<SEC-DOCUMENT>0001144204-12-053573.txt : 20120928
<SEC-HEADER>0001144204-12-053573.hdr.sgml : 20120928
<ACCEPTANCE-DATETIME>20120928143403
ACCESSION NUMBER:		0001144204-12-053573
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		11
CONFORMED PERIOD OF REPORT:	20120630
FILED AS OF DATE:		20120928
DATE AS OF CHANGE:		20120928

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			Flux Power Holdings, Inc.
		CENTRAL INDEX KEY:			0001083743
		STANDARD INDUSTRIAL CLASSIFICATION:	MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690]
		IRS NUMBER:				860931332
		STATE OF INCORPORATION:			NV
		FISCAL YEAR END:			0630

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-25909
		FILM NUMBER:		121116122

	BUSINESS ADDRESS:	
		STREET 1:		2240 AUTO PARK WAY,
		CITY:			ESCONDIDO,
		STATE:			CA
		ZIP:			92029
		BUSINESS PHONE:		877-505-3589

	MAIL ADDRESS:	
		STREET 1:		2240 AUTO PARK WAY,
		CITY:			ESCONDIDO,
		STATE:			CA
		ZIP:			92029

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	Lone Pine Holdings, Inc
		DATE OF NAME CHANGE:	20090415

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	Australian Forest Industries
		DATE OF NAME CHANGE:	20070508

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	MULTI TECH INTERNATIONAL CORP
		DATE OF NAME CHANGE:	20021204
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>v324399_10k.htm
<DESCRIPTION>FORM 10-K
<TEXT>
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<P STYLE="margin: 0"></P>

<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">&nbsp;</P>

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

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%; font-size: 10pt"><FONT STYLE="font-family: Wingdings 2"><B>&#82;</B></FONT></TD>
    <TD STYLE="width: 96%; font-size: 10pt; font-weight: bold">ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934</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 0pt 27pt"><B>For the fiscal year ended June 30, 2012</B></P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%; font-size: 10pt; font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&#163;</FONT></TD>
    <TD STYLE="width: 96%; font-size: 10pt; font-weight: bold">TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-indent: 0"><B>Commission File Number: <U>000-25909</U></B></P>

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

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

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

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 49%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">Nevada</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 49%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">86-0931332</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">(State or other jurisdiction of</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">(I.R.S. Employer</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">incorporation or organization)</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Identification Number)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">2240 Auto Park Way, Escondido, California</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">92029</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">(Address of principal executive offices)</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">(Zip code)</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: center"><B><U>877-505-3589</U></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(Issuer&rsquo;s telephone number, including
area code)</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>Securities registered pursuant to Section
12(b) of the Act: <U>None</U></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: center"><B>Securities registered pursuant to Section
12(g) of the Act:</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: center"><B><U>Common Stock,</U></B><U> <B>$0.001
par value</B></U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(Title of Class)</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">Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule&nbsp;405 of the Securities Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif">Yes&nbsp;&nbsp;
</FONT><FONT STYLE="font: 10pt Wingdings"><B>&uml;</B></FONT><FONT STYLE="font-family: Times New Roman, Times, Serif"> &nbsp;&nbsp;No&nbsp;&nbsp;
</FONT><FONT STYLE="font-family: Wingdings 2"><B>&#82;</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">Indicate by check mark if the registrant is not required to
file reports pursuant to Section&nbsp;13 or Section 15(d) of the Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif">Yes&nbsp;&nbsp;
</FONT><FONT STYLE="font: 10pt Wingdings"><B>&uml;</B></FONT><FONT STYLE="font-family: Times New Roman, Times, Serif"> &nbsp;&nbsp;No&nbsp;&nbsp;
</FONT><FONT STYLE="font-family: Wingdings"></FONT><FONT STYLE="font-family: Wingdings 2"><B>&#82;</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">Indicate by check mark whether the registrant (1)&nbsp;has filed
all reports required to be filed by Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months
(or for such shorter period that the issuer was required to file such reports), and (2)&nbsp;has been subject to such filing requirements
for the past 90&nbsp;days.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif">Yes&nbsp;&nbsp;
</FONT><FONT STYLE="font-family: Wingdings 2"><B>&#82;</B></FONT><FONT STYLE="font-family: Times New Roman, Times, Serif"> &nbsp;&nbsp;No&nbsp;&nbsp;
</FONT><FONT STYLE="font: 10pt Wingdings"><B>&uml;</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"><FONT STYLE="font-family: Times New Roman, Times, Serif">Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (&sect; 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).&nbsp;&nbsp;Yes&nbsp;&nbsp;
</FONT><FONT STYLE="font-family: Wingdings"></FONT><FONT STYLE="font-family: Wingdings 2"><B>&#82;</B></FONT><FONT STYLE="font-family: Times New Roman, Times, Serif"> &nbsp;&nbsp;No&nbsp;&nbsp;
</FONT><FONT STYLE="font: 10pt Wingdings"><B>&uml;</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"><FONT STYLE="font-family: Times New Roman, Times, Serif">Indicate
by check mark if disclosure of delinquent filers pursuant to Item&nbsp;405 of Regulation&nbsp;S-K (&sect; 229.405) is not contained
herein, and will not be contained, to the best of registrant&rsquo;s knowledge, in definitive proxy or information statements incorporated
by reference in Part&nbsp;III of this Form 10-K or any amendment to this Form 10-K. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT><FONT STYLE="font: 10pt Wingdings"><B>&uml;</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">Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of &ldquo;large accelerated
filer,&rdquo; &ldquo;accelerated filer&rdquo; and &ldquo;smaller reporting company&rdquo; in Rule 12b-2 of the Exchange Act. (Check
one):</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 30%">Large accelerated filer</TD>
    <TD STYLE="width: 15%; font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&#163;</FONT></TD>
    <TD STYLE="width: 6%">&nbsp;</TD>
    <TD STYLE="width: 26%">Accelerated filer</TD>
    <TD STYLE="width: 23%; font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&#163;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Non-accelerated filer</TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&#163;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>Smaller reporting company</TD>
    <TD><FONT STYLE="font-family: Wingdings 2"><B>&#82;</B></FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2">(Do not check if a smaller reporting company)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&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">Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif">Yes
</FONT><FONT STYLE="font: 10pt Wingdings"><B>&uml;</B></FONT><FONT STYLE="font-family: Times New Roman, Times, Serif"> No </FONT><FONT STYLE="font-family: Wingdings 2"><B>&#82;</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">The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant as of December 31, 2011 was approximately $84,787 based upon the closing price
of $0.29 per share as quoted for such date on the OTCQB. Shares of common stock held by each officer and director and by each person
who is known to own 10% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates
of the Company. This determination of affiliate status is not necessarily a conclusive determination for other purposes.</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">APPLICABLE ONLY TO CORPORATE ISSUERS:</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">The number of shares of registrant&rsquo;s common stock outstanding
as of&nbsp;September 4, 2012&nbsp;was 46,364,587.</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"><B>Documents incorporated by reference:</B>
None.</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"><FONT STYLE="font-family: Times New Roman, Times, Serif"><B>Transitional
Small Business Disclosure Format</B> (Check one): Yes </FONT><FONT STYLE="font: 10pt Wingdings"><B>&uml;</B></FONT><FONT STYLE="font-family: Times New Roman, Times, Serif">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No </FONT><FONT STYLE="font-family: Wingdings 2"><B>&#82;</B></FONT></P>

<P STYLE="font: 10pt Wingdings; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<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>FLUX POWER HOLDINGS, INC.</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: center"><B>FORM 10-K &mdash; ANNUAL REPORT</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>For the Fiscal Year Ended June 30, 2012</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: center"><B>Table of Contents</B></P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD COLSPAN="4" STYLE="font-weight: bold; text-align: center">PART I</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="width: 12%; vertical-align: top">ITEM 1.</TD>
    <TD STYLE="width: 82%; vertical-align: top">BUSINESS</TD>
    <TD STYLE="width: 1%; vertical-align: top">&nbsp;</TD>
    <TD STYLE="width: 5%; vertical-align: bottom; text-align: right">1</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">ITEM 1A.</TD>
    <TD STYLE="vertical-align: top">RISK FACTORS</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">15</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">ITEM 1B.</TD>
    <TD STYLE="vertical-align: top">UNRESOLVED STAFF COMMENTS</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">28</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">ITEM 2.</TD>
    <TD STYLE="vertical-align: top">PROPERTIES</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">28</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">ITEM 3.</TD>
    <TD STYLE="vertical-align: top">LEGAL PROCEEDINGS</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">28</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">ITEM 4.</TD>
    <TD STYLE="vertical-align: top">MINE SAFETY DISCLOSURES</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">28</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD COLSPAN="4" STYLE="font-weight: bold; text-align: center">PART II</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">ITEM 5.</TD>
    <TD STYLE="vertical-align: top">MARKET FOR REGISTRANT&rsquo;S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">29</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">ITEM 6.</TD>
    <TD STYLE="vertical-align: top">SELECTED FINANCIAL DATA</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">32</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">ITEM 7.</TD>
    <TD STYLE="vertical-align: top">MANAGEMENT&rsquo;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">32</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">ITEM 7A.</TD>
    <TD STYLE="vertical-align: top">QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">40</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">ITEM 8.</TD>
    <TD STYLE="vertical-align: top">FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">40</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">ITEM 9.</TD>
    <TD STYLE="vertical-align: top">CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">40</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">ITEM 9A</TD>
    <TD STYLE="vertical-align: top">CONTROLS AND PROCEDURES</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">41</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">ITEM 9B.</TD>
    <TD STYLE="vertical-align: top">OTHER INFORMATION</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">42</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD COLSPAN="4" STYLE="font-weight: bold; text-align: center">PART III</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">ITEM 10.</TD>
    <TD STYLE="vertical-align: top">DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">43</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">ITEM 11.</TD>
    <TD STYLE="vertical-align: top">EXECUTIVE COMPENSATION</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">47</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">ITEM 12.</TD>
    <TD STYLE="vertical-align: top">SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">51</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">ITEM 13.</TD>
    <TD STYLE="vertical-align: top">CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">52</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">ITEM 14.</TD>
    <TD STYLE="vertical-align: top">PRINCIPAL ACCOUNTANT FEES AND SERVICES</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">56</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD COLSPAN="4" STYLE="font-weight: bold; text-align: center">PART IV</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">ITEM 15.</TD>
    <TD STYLE="vertical-align: top">EXHIBITS, AND FINANCIAL STATEMENT SCHEDULES</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">58</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">&nbsp;</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">SIGNATURES</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">60</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

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<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>SPECIAL NOTE REGARDING FORWARD LOOKING
STATEMENTS</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">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; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 2%">&bull;</TD>
    <TD STYLE="width: 95%; text-align: justify">our anticipated growth strategies and our ability to manage the expansion of our business operations effectively;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD>&bull;</TD>
    <TD STYLE="text-align: justify">our ability to maintain or increase our market share in the competitive markets in which we do business;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD>&bull;</TD>
    <TD STYLE="text-align: justify">our ability to keep up with rapidly changing technologies and evolving industry standards, including our ability to achieve technological advances;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD>&bull;</TD>
    <TD STYLE="text-align: justify">our dependence on the growth in demand for our products;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD>&bull;</TD>
    <TD STYLE="text-align: justify">our ability to diversify our product offerings and capture new market opportunities;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD>&bull;</TD>
    <TD STYLE="text-align: justify">our ability to source our needs for skilled labor, machinery, parts, and raw materials economically; and</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD>&bull;</TD>
    <TD STYLE="text-align: justify">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; text-align: justify">&nbsp;</P>

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

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

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

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 3%; text-align: justify">&bull;</TD>
    <TD STYLE="width: 94%; text-align: justify">the &ldquo;Company,&rdquo; &ldquo;FPH,&rdquo; &ldquo;Flux&rdquo;,&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 STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&bull;</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 STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&bull;</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 STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&bull;</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">&nbsp;</P>

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<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>PART 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"><B>ITEM 1 &mdash; BUSINESS</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>Overview</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 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; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 9%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 3%; text-align: justify">&bull;</TD>
    <TD STYLE="width: 88%; text-align: justify"><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-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 9%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 3%; text-align: justify">&bull;</TD>
    <TD STYLE="width: 88%; text-align: justify"><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-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 9%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 3%; text-align: justify">&bull;</TD>
    <TD STYLE="width: 88%; text-align: justify"><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; 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 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; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>History</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 were organized by
the filing of Articles of Incorporation with the Nevada Secretary of State on September 21, 1998 under the name Oleramma, Inc.
Since our inception, we have engaged in the business of marketing consumer products through interactive website to the operation
of 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. Since 2008, we have ceased as an operating company and in 2010, we began seeking a merger candidate.</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">Since our inception,
we have had the following name changes:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 14%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 35%; text-align: justify">April 1999</TD>
    <TD STYLE="width: 51%; text-align: justify">BuckTV.com</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">November 2002</TD>
    <TD STYLE="text-align: justify">Multi-Tech International, Corporation</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">September 2003</TD>
    <TD STYLE="text-align: justify">Australian Forest Industries</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">January 2010</TD>
    <TD STYLE="text-align: justify">Lone Pine Holdings, Inc.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">May 2012</TD>
    <TD STYLE="text-align: justify">Flux Power Holdings, Inc.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<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 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 Power 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 Power 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 Power Shareholders collectively own approximately 91% of the issued and outstanding
shares of our common stock, and Flux Power became our wholly-owned operating subsidiary. 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; Currently all of our business operations are conducted through
our wholly-owned subsidiary, Flux Power.</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 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, our customer, Wheego, obtained a Federal Motor Vehicle Safety Standards validation for their electric vehicle which incorporated
our batteries. In addition, we 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; 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">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>DESCRIPTION OF OUR BUSINESS </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"><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">We are in the business
of energy storage and battery management. In October 2009, we started 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">&nbsp;</P>

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

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

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<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>Electric Vehicles</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">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.</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>Grid Management Solutions</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">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.</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"><B><I><U>Battery Types</U></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">The most common battery
technologies currently available to address the electric vehicle and grid management markets include the following:</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; text-indent: 0.5in"><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.</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; text-indent: 0.5in"><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.</P>

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

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<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>Legacy Lithium
Chemistries</I></B>: 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.</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 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.</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; text-indent: 0.5in"><B><I>Other Technologies</I></B>:
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.</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><U>Current Advanced Energy Storage
Application Needs</U></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">There are a number
of features required of advanced energy storage applications today, such as:</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; text-indent: 0.5in"><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.</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; text-indent: 0.5in"><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.</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>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.</P>

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

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<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>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.</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; text-indent: 0.5in"><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.</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; text-indent: 0.5in"><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.</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; text-indent: 0.5in"><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.</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"><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
which we believe, in many cases and based on the life cycle data of the lead acid batteries provided by the manufacturers, outperform
traditional lead acid technologies on both metrics. Our systems use lithium-ion cells that are denser in energy than traditional
lead acid batteries, which allow our batteries to hold more charge over the same weight. In addition, our Battery Management System
protects the lithium-ion batteries enabling the lithium-ion batteries to reach their full life and cycle potential and outlasting
lead acid based batteries which would have to be replaced and thereby adding additional costs over the same time period. Our systems
manage individual cells and their charge cycles, which generally allows for more consistent discharge capability and ease of maintenance
over an unmanaged battery. 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>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 25%; text-align: justify"><img src="tpg10a.jpg"></TD>
    <TD STYLE="width: 75%; text-align: justify"><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;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 25%; text-align: justify"><img src="tpg10b.jpg"></TD>
    <TD STYLE="width: 75%; text-align: justify"><B><I>Battery Modules</I></B>. 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 and individual 3.2 volt cells in various sizes from 40ah to 300ah. We offer varying chemistries and configurations based on the applications. Our battery modules are designed for our BMS.&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 25%"><img src="tpg10c.jpg"></TD>
    <TD STYLE="width: 75%; text-align: justify"><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.<B><I> </I></B> &nbsp;</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"><I>Below is a summary
of revenues derived from each of our products and end markets in which the sales were made during the period reference below:</I></P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-style: italic; text-align: center; border-bottom: Black 1pt solid">Product</TD><TD NOWRAP STYLE="font-style: italic; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-style: italic; text-align: center; border-bottom: Black 1pt solid">Revenues for Fiscal Year <BR>Ended June 30, 2012</TD><TD NOWRAP STYLE="font-style: italic; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-style: italic; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-style: italic; text-align: center; border-bottom: Black 1pt solid">Revenue for Fiscal Year <BR>Ended June 30, 2011</TD><TD NOWRAP STYLE="font-style: italic; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-style: italic; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-style: italic; text-align: center; border-bottom: Black 1pt solid">Revenues for year <BR>ended June 30, 2010</TD><TD NOWRAP STYLE="font-style: italic; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-style: italic; padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="font-style: italic; text-align: center; border-bottom: Black 1pt solid">End Market</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: justify; width: 25%">BMS and Access</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">17</TD><TD STYLE="width: 1%; text-align: left">%</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">30</TD><TD STYLE="width: 1%; text-align: left">%</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">11</TD><TD STYLE="width: 1%; text-align: left">%</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 35%; text-align: justify">Electric Vehicle</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">Battery</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">78</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">67</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">89</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Electric Vehicle</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: justify">Chargers</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Electric Vehicle</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">Other<SUP>*</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Electric Vehicle</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: justify">Total</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">100</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">100</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">100</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&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">* Other includes prototype contracts.</P>

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

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<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>Technology</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 believe our cell
management and communication tools 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. Whether it is vehicle or grid storage systems, we provide capable systems that meet cost
and performance targets which we believe, in many cases and based on the life cycle data of the lead acid batteries provided by
the manufacturers, outperform traditional lead acid technologies on both metrics. Our systems use lithium-ion cells that are denser
in energy than traditional lead acid batteries, which allows our batteries to hold more charge over the same weight. In addition,
our Battery Management System protects the lithium-ion batteries enabling the lithium-ion batteries to reach their full life and
cycle potential and outlasting lead acid based batteries which would have to be replaced and thereby adding additional costs over
the same time period. Our systems manage individual cells and their charge cycles, which generally allows for more consistent discharge
capability and ease of maintenance over an unmanaged battery by:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 6%"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="width: 3%"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="width: 91%; 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"><FONT STYLE="font-family: Wingdings">&Oslash;</FONT><FONT STYLE="font-family: Times New Roman, Times, Serif">
&nbsp;&nbsp;&nbsp; Life Cycles</FONT></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify"><FONT STYLE="font-family: Wingdings">&Oslash;</FONT><FONT STYLE="font-family: Times New Roman, Times, Serif">
&nbsp;&nbsp;&nbsp; Depth of Discharge Per Cycle</FONT></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 CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 6%">&nbsp;</TD>
    <TD STYLE="width: 3%"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="width: 91%; 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"><FONT STYLE="font-family: Wingdings">&Oslash;</FONT><FONT STYLE="font-family: Times New Roman, Times, Serif">
&nbsp;&nbsp;&nbsp; Ensure Proper Charging</FONT></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify"><FONT STYLE="font-family: Wingdings">&Oslash;</FONT><FONT STYLE="font-family: Times New Roman, Times, Serif">
&nbsp;&nbsp;&nbsp; Adjust System Parameters During Varying Temperature</FONT></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 CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 6%">&nbsp;</TD>
    <TD STYLE="width: 3%"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="width: 91%; 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"><FONT STYLE="font-family: Wingdings">&Oslash;</FONT><FONT STYLE="font-family: Times New Roman, Times, Serif">
&nbsp;&nbsp;&nbsp; Protect Drive Components from Damage</FONT></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify"><FONT STYLE="font-family: Wingdings">&Oslash;</FONT><FONT STYLE="font-family: Times New Roman, Times, Serif">
&nbsp;&nbsp;&nbsp; Optimize Charge Efficiency</FONT></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; 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">For the fiscal year
ended June 30, 2012, the Company had four major customers that represented more than 10% of its revenues on an individual basis,
and combined represented 81% or approximately $4,798,000 of the Company&rsquo;s total revenues.</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 four major customers
were Greentech Automotive, Inc., which represented 34% of the total revenue, Epic Boats (a company founded and controlled by Chris
Anthony, our chairman and president), represented 19% of the total revenue, Artisan Vehicle Systems, which represented 18% of the
total revenues, and Boulder EV, represented 10% of the total revenue.</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">For the fiscal year
ended June 30, 2011, two major customers represented more than 10% of its revenues on an individual basis, and combined represented
47% or approximately $463,000 of the Company&rsquo;s total revenues.</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 two major customers
were Wheego Electric Cars, which represented 32% of the total revenue, and Epic Boats (a company founded and controlled by Chris
Anthony, our chairman and president), represented 15% of the total revenue.</P>

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

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<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>Production process</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">Except for some of
the charger components, we design all of our own products in-house and outsource manufacturing and assembly when possible.</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; text-align: justify; text-indent: 0.5in"><I>Batteries. </I>Historically,
Global Fluid Power Solutions, LLC (&ldquo;Global&rdquo;) has supplied all of our batteries based on our specifications and needs.
However, in order to respond to fluctuations in demand and product cycles, Global is not our exclusive battery supplier and we
are free to outsource to other batteries manufacturers that can meet our requirements and specifications. In addition, since our
battery management system and battery modules are not tied to any specific lithium-ion battery chemistry, we can source our batteries
from a variety of manufacturers to meet our needs as well as our customer&rsquo;s needs. We continue to consider and negotiate
with other vendors for better terms, and may purchase our batteries from other vendors if their terms are more favorable.</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"><I>Battery Modules
and Packs</I>. We design all of our battery modules and packs in-house. In addition, we occasionally design and assemble prototype
battery packs and storage systems for our 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"><I>Charger.</I> We
currently buy our chargers from Current Ways, Inc., an entity owned by James Gevarges, one of our major shareholders. Mr. Gevarges
is also the Chief Executive Officer and President of LHV Power Corporation (&ldquo;LHV Power&rdquo;). During 2009, the Flux Power
entered into a cancelable Term Sheet agreement (the &ldquo;Term Sheet Agreement&rdquo;) with a LHV Power. Pursuant to the Term
Sheet Agreement, Flux Power was appointed as a distributor of LHV Power 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 a microprocessor
control board, and the associated software to enable communication between the parties&rsquo; respective products (&ldquo;MCB&rdquo;)
which entitles Flux Power to royalties for any such units sold by the related entity. Pursuant to the Term Sheet Agreement Flux
Power may purchase the products at the then current price list for distributors. Further, under the Term Sheet Agreement, if LHV
Power sells its products to a different distributor Flux Power is entitled to a distribution fee equal to 20% of the gross profits
on such sale. Under the Term Sheet Agreement, it was agreed that upon completion of the MCB, and LHV Power&rsquo;s sale of the
MCB as part of its product offerings, LHV Power will pay Flux Power a royalty fee of $20 per MCB sold, with such royalty fees capped
at $200,000. This distribution and royalties fees were capped at a total of $200,000. The parties also agreed that the obligation
to pay the royalty fees and distribution fee would survive the termination or expiration of the Term Sheet Agreement and such obligation
to make such payment would terminate once the total payments of the distribution and royalty fee reached $200,000 (&ldquo;Distribution
and Royalty Fee Obligation&rdquo;). Once the Distribution and Royalty Fee Obligation has been satisfied, the parties agreed that
Flux Power would no longer be required to provide any support for the MCB and the parties would negotiate a new support fee upon
LHV Power&rsquo;s request. This cap has not been satisfied and the Distribution and Royalty Fee Obligation still remains outstanding.
The chargers are not currently under commercial production and therefore no Distribution and Royalty Fee has been received by Flux
Power. Under the Term Sheet Agreement, LHV Power has ownership of all intellectual property concerning the software developed under
the Term Sheet Agreement. On September 1, 2010, with our consent, LHV assigned the Term Sheet Agreement to Current Ways, Inc.,
a different company that is owned by Mr. Gevarges. In connection with the assignment, Current Ways, Inc. assumed all of the rights
and obligations of LHV Power under the Term Sheet Agreement. The Term Sheet Agreement expired pursuant to its terms on April 1,
2011. However, Current Ways, Inc. is still subject to the Distribution and Royalty Fee Obligation which will continue until the
cap of $200,000 is satisfied or the parties agree otherwise. The parties are also subject to restrictions on the use and disclosure
of confidential information of the other party until April 1, 2013. Pursuant to our standard purchase order terms and conditions,
during the fiscal year ended June 30, 2012 and June 30, 2011, Flux Power purchased approximately $85,000 and $33,000, respectively,
charger products from Current Ways, Inc., which purchases were not subject to the distribution fee or royalties under the Term
Sheet Agreement. In addition, we continue to purchase prototype chargers products from Current Ways, Inc. pursuant to our standard
purchase order terms and conditions.</P>

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

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<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"><I>BMS.</I> On August
1, 2009, Flux Power entered into a Manufacturing Implementation Agreement (the &ldquo;Manufacturing Agreement&rdquo;) with LHV
Power. Pursuant to the Manufacturing Agreement Flux Power granted LHV Power a right of first refusal to manufacture our battery
management systems. Further, under the Manufacturing Agreement, Flux Power agreed to pay for any specialized tooling LHV Power
may require to manufacture Flux Power&rsquo;s battery management systems. Under the Manufacturing Agreement, Flux Power will retain
ownership of all intellectual property developed under the Manufacturing Agreement. The Manufacturing Agreement expires on August
1, 2014. During the fiscal years ended June 30, 2012 and 2011 Flux Power paid approximately $263,000 and $131,000 respectively,
to LHV Power pursuant to the Manufacturing Agreement. Although there are a limited number of manufacturers which could produce
the battery management system, we believe other manufacturers could produce the products on comparable terms.&nbsp; A change in
manufacturer, however, could cause a delay in manufacturing.</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"><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"><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 Power&rsquo;s Chief Executive Officer, President
and owner, James Gevarges, sits on our Board of Directors and is one of our major shareholders. LHV Power has an advanced engineering
team that has produced products for Hewlett Packard, Dell, Black and Decker, Train, and Carrier. LHV has several contracts with
manufacturing facilities in China and Taiwan. Currently our BMS units 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. Our relationship with LHV Power is governed by the Manufacturing Agreement
with LHV Power as described above under section titled &ldquo;Production Process.&rdquo; We rely on our relationship with LHV for
the manufacturing of our BMS, however, we may outsource the manufacturing of our BMS to other manufacturers after providing LHV
its right of first refusal under the terms of the Manufacturing Agreement. For the year ended June 30, 2012, and 2011, approximately
6% and 19% of our sales, respectively, were attributable to products manufactured by LHV Power.</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>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; text-indent: 0.5in">&nbsp;</P>

