, Mr. Gevarges, our director, and Esenjay
Investments, LLC, an entity which our director, Michael Johnson, is a director, severally agreed not to offer, sell, assign, transfer,
pledge, contract to sell, or otherwise dispose of any shares of our common stock or securities convertible into or exercisable
or exchangeable into our common stock beneficially owned by such shareholder, for a period of eighteen (18) months from the closing
date of the Reverse Acquisition, except during the period after the first anniversary of the closing date and a period of six (6)
months thereafter, in such an amount which constitutes less than three percent (3%) in the aggregate of such shareholder&rsquo;s
beneficial ownership of our common stock per month.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On June 14, 2012, we
entered into an Advisory Agreement with Baytree Capital Associates, LLP, our affiliate which owns 2,285,000 shares of our common
stock (&ldquo;Baytree Capital&rdquo;) pursuant to which Baytree Capital will provide us with business and consulting 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, which shares will have piggy-back registration rights, and a warrant to purchase 1,837,777 restricted
shares of our common stock for a period of 5 years at an exercise price of $.41 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On May 25, 2010, Flux
Power entered into a $400,000 Revolving Promissory Note for Inventory Funding (the &ldquo;Inventory Funding Note&rdquo;) with our
shareholder Esenjay Investments, LLC (&ldquo;Esenjay&rdquo;), which matured in May 2012. Esenjay is owned by Mr. Michael Johnson
who sits on Flux Power&rsquo;s Board of Directors. The Inventory Funding Note bore interest 8% per annum and provides for advances
to be used for inventory purchases. In August 2011, Flux Power amended the Inventory Funding Note so that it may be converted into
Flux Power&rsquo;s shares of common stock at a conversion price to be determined at our next round of financing. The Inventory
Funding Note is secured by Flux Power&rsquo;s general assets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On May 25, 2010, Flux
Power entered into a $1,000,000 Revolving Promissory Note for Operating Capital (the &ldquo;Operating Capital Note&rdquo;) with
Esenjay. The Operating Capital Note matures as of the closing of our next round of financing but no later than May 30, 2012. The
Operating Capital Note bore interest at 8% and provides for advances for operating expenses. In August 2011, Flux Power amended
the Operating Capital Note so that it may be converted into Flux Power&rsquo;s shares of common stock at a conversion price to
be determined at its next round of financing. The Operating Capital Note is secured by Flux Power&rsquo;s general assets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On September 27, 2011,
Flux Power entered into a $150,000 Bridge Loan Promissory Note (the &ldquo;Bridge Note&rdquo;) with Esenjay. The Bridge Note matured
on May 30, 2012. The Bridge Note does not bear interest and provides that the principal amount may be converted into Flux Power&rsquo;s
shares of common stock at a conversion price to be determined at its next round of financing. On November 15, 2011, Flux Power
amended the Bridge Note to include a stated annual interest rate of 8%.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On December 15, 2011,
Esenjay agreed to convert the Inventory Funding Note, Operating Capital Note and the Bridge Note and the accrued interest in the
aggregate amount of $1,264,228 for 1,264,228 shares of Flux Power&rsquo;s common stock. Accordingly, the Inventory Funding Note,
Operating Capital Note and the Bridge Note are no longer outstanding.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On October 1, 2011,
Flux Power entered into a $1,000,000 Secondary Revolving Promissory Note for Operating Capital (the &ldquo;Secondary Operating
Capital Note&rdquo;) with Esenjay. The Secondary Operating Capital Note matures on September 30, 2013. The Secondary Operating
Capital Note bears interest at 8% and provides for advances for operating expenses. As of&nbsp; March 31,&nbsp; 2012, Flux Power
has drawn down $500,000 on the Secondary Revolving Promissory Note and $500,000 is available. As of June 14, 2012, Flux Power has
drawn down $600,000 on the Secondary Revolving Promissory Note and $400,000 is available.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Om March 7, 2012, Flux
Power entered into a $250,000 Bridge Loan (&ldquo;Secondary Bridge Note&rdquo;) with Esenjay. The Secondary Bridge Note matures
on March 7, 2014. The Secondary Bridge Note bears interest at 8%.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">During 2009, the Flux
Power entered into a cancelable Term Sheet agreement (the &ldquo;Term Sheet Agreement&rdquo;) with a company owned by one of its
major shareholders. Pursuant to the Term Sheet Agreement, Flux Power was appointed as a distributor of this company&rsquo;s battery
charging products allowing Flux Power to sell the products either separately or as part of an energy storage solution. Additionally,
Flux Power was required to develop software to enable communication between the parties&rsquo; respective products which entitles
Flux Power to royalties for any such units sold by the related entity. During the term of the Term Sheet Agreement Flux Power may
purchase the products at the then current price list for distributors. Further, under the terms of the Term Sheet Agreement, if
the company sells its products to a different distributor Flux Power is entitled to a distribution fee equal to 20% of the company&rsquo;s
gross profits on such sale. This distribution fee and royalties are capped at a total of $200,000. The products defined in the
term sheet were assigned to a different company that is owned by the same major shareholder, on September 1, 2010. The Term Sheet
Agreement expired pursuant to its terms on April 1, 2011. During the nine month periods ended March 31, 2012 and 2011, Flux Power
purchased approximately $52,000 and $35,000 of prototype products that are not subject to the distribution fee or royalties pursuant
to the Term Sheet Agreement. During 2010, Flux Power entered into a cancelable Manufacturing Implementation Agreement (the &ldquo;Manufacturing
Agreement&rdquo;) with the same company. Pursuant to the terms of the Manufacturing Agreement, this company has been granted a
right of first refusal to manufacture Flux Power&rsquo;s battery management system. The Manufacturing Agreement expires on August
1, 2014. During the nine month periods ended March 31, 2012 and 2011, Flux Power paid approximately $258,000 and $130,000, respectively,
to this company pursuant to the Manufacturing Agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On July 1, 2011, Flux
Power entered into a Sublease Agreement with Epic Boats, LLC (&ldquo;Epic Boats&rdquo;). Chris Anthony, our Chief Executive Officer
is also an R&amp;D advisor to, and 35% owner of, Epic Boats. Pursuant to the Terms of the Sublease Agreement, Epic Boats has subleased
approximately 7,200 square feet of Flux Power&rsquo;s office space for a monthly payment of $6,640. The Sublease Agreement was
terminated January 1, 2012. During the nine month periods ended March 31, 2012 and 2011, Epic Boats reimbursed $53,000 and $7,000,
respectively, to Flux Power under this Sublease Agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font-size: 10pt">On
October 21, 2009, Flux Power entered into an agreement with Epic Boats, LLC where Epic Boats assigned and transferred to Flux Power
the entire right, title, and interest into products, technology, intellectual property, inventions and all improvements thereof,
as defined in the table below.</FONT> <FONT STYLE="font-size: 10pt">As of this date, Flux Power began selling products to Epic
under Flux Power&rsquo;s standard terms and conditions and has continued to sell products to Epic Boats as a customer. During the
nine month periods ended March 31, 2012 and 2011, Flux Power sold approximately $335,000 and $149,000, respectively, of product
to Epic Boats. The customer deposits balance received from Epic Boats at March 31, 2012 and June 30, 2011, is approximately $996,000
and $367,000, respectively. There were no receivables outstanding from Epic Boats as of March 31, 2012. As of June 30, 2011, receivables
of $29,000 were outstanding from Epic Boats.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 9pt"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"><FONT STYLE="font-size: 10pt"></FONT></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">During the nine month periods ended March
31, 2012 and 2011, the Company sold approximately $1,000 and $29,000, respectively, of product to a company owned by another one
of the Company&rsquo;s major shareholders who is the Company&rsquo;s former Chief Technology Officer. There were no receivables
outstanding from this customer as of March 31, 2012 and June 30, 2011. As of March 31, 2012 this shareholder sold his shares and
was no longer a shareholder of the Company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 9pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Promoters and Certain Control Persons</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Reverse Acquisition resulted in a change
of control by issuance of our securities to the following entities and individuals:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 6pt"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in; text-align: left"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><B><I>Chris Anthony</I></B>. Mr. Anthony, our Chairman,
Chief Executive Officer, and President, is one of our major shareholders which beneficially owns approximately 29% of our common
stock on the completion of the share exchange.</TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 6pt"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in; text-align: left"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><B><I>Esenjay Investments, LLC.</I></B> Esenjay Investment,
LLC is one of our major shareholders which beneficially owns approximately 49% of our common stock on the completion of the share
exchange. Mr. Michael Johnson, our director, is the director and shareholder of this entity.</TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 6pt"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in; text-align: left"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><B><I>James Gevarges</I></B>. Mr. Gevarges, our director,
is one of our major shareholders who beneficially owns approximately 15% of our common stock on the completion of the share exchange.</TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In connection with the Reverse Acquisition,
Messrs. Anthony and Gevarges and Esenjay Investments LLC each agreed not to offer, sell, assign, transfer, pledge, contract to
sell, or otherwise dispose of any shares of our common stock or securities convertible into or exercisable or exchangeable into
our common stock beneficially owned by such shareholder, for a period of eighteen (18) months from the closing date of the Reverse
Acquisition, except during the period after the first anniversary of the closing date and a period of six (6) months thereafter,
in such an amount which constitutes less than three percent (3%) in the aggregate of such shareholder&rsquo;s beneficial ownership
of our common stock per month.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Director Independence</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We currently do not
have any independent directors as the term &ldquo;independent&rdquo; is defined by the rules of the Nasdaq Stock Market.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"></P>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>MARKET PRICE OF AND DIVIDENDS ON THE
</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>REGISTRANT&rsquo;S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Market Information</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our common stock started
quotation on the OTCQB under the stock symbol &ldquo;LNPI.&rdquo; On June 11, 2012, our symbol was changed to &ldquo;FLUX.&rdquo;
The following table sets forth the range of the closing bid prices for our common stock for the period January 1, 2010 through
March 31, 2012, for each of the quarters ended on the date set forth below.&nbsp;&nbsp;Such prices represent inter-dealer quotations,
do not represent actual transactions, and do not include retail mark-ups, mark-downs or commissions.&nbsp;&nbsp;Such prices were
determined from information provided by a majority of the market makers for our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 70%">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1.5pt; text-decoration: underline">2012</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1.5pt solid; text-align: center">High Close</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1.5pt solid; text-align: center">Low Close</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>Quarter ended March 31, 2012</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 0.29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">$0.29</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><U>2011</U></P></TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 66%; padding-bottom: 1.5pt">Quarter ended December 31, 2011</TD>
    <TD STYLE="width: 1%; padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: black 1.5pt solid">$</TD>
    <TD STYLE="width: 14%; border-bottom: black 1.5pt solid; text-align: right">0.29</TD>
    <TD STYLE="width: 1%; padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: black 1.5pt solid">$</TD>
    <TD STYLE="width: 14%; border-bottom: black 1.5pt solid; text-align: right">$0.29</TD>
    <TD STYLE="width: 1%; padding-bottom: 1.5pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1.5pt">Quarter ended September 30, 2011</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1.5pt solid">$</TD>
    <TD STYLE="border-bottom: black 1.5pt solid; text-align: right">0.29</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1.5pt solid">$</TD>
    <TD STYLE="border-bottom: black 1.5pt solid; text-align: right">$0.29</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1.5pt">Quarter ended June 30, 2011</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1.5pt solid">$</TD>
    <TD STYLE="border-bottom: black 1.5pt solid; text-align: right">0.29</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1.5pt solid">$</TD>
    <TD STYLE="border-bottom: black 1.5pt solid; text-align: right">$0.29</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1.5pt">Quarter ended March 31, 2011</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1.5pt solid">$</TD>
    <TD STYLE="border-bottom: black 1.5pt solid; text-align: right">0.29</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1.5pt solid">$</TD>
    <TD STYLE="border-bottom: black 1.5pt solid; text-align: right">$0.29</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><U>2010</U></P></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1.5pt">Quarter ended December 31, 2010</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1.5pt solid">$</TD>
    <TD STYLE="border-bottom: black 1.5pt solid; text-align: right">0.25</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1.5pt solid">$</TD>
    <TD STYLE="border-bottom: black 1.5pt solid; text-align: right">0.25</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1.5pt">Quarter ended September 30, 2010</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1.5pt solid">$</TD>
    <TD STYLE="border-bottom: black 1.5pt solid; text-align: right">0.25</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1.5pt solid">$</TD>
    <TD STYLE="border-bottom: black 1.5pt solid; text-align: right">0.25</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1.5pt">Quarter ended June 30, 2010</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1.5pt solid">$</TD>
    <TD STYLE="border-bottom: black 1.5pt solid; text-align: right">0.25</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1.5pt solid">$</TD>
    <TD STYLE="border-bottom: black 1.5pt solid; text-align: right">0.25</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1.5pt">Quarter ended March 31, 2010</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1.5pt solid">$</TD>
    <TD STYLE="border-bottom: black 1.5pt solid; text-align: right">0.25</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1.5pt solid">$</TD>
    <TD STYLE="border-bottom: black 1.5pt solid; text-align: right">0.25</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Shareholders</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The approximate number
of record holders of our common stock as of May 29, 2012 was 1,314.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Dividend Policy</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We presently do not
expect to declare or pay such dividends in the foreseeable future and expect to reinvest all undistributed earnings to expand our
operations, which the management believes would be of the most benefit to our shareholders. The declaration of dividends, if any,
will be subject to the discretion of our Board of Directors, which may consider such factors as our results of operations, financial
condition, capital needs and acquisition strategy, among others.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"></P>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Securities Authorized for Issuance under Equity Compensation
Plans</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table
provides aggregate information as of June 30, 2011 with respect to all compensation plans (including individual compensation arrangements)
under which equity securities are authorized for issuance.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">A</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">B</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center">C</TD>
    <TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: center">Plan&nbsp;Category</TD>
    <TD>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Number&nbsp;of&nbsp;securities&nbsp;to&nbsp;be</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">issued&nbsp;upon&nbsp;exercise&nbsp;of</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">outstanding&nbsp;options,&nbsp;and</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">warrants</P></TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Weighted-average&nbsp;exercise</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">price&nbsp;of&nbsp;outstanding</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">options,&nbsp;and&nbsp;warrants</P></TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD NOWRAP COLSPAN="2">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Number&nbsp;of&nbsp;securities</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">remaining&nbsp;available&nbsp;for</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">future&nbsp;issuance&nbsp;under</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">equity&nbsp;compensation&nbsp;plans</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(excluding&nbsp;securities</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">reflected&nbsp;in&nbsp;column&nbsp;A)</P></TD>
    <TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 37%">Equity compensation plans approved by security holders(1)</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 18%; text-align: right">710,000</TD>
    <TD NOWRAP STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 18%; text-align: right">0.13</TD>
    <TD NOWRAP STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 18%; text-align: right">0</TD>
    <TD NOWRAP STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Equity compensation plans not approved by security holders</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD>Total</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">710,000</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">0.13</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD NOWRAP>&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">(1) The options have not been adjusted
based on the Share Exchange Ratio. In addition, as part of the Reverse Acquisition, we have adopted a Stock Option Plan (&ldquo;Option
Plan&rdquo;) in accordance with Sections 424(a) and 409A of the Internal Revenue Code. However, we will not be able to grant additional
options under the Option Plan.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="text-transform: uppercase"><B>DESCRIPTION
OF SECURITIES</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Common Stock </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are
authorized to issue up to 145,000,000 shares of common stock, par value $0.001 per share. Each outstanding share of common
stock entitles the holder thereof to one vote per share on all matters. Our bylaws provide that any vacancy occurring in the
Board of Directors may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum
of the Board of Directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The holders of shares
of our common stock are entitled to dividends out of funds legally available when and as declared by our Board of Directors. Our
Board of Directors has never declared a dividend and does not anticipate declaring a dividend in the foreseeable future. Should
we decide in the future to pay dividends, as a holding company, our ability to do so and meet other obligations depends upon the
receipt of dividends or other payments from our operating subsidiary and other holdings and investments. In the event of our liquidation,
dissolution or winding up, holders of our common stock are entitled to receive, ratably, the net assets available to stockholders
after payment of all creditors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">All of the issued
and outstanding shares of our common stock are duly authorized, validly issued, fully paid and non-assessable. To the extent that
additional shares of our common stock are issued, the relative interests of existing stockholders will be diluted.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Preferred Stock</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Anti-takeover Effects of Our Articles
of Incorporation and By-laws</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our Articles of Incorporation
and bylaws contain certain provisions that may have anti-takeover effects, making it more difficult for or preventing a third party
from acquiring control of the Company or changing its Board of Directors and management. According to our bylaws and Articles of
Incorporation, neither the holders of the Company&rsquo;s common stock nor the holders of the Company&rsquo;s preferred stock have
cumulative voting rights in the election of our directors. The combination of the present ownership by a few stockholders of a
significant portion of the Company&rsquo;s issued and outstanding common stock and lack of cumulative voting makes it more difficult
for other stockholders to replace the Company&rsquo;s Board of Directors or for a third party to obtain control of the Company
by replacing its Board of Directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Anti-takeover Effects of Nevada Law</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Business Combinations</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The &ldquo;business
combination&rdquo; provisions of Sections 78.411 to 78.444, inclusive, of the Nevada Revised Statutes, or NRS, prohibit a Nevada
corporation with at least 200 stockholders from engaging in various &ldquo;combination&rdquo; transactions with any interested
stockholder: for a period of three years after the date of the transaction in which the person became an interested stockholder,
unless the transaction is approved by the Board of Directors prior to the date the interested stockholder obtained such status;
or after the expiration of the three-year period, unless:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">the transaction is approved by the Board of Directors or a majority of the voting power held by
disinterested stockholders, or</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">if the consideration to be paid by the interested stockholder is at least equal to the highest
of: (a) the highest price per share paid by the interested stockholder within the three years immediately preceding the date of
the announcement of the combination or in the transaction in which it became an interested stockholder, whichever is higher, (b)
the market value per share of common stock on the date of announcement of the combination and the date the interested stockholder
acquired the shares, whichever is higher, or (c) for holders of preferred stock, the highest liquidation value of the preferred
stock, if it is higher.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">A &ldquo;combination&rdquo;
is defined to include mergers or consolidations or any sale, lease exchange, mortgage, pledge, transfer or other disposition, in
one transaction or a series of transactions, with an &ldquo;interested stockholder&rdquo; having: (a) an aggregate market value
equal to 5% or more of the aggregate market value of the assets of the corporation, (b) an aggregate market value equal to 5% or
more of the aggregate market value of all outstanding shares of the corporation, or (c) 10% or more of the earning power or net
income of the corporation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In general, an &ldquo;interested
stockholder&rdquo; is a person who, together with affiliates and associates, owns (or within three years, did own) 10% or more
of a corporation&rsquo;s voting stock. The statute could prohibit or delay mergers or other takeover or change in control attempts
and, accordingly, may discourage attempts to acquire our company even though such a transaction may offer our stockholders the
opportunity to sell their stock at a price above the prevailing market price.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our Articles of Incorporation
state that we have elected not to be governed by the &ldquo;business combination&rdquo; provisions, therefore such provisions currently
do not apply to us.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Control Share Acquisitions </I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The &ldquo;control
share&rdquo; provisions of Sections 78.378 to 78.3793, inclusive, of the NRS, which apply only to Nevada corporations with at least
200 stockholders, including at least 100 stockholders of record who are Nevada residents, and which conduct business directly or
indirectly in Nevada, prohibit an acquirer, under certain circumstances, from voting its shares of a target corporation&rsquo;s
stock after crossing certain ownership threshold percentages, unless the acquirer obtains approval of the target corporation&rsquo;s
disinterested stockholders. The statute specifies three thresholds: one-fifth or more but less than one-third, one-third but less
than a majority, and a majority or more, of the outstanding voting power. Once an acquirer crosses one of the above thresholds,
those shares in an offer or acquisition and acquired within 90 days thereof become &ldquo;control shares&rdquo; and such control
shares are deprived of the right to vote until disinterested stockholders restore the right. These provisions also provide that
if control shares are accorded full voting rights and the acquiring person has acquired a majority or more of all voting power,
all other stockholders who do not vote in favor of authorizing voting rights to the control shares are entitled to demand payment
for the fair value of their shares in accordance with statutory procedures established for dissenters&rsquo; rights.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our Articles of Incorporation
state that we have elected not to be governed by the &ldquo;control share&rdquo; provisions, therefore, they currently do not apply
to us.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Transfer Agent and Registrar</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our independent stock
transfer agent is &#9;Interwest Transfer Company, Inc. located at 1981 Murray Holladay Road, Suite 100 and telephone number (801)
272-9294.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="text-transform: uppercase"><B>INDEMNIFICATION
OF DIRECTORS AND OFFICERS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Nevada Law</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Section 78.138 of the
NRS provides that a director or officer will not be individually liable unless it is proven that (i) the director&rsquo;s or officer&rsquo;s
acts or omissions constituted a breach of his or her fiduciary duties, and (ii) such breach involved intentional misconduct, fraud
or a knowing violation of the law.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Section 78.7502 of
NRS permits a company to indemnify its directors and officers against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with a threatened, pending or completed action, suit or proceeding if the officer
or director (i) is not liable pursuant to NRS 78.138 or (ii) acted in good faith and in a manner the officer or director reasonably
