What changed in this filing

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Item 1. Financial Statements

2024-11-08 compared with 2024-05-10 · 401 added, 453 removed, 125 unchanged (87% of the section changed)

1 unchanged sentence

and Subsidiary

Consolidated Balance Sheets

Balance Sheets

September 30,

Current assets:

10 unchanged sentences

Right of use asset - facility

Deferred compensation, long term portion

Liabilities and stockholders’ equity

3 unchanged sentences

Lease liability, current portion

Derivative liabilities

Total current liabilities

Lease liability, long term portion

Convertible notes (Note 3)

Total liabilities

2 unchanged sentences

Preferred stock, $ 0.0001 par value:

10,000,000 authorized, and none issued and outstanding at March 31, 2024 and June 30, 2023

10,000,000 authorized, and none issued and outstanding at September 30, 2024 and June 30, 2024

Common stock, $ 0.0001 par value:

50,000,000 shares authorized, and 12,178,424 and 12,817,500 shares issued and outstanding at March 31, 2024 and June 30, 2023, respectively

50,000,000 shares authorized, and 12,178,424 shares issued and outstanding at September 30, 2024 and June 30, 2024

Additional paid-in capital

Accumulated deficit

( 14,353,980 )

( 13,624,361 )

Total stockholders’ equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of

these financial statements

accompanying notes are an integral part of these financial statements

and Subsidiary

Consolidated Statements of Operations (unaudited)

Three Months Ended

Nine Months Ended

Statements of Operations (unaudited)

Three Months Ended September 30,

Revenue (Note 2)

Operating expenses:

5 unchanged sentences

( 1,482,711 )

( 3,574,278 )

( 4,290,077 )

Other income (expense):

Sub-lease rental income and other income (expense)

Interest income

Total other income, net

Amortization of discount on convertible notes

Changes in fair value of derivative liabilities

Total other income (expense)

Loss before income tax expense

( 1,482,309 )

( 3,573,480 )

( 4,071,391 )

Income tax expense

1 unchanged sentence

$ ( 1,482,309 )

$ ( 3,573,480 )

$ ( 4,071,391 )

Loss per share - basic and diluted

Weighted average common shares outstanding - basic and diluted

The accompanying notes are an integral part of

these financial statements

accompanying notes are an integral part of these financial statements

and Subsidiary

Consolidated Statement of Stockholders’

Equity (unaudited)

Three Months Ended March 31, 2024 and 2023

Stockholders’

Balance, January 1, 2024

$ ( 11,672,895 )

Stock warrant exercised

Stock-based compensation

Balance, March 31.

$ ( 12,635,546 )

Statement of Stockholders’ Equity (unaudited)

Months Ended September 30, 2024 and 2023

Stockholders’

1 unchanged sentence

$ ( 13,624,361 )

Issuance of common stock, net of offering costs of $ 146,470

Stock-based compensation

( 1,460,801 )

Balance, March 31, 2024

$ ( 14,353,980 )

Nine months ended March 31, 2024 and 2023

Stockholders’

2 unchanged sentences

Repurchase of common stock

Stock warrant exercised

Stock-based compensation

1 unchanged sentence

( 1,482,309 )

Balance, March 31.

$ ( 12,635,546 )

Stockholders’

Balance, July 1, 2022

$ ( 3,682,484 )

Issuance of common stock, net of offering costs of $ 270,855

Issuance of common stock for services

Stock-based compensation

( 4,071,391 )

Balance, March 31.

Balance, September 30.