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<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>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">During the fiscal years
ended June 30, 2012 and 2011, we had one supplier who accounted for more than 10% of our total purchases. Global Fluid Power Solutions,
LLC accounted for 56% and 65%, respectively, of our total purchases.</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 entered into a four
year supply agreement with Global Fluid Power Solutions Inc. and Mahomann Corp. (collectively &ldquo;Global&rdquo;) on January
15, 2010. Under the supply agreement, we are not obligated to purchase any minimum number of products nor are we required to purchase
its batteries exclusively from Global. We can negotiate and purchase our batteries from other vendors at any time. Accordingly,
we are not dependent on Global for the products. The supply agreement terminates upon the earlier occurrence of a breach by Global,
insolvency, or upon mutual agreement. Under the supply agreement, Global became our exclusive supplier of Thundersky brand of batteries
as well as our non-exclusive supplier of other batteries based on our specification. Soon after our entry into the supply agreement,
Global elected to discontinue their sale of the Thundersky brand of batteries and as such Global became our non-exclusive supplier
of batteries. There are no minimum purchase amounts under the supply agreement. Payment is made as follows: 40% is made in advance
at the time of the order, 40% at time of test, and 20% at shipment of the products. The supply agreement terminates upon the earlier
occurrence of a breach by Global, insolvency, or upon mutual agreement. Historically we have purchased all of our batteries from
Global, however, we are not dependent on Global for any of our products. We are free to outsource to other batteries manufacturers
that can meet our requirements and specifications. In addition, since our battery management system and battery modules are not
tied to any specific lithium-ion battery chemistry, we can source our batteries from a variety of manufacturers to meet our needs
as well as our customer&rsquo;s needs.</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>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">Research and development
expenses for the fiscal years ended June 30, 2012 and 2011 were approximately $590,000 and $382,000, respectively. Such expenses
consist primarily of materials, supplies, salaries and personnel related expenses, consulting costs and other expenses.</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 October 29, 2010,
we entered into an Agreement for Services with the California Center for Sustainable Energy (CCSE) in connection with a grant awarded
by the Plug-In Hybrid Electric Vehicle Research Center, a division of the Institute of Transportation Studies at the University
of California, Davis, for a study researching the repurposing of advanced energy storage systems from electric vehicles to household
energy storage. For the fiscal year ended June 30, 2011, we completed the grant work and received approximately $53,000 under the
contract. Under the terms of the contract, CCSE retain the ownership of the studies and we retained all intellectual property rights
developed under the contract. 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>

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<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">&nbsp;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"><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">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, since our BMS are not based on any specific cell chemistries, we can source cells from different manufacturers
based on the performance needs and cost. This flexibility in cell sourcing allows us to provide complete storage systems at much
lower cost versus our current competition.&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-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>

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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 0pt 2.75in; text-align: left"><img src="tpg16.jpg"></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 0pt 2.75in">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>:
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>: 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>: 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 June 20, 2012, we filed patent applications in the United States, EU &amp; China including:</P>

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<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">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 100%; padding-left: 5.4pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Patents</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD NOWRAP STYLE="width: 30%; border-bottom: windowtext 1pt solid; padding-left: 0; text-indent: 0; padding-right: 0; text-align: left; vertical-align: bottom">Title</TD>
    <TD NOWRAP STYLE="width: 1%; padding-left: 0; text-indent: 0; padding-right: 0; text-align: left; vertical-align: bottom">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 15%; border-bottom: windowtext 1pt solid; padding-left: 0; text-indent: 0; padding-right: 0; text-align: left; vertical-align: bottom">Jurisdiction(s)</TD>
    <TD NOWRAP STYLE="width: 1%; padding-left: 0; text-indent: 0; padding-right: 0; text-align: left; vertical-align: bottom">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 15%; border-bottom: windowtext 1pt solid; padding-left: 0; text-indent: 0; padding-right: 0; text-align: left; vertical-align: bottom">Filing Date</TD>
    <TD NOWRAP STYLE="width: 1%; padding-left: 0; text-indent: 0; padding-right: 0; text-align: left; vertical-align: bottom">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 15%; border-bottom: windowtext 1pt solid; padding-left: 0; text-indent: 0; padding-right: 0; text-align: left; vertical-align: bottom">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 5.4pt">Patent Application</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 5.4pt">Number</P></TD>
    <TD NOWRAP STYLE="width: 1%; padding-left: 0; text-indent: 0; padding-right: 0; text-align: left; vertical-align: bottom">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 21%; border-bottom: windowtext 1pt solid; padding-left: 0; text-indent: 0; padding-right: 0; text-align: left; vertical-align: bottom">Status</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 0; text-indent: 0">Battery Management Unit</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">U.S.</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">06/28/10</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">29/386,307</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">Patent Pending</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 0; text-indent: 0">Power Control Module for Battery Pack Using a Thermistor</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">U.S.</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">11/08/10</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">13/036,618</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">Patent Pending</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 0; text-indent: 0">System and Method for Pulsing the Bleed Off Resistor within a Battery Management System</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">U.S., China</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">11/28/10</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">12/941,815</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">Patent Pending</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 0; text-indent: 0">Battery (Design)</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">U.S., China</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">09/06/11</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">29/401,058</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">Patent Pending</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 0; text-indent: 0">Power Control Module</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">U.S.</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">11/28/10</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">12/941,780</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">Patent Pending</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 0; text-indent: 0">Battery Display</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">U.S., China, Europe</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">04/26/11</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">29/390,507</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">Patent Pending</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 0; text-indent: 0">Battery Management System</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">U.S.</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">07/11/11</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">29/397,074</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding-left: 0; text-indent: 0">Patent Pending</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&#9;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have developed our
intellectual property portfolio through our continued investment in research and development, and through our acquisition of our
based technologies from Epic Boat (an entity founded and controlled by Chris Anthony, our chairman and president), Gottlieb Inventions,
and Joseph Gottlieb.</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 October 21, 2009,
Flux Power entered into an agreement with Epic Boats (a related party) 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 in exchange for $1.00.</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 35%; border-bottom: windowtext 1pt solid; font-weight: bold">Product</TD>
    <TD STYLE="width: 1%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 64%; border-bottom: windowtext 1pt solid; font-weight: bold">Description</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Battery Box Design</TD>
    <TD>&nbsp;</TD>
    <TD>All hardware, tooling and design reduced to practice otherwise of the battery housings which include the integration of a battery management system.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>CAN Communication Protocol</TD>
    <TD>&nbsp;</TD>
    <TD>Top communication protocol that communicates through the CAN bus</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>CAN based Throttle Controller</TD>
    <TD>&nbsp;</TD>
    <TD>All hardware, software and tooling reduced to practice or otherwise of the throttle controller</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>BMS Head End Interfaces</TD>
    <TD>&nbsp;</TD>
    <TD>Interfaces to the motor and generator controller to the diagnostic software</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">On October 22, 2009,
Joseph S. Gottlieb and Gottlieb Inventions transferred all intellectual property relating to the battery management system including
any diagnostic programs software, board layout, firmware, innovation, schematics, products and related technology to Flux Power.
As part of the transfer, we granted Mr. Gottlieb options to purchase shares of common stock.</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 connection with
our Battery Management System, 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>

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<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 CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 6%">&nbsp;</TD>
    <TD STYLE="width: 3%"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="width: 91%; text-align: justify"><B><I>Field Tested, Consumer Validated Technology</I></B>. We have delivered over 15MWh 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 CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 6%">&nbsp;</TD>
    <TD STYLE="width: 3%"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="width: 91%; 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 CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 6%">&nbsp;</TD>
    <TD STYLE="width: 3%"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="width: 91%; 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 CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 6%">&nbsp;</TD>
    <TD STYLE="width: 3%"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="width: 91%; 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 CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 6%">&nbsp;</TD>
    <TD STYLE="width: 3%"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="width: 91%; 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: 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>Department of
Transportation, National Highway Traffic Safety Administration (NHTSA). </I></B>The NHTSA is charged with writing and enforcing
safety, theft-resistance, and fuel economy standards for motor vehicles through their Federal Motor Vehicle Safety Standards. These
Standards require manufacturers to design their electrically powered vehicles so that, in the event of a crash, the electrical
energy storage, conversion, and traction systems are either electrically isolated from the vehicle's chassis or their voltage is
below specified levels considered safe from electric shock hazards.</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">Vehicle designers and
manufacturers are governed by the Federal Motor Vehicle Safety Standards program. We are not governed by this regulation, but the
vehicle manufacturers do need to comply with the standards.</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"><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; text-indent: 0.5in">&nbsp;</P>

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<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>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 June 30, 2012,
we employed 19 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>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: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Other Information</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 Internet address
is http://fluxpwr.com. We make available free of charge on our website our annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities
and Exchange Commission (&ldquo;SEC&rdquo;). Other than the information expressly set forth in this annual report, the information
contained, or referred to, on our website is not part of this annual 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">The public may also
read and copy any materials we file with the SEC at the SEC&rsquo;s Public Reference Room at 100 F Street, NE, Washington, DC 20549.
The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers,
such as us, that file electronically with the SEC.</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"><B>ITEM 1A &mdash; RISK FACTORS</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; text-align: justify">&nbsp;</P>

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

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<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>Risk Factors Relating to 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"><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-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 incurred
net losses since our inception. For the fiscal years ended June 30, 2012 and 2011, Flux Power has incurred net losses of approximately
$2,385,000, and $1,313,000 respectively. No assurance can be given that we will achieve profitability in the future.&nbsp;</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 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 June 30, 2012,
and June 30, 2011, we had a negative working capital of approximately $3,590,000 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"><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"><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 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: 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>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
fiscal years ended June 30, 2012 and 2011 were approximately $5,930,000 and $984,000, 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;&nbsp;</P>

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<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">For the fiscal year
ending June 30, 2012, 78% of Flux Power&rsquo;s revenues were derived from sales of its battery products and 17% from BMS. We have
not derived material revenues from our handheld or charger. We have not sold our products for use in applications other than 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 and into other targeted end markets.</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: 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>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.</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 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>

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<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">&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: 0pt 0; text-align: justify">&nbsp;</P>

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<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>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 CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 9%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 3%; text-align: justify">&bull;</TD>
    <TD STYLE="width: 88%">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; 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;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&bull;</TD>
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">disruption in the supply of cells due to
        quality issues or recalls by the battery cell manufacturers; and</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&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="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 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>

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<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>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">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; 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">For the fiscal year
ended June 30, 2012, the Company had four major customers that represented more than 10% of its revenues on an individual basis,
and combined represented 81% or approximately $4,798,000 of the Company&rsquo;s total revenues.</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 four major customers
were Greentech Automotive, Inc., which represented 34% of the total revenue, Epic Boats (a company founded and controlled by Chris
Anthony, our chairman and president), represented 19% of the total revenue, Artisan Vehicle Systems, which represented 18% of the
total revenues, and Boulder EV, represented 10% of the total revenue.</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">For the fiscal year
ended June 30, 2011, two major customers represented more than 10% of its revenues on an individual basis, and combined represented
47% or approximately $463,000 of the Company&rsquo;s total revenues.</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 two major customers
were Wheego Electric Cars, which represented 32% of the total revenue, Epic Boats (a company founded and controlled by Chris Anthony,
our chairman and president), represented 15% of the total revenue.</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>

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<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: 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">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>

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



<P STYLE="margin: 0"></P>
<P STYLE="margin: 0"></P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 9%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 3%; text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="width: 88%; text-align: justify">cease selling, incorporating or using products that incorporate the challenged intellectual property;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">pay substantial damages;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; 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</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="text-align: justify">redesign our battery management systems.</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">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 CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 9%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 3%; text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="width: 88%">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">our pending patent applications may not
        result in the issuance of patents;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">our patents, if issued, may not be broad
        enough to protect our proprietary rights;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; 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;&nbsp;</P></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">&nbsp;</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 9%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 3%; text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="width: 88%">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">the costs associated with enforcing patents,
        confidentiality and invention agreements or other intellectual property rights may make aggressive enforcement impracticable; and</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></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="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>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: 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 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>

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<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: 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>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>

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<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: 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 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">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.</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>

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<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>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-top: 0; margin-bottom: 0; margin-left: 0in; text-indent: 0.5in; text-align: justify"><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 CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 7%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 3%; text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="width: 90%; 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>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</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>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="text-align: justify">speculation about our business in the press or the investment community;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="text-align: justify">significant developments relating to our relationships with our customers or suppliers;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</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 STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</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>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="text-align: justify">customer demand for our products;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="text-align: justify">investor perceptions of our industry in general and our Company in particular;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="text-align: justify">the operating and stock performance of comparable companies;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="text-align: justify">general economic conditions and trends;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="text-align: justify">announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="text-align: justify">changes in accounting standards, policies, guidance, interpretation or principles;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="text-align: justify">loss of external funding sources;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="text-align: justify">sales of our common stock, including sales by our directors, officers or significant stockholders; and</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font-family: Wingdings 2">&mdash;</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; 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 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; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; margin-left: 0in; text-indent: 0.5in; text-align: justify">As
of&nbsp;September 4, 2012, our present directors and executive officers, and their respective affiliates beneficially owned approximately
83% 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-align: justify; 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>

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<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: 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>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: 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>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>

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<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: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>ITEM 1B &mdash; UNRESOLVED STAFF COMMENTS</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">Not Applicable.</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 &mdash; PROPERTIES</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">Effective July 1, 2011,
the Company completed its long-term office space lease agreement and instead entered into a month-to-month agreement for its office
space. The agreement provides for monthly payments of approximately $13,000. Currently management is seeking other office space
rental options in proximity to the current offices.</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 July of 2011 the
Company entered into a sublease with a related party for approximately $6,600 per month for a portion of this space. The sublease
was terminated on January 1, 2012. The Company recorded rent expense, net of sublease income during the fiscal years ended June
30, 2012 and 2011, of approximately $106,000 and approximately $133,000, respectively.&nbsp;</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 3 &mdash; LEGAL PROCEEDINGS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; 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">From time to time,
we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm
our business. To the best knowledge of management, there are no material legal proceedings pending against the Company.</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 &mdash; MINE SAFETY DISCLOSURES</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">Not applicable.</P>

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

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<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>PART II</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>ITEM&nbsp;5 &mdash; MARKET FOR REGISTRANT&rsquo;S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY&nbsp;SECURITIES</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>Market Data</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 started
quotation on the OTCQB under the stock symbol &ldquo;LNPI.&rdquo; On June 14, 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
June 30, 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;</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 95%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">High</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Low</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">2012</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: White">
    <TD STYLE="width: 74%; text-align: left">Quarter ended June 30, 2012</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">2.35</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">2.25</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Quarter Ended March 31, 2012</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.29</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.29</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">2011</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="text-align: left">Quarter Ended December 31, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.29</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.29</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Quarter Ended September 30, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.29</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.29</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Quarter Ended June 20, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.29</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.29</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Quarter Ended March 31, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.29</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.29</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">2010</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: White">
    <TD STYLE="text-align: left">Quarter Ended December 31, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.25</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.25</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Quarter Ended September&nbsp; 30, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.25</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.25</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Quarter Ended June 20, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.25</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.25</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Quarter Ended March 31, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.25</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.25</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</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"><B>Shareholders</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-indent: 0.5in">The approximate number of record holders
of our common stocks as of September 4, 2012 was 1,342.</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>Dividends</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-indent: 0.5in">The Company did not declare or pay dividends
on its common stock during fiscal years 2012 and 2011.</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>Recent Sales of Unregistered Securities </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"><FONT STYLE="color: black">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 2010 Option Plan (&ldquo;Plan&rdquo;) and all of the stock options of Flux Power&rsquo;s
outstanding as of the closing of the Reverse Acquisition, </FONT>and all 1,535,500 stock options of Flux Power&rsquo;s outstanding
as of June 14, 2012, whether or not exercised and whether or not vested, were 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 continue to have, and are subject to, the substantially the same terms and conditions
as before, but are convertible into shares of our common stock, as adjusted given effect to the Share Exchange Ratio. However,
we will not be able to grant additional options under the Option Plan<FONT STYLE="color: black"> (d) each of the Flux Power 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, as described below. </FONT></P>

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

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<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">(a)</TD><TD STYLE="text-align: justify">Private Placement - June and July 2012</TD></TR></TABLE>

<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 June 2012, we
conducted a private placement of our common stock and warrants to accredited investors to purchase up to 8 Units (or
fractional Units thereof), at a price of $500,000 per Unit, with each Unit consisting of 1,207,185 shares of our common stock
and 241,437 five (5) year warrants to purchase one share of our common stock at an exercise price of $0.41 per share<FONT STYLE="color: black">
of which Baytree Capital, its designees or assignees, has committed to investing at least $1,000,000 in the Private
Placement. </FONT>In connection with the private placement, we had the following closings:</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 June 22, 2012, we
entered into Securities Purchase Agreements with four (4) individual accredited investors pursuant to which we sold an aggregate
of 1,448,624 shares of common stock and issued 289,725 five year Warrants for an aggregate purchase price of $600,000.</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 June 29, 2012, we
conducted a second closing (the &ldquo;Second Closing&rdquo;). At the Second Closing, we sold an additional 1,364,121 shares of
common stock and issued 272,825 five year Warrants for an aggregate purchase price of $565,000 to six (6) individual accredited
investors.</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 July 30, 2012, we
conducted a third closing (the &ldquo;Third Closing&rdquo;). At the Third Closing, we sold an additional 1,690,063 shares of common
stock and issued 338,013 five year Warrants for an aggregate purchase price of $700,000 to ten (10) accredited investors.</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 common stock purchased
in the private placement and the common stock issued upon exercise of warrants has piggyback registration rights. The securities
offered and sold in the private placement 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 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">(b)</TD><TD STYLE="text-align: justify">Private Placement&ndash; August 2012</TD></TR></TABLE>

<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">Subsequent to our private
placement referred to above, in August 2012 we commenced a private placement of our common stock and warrants to accredited investors
to purchase up to 8 Units (or
fractional Units thereof) for a purchase price of $250,000 per Unit for an aggregate amount of $2,000,000, with each Unit consists
of 603,592 shares of our common stock and 120,718 warrants, with each warrant entitling the holder to purchase one share of common
stock at an exercise price of $0.41 per share at any time for a period of up to five (5) years from the issuance date at which
time the Warrant will expire. On August 31, 2012, we entered into a Securities Purchase Agreement with four (4) accredited investors
pursuant to which we sold an aggregate of 603,594 shares of common stock and issued 120,719 five year warrants for an aggregate
purchase price of $250,000.</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 common stock purchased
in the private placement and the common stocks issued upon exercise of warrants have piggyback registration rights. The securities
offered and sold in the private placement have not been registered under the Securities Act and may not be offered or sold in the
United States absent registration or an applicable exemption from the registration requirements of the Securities Act.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Purchases of Equity Securities </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-indent: 0.5in">We have never repurchased any of our equity
securities.</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>Dividend Policy</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 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: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Equity Compensation Plan Information</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 adopted
the 2010 Stock Option Plan (&ldquo;Option Plan&rdquo;) which reserved 2,000,000 shares of common stock for issuance upon exercise
of options. As of June 14, 2012, the number of shares of common stock outstanding under the Option Plan was 1,535,500, and as of
June 30, 2011, the number of shares of common stock outstanding under the Option Plan was 710,000.</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
table contains information relating to the Option Plan as of June 30, 2012, as assumed and adjusted by us pursuant to the
Reverse Acquisition:</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" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Number&nbsp;of&nbsp;Securities<BR> to&nbsp;be&nbsp;Issued&nbsp;Upon<BR> Exercise&nbsp;of<BR> Outstanding&nbsp;Options,<BR> and&nbsp;Warrants</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Weighted-Average<BR> Exercise&nbsp;Price&nbsp;of<BR> Outstanding&nbsp;Options,<BR> and&nbsp;Warrants</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Number&nbsp;of&nbsp;Securities<BR> Remaining&nbsp;Available<BR> for&nbsp;Future&nbsp;Issuance<BR> under&nbsp;Equity<BR> Compensation&nbsp;Plans<BR> (excluding&nbsp;securities<BR> reflected&nbsp;in&nbsp;column&nbsp;A)</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 61%; text-align: left; padding-bottom: 1pt">Equity compensation plans not approved by security holders</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: right; width: 1%">&nbsp;</TD><TD STYLE="width: 10%; text-align: right; border-bottom: Black 1pt solid">4,536,948</TD><TD STYLE="width: 1%; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left; border-bottom: Black 1pt solid">$</TD><TD STYLE="width: 10%; text-align: right; border-bottom: Black 1pt solid">0.17</TD><TD STYLE="width: 1%; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: right; width: 1%">&nbsp;</TD><TD STYLE="width: 10%; text-align: right; border-bottom: Black 1pt solid">0</TD><TD STYLE="width: 1%; text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; padding-bottom: 2.5pt">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 2.5pt double">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">4,536,948</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">0.17</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 2.5pt double">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">0</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>

<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"><B>DESCRIPTION OF SECURITIES</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>Common Stock</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 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; 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 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; text-indent: 0.5in">&nbsp;</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; 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: 0pt 0">&nbsp;&nbsp;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>ITEM 6 &mdash; SELECTED FINANCIAL DATA</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-indent: 0.5in">As a smaller reporting company, we are not
required to provide this information.</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"><B>ITEM 7 &mdash; 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: 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 provides information which management believes is relevant to an assessment and understanding of the Company&rsquo;s
results of operations and financial condition. The discussion should be read in conjunction with the Financial Statements and Notes
thereto contained in this Annual Report on Form 10-K.</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">Some of the statements
contained in the following discussion of the Company&rsquo;s financial condition and results of operations refer to future expectations
or include other &ldquo;forward-looking&rdquo; information. Those statements are subject to known and unknown risks, uncertainties
and other factors that could cause the actual results to differ materially from those contemplated by these statements. The forward-looking
information is based on various factors and was derived from numerous assumptions. See &ldquo;Cautionary Statement for Purposes
of the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995,&rdquo; included in this Report on Form 10-K
for a discussion of factors to be considered when evaluating forward-looking information detailed below. These factors could cause
our actual results to differ materially from the forward looking statements.</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>Overview</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 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; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%; padding-left: 0.5in; text-align: justify; text-indent: -0.25in"><FONT STYLE="font-family: Symbol">&middot;&#9;</FONT><FONT STYLE="font-family: Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="width: 4%; padding-left: 0.5in; text-align: justify; text-indent: -0.25in">&nbsp;</TD>
    <TD STYLE="width: 92%">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 14.95pt; 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.</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&nbsp;</P></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">&nbsp;</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">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%; padding-left: 0.5in; text-align: justify; text-indent: -0.25in"><FONT STYLE="font-family: Symbol">&middot;&#9;</font></TD>
    <TD STYLE="width: 4%; padding-left: 0.5in; text-align: justify; text-indent: -0.25in">&nbsp;</TD>
    <TD STYLE="width: 92%">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 14.95pt; 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.</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&nbsp;</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 0.5in; text-align: justify; text-indent: -0.25in"><FONT STYLE="font-family: Symbol">&middot;&#9;</font></TD>
    <TD STYLE="padding-left: 0.5in; text-align: justify; text-indent: -0.25in">&nbsp;</TD>
    <TD STYLE="padding-left: 14.95pt; 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; 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 sold our first validated
product in the second quarter of 2010 and have since delivered over 15 mega watt-hours of Advanced Energy Storage to clients such
as NACCO Materials Handling Group, Inc., GreenTech Automotive, Inc. (GTA), Crown Equipment Corporation, Damascus Corporation, Columbia
Parcar Corporation, Wheego Electric Cars Inc., Epic Electric Vehicles, and Texas Association of Local Health Officials (&ldquo;TALHO&rdquo;).
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.</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>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"><B><I>New Agreements</I></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-indent: 0.5in"><B><I>Revolving Line of Credit</I>. </B>On
September 24, 2012, Flux Power, Inc., entered into a certain Unrestricted and Line of Credit (&ldquo;Line of Credit) with Esenjay
Investments, LLC (&ldquo;Esenjay&rdquo;) pursuant to which Esenjay agreed to provide us with a revolving line of credit for $1,500,000
(&ldquo;Line of Credit&rdquo;). Borrowings under the Line of Credit is secured by the assets of the Company and bears interest
at 8% per annum, with all unpaid principal and accrued interest due and payable on September 24, 2014. There is no prepayment penalty
under the Line of Credit. Proceeds from the Line of Credit can be used at the discretion of the Company and the Company intends
to use it for working capital. As of September 28, 2012, the Company has not borrowed any amounts under the Line of Credit. Esenjay
is one of our major shareholders which beneficially own approximately 43% of our common stock. Mr. Michael Johnson, our director,
is the director and shareholder of Esenjay.</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"><B><I>ACP Agreement</I></B>.
&nbsp;On September 4, 2012, the Company entered into an agency agreement with American Capital Partners (ACP), a Financial Industry
Regulatory Authority (FINRA) registered broker-dealer for the purpose of advising and assisting the Company, on a best efforts
basis, with the $2,000,000 private placement of our common stock and warrants.&nbsp; The agreement expires February 25, 2014.&nbsp;
The terms of the agreement require the Company to pay a total cash fee of nine percent (9%) of the value received from each investor.&nbsp;
Additionally the Company agreed to issue shares to ACP equal to seven percent (7%) of the shares placed by the ACP. The Company
agreed to reimburse ACP for legal fees up to $10,000 incurred in connection with this placement by ACP.</P>

