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Item 7. Management’s Discussion and Analysis

2024-09-27 compared with 2023-09-25 · 155 added, 240 removed, 72 unchanged (85% of the section changed)

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.

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.”

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.

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.

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.

You should not place undue reliance on

forward-looking statements as predictive of future results.

We develop 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.

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.

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.

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

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”),

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.

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,

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

semiconductor materials on large-diameter substrates that are commonly used to manufacture mass market microelectronics.

cost-effective manufacturing of high-performance photodetectors and photodetector array circuits for imaging applications in mobile devices,

as well as other technologies.

This technology has the potential to enhance the performance and capability of camera image sensors, LiDAR,

AR/VR, facial recognition, and other applications.

Additionally, Aeluma’s technology may be used to manufacture other electronic

and optoelectronic devices in the future including lasers, transistors, and solar cells.

Private Placements

Between December 2022 and May 2023, we entered

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gross proceeds of $6,052,500 (the “Offering”).

Pursuant to the Offering, we paid a cash placement

agent fee of $411,015 and issued placement agent warrants to purchase up to 85,653 shares of common stock at an exercise price of $3.00

We also agreed to pay certain expenses of the placement agent in connection with the Offering.

In connection with the Subscription Agreement,

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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

The closings of the 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.

common stock in the Offering was sold to “accredited investors,” as defined in Regulation D, and was conducted on a “reasonable

best efforts” basis.

Between August 5, 2024

and August 27, 2024, we issued convertible promissory notes in the aggregate principal amount of $3,145,000 to 10 accredited investors,

pursuant to a private note financing.

The Notes mature in June 2026 and do not carry any interest.

The Notes are convertible into shares

of the Company’s common stock par value $0.0001 per share (the “Common Stock”) upon the occurrence of certain events,

(i.e., qualified financing resulting in at least $5,000,000 to the Company, if the Common Stock is uplisted to a national securities exchange

or if neither of those such events occur prior to the maturity date, (together with Sale of the Company (as hereinafter defined), a “Conversion

The Note also provides that if there is a Sale of the Company, as defined in the Note, the Holder may elect to receive

a cash payment equal to the aggregate amount of principal then outstanding under such Holder’s Note or convert the Note into shares

of Common Stock equal to 85% of the VWAP of the Common Stock on the OTC Markets for the five trading days immediately prior to the Sale

of the Company.

Although the conversion price is dependent upon the type of Conversion Event that occurs, the Note does carry a ceiling

and floor price:

the applicable conversion price will not be lower than 85% of the 5-day VWAP on the applicable Closing Date (the “Floor

Price”) nor will the applicable conversion price be higher than $3.50 per share (the “Ceiling Price”);

the Floor Price

and Ceiling Price shall automatically adjust in the event of a stock split or consolidation by the Company.

The Floor Price for the investors

who participated in this initial closing is equal to $2.68 per share.

Since the Floor Price is tied to the Closing Date, the Floor Price

may be different for investors that are part of a different closing, should the Company hold additional closings.

The Investors were granted

piggyback registration rights for the shares of Common Stock underlying the Note.

The NPA also contains

customary representation and warranties of the Company and the Investors, indemnification obligations of the Company, termination provisions,

and other obligations and rights of the parties.

The foregoing description

of the NPA and the Note is qualified by reference to the full text of the forms of NPA and Note, 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.

DenBaars is a Class I director.

Also, as of the effectiveness of the Merger,

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.

McCarthy resigned from his position as interim

Chief Financial Officer on August 18, 2021 and from his directorship on December 1, 2021.

McCarthy’s vacancy on the

board, we appointed Ms.

Mehta is a Class II director.

On December 1, 2021, we also appointed Mr.

Paglia to the board of directors;

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.

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.

Mehta decided not run for re-election in

such decision was not the result of any disagreements with us on any matter related to the operations, policies, or practices of

The Board nominated Mr.

Craig Ensley to fill the vacancy on the Board;

on December 14, 2023, the shareholders voted to elect Mr.

to the board.

Plan of Operations

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of our plan of operations.

We have installed some key manufacturing equipment at our headquarters and will continue to develop relationships

We have installed 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.

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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.

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.

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

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Components of Results of Operations

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.

Our revenue currently consists of commercial product

sales and government contracts.