believed to be in or not opposed to the best interests of the corporation and, if a criminal action or proceeding, had no reasonable
cause to believe the conduct of the officer or director was unlawful.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Section 78.751 of NRS
permits a Nevada company to indemnify its officers and directors against expenses incurred by them in defending a civil or criminal
action, suit or proceeding as they are incurred and in advance of final disposition thereof, upon receipt of an undertaking by
or on behalf of the officer or director to repay the amount if it is ultimately determined by a court of competent jurisdiction
that such officer or director is not entitled to be indemnified by the company. Section 78.751 of NRS further permits the company
to grant its directors and officers additional rights of indemnification under its Articles of Incorporation or bylaws or otherwise.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Section 78.752 of NRS
provides that a Nevada company may purchase and maintain insurance or make other financial arrangements on behalf of any person
who is or was a director, officer, employee or agent of the company, or is or was serving at the request of the company as a director,
officer, employee or agent of another company, partnership, joint venture, trust or other enterprise, for any liability asserted
against him and liability and expenses incurred by him in his capacity as a director, officer, employee or agent, or arising out
of his status as such, whether or not the company has the authority to indemnify him against such liability and expenses.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Charter Provisions and Other Arrangements
of the Registrant</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our Articles of Incorporation
provide that no director or officer of the Company will be personally liable to the Company or any of its stockholders for damages
for breach of fiduciary duty as a director or officer; provided, however, that the foregoing provision shall not eliminate or limit
the liability of a director or officer (i) for acts or omissions which involve intentional misconduct, fraud or knowing violation
of law, or (ii) the payment of dividends in violation of Section 78.300 of NRS. In addition, our bylaws implement the indemnification
and insurance provisions permitted by Chapter 78 of the NRS by providing that:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Company shall indemnify
its directors to the fullest extent permitted by the NRS and may, if and to the extent authorized by the Board of Directors, so
indemnify its officers and any other person whom it has the power to indemnify against liability, reasonable expense or other matter
whatsoever.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company may at the discretion of the
Board of Directors purchase and maintain insurance on behalf of any person who holds or who has held any position identified in
the paragraph above against any and all liability incurred by such person in any such position or arising out of his status as
such.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Insofar as indemnification
by us for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers or persons controlling
the company pursuant to provisions of our Articles of Incorporation and bylaws, or otherwise, we have been advised that in the
opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
In the event that a claim for indemnification by such director, officer or controlling person of us in the successful defense of
any action, suit or proceeding is asserted by such director, officer or controlling person in connection with the securities being
offered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">At the present time,
there is no pending litigation or proceeding involving a director, officer, employee or other agent of ours in which indemnification
would be required or permitted. We are not aware of any threatened litigation or proceeding, which may result in a claim for such
indemnification.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Indemnification Agreements</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On June 14, 2012, in
connection with the appointment of Mr. Chris Anthony as our director, Chief Executive Officer and President, and Mr. Steve Jackson
as our Chief Financial Officer, and Mr. Craig Miller as our Secretary, we executed a standard form of indemnification agreement
(&ldquo;Indemnification Agreement&rdquo;) with each of them (the &ldquo;Indemnitee&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to and subject
to the terms, conditions and limitations set forth in the Indemnification Agreement, we agreed to indemnify each Indemnitee, against
any and all expenses incurred in connection with the Indemnitee&rsquo;s service as our officer, director and or agent, or is or
was serving at our request as a director, officer, employee, agent or advisor of another corporation, partnership, joint venture,
trust, limited liability company, or other entity or enterprise but only if the Indemnitee acted in good faith and in a manner
he reasonably believed to be in or not opposed to our best interest, and in the case of a criminal proceeding, had no reasonable
cause to believe that his conduct was unlawful. In addition, the indemnification provided in the indemnification agreement is applicable
whether or not negligence or gross negligence of the Indemnitee is alleged or proven. Additionally, the Indemnification Agreement
establishes processes and procedures for indemnification claims, advancement of expenses and costs and contribution obligations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We intend to enter
into such Indemnification Agreements with Messrs. Johnson and Mr. Gevarges upon the effectiveness of their respective appointment
as our directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Item 4.01 Change in Registrant&rsquo;s Certifying Accountant</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(a) &#9;<B><I>Previous Independent Registered Public Accounting
Firm</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On June 14, 2012, we
dismissed Friedman LLP (&ldquo;Friedman&rdquo;) as our independent registered public accounting firm.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Friedman&rsquo;s report
on our consolidated balance sheets as of December 31, 2011 and 2010, and the related consolidated statements of operations and
comprehensive income, stockholders&rsquo; equity (deficit) and cash flows for the years then ended, did not contain an adverse
opinion, or disclaimer of opinion, nor were they qualified or modified as to any uncertainty, audit scope or accounting principles,
other than as to the substantial doubt of the Company&rsquo;s ability to continue as a going concern.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The decision to change
our independent registered public accounting firm was made and approved by our Board of Directors on June 14, 2012. We do not have
a separate audit committee.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">During our most recent
fiscal years ended December 31, 2011&nbsp;and 2010, there have been no disagreements with Friedman on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to
the satisfaction of Friedman would have caused it to make reference to the subject matter of the disagreement(s) in connection
with its report.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">During our most recent
fiscal years ended December 31, 2011&nbsp; and 2010, Friedman did not advise us on any matter set forth in Item 304(a)(1)(v)(A)
through (D) of Regulation S-K.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have provided our
former independent accountant, Friedman with a copy of the disclosures expressed herein and we have requested that Friedman furnish
us with a letter addressed to the Securities and Exchange Commission stating whether or not it agrees with such statements. Friedman's
response is attached as Exhibit 16.1.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">(b) &#9;<B><I>New Independent Registered
Public Accounting Firm.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On June 14, 2012, we
engaged Mayer Hoffman McCann P.C. (&ldquo;MHM&rdquo;) to serve as our independent registered public accounting firm. During our
two most recent fiscal years ended June 30, 2011, and through its appointment on June 14, 2012, we did not consult with MHM regarding
(i) the application of accounting principles to a specific transaction, either completed or contemplated, or the type of audit
opinion that might be rendered on our financial statements, and no written report or oral advice was provided to us that was an
important factor to be considered by us in reaching a decision as to an accounting, auditing or financial reporting issue; or (ii)
any matter that was either the subject of a disagreement (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K) or a
reportable event (as that term is defined in Item 304(a)(1)(v) of Regulation S-K).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Item 5.01 Changes in Control of Registrant
</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Reference is made to
the disclosure set forth under Item 2.01 of this report, which disclosure is incorporated herein by reference.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the Exchange
Agreement, as amended, we acquired 100% of the issued and outstanding capital stock of Flux Power in exchange for 37,714,514 shares
of our common stock, which constitutes approximately 91% of our issued and outstanding common stock after the consummation of the
Reverse Acquisition. As a result of the Reverse Acquisition, we have assumed the business and operations of Flux Power.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Item 5.02 Departure of Directors or
Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Upon the closing of
the reverse acquisition, Mr. Gianluca Cicogna Mozzoni, our Chief Executive Officer, President, Chief Financial Officer, Treasurer,
Secretary and a director, submitted a resignation letter pursuant to which he resigned from all offices that he held effective
immediately; and from his position as our director that will become effective on the tenth day following the mailing by us of an
information statement to our stockholders that complies with the requirements of Section 14(f) of the Exchange Act. In addition,
our Board of Directors on June 14, 2012, increased the size of our Board of Directors to three directors and appointed Mr. Chris
Anthony (Chairman) to fill the vacancy created by the increase in board size, effective as of the date of the Closing of the reverse
acquisition. In addition, Messrs. Michael Johnson and James Gevarges were appointed to fill the vacancies created upon the effective
resignation of Mr. Mozzoni and the increase in the size of the board, with such appointments and resignation to be effective in
compliance with Section 14(f) of the Exchange Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, our Board
of Directors appointed Mr. Anthony to serve as our chairman, Chief Executive Officer and President, and Steve Jackson as our Chief
Financial Officer and Chief Operating Officer, effective immediately at the close of the Reverse Acquisition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For certain biographical
and other information regarding the newly appointed officers and directors, see the disclosure under Item 2.01 of this report,
which disclosure is incorporated herein by reference.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt"></P>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Item 5.03 Amendments to Articles of Incorporation or Bylaws;
Change in Fiscal Year</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Change in Fiscal Year</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In connection with
the Share Exchange with Flux Power, our Board of Directors, on June 14, 2012, approved a change of our fiscal year end to June
30, the fiscal year end of our operating company Flux Power. Starting with the periodic report for the quarter in which the Reverse
Acquisition was completed, we will file annual and quarterly reports based on a June 30 fiscal year. Such financial statements
will depict the operating results of the Company and the acquisition of Flux Power. In reliance on Section III F of the SEC&rsquo;s
Division of Corporate Finance: Frequently Requested Accounting and Financial Reporting Interpretations and Guidance dated March
31, 2001, we do not intend to file a transition report but include in this Form 8-K audited financial statements of Flux Power
for the year ended June 30, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Item 5.06 Change in Shell Company Status </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Prior to the closing
of the reverse acquisition, FPH, formerly Lone Pine, was a &ldquo;shell company&rdquo; as defined in Rule 12b-2 of the Exchange
Act. As described in Item 2.01 above, which is incorporated by reference into this Item 5.06, FPH ceased being a shell company
upon completion of the Reverse Acquisition on June 14, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Item 8.01 Other Events.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The information relating
to the Private Placement under Item 2.01 is being provided pursuant to Rule 135c under the Securities Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Item 9.01 Financial Statements and Exhibits </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">(a) Financial Statements of Business Acquired</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Filed herewith are:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Audited financial statements of Flux Power, Inc. as of and for the fiscal years ended June 30,
2011 and 2010 (the 2010 fiscal year covered a period of eight months).</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Unaudited condensed financial statements of Flux Power, Inc. as of March 31, 2012 and for the nine
months ended March 31, 2012 and 2011.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">(b) Pro Forma Financial Information</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Filed herewith is unaudited
pro forma combined financial information of FPH and its subsidiaries.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">(d) Exhibits</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 12%; padding-right: 5.4pt; padding-left: 0"><U>Exhibit No.</U></TD>
    <TD STYLE="width: 88%; padding-right: 5.4pt; padding-left: 5.4pt"><U>Description&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">2.1</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Securities Exchange Agreement dated May 18, 2012<SUP>(1)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">2.2</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Amendment No. 1 to the Securities Exchange Agreement dated June 13, 2012*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">3.1</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Articles of Incorporation<SUP>(2)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">3.2</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Certificate of Merger filed with the State of Nevada on May 23, 2012*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">3.3</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Certificate of Correction to Articles of Incorporation filed with the State of Nevada on June 14, 2012*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">3.4</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Amended and Restated Bylaws of Flux Power Holdings, Inc.<SUP> (3)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">10.1</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Esenjay Secondary Revolving Promissory Note for Operating Capital&nbsp; dated October 1, 2011*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">10.2</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Esenjay Bridge Loan Promissory Note dated March 7, 2012*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">10.3</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Amended and Restated Terms of Employment with Chris Anthony with an effective date of January 1, 2010*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">10.4</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Terms of Employment with Steve Jackson dated January 12, 2012*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">10.5</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Flux Power, Inc. 2010 Stock Plan*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">10.6</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Flux Power, Inc. 2010 Stock Plan: Form of Stock Option Agreement*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">10.7</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">LHV Power Corporation Term Sheet dated June 19, 2009*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">10.8</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">LHV Manufacturing Implementation Agreement dated August 1, 2009*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">10.9</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">GreenTech Automotive, Inc. Purchase Order Terms and Conditions*<SUP>(4)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">10.10</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">NACCO Materials Handling Group, Inc. Prototype Agreement dated February 6, 2012*<SUP>(4)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">10.11</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Baytree Capital Advisory Agreement dated June 14, 2012*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">10.12</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Form of Indemnification Agreement*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">16.1</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Letter from Friedman LLP re: change in certifying accountant dated
    June 18, 2012*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">21.1</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Subsidiaries*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">99.1</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Audited financial statement of Flux Power, Inc. as of and for the fiscal years ended June 30, 2011 and 2010 (the 2010 fiscal year covered a period of eight months).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">99.2</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Unaudited condensed financial statements of Flux Power, Inc. as of&nbsp; March 31, 2012 and for the nine months ended March 31, 2012 and 2011</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 0">99.3</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Unaudited Pro Forma Combined Financial Information of Flux Power
        Holdings, Inc. and its subsidiaries</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">* Filed herewith.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(1) Incorporated by reference to Form 8-K filed with the SEC
on May 24, 2012</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(2) Incorporated by reference to Form 10SB12G filed with the
SEC on April 29, 1999.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(3) Incorporated by reference to Form 8-K filed with the SEC
on May 31, 2012</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"><FONT STYLE="font-size: 10pt">(4) Application
has been made to the SEC to seek confidential treatment of certain portions of Exhibits 10.9 and 10.10 under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended. Omitted material for which confidential treatment has been requested has been filed
separately with the SEC</FONT>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><FONT STYLE="font-size: 10pt"><B>SIGNATURE</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.</P>

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<TR STYLE="vertical-align: top; text-align: left">
    <TD STYLE="width: 50%"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 50%"><FONT STYLE="font-size: 10pt">Flux Power Holdings, Inc.,&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top; text-align: left">
    <TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">A Nevada Corporation&nbsp;&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top; text-align: left">
    <TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top; text-align: left">
    <TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top; text-align: left">
    <TD><FONT STYLE="font-size: 10pt">Dated: June 18, 2012</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid"><FONT STYLE="font-size: 10pt">/s/ Chris Anthony</FONT></TD></TR>
<TR STYLE="vertical-align: top; text-align: left">
    <TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">Chris Anthony, President&nbsp;</FONT></TD></TR>
</TABLE>

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{"company-data": {"conformed-name": "Flux Power Holdings, Inc.", "cik": "0001083743", "assigned-sic": "0800", "irs-number": "860931332", "state-of-incorporation": "NV", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "000-25909", "film-number": "12913255"}, "business-address": {"street1": "2240 AUTO PARK WAY,", "city": "ESCONDIDO,", "state": "CA", "zip": "92029", "phone": "(212) 509-1700"}, "mail-address": {"street1": "2240 AUTO PARK WAY,", "city": "ESCONDIDO,", "state": "CA", "zip": "92029"}, "former-company": [{"former-conformed-name": "Lone Pine Holdings, Inc", "date-changed": "20090415"}, {"former-conformed-name": "Australian Forest Industries", "date-changed": "20070508"}, {"former-conformed-name": "MULTI TECH INTERNATIONAL CORP", "date-changed": "20021204"}]}
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
(June 14, 2012)
FLUX POWER HOLDINGS, INC.
(Exact name of registrant as specified in
its charter)
Nevada
(State or Other Jurisdiction of
Incorporation)
000-25909
(Commission File Number)
86-0931332
(IRS Employer
Identification No.)
2240 Auto Park Way, Escondido, California
(Address of Principal
        Executive Offices)
92029
(Zip Code)
877-505-3589
(Registrant's telephone number, including
area code)
Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction
A.2. below):
¨
Written communications pursuant
to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant
to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications
pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications
pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
SPECIAL NOTE REGARDING FORWARD LOOKING
STATEMENTS
This report contains forward-looking statements. The forward-looking
statements are contained principally in the sections entitled "Description of Business," "Risk Factors,"
and "Management's Discussion and Analysis of Financial Condition and Results of Operations." These statements
involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements
to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.
These risks and uncertainties include, but are not limited to, the factors described in the section captioned "Risk Factors"
below. In some cases, you can identify forward-looking statements by terms such as "anticipates," "believes,"
"could," "estimates," "expects," "intends," "may," "plans,"
"potential," "predicts," "projects," "should," "would," and similar
expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect
to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not
place undue reliance on these forward-looking statements. These forward-looking statements include, among other things, statements
relating to:
·
our anticipated growth strategies and our ability to manage the expansion of our business operations effectively;
·
our ability to maintain or increase our market share in the competitive markets in which we do business;
·
our ability to keep up with rapidly changing technologies and evolving industry standards, including our ability to achieve
technological advances;
·
our dependence on the growth in demand for our products;
·
our ability to diversify our product offerings and capture new market opportunities;
·
our ability to source our needs for skilled labor, machinery, parts, and raw materials economically; and
·
the loss of key members of our senior management.
Also, forward-looking statements represent
our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference
and file as exhibits to this report completely and with the understanding that our actual future results may be materially different
from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to
update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new
information becomes available in the future.
2
Use of Certain Defined Terms
Except where the context otherwise requires and for the purposes
of this report only:
·
the "Company," "FPH," "we," "us," and "our"
refer to the combined business of Flux Power Holdings, Inc., formerly Lone Pine Holdings, Inc., a Nevada corporation and its subsidiary,
Flux Power, Inc. ("Flux Power"), a California corporation;
·
"Exchange Act" refers the Securities Exchange Act of 1934, as amended;
·
"SEC" refers to the Securities and Exchange Commission; and
·
"Securities Act" refers to the Securities Act of 1933, as amended.
3
Item 1.01 Entry Into A Definitive Agreement.
Amendment No. 1 to the Securities Exchange Agreement
On June 13, 2012, we
entered into a certain Amendment No. 1 to the Securities Exchange Agreement ("Amendment") by and among Flux Power Holdings,
Inc., formerly Lone Pine Holdings, Inc., a Nevada corporation (the "Company"), Flux Power, Inc., a California corporation
("Flux Power") and its shareholders, Mr. Chris Anthony, Esenjay Investments LLC, and Mr. James Gevarges (collectively
the "Flux Shareholders"), pursuant to which the parties amended Section 2.3 of that certain Securities Exchange Agreement
dated as of May 18, 2012 by and among the Company, Flux Power and the Flux Shareholders, to change the closing date to June 14,
2012 and amend the reference to the closing conditions
Advisory Agreement
On June 14, 2012, we entered into an Advisory
Agreement ("Advisory Agreement") with Baytree Capital Associates, LLP ("Baytree Capital") pursuant to which
Baytree Capital agreed to provide us with business and consulting 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, which shares will have
piggy-back registration rights, and a warrant to purchase 1,837,777 restricted shares of our common stock for a period of 5 years
at an exercise price of $.41 per share.
Indemnification Agreement
On June 14, 2012, in connection with the
appointment of Mr. Chris Anthony as our director, Chief Executive Officer and President, and Mr. Steve Jackson as our Chief Financial
Officer, and Mr. Craig Miller as our Secretary, we executed a standard form of indemnification agreement ("Indemnification
Agreement") with each of them (the "Indemnitee").
Pursuant to and subject to the terms, conditions
and limitations set forth in the Indemnification Agreement, we agreed to indemnify each Indemnitee, against any and all expenses
incurred in connection with the Indemnitee's service as our officer, director and or agent, or is or was serving at our request
as a director, officer, employee, agent or advisor of another corporation, partnership, joint venture, trust, limited liability
company, or other entity or enterprise but only if the Indemnitee acted in good faith and in a manner he reasonably believed to
be in or not opposed to our best interest, and in the case of a criminal proceeding, had no reasonable cause to believe that his
conduct was unlawful. In addition, the indemnification provided in the indemnification agreement is applicable whether or not negligence
or gross negligence of the Indemnitee is alleged or proven. Additionally, the Indemnification Agreement establishes processes and
procedures for indemnification claims, advancement of expenses and costs and contribution obligations.
The foregoing description of the terms of
the Amendment, Advisory Agreement and the Indemnification Agreement, is not complete and is qualified in its entirety by reference
to the full text of the respective agreements filed as Exhibit 2.2, Exhibit 10.11 and Exhibit 10. 12 to this report, and incorporated
herein by reference thereto.
Item 2.01 Completion of Acquisition or Disposition of Assets
On June 14, 2012, we completed the acquisition
of Flux Power, Inc., a California corporation (the "Reverse Acquisition") pursuant to that certain Securities Exchange
Agreement dated May 18, 2012 ("Exchange Agreement") by and among Flux Power, Inc., a California corporation (the "Flux
Power") and its shareholders, Mr. Chris Anthony, Esenjay Investments, LLC, and Mr. James Gevarges (collectively the "Flux
Shareholders"). In connection with the Reverse Acquisition, we purchased 100% of the issued and outstanding shares of common
stock of Flux Power from the Flux Shareholders in exchange for 37,714,514 newly issued shares our common stock ("Exchange
Shares") based on an exchange ratio of 2.9547039 ("Share Exchange Ratio"). As a result of the Reverse Acquisition,
the Flux Shareholders collectively own approximately 91% of the issued and outstanding shares of our common stock, and Flux Power
became our wholly-owned operating subsidiary.