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

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<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; text-indent: 0.5in"><B><I>NACCO Prototype
Agreement</I></B>. On February 6, 2012, Flux Power entered into a Prototype Agreement (the &ldquo;Prototype Agreement&rdquo;) with
NACCO Materials Handling Group, Inc. (&ldquo;NACCO&rdquo;) to develop and provide three (3) prototype battery packs for NACCO&rsquo;s
lift trucks. Pursuant to the Prototype Agreement, we agreed to develop and provide three prototype battery backs for use in NACCO&rsquo;s
lift trucks. Our fees under the Prototype Agreement are based on hourly rates of our project managers and engineers and the material
costs related to the project. We will retain ownership of all intellectual property developed under the Prototype Agreement, but
we have granted NACCO a fully-paid, worldwide, non-exclusive, license to use, sell, and reproduce the prototype battery packs.
The term of the Prototype Agreement is indefinite but it may be terminated upon 60 days written notice of either party. As of September
1, 2012, the Company has delivered prototype battery packs and recognized approximately $111,000 of revenue from this 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"><B><I>GTA Terms &amp;
Conditions</I></B>. On September 21, 2011, Flux Power and GreenTech Automotive, Inc. (GTA) entered into terms and conditions for
future purchase orders. All sales from Flux Power to GTA that include Flux Power&rsquo;s product for production of GTA&rsquo;s
electronic vehicle shall be governed under this agreement. This agreement does not obligate GTA to make any purchases of our products.</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"><B><I>Notes Payable</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">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% per annum, all principal and accrued interest are due and payable on September
30, 2013, as amended, and the note is secured by substantially all of the assets of the Company. As of June 30, 2012 the balance
outstanding was $600,000.</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 March 2012, the
Company entered into an additional note payable (the &ldquo;Bridge Loan&rdquo;) agreement with the same stockholder for $250,000.
All principal and accrued interest are due and payable on March 7, 2014 and the note bears interest at 8% per annum. As of June
30, 2012 the balance outstanding was $250,000.</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-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 Company&rsquo;s
discussion and analysis of its financial condition and results of operations are based upon the Company&rsquo;s Financial Statements,
which have been prepared in accordance with accounting principles generally accepted in the United States of America (&ldquo;GAAP&rdquo;).
The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues, and expenses, and the related disclosure of contingent assets and liabilities. On an ongoing
basis, the Company evaluates its estimates based on its historical experience and on various other assumptions that are believed
to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions.</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 Company believes
the following critical accounting policies and estimates affect the preparation of its Financial Statements.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Inventory Valuation</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">Inventories consist
primarily of batteries, 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.<FONT STYLE="color: black"> </FONT>The Company recorded
a write-off related to obsolete inventory in the amount of approximately $26,000 during the fiscal year ended June 30, 2012. <FONT STYLE="color: black">The
Company did not record inventory write-down during fiscal year ended June 30, 2011.</FONT></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"><B><I>Revenue Recognition</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 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">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">When a right of return
exists, contractually or implied 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 recognize 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"><B><I>Valuation of Equity Instruments </I></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; text-indent: 0.5in"><FONT STYLE="color: black">The
Company follows FASB ASC Topic No. 815, <I>Derivatives and Hedging</I> to classify and value warrant liabilities. Warrants classified
as derivative liabilities are recorded at their fair values at the issuance date and are revalued at each subsequent reporting
date, using a Monte Carlo simulation (&ldquo;MCS&rdquo;).</FONT><FONT STYLE="font-size: 10pt; color: #666666"> </FONT>A MCS model
uses a simulation technique to generate multiple random price paths for the stock price to simulate many possible future outcomes
which are then discounted at the risk-free rate. These simulated paths are then averaged to determine the fair value of the warrants.</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 outstanding warrants,
more fully described below, offer the holders of such warrants protection against dilution whereby the exercise price of the warrants
can be adjusted if the Company completes a subsequent round of financing at less than $1 per share. This provision requires the
warrants described below be accounted for as derivative liabilities.</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>Results of Operations</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 years ended June 30, 2012
and June 30, 2011</I></B></P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 90%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">For the Fiscal Year Ended</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">June 30,&nbsp;2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">June 30,&nbsp;2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="6" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%; text-indent: -10pt; padding-left: 10pt">Revenues</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">5,930,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">984,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -10pt; padding-left: 10pt">Costs of revenues</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,769,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">846,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Gross profit</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,161,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">138,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Operating expenses:</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="text-align: left; text-indent: -10pt; padding-left: 10pt">Selling, general and administration</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,368,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,027,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Research and development</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">590,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">382,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Total operating expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,958,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,409,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Operating loss</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,797,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,271,000</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Other income (expense):</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: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Loss on change in fair value of derivative liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(526,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Interest expense, net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(62,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(42,000</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Net loss</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2,385,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,313,000</TD><TD STYLE="text-align: left">)</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</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><I>Net Loss</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-indent: 0.5in; text-align: justify">Net losses reported were approximately $2,385,000
for fiscal 2012 as compared to approximately $1,313,000 in fiscal 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"><B><I>Revenues</I></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-indent: 0.5in; text-align: justify">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-indent: 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in; text-align: justify">Revenues for the fiscal year ended June
30, 2012, increased approximately $4,946,000, or 503%, compared to the year ended June 30, 2011. This large increase in sales was
attributable to the increase in both existing and new customer sales and new contracts.</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>Concentration of Customers</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 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; 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">For the fiscal year
ended June 30, 2012, the Company had four major customers that represented more than 10% of its revenues on an individual basis,
and combined represented 81% or approximately $4,798,000 of the Company&rsquo;s total revenues.</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 four major customers
were Greentech Automotive, Inc., which represented 34% of the total revenue, Epic Boats (a company founded and controlled by Chris
Anthony, our chairman and president), represented 19% of the total revenue, Artisan Vehicle Systems, which represented 18% of the
total revenues, and Boulder EV, represented 10% of the total revenue.</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">For the fiscal year
ended June 30, 2011, the Company had two major customers represented more than 10% of its revenues on an individual basis, and
combined represented 47% or approximately $463,000 of the Company&rsquo;s total revenues.</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 two major customers
were Wheego Electric Cars, which represented 32% of the total revenue, and Epic Boats (a company founded and controlled by Chris
Anthony, our chairman and president), represented 15% of the total revenue.</P>

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

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<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"><B><I>Cost of Revenues</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">Cost of revenues for
the fiscal year ended June 30, 2012, increased approximately $3,923,000 or 464% compared to the fiscal year ended June 30, 2011.
This large increase in cost of revenues was attributable to the increase in customer sales.<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"><B><I>Gross Profit</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">Gross profit for the
fiscal year ended June 30, 2012, increased by approximately $1,023,000 or 741%, compared to the fiscal year ended June 30, 2011.
Gross profit as a percentage of revenue for the fiscal year ended June 30, 2012, increased to 20% compared to 14% in the fiscal
year ended June 30, 2011. Sales traction during the fiscal year ended June 30, 2012 allowed us to perform more efficiently on managing
product cost and we were able to negotiate customer agreements at better margins.</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>Selling, and General and Administrative
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">Selling, and general
and administrative expenses for the fiscal year ended June 30, 2012 and the fiscal year ended June 30, 2011 were approximately
$2,368,000 and approximately $1,027,000, respectively. Such expenses consist primarily of salaries and personnel related expenses,
stock-based compensation expense, sales travel, consulting costs, professional fees and other expenses. The increase of approximately
$1,341,000 was due primarily to additional marketing and costs associated with our Reverse Acquisition, legal and accounting professional
fees.</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><I>Research and Development Expense</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">Research and development
expenses for the fiscal year ended June 30, 2012 and the fiscal year ended June 30, 2011 were approximately $590,000 and approximately
$382,000, 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 $208,000 was primarily 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"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Liquidity and Capital Resources</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>For the years ended June 30, 2012 and 2011 </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">As of June 30, 2012,
we had a cash balance of approximately $812,000, negative working capital of approximately $3,590,000 and an accumulated deficit
of approximately $4,328,000.</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><I>Cash Flows from Operating Activities</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 operating activities
resulted in net cash used in operations of approximately $1,494,000 for the fiscal year ended June 30, 2012 compared to net cash
used in operations of approximately $743,000 for the fiscal year ended June 30, 2011.</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 net cash used
in operating activities for the fiscal year ended June 30, 2012 reflects our use of proceeds to build the business including
increasing expenditures such as, additional marketing and research and development and the costs of our Reverse Acquisition
(see Note 1 to our consolidated financial statements). The net loss of approximately $2,385,000 offset by depreciation of
approximately $30,000, amortization of prepaid consulting fees of approximately $68,000, changes in the fair value of
warrants issued of approximately $526,000, stock-based compensation of approximately $45,000, offset by approximately $26,000
related to the write down for obsolescence of inventory. Changes in operating assets and liabilities included an increase in
accounts receivable of approximately $13,000, an increase in accounts payable of approximately $284,000, a decrease in
inventories of approximately $1,238,000, (net of $26,000 write-down for obsolete inventory), additional decrease of prepaid
inventories $56,000, an increase in accrued expenses of approximately $339,000 primarily related to payroll and related
costs, a decrease in customer deposits of approximately $207,000, a decrease in customer deposits from related party of
approximately $167,000, a decrease in deferred revenue of approximately $1,322,000, 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>

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<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 fiscal year ended June 30, 2011 reflects a net loss of approximately $1,313,000 offset by depreciation
of approximately $22,000 and stock-based compensation of approximately $58,000. Changes in operating assets and liabilities included
an increase in accounts receivable of approximately $40,000, a decrease in accounts payable of approximately $6,000, 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 an increase in prepaid others
of approximately $10,000, and other minor factors.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Cash Flows from Investing Activities</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 net cash used in
investing activities for the fiscal years ended June 30, 2012 and 2011 consist primarily of purchases of equipment of approximately
$60,000 and $14,000, respectively.</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>Cash Flows from Financing Activities</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">Net cash provided by
financing activities for the fiscal years ended June 30, 2012 and 2011 was approximately $2,126,000 and $930,000, respectively.
The increase in financing activities is the result of additional debt and equity issuances.</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">(a)</TD><TD><U>Private Placement Transactions</U></TD></TR></TABLE>

<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 the fiscal year
ended June 30, 2012, the Company received approximately $1,126,000 (net of fees) which includes $3,000 from the issuance of common
shares, in connection with the Company&rsquo;s Reverse Acquisition (See note 1, to the financial statements). In accordance with
the Reverse Acquisition the Company conducted two Private Placement transactions and sold 2,813,000 shares of common stock and
issued 563,000 five (5) year warrants. The Company additionally issued 2,294,000 shares of common stock and 468,000 warrants during
July and August 2012 for a total approximating $924,000 net proceeds.</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">(b)</TD><TD STYLE="text-align: justify"><U>Stockholder Notes Payable </U></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"><B><I>Working Capital
Loans</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">During the fiscal year
ended June 30, 2012, the Company had $200,000 outstanding on a $400,000 (Inventory Funding Loan) revolving note payable with a
stockholder.&nbsp; The note had a stated interest rate of 8% per annum and was for inventory purchases.&nbsp; Interest accrued
daily and was payable upon maturity or conversion as amended.&nbsp; Advances on the note were collateralized by substantially all
assets of the Company.&nbsp;</P>

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

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<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 Company had another
revolving note payable (Operating Capital Loan) in the amount of $1,000,000, due to the same stockholder.&nbsp; During the fiscal
year ended June 30, 2012, the Company had $830,000 outstanding on this note. The note bore interest at 8% per annum and a maturity
date of May 2012.&nbsp; The purpose of this note was to provide bridge capital for financing.&nbsp; Advances on the note are collateralized
by substantially all of the assets of the Company.&nbsp;</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 August 2011, the
Company amended the terms of both the Inventory Funding Loan and Operating Capital Loan to provide for conversion feature of the
notes payable into shares of the Company&rsquo;s common stock at $1 per share.&nbsp;</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 September 2011,
the Company entered into an additional note payable (Short-Term Loan) agreement with the same stockholder for $150,000.&nbsp; The
note matured in May 2012 and bore interest at 8% per annum as amended, and is convertible into the Company&rsquo;s equity securities
in the same terms as the above Loans.</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 December 2011, the
combined full outstanding principal balance of $1,180,000 on the Inventory Funding Loan, Operating Capital Loan and Short-Term
notes payable together with $84,228 of accrued interest on these notes were converted into 3,735,419 (1,264,228 shares pre-reverse
Acquisition) shares of common stock at a conversion price of $.34 ($1.00 per share pre-reverse Acquisition).</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>Revolving Loans</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">In October 2011, we
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 on September 30, 2013, as amended, and is secured by substantially all of the assets
of the Company. As of June 30, 2012 the balance outstanding payable on the note was $600,000.</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 March 7, 2012, we
entered into an additional note payable agreement with the same stockholder for $250,000. The note is due on on March 7, 2014 and
bears interest at 8% per annum. As of June 30, 2012 the balance outstanding payable on the note was $250,000.</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 may require additional
financing in the future. The timing of the Company&rsquo;s need for additional capital will depend in part on its 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">However, there is no
guarantee the Company will be able to obtain additional funds in the future or that funds will be available on terms acceptable
to the Company.&nbsp;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 the Company&rsquo;s
future cash flows and results of operations, and its 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">During the fiscal 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.</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>Future Liquidity Needs</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 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>

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<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 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">We believe our cash,
accounts receivables, and our revolving promissory notes are adequate to satisfy our working capital needs and sustain our ongoing
operations for at least the next twelve months.</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">However, there is no
guarantee we will be able to obtain additional funds in the future if required 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">As of June 30, 2012,
we did not have any other relationships with unconsolidated entities or financial partners, such as entities often referred to
as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity,
market or credit risk that could arise if we had engaged in such relationships.</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"><B>Recent Accounting Pronouncements</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-indent: 0.5in">Refer to Note 1, &ldquo;Summary of Significant
Accounting Polices,&rdquo; in the accompanying notes to the financial statements for a discussion of new accounting standards.</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 7A &mdash; QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK</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">Not Applicable</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"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>ITEM 8 &mdash; FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA</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">See Index to Financial Statements on page
58.</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 9 &mdash; CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND</B> <B>FINANCIAL 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-align: justify; text-indent: 0.5in">None</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"><B>ITEM 9A - CONTROLS AND PROCEDURES</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"><B>&nbsp;</B>Evaluation of Disclosure Controls
and Procedures</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">Under the supervision
and with the participation of our management, including our principal executive officer and principal financial officer, as of
the end of the period covered by this report, we conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Act of 1934. Our disclosure
controls and procedures are designed to provide reasonable assurance that the information required to be included in our Securities
and Exchange Commission (&ldquo;SEC&rdquo;) reports is recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms, relating to the Company, including our consolidated subsidiaries, and was made known to them by others
within those entities, particularly during the period when this report was being prepared. Based on the management's assessment
and review of our financial statements and results for the fiscal year ended June 30, 2012, we have concluded that our disclosure
controls and procedures were effective for purposes stated above.</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"></TD><TD STYLE="width: 0.5in">(a)</TD><TD STYLE="text-align: justify">Management&rsquo;s Report on Internal Control over Financial Reporting</TD></TR></TABLE>

<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 management of the
Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company&rsquo;s
internal control over financial reporting is a process designed under the supervision of the Company&rsquo;s principal executive
officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of the Company&rsquo;s financial statements for external purposes in accordance with generally accepted accounting
principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurances with respect to financial statement preparation and presentation. Additionally,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.</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 management of
the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. As of June 30, 2012, management assessed
the effectiveness of the Company&rsquo;s internal control over financial reporting based on the criteria for effective
internal control over financial reporting established in &ldquo;Internal Control &mdash; Integrated Framework,&rdquo; issued
by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Based on the assessment,
management determined that the Company maintained effective internal control over financial reporting as of June 30, 2012
based on the COSO criteria.</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">For the fiscal year
ended June 30, 2011, the company had a material weakness in internal controls over financial reporting in that the Company did
not employ personnel with sufficient knowledge of generally accepted accounting principles (GAAP) to enable it to prepare financial
statements in accordance with GAAP. The Company remediated this material weakness in January 2012 by hiring a Chief Financial Officer
who is a Certified Public Accountant who holds an active California license.</P>

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

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<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">This annual report
does not include an attestation report of the Company&rsquo;s independent registered public accounting firm regarding internal
control over financial reporting. Management&rsquo;s report was not subject to attestation by the Company&rsquo;s independent registered
public accounting firm pursuant to permanent rules of the Securities and Exchange Commission that permit the Company to provide
only management&rsquo;s report in this annual 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"><B>Change in Internal Control Over Financial
Reporting</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">With the exception
of the remediation measure taken in January 2012 in hiring our Chief Financial Officer, there have been no other changes in the
Company&rsquo;s internal controls over financial reporting during the fiscal year ended June 30, 2012 that have materially affected,
or are reasonably likely to materially affect, the Company&rsquo;s internal control over financial reporting.</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 9B &mdash; OTHER INFORMATION</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">None.</P>

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

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<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>PART III</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"><B>ITEM 10 &mdash; DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE</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>Directors, Executive Officers and Significant Employees</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>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 our current directors, executive officers and significant employees as of the date of
this report. Our 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 CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 29%; padding-left: 1pt; font-weight: bold; border-bottom: Black 1pt solid">Name</TD>
    <TD STYLE="width: 3%; padding-left: 1pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 15%; padding-left: 1pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Age</TD>
    <TD STYLE="width: 3%; padding-left: 1pt; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 50%; padding-left: 1pt; font-weight: bold; border-bottom: Black 1pt solid">Position</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 1pt">Chris L. Anthony</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">36</TD>
    <TD>&nbsp;</TD>
    <TD>Chairman and Chief Executive Officer</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 1pt">Stephen G. Jackson</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">49</TD>
    <TD>&nbsp;</TD>
    <TD>Chief Financial Officer and Chief Operating Officer</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 1pt">Craig Miller</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">40</TD>
    <TD>&nbsp;</TD>
    <TD>Chief Intellectual Property Officer and Corporate Secretary</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 1pt">Michael Johnson</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">61</TD>
    <TD>&nbsp;</TD>
    <TD>Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 1pt">James Gevarges</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">46</TD>
    <TD>&nbsp;</TD>
    <TD>Director</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">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 L. Anthony,
Chief Executive Officer, and Director.</B> Mr. Anthony has been our Chairman and Chief Executive Officer since June 14, 2012. 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, a Delaware company primarily engaged in the business of providing recreational
and competitive watercrafts, including an electric wake boarding boat which he founded in 2002 (&ldquo;Epic Boats&rdquo;) and where
he served as Chief Executive Officer until October 2010. Mr. Anthony is a majority owner of Epic Boats. At Epic Boats, Mr. Anthony&rsquo;s
primary responsibilities included managing the day to day operations of the Company in his capacity as Chief Executive Officer
and Founder. From 2005 to 2009 Mr. Anthony served as the Chief Operating Officer of Aptera Motors, Inc., a Delaware company engaged
in the business of manufacturing a three-wheel electric car (&ldquo;Aptera Motors&rdquo;) and was a Director of that company from
2005 to 2010. Aptera Motors and Epic Boats are not affiliates of the Company. 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 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>Stephen
G. Jackson, Chief Financial Officer and Chief Operating Officer.</B> Mr. Jackson has been our Chief Financial Officer since June
14, 2012. 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, a FORTUNE 500&reg; scientific, engineering, and technology
applications company, where he held several significant financial management positions, and 3 years at PriceWaterhouse LLP (&ldquo;PW&rdquo;).
Verdezyne, Inc., SAIC, and PW are not affiliates of the Company. 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.</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>

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<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"><FONT STYLE="font-family: Times New Roman, Times, Serif"><B>Craig
Miller, Chief Intellectual Property Officer and Corporate Secretary. </B>Mr. Miller has been our Chief Intellectual Property Officer
since July 1, 2012 and our corporate secretary since June 14, 2012.</FONT> <FONT STYLE="font-family: Times New Roman, Times, Serif">Mr.
Miller has been providing various business and &lrm;Intellectual Property related services since the inception of Flux Power. Prior
to working with Flux Power Mr. Miller had his own &lrm;practice consulting companies on Intellectual Property Matters &lrm;such
as filing of patent applications, providing patent strategy &lrm;and providing general business consulting. Mr. Miller has also
&lrm;worked in house as Director of Intellectual Property for BakBone &lrm;Software, Inc. (2006~2009) where he helped BakBone prepare
&lrm;for a Nasdaq public offering. BakBone Software was a computer software company specializing in development of data protection
&lrm;storage software. &lrm;Mr. Miller has over 12 years of &lrm;experience in the Intellectual Property field and during such
&lrm;time has held several significant management positions in &lrm;Intellectual Property. Mr. Miller received his Bachelor of
Science &lrm;degree in electrical engineering from California State Polytechnic &lrm;University, Pomona.&lrm;</FONT></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>Michael Johnson,
Director.</B> Mr. Johnson has been our director since July 12, 2012. Mr. Johnson has been a director of Flux Power since it was
incorporated. Since 2002, Mr. Johnson has been a director and the Chief Executive Officer of Esenjay Petroleum Corporation (&ldquo;Esenjay
Petroleum&rdquo;), a Delaware company located in Corpus Christi, Texas which is engaged in the business oil exploration and production.
Mr. Johnson&rsquo;s primary responsibility at Esenjay Petroleum was to manage the business and company as Chief Executive Officer.
Mr. Johnson is director and shareholder of Esenjay Investments LLC, a Delaware company engaged in business of investing in companies,
and an affiliate of the Company owning approximately 49% of the issued and outstanding shares of the Company. As a result of Mr.
Johnson&rsquo;s leadership and business experience 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 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 our director since July 14, 2012. Mr. Gevarges has been a director of Flux Power since it was
incorporated. Mr. Gevarges is the President, Chief Executive Officer, and a majority owner of Current Ways, Inc., a California
company engaged in the business of manufacturing chargers and other components for electric vehicles, which he founded in 2010.
Current Ways, Inc. is not an affiliate of the Company. Since 1991 Mr. Gevarges has also been a Director and the Chief Executive
Officer of LHV Power Corporation (formerly known as HiTek Power, Corp) (&ldquo;LHV Power&rdquo;), a California company located
in Santee, California which is engaged in the business of designing, manufacturing and marketing of power supply systems. Mr. Gevarges
is the sole owner of LHV Power. LHV Power is not an affiliate of the Company. Mr. Gevarges&rsquo; primary responsibilities at LHV
Power are to manage the company and business as Chief Executive Officer and President. As a result of Mr. Gevarges&rsquo; management
and industry experience he 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-align: justify; text-indent: 0.5in; background-color: white">&nbsp;</P>

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<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"><B><I>Involvement in Certain Legal Proceedings</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 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.&nbsp;</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>Board Leadership Structure and Role in Risk Oversight
</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 Board does not
have a policy as to whether the roles of our Chairman and Chief Executive Officer should be separate. Instead, the Board makes
this determination based on what best serves our Company&rsquo;s needs at any given time. Currently, Mr. Anthony holds the positions
of Chairman and Chief Executive Officer of our Company. The Board may decide to separate the positions of Chairman and Chief Executive
Officer in the future if the Board believes it is in the best interest of the Company and our shareholders.</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 Board believes
that effective board leadership is highly dependent on the experience, skills and personal interaction between persons in leadership
roles. The Company believes that having one person, particularly Mr. Anthony with his extensive knowledge of the industry and executive
management experience, his extensive knowledge of the operations of the Company and his own commitment to innovation and strategic
thinking, serve as both Chief Executive Officer and Chairman is the best leadership structure for the Company because it demonstrates
to our employees, customers and shareholders that the Company is under strong leadership, with a single person setting the tone
and having primary responsibility for managing the Company&rsquo;s operations. Accordingly, with significant input from our Board,
Mr. Anthony sets the strategic direction for our Company and provides daily leadership and guidance to our managements and employees.
In addition, this unity of leadership promotes strategy development and execution, timely decision-making and effective management
of Company resources. The Company believes that it has been well-served by this structure.</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 its governance role,
and particularly in exercising its duty of care and diligence, the Board is responsible for ensuring that appropriate risk management
policies and procedures are in place to protect the company&rsquo;s assets and business. Our Board has broad and ultimate oversight
responsibility for our risk management processes and programs and executive management is responsible for the day-to-day evaluation
and management of risks to the Company.</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>Audit 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
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">&nbsp;</P>

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<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>Audit Committee Financial Expert</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 Board of Directors
has not established a separate audit committee within the meaning of Section 3(a)(58)(A) of the Securities Exchange Act of 1934,
as amended (the &ldquo;Exchange Act&rdquo;). Instead, our entire Board of Directors acts as the audit committee within the meaning
of Section 3(a)(58)(B) of the Exchange Act. In addition, our Board of Directors has not made a determination as to whether a director
on the Board meets the definition of an &ldquo;audit committee financial expert&rdquo; within the meaning of Item 407(d)(5) of
Regulation S-K. We continue to seek candidates for outside directors and for a financial expert to serve on a separate audit committee
when we establish one.</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 fulfilling its oversight
responsibilities, the Board has reviewed and discussed the audited financial statements with management and discussed with the
independent auditors the matters required to be discussed by SAS 61. Management is responsible for the financial statements and
the reporting process, including the system of internal controls. The independent auditors are responsible for expressing an opinion
on the conformity of those audited financial statements with generally accepted accounting principles.</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 Board of Director
discussed with the independent auditors, the auditors&rsquo; independence from the management of the Company and received written
disclosures and the letter from the independent accountants required by Independence Standards Board Standard No. 1.</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">After Board of Director&rsquo;s
review and discussions, as mentioned above, the Board of director recommended that the audited financial statements be included
in the Company&rsquo;s Annual Report on Form 10-K.</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>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. T<FONT STYLE="font-size: 10pt">here
were no material changes to the procedures by which security holders may recommend nominees to our Board of Directors. </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><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">&nbsp;</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">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 on June 14, 2012, and the appointment of Mr. James Gevarges and Mr. Michael Johnson
on July 12, 2012, 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>

