Item 1A. Risk Factors.
As a smaller reporting company, we are not required
to provide the information called for by this Item. However, we encourage you to review the risk factors included in our registration
statement on Form S-1 (File No. 333-273149) that was filed with the SEC on July 6, 2023.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our principal executive office is located at
27 Castilian Dr., Goleta, California. Effective February 22, 2021, we entered into a triple-net lease agreement with SBR Associates LP
for the commercial building at 27 Castilian Dr. Goleta, California for a term of five years, which began on April 1, 2021. The current
rent for this property is $13,673 per month, with a CPI escalation over the initial base rent over the term of the lease. The lease expires
on March 31, 2026, with the option to renew the lease with reasonable notice.
Item 3. Legal Proceedings.
We are not currently involved in any material
legal proceedings. From time-to-time we are, and we anticipate that we will be, involved in legal proceedings, claims, and litigation
arising in the ordinary course of our business and otherwise. The ultimate costs to resolve any such matters could have a material adverse
effect on our financial statements. We could be forced to incur material expenses with respect to these legal proceedings, and in the
event that there is an outcome in any that is adverse to us, our financial position and prospects could be harmed.
Item 4. Mine Safety Disclosures
Not applicable.
4
PART II
Item 5. Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock trades on the OTCQB system under
the symbol “ALMU.” Our CUSIP number is 00776X. There is currently limited trading volume for our Common Stock.
Holders of Record
As
of September 21, 2023, we had 12,167,930 shares of our common stock outstanding held by approximately 126 stockholders of record.
Dividend Policy
We have never paid any cash dividends on our
capital stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain future
earnings to fund ongoing operations and future capital requirements. Any future determination to pay cash dividends will be at the discretion
of our board of directors and will be dependent upon financial condition, results of operations, capital requirements and such other
factors as the board of directors deems relevant.
Recent Sales of Unregistered Securities
During the periods covered by this Report, we
have not issued unregistered securities to any person, except as described below. None of these transactions involved any underwriters,
underwriting discounts or commissions, except as specified below, or any public offering, and, unless otherwise indicated below, the
Registrant believes that each transaction was exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2)
thereof and/or Rule 506 of Regulation D promulgated thereunder, and/or Regulation S promulgated thereunder regarding offshore offers
and sales. All recipients had adequate access, though their relationships with the Registrant, to information about the Registrant.
2021 Offering
On June 5, 2021, we issued 20,000 shares of common
stock pursuant to an advisory agreement.
On June 10, 2021, we issued an aggregate of 511,278
shares of common stock pursuant to three individual Advisory Agreements, which includes an additional 164,108 shares to Mr. DenBaars,
who is one of our directors.
On June 10, 2021, we issued an aggregate of 99,414
shares of common stock pursuant to an Omnibus Equity Agreement, pursuant to which each of the signatories pursuant thereto agreed to
convert his/her shares issuable under his/her respective Simple Agreements for Future Equity agreements into shares of our common stock
at the close of the Merger.
On June 10, 2021, we entered into an amended
advisor agreement with Mr. DenBaars to issue an additional 164,108 for the consideration amount of $2,461.62 to take on additional advisor
duties.
On June 22, 2021, pursuant to the Merger, we
issued an aggregate of 4,100,000 shares of our Common Stock in exchange for all of the shares of Biond Photonics’ shares of capital
stock issued and outstanding immediately prior to the Merger.
On July 1, 2021, we sold 115,000 common
stock shares at a purchase price of $2.00 per share in a private placement offering for net proceeds (after deducting offering costs
of $23,070) of $206,930 and issued 11,500 warrants to purchase common stock to GP Nurmenkari Inc., who acted as the placement
agent for this private placement offering.
5
2022 Offering
On November 7, 2022,
we issued 150,000 shares of common stock to a consultant for providing consulting services to us.
On December 22, 2022,
we issued an aggregate of 517,000 shares of our common stock to 21 accredited investors, for aggregate gross proceeds of $1,551,000 (the
“2022 Private Offering”).
On January 10, 2023,
we held a second close of the 2022 Private Offering, pursuant to which we issued an aggregate of 214,667 shares of our common stock for
aggregate gross proceeds of $644,000.