4
Upon the closing
of the Reverse Acquisition (the "Closing"),
Mr. Gianluca Cicogna Mozzoni, our Chief Executive Officer, President,
Chief Financial Officer, Treasurer, Secretary and sole director, submitted a resignation letter pursuant to which he resigned from
all offices that he held effective immediately; and from his position as our director that will become effective on the tenth day
following the mailing by us of an information statement to our stockholders that complies with the requirements of Section 14(f)
of the Exchange Act. In addition, our Board of Directors on June 14, 2012, increased the size of our Board of Directors to three
directors and appointed Mr. Chris Anthony (Chairman) to fill the vacancy created by the increase in board size, effective as of
the date of the Closing of the reverse acquisition. In addition, Messrs. Michael Johnson and James Gevarges were appointed to fill
the vacancies created upon the effective resignation of Mr. Mozzoni and the increase in the size of the board, with such appointments
and resignation to be effective in compliance with Section 14(f) of the Exchange Act.
In connection with the Reverse Acquisition,
(a) we adopted amended and restated Bylaws, (b) changed our name to "Flux Power Holdings, Inc." (c) we have assumed
the Flux Power 2010 Option Plan ("Plan") and all of the stock options of Flux Power outstanding as of the closing of
the Reverse Acquisition, (d) each of the Flux Shareholders agreed not to offer, sell, assign, transfer, pledge, contract to sell,
or otherwise dispose of any shares of Exchange Shares for a period of 18 months from the Closing except during the period after
the first anniversary of the Closing and a period of 6 months thereafter, in such an amount which constitutes less than 3% in the
aggregate of such Flux Shareholder's beneficial ownership of our common stock per month, and (e) we agreed to use our best
efforts to conduct a private placement of our securities in a private placement 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 5 year warrants
to purchase one share of our common stock at an exercise price of $0.41 per share (the "Private Placement"), of which
Baytree Capital, its designees or assignees, has committed to investing at least $1,000,000 in the Private Placement. The securities
offered and sold in the Private Placement will not be or 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.
The acquisition was accounted for as a recapitalization
effected by a share exchange, wherein Flux Power is considered the acquirer for accounting and financial reporting purposes. The
assets and liabilities of the acquired entity have been brought forward at their book value and no goodwill has been recognized.
Form 10 Disclosure
As disclosed elsewhere in this report, on
June 14, 2012, we acquired Flux Power in a reverse acquisition transaction. Item 2.01(f) of Form 8-K states that if the registrant
was a shell company, as we were immediately before the reverse acquisition transaction disclosed under Item 2.01, then the registrant
must disclose the information that would be required if the registrant were filing a general form registration of securities on
Form 10.
5
Accordingly, we are providing information
that would be included in a Form 10 had we been required to file such form. Please note that the information provided below relates
to the combined entity after the acquisition of Flux Power, except that information relating to periods prior to the date of the
Exchange Agreement only relate to Flux Power unless otherwise specifically noted.
OVERVIEW OF FLUX POWER, INC., OUR WHOLLY-OWNED SUBSIDIARY
Flux Power, Inc., a California corporation,
was founded in 2009 to design, develop and sell rechargeable advanced energy storage systems. We have developed an innovative high
power battery cell management systems ("BMS") and have structured our business around this core technology. Our proprietary
BMS provides three critical functions to our battery systems:
•
Cell Balancing
: This is performed by adjusting the capacity of each cell in a storage system according to temperature,
voltage, and internal impedance metrics. This cell balancing management assures longevity of the overall system.
•
Monitoring
: This is performed by way of a physical connection to individual cells for monitoring voltage and
performing calculations from basic metrics to determine remaining capacity and internal impedance. This monitoring assures accurate
measurements to best manage the system and assure longevity.
•
Error reporting
: This is performed by analyzing data from system monitoring and making decisions on whether the
system is operating out of normal specifications. This error reporting is crucial to system management as it ensures ancillary
devices are not damaging the storage system and will give the operator an opportunity to take corrective action to maintain long
overall system life.
Using our proprietary battery management
system technology, we are able to offer completely integrated energy storage solutions or custom modular standalone systems to
our clients. In addition, we have also developed a suite of complementary technologies and products that accompany and enhance
the abilities of our core BMS products to meet the needs of the growing advanced energy storage market.
We sold our first product in the second
quarter of 2010 and have since delivered over 14 mega watt-hours of advanced energy storage to clients such as Crown Equipment
Corp., Damascus Corp., Columbia Parcar Corp., Wheego Electric Cars Inc., Epic Electric Vehicles, and TALHO. We also sell our Advanced
Energy Storage products through distributors such as Dukes Garage, Small Car Performance, Electric Motor Sports, MCelectric, Jungle
Motors and EV America.
HISTORY OF FLUX POWER HOLDINGS, INC.
Flux Power Holdings, Inc., formerly Lone
Pine Holdings, Inc. ("FPH"), through its former wholly owned subsidiary Integrated Forest Products Pty Ltd ("Integrated"),
previously operated a saw mill in Australia which cut pine timber into building products to supply the commercial and residential
industry along the eastern coast of Australia. In July 2007, Integrated's wholly owned subsidiary in Australia was put into
receivership and has formally discontinued its operations. In connection with the receivership, the receiver formed a new Australian
wholly owned subsidiary, Australian Forest Industries, Ltd., and exchanged all of the shares of Integrated for Australian Forest
Industries, Ltd. shares. On October 15, 2008, our Board of Directors approved the transfer of all the outstanding shares of Australian
Forest Industries, Ltd., its operating subsidiary that had been placed in receivership, to the principal shareholders and directors,
personally. Subsequent to the spin out, we became a non-operating shell company engaged in the business of seeking a suitable candidate
for acquisition or merger.
6
In connection with the Reverse Acquisition,
we changed our name from "Lone Pine Holdings, Inc." to "Flux Power Holdings, Inc." The name change was
effective under Nevada corporate law on May 23, 2012 pursuant to Articles of Merger that was filed with the Nevada Secretary of
State. Pursuant to such Articles of Merger, we merged with our wholly-owned subsidiary, Flux Power Holdings, Inc. In accordance
with Section 92A.180 of the Nevada Revised Statutes, shareholder approval of the merger/name change was not required. The Articles
of Merger provided that, upon the effective date of the merger effective, our Articles of Incorporation would be amended as of
such date to change our name to "Flux Power Holdings, Inc."
REVERSE ACQUISITION OF FLUX POWER
On June 14, 2012, we completed the acquisition
of Flux Power, Inc., a California corporation (the "Reverse Acquisition") pursuant to that certain Securities Exchange
Agreement dated May 18, 2012 ("Exchange Agreement") by and among Flux Power, Inc., a California corporation (the "Flux
Power") and its shareholders, Mr. Chris Anthony, Esenjay Investments, LLC, and Mr. James Gevarges (collectively the "Flux
Shareholders"). In connection with the Reverse Acquisition, we purchased 100% of the issued and outstanding shares of common
stock of Flux Power from the Flux Shareholders in exchange for 37,714,514 newly issued shares our common stock ("Exchange
Shares") based on an exchange ratio of 2.9547039 ("Share Exchange Ratio"). As a result of the Reverse Acquisition,
the Flux Shareholders collectively own approximately 91% of the issued and outstanding shares of our common stock , and Flux Power
is our wholly-owned operating subsidiary.
Upon the closing
of the Reverse Acquisition (the "Closing"),
Mr. Gianluca Cicogna Mozzoni, our Chief Executive Officer, President,
Chief Financial Officer, Treasurer, Secretary and a director, submitted a resignation letter pursuant to which he resigned from
all offices that he held effective immediately; and from his position as our director that will become effective on the tenth day
following the mailing by us of an information statement to our stockholders that complies with the requirements of Section 14(f)
of the Exchange Act. In addition, our Board of Directors on June 14, 2012, increased the size of our Board of Directors to three
directors and appointed Mr. Chris Anthony (Chairman) to fill the vacancy created by the increase in board size, effective as of
the date of the Closing of the reverse acquisition. In addition, Messrs. Michael Johnson and James Gevarges were appointed to fill
the vacancies created upon the effective resignation of Mr. Mozzoni and the increase in the size of the board, with such appointments
and resignation to be effective in compliance with Section 14(f) of the Exchange Act.
In connection with the Reverse Acquisition,
(a) we adopted amended and restated Bylaws, (b) changed our name to "Flux Power Holdings, Inc." (c) we have assumed
the Flux Power 2010 Option Plan ("Plan") and all of the stock options of Flux Power outstanding as of the closing of
the Reverse Acquisition, (d) each of the Flux Shareholders agreed not to offer, sell, assign, transfer, pledge, contract to sell,
or otherwise dispose of any shares of Exchange Shares or securities convertible into or exercisable or exchangeable into our common
stock for a period of 18 months from the Closing except during the period after the first anniversary of the Closing and a period
of 6 months thereafter, in such an amount which constitutes less than 3% in the aggregate of such Flux Shareholder's beneficial
ownership of our common stock per month, and (e) we will use our best efforts to conduct a private placement of our securities
in an unregistered offering 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 5 year warrants to purchase one share of our common stock at an
exercise price of $0.41 per share (the "Private Placement"), of which Baytree Capital, its designees or assignees,
has committed to investing at least $1,000,000 in the Private Placement, and with the anticipation that the closing of the Private
Placement will occur in the amount of at least $3,000,000 on or before June 15, 2012, with any remaining unsold portions of the
Private Placement to close on or before June 30, 2012. The securities offered and sold in the Private Placement will not be or
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.
7
The acquisition was accounted for as a recapitalization
effected by a share exchange, wherein Flux Power is considered the acquirer for accounting and financial reporting purposes. The
assets and liabilities of the acquired entity have been brought forward at their book value and no goodwill has been recognized.
OUR CORPORATE STRUCTURE
We were organized by the filing of articles
of incorporation with the Nevada Secretary of State on September 21, 1998 under the name Oleramma, Inc. The articles of incorporation
authorized the issuance of 105,000,000 shares, consisting of 100,000,000 shares of common stock, par value $0.001 per share, and
5,000,000 shares of preferred stock, par value $0.001 per share.
On April 28, 1999, we changed our name to
BuckTV.Com, Inc. on the basis that we would market consumer products through an interactive website. We again changed our name
in November 2002 to Multi-Tech International, Corp. to pursue another venture.
On September 1, 2004, we entered into a
share exchange agreement with Timbermans Group Pty Ltd, an Australian corporation and its wholly-owned subsidiary, Integrated Forest
Products Pty Ltd, an Australian corporation. Pursuant to the share exchange agreement, we:
●
completed a 200-1 reverse stock split of our outstanding shares of common stock,
●
increased our authorized number of shares of common stock from 100,000,000 to 300,000,000 shares,
●
changed our name from Multi-Tech International, Inc. to Australian Forest Industries,
●
appointed five new directors to our Board of Directors, and
●
we issued 257,000,000 shares of our common stock to Timbermans pursuant to the terms of the share exchange agreement.
As a result, upon completion of the share exchange, Integrated
became our wholly-owned subsidiary.
On July 31, 2007, PricewaterhouseCoopers
Australia was appointed receiver and manager of both Integrated and Timbermans. On the same date, Deloitte was appointed liquidator
of Timbermans. Romanis Cant was appointed liquidator of Integrated on October 18, 2007.
Business operations of Integrated were continued
until November 30, 2007, when all the assets of Integrated were offered for sale as a going concern. No offers capable of acceptance
by the receiver were submitted. As a result, the receiver entered into contracts to sell the land, plant and equipment of Integrated
as individual assets.
8
Timbermans owned two major assets, a rural
property and shares of our common stock. The rural property was sold by auction on March 14, 2008. Timbermans entered into a contract
to sell its land and buildings for $9,556,357 and all of its manufacturing equipment for $964,403.
On July 31, 2007, both Timbermans and Integrated
were put into administration, the Australian equivalent of receivership, and PricewaterhouseCoopers Australia was appointed each
of their receiver and manager. In connection with the administration, the receiver formed a new Australian wholly-owned subsidiary,
Australian Forest Industries, Ltd., and exchanged all of the shares of Integrated for Australian Forest Industries, Ltd. shares.
On October 15, 2008, the Board of Directors of Australian Forest Industries approved the transfer of all the outstanding shares
of Australian Forest Industries, Ltd. to the principal shareholders and directors, who were also the shareholders of Timbermans.
As a result, the loan to Timbermans was removed from our books and there is currently no principal or interest due from us to Timbermans
or any other related party.
Since early 2010, we have been looking for
a merger candidate. Effective January 29, 2010, we:
●
amended our articles of incorporation to change our name from "Australian Forest Industries" to "Lone Pine
Holdings, Inc." Our management believes that the name change will disassociate us with our former business of operating a
saw mill in Australia.
●
amended our articles of incorporation to decrease the number of authorized shares of capital stock from 305,000,000 to 150,000,000
shares. Prior to the amendment, the articles of incorporation authorized 300,000,000 shares of common stock and, after the amendment,
the articles of incorporation authorize 145,000,000 shares of common stock. The articles of incorporation prior to the amendment
and after the amendment both authorize 5,000,000 shares of preferred stock.
●
enacted a reverse stock split so that for every 100 shares of our common stock outstanding on the record date, shareholders
received one share of common stock. Any fractional share of our common stock that would have existed as a result of the reverse
stock split was rounded up to a whole share. Every 100 shares of common stock issued and outstanding immediately prior to the record
date were reclassified as, and changed into, one share of common stock. Coupled with the decrease in our authorized share capital,
the reverse stock split increased the number of authorized and unissued shares of common stock from 14.1% of our authorized shares
prior to the amendment to 98.2% after the amendment.
In connection with the Reverse Acquisition,
on May 23, 2012, we effected a merger with our wholly-owned subsidiary pursuant to which we changed our name from "Lone Pine
Holdings, Inc." to "Flux Power Holdings, Inc." As a result of the Reverse Acquisition, all of our business operations
are conducted through our wholly-owned subsidiary, Flux Power, Inc., a California corporation.
Flux Power was conceived in 2008 to develop
technologies for the advanced energy storage market. We were incorporated in the second quarter of fiscal year 2010 and began shipping
prototype product in the second quarter of 2010 while continuing to develop our intellectual property portfolio. In 2011 Wheego
obtained a Federal Motor Vehicle Safety Standards validation, which included our products and then we started shipping ancillary
products to enhance our overall product line.
9
Our principal executive office is located
at 2240 Autopark Way, Escondido, CA 92029. The telephone number at our principal executive office is (877)-505-3589 (FLUX).
DESCRIPTION OF BUSINESS OF FLUX POWER, OUR WHOLLY-OWNED SUBSIDIARY
Our Business
Flux Power, Inc. ("Flux
Power"), a California corporation and our wholly-owned subsidiary, is in the business of energy storage and battery management.
Flux Power was incorporated in October 2009 to develop technologies for the advanced energy storage market and began shipping prototype
product in the second quarter of 2010 while continuing to develop our intellectual property portfolio. In 2011, we began shipping
Federal Motor Vehicle Safety Standards validated products and then started shipping ancillary products to enhance our overall product
line.
Industry Background for the Energy Storage
Market
The
energy storage market has grown over recent years from one mostly reliant on lead acid technologies created in the 1800s to one
leveraging advanced chemistries and the corresponding ability to store more energy in less space. Back-up power has increasingly
grown to depend on telematics to accurately gauge system health. Electric vehicles have adopted lighter weight energy storage to
increase range and payload abilities and grid management applications have sought to increase the cycle life of their systems to
assure better returns on their investments over the long term. We believe that all of these needs will cause the advanced energy
storage market to grow exponentially over the next 5 to 10 years.
Electric
Vehicles
Electric
vehicles are displacing traditional combustion vehicles for utility and passenger vehicle needs at an ever-growing rate as electric
vehicle technology becomes more advanced and costs come down. Utility vehicles like lift trucks and service vehicles are a natural
fit for electric power as they are often operated in confined or congested spaces where excess emissions from combustion vehicles
is difficult to manage. Moreover, lowering these combustion motor emissions is a goal of many Federal and state agencies, which
has also spurred adoption of electric technologies in this space. This adoption is further assisted by increased environmental
consciousness on the part of consumers, which has increased sales of both hybrid electric and all electric vehicles. With the decreased
costs per mile of electric vehicles and greatly reduced emissions we believe that this market segment will see fast growth.
Grid
Management Solutions
Grid
management ranges from simple back-up power to devices that assure the performance and reliability of electric transmission and
distribution grids. In simple back-up power systems, the longevity of the system is crucial to maintaining up times and decreasing
maintenance costs. Typical lead acid battery back-up power systems need cell replacement every two years, whereas advanced energy
storage systems can last as long as ten years. Advanced energy storage has seen gains in storage for peak-shaving to lower electricity
costs and in shifting load demands in solar and wind power applications. Grid managements systems in transmission networks at every
level need frequency regulation to adjust for minute-to-minute frequency fluctuations in the grid due to demand and supply changes.
Buffering with advanced energy storage systems provide services that are more cost effective and efficient versus running power
plants at sub-optimal operating levels to meet demand. This practice also frees up power plant capacity normally reserved for frequency
regulation and standby to produce more electricity and correlated revenues.
10
Battery
Types
The
most common battery technologies currently available to address the electric vehicle and grid management markets include the following:
Lead
Acid Batteries.
Lead acid is one of the most developed battery technologies as it has been in use since the 1800s.
It is relatively easy to manufacture and is an inexpensive and ubiquitous energy storage medium. Automobile manufacturers use lead
acid for starter batteries and lead acid has been used widely in electric vehicle and grid management solutions. Unfortunately,
lead-acid batteries weigh more per unit of stored energy and have less power output per unit mass versus advanced energy storage
system technologies and thus are not well suited for advanced applications such as grid management devices and electric vehicles.
In addition, lead can be hazardous to the environment and there are efforts in many countries to phase this legacy technology out
over time.
Nickel
Batteries
:
Nickel batteries, NiCd (nickel cadmium) or NiMH (nickel metal hydride) are durable and inexpensive technologies
with relatively high power. Unfortunately, cadmium is not a safe material and exposure can result in health hazard to humans and
damage to the environment. An alternative to the toxic NiCd battery is NiMH, which has greater energy versus lead-acid batteries
and is more suitable to a wider range of applications. These NiMH were used in early electric vehicles and some other bulk storage
applications. Unfortunately, these chemistries are not as energy dense as advanced lithium batteries and thus are now being leveraged
out of the advanced energy storage system market by more energy dense chemistries.
Legacy
Lithium Chemistries
:
Lithium batteries are more energy dense versus lead-acid, NiCd or NiMH batteries and are more
volumetrically and weight efficient. Introduced in the 1990s, lithium batteries made their way into portable electronics devices
like laptop computers and cell phones. Unfortunately, early lithium cobalt was prone to heat issues when arranged in large groups
and if a battery cell were compromised a fire or explosion could result. This attribute made early lithium batteries unsuitable
for large grid management devices and electric vehicles. The cobalt in these early cells was also a more expensive metal versus
the compounds used in modern lithium batteries.
Advanced
Energy Storage Lithium Batteries
:
The current generation of advanced energy storage lithium batteries was developed
in the late 1990s. These new chemistries improve upon energy density, volumetrics and weight metrics. There have also been great
enhancements to the safety of these modern lithium batteries and heat and catastrophic failure issues do not plague advanced energy
storage systems today. There has also been a significant increase in modern lithium batteries' cycle life. This makes todays'
advanced energy storage systems the most conducive to electric vehicle and grid management use.
Other
Technologies
:
Ultra capacitors and fuel cells have been proposed as potential replacements to lithium batteries.
Ultra capacitors deliver high power and have an extended cycle life but suffer from poor energy density. This makes them suitable
for small burst power needs but not for grid storage and electric vehicle devices. Fuel cells generate energy converting a fuel,
typically hydrogen to energy. Fuel cell systems offer good energy density but are poor performers in terms of power and cycle life.
Fuel cell systems are suitable for devices with small power needs and short life spans but are generally not suitable for use in
electric vehicles and grid management devices.
11
Current
Advanced Energy Storage Application Needs
There
are a number of features required of advanced energy storage applications today, such as:
Target
application power needs
:
An advanced energy storage system must be able to deliver the electrical power required.
Electrical power, measured in watts, is the rate at which electrical energy is delivered. Electric vehicles, in particular, need
enough power to assure smooth acceleration through a systems discharge curve and grid management systems need enough power to meet
load demands.
Duration
of charge
:
An advanced energy storage system must be able to provide a certain total amount of electrical energy.
Total electrical energy is measured in watt hours and is the product of power and time. Advanced energy storage systems with greater
energy can perform for a longer duration when compared to legacy technologies. The total electrical energy of an advanced energy
storage system determines an electric vehicle's range per charge and a grid management device's total power.
High
power needs
:
The energy that an advanced energy storage system can provide in total depends on the power requirements
of the device in which it is installed. When an advanced energy storage system delivers higher power, the available energy of the
advanced energy storage system is less than if it was delivering lower power. Advanced energy storage systems are better suited
to deliver high power versus legacy lead acid. For example, the higher power required to push a vehicle like an electrically propelled
boat through the water would be detrimental to legacy power technologies because their lack of ability to operate as efficiently
in high power applications. Advanced energy storage systems are able to supply a high power required without detriment to the energy
storage system.