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



<P STYLE="margin: 0"></P>
<P STYLE="margin: 0">&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"><B>Compliance with Section 16 of the Securities
Exchange Act of 1934</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">Section 16(a) of the
Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of
a registered class of our equity securities, to file with the Securities and Exchange Commission (hereinafter referred to as the
&ldquo;Commission&rdquo;) initial statements of beneficial ownership, reports of changes in ownership and Annual Reports concerning
their ownership, of Common Stock and other of our equity securities on Forms 3, 4, and 5, respectively. Executive officers, directors
and greater than 10% stockholders are required by Commission regulations to furnish us with copies of all Section 16(a) reports
they file. Based solely on information available to us in public filings,&nbsp;we believe that all reports required by Section
16(a) for transactions in the fiscal year ended June 30, 2012, were timely filed.</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 11 &mdash; EXECUTIVE COMPENSATION
</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>Summary Compensation Table</I></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; text-indent: 0.5in">During the fiscal
year ended June 30, 2011 and June 30, 2012, no compensation was paid to Mr. Gianluca Cicogna-Mozzoni, our former executive officers
or director who held such positions prior to the Reverse Acquisition. 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 (the &ldquo;Effective Date&rdquo;).
Mr. Cicogna-Mozzoni&rsquo;s resignation was effective on July 12, 2012.</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
table sets forth the information, on an accrual basis, with respect to the compensation of our and Flux Power&rsquo;s named executive officers for the fiscal years ended June 30, 2012 and June 30, 2011.</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" STYLE="border-collapse: collapse; width: 100%; font: 7pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; font-size: 7pt">
    <TD NOWRAP STYLE="font-weight: bold; border-bottom: Black 1pt solid; font-size: 7pt"><FONT STYLE="font-size: 8pt">Name and
    Principal Position</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid; font-size: 7pt"><FONT STYLE="font-size: 8pt">Year</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid; font-size: 7pt"><P STYLE="font: 7pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>Salary</B></FONT></P> <P STYLE="font: 7pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>($)</B></FONT></P></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid; font-size: 7pt"><P STYLE="font: 7pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>Bonus</B></FONT></P> <P STYLE="font: 7pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>($)
                                                                                                                                                                                                                                                                    (1)</B></FONT></P></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid; font-size: 7pt"><P STYLE="font: 7pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>Stock</B></FONT></P> <P STYLE="font: 7pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>Awards
                                                                                                                                                                                                                                                                    ($)
                                                                                                                                                                                                                                                                    (2)</B></FONT></P></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid; font-size: 7pt"><P STYLE="font: 7pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>Option</B></FONT></P> <P STYLE="font: 7pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>Awards
                                                                                                                                                                                                                                                                     ($)
                                                                                                                                                                                                                                                                     (3)</B></FONT></P></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid; font-size: 7pt"><P STYLE="font: 7pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>Non-Equity</B></FONT></P> <P STYLE="font: 7pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>Incentive
                                                                                                                                                                                                                                                                         Plan</B></FONT></P> <P STYLE="font: 7pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>Compensation
                                                                                                                                                                                                                                                                                             ($)&nbsp;(4)</B></FONT></P></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid; font-size: 7pt"><P STYLE="font: 7pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>All
                                                                                                                         Other</B></FONT></P> <P STYLE="font: 7pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>Compensation&nbsp;($)</B></FONT></P></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid; font-size: 7pt"><FONT STYLE="font-size: 8pt">Total
    ($)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204); font-size: 7pt">
    <TD STYLE="width: 18%; text-align: left; text-indent: -2.9pt; padding-left: 2.9pt; font-size: 7pt"><FONT STYLE="font-size: 8pt">Chris
    L. Anthony(5),</FONT></TD><TD STYLE="width: 1%; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">2012</FONT></TD><TD STYLE="width: 1%; text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 6%; text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">127,200</FONT></TD><TD STYLE="width: 1%; text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 6%; text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">30,000</FONT></TD><TD STYLE="width: 1%; text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 9%; text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="width: 1%; text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 8%; text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">9,000</FONT></TD><TD STYLE="width: 1%; text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">(5)</FONT></TD><TD STYLE="width: 1%; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 9%; text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="width: 1%; text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 8%; text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="width: 1%; text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 6%; text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">166,200</FONT></TD><TD STYLE="width: 1%; text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204); font-size: 7pt">
    <TD STYLE="text-align: left; padding-left: 5.05pt; font-size: 7pt"><FONT STYLE="font-size: 8pt">Chief Executive Officer and
    Chairman of the Board</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">2011</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">60,000</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">60,000</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White; font-size: 7pt">
    <TD STYLE="text-indent: -5.05pt; padding-left: 10.1pt; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204); font-size: 7pt">
    <TD STYLE="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt; font-size: 7pt"><FONT STYLE="font-size: 8pt">Stephen
    G. Jackson (6),</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">2012</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">64,992</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">25,560</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">223,000</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">(6)</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">313,552</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204); font-size: 7pt">
    <TD STYLE="text-align: left; padding-left: 5.05pt; font-size: 7pt"><FONT STYLE="font-size: 8pt">Chief Financial Officer and
    Chief Operating Officer</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">2011</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White; font-size: 7pt">
    <TD STYLE="text-indent: -5.05pt; padding-left: 5.05pt; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204); font-size: 7pt">
    <TD STYLE="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt; font-size: 7pt"><FONT STYLE="font-size: 8pt">Joseph
    Gottlieb (7),</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">2012</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204); font-size: 7pt">
    <TD STYLE="text-align: left; text-indent: -5.05pt; padding-left: 10.1pt; font-size: 7pt"><FONT STYLE="font-size: 8pt">Former
    Chief Technology Officer</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">2011</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">172,918</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">26,500</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">(7)</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
                                                                                                75,000</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">(7)&nbsp;</FONT></TD><TD STYLE="font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; font-size: 7pt"><FONT STYLE="font-size: 8pt">274,418</FONT></TD><TD STYLE="text-align: left; font-size: 7pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
</TABLE>

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

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<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: 18pt"></TD><TD STYLE="width: 27pt">(1)</TD><TD STYLE="text-align: justify">Amounts listed under the &ldquo;Bonus&rdquo;
                                                             column for fiscal 2012 reflect the discretionary bonuses paid to
                                                             each of the Named Executive Officers.</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: 18pt"></TD><TD STYLE="width: 27pt">(2)</TD><TD STYLE="text-align: justify">The &ldquo;Stock Awards&rdquo; column
                                                             is the grant date fair value of stock awards issued during each respective
                                                             year, adjusted where applicable for our assessment of the probability
                                                             that performance conditions will be achieved. The grant date fair
                                                             value was determined in accordance with the provisions of FASB ASC
                                                             Topic 718. There were no Stock awards issued in fiscal ended June
                                                             30, 2012 or 2011.</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: 18pt"></TD><TD STYLE="width: 27pt"><FONT STYLE="font-size: 10pt">(3)</FONT></TD><TD STYLE="text-align: justify">The
                                                                                                  &ldquo;Option Awards&rdquo;
                                                                                                  column is the grant date fair
                                                                                                  value of stock options granted
                                                                                                  during each respective year,
                                                                                                  adjusted where applicable for
                                                                                                  our assessment of the probability
                                                                                                  that performance conditions
                                                                                                  will be achieved. The grant
                                                                                                  date fair value was determined
                                                                                                  in accordance with the provisions
                                                                                                  of FASB ASC Topic 718 using
                                                                                                  the Black-Scholes valuation
                                                                                                  model with assumptions described
                                                                                                  in more detail in the notes
                                                                                                  to our audited financial statements
                                                                                                  included in this report. None
                                                                                                  of the stock options with performance
                                                                                                  conditions that were granted
                                                                                                  in <FONT STYLE="font-size: 10pt">fiscal
                                                                                                  ended June 30, 2012 or 2011</FONT>were
                                                                                                  considered probable of achieving
                                                                                                  their vesting conditions at
                                                                                                  the date of grant. Therefore
                                                                                                  the grant date fair value of
                                                                                                  such performance awards for
                                                                                                  purposes of the Summary Compensation
                                                                                                  Table was zero.</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: 18pt"></TD><TD STYLE="width: 27pt"><FONT STYLE="font-size: 10pt">(4)</FONT></TD><TD STYLE="text-align: justify">There
                                                                                                  were no bonuses paid in fiscal
                                                                                                  2012 or 2011 related to Incentive
                                                                                                  Plan performance.</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: 18pt"></TD><TD STYLE="width: 27pt"><FONT STYLE="font-size: 10pt">(5)</FONT></TD><TD STYLE="text-align: justify">Mr.
                                                                                                  Anthony was granted on October
                                                                                                  1, 2011 options to purchase
                                                                                                  100,000 shares or 295,470 as
                                                                                                  adjusted (see Note 1, to the
                                                                                                  financial statements) of our
                                                                                                  common stock at $0.04 per share.
                                                                                                  The options vest quarterly over
                                                                                                  a 2-year period and expire on
                                                                                                  October 1, 2021. The fair value
                                                                                                  of the option award as of June
                                                                                                  30, 2012 is approximately $9,000.</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: 18pt"></TD><TD STYLE="width: 27pt"><FONT STYLE="font-size: 10pt">(6)</FONT></TD><TD STYLE="text-align: justify">Mr.
                                                                                                  Jackson was granted on January
                                                                                                  25, 2012 options to purchase
                                                                                                  300,000 shares or 886,411 as
                                                                                                  adjusted (see Note 1, to the
                                                                                                  financial statements) of our
                                                                                                  common stock at $0.34 per share.
                                                                                                  The options vest 25% after 12
                                                                                                  mos., remaining monthly over
                                                                                                  36 months and expire on January
                                                                                                  22, 2020. As of June 30, 2012
                                                                                                  the options are fully unvested.
                                                                                                  The fair value of the option
                                                                                                  award as of June 30, 2012 is
                                                                                                  approximately $223,000.</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: 18pt"></TD><TD STYLE="width: 27pt"><FONT STYLE="font-size: 10pt">(7)</FONT></TD><TD STYLE="text-align: justify">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 or
                                                                                                  782,997 as adjusted (see Note
                                                                                                  1, to the financial statements)
                                                                                                  of our common stock at $0.04
                                                                                                  per share. The options expire
                                                                                                  on July 31, 2013. The fair value
                                                                                                  of the option award as of June
                                                                                                  30, 2012 is approximately $23,000.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22.5pt; text-align: justify"><I>&nbsp;</I></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Equity Compensation Plan Information</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">Flux Power has adopted
the 2010 Stock Option Plan (&ldquo;Option Plan&rdquo;) which reserved 2,000,000 shares of common stock for issuance upon exercise
of options. As of June 14, 2012, the number of shares of common stock outstanding under the Option Plan was 1,535,500, and as
of June 30, 2011, the number of shares of common stock outstanding under the Option Plan was 710,000.</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 part of the
Reverse Acquisition, we  assumed the Option Plan and all 1,535,500 stock options of Flux Power&rsquo;s outstanding as of June
14, 2012, 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. 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; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<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 table
sets forth certain information concerning our unexercised options, stock that has not vested, and equity compensation plan awards
outstanding as of June 30, 2012 for the named executive officers below:</P>

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



<P STYLE="margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: center; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="20" STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Option&nbsp;Awards(1)&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="14" STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">&nbsp;Stock&nbsp;Awards</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Name</FONT></TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Award <BR>Grant <BR>Date</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Number&nbsp;of<BR>
    Securities<BR> Underlying<BR> Unexercised<BR>
    Options<BR> Exercisable</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Number&nbsp;of<BR>
    Securities<BR> Underlying<BR> Unexercised<BR>
    Options<BR> Unexercisable</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Equity<BR> Incentive
    <BR>Plan<BR> Awards:<BR> Number&nbsp;of<BR>
    Securities<BR> Underlying<BR> Unexercised<BR> Unearned<BR> Options</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Option<BR> Exercise<BR>
    Price<BR> ($)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Option<BR> Expiration<BR>
    Date</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Number&nbsp;of<BR>
    Shares&nbsp;or<BR> Units&nbsp;of<BR>
    Stock&nbsp;That<BR> Have&nbsp;Not<BR> Vested</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Market&nbsp;Value<BR>
    of&nbsp;Shares&nbsp;or<BR> Units&nbsp;of&nbsp;Stock<BR>
    That&nbsp;Have&nbsp;Not<BR> Vested<BR> ($)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Equity<BR>
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</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Equity<BR>
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> ($)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    </TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: center; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 14%; text-align: left"><FONT STYLE="font-size: 8pt">Chris L. Anthony</FONT></TD>
    <TD>&nbsp;</TD>
    <TD STYLE="width: 6%; text-align: center; padding-left: 10pt"><FONT STYLE="font-size: 8pt">10/01/2011</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">110,081</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">184,669</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">0</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">0.04</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">10/1/2021</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">184,669</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">9,000</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">0</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">0</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    </TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center; padding-left: 10pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Stephen G. Jackson</FONT></TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center; padding-left: 10pt"><FONT STYLE="font-size: 8pt">01/25/2012</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">886,411</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0.34</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">01/25/2022</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">886,441</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">223,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    </TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center; padding-left: 10pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Joseph Gottlieb (2)</FONT></TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center; padding-left: 10pt"><FONT STYLE="font-size: 8pt">12/03/2010</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">782,997</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0.04</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">12/31/2013</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    </TR>
</TABLE>



<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" 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: 0.25in"></TD><TD STYLE="width: 0.25in; text-align: left">(1)</TD><TD STYLE="text-align: justify">The fair value of each option grant is estimated at the
date of grant using the Black-Scholes option pricing model. Expected volatility is calculated based on the historical volatility
of the Company&rsquo;s stock. The risk free interest rate is based on the U.S. Treasury yield for a term equal to the expected
life of the options at the time of grant.</TD>
</TR></TABLE>

<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: 0.25in"></TD><TD STYLE="width: 0.25in">(2)</TD><TD STYLE="text-align: justify">Mr. Gottlieb resigned July 31,
                                                                 2011.</TD></TR></TABLE>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Compensation of Non-Executive Directors&nbsp;</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 June 30, 2012,
no equity awards were issued to any of our non-executive directors.&nbsp;</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>Aggregated Option/SAR exercised and
Fiscal year-end Option/SAR value table</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">Neither our executive
officers 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">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Long-term incentive plans</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">No long term incentive
awards were granted by us in 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>

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<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>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Employment contracts and termination
of employment and change-in-control arrangements</I></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">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Effective August 1,
2012, we hired Craig Miller as our Chief Intellectual Property and Corporate Secretary on an at-will basis. In consideration for
his services, we agreed to pay Mr. Miller an annual base salary of $180,000 paid in biweekly installments. Mr. Miller is also
eligible to (i) receive a bonus of $10,000 for every $5,000,000 in revenue per quarter, and (ii) participate in our incentive
plan. Mr. Miller also receives standard benefits which include health and dental insurance.</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 entered into
an employment agreement, as amended, with our Chief Executive Officer, Chris L. 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 $201,600. 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. In the event Mr. Anthony is terminated for any reason other
than criminal activity, we agree 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">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have entered into
an employment agreement with our Chief Financial Officer and Chief Operating Officer, Steve Jackson to be effective 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 886,411 shares of common stock, subject to the following vesting schedule: 25% shares vest after 12 months, and remaining
shares vest monthly over 36 months. As of September 4, 2012, none of the options have vested. 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 $170,400. 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: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 50%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">Quarterly Sales Milestones</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">Annualized Compensation</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 48%; text-align: right">3,000,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 47%; text-align: right">164,500</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">5,000,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">188,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">10,000,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">211,500</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">15,000,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">235,000</TD><TD STYLE="text-align: left">&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; text-align: justify; text-indent: 0.5in">We have 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, we agree 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&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; text-align: justify; text-indent: 0.5in">As of June 30, 2012
there were no performance based bonuses paid in fiscal years ended June 30, 2012 or 2011.</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>Compensation Committee Interlocks and
Insider Participation</I></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; 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-align: justify; text-indent: 0.5in">&nbsp;</P>

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

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<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>ITEM 12 &mdash; SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND</B> <B>RELATED STOCKHOLDER MATTERS</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 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 September 4, 2012 we had
a total of 46,364,587 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 September 4, 2012: (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 Holdings, 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: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-align: justify; border-bottom: Black 1pt solid">Name and Address of Beneficial Owner</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><B>Amount and Nature
    of<BR>
    Beneficial Ownership <SUP>(1)</SUP></B></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><SUP>&nbsp;</SUP></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Percentage of<BR> Ownership</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: justify">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: justify">Directors and Named Executive Officers</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></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: White">
    <TD STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></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="width: 54%; text-align: justify">Chris L. Anthony, Director and Executive Officer</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 22%; text-align: right">11,996,551</TD><TD STYLE="width: 1%; text-align: left"><SUP>(2)&nbsp;</SUP></TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 18%; text-align: right">25.7</TD><TD STYLE="width: 1%; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></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="text-align: justify">Stephen G. Jackson, Chief Financial Officer</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></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="text-align: justify">Craig Miller, Chief Intellectual Property Officer</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">443,206</TD><TD STYLE="text-align: left"><SUP>(3)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></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="text-align: justify">Michael Johnson</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">20,134,205 </TD><TD STYLE="text-align: left"><SUP>(4)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">43.3</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></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="text-align: justify">James Gevarges</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,057,143 </TD><TD STYLE="text-align: left"><SUP>(5)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">13.04</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></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="text-align: justify">All Officers &amp; Directors as a Group (5 people)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">38,600,925</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">83.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></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-weight: bold; text-align: left">5% Beneficial Owners</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></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: White">
    <TD STYLE="font-weight: bold; text-align: justify">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left"><SUP>&nbsp;</SUP></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="text-align: left"><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>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,572,777 </TD><TD STYLE="text-align: left"><SUP>(6)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7.15</TD><TD STYLE="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">(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.</P>

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

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<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">(2) Includes 147,735
stock options, all of which are vested.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif">(3)
Includes 443,206 stock options, all of which are vested. Options issued to Mr. Miller were granted while Mr. Miller was a contractor
(non-employee) of Flux Power. Mr. Miller provided business and intellectual property related services to Flux Power. Mr. Miller
has been our Chief Intellectual Property Officer since July 1, 2012 and our corporate secretary since June 14, 2012.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">(4) Includes shares
held by Esenjay Investments, LLC, a Texas limited liability company of which Mr. Johnson is the sole director and beneficial owner.
Includes 147,735 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; text-indent: 0.5in">(5) Includes 147,735
stock options, all of which are vested.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">(6) Includes 1,035,000
shares held by Michael Gardner who is a principal of Baytree Capital Associates LLC, and 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: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>ITEM 13 &mdash; CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE</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>Transactions with Related Persons
</I></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; 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; 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 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"><B>&nbsp;</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></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"></TD><TD STYLE="width: 0.25in"><B><I>(a)</I></B></TD><TD STYLE="text-align: justify"><B><I>Loans Converted
                                                                          into Common Stock</I></B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; 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">During the fiscal
year ended June 30, 2012, the Company had $200,000 outstanding on a $400,000 (Inventory Funding Loan) revolving note
payable with a stockholder.&nbsp; The note had a stated interest rate of 8% per annum and was for inventory
purchases.&nbsp; Interest accrued daily and was payable upon maturity or conversion as amended.&nbsp; Advances on the note
were collateralized by substantially all assets of the Company.&nbsp;</P>

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

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<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 Company
had another revolving note payable (Operating Capital Loan) in the amount of $1,000,000, due to the same
stockholder.&nbsp; During the fiscal year ended June 30, 2012, the Company had $830,000 outstanding on this note. The note
bore interest at 8% per annum and a maturity date of May 2012.&nbsp; The purpose of this note was to provide bridge capital
for financing.&nbsp; Advances on the note are collateralized by substantially all of the assets of the Company.&nbsp;</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 August 2011, the
Company amended the terms of both the Inventory Funding Loan and Operating Capital Loan to provide for conversion feature of the
notes payable into shares of the Company&rsquo;s common stock at $1 per share.&nbsp;</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 September 2011,
the Company entered into an additional note payable (Short-Term Loan) agreement with the same stockholder for $150,000.&nbsp;
The note matured in May 2012 and bore interest at 8% per annum as amended, and is convertible into the Company&rsquo;s equity
securities in the same terms as the above Loans.</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 December 2011,
the combined full outstanding principal balance of $1,180,000 on the Inventory Funding Loan, Operating Capital Loan and Short-Term
notes payable together with $84,228 of accrued interest on these notes were converted into 3,735,419 (1,264,228 shares pre-reverse
Acquisition) shares of common stock at a conversion price of $.34 ($1.00 per share pre-reverse Acquisition).</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"></TD><TD STYLE="width: 0.25in"><B><I>(b)</I></B></TD><TD STYLE="text-align: justify"><B><I>Revolving Loans</I></B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: -0.25in"><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 October 2011, we
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 on September 30, 2013, as amended, and is secured by substantially all of the assets
of the Company. As of June 30, 2012 the balance outstanding payable on the note was $600,000.</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 March 7, 2012,
we entered into an additional note payable agreement with the same stockholder for $250,000. The note is due on on March 7, 2014
and bears interest at 8% per annum. As of June 30, 2012 the balance outstanding payable on the note was $250,000.</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 24, 2012,
we entered into a certain Unrestricted and Line of Credit (&ldquo;Line of Credit) with Esenjay Investments, LLC (&ldquo;Esenjay&rdquo;)
pursuant to which Esenjay agreed to provide us with a revolving line of credit for $1,500,000 (&ldquo;Line of Credit&rdquo;).
Borrowings under the Line of Credit is secured by the assets of the Company and bears interest at 8% per annum, with all unpaid
principal and accrued interest due and payable on September 24, 2014. There is no prepayment penalty under the Line of Credit.
Proceeds from the Line of Credit can be used at the discretion of the Company and the Company intends to use it for working capital.
As of September 28, 2012, the Company has not borrowed any amounts under the Line of Credit. Esenjay is one of our major shareholders
which beneficially own approximately 43% of our common stock. Mr. Michael Johnson, our director, is the director and shareholder
of Esenjay.</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 require additional
financing in the future. The timing of the Company&rsquo;s need for additional capital will depend in part on its 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">However, there is
no guarantee the Company will be able to obtain additional funds in the future or that funds will be available on terms acceptable
to the Company.&nbsp;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 the Company&rsquo;s
future cash flows and results of operations, and its 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>

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<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 2009, the Flux
Power entered into a cancelable Term Sheet agreement (the &ldquo;Term Sheet Agreement&rdquo;) with a LHV Power Corporation, an
entity owned by James Gevarges, one of our major shareholders. Mr. Gevarges is also the Chief Executive Officer and President
of LHV Power. Pursuant to the Term Sheet Agreement, Flux Power was appointed as a distributor of LHV Power 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 a microprocessor control board, and the associated software to enable communication between the parties&rsquo;
respective products (&ldquo;MCB&rdquo;) which entitles Flux Power to royalties for any such units sold by the related entity.
Pursuant to the Term Sheet Agreement Flux Power may purchase the products at the then current price list for distributors. Further,
under the Term Sheet Agreement, if LHV Power sells its products to a different distributor Flux Power is entitled to a distribution
fee equal to 20% of the 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 Gevarges. Mr. Gevarges is also the Chief Executive Officer and President of Current
Ways, Inc., Under the Term Sheet Agreement, it was agreed that upon completion of the MCB, and LHV Power&rsquo;s sale of the MCB
as part of its product offerings, LHV Power will pay Flux Power a royalty fee of $20 per MCB sold, with such royalty fees capped
at $200,000. This distribution and royalties fees were capped at a total of $200,000. The parties also agreed that the obligation
to pay the royalty fees and distribution fee would survive the termination or expiration of the Term Sheet Agreement and such
obligation to make such payment would terminate once the total payments of the distribution and royalty fee reached $200,000 (&ldquo;Distribution
and Royalty Fee Obligation&rdquo;). Once the Distribution and Royalty Fee Obligation has been satisfied, the parties agreed that
Flux Power would no longer be required to provide any support for the MCB and the parties would negotiate a new support fee upon
LHV Power&rsquo;s request. This cap has not been satisfied and the Distribution and Royalty Fee Obligation still remains outstanding.
The chargers are not currently under commercial production and therefore no Distribution and Royalty Fee has been received by
Flux Power. Under the Term Sheet Agreement, LHV Power has ownership of all intellectual property concerning the software developed
under the Term Sheet Agreement. On September 1, 2010, with our consent, LHV assigned the Term Sheet Agreement. The Term Sheet
Agreement provides for automatic one-year renewals and remains in effect.to Current Ways, Inc., a different company that is owned
by Mr. Gevarges. In connection with the assignment, Current Ways, Inc. assumed all of the rights and obligations of LHV Power
under the Term Sheet Agreement. The Term Sheet Agreement expired pursuant to its terms on April 1, 2011. However, Current Ways,
Inc. is still subject to the Distribution and Royalty Fee Obligation which will continue until the cap of $200,000 is satisfied
or the parties agree otherwise. The parties are also subject to restrictions on the use and disclosure of confidential information
of the other party until April 1, 2013. Pursuant to our standard purchase order terms and conditions, during the fiscal years
ended June 30, 2012 and 2011, Flux Power purchased approximately $85,000 and $33,000 charger products from Current Ways, Inc.,
which purchases were not subject to the distribution fee or royalties under the Term Sheet 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 0.5pt 0pt 0; text-align: justify; text-indent: 0.5in">On August
1, 2009, Flux Power entered into a Manufacturing Implementation Agreement (the &ldquo;Manufacturing Agreement&rdquo;) with LHV
Power. Pursuant to the Manufacturing Agreement Flux Power granted LHV Power a right of first refusal to manufacture our battery
management systems. Further, under the Manufacturing Agreement, Flux Power agreed to pay for any specialized tooling LHV Power
may require to manufacture Flux Power&rsquo;s battery management systems. Under the Manufacturing Agreement, Flux Power will retain
ownership of all intellectual property developed under the Manufacturing Agreement. The Manufacturing Agreement expires on August
1, 2014. During the fiscal years ended June 30, 2012 and 2011, Flux Power paid approximately $263,000 and $130,000, respectively,
to LHV Power pursuant to the Manufacturing Agreement.</P>