On March 31, 2023, we
held the third closing of the 2022 Private Offering, pursuant to which we issued an aggregate of 715,665 shares of our common stock for
aggregate gross proceeds of $2,147,000.
On May 10, 2023, we
held the final closing of the 2022 Private Offering, pursuant to which we issued an aggregate of 570,166 shares of our common stock for
aggregate gross proceeds of $1,710,500.
Item 6. [Reserved].
Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion of our financial
condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included
elsewhere in this filing.
You should read the following discussion and
analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes
and other financial information included in this report. Some of the information contained in this discussion and analysis or set forth
elsewhere in this report, including information with respect to our plans and strategy for our business, includes forward-looking statements
that involve risks and uncertainties as described under the heading “Forward-Looking Statements” elsewhere in this report.
You should review the disclosure under the heading “Risk Factors” in other filings we make with the SEC for a discussion
of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking
statements contained in the following discussion and analysis.
Overview
On June 22, 2021, we, Acquisition Sub and Biond
Photonics, entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”). Pursuant to the terms
of the Merger Agreement, on June 22, 2021, Biond Photonics merged with and into Acquisition Sub, with Acquisition Sub continuing as the
surviving corporation and our wholly owned subsidiary.
As a result of the Merger, we acquired the business
of Biond Photonics, a California corporation, doing business as Aeluma. See “Description of Business”above.
At the time the certificates of merger reflecting the Merger were filed with the Secretaries of State of California and Delaware,
each of Biond Photonics’ shares of capital stock issued and outstanding immediately prior to the closing of the Merger was converted
into the right to receive (a) 1.299135853 shares of our common stock (the “Common Share Conversion Ratio”), with the maximum
number of shares of our common stock issuable to the former holders of Biond Photonics’ capital stock equal to 4,100,002 after
adjustments due to rounding for fractional shares. Immediately prior to the effectiveness of the Merger, an aggregate of 2,500,000 shares
of our common stock owned by the stockholders of Parc Investments, Inc. prior to the Merger were forfeited and cancelled (the “Stock
Forfeiture”).
The issuance of shares of our common stock to
Biond Photonics’ former security holders are collectively referred to as the “Share Conversion.”
6
The Merger Agreement contained customary representations
and warranties and pre- and post-closing covenants of each party and customary closing conditions.
As a condition to the Merger, we entered into
an indemnity agreement with our former officer and directors (the “Pre-Merger Indemnity Agreement”), pursuant to which we
agreed to indemnify such former officer and directors for actions taken by them in their official capacities relating to the consideration,
approval and consummation of the Merger and certain related transactions.
The Merger was treated as a recapitalization
and reverse acquisition for us for financial reporting purposes. Biond Photonics is considered the acquirer for accounting purposes,
and our historical financial statements before the Merger were replaced with the historical financial statements of Biond Photonics before
the Merger in filings with the SEC. The Merger is intended to be treated as a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended.
The issuance of securities pursuant to the Share
Conversion was not registered under the Securities Act, in reliance upon the exemption from registration provided by Section 4(a)(2)
of the Securities Act, which exempts transactions by an issuer not involving any public offering, and Rule 506 of Regulation D
promulgated by the SEC thereunder. These securities may not be offered or sold in the U.S. absent registration or an applicable exemption
from the registration requirement and are subject to further contractual restrictions on transfer.
Prior to the Merger, our sole business purpose
was to seek the acquisition of or merger with, an existing company.
As a result of the consummation of the Merger,
on June 22, 2021, Biond Photonics, Inc. became our wholly owned subsidiary and the business of Biond Photonics, Inc. became our business
going forward. Accordingly, at the closing, we ceased to be a shell company.
Aeluma develops novel optoelectronic devices
for sensing and communications applications. Aeluma has pioneered a technique to manufacture devices using high performance compound
semiconductor materials on large diameter silicon wafers that are commonly used to manufacture mass market microelectronics. This enables
cost effective manufacturing of high-performance photodetector array circuits for imaging applications in mobile devices. These devices
may be used as image sensors that generate an image by detecting light, in a manner similar to a digital camera taking a picture. Our
devices may incorporate additional functionality and enhanced performance to enable 3D image capture when integrated into various system
architectures. This technology has the potential to greatly enhance the performance and capability of camera image sensors, Lidar, augmented
reality, facial recognition, and other applications. Aeluma has acquired a key piece of manufacturing equipment and has headquarter in
Goleta, California with a manufacturing cleanroom to house this equipment.