Safe
Operation
:
For almost all electric vehicle and grid management solutions the safety of an advanced energy storage
system is of upmost importance. Legacy lead acid batteries tend to get hot with heavy operation and the toxic nature of these legacy
chemistries can be troublesome in the event of a cell breach. Advanced energy storage systems focus on chemistries that do not
violently react with oxygen so a cell breach is less likely to result in an explosion or fire.
Extended
Life
:
The cycle life of an advanced energy storage system is the total number of times the system can be charged
and discharged while still performing to specification in the device installed. Legacy lead acid technologies often do not perform
to specification past a few hundred cycles in electric vehicle or grid management devices. In comparison, an advanced energy storage
system can last five to ten times as long in the same device.
Volumetrics
and weight
:
The weight and size of advanced energy storage systems are of crucial importance to both electric vehicle
and grid management devices. In electric vehicles, where packaging space is precious, a lightweight system can greatly enhance
range. In grid management devices that seek to extend current back-up power time benefit from better volumetrics and devices that
shift load or peak-shave for improved average energy costs benefit from small advanced energy storage systems that keep connections
between cells at a minimum.
Lowest
Cost
:
Advanced energy storage systems provide power dense solutions with extended cycle life which, together, equate
to very cost conscious solutions for most applications in the electric vehicle and grid management market segments. We believe
that, in our products, advanced energy storage systems can cost much less than legacy lead acid technologies over the course of
device operation.
12
Our Products and Services
We seek to gain market
share in the advanced energy storage segment with our system technologies that extend life, add much needed safety mechanisms,
and communication and cycle life memory tools. We are focused on cell and system management tools. From our modular 12v energy
storage solutions to stackable charging, we provide the building blocks to create custom systems designed for a diverse set of
applications. Whether it is vehicle or grid storage systems, we provide capable systems that meet cost and performance targets
and in many cases outperform traditional lead acid technologies on both metrics. Through our Battery Management System, we have
enhanced battery systems overall to provide safer, more reliable and extended life rechargeable energy storage systems for applications
including motive, marine, industrial, military, stationary, and grid management markets. We believe that the benefits of our advanced
BMS and cell technologies, and our worldwide intellectual property portfolio along with our experienced and seasoned management
team and staff will allow us to become a global leader in advanced energy storage.
Based on our experience,
we believe that, compared to our competitors, our expertise in the large format energy storage market segment is paving the way
for lower cost and higher performance solutions.
Battery Management System (BMS).
Our proprietary Battery Management
    System (BMS) product provides three critical functions for battery systems: cell balancing, monitoring parameters and reporting
    errors to the system. Our BMS monitors parameters and reports errors to other devices, which can then determine the best action
    to take to prevent failure. Another BMS function is system cell balancing. The BMS will analyze each battery cell in the system
    during charge and discharge to determine which cells to balance to prevent overcharging and allow the other batteries to catching
    up and equalize capacity throughout the system.
Battery
Modules
.
We supply high-power, energy-dense advanced energy storage modules for the electrical vehicles, industrial,
governmental and grid storage applications. Our primary product consists of the Flux Power 12 V lithium module but we offer varying
chemistries and configurations based on the applications. Our battery modules are designed for our BMS.
Diagnostic
.
Our Handheld Diagnostic Units (HDU)
    is a handheld instrument that displays critical system information allowing the user to access necessary information and monitor
    overall system health. The HDU is also capable of programming system parameters, features and offsets. The HDU can be useful
    in the field for system programming or troubleshooting as well as day-to-day monitoring.
13
Chargers
.
Our smart charging solutions are designed to
    interface with our battery management system. Our smart chargers consist of both air-cooled and liquid-cooled chargers. These
    modular chargers can be stacked from 3KW – 300KW.
Technology
Our cell management
and communication tools dramatically extend battery system life and improve system performance by managing individual cells in
a system, communicating individual cell conditions to ancillary devices, and communicating individual cell conditions to other
devices which either require or supply power:
·
Managing individual cells within a system to maximize
Ø
Life Cycles
Ø
Discharge Rate
Ø
Depth of Discharge Per Cycle
·
Allowing Cells to Communicate their State of Health to
Ø
Ensure Proper Charging
Ø
Protect the Cells from Over Discharge
Ø
Adjust System Parameters During Varying Temperature
·
Enabling other system components to adjust their functions to
Ø
Protect Drive Components from Damage
Ø
Tie Properly to Grid Power Systems
Ø
Optimize Charge Efficiency
Marketing and Sales
We currently sell products
direct or through one of several retail distributors in North America. Our direct customers are mostly large companies while our
distributors primarily distribute to smaller retail customers.
During the nine month
period ended March 31, 2012, the Company had four major customers that combined represented 87% or $2,616,000 of the Company's
total revenues. During the nine month period ended March 31, 2011 the Company had two major customers that accounted for 37% or
$216,000 of the Company's total revenues. For the year ended June 30, 2011, one customer accounted for 19% of total revenues,
or $187,000. For the eight month period ended June 30, 2010, the Company had four customers that combined accounted for 79% of
total revenues, or $164,000.
Production process
Except for some of
the charger components, we design all of our own products in-house and outsource manufacturing and assembly when possible. We have
established strategic partner relationships with contract manufacturers and continue to leverage their engineering and production
resources.
14
In-House Product Assembly:
BMS units, Chargers
and CAN Current Sensors
: Units are outsourced and programmed and tested at our facility before shipping.
12v Modules
:
We receive completed 12v module cases and lids. Cells are packed in the module cases, connected to BMS, and secured in place. Lids
with BMS installed are programmed and calibrated. Each full unit is sealed and tested before shipping.
Hand Held Diagnostic
Units
: We receive cases and build these HDUs in small batches. HDUs are programmed and tested before shipping.
Strategic Relationship
with LHV Power
: LHV Power is one of our early business supporters. LHV's CEO, James Gevarges, sits on our Board of
Directors and is one of our major shareholders. LHV has an advanced engineering team that has produced products for Hewlett Packard,
Dell, Black and Decker, Train, and Carrier. LHV has several manufacturing facilities in China and Taiwan. Currently our BMS units,
chargers and CAN Current Sensor Builds are outsourced to LHV Power where they are built to industry standards. In addition, LHV
assists us with manufacturing assessments of our other products. Our relationship with LHV gives us an enhanced ability to produce
validated volume manufacturing designs and the ability to scale quickly to meet our customers' volume and cost targets.
Volume sales will enable cost reductions
by:
Manufacturability
Optimization
: We are currently building products to be as robust and full-featured as possible to meet prototype and small
quantity needs that are not cost-sensitive. With investment in design, these premium components hopefully can be value-engineered
with the goal to continue to offer full-featured devices at less than 50% of the cost.
Low Cost Version
Designs
:
We will have a growing number of clients that do not need full-featured devices to make their products
perform well. With working capital, we believe that we can design low cost options for customers which can be marketed at a deeper
discount to our current full-featured products.
Advanced Manufacturing
Capabilities
: We currently leverage our relationship with LHV Power for manufacturing resources. We intend to seek out
other advanced manufacturing relationships to further enhance our abilities.
Suppliers
For the nine month
period ended March, 31, 2012, and 2011, one vendor that accounted for 53% and 79%, respectively, of our total purchases. For the
year ended June 30, 2011, and for the eight month period ended June 30, 2010, one vendor accounted for 67% and 70%, respectively,
of total purchases.
Research and Development
Research
and development expenses for the nine months ended March 31, 2012 and 2011 were approximately $400,000 and $316,000, respectively.
Such expenses consist primarily of materials, supplies, salaries and personnel related expenses, consulting costs and other expenses.
For the years ended June 30, 2011, and for the eight month period ended June 30, 2010, we incurred $382,064 and $197,478,
respectively, on research and development.
15
For the year ended
June 30, 2011, we also completed grant work worth $52,606 with the California Center for Sustainable Energy, Aerovironment, the
University of California at Berkeley, and San Diego Gas and Electric on repurposing advanced energy storage systems from electric
vehicles to household energy storage. We will continue to seek out grant work that is compelling and aligns with our growth efforts.
We currently perform
our research and development at our facility in Escondido, California. We seek to develop innovative new and improved products
for cell and system management along with associated communication, display, current sensing and charging tools.
Cell and System
Management Tools
: We will continue to innovate with lower cost, less power consuming and more capable devices. Some of
these devices will be specialized for certain market segments.
Communication
:
We will continue to innovate tools for remote and local communication with our energy storage and ancillary components. These devices
and software components will be applicable in both motive and stationary storage markets.
Display
:
We will continue to innovate new and more user friendly tools to accurately and quickly display information on our energy storage
metrics.
Current Sensing
:
We will continue to innovate with more accurate and detailed current data capability with our sensing modules. These devices will
become ever more important to an industry that depends on accurate state of charge calculations to make decisions on power use
and creation.
Charging
:
Together with our suppliers, we will continue to innovate with new charging solutions for both AC voltage for electric vehicles
and DC to DC power conversion for grid, solar, wind, and back-up power solutions.
Competition
Our competitors are
major domestic and international companies such as LG Chem, Matsushita Industrial Co., Ltd. (Panasonic), Sony, Toshiba and SAFT,
A123 Systems, Valence, Dow - Kokam, Thundersky. Winston Battery, Altair Nanotechnologies, and Ener1. A123 Systems and Ener1 have
received significant financial support from private investors, public offerings and Federal, state, and local grants, subsidies,
and incentives and have heavily invested in manufacturing capacity for their chosen markets. Our competitors, in general, have
more funding and bigger sales, marketing and research efforts than we do.
We believe that we have several technological
and business advantages over our competitors, which will lead to our success in the advanced energy storage market. Our concentration
on cell and system management tools has allowed us to compete with a much lower capitalization structure. Further, our flexibility
in cell sourcing allows us to provide complete storage systems at much lower cost versus our current competition.
16
Our pricing advantages over industry comparable
are illustrated below:
Source:
www.seekingalfa.com
Growth Strategy
We currently sell into
the motive, marine, industrial, and stationary markets, some of which are replacing their lead acid solution with our products
and are positioned for aggressive growth and volume. We will seek to soon move into the military and grid management markets segments.
We plan to accomplish this through an aggressive sales effort and by seeding products with customers who require our technologies
but who are slow to move on integration. Considering the size of the grid management market segment, we believe we can grow considerably
over the next two years.
Our marketing and sales
strategy is to actively pursue the following market segments:
Electric Vehicles
:
Our products' cost advantage, easy integration, automotive quality design, and Federal Motor Vehicle Safety Standards
("FMVSS") compliance make the Electric Vehicles Segment a desirable target. After small volume manufacturers, we will
push into larger manufacturers.
Military and
Municipal
:
Our products' longevity, easy integration and telematics make it a fit for energy storage applications
for both the military and municipal markets. These markets have longer integration timelines but will become a healthy addition
to our revenue mix over the next two years.
Grid Management
Solutions
:
Our products' telematics, modularity, longevity and low cost solutions fit with smart grid management
solutions, peak shaving devices, bulk storage, back-up power, and frequency modulation devices at every level of grid management.
These devices have the longest integration timelines, but have the potential to become our largest revenue component over time.
Intellectual Property
Our success depends,
at least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination
of patents pending, patent applications, trade secrets, including know-how, employee and third party nondisclosure agreements,
copyright laws, trademarks, intellectual property licenses and other contractual rights to establish and protect our proprietary
rights in our technology. As of March 31, 2012, we filed patent applications in the United States, EU & China including:
17
Patents
Title
Status
Battery Management Unit
Patent Pending
Power Control Module for Battery Pack Using a Thermistor
Patent Pending
System and Method for Pulsing the Bleed Off Resistor within a Battery Management System
Patent Pending
Battery (Design)
Patent Pending
Power Control Module
Patent Pending
Battery Display
Patent Pending
Battery Management System
Patent Pending
We are actively perfecting
patent applications relating to determining battery life and remaining battery life cycles. Patent applications relating to these
inventions will soon be filed with the U.S. Patent & Trademark Office. For certain applications represented above, foreign
filings are in process in key markets like the European Union and China. In addition, we have a number of trademark applications
and registrations protecting the Flux Power name and logo. These include Flux, Flux Power, and the Flux Power logo.
In addition, we intend
to continue to file additional patent applications with respect to our technology and to seek protection of our intellectual property
internationally in a broad range of areas. We do not know whether any of our pending patent applications will result in the issuance
of patents or whether the examination process will require us to narrow our claims. Even if granted, there can be no assurance
that these pending patent applications will provide us with protection.
Competitive Strengths
We believe that we
have advantages over our competitors as follows:
·
Field Tested, Consumer Validated Technology
. We have delivered over 14MWh of product
to customers since the fourth quarter of 2010. FMVSS certified in a production vehicle. Automotive and Industrial quality products.
·
Experienced
                                                                                                              team
.
80 years of
                                                                                                              high tech and transportation
                                                                                                              industry experience.
·
Strong growth potential
. Market size significantly increasing over next 4 years.
·
Comprehensive IP Portfolio
.
Protecting key aspects of system and components.
·
More Capital Efficient Revenue Model
. Focused on advanced cell management to improve
overall economics rather than cell chemistry.
Government Regulations
Product Safety
Regulations
.
Our products are subject to product safety regulations by Federal, state, and local organizations.
Accordingly, we may be required, or may voluntarily determine to obtain approval of our products from one or more of the organizations
engaged in regulating product safety. These approvals could require significant time and resources from our technical staff and,
if redesign were necessary, could result in a delay in the introduction of our products in various markets and applications.
18
Environmental
Regulations
.
Federal, state, and local regulations impose significant environmental requirements on the manufacture,
storage, transportation, and disposal of various components of advanced energy storage systems. Although we believe that our operations
are in material compliance with current applicable environmental regulations, there can be no assurance that changes in such laws
and regulations will not impose costly compliance requirements on us or otherwise subject us to future liabilities. Moreover, Federal,
state, and local governments may enact additional regulations relating to the manufacture, storage, transportation, and disposal
of components of advanced energy storage systems. Compliance with such additional regulations could require us to devote significant
time and resources and could adversely affect demand for our products. There can be no assurance that additional or modified regulations
relating to the manufacture, storage, transportation, and disposal of components of advanced energy systems will not be imposed.
Occupational
Safety and Health Regulations
.
The California Division of Occupational Safety and Health ("Cal/OSHA")
and other regulatory agencies have jurisdiction over the operations of our Escondido, California facility. Because of the risks
generally associated with the assembly of advanced energy storage systems we expect rigorous enforcement of applicable health and
safety regulations. Frequent audits by or changes, in the regulations issued by Cal/OSHA, or other regulatory agencies with jurisdiction
over our operations, may cause unforeseen delays and require significant time and resources from our technical staff.
Employees
As of March 31, 2012,
we employed 15 employees. None of our employees are currently represented by a trade union. We consider our relations with our
employees to be good.
Property
Our headquarters are
located in 15,400 square feet of leased office, engineering, and development space in Escondido, California. This lease commenced
on June 16, 2010 and expires on June 30, 2012. The annual base rent under the lease, payable on a monthly basis, is approximately
$12,950. The lease also provides for an option to renew for a term of one year.
Legal Proceedings
We are not currently involved in any legal
proceedings.
19
RISK FACTORS
An investment in our common stock involves
a high degree of risk. You should carefully consider the risks described below, together with all of the other information included
in this report, before making an investment decision. If any of the following risks actually occur, our business, financial condition
or results of operations could suffer. In that case, the trading price of our common stock could decline, and you may lose all
or part of your investment. You should read the section entitled "Special Note Regarding Forward Looking Statements"
above for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements
in the context of this report.
Risk Factors Relating to Our Business
Flux Power has incurred Net Losses
since our inception.
Flux Power
has
incurred net losses since our inception. For the nine month period ended March 31, 2012, year ended June 30, 2011 and eight months
ended June 30, 2010, Flux Power has incurred net losses of approximately ($1,139,000), ($1,313,000), and ($630,000), respectively.
No assurance can be given that we will achieve profitability in the future.
Flux Power had
negative working capital.
As of March 31, 2012,
and June 30, 2011, Flux Power had a negative working capital of approximately $278,000 and $1,140,000, meaning Flux Power's
current liabilities exceeds its current assets. This negative working capital may limit our growth since the majority of our net
income, if any, will be used to pay accounts payable and existing debts. No assurance can be given that we will be able to pay
our liabilities when they become due.
Our ability to
obtain additional financing may be limited, which could delay or prevent the completion of one or more of our strategies.
Flux Power has, to
date, financed its working capital and capital expenditure needs primarily from investments and credit lines. Flux Power expects
its working capital needs and its capital expenditure needs to increase in the future as it continues to expand and enhance its
production facilities, increase its design, research and development capabilities and as Flux Power continue to implement its other
strategies. Our ability to raise additional capital will depend on the financial success of Flux Power's current business
and the successful implementation of Flux Power's key strategic initiatives, as well as financial, economic and market conditions
and other factors, some of which are beyond our control. We may not be successful in raising any required capital on reasonable
terms and at required times, or at all. Further, equity financings may have a further dilutive effect on our stockholders. If we
require additional debt financing, the lenders may require us to agree on restrictive covenants that could limit our flexibility
in conducting future business activities, and the debt service payments may be a significant drain on our free capital allocated
for
research and other activities. If we are unsuccessful in raising additional capital or if new capital funding costs
are higher than our prior capital funding costs, our business operations and our development programs may be materially and adversely
impacted, with similar effects on our results of operations and financial condition.
20
Flux Power's
limited operating history makes evaluating its business and future prospects difficult and may increase the risk of your investment.
Flux Power was formed
during the 2010 fiscal year. You must consider the risks and difficulties Flux Power faces as an early stage company with limited
operating history. If Flux Power does not successfully address these risks, its business, prospects, operating results and financial
condition will be materially and adversely harmed. Flux Power began delivering its first battery product and battery management
system (BMS) in the second quarter of 2010, and as of December 2011, Flux Power has have 46 customers, almost all of which are
in the Electric Vehicle, Emergency Back-Up Power Supply, or Solar Storage market segments. Flux Power's revenues for the
nine month periods ended March 31, 2012 and 2011 were $3,008,000 and $583,000, respectively. Flux Power's revenues for the
year ended June 30, 2011, and for the eight month period ended June 30, 2010, were approximately $984,000 and $207,000, respectively.
Flux Power has a very limited operating history on which investors can base an evaluation of its business, operating results and
prospects.
To date, substantially
all of Flux Power's revenues derive principally from sales of its battery products and BMS for use in electric vehicles.
However, Flux Power intends to extend the application of its battery products and BMS for industrial energy storage, government
applications, and hobby and specialty applications. Flux Power is currently testing its battery products and BMS for other applications
but Flux Power has not yet sold any of its products for use in other than electric vehicles. There are no assurances that Flux
Power will be able to successfully extend the application of our battery products and BMS outside of the electrical vehicle industry.
Our business
depends in large part on the growth in demand for electric vehicles.
Many of our battery
products and BMS are used to power electric vehicles in the commercial and industrial spaces. Therefore, the demand for our rechargeable
batteries and systems is substantially tied to the market demand for electric vehicles. A growth in the demand for electric vehicles
will be essential to the expansion of our business. Our results of operations may be adversely affected by decreases in the general
level of economic activity. Decreases in consumer spending that may result from the current global economic downturn may weaken
demand for items that use our battery products and BMS. A decrease in the demand for electric vehicles would likely have a material
adverse effect on our results of operations. We are unable to predict the duration and severity of the current disruption in financial
markets and the global adverse economic conditions and the effect such events might have on our business.
Our success depends
on the success of manufacturers of the end applications that use our battery products and BMS.
Because our products
are designed to be used in other products such as electric vehicles, our success depends on whether end application manufacturers
will incorporate our battery products and BMS in their products. Although we strive to produce high quality battery products and
BMS, there is no guarantee that end application manufacturers will accept our products. Our failure to gain acceptance of our products
from these manufacturers could result in a material adverse effect on our results of operations.
Additionally, even
if a manufacturer decides to use our batteries, the manufacturer may not be able to market and sell its products successfully.
The manufacturer's inability to market and sell its products successfully could materially and adversely affect our business
and prospects because this manufacturer may not order new products from us. Therefore, our business, financial condition, results
of operations and future success would be materially and adversely affected.
21
Lithium-ion battery
modules have been observed to catch fire or vent smoke and flame, and such events have raised concerns over the use of high-power
batteries in electric vehicles.
We sell and supply
high-power lithium based battery modules for the electrical vehicles and we intend to supply these lithium modules for industrial,
governmental and grid storage applications. Historically, lithium-ion batteries in laptops and cellphones have been reported to
catch fire or vent smoke and flames, and more recently, news have been reported that several electric vehicles that use high-power
lithium-ion batteries have caught fire which trigger investigation as to the cause of the fires. As such, any adverse publicity
and issues as to the use of high-power batteries in automotive applications will affect our business and prospects since we sell
and supply high-power lithium based battery modules for electric vehicle application. In addition, any failure of our battery modules
may cause damage to the vehicle or lead to personal injury or death and may subject us to lawsuits. We may have to recall our battery
modules, which would be time consuming and expensive.
Current economic
conditions may adversely affect consumer spending and the overall general health of our retail customers, which, in turn, may adversely
affect our financial condition, results of operations and cash resources.
Uncertainty about the
current and future global economic conditions may cause our customers to defer purchases or cancel purchase orders for our products
in response to tighter credit, decreased cash availability and weakened consumer confidence. Our financial success is sensitive
to changes in general economic conditions, both globally and nationally. Recessionary economic cycles, higher interest borrowing
rates, higher fuel and other energy costs, inflation, increases in commodity prices, higher levels of unemployment, higher consumer
debt levels, higher tax rates and other changes in tax laws or other economic factors that may affect consumer spending or buying
habits could continue to adversely affect the demand for our products. In addition, a number of our customers may be impacted by
the significant decrease in available credit that has resulted from the current financial crisis. If credit pressures or other
financial difficulties result in insolvency for our customers it could adversely impact our financial results. There can be no
assurances that government and consumer responses to the disruptions in the financial markets will restore consumer confidence.
We are dependent
on a limited number of suppliers for our battery cells, and the inability of these suppliers to continue to deliver, or their refusal
to deliver, our battery cells at prices and volumes acceptable to us would have a material adverse effect on our business, prospects
and operating results.
Our battery cells,
which are an integral part of our battery products and systems, are currently sourced from three manufacturers, two located in
China and one located in the United States. While we obtain components for our products and systems from multiple sources whenever
possible, we have spent a great deal of time in developing and testing our battery cells that we receive from these three manufacturers.
We refer to these battery cell suppliers as our limited source suppliers. To date we have no qualified alternative sources for
our battery cells and we generally do not maintain long-term agreements with our limited source suppliers. While we believe that
we will be able to establish alternate supply relationships for our battery cells, we may be unable to do so in the short term
or at all at prices, quality or costs that are favorable to us.
Changes in business
conditions, wars, governmental changes and other factors beyond our control or which we do not presently anticipate, could also
affect our suppliers' ability to deliver components to us on a timely basis. Furthermore, if we experience significant increased
demand, or need to replace our existing suppliers, there can be no assurance that additional supplies of component parts will be
available when required on terms that are favorable to us, at all, or that any supplier would allocate sufficient supplies to us
in order to meet our requirements or fill our orders in a timely manner. In the past, we have replaced certain suppliers because
of their failure to provide components that met our quality control standards. The loss of any limited source supplier or the disruption
in the supply of components from these suppliers could lead to delays in the deliveries of our battery products and systems to
our customers, which could hurt our relationships with our customers and also materially adversely affect our business, prospects
and operating results.
22
Increases in
costs, disruption of supply or shortage of raw materials, in particular lithium-iron phosphate cells, could harm our business.
We may experience increases
in the costs or a sustained interruption in the supply or shortage of raw materials. Any such an increase or supply interruption
could materially negatively impact our business, prospects, financial condition and operating results. For instance, we are exposed
to multiple risks relating to price fluctuations for lithium-iron phosphate cells. These risks include:
•
the inability or unwillingness of current battery manufacturers to supply the number of lithium-iron
phosphate cells required to support our sales as demand for such rechargeable battery cells increases;
•
disruption in the supply of cells due to quality issues or recalls by the battery cell manufacturers;
and
•
an increase in the cost of raw materials, such as iron and phosphate, used in lithium-iron phosphate
cells.
We may be unable
to successfully execute our long-term growth strategy or maintain our current revenue levels.
Although we exhibited
significant growth from our inception to the present day, we can provide no assurance that our revenues will continue to grow.
Our ability to maintain our revenue levels or to grow in the future depends upon, among other things, the continued success of
our efforts to maintain our brand image and bring new products to market and our ability to expand within our current distribution
channels.
Our success is
highly dependent on continually developing new and advanced products, technologies, and processes and failure to do so may cause
us to lose our competitiveness in the battery industry and may cause our profits to decline.
To remain competitive
in the battery industry, it is important to continually develop new and advanced products, technologies, and processes. There is
no assurance that competitors' new products, technologies, and processes will not render our existing products obsolete or
non-competitive. Alternately, changes in legislative, regulatory or industry requirements or in competitive technologies may render
certain of our products obsolete or less attractive. Our competitiveness in the renewable battery market therefore relies upon
our ability to enhance our current products, introduce new products, and develop and implement new technologies and processes.
Our battery system predominately uses lithium-iron phosphate cells. If our competitors develop alternative products with more enhanced
features than our battery system, our financial condition and results of operations would be materially and adversely affected.
The research and development
of new products and technologies is costly and time consuming, and there are no assurances that our research and development of
new products will be either successful or completed within anticipated timeframes, if at all. Our failure to technologically evolve
and/or develop new or enhanced products may cause us to lose competitiveness in the battery market. In addition, in order to compete
effectively in the renewable battery industry, we must be able to launch new products to meet our customers' demands in a
timely manner. However, we cannot provide assurance that we will be able to install and certify any equipment needed to produce
new products in a timely manner, or that the transitioning of our manufacturing facility and resources to full production under
any new product programs will not impact production rates or other operational efficiency measures at our manufacturing facility.
In addition, new product introductions and applications are risky, and may suffer from a lack of market acceptance, delays in related
product development and failure of new products to operate properly. Any failure by us to successfully launch new products, or
a failure by our customers to accept such products, could adversely affect our results.
23
Flux Power has
historically depended on a limited number of customers for a significant portion of its revenues and this dependence is likely
to continue.
Flux Power has historically
depended on a limited number of customers for a significant portion of its revenues. During the nine month period ended March 31,
2012, Flux Power had four major customers that combined represented 87% or $2,616,000 of its total revenues. During the nine month
period ended March 31, 2011 Flux Power had two major customers that accounted for 37% or $216,000 of its total revenues. For the
year ended June 30, 2011, one customer accounted for 19% of total revenues, or $187,000. For the eight month period ended June
30, 2010, Flux Power had four customers that combined accounted for 79% of total revenues, or $164,000.
We anticipate that
a limited number of customers will continue to contribute to a significant portion of our revenues in the future. Maintaining the
relationships with these significant customers is vital to the expansion and success of our business as the loss of a major customer
could expose us to risk of substantial losses. Our revenues could decline and our results of operations could be materially adversely
affected if one or more of these significant customers stops or reduces its purchasing of our products, or if we fail to expand
our customer base for our products.
The market for
our products and services is very competitive and, if we cannot effectively compete, our business will be harmed.
The market for our
products and services is very competitive and subject to rapid technological change. Many of our competitors are larger and have
significantly greater assets, name recognition and financial, personnel and other resources than we have. As a result, our competitors
may be in a stronger position to respond quickly to potential acquisitions and other market opportunities, new or emerging technologies
and changes in customer requirements. We cannot assure you that we will be able to maintain or increase our market share against
the emergence of these or other sources of competition. Failure to maintain and enhance our competitive position could materially
adversely affect our business and prospects.
Our business
may be adversely affected by the global economic downturn, in addition to the continuing uncertainties in the financial markets.
The global economy
is currently in a pronounced economic downturn. Global financial markets are continuing to experience disruptions, including severely
diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment
rates, and uncertainty about economic stability. Given these uncertainties, there is no assurance that there will not be further
deterioration in the global economy, the global financial markets and consumer confidence. If economic conditions deteriorate further,
our business and results of operations could be materially and adversely affected.
24
Additionally, the automobile
industry in particular was severely impacted by the poor economic conditions and several vehicle manufacturing companies, including
General Motors and Chrysler, were forced to file for bankruptcy. Sales of new automobiles generally have dropped during this global
economic downturn. Sales of consumer products such as electric vehicles have slowed along with this downturn. Our future results
of operations may experience substantial fluctuations from period to period as a consequence of these factors, and such conditions
and other factors affecting consumer spending may affect the timing of orders. Thus, any economic downturns generally would have
a material adverse effect on our business, cash flows, financial condition and results of operations.
Warranty claims,
product liability claims and product recalls could harm our business, results of operations and financial condition.
Our business inherently
exposes us to potential warranty and product liability claims, in the event that our products fail to perform as expected or such
failure of our products results, or is alleged to result, in bodily injury or property damage (or both). Such claims may arise
despite our quality controls, proper testing and instruction for use of our products, either due to a defect during manufacturing
or due to the individual's improper use of the product. In addition, if any of our designed products are, or are alleged,
to be defective, then we may be required to participate in a recall of them.
Although we have product
liability insurance for our products, this may be inadequate to cover all potential product liability claims. In addition, while
we often seek to limit our product liability in our contracts, such limits may not be enforceable or may be subject to exceptions.
Any product recall or lawsuit seeking significant monetary damages either in excess of our coverage, or outside of our coverage,
may have a material adverse effect on our business and financial condition. We may not be able to secure additional product liability
insurance coverage on acceptable terms or at reasonable costs when needed. If we were to experience a large insured loss, it might
exceed our coverage limits, or our insurance carriers could decline to further cover us or raise our insurance rates to unacceptable
levels, any of which could impair our financial position and results of operations. A successful product liability claim against
us could require us to pay a substantial monetary award. We cannot be assured that such claims will not be made in the future.
We may need to
defend ourselves against patent or trademark infringement claims, which may be time-consuming and would cause us to incur substantial
costs.
Companies, organizations
or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent,
limit or interfere with our ability to make, use, develop or sell our battery products and BMS, which could make it more difficult
for us to operate our business. Companies holding patents or other intellectual property rights relating to battery packs or electronic
power management systems may bring suits alleging infringement of such rights or otherwise asserting their rights and seeking licenses.
In addition, if we are determined to have infringed upon a third party's intellectual property rights, we may be required
to do one or more of the following:
•
cease selling, incorporating or using products that incorporate the challenged intellectual property;
•
pay substantial damages;
•
obtain a license from the holder of the infringed intellectual property right, which license may
not be available on reasonable terms or at all; or
•
redesign our battery management systems.
25
In the event of a successful
claim of infringement against us and our failure or inability to obtain a license to the infringed technology, our business, prospects,
operating results and financial condition could be materially adversely affected. In addition, any litigation or claims, whether
or not valid, could result in substantial costs and diversion of resources and management attention.
We may license patents
and other intellectual property from third parties, and we may face claims that our use of this in-licensed technology infringes
the rights of others. In that case, we may seek indemnification from our licensors under our license contracts with them. However,
our rights to indemnification may be unavailable or insufficient to cover our costs and losses, depending on our use of the technology,
whether we choose to retain control over conduct of the litigation, and other factors.
Our business
will be adversely affected if we are unable to protect our intellectual property rights from unauthorized use or infringement by
third parties.
Any failure to protect
our proprietary rights adequately could result in our competitors offering similar products, potentially resulting in the loss
of some of our competitive advantage and a decrease in our revenue, which would adversely affect our business, prospects, financial
condition and operating results. Our success depends, at least in part, on our ability to protect our core technology and intellectual
property. To accomplish this, we rely on a combination of patents, patent applications, trade secrets, including know-how, employee
and third party nondisclosure agreements, copyright laws, trademarks, intellectual property licenses and other contractual rights
to establish and protect our proprietary rights in our technology.
The protection provided
by the patent laws is and will be important to our future opportunities. However, such patents and agreements and various other
measures we take to protect our intellectual property from use by others may not be effective for various reasons, including the
following:
•
our pending patent applications may not result in the issuance of patents;
•
our patents, if issued, may not be broad enough to protect our proprietary rights;
•
the patents we have been granted may be challenged, invalidated or circumvented because of the
pre-existence of similar patented or unpatented intellectual property rights or for other reasons;
•
the costs associated with enforcing patents, confidentiality and invention agreements or other
intellectual property rights may make aggressive enforcement impracticable; and
•
current and future competitors may independently develop similar technology and/or duplicate our
systems in a way that circumvents our patents.
Our patent applications
may not result in issued patents, which may have a material adverse effect on our ability to prevent others from commercially exploiting
products similar to ours.
Our patent applications
may not result in issued patents, which may have a material adverse effect on our ability to prevent others from commercially exploiting
products similar to ours.
We cannot be certain
that we are the first creator of inventions covered by pending patent applications or the first to file patent applications on
these inventions, nor can we be certain that our pending patent applications will result in issued patents or that any of our issued
patents will afford protection against a competitor. In addition, patent applications that we intend to file in foreign countries
are subject to laws, rules and procedures that differ from those of the United States, and thus we cannot be certain that foreign
patent applications related to issued United States patents will be issued. Furthermore, if these patent applications issue, some
foreign countries provide significantly less effective patent enforcement than in the United States.
26
The status of patents
involves complex legal and factual questions and the breadth of claims allowed is uncertain. As a result, we cannot be certain
that the patent applications that we file will result in patents being issued, or that our patents and any patents that may be
issued to us in the near future will afford protection against competitors with similar technology. In addition, patents issued
to us may be infringed upon or designed around by others and others may obtain patents that we need to license or design around,
either of which would increase costs and may adversely affect our business, prospects, financial condition and operating results.
We rely on trade
secret protections through confidentiality agreements with our employees, customers and other parties; the breach of such agreements
could adversely affect our business and results of operations.
We rely on trade secrets,
which we seek to protect, in part, through confidentiality and non-disclosure agreements with our employees, customers and other
parties. There can be no assurance that these agreements will not be breached, that we would have adequate remedies for any such
breach or that our trade secrets will not otherwise become known to or independently developed by competitors. To the extent that
consultants, key employees or other third parties apply technological information independently developed by them or by others
to our proposed projects, disputes may arise as to the proprietary rights to such information that may not be resolved in our favor.
We may be involved from time to time in litigation to determine the enforceability, scope and validity of our proprietary rights.
Any such litigation could result in substantial cost and diversion of effort by our management and technical personnel.
Our production
capacity might not be able to meet with growing market demand or changing market conditions.
We cannot give assurance
that our production capacity will be able to meet our obligations and the growing market demand for our products in the future.
Furthermore, we may not be able to expand our production capacity in response to the changing market conditions. If we fail to
meet demand from our customers, we may lose our market share.
Our business
depends substantially on the continuing efforts of our executive officers, and our business may be severely disrupted if we lose
their services.
We believe that our
success is largely dependent up on the continued service of the members of our management team, who are critical to establishing
our corporate strategies and focus, and ensuring our continued growth. In particular, our Chairman and Chief Executive Officer,
Chris Anthony, is crucial to our success. Our continued success will depend on our ability to attract and retain a qualified and
competent management team in order to manage our existing operations and support our expansion plans. Although we are not aware
of any change, if any of our executive officers are unable or unwilling to continue in their present positions, we may not be able
to replace them readily, if at all. Therefore, our business may be severely disrupted, and we may incur additional expenses to
recruit and retain new officers. In addition, if any of our executives joins a competitor or forms a competing company, we may
lose some of our customers.
27
Our management
team has limited experience in public company matters, which could impair our ability to comply with legal and regulatory requirements.
Our management team
has only limited public company management experience or responsibilities, which could impair our ability to comply with legal
and regulatory requirements such as the Sarbanes-Oxley Act of 2002 and applicable federal securities laws including filing required
reports and other information required on a timely basis. There can be no assurance that our management team will be able to implement
and affect programs and policies in an effective and timely manner that adequately respond to increased legal, regulatory compliance
and reporting requirements imposed by such laws and regulations. Our failure to comply with such laws and regulations could lead
to the imposition of fines and penalties and further result in the deterioration of our business.
Compliance with
changing regulations concerning corporate governance and public disclosure may result in additional expenses.
There have been changing
laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002
("Sarbanes-Oxley"), new regulations promulgated by the SEC and rules promulgated by the national securities exchanges.
These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of
specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and
governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing
revisions to disclosure and governance practices. As a result, our efforts to comply with evolving laws, regulations and standards
are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention
from revenue-generating activities to compliance activities. Members of our Board of Directors and our Chief Executive Officer
and Chief Financial Officer could face an increased risk of personal liability in connection with the performance of their duties.
As a result, we may have difficulty attracting and retaining qualified directors and executive officers, which could harm our business.
If the actions we take in our efforts to comply with new or changed laws, regulations and standards differ from the actions intended
by regulatory or governing bodies, we could be subject to liability under applicable laws or our reputation may be harmed.
In addition, Sarbanes-Oxley
specifically requires, among other things, that we maintain effective internal controls for financial reporting and disclosure
of controls and procedures. In particular, we must perform system and process evaluation and testing of our internal controls over
financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting, as required
by Section 404 of Sarbanes-Oxley. Our testing, or the subsequent testing by our independent registered public accounting firm,
when required, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses.
Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management
efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with
appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements
of Section 404 in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in
our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline,
and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional
financial and management resources.
28
We may be required
to obtain the approval of various government agencies to market our products.
Our products are subject to product
safety regulations by Federal, state, and local organizations. Accordingly, we may be required, or may voluntarily determine to,
obtain approval of our products from one or more of the organizations engaged in regulating product safety. These approvals could
require significant time and resources from our technical staff, and, if redesign were necessary, could result in a delay in the
introduction of our products in various markets and applications. There can be no assurance that we will obtain any or all of the
approvals that may be required to market our products.
We may face significant
costs relating to environmental regulations.
Federal, state, and
local regulations impose significant environmental requirements on the manufacture, storage, transportation, and disposal of various
components of advanced energy storage systems. Although we believe that our operations are in material compliance with current
applicable environmental regulations, there can be no assurance that changes in such laws and regulations will not impose costly
compliance requirements on us or otherwise subject us to future liabilities. Moreover, Federal, state, and local governments may
enact additional regulations relating to the manufacture, storage, transportation, and disposal of components of advanced energy
storage systems. Compliance with such additional regulations could require us to devote significant time and resources and could
adversely affect demand for our products. There can be no assurance that additional or modified regulations relating to the manufacture,
storage, transportation, and disposal of components of advanced energy systems will not be imposed.
We may face significant
costs relating to Occupational Safety and Health Regulations
The California Division
of Occupational Safety and Health ("Cal/OSHA") and other regulatory agencies have jurisdiction over the operations
of our Escondido, California facility. Because of the risks generally associated with the assembly of advanced energy storage systems,
we expect rigorous enforcement of applicable health and safety regulations. Frequent audits by or changes in the regulations issued
by Cal/OSHA, or other regulatory agencies with jurisdiction over our operations, may cause unforeseen delays and require significant
time and resources from our technical staff.
Risks Related to Our Common Stock and
Market
The market price
of our common stock can become volatile, leading to the possibility of its value being depressed at a time when you may want to
sell your holdings.
The market price of
our common stock can become volatile. Numerous factors, many of which are beyond our control, may cause the market price of our
common stock to fluctuate significantly. These factors include:
·
our earnings releases, actual or anticipated changes in our earnings, fluctuations in our operating
results or our failure to meet the expectations of financial market analysts and investors;
·
changes in financial estimates by us or by any securities analysts who might cover our stock;
·
speculation about our business in the press or the investment community;
·
significant developments relating to our relationships with our customers or suppliers;
·
stock market price and volume fluctuations of other publicly traded companies and, in particular,
those that are in our industry;
29
·
limited "public float" in the hands of a small number of persons whose sales or lack
of sales could result in positive or negative pricing pressure on the market price for our common stock;
·
customer demand for our products;
·
investor perceptions of our industry in general and our Company in particular;
·
the operating and stock performance of comparable companies;
·
general economic conditions and trends;
·
announcements by us or our competitors of new products, significant acquisitions, strategic partnerships
or divestitures;
·
changes in accounting standards, policies, guidance, interpretation or principles;
·
loss of external funding sources;
·
sales of our common stock, including sales by our directors, officers or significant stockholders;
and
·
additions or departures of key personnel.
The ownership of our stock is highly
concentrated in our management.
As of  June 14,
2012, our present directors and executive officers, and their respective affiliates beneficially owned approximately 92% of our
outstanding common stock, including underlying options that were exercisable or which would become exercisable within 60 days.  As
a result of their ownership, our directors and executive officers and their respective affiliates collectively are able to significantly
influence all matters requiring stockholder approval, including the election of directors and approval of significant corporate
transactions.  This concentration of ownership may also have the effect of delaying or preventing a change in control.
We do not intend
to pay dividends on shares of our common stock for the foreseeable future.
We have never declared
or paid any cash dividends on shares of our common stock. We intend to retain any future earnings to fund the operation and expansion
of our business and, therefore, we do not anticipate paying cash dividends on shares of our common stock in the foreseeable future.
Our common stock
is illiquid and this low trading volume may adversely affect the price of our common stock.
Our common stock currently
is quoted on the OTCQB under the symbol "FLUX." However, with very little trading history, a trading market that does
not represent an "established trading market," a limited current public float, volatility in the bid and asked prices
and the fact that our common stock is very thinly traded, you could lose all or a substantial portion of your funds if you make
an investment in us. In addition, potential dilutive effects of future sales of shares of common stock by us and our shareholders,
and subsequent sale of common stock by the holders of warrants and options, could have an adverse effect on the price of our securities,
which could hinder our ability to raise additional capital to fully implement our business, operating and development plans.
30
Penny stock regulations
affect our stock price, which may make it more difficult for investors to sell their stock.