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

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.5pt 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 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 fiscal years ended June 30, 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">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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: #1F497D">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 38%; font-weight: bold; border-bottom: Black 1pt solid">Product</TD>
    <TD STYLE="width: 2%; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 60%; font-weight: bold; border-bottom: Black 1pt solid">Description</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Battery Box Design</TD>
    <TD>&nbsp;</TD>
    <TD>All hardware, tooling and design reduced to practice otherwise of the battery housings which include the integration of
    a battery management system.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>CAN Communication Protocol</TD>
    <TD>&nbsp;</TD>
    <TD>Top communication protocol that communicates through the CAN bus</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>CAN based Throttle Controller</TD>
    <TD>&nbsp;</TD>
    <TD>All hardware, software and tooling reduced to practice or otherwise of the throttle controller</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>BMS Head End Interfaces</TD>
    <TD>&nbsp;</TD>
    <TD>Interfaces to the motor and generator controller to the diagnostic software</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">As of this date, Flux
Power began selling products to Epic Boats under Flux Power&rsquo;s standard terms and conditions and has continued to sell products
to Epic Boats as a customer. During the fiscal years ended June 30, 2012 and 2011, Flux Power sold approximately $1,135,000 and
$149,000, respectively, of product to Epic Boats. The customer deposits balance received from Epic Boats at June 30, 2012 and
June 30, 2011, is approximately $200,000 and $367,000, respectively. There were no receivables outstanding from Epic Boats as
of June 30, 2012.</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 fiscal
years ended June 30, 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 June 30, 2012 and June 30, 2011. As of June 30, 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; text-align: justify"><B><I>Promoters and Certain Control Persons</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">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 CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 6%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 6%; padding-right: 0.8pt; padding-left: 0.5in; text-align: justify; text-indent: -0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT>&#9;</TD>
    <TD STYLE="width: 88%; padding-right: 0.8pt; 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 26% of our
    common stock.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 6%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 6%; padding-right: 0.8pt; padding-left: 0.5in; text-align: justify; text-indent: -0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT>&#9;</TD>
    <TD STYLE="width: 88%; padding-right: 0.8pt; text-align: justify"><B><I>Esenjay Investments, LLC.</I></B> Esenjay Investment,
    LLC is one of our major shareholders which beneficially own approximately 43% of our common stock. 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>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 6%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 6%; padding-right: 0.8pt; padding-left: 0.5in; text-align: justify; text-indent: -0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT>&#9;</TD>
    <TD STYLE="width: 88%; padding-right: 0.8pt; text-align: justify"><B><I>James Gevarges</I>.</B> Mr. Gevarges, our director,
    is one of our major shareholders who beneficially own approximately 13% of our common stock.</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">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: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>ITEM 14 &mdash; PRINCIPAL ACCOUNTANT
FEES AND SERVICES.</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"><B>Independent Auditor </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">Prior to the Reverse
Acquisition, Friedman LLP was our auditor. In connection with Reverse Acquisition, we dismissed Friedman LLP and engaged Mayer
Hoffman McCann P.C. (&ldquo;Mayer&rdquo;). On August 9, 2012, our Board of Directors approved the dismissal of Mayer and our Board
of Directors serving as the Audit Committee appointed Squar, Milner, Peterson, Miranda &amp; Williamson, LLP (&ldquo;Squar&rdquo;)
as our independent auditor for the fiscal year ending June 30, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.8pt 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>Fees Paid to Principal Independent
Registered Public Accounting Firm(s) </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 aggregate fees
paid to our Independent Registered Public Accounting Firm(s), for fiscal years ended June 30, are as follows:</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">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%; text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Audit fees (1)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">181,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">32,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Audit related fees</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Tax fees</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -5.05pt; padding-left: 5.05pt">All other fees</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt; text-indent: -5.05pt; padding-left: 15.55pt">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">181,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">32,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>


<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 0.8pt 0pt 0"><B>_____________</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.8pt 0pt 0; text-indent: 0.5in">(1) For 2012, fees paid to Squar
is $37,000 and Mayer $144,000.</P>

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

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<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>Audit Fees</I></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; text-indent: 0.5in">Audit fees are the
aggregate fees billed for professional services rendered by our independent auditors for the audit of our annual financial statements,
the review of the financial statements included in each of our quarterly reports and services provided in connection with statutory
and regulatory filings or engagements.</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>Audit Related Fees</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">Audit related fees
are the aggregate fees billed by our independent auditors for assurance and related services that are reasonably related to the
performance of the audit or review of our financial statements and are not described in the preceding category.</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>Tax Fees</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">Tax fees are billed
by our independent auditors for tax compliance, tax advice and tax planning.</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>All Other Fees</I></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; text-indent: 0.5in">All other fees include
fees billed by our independent auditors for products or services other than as described in the immediately preceding three categories.</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&rsquo;s
Board of Directors serves as the Audit Committee and has unanimously approved all audit and non-audit services provided by the
independent auditors. The independent accountants and management are required to periodically report to the Board of Directors
regarding the extent of services provided by the independent accountants, and the fees for the services performed to date. Currently
the Board of Directors is in the process of identifying a tax preparer for the Company&rsquo;s tax compliance requirements. The
Company has not adopted a Charter for the Audit Committee as of June 30, 2012.</P>

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

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<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>PART IV</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.8pt 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.8pt 0pt 0"><B>ITEM 15 &mdash; EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.8pt 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>(a) Financial Statements and Financial Statement Schedules.
</B></P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%">1.</TD>
    <TD STYLE="width: 96%">The following financial statements of Flux Power Holdings, Inc., and Reports of Squar, Milner, Peterson,
    Miranda &amp; Williamson, LLP, and Mayer Hoffman McCann,&nbsp; P.C., independent registered public accounting firms, are included
    in this report:</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&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 STYLE="width: 88%">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 10%; border-bottom: windowtext 1pt solid; text-align: center">Page</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 12pt; text-decoration: none; text-indent: -12pt">Report of Independent Registered Public Accounting
    Firm &ndash; Squar, Milner, Peterson, Miranda &amp; Williamson, LLP</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">F-1</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 12pt; text-indent: -12pt">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 13.5pt; text-decoration: none; text-indent: -13.5pt">Report of Independent Registered Public Accounting
    Firm &ndash; Mayer Hoffman McCann, P.C.</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">F-2</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 13.5pt; text-indent: -13.5pt">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 12pt; text-indent: -12pt">Balance Sheets as of June 30, 2012 and 2011</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">F-3</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 12pt; text-indent: -12pt">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Statements of Operations for the Years Ended June 30, 2012 and 2011</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">F-4</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Statement of Changes in Stockholders&rsquo; (Deficit) for the Years Ended June 30, 2012 and 2011</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">F-5</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 12pt; text-indent: -12pt">Statement of Cash Flows for the Years Ended June 30, 2012 and 2011</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">F-6</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 12pt; text-indent: -12pt">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 12pt; text-decoration: none; text-indent: -12pt">Notes to Financial Statements</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">F-7</TD></TR>
</TABLE>
<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%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%">2.</TD>
    <TD STYLE="width: 96%">Financial Statement Schedules: All schedules have been omitted because the required information is
    included in the financial statements or notes thereto or because they are not required.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>3.</TD>
    <TD>See Subsection (b) below:</TD></TR>
</TABLE>
<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>(b) 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">The following exhibits are filed as part of this Report</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 12%; vertical-align: bottom; border-bottom: black 1pt solid; padding-right: 0.8pt">Exhibit<BR>
    No.</TD>
    <TD STYLE="width: 1%; vertical-align: top; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 87%; vertical-align: bottom; border-bottom: black 1pt solid; padding-right: 0.8pt">Description</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">2.1</TD>
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Securities Exchange Agreement dated May 18, 2012 <SUP>(1)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">2.2</TD>
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Amendment No. 1 to the Securities Exchange Agreement dated June 13, 2012 <SUP>(2)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">3.1</TD>
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Restated Articles of Incorporation <SUP>(4)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">3.2</TD>
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Amended and Restated Bylaws of Flux Power Holdings, Inc. <SUP>(3)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.1</TD>
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Esenjay Secondary Revolving Promissory Note for Operating Capital&nbsp; dated October 1,
    2011 <SUP>(2)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.2</TD>
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Esenjay Bridge Loan Promissory Note dated March 7, 2012 <SUP>(2)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.3</TD>
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Amended and Restated Terms of Employment with Chris Anthony with an effective date of January
    1, 2010 <SUP>(2)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.4</TD>
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Terms of Employment with Steve Jackson dated January 12, 2012 <SUP>(2)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.5</TD>
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Flux Power Holdings, Inc. 2010 Stock Plan <SUP>(2)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.6</TD>
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Flux Power Holdings, Inc. 2010 Stock Plan: Form of Stock Option Agreement <SUP>(2)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.7</TD>
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">LHV Power Corporation Term Sheet dated June 19, 2009 <SUP>(2)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.8</TD>
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">LHV Manufacturing Implementation Agreement dated August 1, 2009 <SUP>(2)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.9</TD>
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">GreenTech Automotive, Inc. Purchase Order Terms and Conditions<SUP>(5)(CT)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.10</TD>
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">NACCO Materials Handling Group, Inc. Prototype Agreement dated February 6, 2012<SUP>(5)(CT)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.11</TD>
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Baytree Capital Advisory Agreement dated June 14, 2012 <SUP>(2)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.12</TD>
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of Warrant<SUP> (5)</SUP></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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    <!-- Field: /Page -->

<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>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="vertical-align: bottom; border-bottom: windowtext 1pt solid; padding-right: 0.8pt; width: 12%">Exhibit<BR> No.</TD>
    <TD STYLE="vertical-align: top; padding-right: 0.8pt; width: 1%">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; border-bottom: windowtext 1pt solid; padding-right: 0.8pt; width: 87%">Description</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.13</TD>
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of Securities Purchase Agreement<SUP>(5)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.14</TD>
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of Indemnification Agreement <SUP>(2)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.15</TD>
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Vendor Agreement dated January 15, 2010<SUP>(6)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.16</TD>
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">ACP Agreement dated September 4, 2012*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.17</TD>
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Unrestricted and Open Line of Credit dated September 24, 2012<SUP>(7)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">21.1</TD>
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Subsidiaries <SUP>(2)</SUP></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 13%">31.1</TD>
    <TD STYLE="width: 87%">Certifications of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act.*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>31.2</TD>
    <TD>Certifications of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act.*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>32.1</TD>
    <TD>Certifications of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act.*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>32.2</TD>
    <TD>Certifications of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act.*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>101.INS</TD>
    <TD>XBRL Instance Document <SUP>(8)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>101.SCH</TD>
    <TD>XBRL Taxonomy Extension Schema <SUP>(8)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>101.CAL</TD>
    <TD>XBRL Taxonomy Extension Calculation Linkbase <SUP>(8)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>101.DEF</TD>
    <TD>XBRL Taxonomy Extension Definition Linkbase <SUP>(8)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>101.LAB</TD>
    <TD>XBRL Taxonomy Extension Label Linkbase <SUP>(8)</SUP></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>101.FRE</TD>
    <TD>XBRL Taxonomy Extension Presentation Linkbase <SUP>(8)</SUP></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"></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">* 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 8-K filed with the SEC
on June 18, 2012</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: 0pt 0">(4) Incorporated by reference to Form 8-K/A (Amendment No.
1) filed with the SEC on August 6, 2012</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(5) Incorporated by reference to Form 8-K filed with the SEC
on June 26, 2012</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(6) Incorporated by reference to Form 8-K/A (Amendment No.
2) filed with the SEC on August 29, 2012</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(7) Incorporated by reference to Form 8-K filed with the SEC
on September 27, 2012</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">(8) XBRL Interactive Data File will be filed by amendment to
this Form 10-K within 30 days of filing date of this Form 10-K, as permitted by Rule 405(f)(3) of Regulation S-T.</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"></P>

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

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

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<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>SIGNATURES</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: justify">Pursuant to the requirements of Section
13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">Flux Power Holdings, Inc.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 46%">Dated: September 28, 2012</TD>
    <TD STYLE="width: 4%">By:</TD>
    <TD STYLE="width: 50%; border-bottom: windowtext 1pt solid">/s/ Chris L. Anthony</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>Chris L. Anthony</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>Chief Executive Officer</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">Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.</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>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 34%; border-bottom: windowtext 1pt solid; font-weight: bold">Signature</TD>
    <TD STYLE="width: 2%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 31%; border-bottom: windowtext 1pt solid; font-weight: bold; text-align: center">Title</TD>
    <TD STYLE="width: 2%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 31%; border-bottom: windowtext 1pt solid; font-weight: bold; text-align: center">Date</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: windowtext 1pt solid">/s/ Chris L. Anthony</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;Chief Executive Officer</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;September 28, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Chris L. Anthony</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">and Chairman of Board</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center"><I>(Principal Executive Officer)&nbsp;</I></TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: windowtext 1pt solid">/s/ Stephen G. Jackson</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;Chief Financial Officer</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;September 28, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Stephen G. Jackson</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><I>(Principal Financial Officer and</I></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><I>Principal Accounting Officer)</I></P></TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: windowtext 1pt solid"></TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">Director</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center"></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Michael Johnson</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: windowtext 1pt solid">/s/ James Gevarges</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">Director</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">September 28, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>James Gevarges</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&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">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&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 STYLE="width: 88%">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 10%; border-bottom: windowtext 1pt solid; text-align: center">Page</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 12pt; text-decoration: none; text-indent: -12pt">Report of Independent Registered Public Accounting
    Firm &ndash; Squar, Milner, Peterson, Miranda &amp; Williamson, LLP</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">F-1</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 12pt; text-indent: -12pt">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 13.5pt; text-decoration: none; text-indent: -13.5pt">Report of Independent Registered Public Accounting
    Firm &ndash; Mayer Hoffman McCann, P.C.</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">F-2</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 13.5pt; text-indent: -13.5pt">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 12pt; text-indent: -12pt">Balance Sheets as of June 30, 2012 and 2011</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">F-3</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 12pt; text-indent: -12pt">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Statements of Operations for the Years Ended June 30, 2012 and 2011</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">F-4</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Statement of Changes in Stockholders&rsquo; (Deficit) for the Years Ended June 30, 2012 and 2011</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">F-5</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 12pt; text-indent: -12pt">Statement of Cash Flows for the Years Ended June 30, 2012 and 2011</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">F-6</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 12pt; text-indent: -12pt">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 12pt; text-decoration: none; text-indent: -12pt">Notes to Financial Statements</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">F-7</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<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>REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM</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">We have audited the accompanying consolidated balance sheet
of Flux Power Holdings, Inc., (the &ldquo;Company&rdquo;) as of June 30, 2012, and the related consolidated statements of operations,
stockholders&rsquo; equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility
of the Company&rsquo;s management. Our responsibility is to express an opinion on these financial statements based on our audit.</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">We conducted our audit in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration
of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Company&rsquo;s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.</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">In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of Flux Power Holdings, Inc., as of June 30, 2012,
and the consolidated results of its operations and consolidated cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of 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">As more fully discussed in Note 1, effective June 14, 2012,
the Company completed an acquisition of Flux Power, Inc. which has been accounted for as a recapitalization in the accompanying
financial statements as of the beginning of the periods presented.</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">/s/ SQUAR, MILNER, PETERSON, MIRANDA &amp; WILLIAMSON, LLP</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">September 28, 2012</P>

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

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<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>REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM</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">We have audited the accompanying balance sheet of Flux Power
Holdings, Inc. (the &ldquo;Company&rdquo;), as of June 30, 2011, and the related statements of operations, and cash flows for
the year ended June 30, 2011. These financial statements are the responsibility of the Company&rsquo;s management. Our responsibility
is to express an opinion on these financial statements based on our audit.</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">We conducted our audit in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is
not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Company&rsquo;s internal control over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.</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">In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Flux Power Holdings, Inc. as of June 30, 2011, and the results
of its operations and its cash flows for the year ended June 30, 2011, in conformity with accounting principles generally accepted
in the United States of 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">/s/ MAYER HOFFMAN MCCANN, P.C.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">April 23, 2012</P>

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

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<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>FLUX POWER HOLDINGS, INC.</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>For the Years Ended June 30, 2012 and
2011</B></P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: center">ASSETS</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: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Current assets:</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="width: 74%; text-align: left; text-indent: -10pt; padding-left: 30pt">Cash</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">812,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">240,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 30pt">Accounts receivable, net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">54,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">40,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -10pt; padding-left: 30pt">Inventories, net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">736,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,974,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 30pt">Inventories, prepaid</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">56,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 30pt">Prepaid advisory fees, current portion</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,629,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 30pt">Other prepaid expenses and other current assets</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">39,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">54,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&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: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 50pt">Total current assets</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,270,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,364,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&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: White">
    <TD STYLE="text-align: left">Property, plant and equipment, net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">135,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">105,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -10pt; padding-left: 10pt">&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: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Other assets:</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="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 30pt">Prepaid advisory fees, net of current portion</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,561,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold">&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-weight: bold; text-align: left; padding-bottom: 2.5pt; text-indent: -10pt; padding-left: 10pt">Total assets</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">4,966,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,469,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&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-weight: bold; text-align: center">LIABILITIES AND STOCKHOLDERS&rsquo; EQUITY (DEFICIT)</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: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Current liabilities:</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="text-align: left; text-indent: -10pt; padding-left: 30pt">Accounts payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">293,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">9,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 30pt">Accrued expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">342,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">87,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 30pt">Customer deposits</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">209,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 30pt">Customer deposits from related party</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">200,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">367,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 30pt">Warrant derivative liability</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,943,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 30pt">Deferred revenue</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">480,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,802,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 30pt">Stockholder notes payable, current portion</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">600,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,030,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&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="text-align: left; text-indent: -10pt; padding-left: 50pt">Total current liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,860,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,504,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -10pt; padding-left: 10pt">&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="text-align: left; text-indent: -10pt; padding-left: 10pt">Long term liabilities:</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: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">&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="text-align: left; padding-bottom: 1pt; text-indent: 8pt; padding-left: 10pt">Stockholder notes payable</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">250,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Stockholder notSres payable</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="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 50pt">Total liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">7,110,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,504,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&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-weight: bold; text-align: center; text-indent: -10pt; padding-left: 10pt">STOCKHOLDERS&rsquo; EQUITY (DEFICIT)</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: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Preferred stock, $.001 par value: authorized 5,000,000 shares, none issued and outstanding</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -10pt; padding-left: 10pt">Common stock, $.001 par value: authorized 145,000,000 shares, 44,070,930 and 33,979,000 shares issued and outstanding (as adjusted), as of June 30, 2012 and June 30, 2011, respectively</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">44,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">34,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Additional paid-in capital</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,140,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">874,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">&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: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 10pt">Accumulated deficit</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(4,328,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,943,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: right; text-indent: -10pt; padding-left: 30pt">&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: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 50pt">Total stockholders&rsquo; deficit</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,144,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,035,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&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: White">
    <TD STYLE="font-weight: bold; text-align: left; padding-bottom: 2.5pt; text-indent: -10pt; padding-left: 10pt">Total liabilities and stockholders&rsquo; deficit</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">4,966,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,469,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</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">The accompanying notes are an integral
part of these financial statements.</P>

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

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    <!-- Field: /Page -->

<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>FLUX POWER HOLDINGS, INC.</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>For the Years Ended June 30, 2012 and
2011</B>&nbsp;</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%; text-align: left; text-indent: -10pt; padding-left: 10pt">Net revenue <SUP>(1)</SUP></TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">5,930,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">984,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; text-indent: -10pt; padding-left: 10pt">Cost of revenue</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,769,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">846,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&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: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 30pt">Gross profit</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,161,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">138,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&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: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Operating expenses:</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="text-align: left; text-indent: -10pt; padding-left: 10pt">Selling and administrative expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,368,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,027,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 10pt">Research and development</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">590,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">382,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -10pt; padding-left: 30pt">&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: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 30pt">Total operating expense</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,958,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,409,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -10pt; padding-left: 30pt">&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: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 30pt">Operating loss</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,797,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,271,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&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: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Other income (expense):</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="text-align: left; text-indent: -10pt; padding-left: 10pt">Loss on change in fair value of derivative liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(526,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 10pt">Interest expense, net</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(62,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(42,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0.25in">&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: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 0.25in">&nbsp;Net loss from operations</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(2,385,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(1,313,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -10pt; padding-left: 10pt">&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: White">
    <TD STYLE="text-align: left">Net loss per share - basic and diluted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(0.06</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(0.04</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&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: White">
    <TD STYLE="text-indent: -10pt; padding-left: 10pt">Weighted average number of common shares outstanding - basic and diluted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">36,904,769</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">33,979,095</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.25in"><B>&nbsp;</B></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"><B>(1)</B></TD><TD><B>Includes sales to related parties of $ 1,135,000
                                                                        and $ 149,000 in 2012 and 2011 respectively</B></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.25in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">The accompanying notes are an integral
part of these financial statements.</P>

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

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<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>FLUX POWER HOLDINGS, INC.</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: center"><B>CONSOLIDATED STATEMENTS OF STOCKHOLDERS&rsquo;
EQUITY (DEFICIT)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>For the Years Ended June 30, 2012 and
2011</B></P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Common Stock</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; padding-bottom: 1pt"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Additional</B>&nbsp;</P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Paid-in</B></P></TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt">Accumulated</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Shares&nbsp;</B></P></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Amount</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Capital</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Deficit</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Total</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 40%; font-weight: bold; text-indent: -5.05pt; padding-left: 5.05pt"><B>Balance at June 30, 2010 <SUP>(1)</SUP></B></TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">33,979,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">34,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">816,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(630,000</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">220,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -5.05pt; padding-left: 5.05pt">&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><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><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="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Net loss</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,313,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,313,000</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; text-indent: -5.05pt; padding-left: 5.05pt">Share-based compensation</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">58,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">58,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; padding-bottom: 1pt; text-indent: -5.05pt; padding-left: 5.05pt">Balance at June 30, 2011 <SUP>(1)</SUP></TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">33,979,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">34,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">874,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,943,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,035,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -5.05pt; padding-left: 5.05pt">&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><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><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="text-indent: -5.05pt; padding-left: 5.05pt">&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><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><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: White">
    <TD STYLE="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Issuance of common stock &ndash; notes payable debt conversion</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,735,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,260,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,264,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Issuance of common stock &ndash; Private Placement transactions, net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,813,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,123,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,126,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Reclassification of Warrant as a &ndash;derivative liability</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,159,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,159,000</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Recapitalization of Common stock &ndash; Reverse Acquisition transactions</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,544,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(3,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -5.05pt; padding-left: 5.05pt">Share-based compensation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">45,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">45,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -5.05pt; padding-left: 5.05pt">Net loss</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,385,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2.385,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; padding-bottom: 2.5pt; text-indent: -5.05pt; padding-left: 5.05pt">Balance at June 30, 2012</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">44,071,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">44,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,140,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(4,328,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(2,144,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</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-top: 0; margin-bottom: 0; margin-left: 0.25in; text-indent: 0in; text-align: justify"><B>(1)
Shares outstanding have been adjusted to reflect the effect of the June 14, 2012 Reverse Acquisition, see Note 1.</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">The accompanying notes are an integral
part of these financial statements.</P>

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

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<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>FLUX POWER HOLDINGS, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>CONSOLIDATED STATEMENTS OF CASH FLOWS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>For the Years Ended June 30, 2012 and
2011</B></P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left; text-indent: -10pt; padding-left: 10pt">Cash flows from operating activities:</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: White">
    <TD STYLE="width: 74%; text-align: left; text-indent: -10pt; padding-left: 30pt">Net loss</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">(2,385,000</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">(1,313,000</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 30pt">Adjustments to reconcile net loss to net cash used in operating activities:</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: White">
    <TD STYLE="text-indent: -27.5pt; padding-left: 50pt">Depreciation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">30,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">22,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -27.5pt; padding-left: 50pt">Amortization of prepaid advisory fees</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">68,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -27.5pt; padding-left: 50pt">Write-off of excess inventory</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(26,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -27.5pt; padding-left: 50pt">Change in fair value of warrant liability</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">526,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -27.5pt; padding-left: 50pt">Stock-based compensation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">45,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">58,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Changes in operating assets and liabilities:</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: White">
    <TD STYLE="text-align: left; text-indent: -27.5pt; padding-left: 50pt">Accounts receivable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(13,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(40,000</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -27.5pt; padding-left: 50pt">Inventories</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,263,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,697,000</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -27.5pt; padding-left: 50pt">Inventories, prepaid</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">56,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">550,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -27.5pt; padding-left: 50pt">Prepaid expenses and other current assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">15,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(10,000</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -27.5pt; padding-left: 50pt">Accounts payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">284,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(6,000</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -27.5pt; padding-left: 50pt">Accrued expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">339,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">30,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -27.5pt; padding-left: 50pt">Customer deposits</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(207,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(347,000</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -27.5pt; padding-left: 50pt">Customer deposits from related party</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(167,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">208,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -27.5pt; padding-left: 50pt">Deferred revenue</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,322,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,802,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&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: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 70pt">Net cash used in operating activities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,494,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(743,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&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: White">
    <TD STYLE="font-weight: bold; text-align: left; text-indent: -10pt; padding-left: 10pt">Cash flows from investing activities:</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="padding-bottom: 1pt; text-indent: -10pt; padding-left: 50pt">Purchases of equipment</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(60,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(14,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&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="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 70pt">Net cash used in investing activities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(60,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(14,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&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-weight: bold; text-align: left; text-indent: -10pt; padding-left: 10pt">Cash flows from financing activities:</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: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 50pt">Issuance of common shares in financing</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 50pt">Proceeds from the sale of common stock and warrants, net of offering costs paid</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,123,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 50pt">Proceeds from issuance of stockholders note payable</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,000,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">930,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&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: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 70pt">Net cash provided by financing activities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,126,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">930,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&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: White">
    <TD STYLE="font-weight: bold; text-align: left; text-indent: -10pt; padding-left: 10pt">Net increase in cash</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">572,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">173,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; padding-bottom: 1pt; text-indent: -10pt; padding-left: 10pt">Cash, beginning of period</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">240,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">67,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold">&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-weight: bold; padding-bottom: 2.5pt; text-indent: -10pt; padding-left: 10pt">Cash, end of period</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">812,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">240,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&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-weight: bold; text-align: left; text-indent: -10pt; padding-left: 10pt">Supplemental disclosures of Non-cash Investing and Financing Activities::</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: White">
    <TD STYLE="text-indent: -10pt; padding-left: 50pt; padding-bottom: 2.5pt">Conversion of debt</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">1,264,000</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">$</TD><TD STYLE="text-align: right; padding-bottom: 2.5pt">&mdash;</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 50pt; padding-bottom: 2.5pt">Issuance of warrants for advisory services</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">3,258,000</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">$</TD><TD STYLE="text-align: right; padding-bottom: 2.5pt">&mdash;</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; text-indent: -10pt; padding-left: 50pt">Issuance of warrants to investors</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,159,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&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: White">
    <TD STYLE="text-align: left; text-indent: -50pt; padding-left: 50pt"><B>Supplemental disclosures of Cash Flow Information</B>:</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="text-align: left; text-indent: -50pt; padding-left: 50pt">Cash paid during the year for:</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: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; text-indent: -10pt; padding-left: 50pt">Income taxes</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</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">The accompanying notes are an integral
part of these financial statements.</P>