The Private Placement Following the Merger
Immediately following the Merger, we sold 3,482,500
shares of our common stock pursuant to an initial closing of a private placement offering at a purchase price of $2.00 per share (the
“Offering Price”). We held a second closing on June 28, 2021 for an additional 402,500 shares of our common stock and a third
and final closing on July 1, 2021 for an additional 115,000. Accordingly, we sold a total of 4,000,000 shares of our common stock. This
private placement offering is referred to herein as the “Merger Offering.”
The aggregate gross proceeds from the three closings
of the Merger Offering were $8,000,000 (before deducting placement agent fees and expenses of the Merger Offering).
The three closings of the Merger Offering were
exempt from registration under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated by the SEC
thereunder. The common stock in the Merger Offering was sold to “accredited investors,” as defined in Regulation D,
and was conducted on a “reasonable best efforts” basis.
In connection with the Merger Offering and subject
to the closing of the Merger Offering, we agreed to pay the placement agent, GP Nurmenkari Inc. (the “Placement Agent”),
a U.S. registered broker-dealer, a cash placement fee of 10% of the gross proceeds raised from investors in the Merger Offering (other
than the first $630,000 of common stock sold to pre-Merger Biond Photonics shareholders and their friends and family, for which the Placement
Agent received a 3% cash fee, and $170,000 of common stock sold to pre-Merger Biond Photonics friends and family for which the Placement
Agent received no cash fee) and to issue to it 50,000 shares of our common stock and warrants to purchase a number of shares of our common
stock equal to 10% of the number of shares of common stock sold in the Merger Offering (other than the first $800,000 of common stock
sold to pre-Merger Biond Photonics shareholders and their friends and family), with a term of five years and an exercise price of $2.00
per share (the “Placement Agent Warrants”). We also agreed to pay certain expenses of the Placement Agent in connection with
the Merger Offering.
7
As a result of the foregoing, we paid the Placement
Agent an aggregate commission of $748,900 and issued to it 50,000 shares of our common stock and Placement Agent Warrants to purchase
360,000 shares of our common stock in connection with the two closings of the Merger Offering. We have also reimbursed the Placement
Agent for approximately $265,000 for legal and other expenses incurred in connection with the Merger Offering.
A note payable to an officer of Parc Investments,
Inc. in the amount of $50,000 was repaid directly from the proceeds from the Merger Offering.
Subject to certain customary exceptions, we have
agreed to indemnify the Placement Agent to the fullest extent permitted by law against certain liabilities that may be incurred in connection
with the Offering, including certain civil liabilities under the Securities Act, and, where such indemnification is not available, to
contribute to the payments the Placement Agent and their sub-agents may be required to make in respect of such liabilities.
Recent Private Placement
Between December 2022 and May 2023, we entered
into subscription agreements (the “Subscription Agreement”) with certain accredited investors, pursuant to which we issued
an aggregate of 2,017,498 shares of our common stock, par value $0.0001 per share, at a per share purchase price of $3.00, for aggregate
gross proceeds of $6,052,500 (the “Offering”).
In connection with the Subscription Agreement,
we also entered into a Registration Rights Agreement with the Investors, pursuant to which we agreed to register all of the shares of
common stock issued in the Offering, including the shares of common stock underlying the warrant issued to the placement agent in this
registration statement. (See, Description of Securities – Registration Rights Agreement)
Pursuant to the Offering, we paid a cash placement
agent fee and expenses in the amount of $411,015 and issued placement agent warrants (“Placement Agent Warrants”) to purchase
up to an aggregate of 85,653 shares of common stock at an exercise price of $3.00 per share.
The Subscription Agreement also contains customary
representation and warranties of us and the Investors, indemnification obligations of us, termination provisions, and other obligations
and rights of the parties.
The foregoing description of the Subscription
Agreement, Registration Rights Agreement and form of Placement Agent Warrants is qualified by reference to the full text of the forms
of Subscription Agreement, Registration Rights Agreement and form of Placement Agent Warrants, which are filed as Exhibits hereto and
incorporated herein by reference.
