AELUMA, INC. FORWARD-LOOKING INFORMATION
The following information should be read in conjunction withAeluma, Inc. and its subsidiaries ("we", "us", "our", or the "Company") unaudited financial statements and the notes thereto contained elsewhere in this report. Information in this Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this Form 10-Q that does not consist of historical facts, are "forward-looking statements." Statements accompanied or qualified by, or containing words such as "may," "will," "should," "believes," "expects," "intends," "plans," "projects," "estimates," "predicts," "potential," "outlook," "forecast," "anticipates," "presume," and "assume" constitute forward-looking statements, and as such, are not a guarantee of future performance. Forward-looking statements are subject to risks and uncertainties, certain of which are beyond our control. Actual results could differ materially from those anticipated as a result of the factors described in the "Risk Factors" and detailed in our otherSecurities and Exchange Commission ("SEC") filings. Risks and uncertainties can include, among others, international, national and local general economic and market conditions: demographic changes; the ability of the Company to sustain, manage or forecast its growth; the ability of the Company to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to obtain sufficient financing to continue and expand business operations; the ability to develop technology and products; changes in technology and the development of technology and intellectual property by competitors; the ability to protect technology and develop intellectual property; and other factors referenced in this and previous filings. Consequently, investors should not place undue reliance on forward-looking statements as predictive of future results. Because of these risks and uncertainties, the forward-looking events and circumstances discussed in this report or incorporated by reference might not transpire. You should review the disclosure under the heading "Risk Factors" in other filings we make with theSEC for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
The Company disclaims any obligation to update the forward-looking statements in this report.
Overview
OnJune 22, 2021 , the Company, Acquisition Sub and Biond Photonics entered into an Agreement and Plan of Merger and Reorganization (the "Merger Agreement"). Pursuant to the terms of the Merger Agreement, onJune 22, 2021 (the "Closing Date"), Biond Photonics merged with and into Acquisition Sub, with Acquisition Sub continuing as the surviving corporation and our wholly-owned subsidiary. As a result of the Merger, we acquired the business of Biond Photonics, aCalifornia corporation, doing business asAeluma . At the time the certificates of merger reflecting the Merger were filed with the Secretaries ofState of California andDelaware (the "Effective Time"), each of Biond Photonics' shares of capital stock issued and outstanding immediately prior to the closing of the Merger was converted into the right to receive (a) 1.299135853 shares of our common stock (the "Common Share Conversion Ratio") , with the maximum number of shares of our common stock issuable to the former holders of Biond Photonics' capital stock equal to 4,100,002 after adjustments due to rounding for fractional shares. Immediately prior to the Effective Time, an aggregate of 2,500,000 shares of our common stock owned by our stockholders prior to the Merger were forfeited and cancelled (the "Stock Forfeiture").
The issuance of shares of our common stock to Biond Photonics' former security holders are collectively referred to as the "Share Conversion."
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The Merger Agreement contained customary representations and warranties and pre- and post-closing covenants of each party and customary closing conditions.
As a condition to the Merger, we entered into an indemnity agreement with our former officer and directors (the "Pre-Merger Indemnity Agreement"), pursuant to which we agreed to indemnify such former officer and directors for actions taken by them in their official capacities relating to the consideration, approval and consummation of the Merger and certain related transactions. The Merger was treated as a recapitalization and reverse acquisition for us for financial reporting purposes. Biond Photonics is considered the acquirer for accounting purposes, and our historical financial statements before the Merger were replaced with the historical financial statements of Biond Photonics before the Merger in future filings with theSEC . The Merger is intended to be treated as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended. The issuance of securities pursuant to the Share Conversion was not registered under the Securities Act, in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act, which exempts transactions by an issuer not involving any public offering, and Rule 506 of Regulation D promulgated by theSEC thereunder. These securities may not be offered or sold in theU.S. absent registration or an applicable exemption from the registration requirement and are subject to further contractual restrictions on transfer.
Prior to the Merger, the sole business purpose of the Company was to seek the acquisition of or merger with, an existing company.
As a result of the consummation of the Merger, onJune 22, 2021 ,Biond Photonics, Inc. became our wholly-owned subsidiary and the business ofBiond Photonics, Inc. became the business of the Company going forward. Accordingly, at the closing, the Company ceased to be a shell company. We develop novel optoelectronic devices for sensing and communications applications.Aeluma has pioneered a technique to manufacture devices using high performance compound semiconductor materials on large diameter silicon wafers that are commonly used to manufacture mass market microelectronics. This enables cost effective manufacturing of high performance photodetector array circuits for imaging applications in mobile devices. These devices may be used as image sensors that generate an image by detecting light, in a manner similar to a digital camera taking a picture. Our devices may incorporate additional functionality and enhanced performance to enable 3D image capture when integrated into various system architectures. This technology has the potential to greatly enhance the performance and capability of camera image sensors, LiDAR, augmented reality, facial recognition, and other applications.Aeluma has acquired a key piece of manufacturing equipment and has headquarters inGoleta, CA with a manufacturing cleanroom to house this equipment. Private Placement Offerings 2021 Offering Immediately following the Merger, we sold 3,482,500 shares of our common stock pursuant to an initial closing of a private placement offering at a purchase price of$2.00 per share (the "Offering Price"). We held a second closing onJune 28, 2021 for an additional 402,500 shares of our common stock and a third and final close onJuly 1, 2021 for an additional 115,000. Accordingly, we sold a total of 4,000,000 shares of our common stock. The private placement offering is referred to herein as the "Offering."