$ ( 10,544,375 )

The accompanying notes are an integral part of

these financial statements

accompanying notes are an integral part of these financial statements

and Subsidiary

Consolidated Statements of Cash Flows (unaudited)

Nine Months Ended

Statements of Cash Flows (unaudited)

Three Months Ended

September 30,

Operating activities:

2 unchanged sentences

Adjustments to reconcile net loss to net cash used in operating activities:

Issuance of shares for services

Amortization of deferred compensation

1 unchanged sentence

Depreciation and amortization expense

Amortization of discount on convertible notes

Changes in fair value of derivative liabilities

Change in accounts receivable

4 unchanged sentences

( 1,303,362 )

( 2,699,033 )

Investing activities:

4 unchanged sentences

Repurchase of common stock

Proceeds from Private Placement, net of offering costs

Net cash (used in) provided by financing activities

Proceeds from convertible notes issuance

Net cash provided by (used in) financing activities

Net change in cash

2 unchanged sentences

Cash, end of period

The accompanying notes are an integral part of

these financial statements

accompanying notes are an integral part of these financial statements

and Subsidiary

Notes to Consolidated Financial Statements (unaudited)

Note 1 – The Company

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

to Consolidated Financial Statements (unaudited)

1 – The Company

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,

Going Concern

The Company incurred a net loss of $ 3,573,480

and $ 4,071,391 for the nine months ended March 31, 2024 and 2023, respectively, and has accumulated deficit of $ 12,635,546 at March

(“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.

The Company incurred a net loss of $ 729,619 and

$ 1,482,309 for the three months ended September 30, 2024 and 2023, respectively, and has accumulated deficit of $ 14,353,980 at September

In addition, the Company is in the research and development stage and has generated limited revenue to date.

6 unchanged sentences

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 U.S.

Generally Accepted

Accounting Principles (“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 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.

This Quarterly Report on Form 10-Q for the quarter ended

March 31, 2024, should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended June 30, 2023.

The accompanying

consolidated financial statements and footnotes have been condensed and therefore do not contain all disclosures required by GAAP.

interim financial data are unaudited;

however, in the opinion of Aeluma, Inc., the interim data include all adjustments, consisting only

of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods.

Results for interim periods

are not necessarily indicative of those to be expected for the full year.

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.

Reclassification of Prior Year Presentation

Certain prior year amounts

have been reclassified for consistency with the current year presentation.

These reclassifications had no effect on the reported consolidated

financial statements.

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.

conditions raise doubt about the Company’s ability to continue as a going concern.

The accompanying financial statements have been

prepared in conformity with U.S.

Generally Accepted Accounting Principles (“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.

financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

2 – Summary of Significant Accounting Policies

of Presentation

accompanying consolidated financial statements have been presented in accordance with 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.

of Estimates and Assumptions

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

To the extent there are material differences between the estimates and the actual results, future results of operations will

Reclassification

of Prior Year Presentation

prior year amounts have been reclassified for consistency with the current year presentation.

These reclassifications had no effect on

the reported consolidated financial statements.

and Cash Equivalents

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

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.

Debt Instruments

Company evaluates agreements, including any convertible debt instruments to determine if those agreements or any embedded components

of those agreements qualify as derivative financial instruments to be separately accounted for in accordance with FASB ASC Topic 815 “ Derivatives

and Hedging ” (“ASC 815” ).

The accounting treatment of derivative financial instruments requires

that the Company record any bifurcated embedded features at their fair values as of the inception date of the agreement and at fair value

as of each subsequent balance sheet date.

Any change in fair value is recorded in earnings as non-operating, non-cash income or expense.

The Company reassesses the classification of its derivative instruments at each balance sheet date.

If the classification changes as

a result of events during the period, the agreement is reclassified as of the date of the event that caused the reclassification.

Bifurcated embedded features are recorded at their initial fair values which create additional debt discount to the host instrument.

Company amortizes the respective debt discount over the term of the notes, using the effective interest method.

Value of Financial Instruments

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 less of the remaining lease term or the estimated

useful lie of the improvements.

Repairs and maintenance to these assets are charged to expenses 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.

Revenue Recognition

The Company follows a five-step approach for recognizing

revenue, consisting of the following:

Based on this approach, the Company utilizes certain assumptions about the risk inherent in the inputs to the valuation technique.

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.