Broker-dealer practices
in connection with transactions in "penny stocks" are regulated by certain penny stock rules adopted by the SEC. Penny
stocks generally are equity securities with a price per share of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on the NASDAQ Stock Market, provided that current price and volume information with respect to transactions
in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction
in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information
about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid and
offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly
account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock
rules generally require that prior to a transaction in a penny stock the broker-dealer make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock
that becomes subject to the penny stock rules. our securities are subject to the penny stock rules, and investors may find it more
difficult to sell their securities.
Preferred Stock
may be issued under our Articles of Incorporation.
Our Articles of Incorporation
authorize the issuance of up to 5,000,000 shares of preferred stock. The preferred stock may be issued in one or more series, the
terms of which may be determined at the time of issuance. These terms may include voting rights including the right to vote as
a series on particular matters, preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund
provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce
the value of such common stock.
We were a "shell
company" and are subject to additional restrictions under Rule 144 on resales of our Restricted Securities.
The following is a
quotation from subparagraph (i)(B)(2) of Rule 144: "Notwithstanding paragraph (i)(1), if the issuer of the securities previously
had been an issuer described in paragraph (i)(1)(i) but has ceased to be an issuer described in paragraph (i)(1)(i); is subject
to the reporting requirements of section 13 or 15(d) of the Exchange Act; has filed all reports and other materials required to
be filed by section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months (or for such shorter period
that the issue was required to file such reports and materials), other than Form 8-K reports (§249.308 of this chapter); and
has filed current "Form 10 information" with the Commission reflecting its status as an entity that is no longer an
issuer described in paragraph (i)(1)(i), then those securities may be sold subject to the requirements of this section after one
year has elapsed from the date that the issuer filed "Form 10 information" with the Commission." As a "shell
company" immediately prior to the Reverse Acquisition, we will be subject to additional restrictions under Rule 144 which
provides that no sales of our restricted securities could be sold until we have complied with subparagraph (i)(B)(2) of Rule 144.
31
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion
of our financial condition and results of operations should be read in conjunction with our financial statements and the related
notes and other financial information appearing elsewhere in this report. In addition to historical financial information, the
following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could
differ materially from those discussed in the forward-looking statements. Readers are also urged to carefully review and consider
the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including
without limitation, the disclosures made under "Risk Factors."
The following discussion
and analysis relates to the results of Flux Power, our wholly-owned subsidiary, only and should be read in conjunction with the
financial statements and the related notes thereto and other financial information contained elsewhere in this Form 8-K. Please
see our unaudited pro forma combined financial information of FPH and its subsidiaries filed as Exhibit 99.1. For a discussion
and analysis related to the results of FPH, please see our Form 10-K for the fiscal year ended December 31, 2011 filed with the
SEC on March 23, 2012, and Form 10-Q for the quarter ended March 31, 2012 filed with the SEC on May 11, 2012.
Overview
Flux Power was founded
in 2009 to design, develop and sell rechargeable advanced energy storage systems. We have developed an innovative high power battery
cell management system ("BMS") and have structured our business around this core technology. Our proprietary BMS provides
three critical functions to our battery systems:
·
Cell Balancing
: This is performed by continuously adjusting the capacity of each cell in
a storage system according to temperature, voltage, and internal impedance metrics. This management assures longevity of the overall
system.
·
Monitoring
: This is performed through temperature probes, a physical connection to individual
cells for voltage and calculations from basic metrics to determine remaining capacity and internal impedance. This monitoring assures
accurate measurements to best manage the system and assure longevity.
·
Error reporting
: This is performed by analyzing data from system monitoring and making decision
on whether the system is operating out of normal specifications. This error reporting is crucial to system management as it ensures
ancillary devices are not damaging your storage system and will give the operator an opportunity to take corrective action to maintain
long overall system life.
Using our proprietary
battery management technology, we are able to offer completely integrated energy storage solutions or custom modular standalone
systems to our clients. In addition, we have also developed a suite of complementary technologies and products that accompany and
enhance the abilities of our BMS to meet the needs of the growing advanced energy storage market.
We sold our first validated
product in the second quarter of 2010 and have since delivered over 14 mega watt-hours of
Advanced
Energy Storage
to clients such as Crown Equipment Corp., Damascus Corp., Columbia Parcar Corp., Wheego Electric Cars Inc.,
Epic Electric Vehicles, and TALHO. This places us amongst the top tier of
Advanced Energy
Storage providers in North America. We also sell our Advanced Energy Storage products through distributors such as Dukes Garage,
Small Car Performance, Electric Motor Sports, MCelectric, Jungle Motors and EV America.
Recent Developments and Events
New Agreements
NACCO Prototype Agreement.
On February 6, 2012, Flux entered into a Prototype Agreement with NACCO Materials Handling Group, Inc. to develop and provide three
(3) prototype battery packs for NACCO's lift trucks.
32
GTA Terms & Conditions.
On September 21, 2011, Flux and GreenTech Automotive, Inc. (GTA) entered into terms and conditions for future purchase orders.
All sales from Flux to GTA that include Flux's product for production of GTA's electronic vehicle shall be governed
under this agreement.
Notes Payable
In October 2011, the
Company entered into a new revolving promissory note agreement (Secondary Operating Capital) with a stockholder for $1,000,000.
The revolving promissory note bears interest at 8%, is due September 30, 2013, as amended, and is secured by substantially all
of the assets of the Company. As of March 31, 2012 the balance outstanding was $500,000.
In March 2012, the
Company entered into an additional note payable agreement with the same stockholder for $250,000. The note matures in March 2014
and bears interest at 8% per annum.
Critical Accounting Policies and Estimates
Our
financial statements are prepared in accordance with generally accepted accounting principles. The preparation of these financial
statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses
and related disclosures.
The Company has used significant estimates in its determination of
the reserve for inventory, sales returns, and warranty claims
. We evaluate our estimates and assumptions
on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable
under the circumstances. Our actual results could differ from these estimates.
We believe the following
accounting policies and estimates are most critical to aid in understanding and evaluating our reported financial results.
Inventories and prepaid inventory
Inventories consist
primarily of battery management systems and the related subcomponents, and are stated at the lower of cost (first-in, first-out)
or market. Prepaid inventory represents deposits made by us for inventory purchases. We evaluate inventories to determine if write-downs
are necessary due to obsolescence or if the inventory levels are in excess of anticipated demand at market value based on consideration
of historical sales and product development plans.
Revenue recognition
We recognize revenue
when persuasive evidence of an arrangement exists, delivery has occurred, price is fixed or determinable and collectability of
the selling price is reasonably assured. Delivery occurs when risk of loss is passed to the customer, as specified by the terms
of the applicable customer agreements.
When implied right
of return exists, the Company recognizes revenue on the sell through-method. Under this method, revenue is not recognized upon
delivery of the inventory components. Instead, the Company records deferred revenue upon delivery and recognizes revenue when the
inventory components are sold through to the end user.
We evaluate our exposure
to sales returns and warranty issues based on historical information.
33
Results of Operations
Nine Month Period Ended March 31, 2012 compared to the
Nine Month Period Ended March 31, 2011
For the nine month periods ended
31-Mar-12
31-Mar-11
in thousands
Revenues
$3,008
$583
Cost of sales
2,431
473
Gross Profit
577
110
Selling, general, and administrative
1,271
774
Research and development
400
316
Total Operating Expenses
1,671
1,090
Interest expense
45
25
Net Loss
($1,139)
($1,005)
Revenues
Revenues for the nine
months ended March 31, 2012, increased approximately $2,425,000, or 416%, compared to the nine months ended March 31, 2011. This
increase is the result of an increase in new customers and volume increases on existing customer orders.
Cost of Revenues
Cost of revenues for
the nine months ended March 31, 2012, increased approximately $1,958,000, or 414%, compared to the nine months ended March 31,
2011. This increase is the result of an increase in sales volume for new customers and sales volume increases on existing customer
orders.
Gross Profit
Gross
profit for the nine months ended March 31, 2012, increased by approximately $467,000, or 425%, compared to the nine months ended
March 31, 2011. Gross profit as a percentage of revenue for the nine months ended March 31, 2012, increased slightly by 0.3% compared
to
the n
ine months ended March 31, 2011.
Selling, and General and Administrative
Expenses
Sales and general and
administrative expenses for the nine months ended March 31, 2012 and 2011 were approximately $1,271,000 and $774,000, respectively.
Such expenses consist primarily of salaries and personnel related expenses, occupancy expenses, sales travel, consulting costs
and other expenses. The increase of approximately $497,000 was due to an increase in salaries related to increase in employee headcount
and for other professional fees, some of which were incurred for reverse merger preparation.
34
Research and Development Expense
Research and development
expenses for the nine months ended March 31, 2012 and 2011 were approximately $400,000 and $316,000, respectively. Such expenses
consist primarily of materials, supplies, salaries and personnel related expenses, consulting costs and other expenses. The increase
of approximately $84,000 was due to an increase in personnel costs and benefits, and an increase in material and supplies consumption
related to new and ongoing research programs.
Interest Expense
Interest expense for
the nine months ended March 31, 2012 and 2011 was approximately $45,000 and $25,000, respectively. The interest expense relates
to our outstanding notes payable to one of our major shareholders, of which balances increased throughout 2012. Certain of the
notes were converted into shares of our common stock during December 2011.
For the year ended June 30, 2011
and the eight month period ended June 30, 2010
For the year ended June 30, 2011
For the eight
months ended
June 30, 2010
Revenues
$
984,000
$
207,000
Cost of sales
846,000
228,000
Gross Profit
138,000
(21,000
)
Selling, general, and administrative
1,027,000
412,000
Research and development
382,000
197,000
Total Operating Expenses
1,409,000
609,000
Interest expense
42,000
-
Net Loss
$
(1,313,000
)
$
(630,000
)
We began our operations
in October of 2009. Accordingly, our first period of operations is for only eight months and may not be an appropriate comparative
value had we been in operations for an entire year.
35
Revenues
Revenues for the year
ended June 30, 2011, increased approximately $777,000, or 375%, compared to the eight month period ended June 30, 2010. This large
increase in sales was attributable to the increase in customers and the full operating period in fiscal year 2011.
Cost of Revenues
Cost of revenues for
the year ended June 30, 2011, increased approximately $618,000 or 271% compared to the eight month period ended June 30, 2010.
This large increase in cost of revenues was attributable to the increase in customers and the full operating period in fiscal year
2011.
Gross Profit
Gross profit for the
year ended June 30, 2011, increased by approximately $159,000 or 757%, compared to the eight month period ended June 30, 2010.
Gross profit as a percentage of revenue for the year ended June 30, 2011, increased to 14% compared to (10%) in the eight month
period ended June 30, 2010. Sales traction during the year ended June 30, 2011 allowed us to perform more efficiently on managing
product cost and we were able to negotiate customer agreements at normalized margins.
Selling, and General and Administrative
Expenses
Sales and general and
administrative expenses for the year ended June 30, 2011 and the eight month period ended June 30, 2010 were approximately $1,027,000
and approximately $412,000, respectively. Such expenses consist primarily of salaries and personnel related expenses, stock-based
compensation expense, sales travel, consulting costs and other expenses. The increase of approximately $615,000 was due to an increase
in personnel and consulting costs that were required to manage our business as it grew.
Research and Development Expense
Research and development
expenses for the year ended June 30, 2011 and the eight month period ended June 30, 2010 were approximately $382,000 and approximately
$197,000, respectively. Such expenses consist primarily of materials, supplies, salaries and personnel related expenses, stock-based
compensation expense, consulting costs and other expenses. The increase of approximately $185,000 was due to an increase in personnel
costs and benefits, and an increase in material and supplies consumption.
Interest Expense
Interest expense for
the year ended June 30, 2011 and eight month period ended June 30, 2010 was approximately $42,000 and $0, respectively. The interest
expense relates to our outstanding notes payable to one of our major shareholders. As discussed above, certain of the notes payable
were converted into shares of our common stock during December 2011.
Liquidity and Capital Resources
For the nine month periods ended
March 31, 2012 and 2011
As of March 31, 2012,
we had a cash balance of approximately $141,000, negative working capital of approximately $278,000, and an accumulated deficit
of approximately $3,082,000.
36
Cash Flows from Operating Activities
Our operating activities
resulted in net cash used in operations of approximately $941,000 for the nine months ended March 31, 2012, compared to net cash
used in operations of approximately $458,000 for the nine months ended March 31, 2011.
The net cash used in
operating activities for the nine month period ended March 31, 2012 reflects a net loss of approximately $1,139,000 offset by depreciation
and amortization of approximately $23,000 and stock-based compensation of approximately $22,000. Changes in operating assets and
liabilities included a decrease in accounts receivable of approximately $2,000, a decrease in inventories of approximately $313,000,
an increase in prepaid inventory of approximately $932,000, an increase in accrued expenses of approximately $165,000, an increase
in customer deposits of approximately $841,000, an increase in customer deposits from related party of approximately $629,000,
a decrease in deferred revenue of approximately $1,173,000, an increase in accounts payable of approximately $293,000 and other
minor factors.
The net cash used in
operating activities for the nine month period ended March 31, 2011 reflects a net loss of approximately $1,005,000 offset by depreciation
and amortization of approximately $16,000 and stock-based compensation of approximately $58,000. Changes in operating assets and
liabilities included an increase in inventories of approximately $1,703,000, a decrease in prepaid inventory of approximately $482,000,
an increase in accounts payable of approximately $41,000, a decrease in customer deposits of approximately $508,000, an increase
in customer deposits from related party of approximately $58,000, an increase in deferred revenue of approximately $2,098,000,
and other minor factors.
Cash Flows from Investing Activities
The net cash used in
investing activities for the nine month periods ended March 31, 2012 and 2011 consist primarily of purchases of equipment.
Cash Flows from Financing Activities
Net cash provided by
financing activities for the nine months ended March 31, 2012 and the nine months ended March 31, 2011 was $900,000 and $680,000,
respectively.
During nine months
ended March 31, 2012, we received $900,000 from the issuance of notes payable to a shareholder. During the nine months ended March
31, 2011, we received $680,000 from the issuance of notes payable to a shareholder.
For the year ended June 30, 2011 and the eight month period
ended June 30, 2010
As of June 30, 2011,
we had a cash balance of approximately $240,000, negative working capital of approximately $1,140,000 and an accumulated deficit
of approximately $1,943,000.
Cash Flows from Operating Activities
Our operating activities
resulted in net cash used in operations of approximately $743,000 for the year ended June 30, 2011 compared to net cash used in
operations of approximately $433,000 for the eight months ended June 30, 2010.
37
The net cash used in
operating activities for the year ended June 30, 2011 reflects a net loss of approximately $1,313,000 offset by depreciation and
amortization of approximately $23,000 and stock-based compensation of approximately $58,000. Changes in operating assets and liabilities
included an increase in accounts receivable of approximately $41,000, an increase in inventories of approximately $1,697,000, a
decrease in prepaid inventory of approximately $550,000, an increase in accrued expenses of approximately $30,000, a decrease in
customer deposits of approximately $347,000, an increase in customer deposits from related party of approximately $208,000, an
increase in deferred revenue of approximately $1,802,000, and other minor factors.
The net cash used in
operating activities for the eight months ended June 30, 2010 reflects a net loss of approximately $630,000 offset by loss on disposal
of leasehold improvements of approximately $20,000, depreciation and amortization of approximately $14,000, and stock-based compensation
of approximately $68,000. Changes in operating assets and liabilities included an increase in inventories of approximately $117,000,
an increase in prepaid inventory of approximately $484,000, an increase in other current assets of approximately $39,000, an increase
is customer deposits of approximately $556,000, an increase in customer deposits from related party of approximately $159,000 and
other minor factors.
Cash Flows from Investing Activities
The net cash used in
investing activities for the year ended June 30, 2011 and the eight months ended June 30, 2010 consist primarily of purchases of
equipment.
Cash Flows from Financing Activities
Net cash provided by
financing activities for the year ended June 30, 2011 and the eight months ended June 30, 2011 was approximately $930,000 and $560,000,
respectively.
During the year ended
June 30, 2011, we received $930,000 from the issuance of notes payable to a shareholder, and we received $400 from the collection
of a note receivable from a shareholder. During the eight month period ended June 30, 2010, we received $460,000 from the issuance
of 4,000,000 shares of our common stock, and we received $100,000 from the issuance of a note payable to a shareholder.
Future Liquidity Needs
We have evaluated our
expected cash requirements over the next twelve months, which includes, but is not limited to, investments in additional sales
and marketing and product development resources, capital expenditures, and working capital requirements.
We expect to require
additional financing in the future. The timing of our need for additional capital will depend in part on our future operating performance
in terms of revenue growth and the level of operating expenses maintained.
One of our
shareholder
s
has agreed to support our capital requirements through loan agreements. In October 2011, we entered into a revolving promissory
note agreement with this
shareholder
for $1,000,000. The revolving promissory note bears interest
at 8%, is due September 30, 2013, as amended, and is secured by substantially all of our assets. As of June 14, 2012, $400,000
is available under this revolving promissory note.
We believe our cash, accounts receivables, and the
$1,000,000 commitment from Baytree Capital, its designees or assignees, and our revolving promissory note are adequate to satisfy
our working capital needs and sustain our ongoing operations for at least the next twelve months.
38
However, there is no
guarantee we will be able to obtain additional funds in the future or that funds will be available on terms acceptable to us. If
such funds are not available, management will be required to curtail its investments in additional sales and marketing and product
development resources, and capital expenditures, which may have an adverse effect on our future cash flows and results of operations,
and our ability to fund operations.
To the extent that
we raise additional funds by issuing equity or debt securities, our shareholders may experience additional significant dilution
and such financing may involve restrictive covenants. To the extent that we raise additional funds through collaboration and licensing
arrangements, it may be necessary to relinquish some rights to our technologies or our product candidates, or grant licenses on
terms that may not be favorable to us. Such actions may have a material adverse effect on our business.
Additionally, recent
global market and economic conditions have been unprecedented and challenging with tighter credit conditions and recession in most
major economies. As a result of these market conditions, the cost and availability of credit has been and may continue to be adversely
affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength
of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease to provide
credit to businesses and consumers. These factors have led to a decrease in spending by businesses and consumers alike, and a corresponding
decrease in global infrastructure spending. Continued turbulence in the U.S. and international markets and economies and prolonged
declines in business and consumer spending may adversely affect our liquidity and financial condition, including our ability to
access the capital markets to meet liquidity needs.
Off-Balance Sheet Arrangements
We have no off-balance
sheet arrangements.
Recent Accounting Pronouncements
Refer to Note 3, "Summary
of Significant Accounting Polices," in the accompanying notes to the financial statements for a discussion of recent accounting
pronouncements.
DIRECTORS AND EXECUTIVE OFFICERS
Identification of Directors, Executive Officers and Significant Employees
The following table
and text set forth the names and ages of Flux Power's directors, executive officers and significant employees as of the date
of this report. Flux Power's Board of Directors is comprised of only one class. All of the directors will serve until the
next annual meeting of stockholders and until their successors are elected and qualified, or until their earlier death, retirement,
resignation or removal. There are no family relationships among any of the directors and executive officers.
Name
Age
Position
Chris Anthony
35
Chairman and Chief Executive Officer
Steve Jackson
¹
48
Chief Financial Officer and Chief Operating Officer
Michael Johnson
60
Director
James Gevarges
46
Director
___________________________
¹Steve Jackson
has signed an employee agreement to be the Chief Financial Officer and the Chief Operating Officer as of January 2, 2012. In connection
with Mr. Jackson's services to our Company, on January 25, 2012, Mr. Jackson was granted options to purchase 300,000 shares
of common stock, none of which are vested.
39
There are no arrangements
or understandings between our directors and executive officers and any other person pursuant to which any director or officer was
or is to be selected as a director or officer.
Business Experience
Chris Anthony, Chief
Executive Officer, and Director.
Mr. Anthony has been Chairman and Chief Executive Officer of Flux Power since it was incorporated.
Since November 2010, Mr. Anthony has also served as an R&D Advisor to Epic Boats, LLC, which he founded in 2002 and where he
served as Chief Executive Officer until October 2010. From 2005 to 2009 Mr. Anthony served as the Chief Operating Officer of Aptera
Motors, Inc. ("Aptera Motors") and was a Director of that company from 2005 to 2010. Mr. Anthony is an expert in energy
storage, electric propulsion systems, and advanced composite manufacturing processes. He has significant experience building advanced
products in the marine and commuter vehicle industries. Mr. Anthony has a Bachelor's of Science degree in finance from the
Cameron School of Business.
Steve
Jackson, Chief Financial Officer and Chief Operating Officer.
Mr. Jackson has been providing services to Flux Power since November
2011 and joined the Company as a full time employee in January 2012. Prior to joining Flux Power, Mr. Jackson served as the Chief
Financial Officer and Chief Operating Officer for Verdezyne Inc, an alternative energy bio-fuel company from 2008 to 2011. Mr.
Jackson is a Certified Public Accountant and
has more than 20 years finance and operations experience,
including 7 years at SAIC where he held several significant financial management positions, and 3 years at PriceWaterhouse LLP.
He received his Bachelor of Business Administration degree in Accounting from the University of Texas at Austin and a Master
of Science degree in Accountancy from San Diego State University.