The aggregate gross proceeds from the three closings of the Offering were
The three closings of the Offering were exempt from registration under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated by theSEC thereunder. The common stock in the Offering was sold to "accredited investors," as defined in Regulation D, and was conducted on a "reasonable
best
efforts" basis.
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In connection with the Offering and subject to the closing of the Offering, we agreed to pay the placement agent,GP Nurmenkari Inc. (the "Placement Agent"), aU.S. registered broker-dealer, a cash placement fee of 10% of the gross proceeds raised from investors in the Offering (other than the first$630,000 of common stock sold to pre-Merger Biond Photonics shareholders and their friends and family, for which the Placement Agent received a 3% cash fee, and$170,000 of common stock sold to pre-Merger Biond Photonics friends and family for which the Placement Agent received no cash fee) and to issue to it 50,000 shares of our common stock and warrants to purchase a number of shares of our common stock equal to 10% of the number of shares of common stock sold in the Offering (other than the first$800,000 of common stock sold to pre-Merger Biond Photonics shareholders and their friends and family), with a term of five years and an exercise price of$2.00 per share (the "Placement Agent Warrants"). We also agreed to pay certain expenses of the Placement Agent in connection with the Offering. As a result of the foregoing, we paid the Placement Agent an aggregate commission of$748,900 and issued to it 50,000 shares of our common stock and Placement Agent Warrants to purchase 360,000 shares of our common stock in connection with the two closings of the Offering. We have also reimbursed the Placement Agent for approximately$265,000 of legal and other expenses incurred in connection with the Offering.
A note payable to an officer of
Subject to certain customary exceptions, we agreed to indemnify the Placement Agent to the fullest extent permitted by law against certain liabilities that may be incurred in connection with the Offering, including certain civil liabilities under the Securities Act, and, where such indemnification is not available, to contribute to the payments the Placement Agent and their sub-agents may be required to make in respect of such liabilities. 2022 Offering OnDecember 22, 2022 , we entered into subscription agreements (the "2022 Subscription Agreement") with 21 accredited investors ("Investors"), pursuant to which the Investors purchased an aggregate of 517,000 shares of our common stock, par value$0.0001 per share at a per share purchase price of$3.00 , for aggregate gross proceeds of$1,551,000 before deducting placement agent fees and expenses of the Offering of$124,385 (the "2022 Offering"). We held a second closing of the 2022 Offering onJanuary 10, 2023 , pursuant to which we issued 214,667 shares of common stock for aggregate gross proceeds of$644,000 . In connection with the 2022 Subscription Agreement, the Company also entered into a Registration Rights Agreement with the Investors, pursuant to which the Company agreed to register all of the shares of common stock issued in the 2022 Offering, including the shares of common stock underlying the warrant issued to the placement agent.
Pursuant to the 2022 Offering, the Company paid a cash placement agent fee of$134,600 and issued placement agent warrants ("2022 Placement Agent Warrants") to purchase up to 34,000 shares of common stock at an exercise price of$3.00 per share. We also agreed to pay certain expenses of the placement agent in connection with the 2022 Offering. Plan of Operations
We have been developing our materials and characterization capabilities at our headquarters inGoleta, CA , in connection with the further development of our business and the implementation of our plan of operations. We have installed some key manufacturing equipment at our headquarters and will continue to develop relationships with manufacturing partners to carry out certain steps of our manufacturing processes externally. We have gained access to a rapid prototyping facility and are leveraging this access to fabricate early-stage prototypes. In the future, we intend to implement appropriate quality and manufacturing controls. Some equipment was procured previously, and other equipment is being procured through purchase orders with equipment vendors. The COVID-19 pandemic has adversely disrupted, and may further disrupt, the operations at certain of our suppliers and other third-party providers. Lead times for certain materials and parts ordered have been longer than anticipated and on-site support for equipment maintenance has been challenging to schedule. Spare parts have been procured to minimize disruption to our development. The rapid prototyping facility that we access for development was closed for a brief period of time at the start of the COVID-19 pandemic. It has been open for unlimited access sinceAeluma has first gained access. The primary sources of funding for equipment procurement and installation are the seed funding raised prior to becoming a public company and the funding raised from our financing during June/July of 2021. We have also leveraged funds to continue strengthening our intellectual property including patent applications, trademarks, and development of trade secrets and manufacturing process recipes. We will continue to develop our manufacturing and product development strategy by further engaging customers and strategic partners.