1 – Unadjusted quoted prices in active, accessible market for identical assets or liabilities

2 – Other inputs that are directly or indirectly observable in the marketplace

3 – Unobservable inputs which are supported by little or no market activity

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.

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.

Financial assets and liabilities measured on a non-recurring basis

are those that are adjusted to fair value when a significant event occurs.

The Company had no financial assets or liabilities carried

and measured on a nonrecurring basis during the reporting periods.

Financial assets and liabilities measured on a recurring basis are

those that are adjusted to fair value each time a financial statement is prepared.

recurring fair value measurement categorized within Level 3 assets and liabilities include those whose value is determined using market

standard valuation technique described below.

When observable inputs are not available, the market standard techniques for determining

the estimated fair value of certain securities that trade infrequently, and therefore have little transparency, rely on inputs that are

significant to the estimated fair value and that are not observable in the market or cannot be derived principally from or corroborated

by observable market data.

Management believes these inputs are based on assumptions deemed appropriate given the circumstances and consistent

with what other market participants would use when pricing similar assets and liabilities.

The Company’s embedded derivatives are

classified in Level 3 using Black-Scholes option-pricing

model since their values include significant unobservable inputs.

derivative liabilities are recognized at fair value on a recurring basis at September 30, 2024 and are Level 3 measurements.

been no transfers between levels.

Fair Value of Embedded Derivatives

Beginning balance at July 1, 2024

New derivative liabilities

Change in fair value of derivative liabilities

Ending balance at September 30, 2024

fair value of the embedded derivatives in our convertible notes at the balance sheet date were valued using the Black-Scholes option-pricing

model with the following assumptions:

September 30,

Expected volatility

Expected term

Dividend yield

Risk-free interest rate

and Equipment

equipment and leasehold improvements are reported at historical cost, net of accumulated depreciation and amortization.

is computed using the straight-line method over the estimated useful lives of the assets.

Leasehold improvements are amortized over the

less of the remaining lease term or the estimated useful lie of the improvements.

Repairs and maintenance to these assets are charged

to expenses 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.

assets are associated with the Aeluma.com domain name and are amortized on a straight-line basis over 10 years.

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

(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;

(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

The Company does not have any significant financing components associated with its revenue contracts, as payment is received

within one year.

Product sales:

Revenue is currently generated from multiple customers for small-volume orders

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 expenses.

The Company does not have any significant financing components

associated with its revenue contracts, as payment is received within one year.

Commercial product and

service contracts:

Revenue is currently generated from multiple customers for research and development related services and small-volume

Government contracts:

Revenue is principally generated under research and development contracts with agencies of the U.S.

is principally generated under research and development contracts with agencies of the U.S.

government or with prime contractors.

These contracts may include cost reimbursement and fixed firm price terms.

During the second quarter of 2024, the Company

was awarded two government contracts of $ 477,069 for providing services and delivering materials.

During the third quarter of 2024, the

Company was awarded two government contracts of $ 494,781 for providing services and delivering materials.

The awards are firm fixed contracts

that shall be paid upon completion of performance and recognized as revenue for next 12 months.

For the three months ended March 31, 2024, the

Company recognized its revenue of $ 343,894 from government contracts.

For the nine months ended March 31, 2024, the company recognized

its revenue of $ 639,286 , of which $ 32,400 was from product sales for sampling purchases and $ 606,886 was from government contracts.

of March 31, 2024, the aggregate amount to remaining performance obligations for the government contracts was $ 586,350 .

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.

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.

the three months ended September 30, 2024, the Company was awarded two government contracts of $ 11,866,384 for providing services

and delivering materials.

The awards are firm fixed contracts that shall be paid upon completion of performance and recognized as revenue

over an expected term of 36 months.

the three months ended September 30, 2024, the Company recognized its revenue of $ 480,735 , of which $ 430,735 was from government contracts

and $ 50,000 was from product sales for sampling purchases.

As of September 30, 2024, the aggregate amount to remaining performance obligations

for the government contracts was $ 12,126,473 .

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.

