Aeluma, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Aeluma, Inc. and Subsidiary Consolidated Balance Sheets (Unaudited) September 30 2021 June 30 2021 ASSETS Current Assets Cash $ 6,198,218 $ 6,787,250 Deferred compensation, current portion 662,464 662,464 Prepaids & other current assets 233,143 22,251 Total Current Assets 7,093,825 7,472,235 Equipment 233,230 115,888 Leasehold improvements 153,988 12,420 Intangible assets 14,833 14,833 Right of use asset-facility 691,501 729,176 Deferred compensation, long term portion 508,336 673,498 Other assets 13,014 65,069 Total Assets $ 8,708,727 $ 9,083,119 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Accounts payable $ 21,843 $ 68,575 Accrued expenses & other current liabilities 183,402 61,384 Lease liability-current portion 153,164 157,141 Total Current Liabilities 358,409 287,100 Lease Liability-Long Term Portion 576,806 610,455 Commitments and Contingencies Total Liabilities 935,215 897,555 Stockholders’ Equity Preferred Stock par value $ 0.0001 , 10,000,000 authorized, none issued and outstanding. Common Stock par value $ 0.0001 , 50,000,000 shares authorized, 10,650,002 shares and 10,535,002 issued and outstanding at September 30, 2021 and June 30, 2021, respectively. 1,066 1,054 Additional Paid In Capital 8,607,018 8,415,432 Accumulated Deficit ( 834,572 ) ( 230,922 ) Total Stockholders’ Equity 7,773,512 8,185,564 Total Liabilities and Stockholders’ Equity $ 8,708,727 $ 9,083,119 The accompanying notes are an integral part of these financials 1 Aeluma, Inc. and Subsidiary Consolidated Statements of Operations For the Three Months Ended September 30, 2021 and 2020 (Unaudited) 2021 2020 Revenue $ - $ - Operating Expenses 694,776 715 Other Income Sub-lease and other income 90,352 Interest income 774 - Total Other Income 91,126 - Loss Before Provision for Income Taxes ( 603,650 ) ( 715 ) Provision for income tax - Net Loss $ ( 603,650 ) $ ( 715 ) Basic and Diluted Loss Per Share $ ( 0.06 ) $ ( 0.00 ) Weighted average common shares outstanding - basic and diluted 10,650,002 0 The accompanying notes are an integral part of these financials 2 Aeluma, Inc. and Subsidiary Consolidated Statement of Stockholders’ Equity For the Three Months Ended September 30, 2021 Additional Total Common Stock Paid-in Accumulated Stockholders’ Shares Amount Capital Deficit Equity Balance, June 30, 2021 10,535,002 $ 1,054 8,415,432 ( 230,922 ) $ 8,185,564 Issuance of shares of common stock for cash (net of $ 23,070 in offering costs) 115,000 12 206,918 206,930 Stock based compensation 29,668 29,668 Other offering costs ( 45,000 ) ( 45,000 ) Net loss ( 603,650 ) ( 603,650 ) Balance, September 30, 2021 10,650,002 $ 1,066 8,607,018 $ ( 834,572 ) $ 7,773,512 The accompanying notes are an integral part of these financials 3 Aeluma, Inc. and Subsidiary Consolidated Statements of Cash Flows For the Three Months Ended September 30, 2021 and 2020 (Unaudited) 2021 2020 Operating activities Net Loss $ ( 603,650 ) $ ( 715 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of deferred compensation 165,162 Partial refund of facility lease deposit 52,055 Stock based compensation expense 29,668 Change in prepaids & other current assets ( 210,622 ) Change in accounts payable ( 46,732 ) Change in accrued expenses 122,0674 - Net cash used in operating activities ( 492,052 ) ( 715 ) Investing activities Purchase of equipment ( 117,342 ) Payments for Leasehold Improvements ( 141,568 ) Net cash used in investing activities ( 258,910 ) - Financing activities Proceeds from Private Placement, net of offering costs 206,930 Payment of other offering costs ( 45,000 ) Net cash provided by Financing activities 161,930 Net change in cash ( 588,962 ) ( 715 ) Cash, beginning of period 6,787,250 2,899 Cash, end of period $ 6,198,218 $ 2,184 Supplemental Disclosures $ - 4 Aeluma, Inc. Notes to Consolidated Financial Statements as of September 30, 2021 and 2020 NOTE 1 – THE COMPANY Aeluma is headquartered in Goleta, 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 continued 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. Biond Photonics was incorporated in February 2019. 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.” 5 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. Change of Fiscal Year On June 30, 2021, we changed our fiscal year from the period beginning on January 1 and ending on December 31 to the period beginning on July 1 and ending on June 30 of each year, effective immediately. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited interim consolidated financial statements have been presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Article 8 of Regulation S-X. Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements. The consolidated financial statements as of September 30, 2021, and 2020, are unaudited; however, in the opinion of management such interim condensed consolidated financial statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The accompanying financial information should be read in conjunction with the financial statements and the notes thereto in the Company’s most recent Transition Report on Form 10-KT, as filed with the Securities and Exchange Commission (the “SEC”) on September 27, 2021. The results of operations for the period presented are not necessarily indicative of the results that might be expected for future interim periods or for the full year. 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 $ 603,650 for the three months ended September 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. 6 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. No shares were issued until October 2020. 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. 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 September 30, 2021, the Company has capitalized equipment assets which will be used for the development and production of their sensors. The assets are not currently in use and will continue to receive capitalized improvements until 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. 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. 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. 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. 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 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. We account for forfeitures upon occurrence. 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. The Company adopted ASU 2016-02 on January 1, 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. 8 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 at September 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 (the “Offering”) at a purchase price of $ 2.00 per share (the “Offering Price”). We held a second and third closing on June 28 and July 1 2021, for an additional 402,500 and 115,000 , respectively, of shares of common stock. Accordingly, we sold a total of 4,000,000 shares of our common stock through September 30, 2021. The private placement offering is referred to herein as the “Offering.” The aggregate gross proceeds from the Offering during the three months ended September 30, 2021were $ 230,000 (before deducting placement agent fees and expenses of the Offering of $ 23,070 ). We also paid additional offering costs totaling $ 45,000 during the three month period ended September 30, 2021. 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. Issued and Vested Shares to Officers On October 27 th , 2020, the Company issued 1,623,920 shares of common stock to Director and CEO Jonathan Klamkin and 1,623,920 shares 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 vested on October 27 th , 2020 and the remaining 1,299,136 shares vest in equal amounts, monthly over the subsequent 4 years. At September 30, 2021, each of these officers had 622,503 vested shares, and 1,001,417 unvested shares. Registration Rights Agreement The Company entered into a registration rights agreement that provides for certain liquidated damages upon the occurrence of a “Registration Event,” which is defined as the occurrence of any of the following events: (a) the Company fails to file with the Commission the Registration Statement on or before the Registration Filing Date; (b) the Registration Statement is not declared effective by the Commission on or before the Registration Effectiveness Date; (c) after the SEC Effective Date, the Registration Statement ceases for any reason to remain effective or the Holders of Registrable Securities covered thereby are otherwise not permitted to utilize the prospectus therein to resell the Registrable Securities covered thereby, except for Blackout Periods permitted herein; or (d) following the listing or inclusion for quotation on an Approved Market, the Registrable Securities, if issued and outstanding, are not listed or included for quotation on an Approved Market, or trading of the Common Stock is suspended or halted on the Approved Market, which at the time constitutes the principal markets for the Common Stock, for more than three (3) full, consecutive Trading Days (other than as a result of (A) actions or inactions of parties other than the Company or its affiliates or of the Approved Market not reasonably in the control of the Company, or (B) suspension or halt of substantially all trading in equity securities (including the Common Stock) on the Approved Market). The maximum amount of liquidated damages that may be paid by the Company shall be an amount equal to eight percent (8%) of the shares covered by the registration rights agreement. This filing covered 11,010,002 shares. The Company currently expects to satisfy all of its obligations under the Registration Agreement and does not expect to pay any damages pursuant to this agreement; therefore, no liability has been recorded. NOTE 4 – STOCK-BASED COMPENSATION During fiscal 2021, the Company sold 723,008 shares of common stock to certain individuals in exchange for future management advisory services, for discounted prices price ranging from $. 0104 to $. 0195 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 (corresponding to the service period) ranging from 2 - 4 years. Related to these issuances, 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 three months ended September 30, 2021, $ 165,162 has been amortized in the Statement of Operations, and $ 1,170,800 is presented as deferred compensation on the balance sheet at September 30, 2021, of which $ 662,464 is expected to be expensed in the next twelve months. 9 During the three months ended September 30, 2021, the Company issued an option to purchase 10,000 shares of common stock to a director at a price of $2 per share, expiring in 10 years, and an option to purchase 10,000 shares of common stock to an advisor at a price of $2.00 per share expiring in 5 years. These options vested over periods ranging from one month to three months. The estimated weighted average fair value of the options granted during the three months ended September 30, 2021 were approximately $1.50 per share. The Company estimates the fair value of each option award using the Black-Scholes option-pricing model. The Company used the following assumptions to estimate the fair value of stock options issued in the three months ended September 30, 2021: September 30, 2021 Expected volatility 100 % Expected term 5 years Dividend yield 0 % Risk-free interest rates 0.8 % The following is a schedule summarizing employee and non-employee stock option activity for the period ended September 30, 2021: Number of Weighted Average Aggregate Options Exercise Price Intrinsic Value Outstanding at June 30, 2021 0 $ $ Granted 20,000 2.00 0 Exercised 0 $ Expired/Cancelled 0 Outstanding at September 30, 2021 20,000 $ 2.00 $ 0 Exercisable at September 30, 2021 17,500 $ 2.00 $ 0 The aggregate intrinsic value represents the difference between the exercise price of the options and the estimated fair value of the Company’s common stock for each of the respective periods. NOTE 5 – 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. In addition to these lease payments, the Company is also responsible for its shares of common area operating expenses and electricity. Such expenses are considered variable costs and are not included in the measurement of the lease liability. The lease agreement also provides for the option to extend the lease for two additional sixty-month periods. The lease payments for these additional periods are not included in the lease liability amount presented on the balance sheet. 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 September 30, 2021: 2022 $ 118,100 2023 $ 161,069 2024 $ 165,096 2025 $ 169,224 2026 $ 129,283 Total $ 742,772 Less imputed interest ( 12,802 ) Total operating lease liability 729,970 Less: current portion ( 153,164 ) Lease liability, long term $ 576,806 The lease term and the discount rate for the lease at September 30, 2021 is 4.5 years and 0.75 %, respectively. The total lease payments were $ 31,593 , and $ 0 for the three months ended September 30, 2021 and 2020, respectively. The variable costs for common area operating expenses and electricity were $ 56,803 , and $ 0 for the three months ended September 30, 2021 and 2020 , respectively. Beginning April 1, 2021, the Company began subleasing a portion of their facility. The sub-lease provides for base monthly rent of $13,013 through May 31, 2021 and $8,400 starting June 1, 2021 plus common area operating and utility costs. During the three months ended September 30, 2021 the Company recognized $ 90,352 of rental income, including reimbursement of common areaoperating and utility costs. NOTE 6 – WARRANTS TO PURCHASE COMMON STOCK In connection with the Offering, the Company issued 360,000 warrants to purchase common stock to the Placement Agents. The warrants carry a term of 5 years and an exercise price of $2.00 . 10