Aeluma, Inc. 10-Q

Item 1. Financial Statements Aeluma, Inc. and Subsidiary Consolidated Balance Sheets September 30, 2024 (unaudited) June 30, 2024 Assets Current assets: Cash and cash equivalents $ 3,502,520 $ 1,291,072 Accounts receivable 322,189 60,004 Deferred compensation, current portion 13,152 20,133 Prepaids and other current assets 189,129 21,637 Total current assets 4,026,990 1,392,846 Property and equipment: Equipment 1,533,131 1,531,494 Leasehold improvements 546,864 546,864 Accumulated depreciation ( 708,005 ) ( 608,630 ) Property and equipment, net 1,371,990 1,469,728 Intangible assets 6,083 6,833 Right of use asset - facility 930,782 961,626 Other assets 13,014 13,014 Total assets $ 6,348,859 $ 3,844,047 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 238,100 $ 317,237 Accrued expenses and other current liabilities 215,287 180,706 Lease liability, current portion 131,090 128,743 Derivative liabilities 2,046,695 - Total current liabilities 2,631,173 626,686 Lease liability, long term portion 907,407 941,200 Convertible notes (Note 3) 1,096,646 - Total liabilities 4,635,226 1,567,886 Commitments and contingencies - - Stockholders’ equity: Preferred stock, $ 0.0001 par value: 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 shares issued and outstanding at September 30, 2024 and June 30, 2024 1,218 1,218 Additional paid-in capital 16,066,395 15,899,304 Accumulated deficit ( 14,353,980 ) ( 13,624,361 ) Total stockholders’ equity 1,713,633 2,276,161 Total liabilities and stockholders’ equity $ 6,348,859 $ 3,844,047 The accompanying notes are an integral part of these financial statements 1 Aeluma, Inc. and Subsidiary Consolidated Statements of Operations (unaudited) Three Months Ended September 30, 2024 2023 Revenue (Note 2) $ 480,735 $ 32,400 Operating expenses: Cost of revenue 314,575 15,139 Research and development 401,074 834,869 General and administrative 496,466 665,103 Total operating expenses 1,212,115 1,515,111 Loss from operations ( 731,380 ) ( 1,482,711 ) Other income (expense): Interest income 102 402 Amortization of discount on convertible notes ( 144,776 ) Changes in fair value of derivative liabilities 146,435 - Total other income (expense) 1,761 402 Loss before income tax expense ( 729,619 ) ( 1,482,309 ) Income tax expense - - Net loss $ ( 729,619 ) $ ( 1,482,309 ) Loss per share - basic and diluted $ ( 0.06 ) $ ( 0.12 ) Weighted average common shares outstanding - basic and diluted 12,178,424 12,669,229 The accompanying notes are an integral part of these financial statements 2 Aeluma, Inc. and Subsidiary Consolidated Statement of Stockholders’ Equity (unaudited) Three Months Ended September 30, 2024 and 2023 Common Stock Additional paid-in Accumulated Total Stockholders’ Shares Amount capital Deficit Equity Balance, January 1, 2024 12,178,424 $ 1,218 $ 15,899,304 $ ( 13,624,361 ) $ 2,276,161 Stock-based compensation - - 167,091 - 167,091 Net loss - - - ( 729,619 ) ( 729,619 ) Balance, March 31, 2024 12,178,424 $ 1,218 $ 16,066,395 $ ( 14,353,980 ) $ 1,713,633 Common Stock Additional paid-in Accumulated Total Stockholders’ Shares Amount capital Deficit Equity Balance, July 1, 2023 12,817,500 $ 1,282 $ 15,171,074 $ ( 9,062,066 ) $ 6,110,290 Repurchase of common stock ( 649,570 ) ( 65 ) ( 3,936 ) - ( 4,001 ) Stock-based compensation - - 240,577 - 240,577 Net loss - - - ( 1,482,309 ) ( 1,482,309 ) Balance, September 30. 2023 12,167,930 $ 1,217 $ 15,407,715 $ ( 10,544,375 ) $ 4,864,557 The accompanying notes are an integral part of these financial statements 3 Aeluma, Inc. and Subsidiary Consolidated Statements of Cash Flows (unaudited) Three Months Ended September 30, 2024 2023 Operating activities: Net loss $ ( 729,619 ) $ ( 1,482,309 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of deferred compensation 6,981 11,957 Stock-based compensation expense 167,091 240,577 Depreciation and amortization expense 100,125 69,784 Amortization of discount on convertible notes 144,776 - Changes in fair value of derivative liabilities ( 146,435 ) - Change in accounts receivable ( 262,185 ) 178,339 Change in prepaids and other current assets ( 167,492 ) ( 204,072 ) Change in accounts payable ( 79,137 ) ( 141,911 ) Change in accrued expenses and other current liabilities 33,980 24,273 Net cash used in operating activities ( 931,915 ) ( 1,303,362 ) Investing activities: Purchase of equipment ( 1,637 ) ( 6,597 ) Payment for leasehold improvements - ( 503 ) Net cash used in investing activities ( 1,637 ) ( 7,100 ) Financing activities: Repurchase of common stock - ( 4,001 ) Proceeds from convertible notes issuance 3,145,000 - Net cash provided by (used in) financing activities 3,145,000 ( 4,001 ) Net change in cash 2,211,448 ( 1,314,463 ) Cash, beginning of period 1,291,072 5,071,690 Cash, end of period $ 3,502,520 $ 3,757,227 The accompanying notes are an integral part of these financial statements 4 Aeluma, Inc. 