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

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<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>FLUX POWER HOLDINGS, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>JUNE 30, 2012 and 2011</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"><B>NOTE 1 - BASIS OF
PRESENTATION AND NATURE OF BUSINESS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 9pt"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Nature of Business</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">Flux Power Holdings,
Inc. (&ldquo;Flux&ldquo; or the &ldquo;Company&rdquo;) was incorporated as Olerama, Inc. in Nevada in 1998. Since its incorporation,
there have been several name changes, including the change in January 2010 whereby the name of the Company was changed to Lone
Pine Holdings, Inc. (LPH&rdquo;). Following the completion of a reverse merger on June 14, 2012, as described below, the Company&rsquo;s
operations have been conducted through its wholly owned subsidiary, Flux Power, Inc. (&ldquo;Flux Power&rdquo;), a California
Corporation.</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"><FONT STYLE="color: black">Flux
Power, Inc., (&ldquo;Flux Power&rdquo;) a California corporation </FONT>merged with Lone Pine Holdings a Nevada corporation (&ldquo;LPH&rdquo;)
and became a wholly owned subsidiary of LPH. The transaction has been reflected as a reverse merger where LPH was the surviving
legal entity after the merger. On June 30, 2012, LPH changed its name to Flux Power Holdings, Inc. (&ldquo;Flux&rdquo; or &ldquo;FPH&rdquo;).
Flux Power remained the accounting acquirer. The merger has been accounted for as a recapitalization as of the earliest period
presented. Accordingly, the historical consolidated financial statements prior to June 30, 2012 are those of Flux.</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 develops
and sells rechargeable advanced energy storage systems. The Company has structured its business around its core technology, &ldquo;The
Battery Management System&rdquo; (&ldquo;BMS&rdquo;). The Company&rsquo;s BMS provides three critical functions to their battery
systems: cell balancing, monitoring and error reporting. Using its proprietary management technology, the Company is able to offer
complete integrated energy storage solutions or custom modular standalone systems to their clients. The Company also developed
a suite of complementary technologies and products that accompany their core products. Sales during the fiscal years ended June
30, 2012 and 2011 were primarily to customers located throughout the Unites States.</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>Reverse Acquisition of Flux Power Inc.</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">On June 14, 2012,
we completed the acquisition of Flux Power, 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, and its shareholders,
Mr. Chris Anthony, Esenjay Investments, LLC, and Mr. James Gevarges (collectively the &ldquo;Flux Power 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 Power 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
Power 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: 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 Reverse 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 and has been reflected in the accompanying consolidated financial statements as of the earliest
periods presented. 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; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<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"><FONT STYLE="color: black">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 2010 Option Plan (&ldquo;Plan&rdquo;) and all of the stock options of Flux Power&rsquo;s
outstanding as of the closing of the Reverse Acquisition, </FONT>and all 1,535,500 stock options of Flux Power&rsquo;s outstanding
as of June 14, 2012, whether or not exercised and whether or not vested, were 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 continue to have, and are subject to, the substantially the same terms and conditions
as before, but are convertible into shares of our common stock, as adjusted given effect to the Share Exchange Ratio. However,
we will not be able to grant additional options under the Option Plan<FONT STYLE="color: black"> (d) each of the Flux Power 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. Pursuant to the Reverse Acquisition, the Company has completed the following capital
transactions as described below:</FONT></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"></TD><TD STYLE="width: 0.5in">(a)</TD><TD STYLE="text-align: justify"><B><I>Private Placement - June and
                                                           July 2012</I></B></TD></TR></TABLE>

<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 June 2012, we conducted
a private placement of our common stock and warrants to accredited investors to purchase up to 8 Units, at a price of $500,000
per Unit, with each Unit consisting of 1,207,185 shares of our common stock and 241,437 five (5) year warrants to purchase one
share of our common stock at an exercise price of $0.41 per share<FONT STYLE="color: black"> 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. The Company issued 2,813,000 shares and 563,000 warrants raising approximately $1,123,000 in net proceeds
through June 30, 2012. Additionally the Company issued 1,690,000 shares and 338,000 warrants in July 2012 raising approximately
$680,000.</FONT></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"></TD><TD STYLE="width: 0.5in">(b)</TD><TD STYLE="text-align: justify"><B><I>Private Placement&ndash; August
                                                           2012</I></B></TD></TR></TABLE>

<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">Subsequent to our
private placement referred to above, in August 2012 the Company commenced a private placement of our common stock and warrants
to accredited investors to purchase up to 8 Units for a purchase price of $250,000 per Unit for an aggregate amount of $2,000,000,
with each Unit consists of 603,592 shares of our common stock and 120,718 warrants, with each warrant entitling the holder to
purchase one share of common stock at an exercise price of $0.41 per share at any time for a period of up to five (5) years from
the issuance date at which time the Warrant will expire. On August 31, 2012, we entered into a Securities Purchase Agreement with
four (4) accredited investors pursuant to which we sold an aggregate of 603,594 shares of common stock and issued 120,719 five
year warrants for an aggregate purchase price of $250,000.</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 common stock purchased
in the private placement and the common stock issued upon exercise of warrants have piggyback registration rights. The securities
offered and sold in the private placement have not been registered under the Securities Act and may not be offered or sold in
the United States absent registration or an applicable exemption from the registration requirements of the Securities Act.</P>

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

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<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>NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 45pt; 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">A summary of the Company&rsquo;s
significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements
follows:</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><I>Basis of Presentation and Consolidation</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">The Company&rsquo;s
consolidated financial statements have been prepared on a going concern basis in accordance with accounting principles generally
accepted in the United States of America (&ldquo;GAAP&rdquo;). This contemplates the realization of assets and satisfaction of
liabilities in the ordinary course of 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">The
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America and include the Flux Power Holdings, Inc. and its wholly-owned subsidiary Flux Power Inc. after
elimination of all intercompany accounts and transactions.</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>Reclassifications</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">Certain prior year
amounts have been reclassified to conform to the current year presentation for comparative purposes.</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><I>Use of Estimates in Financial Statement
Preparation</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">The preparation of
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses, as well as certain financial statement disclosures. Significant estimates include
valuations of equity instruments and deferred tax assets. While management believes that the estimates and assumptions used in
the preparation of the financial statements are appropriate, actual results could differ from these estimates.</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>Cash and Cash Equivalents</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 June 30, 2012,
cash totaled approximately $812,000 and consists of funds held in a non-interest bearing bank deposit account. The Company considers
all highly liquid short term investments with maturities of less than three months when acquired to be cash equivalents. The Company
had no cash equivalents at June 30, 2012 and 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"><B><I>Fair Values of Financial Instruments</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">The carrying amount
of our accounts payable, accounts receivable, and accrued liabilities approximates their estimated fair values due to the
short-term maturities of those financial instruments. The carrying amount of notes payable approximates their fair value due to
the short maturity of the notes and as the interest approximates current market interest rates for the similar instruments. Derivative
liabilities recorded in connection with warrants are reported at their estimated fair value, with changes in fair value being
reported in results of operations (see Note 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">Management has concluded
that it is not practical to determine the estimated fair value of amounts due to related parties because the transactions cannot
be assumed to have consummated at arm&rsquo;s length, the terms are not deemed to be market terms, there are no quoted values
available for these instruments, and an independent valuation would not be practical due to the lack of data regarding similar
instruments, if any, and the associated potential costs.</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 0.5pt 0pt 0; text-align: justify; text-indent: 0.5in">Except for
derivative liabilities as described in Note 9, we do not have any other assets or liabilities that are measured at fair value
on a recurring basis and, during the fiscal years ended June 30, 2012 and 2011, did not have any other assets or liabilities that
were measured at fair value on a nonrecurring basis</P>

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

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.5pt 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>Accounts Receivable and Customer
Deposits</I></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; text-indent: 0.5in">Accounts receivable
are carried at their estimated collectible amounts. The Company generally requires advance deposits from its customers prior to
shipment of the ordered 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">The Company has not experienced
collection issues related to its accounts receivable, and has not recorded an allowance for doubtful accounts at June 30, 2012
or June 30, 2011.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.5pt 0pt 0; text-align: justify"><B><I>Inventories and Prepaid
Inventory</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">&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 the Company for inventory purchases. The Company evaluates 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. Accordingly, the Company recorded a write-down for obsolete inventory during
the year ended June 30, 2012 of approximately $26,000. There were no write-downs of inventory determined necessary during the
fiscal year ended June 30, 2011.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.5pt 0pt 0"><B><I>Property, Plant and Equipment</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.5pt 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif">Property,
plant and equipment, net of accumulated depreciation</FONT><B><I> </I></B><FONT STYLE="font-family: Times New Roman, Times, Serif">are
stated at cost, net of accumulated depreciation. Depreciation and amortization are provided using the straight-line method
over the estimated useful lives, of the related assets ranging from three to ten years, or, in the case of leasehold
improvements, over the lesser of the useful life of the related asset or the lease term.</FONT></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.5pt 0pt 0; text-align: justify; text-indent: 0.5in">Depreciation
was approximately $30,000 and $22,000 for the fiscal years ended June 30, 2012 and 2011 respectively.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.5pt 0pt 0; text-align: justify"><B><I>Stock-based Compensation</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">Pursuant to the provisions
of the Financial Accounting Standards Board (&ldquo;FASB&rdquo;) Accounting Standards Codification (&ldquo;ASC&rdquo;) 718-10,
<I>Compensation&ndash;Stock Compensation</I>, which establishes accounting for equity instruments exchanged for employee service,
we utilize the Black-Scholes option pricing model to estimate the fair value of employee stock option awards at the date of grant,
which requires the input of highly subjective assumptions, including expected volatility and expected life. Changes in these inputs
and assumptions can materially affect the measure of estimated fair value of our share-based compensation. These assumptions are
subjective and generally require significant analysis and judgment to develop. When estimating fair value, some of the assumptions
will be based on, or determined from, external data and other assumptions may be derived from our historical experience with stock-based
payment arrangements. The appropriate weight to place on historical experience is a matter of judgment, based on relevant facts
and circumstances.</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">Common stock or
equity instruments such as warrants issued for services to non-employees are valued at their estimated fair value at the
measurement date (the date when a firm commitment for performance of the services is reached, typically the date of issuance,
or when performance is complete). If the total value exceeds the par value of the stock issued, the value in excess of the
par value is added to the additional paid-in-capital account.</P>

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

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



<P STYLE="margin: 0"></P>
<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">When a right of return
exists, contractually or implied, 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">Deferred revenue at
June 30, 2012 and 2011 related to one customer and were $480,000 and $1,802,000, respectively representing units not yet sold
through by our customer. The related product cost of $431,000 and $1,672,000 at June 30, 2012 and 2011, respectively, is included
in inventory.</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>Sales Returns and Allowances</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 Company evaluates
its exposure to sales returns and allowances based on historical experience. The Company has not experienced returns during the
fiscal years ended June 30, 2012 and 2011, and accordingly, the Company did not record sales returns and allowance.</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"><B><I>Product Warranties</I></B></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; text-align: justify; text-indent: 0.5in">The Company evaluates
its exposure to product warranty obligations based on historical experience. Our products are warrantied for two years unless
modified by a separate agreement. The Company recorded a warranty liability of $11,750 during the fiscal year ended June 30, 2012.
During the fiscal year ended June 30, 2011 the Company did not record warranty liability.</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"><B><I>Shipping and Handling Costs</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 Company records
shipping and handling costs charged to customers as revenue and shipping and handling costs to cost of sales as incurred.</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>Impairment of Long-lived Assets</I></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; text-indent: 0.5in">In accordance with
authoritative guidance for the impairment or disposal of long-lived assets, if indicators of impairment exist, the Company assesses
the recoverability of the affected long-lived assets by determining whether the carrying value of such assets can be recovered
through the undiscounted future operating cash flows.</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">If impairment is indicated,
the Company measures the amount of such impairment by comparing the carrying value of the asset to the present value of the expected
future cash flows associated with the use of the asset. The Company believes future cash flows to be received from its long-lived
assets held in use will exceed the assets&rsquo; carrying values, and accordingly the Company has not recognized any impairment
losses during the fiscal years ended June 30, 2012 and 2011.</P>

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

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<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>Research and Development</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 Company is actively
engaged in new product development efforts. Research and development cost relating to possible future products are expensed as
incurred.</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>Income Taxes</I></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; text-indent: 0.5in">The Company follows
FASB ASC Topic No, 740, <I>Income Taxes</I>. Deferred tax assets or liabilities are recorded to reflect the future tax consequences
of temporary differences between the financial reporting basis of assets and liabilities and their tax basis at each year-end.
These amounts are adjusted, as appropriate, to reflect enacted changes in tax rates expected to be in effect when the temporary
differences reverse.</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 records
deferred tax assets and liabilities based on the differences between the financial statement and tax bases of assets and liabilities
and on operating loss carry forwards using enacted tax rates in effect for the year in which the differences are expected to reverse.
A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be
realized.</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 follow the provisions
of FASB ASC Topic No.740 relating to uncertain tax provisions and have commenced analyzing filing positions in all of the federal
and state jurisdictions where the Company is required to file income tax returns, as well as all open tax years in these jurisdictions.
As a result of adoption, no additional tax liabilities have been recorded. There are no unrecognized tax benefits as of June 30,
2012 or June 30, 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"><B><I>Earnings or Loss Per Common Share
</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">Basic earnings
per common share equal net earnings or loss divided by the weighted average number of shares outstanding during the periods.
Diluted earnings per share include the impact on dilution from all contingently issuable shares, including options, warrants
and convertible securities. The common stock equivalents from contingent shares are determined by the treasury stock method.
The Company incurred a net loss for the years ended June 30, 2012 and 2011 respectively and therefore, basic and diluted
earnings per share for those periods are the same as the effect of contingently issuable shares would be anti-dilutive.
Contingently issuable shares excluded an aggregate of approximately 6,937,000 options and warrants as of June 30, 2012.</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"><B><I>Derivative Financial Instruments</I></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; text-indent: 0.5in">The Company does not
use derivative instruments to hedge exposures to cash flow, market or foreign currency risk.</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 evaluate free-standing
derivative instruments (or embedded derivatives) to properly classify such instruments within equity or as liabilities in our
financial statements. The classification of a derivative instrument is reassessed at each reporting date. If the classification
changes as a result of events during a reporting period, the instrument is reclassified as of the date of the event that caused
the reclassification. There is no limit on the number of times a contract may be reclassified.</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">Instruments classified
as derivative liabilities are recorded initially at their estimated fair value and are remeasured each reporting period (or upon
reclassification) and the change in fair value is recorded on our consolidated statement of operations in other (income) expense.</P>

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

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<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"><FONT STYLE="color: black">The
Company follows FASB ASC Topic No. 815, <I>Derivatives and Hedging</I> to classify and value warrant liabilities. Warrants classified
as derivative liabilities are recorded at their fair values at the issuance date and are revalued at each subsequent reporting
date, using a Monte Carlo simulation (&ldquo;MCS&rdquo;).</FONT><FONT STYLE="font-size: 10pt; color: #666666"> </FONT>A MCS model
uses a simulation technique to generate multiple random price paths for the stock price to simulate many possible future outcomes
which are then discounted at the risk-free rate. These simulated paths are then averaged to determine the fair value of the warrants.</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 outstanding warrants,
more fully described below, offer the holders of such warrants protection against dilution whereby the exercise price of the warrants
can be adjusted if the Company completes a subsequent round of financing at less than $1 per share. This provision requires the
warrants described below be accounted for as derivative liabilities:</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>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In June 2012, the
Company entered into Securities Purchase Agreements with certain investors. In connection with the Securities Purchase Agreements,
the Company also issued five year warrants to purchase a total of 562,551 shares of the Company&rsquo;s common stock at an initial
exercise price of $0.41 per share. Financing Warrants were determined to have a fair value per share of $2.06 and aggregate to
$1,158,000 as of June 30, 2012.</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 0pt 0.75in; text-align: justify; text-indent: -0.25in">(b)&nbsp;<U>Baytree
Warrant</U></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>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On June 14, 2012,
as part of the payment of an advisory agreement with Baytree, the Company was obligated to issue a five year warrant to purchase
a total of 1,837,777 shares of its common stock at an initial exercise price of $0.41 per share. The Baytree Warrant has the same
Anti-Dilution feature as the Financing Warrants above. The Baytree Warrant was determined to have a fair value per share of $1.77
and aggregates to $3,258,000 as of June 14, 2012.</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">At June 30, 2012,
derivative liabilities relating to the Financing Warrant and Baytree warrant approximately $4,943,000 on the Company&rsquo;s balance
sheet.&nbsp;&nbsp;The change in fair value of the warrant liabilities from date of issuance through June 30, 2012 was $526,000
and included as other income in the 2012 statement 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"><B><I>New Accounting Standards</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">In September 2011,
the FASB issued Accounting Standards Update (&quot;ASU&quot;) 2011-08, <I>Intangibles - Goodwill and Other,</I> which allows an
entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill
impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless
the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its
carrying amount. ASU 2011-08 will be effective for the Company in fiscal 2013, with early adoption permitted. The Company does
not expect the adoption of this ASU will have a material effect on its financial statements.</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 June 2011,
the FASB issued ASU 2011-05, <I>Comprehensive Income,</I> providing guidance regarding the presentation of comprehensive
income. The new standard requires the presentation of comprehensive income, the components of net income and the components
of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but
consecutive statements. The new standard also requires presentation of adjustments for items that are reclassified from other
comprehensive income to net income in the statement where the components of net income and the components of other
comprehensive income are presented. The updated guidance of ASU 2011-05 is effective on a retrospective basis for financial
statements issued for fiscal years, and interim periods within those fiscal years, beginning with the Company&rsquo;s fiscal
2013 year. The adoption of this update is not expected to have a material effect on our financial statements.</P>

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

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<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 May 2011, the FASB
issued ASU 2011-04, <I>Fair Value Measurement,</I> providing additional guidance on fair value measurements that clarifies the
application of existing guidance and disclosure requirements changes certain fair value measurement principles and requires additional
disclosures about fair value measurements. The updated guidance of ASU 2011-04 is effective on a prospective basis for financial
statements issued for fiscal years, and interim periods within those fiscal years, beginning with the Company&rsquo;s fiscal 2012
year. The adoption of this update did not have a material effect on its financial statements.</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>NOTE 3 &ndash; LIQUIDITY </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">The Company has evaluated
the 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. The Company believes
it has sufficient funds for the next twelve months from the balance sheet date, as it expects to cover its anticipated operating
expenses through cash on hand, additional customer billings, and borrowings under its stockholder note payable.</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">As discussed in Note
1, through June 30, 2012, the Company issued 2,813,000 shares of common stock and 563,000 warrants as part of its Private Placement.
The Company additionally issued 2,294,000 shares of common stock and 468,000 warrants during July and August 2012 for a total
approximating $924,000 net proceeds.</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 24, 2012,
the Company entered into a new revolving promissory note agreement (Unrestricted Line of Credit) with a stockholder for $1,500,000.
The revolving promissory note bears interest at 8% per annum, all principal and accrued interest are due and payable on September
24, 2014. See Notes 5 and 12.</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 require additional
financing in the future. The timing of the Company&rsquo;s need for additional capital will depend in part on its future operating
performance in terms of revenue growth and the level of operating expenses incurred.</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">However, there is
no guarantee the Company will be able to obtain additional funds in the future or that funds will be available on terms acceptable
to the Company.&nbsp;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 the Company&rsquo;s
future cash flows and results of operations, and its 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>

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<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>NOTE 4 - PROPERTY, PLANT AND EQUIPMENT </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: 23pt">Property, plant and equipment consist of:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 90%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">June 30,<BR> 2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">June 30,<BR> 2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%">Vehicles</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">59,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">47,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Machinery and equipment</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">59,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">46,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Office equipment</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">53,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">21,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Furniture and equipment</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">22,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Leasehold improvements</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">1,000</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">1,000</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">197,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">137,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&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: White">
    <TD STYLE="text-align: left; padding-left: 9pt; padding-bottom: 1pt">Less: Accumulated depreciation</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">(62,000</TD><TD STYLE="text-align: left; padding-bottom: 1pt">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">(32,000</TD><TD STYLE="text-align: left; padding-bottom: 1pt">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&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: White">
    <TD STYLE="text-align: left; padding-left: 0.25in; padding-bottom: 2.5pt">Property, plant and equipment, net</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">135,000</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">105,000</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 23pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 23pt">Depreciation expense was approximately $30,000
and $22,000, for fiscal 2012 and 2011, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 23pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>NOTE 5 - STOCKHOLDER NOTES PAYABLE</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">(a) <B><I>Loans Converted into 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">Prior to
conversion in December 2011, the Company had $200,000 outstanding on a $400,000 (Inventory Funding Loan) revolving note
payable with a stockholder.&nbsp; The note had a stated interest rate of 8% per annum and was for inventory
purchases.&nbsp; Interest accrued daily and was payable upon maturity or conversion as amended.&nbsp; Advances on the note
were collateralized by substantially all assets of the Company.&nbsp;</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 Company had another
revolving note payable (Operating Capital Loan) in the amount of $1,000,000, due to the same stockholder.&nbsp; Prior to
conversion in December 2011,  the Company had $830,000 outstanding on this note. The note bore interest at 8% per annum and a maturity date of May 2012.&nbsp;
The purpose of this note was to provide bridge capital for financing.&nbsp; Advances on the note are collateralized by substantially
all of the assets of the Company.&nbsp;</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 August 2011, the
Company amended the terms of both the Inventory Funding Loan and Operating Capital Loan to provide for conversion feature of the
notes payable into shares of the Company&rsquo;s common stock at $1 per share.&nbsp;</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 September 2011,
the Company entered into an additional note payable (Short-Term Loan) agreement with the same stockholder for $150,000.&nbsp;
The note matured in May 2012 and bore interest at 8% per annum as amended, and is convertible into the Company&rsquo;s equity
securities in the same terms as the above Loans.</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 December 2011,
the combined full outstanding principal balance of $1,180,000 on the Inventory Funding Loan, Operating Capital Loan and Short-Term
notes payable together with $84,228 of accrued interest on these notes were converted into 3,735,419 (1,264,228 shares pre-reverse
Acquisition) shares of common stock at a conversion price of $.34 ($1.00 per share pre-reverse Acquisition).</P>

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

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<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) <B><I>Revolving Loans</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">In October 2011, we
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 on September 30, 2013, as amended, and is secured by substantially all of the assets
of the Company. As of June 30, 2012 the balance outstanding payable on the note was $600,000.</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 March 7, 2012,
we entered into an additional note payable agreement with the same stockholder for $250,000. The note is due on on March 7, 2014
and bears interest at 8% per annum. As of June 30, 2012 the balance outstanding payable on the note was $250,000.</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 24, 2012,
the Company entered into a new revolving promissory note agreement (Unrestricted Line of Credit) with a stockholder for $1,500,000.
The revolving promissory note bears interest at 8% per annum, all principal and accrued interest are due and payable on September
24, 2014. See Note 12.</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>NOTE 6 &ndash; COMMITMENTS AND CONTINGENCIES</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">From time to time,
we may be involved in litigation relating to claims arising out of our operations. We are not a party to any legal proceedings
that are expected, individually or in the aggregate, to have a material adverse effect on its business, financial condition or
operating results.</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">Effective July 1,
2011, the Company completed its long-term office space lease agreement and instead entered into a month-to-month agreement for
its office space. The agreement provides for monthly payments of approximately $13,000. Currently management is seeking other
office space rental options in proximity to the current offices.</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 July of 2011 the
Company entered into a sublease with a related party for approximately $6,600 per month for a portion of this space. The sublease
was terminated on January 1, 2012. The Company recorded rent expense, net of sublease income during the fiscal years ended June
30, 2012 and 2011, of approximately $106,000 and approximately $133,000, 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">In March 2011,
the Company entered into a brokerage agreement with a management consulting firm to provide investors to the Company. The
term of the agreement was for a period of one year. The compensation to the consulting firm includes a monthly fee with
additional compensation based on a percentage of the amount raised. The Company recorded expense of $13,000 and $4,000
related to the brokerage agreement during fiscal years ended June 30, 2012 and 2011, 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">In August 2011, the
Company entered into an agreement and term sheet with an entity to assist the Company in its merger efforts with a public company.
The agreement and term sheet expired during February 2012 and it obligated the Company to pay legal expenses of the investors
not to exceed $25,000 and due diligence expenses of the entity of $15,000.</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>NOTE 7 - STOCKHOLDERS&rsquo; EQUITY</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">At June 30, 2012 the
Company had 145,000,000 shares of common stock, par value of $0.001 authorized for issuance.</P>

