Aeluma, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Aeluma, Inc. and Subsidiary Condensed Consolidated Balance Sheets (Unaudited) June 30 2021 December 31 2020 ASSETS Current Assets Cash $ 6,787,250 $ 38,302 Deferred compensation, current portion 662,464 Prepaids & Other current assets 22,521 Total Current Assets 7,472,235 38,302 Equipment 115,888 115,888 Leasehold Improvements 12,420 Intangible Assets 14,833 Right of Use Asset 729,176 Deferred compensation, long term portion 673,498 Other Assets 65,069 Total Assets $ 9,083,119 $ 154,190 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Accounts Payable $ 68,575 $ 2,886 Accrued expenses & Other Current Liabilities 61,384 8,407 Advances from officers - 16,616 Lease Liability-current portion 157,141 Notes Payable to officers - 120,000 Total Current Liabilities 287,100 147,909 Lease Liability 610,455 Commitments and Contingencies Total Liabilities 897,555 147,909 Stockholders’ Equity Common Stock par value $ 0.0001 , 50,000,000 shares authorized, 10,535,002 and 3,247,840 shares issued and outstanding at June 30, 2021 and December 31, 2020 , respectively. Preferred Stock par value $ .0001 , 10,000,000 authorized, none issued and outstanding. 1,054 325 Additional Paid In Capital 8,415,432 19,675 Accumulated Deficit ( 230,922 ) ( 13,719 ) Total Stockholders’ Equity 8,185,564 6,281 Total Liabilities and Stockholders’ Equity $ 9,083,119 $ 154,190 The accompanying notes are an integral part of these financials 1 Aeluma, Inc. and Subsidiary Condensed Consolidated Statements of Operations For the Three Months ended June 30, 2021 and June 30, 2020 (Unaudited) 2021 2020 Revenue $ - $ - Operating Expenses 243,690 2,944 Other Income (Expenses) Sub-lease and other income 90,758 Change in value of liability ( 48,308 ) Interest Expense ( 1,500 ) - Total Other Expenses 40,950 - Loss before provision for Income Taxes ( 202,740 ) ( 2,944 ) Provision for income tax - ( 816 ) Net Loss $ ( 202,740 ) $ ( 3,760 ) Basic and Diluted Loss Per Share $ ( 0.05 ) $ ( 0.00 ) Weighted average common shares outstanding - basic and diluted 4,010,367 0 The accompanying notes are an integral part of these financials 2 Aeluma, Inc. and Subsidiary Condensed Consolidated Statements of Operations For the Six Months ended June 30, 2021 and June 30, 2020 (Unaudited) 2021 2020 Revenue $ - $ - Operating Expenses 255,853 2,992 Other Income (Expenses) Sub-lease and Other Income 90,758 Change in value of liability ( 48,308 ) Interest Expense ( 3,000 ) - Total Other Expenses 39,450 - Loss before provision for Income Taxes ( 216,403 ) ( 2,944 ) Provision for income tax 800 ( 816 ) Net Loss $ ( 217,203 ) $ ( 3,808 ) Basic and Diluted Loss Per Share $ ( 0.06 ) $ ( 0.00 ) Weighted average common shares outstanding - basic and diluted 3,643,728 0 The accompanying notes are an integral part of these financials 3 Aeluma, Inc. and Subsidiary Condensed Consolidated Statement of Stockholders’ Equity For the Six Months Ended June 30, 2021 Additional Total Common Stock Paid-in Accumulated Stockholders’ Shares Amount Capital Deficit Equity Balance, December 31, 2020 3,247,840 $ 325 19,675 ( 13,719 ) $ 6,281 Recapitalization 2,500,000 250 ( 53,174 ) ( 52,924 ) Issuance of shares of common stock for Cash (net of $ 1,059,505 in offering costs) 3,885,000 389 6,710,106 6,710,495 Shares Issued to Placement Agent 50,000 5 99,995 100,000 Shares Issued Upon Conversion of SAFE Notes 129,154 13 258,295 258,308 Shares Issued to Advisors 723,008 72 1,380,535 1,380,607 Net Loss ( 217,203 ) ( 217,203 ) Balance, June 30, 2021 10,535,002 $ 1,054 8,415,432 $ ( 230,922 ) $ 8,185,564 The accompanying notes are an integral part of these financials 4 Aeluma, Inc. and Subsidiary Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2021 and 2020 (Unaudited) 2021 2020 Operating activities Net Loss $ ( 217,203 ) $ ( 3,808 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation 36,473 Change in value of liability 48,308 Change in prepaids & other current assets ( 22,521 ) Change in deposits ( 65,069 ) 0 Change in accounts payable 60,264 Change in accrued expenses 91,354 - Net cash used in operating activities ( 68,394 ) ( 3,808 ) Investing activities Payments for Leasehold Improvements ( 12,420 ) Purchase of domain name ( 14,833 ) Net cash used in investing activities ( 27,253 ) - Financing activities Proceeds from sales of shares to advisors 8,171 - Cash from acquisition 2,556 Proceeds from issue of SAFE agreements 210,000 - Proceeds from Private Placement, net of offering costs 6,760,484 Proceeds from shareholder loans 6,500 Repayment of shareholder loans and advances ( 136,616 ) Net cash provided by Financing activities 6,844,595 6,500 Net change in cash 6,748,948 2,692 Cash, beginning of period 38,302 206 Cash, end of period $ 6,787,250 $ 2,898 Supplemental Disclosures Conversion of SAFE agreements into equity $ 258,308 - $ - The accompanying notes are an integral part of these financials 5 NOTE 1 – THE COMPANY Ae1uma, Inc. (“Aeluma” or the “Company”), is a Delaware C Corporation, incorporated on February 28 th , 2019. The Company filed the articles of incorporation of a General Stock Corporation with the secretary of state under the laws of the State of Delaware. Aeluma is headquartered in Santa Barbara, California. The Company 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 the Company will be the image sensor market. Initial efforts hope to penetrate the 3D imaging and sensing (mobile & consumer, defense & aerospace, industrial, medical, auto) and lidar (robotic vehicles, ADAS vehicles, topography, wind, industrial) markets. We were originally incorporated as Parc Investments, Inc. in the State of Delaware on August 21, 2020. Prior to the Merger (as defined below), we were a “shell company” (as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). On June 22, 2021, our board of directors and all of our pre-Merger stockholders approved a restated certificate of incorporation, which was effective upon its filing with the Secretary of State of the State of Delaware on June 22, 2021 and through which we changed our name to “Aeluma, Inc.” On June 22, 2021, our board of directors also adopted restated bylaws. 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 of the outstanding stock of Biond Photonics was converted into shares of our common stock. As a result of the Merger, we acquired the business of Biond Photonics and will continue the existing business operations of Biond Photonics as a public reporting company under the name Aeluma, Inc. In conjunction with the merger transaction, the company changed its year end to June 30. Merger Agreement On June 22, 2021, Parc Investments, Inc., 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 (the “Closing Date”), 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. At the time the certificates of merger reflecting the Merger were filed with the Secretaries of State of California and Delaware (the “Effective Time”), 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 4,100,000 after adjustments due to rounding for fractional shares. Immediately prior to the Effective Time, an aggregate of 2,500,000 shares of our common stock owned by our stockholders 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.” 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 will be replaced with the historical financial statements of Biond Photonics before the Merger in future 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. 6 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The financial statements reflect all adjustments, which in the opinion of management, are necessary to present fairly the financial position at June 30, 2021, and 2020 and the results of operations and cash flows of the Company for the six months periods ended June 30, 2021 and 2020. Please also refer to the financial statements of Biond Photonics Inc for the year ended December 31, 2020 included in Form 8-K filed with the SEC on June 28, 2021. 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 their integrity and objectivity. Going Concern The Company incurred a net loss of $ 217,203 for the six months ended June 30, 2021. In addition, the Company is in the research and development stage and has not generated 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 may raise doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, 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. Basic Net 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. The number of shares prior to the merger have been restated to consider the conversion into the share of the legal acquirer. Use of Estimates and Assumptions The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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. 7 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 values 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 payable, accrued expenses and advances from officers approximate their fair value due to the relatively short maturity of these items. The carrying amounts reported for debt obligations approximate fair value due to the effective interest rate of these obligations reflecting the Company’s current borrowing rate. 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. 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. 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. As of June 30, 2020, the Company has one capitalized equipment asset which will be used for the development and production of their sensors. The asset is not currently in use and will continue to receive capitalized improvements until it is ready to use. Once commissioned and properly setup, the property and equipment will be depreciated using the straight-line method over their estimated useful life. 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. 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. 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. 8 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 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 form 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 In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in “Leases (Topic 840)” and generally requires all leases to be recognized in the balance sheet. The Company entered into a lease agreement during the six months ended June 30, 2021. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606), which amends certain aspects of the Board ’s new revenue standard, ASU 2014-09, Revenue from Contracts with Customers. The Company does not currently generate revenue. NOTE 3 – ADVANCES FROM OFFICERS During the year ended December 31, 2020, in an effort to carry the Company forward with limited cash flow, two officers provided advances to pay for miscellaneous Company expenses. The amounts recorded for December 31, 2020 were $ 16,616 and were repaid in 2021. NOTE 4 – NOTES PAYABLE The Company entered into two $ 60,000 promissory notes on October 27, 2020 from Jonathan Klamkin, Cofounder, Director and CEO; and Lee McCarthy, Cofounder, Director, interim CFO and COO. The notes bear simple interest at an annual rate of 5 % and mature December 31, 2021 . As of December 31, 2020, the notes have incurred $ 1,000 in interest. The purpose of the notes was to provide working capital for the business to bridge the Company through the upcoming transaction. These were repaid upon the financing in June, 2021. NOTE 5 – SAFE Agreements In February, 2021, the Company issued Simple Agreement For Equity (SAFE) agreements to certain shareholders of the Company in exchange for $ 210,000 in cash. The SAFE agreements were converted to common stock on June 22, 2021 for 129,154 shares. The value of the SAFE instruments increased in value by$ 48,308 upon conversion on June 22, 2021. Such increase in value was reported in the statements of operations . 