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Limited Operating History
We cannot guarantee that the proceeds from the Offering will be sufficient to carry out all of our business plans. Our business is subject to risks inherent in growing an enterprise, including limited capital resources, risks inherent in the research and development process and possible rejection of our products
in development. If financing is not available on satisfactory terms, we may be unable to carry out all of our operations. Equity financing will result in dilution to existing stockholders. Change of Fiscal Year
On
Results of Operations
Six months ended
Our results of operations for the six-month period endedDecember 31, 2022 , as compared to the six-month period endedDecember 31, 2021 , were as follows (some balances on the prior period's combined financial statements have been reclassified to conform to the current period presentation): Six Months Ended December 31, Change '22 2022 2021 vs. '21 Revenue $ - $ - $ - Operating expenses 2,721,581 1,399,590 1,321,991 Other income 110,991 173,245 (62,254 ) Loss before income tax expense (2,610,590 ) (1,226,345 ) (1,384,245 ) Income tax expense -
- -
Net loss $ (2,610,590 ) $ (1,226,345 ) $ (1,384,245 ) Net revenue: We are pre-revenue and, accordingly recorded no revenues for either
the six months ended
Operating expenses: During the six months endedDecember 31, 2022 and 2021, we incurred$2,721,581 and$1,399,590 , respectively, of operating expenses. This increase was due to the start-up of operations and stock compensation expenses related to advisor and consulting agreements. Sub-lease rental income and other income: During the six months endedDecember 31, 2022 and 2021, the Company recorded net rental and other income of$110,991 and$173,245 , respectively. The decrease was due to the reduced rental space to a sub-lease to our tenant.
Income tax expense: The Company did not record income tax expense for either of
the six months ended
Net Loss: Net loss increased to$2,610,590 for the six months endedDecember 31,2022 , as compared to$1,226,345 for the same period of 2021 for start-up of operations and stock compensation expenses related to advisor and consulting agreements. 17
Capital Resources and Liquidity
Our financial statements have been presented on the basis that are a going
concern, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. As presented in the financial
statements, we incurred a net loss of
Management anticipates that significant additional expenditures will be necessary to develop and expand our business before significant positive operating cash flows can be achieved. Our ability to continue as a going concern is dependent upon our ability to raise additional capital and to ultimately achieve sustainable revenues and profitable operations. AtDecember 31, 2022 , we had$3,062,316 of cash on hand. These funds are insufficient to complete our business plan and, as a consequence, we will need to seek additional funds, primarily through the issuance of debt or equity securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in the case of equity financing. Management has undertaken steps as part of a plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond. These steps include (a) raising additional capital and/or obtaining financing; (b) controlling overhead and expenses; and (c) executing material sales or research contracts. There can be no assurance that the Company can successfully accomplish these steps and it is uncertain that the Company will achieve a profitable level of operations and obtain additional financing. There can be no assurance that any additional financing will be available to the Company on satisfactory terms and conditions, if at all. As of the date of this Report, we have not entered into any formal agreements regarding the above. In the event the Company is unable to continue as a going concern, the Company may elect or be required to seek protection from its creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered this alternative, nor does management view it as a likely occurrence. We had net working capital of$3,334,489 and$4,058,409 atDecember 31, 2022 andJune 30, 2022 , respectively. Current assets decreased$667,688 to$3,741,004 atDecember 31, 2022 from$4,430,848 atJune 30, 2022 , primarily due to funding operating expenses of$574,580 for the six months endedDecember 31, 2022 . Current liabilities increased$60,232 to$432,671 atDecember 31, 2022 from$372,439 atJune 30, 2022 , due primarily to a$57,283 increase in spending activities in accounts payable. The following table shows a summary of our cash flows for the periods presented: Six Months Ended December 31, Change '22 2022 2021 vs. '21 Net cash (used in) provided by Operating activities$ (2,001,195 ) $ (895,184 ) $ (1,106,011 ) Investing activities (103,826 ) (570,248 ) 466,422 Financing activities 1,426,615 161,930 1,264,685 Decrease in cash$ (678,406 ) $ (1,303,502 ) $ 625,096
Net cash used in our operating activities were
Net cash used in our investing activities was$103,826 and$570,248 for the six months endedDecember 31, 2022 and 2021, respectively. Investing activity for the six months endedDecember 31 , 2021was related to the setup of our new facility.
Our financing activities generated a cash inflow of
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Critical Accounting Policies
The preparation of financial statements in accordance withU.S. GAAP requires us to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenues and expenses in the reporting period. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. We continually review the estimates and underlying assumptions to ensure they are appropriate for the circumstances. Accounting assumptions and estimates are inherently uncertain and actual results may differ materially from our estimates. A summary of our other critical accounting policies is included in Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year endedJune 30, 2022 . During the six months endedDecember 31,2022 , there were no significant changes in our critical accounting policies.
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