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

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<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 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; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Holders of common stock are entitled to
receive dividends, when, as, and if declared by the Board of Directors, out of any assets legally available to the Company. Dividends
are declared and paid in an equal per-share amount on the outstanding shares of each series of common stock. During fiscal years
ended June 30, 2012 and 2011, the Board of Directors neither declared nor paid common stock dividends to shareholders.</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>Sale of Common Stock and Warrants</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">As discussed in Note
1, in connection with the Reverse Acquisition, we purchased 100% of the issued and outstanding shares of common stock of Flux
Power Inc. from the Flux Power Shareholders in exchange for 37,714,514 newly issued Exchange Shares based on an exchange ratio
of 2.9547039.</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">As discussed in Note
1, through June 30, 2012, the Company issued 2,813,000 shares of common stock and 563,000 warrants as part of its Private Placement.
The Company additionally issued 2,294,000 shares of common stock and 468,000 warrants during July and August 2012 for a total
approximating $924,000 net proceeds.</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 June 14, 2012,
the Company 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 business and advisory services for 24 months in exchange for
100,000 restricted shares of our newly issued common stock at the commencement of each six month period in return for its services,
and a warrant to purchase 1,837,777 restricted shares of our common stock for a period of five (5) years at an exercise price
of $.41 per share. We recorded a prepaid asset totaling $3,258,000 based on the value of the warrants and a corresponding liability
which is included as part of derivative liabilities since the warrants have anti-dilution protection features.</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 common stock purchased
in the Private Placement and the common stock issuable upon exercise of warrants have piggyback registration rights. The securities
offered and sold in the Private Placement have not been registered under the Securities Act of 1933, as amended (&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; 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>Warrant Activity</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"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Warrant activity during
the fiscal year ended June 30, 2012 and related balances outstanding as of that date are reflected below:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 90%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Number</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Average Purchase<BR>
    Price Per Share</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Shares purchasable under outstanding warrants at July 1, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Shares purchasable under outstanding warrants at June 30, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%; text-align: left">Stock purchase warrants issued</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">2,400,328</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">0.41</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Stock purchase warrants exercised</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">$&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right"></TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Shares purchasable under outstanding warrants at June 30, 2012</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 2.5pt double"></TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">2,400,328</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">$</TD><TD STYLE="text-align: right; padding-bottom: 2.5pt">0.41</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>

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

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    <!-- Field: /Page -->

<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"><B><I>Stock-based Compensation</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 adopted
the 2010 Stock Option Plan (&ldquo;Option Plan&rdquo;) which reserved 2,000,000 shares of common stock for issuance upon exercise
of options. As of June 14, 2012, the number of shares of common stock outstanding under the Option Plan was 1,535,500, and as
of June 30, 2011, the number of shares of common stock outstanding under the Option Plan was 710,000 (as adjusted 2,097,841).</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 part of the
Reverse Acquisition, we adopted the Flux Power Option Plan and all stock options of Flux&rsquo;s outstanding as of June 14,
2012, whether or not exercised and whether or not vested were substituted by us with 4,536,949 new Company options based on
the Share Exchange Ratio. The new options substituted by us shall continue to have, and be subject to, the substantially the
same terms and conditions as before, but will be convertible into shares of our common stock, as adjusted given effect to the
Share Exchange Ratio. However, we will not be able to grant additional options under the Option Plan.</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">Stock option activity
during the fiscal year ended June 30, 2012 and 2011 and related balances outstanding as of that date are reflected below:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 96%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Number of<BR> Shares</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Weighted Average<BR> Exercise Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Weighted Average<BR> Remaining Contract<BR>
    Term (# years)</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 61%; text-align: left">Outstanding at July 1 ,2010, as adjusted*</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">2,097,841</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">0.04</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Outstanding at June 30, 2011, as adjusted*</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,097,841</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.04</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>Granted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,734,578</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.25</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: White">
    <TD>Exercised</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</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="text-align: left">Forfeited and cancelled</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(295,470</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.04</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: White">
    <TD>&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><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>Outstanding at June 30, 2012</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,536,949</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.17</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7.61</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Exercisable at June 30, 2012</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,916,712</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.04</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5.54</TD><TD STYLE="text-align: left">&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">(*based on a ratio of 2.9547039- See Note 1)</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 table
summarizes by price range the number, weighted average exercise price and weighted average life (in years) of options outstanding
and the number and weighted average exercise price of exercisable options as of June&nbsp;30, 2012.</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: left; border-bottom: Black 1pt solid">Price Range</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="10" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Total Outstanding</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Total Exercisable</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Number<BR> of<BR> Shares</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Weighted<BR> Average</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Number<BR> of<BR> Shares</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Weighted<BR> Average<BR> Exercise<BR> Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Exercise<BR> Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Life</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 35%; padding-bottom: 1pt">$0.04&nbsp;&ndash;&nbsp;$0.410</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="width: 10%; text-align: right; border-bottom: Black 1pt solid">4,536,949</TD><TD STYLE="width: 1%; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left; padding-bottom: 1pt">$</TD><TD STYLE="width: 10%; text-align: right; padding-bottom: 1pt">0.17</TD><TD STYLE="width: 1%; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="width: 10%; text-align: right; padding-bottom: 1pt">7.61</TD><TD STYLE="width: 1%; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="width: 10%; text-align: right; border-bottom: Black 1pt solid">1,916,712</TD><TD STYLE="width: 1%; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left; padding-bottom: 1pt">$</TD><TD STYLE="width: 10%; text-align: right; padding-bottom: 1pt">0.04</TD><TD STYLE="width: 1%; text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt; padding-bottom: 2.5pt">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">4,536,949</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">$</TD><TD STYLE="text-align: right; padding-bottom: 2.5pt">0.17</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="text-align: right; padding-bottom: 2.5pt">7.61</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">1,916,712</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">$</TD><TD STYLE="text-align: right; padding-bottom: 2.5pt">0.04</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>

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

<!-- Field: Page; Sequence: 82; Value: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->18<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 85%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.5in">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 68%; text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Expected volatility</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: center">&nbsp;</TD><TD STYLE="width: 13%; text-align: center">100%</TD><TD STYLE="width: 1%; text-align: left"></TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: center">&nbsp;</TD><TD STYLE="width: 13%; text-align: center">100%</TD><TD STYLE="width: 1%; text-align: left"></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Risk free interest rate</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="text-align: center">0.8% to 3.0%</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="text-align: center">3.0%</TD><TD STYLE="text-align: left"></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Forfeiture rate</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="text-align: center">5%</TD><TD STYLE="text-align: left"></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="text-align: center">5%</TD><TD STYLE="text-align: left"></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Dividend yield</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="text-align: center">0%</TD><TD STYLE="text-align: left"></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="text-align: center">0%</TD><TD STYLE="text-align: left"></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Expected term</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="text-align: center">5-10 years</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="text-align: center">10 years</TD><TD STYLE="text-align: left">&nbsp;</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">During the fiscal
year ended June 30, 2012, total stock-based compensation expense included in the statement of operations was approximately $45,000.
Approximately $37,000 of this expense was recorded to selling, general and administrative expense and approximately $8,000 was
recorded to research and development expense.</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 fiscal
year ended June 30, 2011, total stock-based compensation expense included in the statement of operations was approximately $58,000.
Of this expense $22,000 was recorded to general and administrative expense and approximately $36,000 was recorded to research
and development expense.</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>NOTE 8 &ndash; INCOME TAXES</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"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in; text-align: justify">Pursuant to the provisions of FASB ASC
Topic 740 <I>Income Taxes</I> deferred income taxes reflect the net effect of (a) temporary difference between carrying amounts
of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating
loss carryforwards. No net provision for refundable Federal income taxes has been made in the accompanying statement of operations
because no recoverable taxes were paid previously. Significant components of the Company&rsquo;s net deferred tax assets at June&nbsp;30,
2012 and 2011 are shown below. A valuation allowance of $1.45 million and $774,000 has been established to offset the net deferred
tax assets as of June&nbsp;30, 2012 and 2011, respectively, due to uncertainties surrounding the Company&rsquo;s ability to generate
future taxable income to realize these assets.</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">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Company has not
filed federal or state income tax returns but it is in the process of preparing the appropriate forms and submitting them to appropriate
governmental agency. Additionally, we have not performed a Section 382 analysis as of June 30, 2012.</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-indent: 0.5in">&#9;We have incurred losses since inception,
so no current income tax provision or benefit has been recorded. Significant components of our net deferred tax assets are shown
in the table below.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.2in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Year Ended June 30,</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Deferred Tax Assets:</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: White">
    <TD STYLE="width: 74%; text-align: left; padding-left: 9pt">Net operating loss carryforwards</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">1,275,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">653,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Depreciation and amortization</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(11,000</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Other, net</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">178,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">132,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Total deferred tax assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,453,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">774,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Valuation allowance</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,453,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(774,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 9pt">Net deferred tax assets</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&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; 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">At June 30, 2012, the
Company had unused net operating loss carryovers of approximately $3,200,000 and $3,170,000 that are available to offset future
federal and state taxable income respectively. These operating losses begin to expire in 2030. Both the federal and state net operating
loss carryovers at June 30, 2012 may be adjusted once tax returns are filed.</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">&nbsp;</P>

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<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 provision for
income taxes on earnings subject to income taxes differs from the statutory federal rate at June 30, 2012 and 2011, due to the
following (in thousands):</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" STYLE="border-collapse: collapse; width: 90%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.5in">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Year Ended June 30,</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%; text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Federal income taxes at 34%</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">(811,000</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">(407,000</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">State income taxes, net of federal benefit</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(139,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(116,000</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Change in FMV of Derivative</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">210,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Other True Ups</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">61,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -5.05pt; padding-left: 5.05pt">Change in valuation allowance</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">679,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left"></TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">523,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; text-indent: -5.05pt; padding-left: 15.55pt">Provision for income taxes</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<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 June 30, 2012,
we have not yet completed our analysis of the deferred tax assets relating to federal and state net operating losses.</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 Internal
Revenue Code Sections 382, use of our net operating loss carryforwards could be limited if a cumulative change in ownership of
more than 50% occurs within a three-year period. We plan to complete a Section 382 analysis regarding whether there are limitations
of the net operating loss prior to utilizing any net operating losses.</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 13, 2006,
the FASB issued FIN 48, subsequently codified in ASC 740, Income Taxes, which clarifies the accounting for uncertainty in income
taxes recognized in an entity's financial, and prescribes a recognition threshold and measurement attributes for financial statement
disclosure of tax positions taken or expected to be taken on a tax return. Under ASC 740, the impact of an uncertain income tax
position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit
by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood
of being sustained. Additionally, ASC 740 provides guidance on derecognition, classification, interest and penalties, accounting
in interim periods, disclosure and transition. ASC 740 is effective for fiscal years beginning after December 15, 2006.</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 follow the provisions
of ASC 740 relating to uncertain tax provisions and have commenced analyzing filing positions in all of the federal and state
jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. As a result
of adoption, no additional tax liabilities have been recorded. There are no unrecognized tax benefits as of June 30, 2012 or June
30, 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"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Company is subject
to taxation in the U.S. and state jurisdictions. The Company&rsquo;s tax years for 2009 and forward, when filed, will be subject
to examination by the IRS and tax years 2009 and forward are subject to examination by California tax authorities. The Company
is currently not under examination by any taxing authorities.</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"><B>NOTE 9 &ndash; FAIR VALUE MEASUREMENTS</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 follow FASB ASC
Topic No. 820, <I>Fair Value Measurements and Disclosures</I> (&ldquo;ASC 820&rdquo;) in connection with financial assets and
liabilities measured at fair value on a recurring basis subsequent to initial recognition.</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">ASC 820 requires that
assets and liabilities carried at fair value will be classified and disclosed in one of the following categories:</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">Level 1: Quoted market prices in active
markets for identical assets and liabilities.</P>

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

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<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">Level 2: Observable market based inputs
or unobservable inputs that are corroborated by market data.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Level 3: Unobservable inputs that are
not corroborated by market data</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 hierarchy noted
above requires us to minimize the use of unobservable inputs and to use unobservable market data, if available, when determining
fair value.</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 fair value of
our recorded derivative liabilities is determined based on unobservable inputs that are not corroborated by market data, which
is a level 3 classification. We record derivative liabilities on our balance sheet at fair value with changes in fair value recorded
in our consolidated statements of operations. Our fair value measurements at the reporting date were as follows:</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">At June 30, 2012:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt">Quoted&nbsp;Prices&nbsp;in
    <BR>Active&nbsp;Markets <BR>for&nbsp;Identical <BR>Assets</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt">Significant&nbsp;Other
    <BR>Observable&nbsp;Inputs</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt">Significant&nbsp;<BR>
Unobservable
<BR>
    Inputs</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt"></TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">(Level&nbsp;1)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">(Level&nbsp;2)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">(Level&nbsp;3)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 70%; padding-bottom: 1pt">Description</TD><TD STYLE="width: 1%; padding-bottom: 1pt"></TD>
    <TD STYLE="width: 1%; text-align: left; border-bottom: Black 1pt solid"></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: left; width: 7%"></TD><TD STYLE="width: 1%; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: left; width: 7%"></TD><TD STYLE="width: 1%; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="width: 7%; text-align: right; border-bottom: Black 1pt solid"></TD><TD STYLE="width: 1%; text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD></TD>
    <TD STYLE="text-align: left"></TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left"></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="text-align: left; padding-bottom: 2.5pt">Derivative Liabilities</TD><TD STYLE="padding-bottom: 2.5pt"></TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">-</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">-</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">4,943,000</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD></TD>
    <TD STYLE="text-align: left"></TD><TD STYLE="text-align: right"></TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Total Liabilities</TD><TD STYLE="padding-bottom: 2.5pt"></TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">-</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">-</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">4,943,000</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&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 0pt 0.5in; text-align: justify">&#9;The Company did not have derivative
liabilities related to warrant activity in fiscal year ended June 30, 2011. &#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"><B>NOTE 10 &ndash; RELATED PARTY TRANSACTIONS</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"><B><I>Common Stock</I></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; 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 in 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; text-align: justify"><B>&nbsp;</B></P>

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<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>Stockholder Agreements </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">During 2009, the Company
entered into a cancelable Term Sheet agreement (the &ldquo;Term Sheet Agreement&rdquo;) with a LHV Power Corporation, an entity
owned by James Gevarges, one of our major shareholders. Mr. Gevarges is also the Chief Executive Officer and President of LHV
Power. Pursuant to the Term Sheet Agreement, Flux was appointed as a distributor of LHV Power battery charging products allowing
Flux to sell the products either separately or as part of an energy storage solution. Additionally, Flux was required to develop
a microprocessor control board, and the associated software to enable communication between the parties&rsquo; respective products
(&ldquo;MCB&rdquo;) which entitles Flux to royalties for any such units sold by the related entity. Pursuant to the Term Sheet
Agreement Flux may purchase the products at the then current price list for distributors. Further, under the Term Sheet Agreement,
if LHV Power sells its products to a different distributor Flux is entitled to a distribution fee equal to 20% of the gross profits
on such sale. This distribution fee and royalties are capped at a total of $200,000. The chargers are not currently under commercial
production and therefore no Distribution and Royalty Fee has been received by Flux.  On September 1, 2010, with our consent,
LHV assigned the Term Sheet Agreement to Current Ways Inc. a different company that is owned by Mr. Gevarges. The parties are
also subject to restrictions on the use and disclosure of confidential information of the other party until April 1, 2013.</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 our standard
purchase order terms and conditions, during the fiscal years ended June 30, 2012 and 2011, Flux purchased approximately $85,000
and $33,000 charger products from Current Ways, Inc., which purchases were not subject to the distribution fee or royalties referred
to above under the Term Sheet 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 August 1, 2009,
the Company entered into a Manufacturing Implementation Agreement (the &ldquo;Manufacturing Agreement&rdquo;) with LHV Power pursuant
to which Flux granted LHV Power a right of first refusal to manufacture our battery management systems and agreed to pay for any
specialized tooling LHV Power may require to manufacture Flux&rsquo;s battery management systems. Under the Manufacturing Agreement,
Flux will retain ownership of all intellectual property developed as part of the Manufacturing Agreement, which expires on August
1, 2014. During the fiscal years ended June 30, 2012 and 2011, the Company paid approximately $263,000 and $130,000, respectively,
to LHV Power 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, the
Company 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&rsquo;s office space for a monthly payment of $6,640. The Sublease Agreement
was terminated January 1, 2012. During fiscal years ended June 30, 2012 and 2011, Epic Boats reimbursed $53,000 and $7,000, respectively,
to the Company 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">On October 21, 2009,
the Company entered into an agreement with Epic Boats, LLC where Epic Boats assigned and transferred to the Company the entire
right, title, and interest into products, technology, intellectual property, inventions and all improvements thereof, as defined
in the table below.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: #1F497D">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 35%; font-weight: bold; border-bottom: Black 1pt solid">Product</TD>
    <TD STYLE="width: 5%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 60%; font-weight: bold; border-bottom: Black 1pt solid">Description</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Battery Box Design</TD>
    <TD>&nbsp;</TD>
    <TD>All hardware, tooling and design reduced to practice otherwise of the battery housings which include the integration of
    a battery management system.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>CAN Communication Protocol</TD>
    <TD>&nbsp;</TD>
    <TD>Top communication protocol that communicates through the CAN bus</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>CAN based Throttle Controller</TD>
    <TD>&nbsp;</TD>
    <TD>All hardware, software and tooling reduced to practice or otherwise of the throttle controller</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>BMS Head End Interfaces</TD>
    <TD>&nbsp;</TD>
    <TD>Interfaces to the motor and generator controller to the diagnostic software</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</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; text-align: justify; text-indent: 0.5in; background-color: white">As
of this date, the Company began selling products to Epic Boats under the Company&rsquo;s standard terms and conditions and has
continued to sell products to Epic Boats as a customer. During the fiscal years ended June 30, 2012 and 2011, the Company sold
approximately $1,135,000 and $149,000, respectively, of product to Epic Boats. Epic Boat&rsquo;s customer deposit balance received
from this company at June 30, 2012 and June 30, 2011, is approximately $200,000 and $367,000, respectively. There were no sales
receivables outstanding from Epic Boats as of June 30, 2012. As of June 30, 2011, sales receivables from Epic Boats totaled $29,000</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><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">During the fiscal
years ended June 30, 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 June 30, 2012 and June 30, 2011. As of June 30, 2012 this shareholder is 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: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><B>NOTE 11 &ndash; CONCENTRATIONS</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><B><I>Credit Risk</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><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">Financial instruments
that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and unsecured
trade accounts receivable. The Company maintains cash balances at a financial institution in San Diego, California. Accounts at
this institution are secured by the Federal Deposit Insurance Corporation. As of June 30, 2012, cash totaled approximately $812,000,
which consists of funds held in a non-interest bearing bank deposit account. The Company has not experienced any losses in such
accounts. Management believes that the Company is not exposed to any significant credit risk with respect to its cash.</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>Customer- Concentrations</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">During the fiscal
years ended June 30, 2012 and 2011, the Company had one related party major customer that accounted for 19% and 15%, respectively,
of the Company&rsquo;s total sales.</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 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; 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">For the fiscal year
ended June 30, 2012, the Company had four major customers that represented more than 10% of its revenues on an individual basis,
and combined represented 81% or approximately $4,798,000 of the Company&rsquo;s total revenues.</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 four major customers
were Greentech Automotive, Inc., which represented 34% of the total revenue, Epic Boats (a company founded and controlled by Chris
Anthony, our chairman and president), represented 19% of the total revenue, Artisan Vehicle Systems, which represented 18% of
the total revenues, and Boulder EV, represented 10% of the total revenue.</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">For the fiscal year
ended June 30, 2011, the Company had two major customers represented more than 10% of its revenues on an individual basis, and
combined represented 47% or approximately $463,000 of the Company&rsquo;s total revenues.</P>

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

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<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 two major customers
were Wheego Electric Cars, which represented 32% of the total revenue, Epic Boats (a company founded and controlled by Chris Anthony,
our chairman and president), represented 15% of the total revenue.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">During the fiscal
years ended June 30, 2012 and 2011, we had one supplier, Global Fluid Power Solutions, LLC accounted for 56% and 65% of our total
purchases.</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 entered into a
four year supply agreement with Global Fluid Power Solutions Inc. and Mahomann Corp. (collectively &ldquo;Global&rdquo;) on January
15, 2010. Under the supply agreement, we are not obligated to purchase any minimum number of products nor are we required to purchase
its batteries exclusively from Global. We can negotiate and purchase our batteries from other vendors at any time. Accordingly,
we are not dependent on Global for the products. The supply agreement terminates upon the earlier occurrence of a breach by Global,
insolvency, or upon mutual 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; text-align: justify; background-color: white"><B>NOTE 12 &ndash;
SUBSEQUENT 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>Private Placement Transactions (See
Note 1)&#9; </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">In July, 2012, we
sold an additional 1,690,063 shares of common stock and issued 338,013 five year Warrants for an aggregate purchase price of $700,000
to ten (10) accredited investors.</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 August 2012 we
sold an aggregate of 603,594 shares of common stock and issued 120,719 five year Warrants for an aggregate purchase price of $250,000
to four (4) accredited investors.</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 common stock purchased
in the private placement and the common stock issued upon exercise of warrants has piggyback registration rights. The securities
offered and sold in the private placement have not been registered under the Securities Act and may not be offered or sold in
the United States absent registration or an applicable exemption from the registration requirements of the Securities Act.</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 4, 2012,
the Company entered into an agency agreement with American Capital Partners (ACP), a Financial Industry Regulatory Authority (FINRA)
registered broker-dealer for the purpose of advising and assisting the Company, on a best efforts basis, with the $2,000,000 private
placement of our common stock and warrants.&nbsp; The agreement expires February 25, 2014. The terms of the agreement require
the Company to pay a total cash fee of nine percent (9%) of the value received from each investor.&nbsp; Additionally the Company
agreed to issue shares to ACP equal to seven percent (7%) of the shares placed by ACP.&nbsp; The Company will also reimburse ACP
for legal fees up to $10,000 incurred in connection with this placement by ACP.</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>Revolving Line of Credit</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">On September 24, 2012,
Flux Power, Inc., entered into a certain Unrestricted and Line of Credit (&ldquo;Line of Credit) with Esenjay Investments, LLC
(&ldquo;Esenjay&rdquo;) pursuant to which Esenjay agreed to provide us with a revolving line of credit for $1,500,000 (&ldquo;Line
of Credit&rdquo;). Borrowings under the Line of Credit is secured by the assets of the Company and bears interest at 8% per annum,
with all unpaid principal and accrued interest due and payable on September 24, 2014. There is no prepayment penalty under the
Line of Credit. Proceeds from the Line of Credit can be used at the discretion of the Company and the Company intends to use it
for working capital. As of September 24, 2012, the Company has not borrowed any amounts under the Line of Credit. Esenjay is one
of our major shareholders which beneficially own approximately 43% of our common stock. Mr. Michael Johnson, our director, is
the director and shareholder of Esenjay.</P>

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<TYPE>EX-10.16
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<DESCRIPTION>EXHIBIT 10.16
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<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></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; text-align: right">Exhibit 10.16</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"><FONT STYLE="font-size: 12pt"><I><img src="tlogo.jpg"> American Capital
Partners, LLC</I></FONT></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; text-align: justify; text-indent: 0.5in"><B>THIS AGENCY AGREEMENT
</B>(the <B><U>&quot;Agency Agreement&quot;)</U></B> is made this 4<SUP>th</SUP> day of September 2012, by and between <B>Flux
Power Holdings, Inc. </B>(Symbol &quot;FLUX&quot;), a company with an address 2240 Auto Park Way, Escondido, CA 92029 (the <B><U>&quot;Company&quot;)
</U></B>and American Capital Partners, LLC, a FINRA registered broker-dealer <B>(&quot;ACP&quot; </B>or <B><U>&quot;Agent&quot;).
</U></B>ACP and the Company are collectively referred to herein as the <B>&quot;<U>Parties</U>&quot;.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.45in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.45in"><B>WHEREAS, </B>the
Company is desirous of raising capital and, desires to retain Agent for purposes of advising and assisting the Company, on a best
efforts basis, in connection with its capital raising efforts; and</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.45in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.45in"><B>WHEREAS, </B>the
Agent is willing to introduce one or more third party investors (each, an <B><U>&quot;Investor&quot;</U>)</B> to the Company subject
to the terms and upon the conditions set forth in this Agreement, through a Securities Purchase Agreement and disclosure documents
to be prepared by the Company, negotiated and secured directly with the potential accredited and/or institutional investors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.45in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.45in"><B>NOW THEREFORE,
</B>the parties hereto, for mutual promises and other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound, hereby agree as follows:</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">1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the Company's proposed financing, the Company shall promptly pay to <B>ACP </B>a fee (the <B><U>&quot;Agent&quot;</U>)</B>
consisting of (i) the sum of 7% of all cash or other value received from such Investors (the <B><U>&quot;Cash Fee&quot;</U>)</B>
(ii) a 2% non-accountable expense allowance; and (iii) such number as equals 7% of the shares (the <B><U>&quot;Agent Securities&quot;</U>)</B>
issued to Investors as part of any financing. The Company shall also reimburse counsel for <B>ACP </B>legal fees and any other
reasonable costs incurred by <B>ACP </B>in connection with this introduction.-Such <I>costs shall not exceed $10,000.00 without
prior written consent from Company</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">2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Cash Fee and aforementioned Expenses (collectively, the <B>&quot;<U>Agent Fees&quot;</U>) </B>shall be paid by the Company immediately
upon the receipt of the aforementioned funds from time to time (the <B>&quot;Closing&quot;). </B>The Agent Securities shall be
issued to <B>ACP </B>and/or its assignees on the Closing as provided in a separate instruction letter to the Company. Agent is
and shall be a third party beneficiary of all of the representations and warranties of the Company or any Investor in the securities
purchase agreement (the <B>&quot;Securities Purchase Agreement&quot;) </B>and, the Company further restates directly to the Agent,
each of the Company's representations, warranties and covenants made in the Securities Purchase Agreement. Attached hereto as <B>Exhibit
&quot;A&quot; </B>is a list of third parties which the Company agrees <B>ACP </B>has or will introduce to the Company in connection
with this Offering (the <B>&quot;<U>List</U>&quot;) </B>which list may be amended from time to time by <B>ACP </B>as additional
prospective Investors are introduced. The List shall be deemed the final, complete and comprehensive list of all third parties
who were introduced to the Company by ACP (the <B><U>&quot;Introduced Parties&quot;</U>).</B> The List, which is in addition to
any investors that actually complete subscription documents, shall be kept confidential for a period of eighteen (18) months following
delivery of the list by <B>ACP </B>to the Company. If, within eighteen (18) months after the Termination Date, the Company completes
any private financing of equity or debt or other capital raising activity of the Company (other than the exercise by any person
or entity of any options, warrants or other convertible securities) with any of the introduced Parties set forth on the List or
an investment entity or account affiliated with any such Introduced Party, the Company will pay to <B>ACP </B>upon the closing
of such financing the cash and securities compensation set forth in this Section &quot;1&quot; as a <B>&quot;Source Fee&quot;.
</B>This Agreement will remain in effect until the termination date which shall be February 25<SUP>th</SUP>, 2014, unless otherwise
extended by the Company and Agent for a maximum of up to 30 business days thereafter (the <B><U>&quot;Termination Date&quot;</U>).</B>
Notwithstanding any termination of this Agreement, the provisions of this Agreement for compensation set forth in this section
2 and the indemnification provisions set forth in Annex A shall remain in full force and effect.</P>