Michael Johnson,
Director.
Mr. Johnson has been a director of Flux Power since it was incorporated. Mr. Johnson has been a director and the
Chief Executive Officer of Esenjay Petroleum Corporation in Corpus Christi, Texas since 2002. He is an industry expert in the natural
gas exploration industry and brings a wealth of management and successful company building experience to the board. Mr. Johnson
currently serves on the Board of Directors at Aptera Motors. Mr. Johnson received a BS degree in mechanical engineering from the
University of Southwestern Louisiana in 1971.
James Gevarges,
Director.
Mr. Gevarges has been a director of Flux Power since it was incorporated. Mr. Gevarges is the Chief Executive Officer,
and a Director of Current Ways, Inc., a company he founded in 2010. Since 1991 James has also been a Director and the Chief Executive
Officer of LHV Power Corporation (formerly known as HiTek Power, Corp) located in Santee, California. Mr. Gevarges is a power supply
industry expert and brings an enormous amount of manufacturing and successful company management experience to the Company. Mr.
Gevarges has a Bachelor's of Science degree in electrical engineering from Louisiana State University.
Involvement in Certain Legal Proceedings
To the best of our
knowledge, during the past ten years, none of our directors or executive officers were involved in any of the following: (1) any
bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at
the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject
to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment,
or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;
and (4) being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodities
Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed,
suspended or vacated.
40
Audit Committee
We have not adopted
an audit committee charter. Our Board of Directors will serve the function of the audit committee. The Board of Directors intends
to establish an audit committee in the future.
Compensation Committee and Governance
and Nomination Committee
We have not adopted
a compensation committee and governance committee charters. The Board of Directors currently serves these functions. The Board
of Directors will consider establishing a compensation committee and governance committee in the future.
Code of Conduct and Ethics
We have not adopted
a Code of Conduct for our CEO and Senior Executive Officers.
Indemnification Agreements
On June 14, 2012, in
connection with the appointment of Mr. Chris Anthony as a director, Chief Executive Officer and President, and Mr. Steve Jackson
as our Chief Financial Officer, and Mr. Craig Miller as our Secretary, we executed a standard form of indemnification agreement
("Indemnification Agreement") with each of them (each, an "Indemnitee").
Pursuant to and subject
to the terms, conditions and limitations set forth in the Indemnification Agreement, we agreed to indemnify each Indemnitee, against
any and all expenses incurred in connection with the Indemnitee's service as our officer, director and or agent, or is or
was serving at our request as a director, officer, employee, agent or advisor of another corporation, partnership, joint venture,
trust, limited liability company, or other entity or enterprise but only if the Indemnitee acted in good faith and in a manner
he reasonably believed to be in or not opposed to our best interest, and in the case of a criminal proceeding, had no reasonable
cause to believe that his conduct was unlawful. In addition, the indemnification provided in the indemnification agreement is applicable
whether or not negligence or gross negligence of the Indemnitee is alleged or proven. Additionally, the Indemnification Agreement
establishes processes and procedures for indemnification claims, advancement of expenses and costs and contribution obligations.
We intend to enter into such Indemnification
Agreements with Messrs. Johnson and Mr. Gevarges upon the effectiveness of their respective appointment as our directors.
41
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table
sets forth the information, on an accrual basis, with respect to the compensation of Flux Power's principal executive officers
for the fiscal year ended June 30, 2011 and for the eight months ended June 30, 2010. No other employee made over $100,000 for
the year ended June 30, 2011.
Name and
Principal Position
Year
Salary
($)
Bonus
($)
Stock
Awards
($)
Option
Awards
($)(1)
Non-
Equity
Incentive
Plan
Compensation
($)
Non- Qualified
Deferred
Compensation
Earnings
All Other
Compensation
($)
Total
($)
Chris Anthony
2011
$
60,000
$
60,000
Chairman and CEO
2010
$
60,000
-
-
-
-
-
-
$
60,000
-
Joseph Gottlieb (2)
2011
$
172,918
26,500
(2)
75,000
(2)
$
274,418
Chief Technology Officer
2010
$
150,000
-
-
-
-
-
-
$
150,000
Jason Touhy(3)
2011
$
10,000
(3)
69,000
(3)
$
79,000
Chief Operations Officer
2010
$
97,500
-
-
-
-
-
$
97,500
____________________________________
(1) Reflects the grant date fair value
of the awards calculated in accordance with FASB ASC Topic 718 – Stock Compensation.
(2) Mr. Gottlieb resigned as Chief Technology
Officer on July 31, 2011 and was paid a severance of $75,000. On December 3, 2010 Mr. Gottlieb was granted fully vested options
to purchase 265,000 shares of our common stock at $0.13 per share. The options expire on January 27, 2013. The fair value of the
option award is $26,500.
(3) Mr. Touhy resigned as Chief Operations
Officer on December 31, 2010 and was paid a severance of $69,000. On December 2, 2010, Mr. Touhy was granted options to purchase
100,000 shares of our common stock at $0.13 per share. All of the options became exercisable on December 3, 2010. The options expired
on February 29, 2012. The fair value of the option award is $10,000.
Benefit Plans
Flux Power does not
have any profit sharing plan or similar plans for the benefit of our officers, directors or employees. However, we may establish
such plan in the future.
Stock Option Plan
Flux Power has adopted
a 2010 Stock Option Plan ("Option Plan") that reserves 2,000,000 shares of our common stock for issuance upon exercise
of options. As of June 30, 2011, the number of shares of common stock outstanding under the Option Plan was 710,000 and as of the
Effective Date of the Reverse Acquisition, the number of shares of common stock outstanding under the Option Plan was 1,535,500.
As part of the Reverse Acquisition, we adopted the Option Plan and all 1,535,500 stock options of Flux Power outstanding as of
the Effective Date, whether or not exercised and whether or not vested, will be substituted by us with 4,536,948 new options based
on a ratio of 2.9547039 ("Share Exchange Ratio") in a manner that complies with Sections 424(a) and 409A of the Internal
Revenue Code. The new options substituted by us shall continue to have, and be subject to, the substantially the same terms and
conditions as before, but will be convertible into shares of our common stock, as adjusted given effect to the Share Exchange Ratio.
42
Outstanding Equity Awards
The following table
sets forth certain information concerning Flux Power's unexercised options, stock that has not vested, and equity incentive
plan awards outstanding as of June 30, 2011 for the named executive officers below:
Option Awards(1)
Stock Awards
Name
Number of
Securities
Underlying
Unexercised
Options
Exercisable
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
Option
Exercise
Price
($)
Option
Expiration
Date
Number of
Shares or
Units of
Stock That
Have Not
Vested
Market Value
of Shares or
Units of Stock
That Have Not
Vested
($)
Equity Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
Equity Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
($)
Joseph Gottlieb(2)
265,000
0
0
$
$0.13
1/27/2013
–
–
–
–
Jason Touhy(3)
100,000
(5)
0
0
$0.13
2/29/2012
-
-
-
-
__________________
(1) The options have not been adjusted based on the Share
Exchange Ratio.
(2) Mr. Gottlieb resigned on July 31, 2011.
(3) Mr. Touhy resigned on December 31, 2010 and his options
were forfeited on February 29, 2012.
Compensation of Non-Executive
Directors
As of June 30, 2011, no equity awards were
issued to any non-executive directors by Flux Power.
Aggregated Option/SAR exercised and Fiscal year-end Option/SAR
value table
Neither the executive
officers of Flux Power nor the other individuals listed in the tables above, exercised options or SARs during the last fiscal year.
Long-term incentive plans
No Long Term Incentive awards were granted
by Flux Power in the last fiscal year.
Employment contracts and termination of employment and
change-in-control arrangements
Flux Power has entered
into an employment agreement, as amended, with its Chief Executive Officer, Chris Anthony. Pursuant to the terms of his employment
agreement, Mr. Anthony is an "at-will" employee. Mr. Anthony is paid an annual salary of $168,000. Further, Mr. Anthony
is entitled to a $10,000 end of fiscal year bonus for every $10,000,000 in sales with at least a 10% gross margin and a 20% salary
bonus for every $20,000,000 in sales with at least a 10% gross margin.
Flux Power has entered
into an employment agreement with our Chief Financial Officer and Chief Operating Officer Steve Jackson. Pursuant to the terms
of his employment agreement, Mr. Jackson is an "at-will" employee. Mr. Jackson is currently paid an annual salary of
$142,000. Moreover, after reaching the booking/sales milestones listed below, Mr. Jackson will be entitled to quarterly compensation
adjustments, both up and down, based on the previous quarter's sales as follows:
43
Quarterly Sales Milestones
Annualized Compensation
$3,000,000
$164,500
$5,000,000
$188,000
$10,000,000
$211,500
$15,000,000
$235,000
Employment contracts and termination of employment and
change-in-control arrangements
Flux Power has entered
into an employment agreement with Chris Anthony that states that in the event Mr. Anthony is terminated for any reason other than
criminal activity, Flux Power agrees to provide Mr. Anthony with a severance payout equal to six (6) months of employment.
Flux Power has entered
into an employment agreement with Steve Jackson that states that in the event Mr. Jackson is terminated after the Probation Period
for any reason other than for cause, Flux Power agrees to provide Mr. Jackson with a severance payout equal to six (6) months of
employment.
The only officer or
employee who has contractual rights triggered by a change in control of the company is Mr. Jackson. Mr. Jackson's stock option
agreement states that in the event of a change in control, after the effective date of the agreement, any and all unvested stock
options held by Mr. Jackson shall become 100% vested and exercisable.
Compensation Committee Interlocks and Insider Participation
We have not established
a Compensation Committee and our Board of Directors will serve this function.
Director Independence
We currently do not
have any independent directors as the term "independent" is defined by the rules of the Nasdaq Stock Market.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
As used in this section,
the term beneficial ownership with respect to a security is defined by Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, as consisting of sole or shared voting power (including the power to vote or direct the vote) and/or sole or shared investment
power (including the power to dispose of or direct the disposition of) with respect to the security through any contract, arrangement,
understanding, relationship or otherwise, subject to community property laws where applicable. As of June 14, 2012 (post Reverse
Acquisition), we had a total of
41,258,185 shares of common stock
outstanding.
The following table
sets forth, as of June 14, 2012 (post Reverse Acquisition): (a) the names and addresses of each beneficial owner of more than five
percent of our common stock known to us, the number of shares of common stock beneficially owned by each such person, and the percent
of our common stock so owned; and (b) the names and addresses of each director and executive officer, the number of shares our
common stock beneficially owned, and the percentage of our common stock so owned, by each such person, and by all of our directors
and executive officers as a group. Unless otherwise indicated, the business address of each of our directors and executive officers
is c/o Flux Power, Inc., 2240 Auto Park Way, Escondido, California 92029. Each person has sole voting and investment power with
respect to the shares of our common stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in
the shares of common stock, except as otherwise indicated.
44
Name and Address of Beneficial Owner
Amount
    and Nature of
Beneficial Ownership
(1)
Percentage of
Ownership
Directors and Named Executive Officers
Chris Anthony, Director and Executive Officer
11,929,697
(2)
28.8%
Steve Jackson, Chief Financial Officer
-
-
Gianluca Cicogna Mozzoni, Director
(5)
-
-
Michael Johnson
(5)
20,097,171
(3)
48.6%
James Gevarges
(5)
6,204,878
(4)
15.0%
All Officers & Directors as a Group (4 people)
38,231,746
92.4%
5% Beneficial Owners
Baytree Capital Associates, LLC
(6)
40 Wall Street, 58th Floor
New York, New York 1000
4,122,777
(5)
9.5%
__________________________________
(1) 	As used in this section, the term
beneficial ownership with respect to a security is defined by Rule 13d-3 under the Securities Exchange Act of 1934, as amended,
as consisting of sole or shared voting power (including the power to vote or direct the vote) and/or sole or shared investment
power (including the power to dispose of or direct the disposition of) with respect to the security through any contract, 	arrangement,
understanding, relationship or otherwise, subject to community property laws where applicable. Accordingly, shares of common stock
which an individual or group has a right to acquire within 60 days pursuant to the exercise of options or warrants are deemed to
be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be beneficially
owned and outstanding for the purpose of computing the percentage ownership of any other person shown in the table.
(2) Includes 110,881 stock options, all
of which are vested. The options have been adjusted given effect to the Share Exchange Ratio.
(3) Includes shares held by Esenjay Investments,
LLC, a Texas limited liability company of which Mr. Johnson is the sole director and beneficial owner. Includes 110,881 stock options,
all of which are vested. The options have been adjusted given effect to the Share Exchange Ratio.
(4) Includes 110,881 stock options, all
of which are vested. The options have been adjusted given effect to the Share Exchange Ratio.
(5) Upon the closing of the Reverse Acquisition,
Mr. Gianluca Cicogna Mozzoni submitted a resignation letter pursuant to which he resigned from all offices that he held effective
immediately; and from his position as our director that will become effective on the tenth day following the mailing by us of an
information statement to our stockholders that complies with the requirements of Section 14(f) of the Exchange Act. In addition,
Messrs. Michael Johnson and James Gevarges were appointed to our Board, effective upon compliance with Section 14(f) of the Exchange
Act.
(6) Includes 1,837,777 shares of common
stock underlying warrants for a term of 5 years and at an exercise price of $0.41 per share of common stock for financial advisory
services.
45
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
In connection with
the Reverse Acquisition, Mr. Anthony, our President, Chief Executive Officer, and director, Mr. Gevarges, our director, and Esenjay
Investments, LLC, an entity which our director, Michael Johnson, is a director, severally agreed not to offer, sell, assign, transfer,
pledge, contract to sell, or otherwise dispose of any shares of our common stock or securities convertible into or exercisable
or exchangeable into our common stock beneficially owned by such shareholder, for a period of eighteen (18) months from the closing
date of the Reverse Acquisition, except during the period after the first anniversary of the closing date and a period of six (6)
months thereafter, in such an amount which constitutes less than three percent (3%) in the aggregate of such shareholder's
beneficial ownership of our common stock per month.
On June 14, 2012, we
entered into an Advisory Agreement with Baytree Capital Associates, LLP, our affiliate which owns 2,285,000 shares of our common
stock ("Baytree Capital") pursuant to which Baytree Capital will provide us with business and consulting 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, which shares will have piggy-back registration rights, and a warrant to purchase 1,837,777 restricted
shares of our common stock for a period of 5 years at an exercise price of $.41 per share.
On May 25, 2010, Flux
Power entered into a $400,000 Revolving Promissory Note for Inventory Funding (the "Inventory Funding Note") with our
shareholder Esenjay Investments, LLC ("Esenjay"), which matured in May 2012. Esenjay is owned by Mr. Michael Johnson
who sits on Flux Power's Board of Directors. The Inventory Funding Note bore interest 8% per annum and provides for advances
to be used for inventory purchases. In August 2011, Flux Power amended the Inventory Funding Note so that it may be converted into
Flux Power's shares of common stock at a conversion price to be determined at our next round of financing. The Inventory
Funding Note is secured by Flux Power's general assets.
On May 25, 2010, Flux
Power entered into a $1,000,000 Revolving Promissory Note for Operating Capital (the "Operating Capital Note") with
Esenjay. The Operating Capital Note matures as of the closing of our next round of financing but no later than May 30, 2012. The
Operating Capital Note bore interest at 8% and provides for advances for operating expenses. In August 2011, Flux Power amended
the Operating Capital Note so that it may be converted into Flux Power's shares of common stock at a conversion price to
be determined at its next round of financing. The Operating Capital Note is secured by Flux Power's general assets.
On September 27, 2011,
Flux Power entered into a $150,000 Bridge Loan Promissory Note (the "Bridge Note") with Esenjay. The Bridge Note matured
on May 30, 2012. The Bridge Note does not bear interest and provides that the principal amount may be converted into Flux Power's
shares of common stock at a conversion price to be determined at its next round of financing. On November 15, 2011, Flux Power
amended the Bridge Note to include a stated annual interest rate of 8%.
On December 15, 2011,
Esenjay agreed to convert the Inventory Funding Note, Operating Capital Note and the Bridge Note and the accrued interest in the
aggregate amount of $1,264,228 for 1,264,228 shares of Flux Power's common stock. Accordingly, the Inventory Funding Note,
Operating Capital Note and the Bridge Note are no longer outstanding.
46
On October 1, 2011,
Flux Power entered into a $1,000,000 Secondary Revolving Promissory Note for Operating Capital (the "Secondary Operating
Capital Note") with Esenjay. The Secondary Operating Capital Note matures on September 30, 2013. The Secondary Operating
Capital Note bears interest at 8% and provides for advances for operating expenses. As of  March 31,  2012, Flux Power
has drawn down $500,000 on the Secondary Revolving Promissory Note and $500,000 is available. As of June 14, 2012, Flux Power has
drawn down $600,000 on the Secondary Revolving Promissory Note and $400,000 is available.
Om March 7, 2012, Flux
Power entered into a $250,000 Bridge Loan ("Secondary Bridge Note") with Esenjay. The Secondary Bridge Note matures
on March 7, 2014. The Secondary Bridge Note bears interest at 8%.
During 2009, the Flux
Power entered into a cancelable Term Sheet agreement (the "Term Sheet Agreement") with a company owned by one of its
major shareholders. Pursuant to the Term Sheet Agreement, Flux Power was appointed as a distributor of this company's battery
charging products allowing Flux Power to sell the products either separately or as part of an energy storage solution. Additionally,
Flux Power was required to develop software to enable communication between the parties' respective products which entitles
Flux Power to royalties for any such units sold by the related entity. During the term of the Term Sheet Agreement Flux Power may
purchase the products at the then current price list for distributors. Further, under the terms of the Term Sheet Agreement, if
the company sells its products to a different distributor Flux Power is entitled to a distribution fee equal to 20% of the company's
gross profits on such sale. This distribution fee and royalties are capped at a total of $200,000. The products defined in the
term sheet were assigned to a different company that is owned by the same major shareholder, on September 1, 2010. The Term Sheet
Agreement expired pursuant to its terms on April 1, 2011. During the nine month periods ended March 31, 2012 and 2011, Flux Power
purchased approximately $52,000 and $35,000 of prototype products that are not subject to the distribution fee or royalties pursuant
to the Term Sheet Agreement. During 2010, Flux Power entered into a cancelable Manufacturing Implementation Agreement (the "Manufacturing
Agreement") with the same company. Pursuant to the terms of the Manufacturing Agreement, this company has been granted a
right of first refusal to manufacture Flux Power's battery management system. The Manufacturing Agreement expires on August
1, 2014. During the nine month periods ended March 31, 2012 and 2011, Flux Power paid approximately $258,000 and $130,000, respectively,
to this company pursuant to the Manufacturing Agreement.
On July 1, 2011, Flux
Power entered into a Sublease Agreement with Epic Boats, LLC ("Epic Boats"). Chris Anthony, our Chief Executive Officer
is also an R&D advisor to, and 35% owner of, Epic Boats. Pursuant to the Terms of the Sublease Agreement, Epic Boats has subleased
approximately 7,200 square feet of Flux Power's office space for a monthly payment of $6,640. The Sublease Agreement was
terminated January 1, 2012. During the nine month periods ended March 31, 2012 and 2011, Epic Boats reimbursed $53,000 and $7,000,
respectively, to Flux Power under this Sublease Agreement.
On
October 21, 2009, Flux Power entered into an agreement with Epic Boats, LLC where Epic Boats assigned and transferred to Flux Power
the entire right, title, and interest into products, technology, intellectual property, inventions and all improvements thereof,
as defined in the table below.
As of this date, Flux Power began selling products to Epic
under Flux Power's standard terms and conditions and has continued to sell products to Epic Boats as a customer. During the
nine month periods ended March 31, 2012 and 2011, Flux Power sold approximately $335,000 and $149,000, respectively, of product
to Epic Boats. The customer deposits balance received from Epic Boats at March 31, 2012 and June 30, 2011, is approximately $996,000
and $367,000, respectively. There were no receivables outstanding from Epic Boats as of March 31, 2012. As of June 30, 2011, receivables
of $29,000 were outstanding from Epic Boats.
47
During the nine month periods ended March
31, 2012 and 2011, the Company sold approximately $1,000 and $29,000, respectively, of product to a company owned by another one
of the Company's major shareholders who is the Company's former Chief Technology Officer. There were no receivables
outstanding from this customer as of March 31, 2012 and June 30, 2011. As of March 31, 2012 this shareholder sold his shares and
was no longer a shareholder of the Company.
Promoters and Certain Control Persons
The Reverse Acquisition resulted in a change
of control by issuance of our securities to the following entities and individuals:
·
Chris Anthony
. Mr. Anthony, our Chairman,
Chief Executive Officer, and President, is one of our major shareholders which beneficially owns approximately 29% of our common
stock on the completion of the share exchange.
·
Esenjay Investments, LLC.
Esenjay Investment,
LLC is one of our major shareholders which beneficially owns approximately 49% of our common stock on the completion of the share
exchange. Mr. Michael Johnson, our director, is the director and shareholder of this entity.
·
James Gevarges
. Mr. Gevarges, our director,
is one of our major shareholders who beneficially owns approximately 15% of our common stock on the completion of the share exchange.