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

Company estimates the fair value of stock-based compensation awards on the date of grant using an option-pricing model.

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

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.

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.

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.

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.

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.

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.

Company’s policy is to include interest and penalties related to unrecognized tax benefits in income tax expense.

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.

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

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 March 31, 2024.

On December 12, 2022, the Company sold an aggregate

of 517,000 shares of common stock in a private placement offering (the “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

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”

Issued and Vested Shares to Officers

On October 27, 2020, the Company issued

1,623,920 shares of common stock to Jonathan Klamkin, Director and Chief Executive Officer, and 1,623,920 shares of common stock to Lee

McCarthy, Director, interim Chief Financial Officer and Chief Operations Officer, for an aggregate sum of $ 10,000 each.

Initially 20 %

or 324,784 shares vested on October 27, 2020, and the remaining 1,299,136 shares vest in equal amounts, monthly over the subsequent 4

The stock purchase agreement contains a repurchase option whereby unvested shares may be repurchased by the Company, at the Company’s

At March 31, 2024, Jonathan Klamkin had 1,434,463 vested shares and 189,457 unvested shares, and Lee

McCarthy had 974,350 vested shares.

On November 17, 2022, Lee McCarthy left the Company and, on September 10, 2023, the Company

exercised its option to purchase 649,570 unvested restricted shares Lee McCarthy held for a total consideration of $ 4,001 , the

initial purchase price of these 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;

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.

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

Restricted Stock Awards

In June 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 compensation of

$ 1,372,435 for the value of the shares in excess of the purchase price paid by the advisors.

The deferred compensation was expensed

as consulting expense in the consolidated statements of operation over the service period.

In March 2022, the Company signed an agreement

to issue 150,000 shares of common stock valued at $ 300,000 to a consultant for providing consulting services to the Company

for eighteen months.

Related to these issuances, the Company has recorded deferred compensation of $ 300,000 which was expensed as consulting

expense in the consolidated statements of operation over the eighteen months.

For the three months ended March 31, 2024 and

2023, $ 6,981 and $ 213,347 , respectively, have been amortized in the consolidated statements of operations, and, for the nine months ended

March 31, 2024 and 2023, $ 25,919 and $ 705,302 , respectively, have been amortized in the consolidated statements of operations.

31, 2024, $ 27,114 of deferred compensation included in the balance sheets is expected to be expensed in next two years.

The following is a schedule summarizing restricted

stock awards for the periods indicated:

March 31, 2024

Three Months Ended

Nine Months Ended

Beginning balance

Ending balance

March 31, 2023

Three Months Ended

Nine Months Ended

Beginning balance

Ending balance

Stock Options

During the three months ended December 31, 2022,

the Company issued 161,000 options to purchase common stock to employees.

The options have an exercise price of $ 2.00 or $ 2.10 and expire

in 10 years with various vesting schedules from nine months to 48 months, subject to the continued status as an employee to the Company

through each vesting date.

During the three months ended June 30, 2023, the

Company issued 163,000 options to purchase common stock to a consultant and employees.

The options expire in 10 years and have

an exercise price of $ 2.60 with immediate vesting or $ 3.00 with a vesting schedule of 48 months.

Stock options granted to employees are

subject to the continued status as an employee to the Company through each vesting date.

During the three months ended September 30, 2023,

the Company issued 6,500 options to purchase common stock to consultants.

The options expire in 10 years and have an exercise

price that range from $ 2.90 to $ 3.90 with immediate vesting.

During the three months ended December 31, 2023,

the Company issued 7,000 options to purchase common stock to a consultant.

The options expire in 10 years and have an exercise

price that ranges from $ 2.50 to $ 3.43 with immediate vesting.

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.

Accounting Pronouncements

Company has evaluated all issued but not yet effective accounting pronouncements and determined that they are either immaterial or not

relevant to the Company.

3 – Convertible Notes

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 Event”)).