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

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<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">3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Agent represents that it is duly organized and validly existing under the laws of the of its organization, that it has all material
business and professional licenses, registrations and permits necessary or appropriate to perform the services contemplated hereunder,
and hereby agrees to obtain any such license, registration or permit that may hereafter become necessary under applicable laws
and regulations to perform the services contemplated by this Agreement and, in particular but without limiting the generality of
the foregoing, the Agent is and shall be duly licensed or registered as a broker-dealer or registered representative of a broker-dealer
or an investment adviser or associated person of an investment adviser in each jurisdiction where such licensing or registration
is required; and that the Agent shall maintain each such license, registration and permit in full force and effect to the extent
necessary or appropriate under all applicable laws and regulations to perform the services contemplated by this Agreement. Agent
acknowledges and agrees that the Company will have no obligation to accept any subscription from any proposed Investor in the Offering.</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">4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company acknowledges that <B>ACP </B>is acting solely as an &quot;Agent&quot;, has performed minimal due diligence on the Company
based on information provided by the Company, and has not and will not make any representations regarding the investments to any
potential investor. In addition, Agent and its counsel have not reviewed the Securities Purchase Agreement prepared by the Company
nor its counsel and Agent and its affiliates have not, and can not and has not, verified the accuracy, authenticity, completeness
or validity of the foregoing nor have they conducted any form of evaluation or appraisal and have not passed upon or approved the
form of any offering documents or SEC or other regulatory filings of the Company from time to time. Accordingly, the Company takes
full responsibility for the offering documents (including any exhibits or schedules thereto or information incorporated by reference
therein) prepared by it and for the disclosure made by the Company and, warrants that the same are true and accurate in all material
respects and do not omit to state any fact or information or material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The Company shall not represent anything in its offering
documents to the contrary and, shall indicate Agent as a third party beneficiary of warranties and covenants made by it in the
Purchase Agreement. <B>ACP </B>and the Company explicitly agree to the indemnification provisions provided for in <B><U>Annex A</U></B>
annexed hereto, the provisions of which are incorporated by reference herein. The provisions of this Section 4 shall survive termination
of 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; text-align: justify; text-indent: 0.5in">5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except
as otherwise provided herein, neither Agent nor the Company shall have any authority or power to incur or create, or shall incur
or create, any obligation, express or implied, on behalf of the other. In all matters relating to this Agreement, the Company shall
be responsible solely for its acts and the acts of its employees and agents in connection with the investments. The Agent is and
will hereafter act as an independent contractor and not as an employee, agent, or investment banker of the Company (and, the Company
and its officers, directors, employees, agents and/or affiliates shall not make representations to the contrary) of the Company
and nothing in this Agreement may be interpreted or construed to create any employment, partnership, joint venture or other relationship
between the Agent and the Company. Specifically, and without limitation, no statement may be made that Agent or any of its affiliates
have rated the Company or reviewed any of the Company' offering materials or offering terms, or any information relating to the
Company or otherwise passed upon, approve or recommend any securities of or an investment in the Company.</P>

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

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<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">6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company is responsible to abide by and comply with, all relevant US federal, state or Financial Industry Regulatory Authority <U>(&quot;<B>FINRA</B>&quot;)</U>
regulations relating to any offering of its securities or communications with Investors. The Company warrants that no officer or
director of the Company is, or ever has been the subject of a regulatory action or proceeding, or a threatened regulatory action
or proceeding, relating to the sale, distribution, or offering or underwriting of securities. The Company shall pay for and assist
with filing of, any and all blue sky filings relating to the Investors (including, the filing of a Form D and or such other filings
as may be necessary in jurisdictions where sales are made, which Form D is the sole responsibility and obligation of the Company)
and shall administer the same at its own cost.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B>7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>All
questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions
contemplated by this Agreement (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough
of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that
it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient
venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served
in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence
of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by law. If either party shall commence an action or proceeding to enforce any provisions
of this Agreement, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable
attorneys' fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.
<B>IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY
AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AN]) EXPRESSLY
WAIVES FOREVER TRIAL BY JURY.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
financing will be offered only by approaching prospective purchasers on an individual basis. No general solicitation or general
advertising in any form will be used by the Company or Agent.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither
the Company nor the Agent will provide or release any information with respect to this Agreement or the Offering except as required
by law.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">10.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Agreement shall not be amended, modified or waived except in writing signed by the Parties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">11.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall
constitute one and the same instrument. This Agreement may be delivered by electronic transmission, including facsimile.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.55in">12.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Agreement contains the entire agreement of the Parties and supersedes all prior negotiations, correspondence, understandings and
agreements between the Parties regarding the subject matter hereof. The Recitals hereof shall be deemed as if they were representations
and warranties and shall constitute an integral part of the agreement made herein.</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">IN WITNESS WHEREOF, this Agreement has been
duly executed by or on behalf of the parties hereto.</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="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold">Flux Power Holdings, Inc</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 50%">&nbsp;</TD>
    <TD STYLE="width: 3%">By:</TD>
    <TD STYLE="width: 47%; border-bottom: Black 1pt solid">/s/ Chris Anthony</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">Name: Chris Anthony</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">Title:&nbsp; CEO</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold">AMERICAN CAPITAL PARTNERS, LLC</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>By:</TD>
    <TD STYLE="border-bottom: Black 1pt solid">/s/ Anthony Gardini</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">Name: Anthony Gardini</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">Title: President</TD></TR>
</TABLE>
<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"><B>Cc: Mark I. Lev, esq.</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: 0"><B>Wellfleet Partners, Inc.</B></P>

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

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<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">ANNEX A</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">Capitalized terms used in this Exhibit shall have the meanings
ascribed to such terms in this Agreement to which this Annex is attached.</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">The Company shall indemnify and hold harmless
American Capital Partners, LLC, Wellfleet Partners, LLC (&quot;<B><U>ACP</U></B>&quot;), any sub-placement agents, and each of
their respective affiliates and their respective directors, officers, employees, agents and controlling persons, registered representatives,
(<B>ACP </B>and each such person being an <U>&quot;<B>Indemnified Party</B>&quot;)</U> from and against any and all losses, claims,
damages and liabilities, joint or several, to which such Indemnified Party may become subject under any applicable law, or otherwise,
and related to, arising out of, or in connection with, (i) any untrue statement or alleged untrue statement of a material fact
contained in any document, including without limitation the offering materials furnished or made available by the Company (directly,
through <B>ACP</B>, or otherwise), to any offeree of the Securities or any of their representatives or the omission or the alleged
omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; <I>provided, however, </I>that such indemnity shall not apply to any loss, claim, damage,
or liability to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information about <B>ACP</B> furnished to the Company or its management by <B>ACP</B> expressly
for use in the offering documents or offering memorandum, or (ii) any offering contemplated by the Agreement of which this <B><U>Annex
A</U></B> is a part or the engagement of <B>ACP</B> pursuant thereto, and the performance by <B>ACP</B> of the services contemplated
thereby, and will reimburse each Indemnified Party for all expenses (including counsel fees and expenses) as they are incurred
in connection with the investigation of, preparation for or defense of any pending or threatened claim or any action or proceeding
arising therefrom, whether or not such Indemnified Party is a party and whether or not such claim, action or proceeding is initiated
or brought by or on behalf of the Company. Indemnified Parties will not be liable under clause (ii) hereof to the extent that any
loss, claim, damage, liability or expense is found in a final judgment by a court of competent jurisdiction to have resulted from
<B>ACP'</B> bad faith, gross negligence; and (iii) the Engagement Agreement signed June 29<SUP>th</SUP>, 2012, between Wellfleet
and the Company which by the signing of this Agreement becomes null &amp; void.</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">No Indemnified Party shall have any liability
(whether direct or indirect, in contract or tort or otherwise) to the Company or its security holders or creditors related to,
arising out of, or in connection with, any offering, the engagement of ACP pursuant to, or the performance by ACP of the services
contemplated by, this Agreement except to the extent that any loss, claim, damage or liability is found in a final judgment by
a court of competent jurisdiction to have resulted from ACP bad faith, or gross negligence.</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>ACP</B> shall indemnify and hold harmless
the Company and its affiliates and their respective directors, officers, employees, agents and controlling persons (the Company
and each such person being a <B><U>&quot;Company Indemnified Party&quot;)</U></B> against any and all losses, claims, damages and
liabilities, joint or several, arising out of untrue statements or omissions, or alleged untrue statements or omissions, made in
the memorandum or other offering documents in reliance upon and in conformity with written information about <B>ACP </B>furnished
to the Company by <B>ACP </B>expressly for use in the offering materials.</P>

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

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<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">If any action, suit, proceeding or investigation
is commenced, as to which an Indemnified Party or Company Indemnified Party proposes to demand indemnification, it shall notify
the party responsible for indemnification (the <B><U>&quot;Indemnifying Party&quot;)</U></B> with reasonable promptness; <I>provided,
however, </I>that any failure by an Indemnified Party or the Company Indemnified Party to notify the Indemnifying Party shall not
relieve the Indemnifying Party from its obligations hereunder to the extent that the Indemnifying Party has not been prejudiced
by the delay. Upon request of an Indemnified Party, the Indemnifying Party shall retain counsel reasonably acceptable to the Indemnified
Party, and the fees, expenses and disbursements of such counsel shall be borne by the Indemnifying Party. Any such counsel shall,
to the extent consistent with its professional responsibilities, cooperate with the Indemnifying Party and any counsel designated
by the Indemnifying Party. The Indemnifying Party shall be liable for any settlement of any claim against any Indemnified Party
made with the Indemnifying Party's written consent. The Indemnifying Party shall not, without the prior written consent of the
Indemnified Party, settle or compromise any claim, or permit a default or consent to the entry of any judgment in respect thereof,
unless such settlement, compromise or consent (i) includes, as an unconditional term thereof, the giving by the claimant to all
of the Indemnified Parties of an unconditional release from all liability in respect of such claim, and (ii) does not contain any
factual or legal admission by or with respect to an Indemnified Party or an adverse statement with respect to the character, professionalism,
expertise or reputation of any Indemnified Party or any action or inaction of any Indemnified Party.</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">In order to provide for just and equitable
contribution, if a claim for indemnification pursuant to these indemnification provisions is made, but it is found in a final judgment
by a court of competent jurisdiction (not subject to further appeal) that these indemnification provisions may not be enforced
in such case, even though the express provisions hereof provide for indemnification in such case, then the indemnifying Party shall
contribute to the Losses to which any Indemnified Party may be subject (i) in accordance with the relative benefits received by
the Indemnifying Party and its stockholders, subsidiaries and affiliates, on the one hand, and the Indemnified Party, on the other
hand, and (ii) if (and only if) the allocation provided in clause (i) of this sentence is not permitted by applicable law, in such
proportion as to reflect not only the relative benefits, but also the relative fault of the Indemnifying Party, on the one hand,
and the Indemnified Party, on the other hand, in connection with the statements, acts or omissions which resulted in such Losses
as well as any relevant equitable considerations. No person found liable for a fraudulent misrepresentation shall be entitled to
contribution from any person who is not also found liable for fraudulent misrepresentation. The relative benefits received (or
anticipated to be received) by the Indemnifying Party and it stockholders, subsidiaries and affiliates shall be deemed to be equal
to the aggregate consideration payable or receivable by such parties in connection with the transaction or transactions to which
the Agreement relates relative to the amount of fees actually received by <B>ACP</B> in connection with such transaction or transactions.
Notwithstanding the foregoing, in no event shall the amount contributed by all Indemnified Parties exceed the amount of fees previously
received by <B>ACP</B> pursuant to the 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">Neither termination nor completion of the
Agreement shall affect these indemnification provisions which shall remain operative and in full force and effect. The indemnification
provisions shall be binding upon the Indemnifying Party and its successors and assigns and shall inure to the benefit of the Indemnified
Parties and their respective successors, assigns, heirs and personal representatives.</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">The Indemnifying Party will not settle,
compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding in respect of which
indemnification could be sought under this Annex A (whether or not <B>ACP</B> or any other Indemnified Party is an actual or potential
party to such claim, action or proceeding), unless such settlement, compromise or consent includes an unconditional release of
each Indemnified Party from all liability arising out of such claim, action or proceeding.</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">If <B>ACP</B> or any other Indemnified
Party is requested or required to appear as a witness in any action brought by or on behalf of or against the Company or any purchaser
of the Securities in which such party is not named as a defendant, the Company will reimburse <B>ACP</B> or other Indemnified Parties
for all expenses incurred in connection with such party's appearing and preparing to appear as such a witness, including, without
limitation, the fees and disbursements of its legal counsel.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.2in"><B>&nbsp;</B></P>

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<TYPE>EX-31.1
<SEQUENCE>3
<FILENAME>v324399_ex31-1.htm
<DESCRIPTION>EXHIBIT 31.1
<TEXT>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: center; margin-bottom: 0pt"><B>CERTIFICATIONS OF CHIEF EXECUTIVE
OFFICER</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><B>PURSUANT TO SECTION 302</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">I, Chris L. Anthony, certify that:</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"></TD><TD STYLE="width: 0.25in">1.</TD><TD>I have reviewed this Annual Report on Form 10-K of Flux Power Holdings,
                                                           Inc.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; 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"></TD><TD STYLE="width: 0.25in">2.</TD><TD>Based on my knowledge, this report does not contain any untrue
                                                           statement of a material fact or omit to state a material fact necessary
                                                           to make the statements made, in light of the circumstances under which
                                                           such statements were made, not misleading with respect to the period
                                                           covered by this report;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; 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"></TD><TD STYLE="width: 0.25in">3.</TD><TD>Based on my knowledge, the financial statements, and other financial
                                                           information included in this report, fairly present in all material
                                                           respects the financial condition, results of operations and cash flows
                                                           of the Registrant as of, and for, the periods presented in this report;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; 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"></TD><TD STYLE="width: 0.25in">4.</TD><TD>The Registrant&rsquo;s other certifying officer and I are responsible
                                                           for establishing and maintaining disclosure controls and procedures
                                                           (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
                                                           control over financial reporting (as defined in Exchange Act Rules
                                                           13a-15(f) and 15d-15(f)) for the Registrant and have:</TD></TR></TABLE>

<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">a.</TD><TD>Designed such disclosure controls and procedures, or caused
                                                                such disclosure controls and procedures to be designed under our
                                                                supervision, to ensure that material information relating to the
                                                                Registrant, including its consolidated subsidiaries, is made known
                                                                to us by others within those entities, particularly during the
                                                                period in which this report is being prepared;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; 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: 0.25in"></TD><TD STYLE="width: 0.25in">b.</TD><TD>Designed such internal control over financial reporting, or
                                                                caused such internal control over financial reporting to be designed
                                                                under our supervision, to provide reasonable assurance regarding
                                                                the reliability of financial reporting and the preparation of
                                                                financial statements for external purposes in accordance with
                                                                generally accepted accounting principles;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; 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: 0.25in"></TD><TD STYLE="width: 0.25in">c.</TD><TD>Evaluated the effectiveness of the Registrant&rsquo;s disclosure
                                                                controls and procedures and presented in this report our conclusions
                                                                about the effectiveness of the disclosure controls and procedures
                                                                as of the end of the period covered by this report based on such
                                                                evaluation; and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; 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: 0.25in"></TD><TD STYLE="width: 0.25in">d.</TD><TD>Disclosed in this report any change in the Registrant&rsquo;s
                                                                internal control over financial reporting that occurred during
                                                                the Registrant&rsquo;s most recent fiscal quarter (the Registrant&rsquo;s
                                                                fourth fiscal quarter in the case of an annual report) that has
                                                                materially affected, or is reasonably likely to materially affect,
                                                                the Registrant&rsquo;s internal control over financial reporting;
                                                                and</TD></TR></TABLE>

<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"></TD><TD STYLE="width: 0.25in">5.</TD><TD>The Registrant&rsquo;s other certifying officer and I have disclosed,
                                                           based on our most recent evaluation of internal control over financial
                                                           reporting, to the Registrant&rsquo;s auditors and the audit committee
                                                           of the Registrant&rsquo;s board of directors (or persons performing
                                                           the equivalent functions):</TD></TR></TABLE>

<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">a.</TD><TD>All significant deficiencies and material weaknesses in the
                                                                design or operation of internal control over financial reporting
                                                                which are reasonably likely to adversely affect the Registrant&rsquo;s
                                                                ability to record, process, summarize and report financial information;
                                                                and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; 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: 0.25in"></TD><TD STYLE="width: 0.25in">b.</TD><TD>Any fraud, whether or not material, that involves management
                                                                or other employees who have a significant role in the Registrant&rsquo;s
                                                                internal control over financial reporting.</TD></TR></TABLE>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">Date: September 28, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 50%">&nbsp;</TD>
    <TD STYLE="width: 4%">By:</TD>
    <TD STYLE="width: 46%; border-bottom: Black 1pt solid">/s/ Chris L. Anthony</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>Name:&nbsp;&nbsp;Chris L. Anthony</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>Title:&nbsp;&nbsp;Chief Executive Officer <BR> (Principal Executive Officer)</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<TYPE>EX-31.2
<SEQUENCE>4
<FILENAME>v324399_ex31-2.htm
<DESCRIPTION>EXHIBIT 31.2
<TEXT>
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<P STYLE="margin: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>CERTIFICATIONS OF CHIEF FINANCIAL OFFICER</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>PURSUANT TO SECTION 302</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">I, Stephen G. Jackson, certify that:&nbsp;</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"></TD><TD STYLE="width: 0.25in">1.</TD><TD>I have reviewed this Annual Report on Form 10-K of Flux Power Holdings,
                                                           Inc.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; 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"></TD><TD STYLE="width: 0.25in">2.</TD><TD>Based on my knowledge, this report does not contain any untrue
                                                           statement of a material fact or omit to state a material fact necessary
                                                           to make the statements made, in light of the circumstances under which
                                                           such statements were made, not misleading with respect to the period
                                                           covered by this report;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; 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"></TD><TD STYLE="width: 0.25in">3.</TD><TD>Based on my knowledge, the financial statements, and other financial
                                                           information included in this report, fairly present in all material
                                                           respects the financial condition, results of operations and cash flows
                                                           of the Registrant as of, and for, the periods presented in this report;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; 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"></TD><TD STYLE="width: 0.25in">4.</TD><TD>The Registrant&rsquo;s other certifying officer and I are responsible
                                                           for establishing and maintaining disclosure controls and procedures
                                                           (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
                                                           control over financial reporting (as defined in Exchange Act Rules
                                                           13a-15(f) and 15d-15(f)) for the Registrant and have:</TD></TR></TABLE>

<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">a.</TD><TD>Designed such disclosure controls and procedures, or caused
                                                                such disclosure controls and procedures to be designed under our
                                                                supervision, to ensure that material information relating to the
                                                                Registrant, including its consolidated subsidiaries, is made known
                                                                to us by others within those entities, particularly during the
                                                                period in which this report is being prepared;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; 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: 0.25in"></TD><TD STYLE="width: 0.25in">b.</TD><TD>Designed such internal control over financial reporting, or
                                                                caused such internal control over financial reporting to be designed
                                                                under our supervision, to provide reasonable assurance regarding
                                                                the reliability of financial reporting and the preparation of
                                                                financial statements for external purposes in accordance with
                                                                generally accepted accounting principles;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; 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: 0.25in"></TD><TD STYLE="width: 0.25in">c.</TD><TD>Evaluated the effectiveness of the Registrant&rsquo;s disclosure
                                                                controls and procedures and presented in this report our conclusions
                                                                about the effectiveness of the disclosure controls and procedures
                                                                as of the end of the period covered by this report based on such
                                                                evaluation; and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; 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: 0.25in"></TD><TD STYLE="width: 0.25in">d.</TD><TD>Disclosed in this report any change in the Registrant&rsquo;s
                                                                internal control over financial reporting that occurred during
                                                                the Registrant&rsquo;s most recent fiscal quarter (the Registrant&rsquo;s
                                                                fourth fiscal quarter in the case of an annual report) that has
                                                                materially affected, or is reasonably likely to materially affect,
                                                                the Registrant&rsquo;s internal control over financial reporting;
                                                                and</TD></TR></TABLE>

<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"></TD><TD STYLE="width: 0.25in">5.</TD><TD>The Registrant&rsquo;s other certifying officer and I have disclosed,
                                                           based on our most recent evaluation of internal control over financial
                                                           reporting, to the Registrant&rsquo;s auditors and the audit committee
                                                           of the Registrant&rsquo;s board of directors (or persons performing
                                                           the equivalent functions):</TD></TR></TABLE>

<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">a.</TD><TD>All significant deficiencies and material weaknesses in the
                                                                design or operation of internal control over financial reporting
                                                                which are reasonably likely to adversely affect the Registrant&rsquo;s
                                                                ability to record, process, summarize and report financial information;
                                                                and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; 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: 0.25in"></TD><TD STYLE="width: 0.25in">b.</TD><TD>Any fraud, whether or not material, that involves management
                                                                or other employees who have a significant role in the Registrant&rsquo;s
                                                                internal control over financial reporting.</TD></TR></TABLE>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">Date:&nbsp;&nbsp;September 28, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 50%">&nbsp;</TD>
    <TD STYLE="width: 4%">By:</TD>
    <TD STYLE="width: 46%; border-bottom: Black 1pt solid">/s/ Stephen G. Jackson</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>Name:&nbsp;&nbsp;Stephen G. Jackson</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>Title:&nbsp;&nbsp;Chief Financial Officer <BR> (Principal Financial Officer)</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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    <!-- Field: /Page -->

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

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>5
<FILENAME>v324399_ex32-1.htm
<DESCRIPTION>EXHIBIT 32.1
<TEXT>
<HTML>
<HEAD>
     <TITLE></TITLE>
</HEAD>
<BODY STYLE="font: 10pt Times New Roman, Times, Serif">

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>18 U.S.C. SECTION 1350</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002</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">In connection with the Annual Report of
Flux Power Holdings, Inc. (the &ldquo;Company&rdquo;) on Form 10-K for the period ended June 30, 2012 as filed with the Securities
and Exchange Commission on the date hereof (the &ldquo;Report&rdquo;), the undersigned, in the capacities and on the date indicated
below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that to his knowledge:</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-indent: 0.5in">1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and</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">2. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operation
of the Company.</P>



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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">Date:&nbsp;&nbsp;September 28, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 50%">&nbsp;</TD>
    <TD STYLE="width: 4%">By:</TD>
    <TD STYLE="width: 46%; border-bottom: black 1pt solid">/s/ Chris L. Anthony</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>Name:&nbsp;&nbsp;Chris L. Anthony</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Title:&nbsp;&nbsp;Chief Executive Officer</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(Principal Executive Officer)</P></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"></P>

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

</BODY>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>6
<FILENAME>v324399_ex32-2.htm
<DESCRIPTION>EXHIBIT 32.2
<TEXT>
<HTML>
<HEAD>
     <TITLE></TITLE>
</HEAD>
<BODY STYLE="font: 10pt Times New Roman, Times, Serif">

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>18 U.S.C. SECTION 1350</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002</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">In connection with the Annual Report of
Flux Power Holdings, Inc. (the &ldquo;Company&rdquo;) on Form 10-K for the period ended June 30, 2012 as filed with the Securities
and Exchange Commission on the date hereof (the &ldquo;Report&rdquo;), the undersigned, in the capacities and on the date indicated
below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that to his knowledge:</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-indent: 0.5in">1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and</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">2. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operation
of the Company.</P>



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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">Date:&nbsp;&nbsp;September 28, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 50%">&nbsp;</TD>
    <TD STYLE="width: 4%">By:</TD>
    <TD STYLE="width: 46%; border-bottom: black 1pt solid">/s/ Stephen G. Jackson</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>Name:&nbsp;&nbsp;Stephen G. Jackson</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>Title:&nbsp;&nbsp; Chief Financial Officer<BR> (Principal Financial Officer)</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>



<P STYLE="margin: 0"></P>

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end
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