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 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. Going Concern 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 30, 2024. In addition, the Company is in the research and development stage and has generated limited revenue to date. In order to support its operations, the Company will require additional infusions of cash from the sale of equity instruments or the issuance of debt instruments, or the commencement of profitable revenue generating activities. If adequate funds are not available or are not available on acceptable terms, the Company’s ability to fund its operations, develop or enhance its sensors in the future or respond to competitive pressures would be significantly limited. Such limitations could require the Company to curtail, suspend or discontinue parts of its business plan. These conditions raise doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared in conformity with 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. 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. 5 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. Convertible Debt Instruments The 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. The Company amortizes the respective debt discount over the term of the notes, using the effective interest method. Fair Value of Financial Instruments As defined in Financial Accounting Standards Board (“FASB”) ASC Topic No. 820, “Fair Value Measurements and Disclosures” (“ASC 820”), fair value is the price that would be received to sell an asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses the market or income approach. Based on this approach, the Company utilizes certain assumptions about the risk inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and the reliability of the information used to determine fair values. As a basis for considering these assumptions, ASC 820 defines a three-tier value hierarchy that prioritizes the inputs used in the valuation methodologies in measuring fair value. Level 1 – Unadjusted quoted prices in active, accessible market for identical assets or liabilities Level 2 – Other inputs that are directly or indirectly observable in the marketplace Level 3 – Unobservable inputs which are supported by little or no market activity The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The carrying values of the Company’s cash, accounts receivable, accounts payable, accrued expenses and other current liabilities approximate their fair value due to the relatively short maturity of these items. 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. 6 For 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. The derivative liabilities are recognized at fair value on a recurring basis at September 30, 2024 and are Level 3 measurements. There have been no transfers between levels. Fair Value of Embedded Derivatives Beginning balance at July 1, 2024 $ - New derivative liabilities 2,193,130 Change in fair value of derivative liabilities ( 146,435 ) Ending balance at September 30, 2024 $ 2,046,695 The 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, 2024 Stock price $ 3.17 Expected volatility 118.7 % Expected term 1.7 years Dividend yield 0.00 % Risk-free interest rate 3.76 % 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: (1) identifying the contract with a customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5) recognizing revenue when, or as, the entity satisfies a performance obligation. Sales and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as 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 orders ● Government contracts: Revenue 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. 7 For 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. For 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 Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted loss per share is computed by dividing the net loss attributable to common stockholders by the sum of the weighted average number of common shares outstanding plus potential dilutive common shares outstanding during the period. Potential dilutive securities, comprised of stock warrants and stock options, are not reflected in diluted loss per share because such shares are anti–dilutive. Dilutive impact of potential common shares resulting from common stock equivalents is determined by applying the treasury stock method. Stock-Based Compensation The Company accounts for stock-based compensation arrangements in accordance with guidance issued by the FASB, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, consultants, and directors based on estimated fair values. The Company