Departure and Appointment of Directors and Officers
Our board of directors is authorized to have
five members. As of the effectiveness of the Merger, Mr. Ian Jacobs and Mr. Mark Tompkins resigned from our board of directors, and Mr.
Jonathan Klamkin, Mr. Lee McCarthy and Mr. Steven DenBaars were appointed to our board of directors. Mr. DenBaars is a Class I director.
Also, as of the effectiveness of the Merger,
Mr. Jacobs resigned from all officer positions with us, and Jonathan Klamkin was appointed as our President and Chief Executive Officer,
Lee McCarthy was appointed as our interim Chief Financial Officer and Chief Operating Officer.
8
Mr. McCarthy resigned from his position as interim
Chief Financial Officer on August 18, 2021 and from his directorship on December 1, 2021. To fill Mr. McCarthy’s vacancy on the
board, we appointed Ms. Palvi Mehta. Ms. Mehta is a Class II director.
On December 1, 2021, we also appointed Mr. John
Paglia to the board of directors; Mr. Paglia is a Class I director.
On November 8, 2022, Lee McCarthy provided notice
of his resignation as our Chief Operating Officer effective November 17, 2022. Mr. McCarthy’s decision to resign was not the
result of any disagreements with us on any matter related to the operations, policies, or practices of us.
Plan of Operations
We have been developing our materials and characterization
capabilities at our headquarters in Goleta, California, in connection with the further development of our business and the implementation
of our plan of operations. We have installed some key manufacturing equipment at our headquarters and will continue to develop relationships
with manufacturing partners to carry out certain steps of our manufacturing processes externally. We have gained access to a rapid prototyping
facility and are leveraging this access to fabricate early-stage prototypes. In the future, we intend to implement appropriate quality
and manufacturing controls. Some equipment was procured previously, and other equipment is being procured through purchase orders with
equipment vendors.
The primary sources of funding for equipment
procurement and installation are the seed funding raised prior to becoming a public company and the funding raised from our financings.
We have also leveraged funds to continue strengthening our intellectual property including patent applications, trademarks, and development
of trade secrets and manufacturing process recipes. We will continue to develop our manufacturing and product development strategy by
further engaging customers and strategic partners.
Limited Operating History
We cannot guarantee that the proceeds from the
Offering will be sufficient to carry out all of our business plans. Our business is subject to risks inherent in growing an enterprise,
including limited capital resources, risks inherent in the research and development process and possible rejection of our products in
development.
If financing is not available on satisfactory
terms, we may be unable to carry out all of our operations. Equity financing will result in dilution to existing stockholders.
Components of Results of Operations
Revenue
Our revenue currently consists of commercial
product sales and government contracts. For the year ended June 30, 2023, products are sold as samples and government contracts are primarily
for research and development.
Operating Expenses
The cost of revenue consists of costs of materials,
as well as direct compensation and expenses incurred to provide deliverables that resulted in payment of our success fee and wafers delivered.
We anticipate that our cost of revenue will vary substantially depending on the nature of products and/or services delivered in each
customer engagement.
Research and development
expenses consist primarily of compensation and related costs for personnel, including stock-based compensation and employee benefits
as well as costs associated with design, fabrication, packaging and testing of our devices. We expense research and development expenses
as incurred.
General and administrative expenses consist primarily
of compensation and related costs for personnel, including stock-based compensation and employee benefits. In addition, general
and administrative expenses include third-party consulting, legal, audit and accounting services.
9
Facility expenses consist primarily of lease
and utility expenses at our headquarters in Goleta, California and insurance expenses consist mainly of directors and officers insurance.
Other Income
Other income, net of other expenses, consists
primarily of income generated from subleasing a portion of our research and development facility.
Income Tax Expense
Income tax expense consists primarily of
income taxes in certain state jurisdictions in which we conduct business.
Results of Operations
Year ended June 30, 2023 compared to the
year ended June 30, 2022
Our results of operations for the year ended
June 30, 2023, as compared to the same period of 2022, were as follows (some of the balances on the prior period’s combined financials
statements have been reclassified to conform to the current period presentation):
Year Ended June 30, Change ’23
Income tax expense - - -
Revenue: The company recognized its first
revenue of $193,339, consisting of $15,000 from product sales and $178,339 from a government contract.
Operating Expenses: During the years ended
June 30, 2023 and 2022, we incurred operating expenses of $5,703,024 and $3,733,522, respectively. This increase was mainly due to increased
salaries and stock-based compensation resulting from additional employees hired to support our growth and increased costs related to
research and development activities.
Other income: During the years ended June
30, 2023 and 2022, we recorded other income of $130,103 and $281,823, respectively. The decrease was primarily due to a decrease in sub-lease
rental income. The sub-lease ended in March 2023.
Income tax expense: We recorded no income
tax expense for the years ended June 30, 2023 and 2022.
Net Loss: Net loss increased to $5,379,582
for the year ended June 30, 2023, as compared to $3,451,699 for the same period of 2022. The increase was primarily due to increases
in operating expenses resulting increased salaries and stock-based compensation, and research and development activities.
Capital Resources and Liquidity
Our financial statements have been presented
on the basis that are a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course
of business. As presented in the financial statements, we incurred a net loss of $5,379,582 and $3,451,699 for the years ended June 30,
2023 and 2022, respectively, and losses are expected to continue in the near term. The accumulated deficit was $9,062,066 at June 30,
2023. We have been funding our operations through private loans and the sale of common stock in private placement transactions.
10
Management anticipates that significant additional
expenditures will be necessary to develop and expand our business before significant positive operating cash flows can be achieved. Our
ability to continue as a going concern is dependent upon our ability to raise additional capital and to ultimately achieve sustainable
revenues and profitable operations. At June 30, 2023, we had $5,071,690 of cash on hand. These funds are insufficient to complete our
business plan and as a consequence, we will need to seek additional funds, primarily through the issuance of debt or equity securities
for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will
be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our
operations, in the case of debt financing or cause substantial dilution for our stockholders, in the case of equity financing.
Management has undertaken steps as part of a
plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond. These steps include (a)
raising additional capital and/or obtaining financing; (b) controlling overhead and expenses; and (c) executing material sales or research
contracts. There can be no assurance that we can successfully accomplish these steps and it is uncertain that we will achieve a profitable
level of operations and obtain additional financing. There can be no assurance that any additional financing will be available to us
on satisfactory terms and conditions, if at all. As of the date of this Report, we have not entered into any formal agreements regarding
the above.
In the event we are unable to continue as a going
concern, the Company may elect or be required to seek protection from its creditors by filing a voluntary petition in bankruptcy or may
be subject to an involuntary petition in bankruptcy. To date, management has not considered this alternative, nor does management view
it as a likely occurrence.
We had working capital of $4,576,807 and $4,058,409
at June 30, 2023 and 2022, respectively. Current assets increased $903,058 to $5,333,906 at June 30, 2023 from $4,430,848 at June 30,
2022, primarily due to the private placement described above. Current liabilities increased $384,660 to $757,099 at June 30, 2023 from
$372,439 at June 30, 2022, due to increases in accounts payable.
The following table shows a summary of our cash
flows for the periods presented:
Year Ended June 30, Change ’23
Net cash (used in) provided by:
Net cash used in our operating activities increased
$1,385,181 to $3,637,972 for the year ended June 30, 2023, compared to $2,252,791 for the same period in 2022, primarily due to a $1,927,883
increase in net loss. The decrease was reduced mainly by non-cash expense increases of $258,000 in consultant expense, $244,433 in stock-based
compensation expense, and $302,172 in accounts payable.
Net cash used in our investing activities were
$672,545 and $955,667 for the years ended June 30, 2023 and 2022, respectively. Investing activities for the periods presented are related
to the equipment purchases and the setup of our facility.
Our financing activities resulted in a cash inflow
of $5,641,485 and 161,930 for the years ended June 30, 2023 and 2022, respectively. Financing activities for the periods presented are
proceeds from the sale of common stock in private placements.
Recent Accounting Pronouncements
The Company has evaluated all issued but not yet effective accounting
pronouncements and determined that they are either immaterial or not relevant to the Company.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk.
Not applicable.
11
Item 8. Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements
Page
Report of Independent Registered Public Accounting Firm (PCAOB No. 00468) F-2
Consolidated Balance Sheets as of June 30, 2023 and 2022 F-3
Notes to Consolidated Financial Statements F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and Stockholders of
Aeluma, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated
balance sheets of Aeluma, Inc. and Subsidiary (the Company) as of June 30, 2023 and 2022, and the related consolidated statements of
operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended June 30, 2023, and the related
notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present
fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2023 and 2022, and the results of
its operations and its cash flows for each of the years in the two-year period ended June 30, 2023, in conformity with accounting principles
generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements,
the Company has incurred significant operating losses and negative cash flows from operations, and has generated limited revenue. These
conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard
to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial
statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) “PCAOB” and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an
understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess
the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides
a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below
are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated
to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and
(2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
Rose, Snyder & Jacobs LLP
We have served as the Company’s auditor
since 2021
Encino, California
September 22, 2023
F-2
Aeluma, Inc. and Subsidiary
Consolidated Balance Sheets
Assets
Current assets:
Property and equipment:
Deferred compensation, long term portion - 11,034
Liabilities and stockholders’ equity
Current liabilities:
Accrued expenses and other current liabilities 133,092 101,351
Commitments and contingencies - -
Stockholders’ equity:
The accompanying notes are an integral part of
consolidated financial statements.
F-3
Aeluma, Inc. and Subsidiary
Consolidated Statements of Operations
Year Ended June 30,
Operating expenses:
Other income:
Income tax expense - -
Basic and diluted loss per share $ (0.47 ) $ (0.32 )
The accompanying notes are an integral part of
consolidated financial statements.
F-4
Aeluma, Inc. and Subsidiary
Consolidated Statements of Changes in Stockholders’
Equity
Common Stock Additional paid-in Accumulated Total Stockholders’
Shares Amount capital Deficit Equity
The accompanying notes are an integral part of
consolidated financial statements.
F-5
Aeluma, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Year Ended June 30,
Operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Issuance of shares for services 258,000 -
Partial refund of facility lease deposit - 52,055
Change in accounts receivable (189,239 ) -
Change in prepaids and other current assets 7,719 (5,141 )
Change in accrued expenses and other current liabilities 67 6,382
Investing activities:
Financing activities:
Proceeds from Private Placement, net of offering costs 5,641,485 206,930
Payment of other offering costs - (45,000 )
The accompanying notes are an integral part of
consolidated financial statements.
F-6
Aeluma, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Note 1 – Business
Aeluma, Inc., headquartered in Goleta, California,
is engaged in the research and development of infrared (IR) optical sensors to disrupt the market for IR sensors, and using its proprietary
technology aims to produce a much higher performance alternative to today’s low-cost sensors at much lower prices than would otherwise
be possible. The focus of Aeluma, Inc. (“the Company”) will be the image sensor market. Initial efforts hope to penetrate
the 3D imaging and sensing (mobile and consumer, defense and aerospace, industrial, medical, auto) and LiDAR (robotic vehicles, advanced
driver assistance systems vehicles (ADAS), topography, wind, industrial) markets.
On June 22, 2021, Biond Photonics, Inc.,
a privately held California corporation (“Biond Photonics”) merged with and into our wholly owned subsidiary, Aeluma Operating
Co., a corporation formed in the State of Delaware on June 22, 2021 (“Acquisition Sub”). Pursuant to this transaction
(the “Merger”), Acquisition Sub was the surviving corporation and remained our wholly owned subsidiary, and all the outstanding
stock of Biond Photonics was converted into shares of our common stock. As a result of the Merger, the Company acquired the business
of Biond Photonics and continued the existing business operations of Biond Photonics as a public reporting company under the name Aeluma,
Inc.
Going Concern
The Company incurred a net loss of $5,379,480
and $3,451,699 for the years ended June 30, 2023 and 2022, respectively, and has accumulated deficit of $9,062,066 at June 30, 2023.
In addition, the Company is in the research and development stage and has generated limited revenue to date. In order to support its
operations, the Company will require additional infusions of cash from the sale of equity instruments or the issuance of debt instruments,
or the commencement of profitable revenue generating activities. If adequate funds are not available or are not available on acceptable
terms, the Company’s ability to fund its operations, develop or enhance its sensors in the future or respond to competitive pressures
would be significantly limited. Such limitations could require the Company to curtail, suspend or discontinue parts of its business plan.