In the event the Company does not complete qualified financing or uplist at or before the maturity

date, the outstanding balance of the Notes shall automatically convert without any further action by the Holder into shares of the Company’s

common stock equal to eighty-five percent ( 85 %) to the VWAP of the Common Stock on the OTC Markets for the five trading days immediately

prior to maturity date.

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.

Price for the investors who participated in this initial closing is equal to $ 2.47 or $ 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

The Investors were granted piggyback registration rights for the shares of Common Stock underlying the Note.

Note Purchase Agreement 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.

Company analyzed the embedded features of the convertible notes and the debt discount is being amortized over the term of the convertible

notes using the effective interest method and the derivative liabilities are marked-to-market at each reporting date.

Value of Financial Instruments in Note 2 – Summary of Significant Accounting Policies for additional information.

of September 30, 2024, the Company’s convertible notes are as follows:

Principal amounts of convertible notes

unamortized debt discount

( 2,048,354 )

Convertible notes, net of discount

4 – Stockholders’ Equity

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 September 30, 2024.

and Vested Shares to Officers

October 27, 2020, the Company issued 1,623,920 shares of common stock to Jonathan Klamkin, Director and Chief Executive Officer,

and 1,623,920 shares of common stock to Lee McCarthy, Director, interim Chief Financial Officer and Chief Operations Officer, for an

aggregate sum of $ 10,000 each.

Initially 20 % or 324,784 shares vested on October 27, 2020, and the remaining 1,299,136 shares vest in

equal amounts, monthly over the subsequent 4 years.

The stock purchase agreement contains a repurchase option whereby unvested shares

may be repurchased by the Company, at the Company’s option.

At September 30 2024, Jonathan Klamkin had 1,596,855 vested

shares and 27,065 unvested shares, and Lee McCarthy had 974,350 vested shares.

On November 17, 2022, Lee McCarthy

left the Company and, on September 10, 2023, the Company exercised its option to purchase 649,570 unvested restricted shares

Lee McCarthy held for a total consideration of $ 4,001 , the initial purchase price of these shares.

Rights Agreement

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;

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).

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.

5 – Stock-Based Compensation

June 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.

to these issuances, the Company has recorded deferred compensation of $ 1,372,435 for the value of the shares in excess of the purchase

price paid by the advisors.

The deferred compensation was expensed as consulting expense in the consolidated statements of operation

over the service period.

March 2022, the Company signed an agreement to issue 150,000 shares of common stock valued at $ 300,000 to a consultant

for providing consulting services to the Company for eighteen months.

Related to these issuances, the Company has recorded deferred compensation

of $ 300,000 which was expensed as consulting expense in the consolidated statements of operation over the eighteen months.

the three months ended September 30, 2024 and 2023, $ 6,981 and $ 11,957 , respectively, have been amortized in the consolidated statements

of operations.

At September 30, 2024, $ 13,152 of deferred compensation included in the balance sheets is expected to be expensed within

following is a schedule summarizing restricted stock awards for the periods indicated:

Beginning balance at July 1, 2024

Ending balance at September 30, 2024

Beginning balance at July 1, 2023

Ending balance at September 30, 2023

the three months ended September 30, 2023, the Company issued 6,500 options to purchase common stock to consultants.

expire in 10 years and have an exercise prices that range from $ 2.90 to $ 3.90 with immediate vesting.

the three months ended December 31, 2023, the Company issued 7,000 options to purchase common stock to a consultant.

expire in 10 years and have an exercise price that ranges from $ 2.50 to $ 3.43 with immediate vesting.

the three months ended March 31, 2024, the Company issued 6,500 options to purchase common stock to consultants.

expire in 10 years and have an exercise prices that range from $ 2.99 to $ 3.50 with immediate vesting.

During the three months ended March

the Company issued 6,500 options to purchase common stock to consultants.

The options expire in 10 years and have an exercise

price that range from $ 2.99 to $ 3.50 with immediate vesting.

During the three months ended March 31, 2024, the Company issued 100,821

options to purchase common stock to board of directors.

The options expire 10 year and vest in nine months with an exercise price of $ 2.99 .

The Company estimates the fair value of each option

award using the Black-Scholes option-pricing model.

The Company used the following assumptions for to estimate the fair value of stock

options for the period presented:

Nine months Ended

31, 2024, the Company issued 100,821 options to purchase common stock to the board of directors.

The options expire in 10 years and vest

in nine months with an exercise price of $ 2.99 .

the three months ended September 30, 2024, the Company issued 12,000 options to purchase common stock to a consultant.

The options expire

in 10 years and have vest equally in twelve months with an exercise price of $ 3.13 .

Company estimates the fair value of each option award using the Black-Scholes option-pricing model.

The Company used the following assumptions

for to estimate the fair value of stock options for the period presented:

Three Months Ended

September 30,

Weighted-average fair value $ 2.53 $ 2.71

Expected volatility 113.9 % 104.9 % - 106.4 %

104.9 % – 113.9 %

Expected term

5.0 years – 6.2 years

Expected term 5.3 years 5.0 years - 6.2 years

Dividend yield 0.00 % 0.00 %

Risk-free interest rate 4.10 % 3.94 % - 4.62 %

3.94 % – 4.92 %

For the three months ended March 31, 2024 and 2023, stock-based

compensation expenses for options granted were $ 191,844 and $ 127,102 , respectively.

For the nine months ended March 31, 2024 and 2023,

stock-based compensation expenses for options granted were $ 568,340 and $ 304,553 , respectively.

Unrecognized stock-based compensation

expense was $ 1,020,853 and average expected recognition period was 1.2 years as of March 31, 2024.

The following is a schedule summarizing stock

option activities for the periods presented:

Three Months Ended

Exercise Price

Outstanding at January 1, 2024

Expired/forfeited

Outstanding at March 31, 2024

Exercisable at March 31, 2024

Outstanding at January 1, 2023

Expired/forfeited

Outstanding at March 31, 2023

Exercisable at March 31, 2023

(1) Represents the excess of the fair value on the last day of period (which was $ 3.00 and $ 3.60 as of March 31, 2024 and 2023, respectively) over the exercise price, multiplied by the number of options.

Nine months Ended

the three months ended September 30, 2024 and 2023, stock-based compensation expenses for options granted were $ 167,091 and $ 240,577 ,

respectively.

Unrecognized stock-based compensation expense was $ 675,461 and the average expected recognition period was 1.1 years as

of September 30, 2024.

following is a schedule summarizing stock option activities for the periods presented:

Exercise Price

Outstanding at July 1, 2024

Expired/forfeited

Outstanding at March 31, 2024

Exercisable at March 31, 2024

Expired/cancelled

Outstanding at September 30, 2024

Exercisable at September 30, 2024

(1) Represents the excess of the fair value on the last day of period (which was $ 3.17 as of September 30, 2024) over the exercise price, multiplied by the number of options.

Exercise Price

Outstanding at July 1, 2023

Expired/forfeited

Outstanding at March 31, 2023

Exercisable at March 31, 2023

Note 5 – Facility Operating Lease

On April 1, 2021, the Company commenced a 5-year

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 per ASC 842.

Expired/cancelled

Outstanding at September 30, 2023

Exercisable at September 30, 2023

(1) Represents the excess of the fair value on the last day of period (which was $ 3.30 as of September 30, 2023) over the exercise price, multiplied by the number of options.

6 – Facility Operating Lease

April 1, 2021, the Company commenced a 5 -year operating lease for a facility in Santa Barbara, California with total lease payments of

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 per ASC 842.

The lease agreement waived the first three months of rent with payments commencing July

At the commencement of the lease, the

net present value of the lease payments was $ 767,553 .

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.

July 1, 2023, one of the two options to extend was considered reasonably certain of exercise and the Company remeasured the ROU asset

and lease liability.

The Company recorded the net present value of $ 1,189,606 for both the ROU asset and lease liability on July 1, 2023.

The following table presents maturities of operating

lease liabilities on an undiscounted basis as of March 31, 2024:

For the year ending June 30,

At the commencement of the lease, the net present value of the lease payments was $ 767,553 .

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.

On July 1, 2023, one of the two options to extend was considered reasonably certain of

exercise and the Company remeasured the ROU asset and lease liability.

The Company recorded the net present value of $ 1,189,606 for both

the ROU asset and lease liability on July 1, 2023.

following table presents maturities of operating lease liabilities on an undiscounted basis as of September 30, 2024:

For the years ending June 30,

Remainder of 2025

3 unchanged sentences

Lease liability, long term portion

The lease term and the discount rate for the lease

at March 31, 2024 is 7.0 years and 4.00 %, respectively.

The total lease expenses were $ 31,398 and $ 24,360 for the three months ended March

31, 2024 and 2023, respectively, and $ 125,656 and $ 97,078 for the nine months ended March 31, 2024 and 2023, respectively.

costs for common area operating expenses and electricity were $ 42,821 , and $ 54,643 for the three months ended March 31, 2024 and 2023,

respectively and $ 194,667 and $ 228,454 for the nine months ended March 31, 2024 and 2023.

In April 1, 2021, the Company subleased a

portion of their facility.

The sub-lease provided 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.

The sublease was amended again on May 17, 2022 to sublease a smaller portion of the

property at a base rental rate of $ 5,200 per month effective June 1, 2022.

The Company recognized sub-lease income of $ 23,405 and $ 128,921 ,

including reimbursement of common area operating and utility costs, for the three and nine months ended March 31, 2023.

The sub-lease

ended in March 2023.

Note 6 – Warrants to Purchase Common

In connection with the Offering held from December

2022 through May 2023, the Company issued warrants of 85,653 to purchase common stock to the Placement Agents.

The warrants carry a term

of 5 years and an exercise price of $ 3.00 .

The following warrants to purchase common stock

were outstanding as of March 31, 2024:

Number of Shares

Exercise Price

Expiration Date

lease term and the discount rate for the lease at September 30, 2024 is 6.5 years and 4.00 %, respectively.

The total lease expenses were

$ 41,441 and $ 44,914 for the three months ended September 30, 2024 and 2023, respectively.

The variable costs for common area operating

expenses and electricity were $ 83,535 and $ 93,046 for the three months ended September 30, 2024 and 2023, respectively.

7 – Warrants to Purchase Common Stock

connection with the Offering held from December 2022 through May 2023, the Company issued warrants of 85,653 to purchase common stock

to the Placement Agents.

The warrants carry a term of 5 years and an exercise price of $ 3.00 .

following warrants to purchase common stock were outstanding as of September 30, 2024:

Number of Shares Exercise Price Expiration Date

286,672 $ 2.00 June 22, 2026

37,433 2.00 June 28, 2026

11,500 2.00 July 1, 2026

29,067 3.00 December 22, 2027

1 unchanged sentence

6,720 3.00 March 31, 2028

44,933 3.00 May 10, 2028

8 – Concentration of Credit Risk and Significant Customers

Company manages its credit risk associated with exposure to its direct customers on outstanding accounts receivable through the application

of credit approvals and other monitoring procedures.

The Company closely monitors the aging of accounts receivable from its direct customers.

Significant customers are those that represent 10% or more of revenue or accounts receivable.

revenues, by percentage, from individual customers representing 10% or more of total revenues in the respective periods were as follows:

Three Months Ended September 30,

* Less than 10% of total

receivable, by percentage, from individual customers representing 10% or more of accounts receivable are set forth in the following table:

As of September 30,

than 10% of total

A, B, C and D are government agencies.

9 – Subsequent Event

Company has evaluated subsequent events through the filing date or the issuance of these financial statements and is not aware of any

material items that would require disclosure in the notes to the financial statements or would be required to be recognized as of September

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-Q

Item 1. Financial Statements