estimates the fair value of stock-based compensation awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s consolidated statements of operations. The Company estimates the fair value of stock-based compensation awards using the Black-Scholes model. This model requires the Company to estimate the expected volatility and value of its common stock and the expected term of the stock options, all of which are highly complex and subjective variables. For employees and directors, the expected life was calculated based on the simplified method as described by the SEC Staff Accounting Bulletin No. 110, Share-Based Payment. For other service providers, the expected life was calculated using the contractual term of the award. The Company’s estimate of expected volatility was based on the volatility of peers. The Company has selected a risk-free rate based on the implied yield available on U.S. Treasury securities with a maturity equivalent to the expected term of the options. The Company accounts for forfeitures upon occurrence. Income Taxes The Company is expected to have net operating loss carryforwards that it can use to offset a certain amount of taxable income in the future. The Company is currently analyzing the amount of loss carryforwards that will be available to reduce future taxable income. The resulting deferred tax assets will be offset by a valuation allowance due to the uncertainty of its realization. The primary difference between income tax expense attributable to continuing operations and the amount of income tax expense that would result from applying domestic federal statutory rates to income before income taxes relates to the recognition of a valuation allowance for deferred income tax assets. The Company has adopted FASB ASC 740-10, “ Income Taxes” which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold of more likely than not as a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a Company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. The Company’s policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. Interest and penalties totaled $ 0 for the periods presented. The Company’s net operating loss carryforwards are subject to IRS examination until they are fully utilized, and such tax years are closed. 8 The Company will file tax returns in the U.S. federal jurisdiction and the state of California. The Company’s federal and state return forms are subject to review by the taxing authorities. The Company is not currently under examination by any taxing authority, nor has it been notified of an impending examination. Recent Accounting Pronouncements The Company has evaluated all issued but not yet effective accounting pronouncements and determined that they are either immaterial or not relevant to the Company. Note 3 – Convertible Notes 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 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. The Floor 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 closings. The Investors were granted piggyback registration rights for the shares of Common Stock underlying the Note. The 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. The 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. See Fair Value of Financial Instruments in Note 2 – Summary of Significant Accounting Policies for additional information. As of September 30, 2024, the Company’s convertible notes are as follows: Principal amounts of convertible notes $ 3,145,000 Less: unamortized debt discount ( 2,048,354 ) Convertible notes, net of discount $ 1,096,646 9 Note 4 – 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 September 30, 2024. 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 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. Registration Rights Agreement The Company entered into a registration rights agreement that provides for certain liquidated damages upon the occurrence of a “Registration Event,” which is defined as the occurrence of any of the following events: (a) the Company fails to file with the Commission the Registration Statement on or before the Registration Filing Date; (b) the Registration Statement is not declared effective by the Commission on or before the Registration Effectiveness Date; (c) after the SEC Effective Date, the Registration Statement ceases for any reason to remain effective or the Holders of Registrable Securities covered thereby are otherwise not permitted to utilize the prospectus therein to resell the Registrable Securities covered thereby, except for Blackout Periods permitted herein; or (d) following the listing or inclusion for quotation on an Approved Market, the Registrable Securities, if issued and outstanding, are not listed or included for quotation on an Approved Market, or trading of the Common Stock is