These conditions raise doubt about the Company’s
ability to continue as a going concern. The accompanying financial statements have been prepared in conformity with GAAP, which contemplate
continuation of the Company as a going concern. The financial statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts or the amounts and classification of liabilities that could result from the outcome of this
uncertainty. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue
as a going concern.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements
have been presented in accordance with generally accepted accounting principles in the United States (“GAAP”).
The summary of significant accounting policies
presented below is designed to assist in understanding the Company’s financial statements. Such financial statements and accompanying
notes are the representations of the Company’s management, who is responsible for the Company’s integrity and objectivity.
Use of Estimates and Assumptions
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates
and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities. The actual results experienced
by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between
the estimates and the actual results, future results of operations will be affected.
F-7
Cash and Cash Equivalents
The Company considers cash in banks, deposits
in transit, and highly liquid debt instruments purchased with original maturities of three months or less to be cash and cash equivalents.
Concentration of Risk
The Company maintains its cash in bank deposit
accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company’s
accounts are insured by the FDIC but at times may exceed federally insured limits.
Fair Value of Financial Instruments
As defined in Financial Accounting Standards
Board (“FASB”) ASC Topic No. 820, “Fair Value Measurements and Disclosures” (“ASC 820”), fair value
is the price that would be received to sell an asset or paid to transfer the liability in an orderly transaction between market participants
at the measurement date. In determining fair value, the Company uses the market or income approach. Based on this approach, the Company
utilizes certain assumptions about the risk inherent in the inputs to the valuation technique. These inputs can be readily observable,
market-corroborated or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs
and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, the Company is
required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and the
reliability of the information used to determine fair values. As a basis for considering these assumptions, ASC 820 defines a three-tier
value hierarchy that prioritizes the inputs used in the valuation methodologies in measuring fair value.
Level 1 – Unadjusted
quoted prices in active, accessible market for identical assets or liabilities
Level 2 – Other inputs
that are directly or indirectly observable in the marketplace
Level 3 – Unobservable
inputs which are supported by little or no market activity
The fair value hierarchy also requires an entity
to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The carrying values of the Company’s cash,
accounts receivable, accounts payable, accrued expenses and other current liabilities approximate their fair value due to the relatively
short maturity of these items.
Property and Equipment
Property, equipment and leasehold improvements
are reported at historical cost, net of accumulated depreciation and amortization. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets. Leasehold improvements are amortized over the remaining lease term. Repairs and maintenance
to these assets are charged to expense as incurred; major improvements enhancing the function and/or the asset’s useful life are
capitalized. When items are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gains
or losses arising from such transactions are recognized.
Intangible Assets
Intangible assets are associated with the Aeluma.com
domain name and are amortized on a straight-line basis over 10 years.
F-8
Revenue Recognition
The Company follows a five-step approach for
recognizing revenue, consisting of the following: (1) identifying the contract with a customer; (2) identifying the performance obligations
in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract;
and (5) recognizing revenue when, or as, the entity satisfies a performance obligation. Sales and other taxes the Company collects concurrent
with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are
recognized as expense. The Company does not have any significant financing components associated
with its revenue contracts, as payment is received within one
year.
The
company recognized its revenue of $193,339, consisting of $15,000 from product sales and $178,339 from a government contract,
primarily for sampling purchases and research and development, for the year ended June 30, 2023.
Loss Per Share
Basic loss per share is computed by dividing net
loss available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted loss per
share is computed by dividing the net loss attributable to common stockholders by the sum of the weighted average number of common shares
outstanding plus potential dilutive common shares outstanding during the period. Potential dilutive securities, comprised of stock warrants
and stock options, are not reflected in diluted loss per share because such shares are anti–dilutive. Dilutive impact of potential
common shares resulting from common stock equivalents is determined by applying the treasury stock method.
Stock-Based Compensation
The Company accounts for stock-based compensation
arrangements in accordance with guidance issued by the FASB, which requires the measurement and recognition of compensation expense for
all share-based payment awards made to employees, consultants, and directors based on estimated fair values.