9 NOTE 6 – 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 $.0001 par value common stock and 10,000,000 of $.0001 par value preferred stock. No preferred shares were issued at June 30, 2021. Common Stock Offering Immediately following the Effective Time of 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. Accordingly, we sold a total of 3,885,000 shares of our common stock through June 30, 2021 . The private placement offering is referred to herein as the “Offering.” The aggregate gross proceeds from the Offering were $ 7,770,000 (before deducting placement agent fees and expenses of the Offering of $ 1,059,505 ) . The Offering was 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 Offering was sold to “accredited investors,” as defined in Regulation D, and was conducted on a “reasonable best efforts” basis. In connection with the Offering and subject to the closing of the 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 Offering (or 3% of the first $800,000 of gross proceeds raised from pre-Merger Biond Photonics shareholders and their friends and family) 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 Offering (other than the first $800,000 of common stock sold to pre-Merger Biond Photonics shareholders and their friends and family, for which the placement agent will not receive any warrants), 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 Offering. As a result of the foregoing, we paid the Placement Agent an aggregate commission of $ 725,900 and issued to it 50,000 shares of our common stock and Placement Agent Warrants to purchase 348,500 shares of our common stock in connection with the Offering. We have also reimbursed the Placement Agent for approximately $ 35,000 of expenses incurred in connection with the 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 Offering. Issued and Vested Shares to Officers On October 27 th , 2020, the Company issued 1,623,920 shares (as adjusted) of common stock to Director and CEO Jonathan Klamkin and 1,623,920 shares (as adjusted) of common stock to Director, interim CFO and COO Lee McCarthy for an aggregate sum of $10,000 each. The stock purchase agreement contains a repurchase option whereby unvested shares may be repurchased by the Company, at the Company’s option, within 90 days after employee termination. 324,784 shares (as adjusted) vested on October 27 th , 2020 and the remaining 1,299,136 shares (as adjusted) vest in equal amounts, monthly over the subsequent 4 years. NOTE 7 – STOCK-BASED COMPENSATION During the six months ended June 30, 2021, the Company sold 723,008 shares of common stock to certain individuals in exchange for management advisory services , for prices price ranging from $. 008 to $. 015 per share. The shares are subject to restrictions that allow for repurchase of the shares by the Company due to a termination of the service agreement or other certain provisions. This repurchase right declines on a pro-rata basis over vesting periods ranging from 2 - 4 years. Related to these issuance, the Company has recorded deferred stock-based compensation of $ 1,372,435 for the value of the shares in excess of the purchase price paid by the advisors. The stock-based compensation will be expensed over the service period. For the six months ended June 30 , 2021 , $ 36,473 has been amortized in the Statement of Operations , and $ 1,335,962 is presented as deferred compensation on the balance sheet at June 30, 2021, of which $ 662,464 is expected to be expensed in the next twelve months . 10 NOTE 8 – FACILITY OPERATING LEASE On April 1, 2021, the Company commenced an 5yr operating lease for a facility in Santa Barbara, California with total lease payments of $ 781,813 . The Company determined the lease constitutes a Right of Use (ROU) asset and has recorded the present value of the lease payments as an asset and liability. The value of the asset will be amortized on a straight-line basis over the 60 month period. The following table presents maturities of operating lease liabilities on an undiscounted basis as of June 30, 2021: 2021 $ 78,083 2022 $ 159,093 2023 $ 163,070 2024 $ 167,147 2025 $ 171,326 2026 $ 43,094 Total $ 781,813 Beginning April 1, 2021, the Company began subleasing a portion of their new office space in Santa Barbara, California with Calient Technologies for 27 Castilian, Goleta, CA. The lease provides for base monthly rent of approximately $13,013 through May 31, 2021 and $8,400 starting June 1, 2021 on a month-to-month basis plus common area and operating expenses. During the six months ended June 30, 2021, the Company recognized $ 84,743 of rent income, including reimbursement of common area and operating expenses. NOTE 9 – WARRANTS TO PURCHASE COMMON STOCK In connection with the Offering, we issued 348,500 warrants to purchase common stock to the Placement Agents. The warrants carry a term of 5 years and an exercise price of $2.00 . NOTE 10 – RELATED PARTIES The Company’s advances and notes payable are from the officers/cofounders. At the time when the Company needed funds for working capital, the business decided it would be easier to look internally for these funds rather than through banks. Such advances and notes payable were repaid during the six months ended June 30, 2021. See Notes 3, 4 and Note 5. NOTE 11 – SUBSEQUENT EVENTS On July 1, 2021, we sold an additional 115,000 common stock shares at the Offering Price for net proceeds (after deducting offering costs of $ 23,070 ) of $ 206,930 . 11