In connection with the Reverse Acquisition,
Messrs. Anthony and Gevarges and Esenjay Investments LLC each agreed not to offer, sell, assign, transfer, pledge, contract to
sell, or otherwise dispose of any shares of our common stock or securities convertible into or exercisable or exchangeable into
our common stock beneficially owned by such shareholder, for a period of eighteen (18) months from the closing date of the Reverse
Acquisition, except during the period after the first anniversary of the closing date and a period of six (6) months thereafter,
in such an amount which constitutes less than three percent (3%) in the aggregate of such shareholder's beneficial ownership
of our common stock per month.
Director Independence
We currently do not
have any independent directors as the term "independent" is defined by the rules of the Nasdaq Stock Market.
48
MARKET PRICE OF AND DIVIDENDS ON THE
REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Market Information
Our common stock started
quotation on the OTCQB under the stock symbol "LNPI." On June 11, 2012, our symbol was changed to "FLUX."
The following table sets forth the range of the closing bid prices for our common stock for the period January 1, 2010 through
March 31, 2012, for each of the quarters ended on the date set forth below.  Such prices represent inter-dealer quotations,
do not represent actual transactions, and do not include retail mark-ups, mark-downs or commissions.  Such prices were
determined from information provided by a majority of the market makers for our common stock.
2012
High Close
Low Close
Quarter ended March 31, 2012
$        0.29
$0.29
2011
Quarter ended December 31, 2011
$
0.29
$
$0.29
Quarter ended September 30, 2011
$
0.29
$
$0.29
Quarter ended June 30, 2011
$
0.29
$
$0.29
Quarter ended March 31, 2011
$
0.29
$
$0.29
2010
Quarter ended December 31, 2010
$
0.25
$
0.25
Quarter ended September 30, 2010
$
0.25
$
0.25
Quarter ended June 30, 2010
$
0.25
$
0.25
Quarter ended March 31, 2010
$
0.25
$
0.25
Shareholders
The approximate number
of record holders of our common stock as of May 29, 2012 was 1,314.
Dividend Policy
We presently do not
expect to declare or pay such dividends in the foreseeable future and expect to reinvest all undistributed earnings to expand our
operations, which the management believes would be of the most benefit to our shareholders. The declaration of dividends, if any,
will be subject to the discretion of our Board of Directors, which may consider such factors as our results of operations, financial
condition, capital needs and acquisition strategy, among others.
49
Securities Authorized for Issuance under Equity Compensation
Plans
The following table
provides aggregate information as of June 30, 2011 with respect to all compensation plans (including individual compensation arrangements)
under which equity securities are authorized for issuance.
A
B
C
Plan Category
Number of securities to be
issued upon exercise of
outstanding options, and
warrants
Weighted-average exercise
price of outstanding
options, and warrants
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column A)
Equity compensation plans approved by security holders(1)
710,000
$
0.13
0
Equity compensation plans not approved by security holders
0
$
0
0
Total
710,000
$
0.13
0
(1) The options have not been adjusted
based on the Share Exchange Ratio. In addition, as part of the Reverse Acquisition, we have adopted a Stock Option Plan ("Option
Plan") in accordance with Sections 424(a) and 409A of the Internal Revenue Code. However, we will not be able to grant additional
options under the Option Plan.
DESCRIPTION
OF SECURITIES
Common Stock
We are
authorized to issue up to 145,000,000 shares of common stock, par value $0.001 per share. Each outstanding share of common
stock entitles the holder thereof to one vote per share on all matters. Our bylaws provide that any vacancy occurring in the
Board of Directors may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum
of the Board of Directors.
The holders of shares
of our common stock are entitled to dividends out of funds legally available when and as declared by our Board of Directors. Our
Board of Directors has never declared a dividend and does not anticipate declaring a dividend in the foreseeable future. Should
we decide in the future to pay dividends, as a holding company, our ability to do so and meet other obligations depends upon the
receipt of dividends or other payments from our operating subsidiary and other holdings and investments. In the event of our liquidation,
dissolution or winding up, holders of our common stock are entitled to receive, ratably, the net assets available to stockholders
after payment of all creditors.
All of the issued
and outstanding shares of our common stock are duly authorized, validly issued, fully paid and non-assessable. To the extent that
additional shares of our common stock are issued, the relative interests of existing stockholders will be diluted.
50
Preferred Stock
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.
Anti-takeover Effects of Our Articles
of Incorporation and By-laws
Our Articles of Incorporation
and bylaws contain certain provisions that may have anti-takeover effects, making it more difficult for or preventing a third party
from acquiring control of the Company or changing its Board of Directors and management. According to our bylaws and Articles of
Incorporation, neither the holders of the Company's common stock nor the holders of the Company's preferred stock have
cumulative voting rights in the election of our directors. The combination of the present ownership by a few stockholders of a
significant portion of the Company's issued and outstanding common stock and lack of cumulative voting makes it more difficult
for other stockholders to replace the Company's Board of Directors or for a third party to obtain control of the Company
by replacing its Board of Directors.
Anti-takeover Effects of Nevada Law
Business Combinations
The "business
combination" provisions of Sections 78.411 to 78.444, inclusive, of the Nevada Revised Statutes, or NRS, prohibit a Nevada
corporation with at least 200 stockholders from engaging in various "combination" transactions with any interested
stockholder: for a period of three years after the date of the transaction in which the person became an interested stockholder,
unless the transaction is approved by the Board of Directors prior to the date the interested stockholder obtained such status;
or after the expiration of the three-year period, unless:
·
the transaction is approved by the Board of Directors or a majority of the voting power held by
disinterested stockholders, or
·
if the consideration to be paid by the interested stockholder is at least equal to the highest
of: (a) the highest price per share paid by the interested stockholder within the three years immediately preceding the date of
the announcement of the combination or in the transaction in which it became an interested stockholder, whichever is higher, (b)
the market value per share of common stock on the date of announcement of the combination and the date the interested stockholder
acquired the shares, whichever is higher, or (c) for holders of preferred stock, the highest liquidation value of the preferred
stock, if it is higher.
A "combination"
is defined to include mergers or consolidations or any sale, lease exchange, mortgage, pledge, transfer or other disposition, in
one transaction or a series of transactions, with an "interested stockholder" having: (a) an aggregate market value
equal to 5% or more of the aggregate market value of the assets of the corporation, (b) an aggregate market value equal to 5% or
more of the aggregate market value of all outstanding shares of the corporation, or (c) 10% or more of the earning power or net
income of the corporation.
In general, an "interested
stockholder" is a person who, together with affiliates and associates, owns (or within three years, did own) 10% or more
of a corporation's voting stock. The statute could prohibit or delay mergers or other takeover or change in control attempts
and, accordingly, may discourage attempts to acquire our company even though such a transaction may offer our stockholders the
opportunity to sell their stock at a price above the prevailing market price.
51
Our Articles of Incorporation
state that we have elected not to be governed by the "business combination" provisions, therefore such provisions currently
do not apply to us.
Control Share Acquisitions
The "control
share" provisions of Sections 78.378 to 78.3793, inclusive, of the NRS, which apply only to Nevada corporations with at least
200 stockholders, including at least 100 stockholders of record who are Nevada residents, and which conduct business directly or
indirectly in Nevada, prohibit an acquirer, under certain circumstances, from voting its shares of a target corporation's
stock after crossing certain ownership threshold percentages, unless the acquirer obtains approval of the target corporation's
disinterested stockholders. The statute specifies three thresholds: one-fifth or more but less than one-third, one-third but less
than a majority, and a majority or more, of the outstanding voting power. Once an acquirer crosses one of the above thresholds,
those shares in an offer or acquisition and acquired within 90 days thereof become "control shares" and such control
shares are deprived of the right to vote until disinterested stockholders restore the right. These provisions also provide that
if control shares are accorded full voting rights and the acquiring person has acquired a majority or more of all voting power,
all other stockholders who do not vote in favor of authorizing voting rights to the control shares are entitled to demand payment
for the fair value of their shares in accordance with statutory procedures established for dissenters' rights.
Our Articles of Incorporation
state that we have elected not to be governed by the "control share" provisions, therefore, they currently do not apply
to us.
Transfer Agent and Registrar
Our independent stock
transfer agent is 	Interwest Transfer Company, Inc. located at 1981 Murray Holladay Road, Suite 100 and telephone number (801)
272-9294.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Nevada Law
Section 78.138 of the
NRS provides that a director or officer will not be individually liable unless it is proven that (i) the director's or officer's
acts or omissions constituted a breach of his or her fiduciary duties, and (ii) such breach involved intentional misconduct, fraud
or a knowing violation of the law.
Section 78.7502 of
NRS permits a company to indemnify its directors and officers against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with a threatened, pending or completed action, suit or proceeding if the officer
or director (i) is not liable pursuant to NRS 78.138 or (ii) acted in good faith and in a manner the officer or director reasonably
believed to be in or not opposed to the best interests of the corporation and, if a criminal action or proceeding, had no reasonable
cause to believe the conduct of the officer or director was unlawful.
Section 78.751 of NRS
permits a Nevada company to indemnify its officers and directors against expenses incurred by them in defending a civil or criminal
action, suit or proceeding as they are incurred and in advance of final disposition thereof, upon receipt of an undertaking by
or on behalf of the officer or director to repay the amount if it is ultimately determined by a court of competent jurisdiction
that such officer or director is not entitled to be indemnified by the company. Section 78.751 of NRS further permits the company
to grant its directors and officers additional rights of indemnification under its Articles of Incorporation or bylaws or otherwise.
52
Section 78.752 of NRS
provides that a Nevada company may purchase and maintain insurance or make other financial arrangements on behalf of any person
who is or was a director, officer, employee or agent of the company, or is or was serving at the request of the company as a director,
officer, employee or agent of another company, partnership, joint venture, trust or other enterprise, for any liability asserted
against him and liability and expenses incurred by him in his capacity as a director, officer, employee or agent, or arising out
of his status as such, whether or not the company has the authority to indemnify him against such liability and expenses.
Charter Provisions and Other Arrangements
of the Registrant
Our Articles of Incorporation
provide that no director or officer of the Company will be personally liable to the Company or any of its stockholders for damages
for breach of fiduciary duty as a director or officer; provided, however, that the foregoing provision shall not eliminate or limit
the liability of a director or officer (i) for acts or omissions which involve intentional misconduct, fraud or knowing violation
of law, or (ii) the payment of dividends in violation of Section 78.300 of NRS. In addition, our bylaws implement the indemnification
and insurance provisions permitted by Chapter 78 of the NRS by providing that:
The Company shall indemnify
its directors to the fullest extent permitted by the NRS and may, if and to the extent authorized by the Board of Directors, so
indemnify its officers and any other person whom it has the power to indemnify against liability, reasonable expense or other matter
whatsoever.
The Company may at the discretion of the
Board of Directors purchase and maintain insurance on behalf of any person who holds or who has held any position identified in
the paragraph above against any and all liability incurred by such person in any such position or arising out of his status as
such.
Insofar as indemnification
by us for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers or persons controlling
the company pursuant to provisions of our Articles of Incorporation and bylaws, or otherwise, we have been advised that in the
opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
In the event that a claim for indemnification by such director, officer or controlling person of us in the successful defense of
any action, suit or proceeding is asserted by such director, officer or controlling person in connection with the securities being
offered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
At the present time,
there is no pending litigation or proceeding involving a director, officer, employee or other agent of ours in which indemnification
would be required or permitted. We are not aware of any threatened litigation or proceeding, which may result in a claim for such
indemnification.
Indemnification Agreements
On June 14, 2012, in
connection with the appointment of Mr. Chris Anthony as our director, Chief Executive Officer and President, and Mr. Steve Jackson
as our Chief Financial Officer, and Mr. Craig Miller as our Secretary, we executed a standard form of indemnification agreement
("Indemnification Agreement") with each of them (the "Indemnitee").
Pursuant to and subject
to the terms, conditions and limitations set forth in the Indemnification Agreement, we agreed to indemnify each Indemnitee, against
any and all expenses incurred in connection with the Indemnitee's service as our officer, director and or agent, or is or
was serving at our request as a director, officer, employee, agent or advisor of another corporation, partnership, joint venture,
trust, limited liability company, or other entity or enterprise but only if the Indemnitee acted in good faith and in a manner
he reasonably believed to be in or not opposed to our best interest, and in the case of a criminal proceeding, had no reasonable
cause to believe that his conduct was unlawful. In addition, the indemnification provided in the indemnification agreement is applicable
whether or not negligence or gross negligence of the Indemnitee is alleged or proven. Additionally, the Indemnification Agreement
establishes processes and procedures for indemnification claims, advancement of expenses and costs and contribution obligations.
53
We intend to enter
into such Indemnification Agreements with Messrs. Johnson and Mr. Gevarges upon the effectiveness of their respective appointment
as our directors.
Item 4.01 Change in Registrant's Certifying Accountant
(a)
Previous Independent Registered Public Accounting
Firm
On June 14, 2012, we
dismissed Friedman LLP ("Friedman") as our independent registered public accounting firm.
Friedman's report
on our consolidated balance sheets as of December 31, 2011 and 2010, and the related consolidated statements of operations and
comprehensive income, stockholders' equity (deficit) and cash flows for the years then ended, did not contain an adverse
opinion, or disclaimer of opinion, nor were they qualified or modified as to any uncertainty, audit scope or accounting principles,
other than as to the substantial doubt of the Company's ability to continue as a going concern.
The decision to change
our independent registered public accounting firm was made and approved by our Board of Directors on June 14, 2012. We do not have
a separate audit committee.
During our most recent
fiscal years ended December 31, 2011 and 2010, there have been no disagreements with Friedman on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to
the satisfaction of Friedman would have caused it to make reference to the subject matter of the disagreement(s) in connection
with its report.
During our most recent
fiscal years ended December 31, 2011  and 2010, Friedman did not advise us on any matter set forth in Item 304(a)(1)(v)(A)
through (D) of Regulation S-K.
We have provided our
former independent accountant, Friedman with a copy of the disclosures expressed herein and we have requested that Friedman furnish
us with a letter addressed to the Securities and Exchange Commission stating whether or not it agrees with such statements. Friedman's
response is attached as Exhibit 16.1.
54
(b)
New Independent Registered
Public Accounting Firm.
On June 14, 2012, we
engaged Mayer Hoffman McCann P.C. ("MHM") to serve as our independent registered public accounting firm. During our
two most recent fiscal years ended June 30, 2011, and through its appointment on June 14, 2012, we did not consult with MHM regarding
(i) the application of accounting principles to a specific transaction, either completed or contemplated, or the type of audit
opinion that might be rendered on our financial statements, and no written report or oral advice was provided to us that was an
important factor to be considered by us in reaching a decision as to an accounting, auditing or financial reporting issue; or (ii)
any matter that was either the subject of a disagreement (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K) or a
reportable event (as that term is defined in Item 304(a)(1)(v) of Regulation S-K).
Item 5.01 Changes in Control of Registrant
Reference is made to
the disclosure set forth under Item 2.01 of this report, which disclosure is incorporated herein by reference.
Pursuant to the Exchange
Agreement, as amended, we acquired 100% of the issued and outstanding capital stock of Flux Power in exchange for 37,714,514 shares
of our common stock, which constitutes approximately 91% of our issued and outstanding common stock after the consummation of the
Reverse Acquisition. As a result of the Reverse Acquisition, we have assumed the business and operations of Flux Power.
Item 5.02 Departure of Directors or
Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
Upon the closing of
the reverse acquisition, Mr. Gianluca Cicogna Mozzoni, our Chief Executive Officer, President, Chief Financial Officer, Treasurer,
Secretary and a director, submitted a resignation letter pursuant to which he resigned from all offices that he held effective
immediately; and from his position as our director that will become effective on the tenth day following the mailing by us of an
information statement to our stockholders that complies with the requirements of Section 14(f) of the Exchange Act. In addition,
our Board of Directors on June 14, 2012, increased the size of our Board of Directors to three directors and appointed Mr. Chris
Anthony (Chairman) to fill the vacancy created by the increase in board size, effective as of the date of the Closing of the reverse
acquisition. In addition, Messrs. Michael Johnson and James Gevarges were appointed to fill the vacancies created upon the effective
resignation of Mr. Mozzoni and the increase in the size of the board, with such appointments and resignation to be effective in
compliance with Section 14(f) of the Exchange Act.
In addition, our Board
of Directors appointed Mr. Anthony to serve as our chairman, Chief Executive Officer and President, and Steve Jackson as our Chief
Financial Officer and Chief Operating Officer, effective immediately at the close of the Reverse Acquisition.
For certain biographical
and other information regarding the newly appointed officers and directors, see the disclosure under Item 2.01 of this report,
which disclosure is incorporated herein by reference.
55
Item 5.03 Amendments to Articles of Incorporation or Bylaws;
Change in Fiscal Year
Change in Fiscal Year
In connection with
the Share Exchange with Flux Power, our Board of Directors, on June 14, 2012, approved a change of our fiscal year end to June
30, the fiscal year end of our operating company Flux Power. Starting with the periodic report for the quarter in which the Reverse
Acquisition was completed, we will file annual and quarterly reports based on a June 30 fiscal year. Such financial statements
will depict the operating results of the Company and the acquisition of Flux Power. In reliance on Section III F of the SEC's
Division of Corporate Finance: Frequently Requested Accounting and Financial Reporting Interpretations and Guidance dated March
31, 2001, we do not intend to file a transition report but include in this Form 8-K audited financial statements of Flux Power
for the year ended June 30, 2011.
Item 5.06 Change in Shell Company Status
Prior to the closing
of the reverse acquisition, FPH, formerly Lone Pine, was a "shell company" as defined in Rule 12b-2 of the Exchange
Act. As described in Item 2.01 above, which is incorporated by reference into this Item 5.06, FPH ceased being a shell company
upon completion of the Reverse Acquisition on June 14, 2012.
Item 8.01 Other Events.
The information relating
to the Private Placement under Item 2.01 is being provided pursuant to Rule 135c under the Securities Act.
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
Filed herewith are:
·
Audited financial statements of Flux Power, Inc. as of and for the fiscal years ended June 30,
2011 and 2010 (the 2010 fiscal year covered a period of eight months).
·
Unaudited condensed financial statements of Flux Power, Inc. as of March 31, 2012 and for the nine
months ended March 31, 2012 and 2011.
(b) Pro Forma Financial Information
Filed herewith is unaudited
pro forma combined financial information of FPH and its subsidiaries.
56
(d) Exhibits
Exhibit No.
Description
2.1
Securities Exchange Agreement dated May 18, 2012
(1)
2.2
Amendment No. 1 to the Securities Exchange Agreement dated June 13, 2012*
3.1
Articles of Incorporation
(2)
3.2
Certificate of Merger filed with the State of Nevada on May 23, 2012*
3.3
Certificate of Correction to Articles of Incorporation filed with the State of Nevada on June 14, 2012*
3.4
Amended and Restated Bylaws of Flux Power Holdings, Inc.
(3)
10.1
Esenjay Secondary Revolving Promissory Note for Operating Capital  dated October 1, 2011*
10.2
Esenjay Bridge Loan Promissory Note dated March 7, 2012*
10.3
Amended and Restated Terms of Employment with Chris Anthony with an effective date of January 1, 2010*
10.4
Terms of Employment with Steve Jackson dated January 12, 2012*
10.5
Flux Power, Inc. 2010 Stock Plan*
10.6
Flux Power, Inc. 2010 Stock Plan: Form of Stock Option Agreement*
10.7
LHV Power Corporation Term Sheet dated June 19, 2009*
10.8
LHV Manufacturing Implementation Agreement dated August 1, 2009*
10.9
GreenTech Automotive, Inc. Purchase Order Terms and Conditions*
(4)
10.10
NACCO Materials Handling Group, Inc. Prototype Agreement dated February 6, 2012*
(4)
10.11
Baytree Capital Advisory Agreement dated June 14, 2012*
10.12
Form of Indemnification Agreement*
16.1
Letter from Friedman LLP re: change in certifying accountant dated
    June 18, 2012*
21.1
Subsidiaries*
99.1
Audited financial statement of Flux Power, Inc. as of and for the fiscal years ended June 30, 2011 and 2010 (the 2010 fiscal year covered a period of eight months).
99.2
Unaudited condensed financial statements of Flux Power, Inc. as of  March 31, 2012 and for the nine months ended March 31, 2012 and 2011
99.3
Unaudited Pro Forma Combined Financial Information of Flux Power
        Holdings, Inc. and its subsidiaries
* Filed herewith.
(1) Incorporated by reference to Form 8-K filed with the SEC
on May 24, 2012
(2) Incorporated by reference to Form 10SB12G filed with the
SEC on April 29, 1999.
(3) Incorporated by reference to Form 8-K filed with the SEC
on May 31, 2012
(4) Application
has been made to the SEC to seek confidential treatment of certain portions of Exhibits 10.9 and 10.10 under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended. Omitted material for which confidential treatment has been requested has been filed
separately with the SEC
.
57
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Flux Power Holdings, Inc.,
A Nevada Corporation
Dated: June 18, 2012
/s/ Chris Anthony
Chris Anthony, President
58