suspended or halted on the Approved Market, which at the time constitutes the principal markets for the Common Stock, for more than three (3) full, consecutive Trading Days (other than as a result of (A) actions or inactions of parties other than the Company or its affiliates or of the Approved Market not reasonably in the control of the Company, or (B) suspension or halt of substantially all trading in equity securities (including the Common Stock) on the Approved Market). The maximum amount of liquidated damages that may be paid by the Company shall be an amount equal to eight percent ( 8 %) of the shares covered by the registration rights agreement. This filing covered 11,010,002 shares. The Company currently expects to satisfy all of its obligations under the Registration Agreement and does not expect to pay any damages pursuant to this agreement; therefore, no liability has been recorded. Note 5 – 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. 10 For 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 9 months. The following is a schedule summarizing restricted stock awards for the periods indicated: Number of Shares Weighted Average Grant Date Fair Value per Price Beginning balance at July 1, 2024 10,597 $ 1.90 Issued - - Vested ( 3,674 ) 1.90 Forfeited - - Ending balance at September 30, 2024 6,923 $ 1.90 Number of Shares Weighted Average Grant Date Fair Value per Price Beginning balance at July 1, 2023 75,293 $ 1.97 Issued - - Vested ( 53,674 ) 1.99 Forfeited - - Ending balance at September 30, 2023 21,619 $ 1.90 Stock Options 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 prices 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. During the three months ended March 31, 2024, the Company issued 6,500 options to purchase common stock to consultants. The options 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 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 . During 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 . 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: Three Months Ended September 30, 2024 2023 Weighted-average fair value $ 2.53 $ 2.71 Expected volatility 113.9 % 104.9 % - 106.4 % 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 % 11 For 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. The following is a schedule summarizing stock option activities for the periods presented: Number of Options Weighted Average Exercise Price Aggregate Intrinsic Value (1) Outstanding at July 1, 2024 1,068,446 $ 2.41 $ 1,257,520 Granted 12,000 3.13 Exercised - - Expired/cancelled ( 23,959 ) 2.39 Outstanding at September 30, 2024 1,056,487 $ 2.42 $ 794,863 Exercisable at September 30, 2024 740,480 $ 2.35 $ 612,870 (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. Number of Options Weighted Average Exercise Price Aggregate Intrinsic Value (1) Outstanding at July 1, 2023 1,034,000 $ 2.31 $ 639,775 Granted 6,500 3.32 Exercised - - Expired/cancelled ( 45,000 ) 2.00 Outstanding at September 30, 2023 995,500 $ 2.33 $ 965,500 Exercisable at September 30, 2023 441,059 $ 2.18 $ 461,229 (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. Note 6 – 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. The lease agreement waived the first three months of rent with payments commencing July 1, 2021. 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. 12 The 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 $ 127,181 2026 173,454 2027 177,791 2028 182,235 2029 186,791 Thereafter 337,732 Total 1,185,184 Less imputed interest ( 146,687 ) Total lease liability 1,038,497 Less: lease liability, current portion 131,090 Lease liability, long term portion $ 907,407 The 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. Note 7 – Warrants to Purchase Common Stock 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 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 4,933 3.00 January 10, 2028 6,720 3.00 March 31, 2028 44,933 3.00 May 10, 2028 421,258 Note 8 – Concentration of Credit Risk and Significant Customers The 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. 13 Total 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, 2024 2023 Customer A 35.8 % * Customer B 21.5 % * Customer C 10.4 % * Customer D 10.4 % * Customer E 10.4 % * Customer F * 100.0 % Customer G * * * Less than 10% of total Accounts receivable, by percentage, from individual customers representing 10% or more of accounts receivable are set forth in the following table: As of September 30, 2024 2023 Customer A 53.4 % * Customer B * * Customer C 15.5 % * Customer D 15.5 % * Customer E 15.5 % * Customer F * * Customer G * 100.0 % * Less than 10% of total Customer A, B, C and D are government agencies. Note 9 – Subsequent Event The 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 30, 2024. 14