The Company estimates the fair value of stock-based
compensation awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected
to vest is recognized as an expense over the requisite service periods in the Company’s consolidated statements of operations. The
Company estimates the fair value of stock-based compensation awards using the Black-Scholes model. This model requires the Company to
estimate the expected volatility and value of its common stock and the expected term of the stock options, all of which are highly complex
and subjective variables. For employees and directors, the expected life was calculated based on the simplified method as described by
the SEC Staff Accounting Bulletin No. 110, Share-Based Payment. For other service providers, the expected life was calculated using the
contractual term of the award. The Company’s estimate of expected volatility was based on the volatility of peers. The Company has
selected a risk-free rate based on the implied yield available on U.S. Treasury securities with a maturity equivalent to the expected
term of the options. The Company accounts for forfeitures upon occurrence.
F-9
Income Taxes
The Company is expected to have net operating
loss carryforwards that it can use to offset a certain amount of taxable income in the future. The Company is currently analyzing the
amount of loss carryforwards that will be available to reduce future taxable income. The resulting deferred tax assets will be offset
by a valuation allowance due to the uncertainty of its realization. The primary difference between income tax expense attributable to
continuing operations and the amount of income tax expense that would result from applying domestic federal statutory rates to income
before income taxes relates to the recognition of a valuation allowance for deferred income tax assets.
The Company has adopted FASB ASC 740-10, “Income
Taxes” which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements
and prescribes a recognition threshold of more likely than not as a measurement process for financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return. In making this assessment, a Company must determine whether it is more
likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must
assume that the tax position will be examined by taxing authorities. The Company’s policy is to include interest and penalties related
to unrecognized tax benefits in income tax expense. Interest and penalties totaled $0 for the periods presented. The Company’s
net operating loss carryforwards are subject to IRS examination until they are fully utilized, and such tax years are closed.
The Company will file tax returns in the U.S.
federal jurisdiction and the state of California. The Company’s federal and state return forms are subject to review by the taxing
authorities. The Company is not currently under examination by any taxing authority, nor has it been notified of an impending examination.
Recent Accounting Pronouncements
The Company has evaluated all issued but not yet effective accounting
pronouncements and determined that they are either immaterial or not relevant to the Company.
Note 3 – Stockholders’ Equity
Authorized
Shares
The Company’s
Articles of Incorporation authorize the issuance of two classes of shares of stock. The total number of shares which this corporation
is authorized to issue is 50,000,000 shares of $0.0001 par value common stock and 10,000,000 of $0.0001 par
value preferred stock. No preferred shares were issued as of June 30, 2023.
Common
Stock Offering
Immediately
following the Merger, on June 22, 2021, the Company sold 3,482,500 shares of common stock pursuant to an initial closing of
a private placement offering at a purchase price of $2.00 per share, with gross proceed of $6,965,000 (before deducting placement
agent fees and expenses of $949,736). The Company held a second closing on June 28, 2021 for an additional 402,500 shares of
common stock, with gross proceed of $805,000 (before deducting placement agent fees and expenses of $109,769), and a third and final
close on July 1, 2021 for an additional 115,000, with gross proceed of $230,000 (before deducting placement agent fees and expenses
of $23,070). Accordingly, the Company sold a total of 4,000,000 shares of common stock with total gross proceeds of $8,000,000 (before
deducting total placement agent fees and expenses of $1,082,577).
On
December 12, 2022, the Company sold an aggregate of 517,000 shares of common stock in a private placement offering at a price
of $3.00 per share, with gross proceeds of $1,551,000 (before deducting placement agent fees and expenses of $124,385). On January
10, 2023, the Company held a second closing for an additional 214,667 shares of common stock, with gross proceeds of $644,000 (before
deducting placement agent fees and expenses of $28,640). On March 31, 2023, the Company held a third closing for an additional 715,665 shares
of common stock, with gross proceeds of $2,147,000 (before deducting placement agent fees and expenses of $117,830). On May
10, 2023, the Company held a fourth and final close for additional 570,166 shares of its common, with gross proceeds of $1,710,500(before deducting placement agent fees and expenses of $140,160). Accordingly,
the Company sold a total of 2,017,498 shares of common stock with a total gross proceeds of $6,052,500 (before deducting
total placement agent fees and expenses of $411,015) in this private placement. The two private placement offerings held above are together
referred to herein as the “Offering.”
The Offering