Operating Expenses

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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

We anticipate that our cost of revenue will vary substantially depending on the nature of products and/or services delivered in each customer

Research and development expenses consist primarily of compensation and related costs for personnel, including stock-based

compensation and employee benefits, costs associated with design, fabrication, packaging and testing of our devices, and facility lease

and utility expenses.

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.

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.

In addition, general and

administrative expenses include third-party consulting, legal, insurance, audit and accounting services.

Other income, net of other expenses, consists

primarily of income generated from subleasing a portion of our research and development facility.

primarily of interest income and income generated from subleasing a portion of our research and development facility.

The sub-lease ended

in March 2023

Income Tax Expense

Income tax expense consists primarily of

income taxes in certain state jurisdictions in which we conduct business.

Income tax expense consists primarily of income taxes in certain state

jurisdictions in which we conduct business.

Results of Operations

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year ended June 30, 2023

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):

Our results of operations for the year ended June

30, 2024, as compared to the year ended June 30, 2023, were as follows:

Year Ended June 30,

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$ (5,379,582 )

$ (1,927,883 )

The company recognized its first

revenue of $193,339, consisting of $15,000 from product sales and $178,339 from a government contract.

Revenue increased $725,215, or

375.1 %, to $918,554, of which $64,756 was from commercial product and service contracts and $853,798 was from government contracts, for

the year ended June 30, 2024 from $193,339, of which $15,000 was from commercial product and service contracts and $178,339 was from government

contracts, for the same period in 2023.

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.

Operating expense decreased

$221,162, or 3.9%, to $5,481,862 for the year ended June 30, 2024 from $5,703,024 for the same period in 2023, due primarily to a reduction

in consulting expenses, offset partially by increased salaries and stock-based compensation expenses.

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.

Other income decreased $129,090,

99.2%, to $1,013 for the year ended June 30, 2024 from $130,103 for the same period in 2023.

The decrease was due primarily to a $128,921

decrease in sub-lease income as the sublease ended in March 2023.

Income tax expense :

We recorded no income

tax expense for the years ended June 30, 2023 and 2022.

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.

We did not record income

tax expense for either of the years ended June 30, 2024 and 2023.

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

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

As presented in the financial statements, we incurred a net loss of $4,562,295 and $5,379,582 for the years ended June 30,

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The accumulated deficit was $13,624,361 at June 30,

We have been funding our operations through private loans and the sale of common stock in private placement transactions.

Management anticipates that significant additional

expenditures will be necessary to develop and expand our business before significant positive operating cash flows can be achieved.

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;

We have been funding our operations through the sale of common stock in private placement transactions.

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, 2024, we had $1,291,072 of cash and cash equivalents.

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

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

and (d) pursuing additional sales and 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

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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.

had working capital of $766,160 and $4,576,807 at June 30, 2024

and 2023, respectively.

Current assets decreased $3,941,060 to $1,392,846 at June 30, 2024 from $5,333,906 at June 30, 2023, primarily

due to a $3,780,618 decrease in cash.

Current liabilities decreased $130,413 to $626,686 at June 30, 2024 from $757,099 at June 30, 2023,

due primarily to decreases in accounts payable.

The following table shows a summary of our cash

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Year Ended June 30,

Net cash (used in) provided by:

Net cash provided by (used in)

Operating activities

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$ (3,637,972 )

$ (1,385,181 )

Investing activities

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$ (3,780,618 )

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

$ (5,111,586 )

Net cash used in our operating activities were

$3,454,779 and $3,637,972 for the years ended June 30, 2024 and 2023, respectively, due primarily to net losses of $4,562,295 and $5,379,582

for the years ended June 30, 2024 and 2023, respectively.

Net cash used in our investing activities was

$321,838 and $672,545 for the years ended June 30, 2024 and 2023, 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.

Quantitative and Qualitative Disclosures About Market

Investing activities include purchase of equipment and

payment for leasehold improvements.

Net cash used in our financing activities was

$4,001 for the year ended June 30, 2024 and net cash provided by our financing activities was $5,641,485 for the year ended June 30, 2023.

We paid $4,001 to purchase Lee McCarthy’s unvested restricted shares for the year ended June 30, 2024 and received $5,641,284

from Private Placements, net of $411,015 offering cost.

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.

Quantitative and Qualitative Disclosures

About Market Risk.

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis