Aeluma, Inc. (ALMU)

Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition
and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere
in this filing.

You should read the following discussion and analysis
of our financial condition and results of operations together with our consolidated financial statements and the related notes and other
financial information included in this report. Some of the information contained in this discussion and analysis or set forth elsewhere
in this report, including information with respect to our plans and strategy for our business, includes forward-looking statements that
involve risks and uncertainties. You should review the disclosure under the heading “Risk Factors” in other filings we make
with the SEC for a discussion of important factors that could cause actual results to differ materially from the results described in
or implied by the forward-looking statements contained in the following discussion and analysis. You should not place undue reliance on
forward-looking statements as predictive of future results.

Overview

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 substrates that are commonly used to manufacture mass market microelectronics. This enables
cost-effective manufacturing of high-performance photodetectors and photodetector array circuits for imaging applications in mobile devices,
as well as other technologies. This technology has the potential to enhance the performance and capability of camera image sensors, LiDAR,
AR/VR, facial recognition, and other applications. Additionally, Aeluma’s technology may be used to manufacture other electronic
and optoelectronic devices in the future including lasers, transistors, and solar cells.

Private Placements

Between December 2022 and May 2023, we entered
into subscription agreements (the “Subscription Agreement”) with certain accredited investors, pursuant to which we issued
an aggregate of 2,017,498 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 $6,052,500 (the “Offering”).

Pursuant to the Offering, we paid a cash placement
agent fee of $411,015 and issued placement agent warrants to purchase up to 85,653 shares of common stock at an exercise price of $3.00
per share. We also agreed to pay certain expenses of the placement agent in connection with the Offering.

In connection with the Subscription Agreement,
we also entered into a Registration Rights Agreement with the Investors, pursuant to which we agreed to register all of the shares of
common stock issued in the Offering, including the shares of common stock underlying the warrant issued to the placement agent in this
registration statement.

The closings of the Offering were exempt from
registration under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated by the SEC thereunder. 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.

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”)). The Note also provides that if there is a Sale of the Company, as defined in the Note, the Holder may elect to receive
a cash payment equal to the aggregate amount of principal then outstanding under such Holder’s Note or convert the Note into shares
of Common Stock equal to 85% of the VWAP of the Common Stock on the OTC Markets for the five trading days immediately prior to the Sale
of the Company. Although the conversion price is dependent upon the type of Conversion Event that occurs, the Note does carry a ceiling
and floor price: the applicable conversion price will not be lower than 85% of the 5-day VWAP on the applicable Closing Date (the “Floor
Price”) nor will the applicable conversion price be higher than $3.50 per share (the “Ceiling Price”); the Floor Price
and Ceiling Price shall automatically adjust in the event of a stock split or consolidation by the Company. The Floor Price for the investors
who participated in this initial closing is equal to $2.68 per share. Since the Floor Price is tied to the Closing Date, the Floor Price
may be different for investors that are part of a different closing, should the Company hold additional closings. The Investors were granted
piggyback registration rights for the shares of Common Stock underlying the Note.

7

The NPA also contains
customary representation and warranties of the Company and the Investors, indemnification obligations of the Company, termination provisions,
and other obligations and rights of the parties.

The foregoing description
of the NPA and the Note is qualified by reference to the full text of the forms of NPA and Note, which are filed as Exhibits hereto and
incorporated herein by reference.

Departure and Appointment of Directors and Officers

Mrs. Mehta decided not run for re-election in
2023; such decision was not the result of any disagreements with us on any matter related to the operations, policies, or practices of
us. The Board nominated Mr. Craig Ensley to fill the vacancy on the Board; on December 14, 2023, the shareholders voted to elect Mr. Ensley
to the board.

Plan of Operations

We have been developing our materials and characterization
capabilities at our headquarters in Goleta, California, in connection with the further development of our business and the implementation
of our plan of operations. We have installed key manufacturing equipment at our headquarters and will continue to develop relationships
with manufacturing partners to carry out certain steps of our manufacturing processes externally. 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 primary sources of funding for equipment procurement
and installation are the seed funding raised prior to becoming a public company and the funding raised from our financings. We have also
leveraged funds to continue strengthening our intellectual property including patent applications, trademarks, and development of trade
secrets and manufacturing process recipes. We will continue to develop our manufacturing and product development strategy by further engaging
customers and strategic partners.

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.

Components of Results of Operations

Revenue

Our revenue currently consists of commercial product
sales and government contracts.

Operating Expenses

The cost of revenue consists of costs of materials,
as well as direct compensation and expenses incurred to provide deliverables that resulted in payment of our success fee and wafers delivered.
We anticipate that our cost of revenue will vary substantially depending on the nature of products and/or services delivered in each customer
engagement. Research and development expenses consist primarily of compensation and related costs for personnel, including stock-based
compensation and employee benefits, costs associated with design, fabrication, packaging and testing of our devices, and facility lease
and utility expenses. We expense research and development expenses as incurred.

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General and administrative expenses consist primarily
of compensation and related costs for personnel, including stock-based compensation and employee benefits. In addition, general and
administrative expenses include third-party consulting, legal, insurance, audit and accounting services.

Other Income

Other income, net of other expenses, consists
primarily of interest income and income generated from subleasing a portion of our research and development facility. The sub-lease ended
in March 2023

Income Tax Expense

Income tax expense consists primarily of income taxes in certain state
jurisdictions in which we conduct business.

Results of Operations

Year ended June 30, 2024 compared to the
year ended June 30, 2023

Our results of operations for the year ended June
30, 2024, as compared to the year ended June 30, 2023, were as follows:

Revenue: Revenue increased $725,215, or
375.1 %, to $918,554, of which $64,756 was from commercial product and service contracts and $853,798 was from government contracts, for
the year ended June 30, 2024 from $193,339, of which $15,000 was from commercial product and service contracts and $178,339 was from government
contracts, for the same period in 2023.

Operating expenses: Operating expense decreased
$221,162, or 3.9%, to $5,481,862 for the year ended June 30, 2024 from $5,703,024 for the same period in 2023, due primarily to a reduction
in consulting expenses, offset partially by increased salaries and stock-based compensation expenses.

Other income: Other income decreased $129,090,
99.2%, to $1,013 for the year ended June 30, 2024 from $130,103 for the same period in 2023. The decrease was due primarily to a $128,921
decrease in sub-lease income as the sublease ended in March 2023.

Income tax expense: We did not record income
tax expense for either of the years ended June 30, 2024 and 2023.

Capital Resources and Liquidity

Our financial statements have been presented on
the basis that are a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course
of business. As presented in the financial statements, we incurred a net loss of $4,562,295 and $5,379,582 for the years ended June 30,
2024 and 2023, respectively, and losses are expected to continue in the near term. The accumulated deficit was $13,624,361 at June 30,
2024. We have been funding our operations through the sale of common stock in private placement transactions.

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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. At June 30, 2024, we had $1,291,072 of cash and cash equivalents.
These funds are insufficient to complete our business plan and as a consequence, we will need to seek additional funds, primarily through
the issuance of debt or equity securities for cash to operate our business. No assurance can be given that any future financing will be
available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing,
it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders,
in the case of equity financing.

Management has undertaken steps as part of a plan
to improve operations with the goal of sustaining our operations for the next twelve months and beyond. These steps include (a) raising
additional capital and/or obtaining financing; (b) controlling overhead and expenses; (c) executing material sales or research contracts;
and (d) pursuing additional sales and contracts. There can be no assurance that we can successfully accomplish these steps and it is uncertain
that we will achieve a profitable level of operations and obtain additional financing. There can be no assurance that any additional financing
will be available to us on satisfactory terms and conditions, if at all. As of the date of this Report, we have not entered into any formal
agreements regarding the above.

In the event we are unable to continue as a going
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 working capital of $766,160  and $4,576,807 at June 30, 2024
and 2023, respectively. Current assets decreased $3,941,060 to $1,392,846 at June 30, 2024 from $5,333,906 at June 30, 2023, primarily
due to a $3,780,618 decrease in cash. Current liabilities decreased $130,413 to $626,686 at June 30, 2024 from $757,099 at June 30, 2023,
due primarily to decreases in accounts payable.

The following table shows a summary of our cash
flows for the periods presented:

Net cash used in our operating activities were
$3,454,779 and $3,637,972 for the years ended June 30, 2024 and 2023, respectively, due primarily to net losses of $4,562,295 and $5,379,582
for the years ended June 30, 2024 and 2023, respectively.

Net cash used in our investing activities was
$321,838 and $672,545 for the years ended June 30, 2024 and 2023, respectively. Investing activities include purchase of equipment and
payment for leasehold improvements.

Net cash used in our financing activities was
$4,001 for the year ended June 30, 2024 and net cash provided by our financing activities was $5,641,485 for the year ended June 30, 2023.
We paid $4,001 to purchase Lee McCarthy’s unvested restricted shares for the year ended June 30, 2024 and received $5,641,284
from Private Placements, net of $411,015 offering cost.

Recent Accounting
Pronouncements

The Company has evaluated all issued but not
yet effective accounting pronouncements and determined that they are either immaterial or not relevant to the Company.

Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.

The following discussion of our financial
condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included
elsewhere in this filing.

You should read the following discussion and
analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes
and other financial information included in this report. Some of the information contained in this discussion and analysis or set forth
elsewhere in this report, including information with respect to our plans and strategy for our business, includes forward-looking statements
that involve risks and uncertainties as described under the heading “Forward-Looking Statements” elsewhere in this report.
You should review the disclosure under the heading “Risk Factors” in other filings we make with the SEC for a discussion
of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking
statements contained in the following discussion and analysis.

Overview

On June 22, 2021, we, Acquisition Sub and Biond
Photonics, entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”). Pursuant to the terms
of the Merger Agreement, on June 22, 2021, Biond Photonics merged with and into Acquisition Sub, with Acquisition Sub continuing as the
surviving corporation and our wholly owned subsidiary.

As a result of the Merger, we acquired the business
of Biond Photonics, a California corporation, doing business as Aeluma. See “Description of Business” above.
At the time the certificates of merger reflecting the Merger were filed with the Secretaries of State of California and Delaware,
each of Biond Photonics’ shares of capital stock issued and outstanding immediately prior to the closing of the Merger was converted
into the right to receive (a) 1.299135853 shares of our common stock (the “Common Share Conversion Ratio”), with the maximum
number of shares of our common stock issuable to the former holders of Biond Photonics’ capital stock equal to 4,100,002 after
adjustments due to rounding for fractional shares. Immediately prior to the effectiveness of the Merger, an aggregate of 2,500,000 shares
of our common stock owned by the stockholders of Parc Investments, Inc. prior to the Merger were forfeited and cancelled (the “Stock
Forfeiture”).

The issuance of shares of our common stock to
Biond Photonics’ former security holders are collectively referred to as the “Share Conversion.”

6

The Merger Agreement contained customary representations
and warranties and pre- and post-closing covenants of each party and customary closing conditions.

As a condition to the Merger, we entered into
an indemnity agreement with our former officer and directors (the “Pre-Merger Indemnity Agreement”), pursuant to which we
agreed to indemnify such former officer and directors for actions taken by them in their official capacities relating to the consideration,
approval and consummation of the Merger and certain related transactions.

The Merger was treated as a recapitalization
and reverse acquisition for us for financial reporting purposes. Biond Photonics is considered the acquirer for accounting purposes,
and our historical financial statements before the Merger were replaced with the historical financial statements of Biond Photonics before
the Merger in filings with the SEC. The Merger is intended to be treated as a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended.

The issuance of securities pursuant to the Share
Conversion was not registered under the Securities Act, in reliance upon the exemption from registration provided by Section 4(a)(2)
of the Securities Act, which exempts transactions by an issuer not involving any public offering, and Rule 506 of Regulation D
promulgated by the SEC thereunder. These securities may not be offered or sold in the U.S. absent registration or an applicable exemption
from the registration requirement and are subject to further contractual restrictions on transfer.

Prior to the Merger, our sole business purpose
was to seek the acquisition of or merger with, an existing company.

As a result of the consummation of the Merger,
on June 22, 2021, Biond Photonics, Inc. became our wholly owned subsidiary and the business of Biond Photonics, Inc. became our business
going forward. Accordingly, at the closing, we ceased to be a shell company.

Aeluma develops novel optoelectronic devices
for sensing and communications applications. 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 headquarter in
Goleta, California with a manufacturing cleanroom to house this equipment.

The Private Placement Following the Merger

Immediately following the Merger, we sold 3,482,500
shares of our common stock pursuant to an initial closing of a private placement offering at a purchase price of $2.00 per share (the
“Offering Price”). We held a second closing on June 28, 2021 for an additional 402,500 shares of our common stock and a third
and final closing on July 1, 2021 for an additional 115,000. Accordingly, we sold a total of 4,000,000 shares of our common stock. This
private placement offering is referred to herein as the “Merger Offering.”

The aggregate gross proceeds from the three closings
of the Merger Offering were $8,000,000 (before deducting placement agent fees and expenses of the Merger Offering).

The three closings of the Merger Offering were
exempt from registration under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated by the SEC
thereunder. The common stock in the Merger Offering was sold to “accredited investors,” as defined in Regulation D,
and was conducted on a “reasonable best efforts” basis.

In connection with the Merger Offering and subject
to the closing of the Merger Offering, we agreed to pay the placement agent, GP Nurmenkari Inc. (the “Placement Agent”),
a U.S. registered broker-dealer, a cash placement fee of 10% of the gross proceeds raised from investors in the Merger Offering (other
than the first $630,000 of common stock sold to pre-Merger Biond Photonics shareholders and their friends and family, for which the Placement
Agent received a 3% cash fee, and $170,000 of common stock sold to pre-Merger Biond Photonics friends and family for which the Placement
Agent received no cash fee) and to issue to it 50,000 shares of our common stock and warrants to purchase a number of shares of our common
stock equal to 10% of the number of shares of common stock sold in the Merger Offering (other than the first $800,000 of common stock
sold to pre-Merger Biond Photonics shareholders and their friends and family), with a term of five years and an exercise price of $2.00
per share (the “Placement Agent Warrants”). We also agreed to pay certain expenses of the Placement Agent in connection with
the Merger Offering.

7

As a result of the foregoing, we paid the Placement
Agent an aggregate commission of $748,900 and issued to it 50,000 shares of our common stock and Placement Agent Warrants to purchase
360,000 shares of our common stock in connection with the two closings of the Merger Offering. We have also reimbursed the Placement
Agent for approximately $265,000 for legal and other expenses incurred in connection with the Merger Offering.

A note payable to an officer of Parc Investments,
Inc. in the amount of $50,000 was repaid directly from the proceeds from the Merger Offering.

Subject to certain customary exceptions, we have
agreed to indemnify the Placement Agent to the fullest extent permitted by law against certain liabilities that may be incurred in connection
with the Offering, including certain civil liabilities under the Securities Act, and, where such indemnification is not available, to
contribute to the payments the Placement Agent and their sub-agents may be required to make in respect of such liabilities.

Recent Private Placement

Between December 2022 and May 2023, we entered
into subscription agreements (the “Subscription Agreement”) with certain accredited investors, pursuant to which we issued
an aggregate of 2,017,498 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 $6,052,500 (the “Offering”).

In connection with the Subscription Agreement,
we also entered into a Registration Rights Agreement with the Investors, pursuant to which we agreed to register all of the shares of
common stock issued in the Offering, including the shares of common stock underlying the warrant issued to the placement agent in this
registration statement. (See, Description of Securities – Registration Rights Agreement)

Pursuant to the Offering, we paid a cash placement
agent fee and expenses in the amount of $411,015 and issued placement agent warrants (“Placement Agent Warrants”) to purchase
up to an aggregate of 85,653 shares of common stock at an exercise price of $3.00 per share.

The Subscription Agreement also contains customary
representation and warranties of us and the Investors, indemnification obligations of us, termination provisions, and other obligations
and rights of the parties.

The foregoing description of the Subscription
Agreement, Registration Rights Agreement and form of Placement Agent Warrants is qualified by reference to the full text of the forms
of Subscription Agreement, Registration Rights Agreement and form of Placement Agent Warrants, which are filed as Exhibits hereto and
incorporated herein by reference.

Departure and Appointment of Directors and Officers

Our board of directors is authorized to have
five members. As of the effectiveness of the Merger, Mr. Ian Jacobs and Mr. Mark Tompkins resigned from our board of directors, and Mr.
Jonathan Klamkin, Mr. Lee McCarthy and Mr. Steven DenBaars were appointed to our board of directors. Mr. DenBaars is a Class I director.

Also, as of the effectiveness of the Merger,
Mr. Jacobs resigned from all officer positions with us, and Jonathan Klamkin was appointed as our President and Chief Executive Officer,
Lee McCarthy was appointed as our interim Chief Financial Officer and Chief Operating Officer.

8

Mr. McCarthy resigned from his position as interim
Chief Financial Officer on August 18, 2021 and from his directorship on December 1, 2021. To fill Mr. McCarthy’s vacancy on the
board, we appointed Ms. Palvi Mehta. Ms. Mehta is a Class II director.

On December 1, 2021, we also appointed Mr. John
Paglia to the board of directors; Mr. Paglia is a Class I director.

On November 8, 2022, Lee McCarthy provided notice
of his resignation as our Chief Operating Officer effective November 17, 2022. Mr. McCarthy’s decision to resign was not the
result of any disagreements with us on any matter related to the operations, policies, or practices of us.

Plan of Operations

We have been developing our materials and characterization
capabilities at our headquarters in Goleta, California, 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 primary sources of funding for equipment
procurement and installation are the seed funding raised prior to becoming a public company and the funding raised from our financings.
We have also leveraged funds to continue strengthening our intellectual property including patent applications, trademarks, and development
of trade secrets and manufacturing process recipes. We will continue to develop our manufacturing and product development strategy by
further engaging customers and strategic partners.

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.

Components of Results of Operations

Revenue

Our revenue currently consists of commercial
product sales and government contracts. For the year ended June 30, 2023, products are sold as samples and government contracts are primarily
for research and development.

Operating Expenses

The cost of revenue consists of costs of materials,
as well as direct compensation and expenses incurred to provide deliverables that resulted in payment of our success fee and wafers delivered.
We anticipate that our cost of revenue will vary substantially depending on the nature of products and/or services delivered in each
customer engagement.

Research and development
expenses consist primarily of compensation and related costs for personnel, including stock-based compensation and employee benefits
as well as costs associated with design, fabrication, packaging and testing of our devices. We expense research and development expenses
as incurred.

General and administrative expenses consist primarily
of compensation and related costs for personnel, including stock-based compensation and employee benefits. In addition, general
and administrative expenses include third-party consulting, legal, audit and accounting services.

9

Facility expenses consist primarily of lease
and utility expenses at our headquarters in Goleta, California and insurance expenses consist mainly of directors and officers insurance.

Other Income

Other income, net of other expenses, consists
primarily of income generated from subleasing a portion of our research and development facility.

Income Tax Expense

Income tax expense consists primarily of
income taxes in certain state jurisdictions in which we conduct business.

Results of Operations

Year ended June 30, 2023 compared to the
year ended June 30, 2022

Our results of operations for the year ended
June 30, 2023, as compared to the same period of 2022, were as follows (some of the balances on the prior period’s combined financials
statements have been reclassified to conform to the current period presentation):

Revenue: The company recognized its first
revenue of $193,339, consisting of $15,000 from product sales and $178,339 from a government contract.

Operating Expenses: During the years ended
June 30, 2023 and 2022, we incurred operating expenses of $5,703,024 and $3,733,522, respectively. This increase was mainly due to increased
salaries and stock-based compensation resulting from additional employees hired to support our growth and increased costs related to
research and development activities.

Other income: During the years ended June
30, 2023 and 2022, we recorded other income of $130,103 and $281,823, respectively. The decrease was primarily due to a decrease in sub-lease
rental income. The sub-lease ended in March 2023.

Income tax expense: We recorded no income
tax expense for the years ended June 30, 2023 and 2022.

Net Loss: Net loss increased to $5,379,582
for the year ended June 30, 2023, as compared to $3,451,699 for the same period of 2022. The increase was primarily due to increases
in operating expenses resulting increased salaries and stock-based compensation, and research and development activities.

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 $5,379,582 and $3,451,699 for the years ended June 30,
2023 and 2022, respectively, and losses are expected to continue in the near term. The accumulated deficit was $9,062,066 at June 30,
2023. We have been funding our operations through private loans and the sale of common stock in private placement transactions.

10

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. At June 30, 2023, we had $5,071,690 of cash on hand. These funds are insufficient to complete our
business plan and as a consequence, we will need to seek additional funds, primarily through the issuance of debt or equity securities
for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will
be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our
operations, in the case of debt financing or cause substantial dilution for our stockholders, in the case of equity financing.

Management has undertaken steps as part of a
plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond. These steps include (a)
raising additional capital and/or obtaining financing; (b) controlling overhead and expenses; and (c) executing material sales or research
contracts. There can be no assurance that we can successfully accomplish these steps and it is uncertain that we will achieve a profitable
level of operations and obtain additional financing. There can be no assurance that any additional financing will be available to us
on satisfactory terms and conditions, if at all. As of the date of this Report, we have not entered into any formal agreements regarding
the above.

In the event we are unable to continue as a going
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 working capital of $4,576,807 and $4,058,409
at June 30, 2023 and 2022, respectively. Current assets increased $903,058 to $5,333,906 at June 30, 2023 from $4,430,848 at June 30,
2022, primarily due to the private placement described above. Current liabilities increased $384,660 to $757,099 at June 30, 2023 from
$372,439 at June 30, 2022, due to increases in accounts payable.

The following table shows a summary of our cash
flows for the periods presented:

Net cash used in our operating activities increased
$1,385,181 to $3,637,972 for the year ended June 30, 2023, compared to $2,252,791 for the same period in 2022, primarily due to a $1,927,883
increase in net loss. The decrease was reduced mainly by non-cash expense increases of $258,000 in consultant expense, $244,433 in stock-based
compensation expense, and $302,172 in accounts payable.

Net cash used in our investing activities were
$672,545 and $955,667 for the years ended June 30, 2023 and 2022, respectively. Investing activities for the periods presented are related
to the equipment purchases and the setup of our facility.

Our financing activities resulted in a cash inflow
of $5,641,485 and 161,930 for the years ended June 30, 2023 and 2022, respectively. Financing activities for the periods presented are
proceeds from the sale of common stock in private placements.

Recent Accounting Pronouncements

The Company has evaluated all issued but not yet effective accounting
pronouncements and determined that they are either immaterial or not relevant to the Company.

Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The
following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial
statements and the related notes included elsewhere in this filing.

You
should read the following discussion and analysis of our financial condition and results of operations together with our consolidated
financial statements and the related notes and other financial information included in this report. Some of the information contained
in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for
our business, includes forward-looking statements that involve risks and uncertainties as described under the heading “Forward-Looking
Statements” elsewhere in this report. You should review the disclosure under the heading “Risk Factors” in other filings
we make with the SEC for a discussion of important factors that could cause actual results to differ materially from the results described
in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

On
June 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, on June 22, 2021 (the “Closing Date”), Biond
Photonics merged with and into Acquisition Sub, with Acquisition Sub continuing as the surviving corporation and our wholly owned subsidiary.

As
a result of the Merger, we acquired the business of Biond Photonics, a California corporation, doing business as Aeluma. See “Description
of Business” above. At the time the certificates of merger reflecting the Merger were filed with the
Secretaries of State of California and Delaware (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 the stockholders of Parc Investments,
Inc. prior to the Merger were forfeited and cancelled (the “Stock Forfeiture”).

The
issuance of shares of our common stock to Biond Photonics’ former security holders are collectively referred to as the “Share
Conversion.”

The
Merger Agreement contained customary representations and warranties and pre- and post-closing covenants of each party and customary closing
conditions.

As
a condition to the Merger, we entered into an indemnity agreement with our former officer and directors (the “Pre-Merger Indemnity
Agreement”), pursuant to which we agreed to indemnify such former officer and directors for actions taken by them in their official
capacities relating to the consideration, approval and consummation of the Merger and certain related transactions.

The
Merger was treated as a recapitalization and reverse acquisition for us for financial reporting purposes. Biond Photonics is considered
the acquirer for accounting purposes, and our historical financial statements before the Merger were replaced with the historical financial
statements of Biond Photonics before the Merger in filings with the SEC. The Merger is intended to be treated as a tax-free reorganization
under Section 368(a) of the Internal Revenue Code of 1986, as amended.

The
issuance of securities pursuant to the Share Conversion was not registered under the Securities Act, in reliance upon the exemption from
registration provided by Section 4(a)(2) of the Securities Act, which exempts transactions by an issuer not involving any public
offering, and Rule 506 of Regulation D promulgated by the SEC thereunder. These securities may not be offered or sold in the
U.S. absent registration or an applicable exemption from the registration requirement and are subject to further contractual restrictions
on transfer.

7

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, on June 22, 2021, Biond Photonics, Inc. became our wholly owned subsidiary and the business
of Biond 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 in Goleta, CA with a manufacturing cleanroom to house this equipment.

The
Private Placement 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. We held a second closing on June 28, 2021 for an additional 402,500 shares of our common stock and
a third and final close on July 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 $8,000,000 (before deducting placement agent fees and expenses of the Offering).

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 the SEC thereunder. The common stock in the Offering was sold to “accredited investors,” as defined in Regulation D,
and was conducted on a “reasonable best efforts” basis.

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”), a U.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 $725,900 during the six months ended June 30, 2021 and issued
to it 50,000 shares of our common stock and Placement Agent Warrants to purchase 348,500 shares of our common stock
in connection with the Offering during the six months ended June 30, 2021. We have also reimbursed the Placement Agent and paid for legal
fees totaling $233,605 out of the proceeds from the capital raise in connection with the Offering.

A note payable
to an officer of Parc Investments, Inc. in the amount of $50,000 was repaid directly from the proceeds from the Offering.

The aggregate gross proceeds from the Offering
during the twelve months ended June 30, 2022 were $206,930, which is net of offering placement agent fees and expenses of $23,070. We
also paid additional offering costs totaling $45,000 during the twelve months ended June 30, 2022.

Subject
to certain customary exceptions, we have agreed to indemnify the Placement Agent to the fullest extent permitted by law against
certain liabilities that may be incurred in connection with the Offering, including certain civil liabilities under the Securities Act,
and, where such indemnification is not available, to contribute to the payments the Placement Agent and their sub-agents may be required
to make in respect of such liabilities.

8

Plan
of Operations

We have been developing our materials and characterization
capabilities at our headquarters in Goleta, 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 since Aeluma 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.

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
June 30, 2021, we changed our fiscal year from the period beginning on January 1 and ending on December 31 to the period beginning on
July 1 and ending on June 30 of each year, effective immediately. Accordingly, we filed a Transition Report on Form 10-K/T on September
27, 2021, to include audited consolidated financial information for the transition period from January 1, 2021 through June 30, 2021.

Results
of Operations

Twelve
months ended June 30, 2022, the six months ended June 30, 2021, and twelve months ended December 31, 2020

Our
results of operations for the twelve months ended June 30, 2022, as compared to the six months ended June 30, 2021, and twelve months
ended December 31, 2020, were as follows (some of the balances on the prior period’s combined financials statements have been reclassified
to conform to the current period presentation):

9

Net
Revenues: We are pre-revenue and, accordingly recorded no revenues for the twelve months ended June 30, 2022, the six months ended
June 30, 2021, or the twelve months ended December 31, 2020.

Operating
Expenses: During the twelve months ended June 30, 2022, the six months ended June 30, 2021, and the twelve months ended December
31, 2020, we incurred $3,733,522, $255,853 and $11,670 of operating expenses, respectively. 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 twelve months ended June 30, 2022, the six months ended June 30, 2021, and the twelve
months ended December 31, 2020, the company recorded $281,823, $39,450, and $1,000 of rental and other income, respectively. The year
over year increases were due to the rental of our new facility and a related sub-lease to our tenant.

Provision
for income tax: The Company recorded no provision for income tax for the twelve months ended June 30, 2022, $800 for the six months
ended June 30, 2021, and the twelve months ended December 31, 2020.

Net
Loss: Net loss increased to $3,451,699 for the twelve months ended June 30, 2022, as compared to $217,203 for the six months ending
June 30, 2021 and $13,470 for the twelve months ended December 31, 2020. The year over year increase was due to the start-up of operations
and stock-based compensation expenses related to advisor and consulting agreements.

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 $3,451,699, $217,203
and $13,470 for the twelve months ended June 30, 2022, the six months ended June 30, 2021 and the twelve months ended December 31, 2020,
respectively, and losses are expected to continue in the near term. The accumulated deficit was $3,586,435 at June 30, 2022. We have
been funding our operations through private loans and the sale of common stock in private placement transactions. Refer to Notes 4 through
6 in the financial statements for our discussion of notes payable and shares issued.

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. At June 30, 2022, we had $3,740,722 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.

10

Cash,
total current assets, total assets, total current liabilities and total liabilities as of June 30, 2022, June 30, 2021 and December 31,
2020, were as follows:

We
had working capital (deficit) of $4,058,409, $7,185,135 and ($109,607) at June 30, 2022, June 30, 2021 and December 31, 2020, respectively.
Current assets decreased $3,041,387 to $4,430,848 at June 30, 2022 from $7,472,235 at June 30, 2021, primarily due to $3,451,699 net
loss for the twelve months ended June 30, 2022. Current assets increased $7,433,933 to $7,472,235 at June 30, 2021 from $38,302 at December
31, 2020, primarily as a result of the private placement described above. Current liabilities increased $85,339 to $372,439 at June 30,
2022 from $287,100 at June 30, 2021, due to increases in accounts payable and accrued expenses. Current liabilities increased $139,191
to $287,100 at June 30, 2021 from $147,909 at December 31, 2020, primarily as a result of the facility lease agreement the Company entered
into.

Net
cash used in our operating activities were $2,252,791, $68,394 and $1,377 for the twelve months ended June 30, 2022, the six months ended
June 30, 2021 and the twelve months ended December 31, 2020, respectively, primarily due to net losses of $3,451,699, $217,203 and $13,470
for the twelve months ended June 30, 2022, the six months ended June 30, 2021 and the twelve months ended December 31, 2020, respectively,

Net
cash used in our investing activities were $955,667, $27,253 and $106,228 for the twelve months ended June 30, 2022, the six months ended
June 30, 2021 and the twelve months ended December 31, 2020, respectively. Investing activity for the periods presented related to the
setup of our new facility.

Our
financing activities resulted in a cash inflow of $161,930, $6,844,595 and $145,701 for the twelve months ended June 30, 2022, the six
months ended June 30, 2021 and the twelve months ended December 31, 2020, respectively. Financing activities for the twelve months ended
June 30, 2022 and the six months ended June 30, 2021 are primarily from Offering described above. Financing activities for the twelve
months ended December 31, 2020 are proceeds from advances and sale of common stock.

Recent
Accounting Pronouncements

Changes
to accounting principles are established by the FASB in the form of ASU’s to the FASB’s Codification. We consider the applicability
and impact of all ASU’s on our consolidated financial position, results of operations, stockholders’ deficit, cash flows,
or presentation thereof.

In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in “Leases
(Topic 840)” and generally requires all leases to be recognized in the balance sheet.

In
April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606), which amends certain aspects of the Board’s
new revenue standard, ASU 2014-09, Revenue from Contracts with Customers.  The Company does not currently generate revenue.

All
other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.

Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operation. Overview of our Business

Parc
Investments, Inc. was incorporated in the State of Delaware on August 21, 2020. Since inception, the Company has been engaged
in organizational efforts and obtaining initial financing. The Company was formed as a vehicle to pursue a business combination.
The Company filed a registration statement on Form 10 with the SEC on October 21, 2020, and since its effectiveness, the Company
has focused its efforts to identify a possible business combination.

The
Company is currently considered to be a “blank check” company. The SEC defines those companies as “any development
stage company that is issuing a penny stock, within the meaning of Section 3(a)(51) of the Exchange Act, and that has no specific
business plan or purpose, or has indicated that its business plan is to merge with an unidentified company or companies.”
Many states have enacted statutes, rules and regulations limiting the sale of securities of “blank check” companies
in their respective jurisdictions. The Company is also a “shell company,” defined in Rule 12b-2 under the Exchange
Act as a company with no or nominal assets (other than cash) and no or nominal operations. Management does not intend to undertake
any efforts to cause a market to develop in our securities, either debt or equity, until we have successfully concluded a business
combination. The Company intends to comply with the periodic reporting requirements of the Exchange Act for so long as we are
subject to those requirements.

In
addition, the Company is an “emerging growth company,” as defined in the JOBS Act, and may take advantage of certain
exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth
companies” including, but not limited to, not being required to comply with the auditor attestation requirements of section
404(b) of the Sarbanes-Oxley Act, and exemptions from the requirements of Sections 14A(a) and (b) of the Exchange Act to hold
a nonbinding advisory vote of shareholders on executive compensation and any golden parachute payments not previously approved.

7

The
Company has also elected to use the extended transition period for complying with new or revised accounting standards under Section
102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different
effective dates for public and private companies until those standards apply to private companies. As a result of this election,
our financial statements may not be comparable to companies that comply with public company effective dates.

We
will remain an “emerging growth company” until the earliest of (1) the last day of the fiscal year during which our
revenues equal $1.07 billion or more, (2) the date on which we issue more than $1 billion in non-convertible debt in a three year
period, (3) the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common equity
securities pursuant to an effective registration statement filed pursuant to the Securities Act, or (4) when the market value
of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed
second fiscal quarter. To the extent that we continue to qualify as a “smaller reporting company,” as such term is
defined in Rule 12b-2 under the Exchange Act, after we cease to qualify as an emerging growth company, certain of the exemptions
available to us as an emerging growth company may continue to be available to us as a smaller reporting company, including: (1)
not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes Oxley Act; (2) scaled
executive compensation disclosures; and (3) the requirement to provide only two years of audited financial statements, instead
of three years.

The
Company has not conducted any active operations since inception, except for its efforts to locate suitable acquisition candidates.
No revenue has been generated by the Company since inception. It is unlikely the Company will have any revenues unless it is able
to effect an acquisition or merger with an operating company, of which there can be no assurance. The Company’s plan of
operation for the remainder of the fiscal year shall be to continue its efforts to locate suitable acquisition candidates. Our
principal business objective for the next 12 months and beyond such time will be to achieve long-term growth potential through
a combination with a business rather than immediate, short-term earnings. The Company will not restrict our potential candidate
target companies to any specific business, industry or geographical location and, thus, may acquire any type of business.

The
Company does not currently engage in any business activities that provide cash flow. The costs of investigating and analyzing
business combinations for the next 12 months and beyond such time will be paid with funds to be loaned to or invested in us by
our stockholders, management or other investors.

The
Company currently does not engage in any business activities that provide cash flow. During the next twelve months, we anticipate
incurring costs related to:

We
believe we will be able to meet these costs through use of funds to be loaned by or invested in us by our stockholders, management
or other investors. There are no assurances that such funds will be advanced or that the Company will be able to secure any additional
funding as needed. On August 21, 2020, in connection with advances made regarding costs incurred by the Company, the Company issued
a promissory note to Mark Tompkins, a stockholder and director of the Company, pursuant to which the Company agreed to repay Mr.
Tompkins the sum of any and all amounts that Mr. Tompkins may advance to the Company on or before the date that the Company consummates
a business combination with a private company or reverse takeover transaction or other transaction after which the Company would
cease to be a shell company (as defined in Rule 12b-2 under the Exchange Act). The Company has used the proceeds from the note
to cover its expenses. Although Mr. Tompkins has no obligation to advance funds to the Company under the terms of the note, it
is anticipated that he may advance funds to the Company as fees and expenses are incurred in the future. As a result, the Company
issued the note in anticipation of such advances. Interest shall not accrue on the outstanding principal amount of the note except
if an Event of Default (as defined in the note) has occurred. In the event of an Event of Default, the entire note shall automatically
become due and payable (the “Default Date”), and starting from five (5) days after the Default Date, the interest
rate on the note shall accrue at the rate of eighteen percent (18%) per annum. As of December 31, 2020, the total amount due under
the note was $35,000. We currently have no other agreements or specific arrangements in place with our stockholders, management
or other investors.

8

Our
ability to continue as a going concern is dependent upon our ability to generate future profitable operations and/or to obtain
the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come
due. Our ability to continue as a going concern is also dependent on our ability to find a suitable target company and enter into
a possible reverse merger with such company. Management’s plan includes obtaining additional funds by equity financing through
a reverse merger transaction and/or related party advances, however there is no assurance of additional funding being available.

The
Company, as of December 31, 2020, had $3,325 in cash and has not earned any revenues from operations to date. In the next 12 months,
we expect to incur expenses equal to approximately $40,000 related to legal, accounting, audit, and other professional service
fees incurred in relation to the Company’s Exchange Act filing requirements. The costs related to the acquisition of a business
combination target company vary widely and are dependent on a variety of factors including, but not limited to, the amount of
time it takes to complete a business combination, the location of the target company, the size and complexity of the business
of the target company, whether stockholders of the Company prior to the transaction will retain equity in the Company, the scope
of the due diligence investigation required, the involvement of the Company’s auditors in the transaction, possible changes
in the Company’s capital structure in connection with the transaction, and whether funds may be raised contemporaneously
with the transaction. Therefore, we believe such costs are unascertainable until the Company identifies a business combination
target. These conditions raise substantial doubt about our ability to continue as a going concern. The Company is currently devoting
its efforts to locating merger candidates. The Company’s ability to continue as a going concern is dependent upon our ability
to develop additional sources of capital, locate and complete a merger with another company, and ultimately, achieve profitable
operations.

The
Company may consider acquiring a business which has recently commenced operations, is a developing company in need of additional
funds for expansion into new products or markets, is seeking to develop a new product or service, or is an established business
which may be experiencing financial or operating difficulties and is in need of additional capital. Our management believes that
the public company status that results from a combination with the Company will provide such company greater access to the capital
markets, increase its visibility in the investment community, and offer the opportunity to utilize its stock to make acquisitions.
There is no assurance that we will in fact have access to additional capital or financing as a public company. In the alternative,
a business combination may involve the acquisition of, or merger with, a company which does not need substantial additional capital,
but which desires to establish a public trading market for its shares, while avoiding, among other things, the time delays, significant
expense, and loss of voting control which may occur in a public offering.

Any
target business we select for a potential business combination may be a financially unstable company or an entity in its early
stages of development or growth, including entities without established records of sales or earnings. In that event, we will be
subject to numerous risks inherent in the business and operations of financially unstable and early stage or potential emerging
growth companies. In addition, we may effect a business combination with an entity in an industry characterized by a high level
of risk, and, although our management will endeavor to evaluate the risks inherent in a particular target business, there can
be no assurance that we will properly ascertain or assess all significant risks.

Our
management anticipates that it will likely be able to effect only one business combination, due primarily to our limited financing
and the dilution of interest for present and prospective stockholders, which is likely to occur as a result of our management’s
plan to offer a controlling interest to a target business in order to achieve a tax-free reorganization. This lack of diversification
should be considered a substantial risk in investing in us, because it will not permit us to offset potential losses from one
venture against gains from another.

The
Company anticipates that the selection of a business combination will be complex and extremely risky. While the Company is in
a competitive market with a small number of business opportunities, through information obtained from industry professionals including
attorneys, investment bankers, and other consultants with experience in the reverse merger industry, our management believes that
there are opportunities for a business combination with firms seeking the perceived benefits of becoming a publicly traded corporation.
Such perceived benefits of becoming a publicly traded corporation include, among other things, facilitating or improving the terms
on which additional equity financing may be obtained, providing liquidity for the principals of and investors in a business, creating
a means for providing incentive stock options or similar benefits to key employees, and offering greater flexibility in structuring
acquisitions, joint ventures and the like through the issuance of stock. Potentially available business combinations may occur
in many different industries and at various stages of development, all of which will make the task of comparative investigation
and analysis of such business opportunities extremely difficult and complex.

9

We
do not currently intend to retain any entity to act as a “finder” to identify and analyze the merits of potential
target businesses. However, we contemplate that Montrose Capital may introduce business combination opportunities to us. There
are currently no agreements or preliminary agreements between us and Montrose Capital.

We
have not established a specific timeline nor have we created a specific plan to identify an acquisition target and consummate
a business combination. We expect that our management and the Company, through its various contacts and affiliations with other
entities, including Montrose Capital, will locate a business combination target. We expect that funds in the amount of approximately

$40,000
will be required in order for the Company to satisfy its Exchange Act reporting requirements during the next 12 months, in addition
to any other funds that will be required in order to complete a business combination. Such funds can only be estimated upon identifying
a business combination target. Our management and stockholders have indicated an intent to advance funds on behalf of the Company
as needed in order to accomplish its business plan and comply with its Exchange Act reporting requirements, however, there are
no agreements in effect between the Company and our management or stockholders specifically requiring they provide any funds to
the Company. Therefore, there are no assurances that the Company will be able to obtain the required financing as needed in order
to consummate a business combination transaction.

COVID-19

On
March 11, 2020, the World Health Organization officially declared the outbreak of the novel coronavirus COVID-19 a “pandemic.”
A significant outbreak of COVID-19 and other infectious diseases has resulted in a widespread health crisis that has significantly
adversely affected businesses of all types, economies and financial markets worldwide. The business of any potential target business
with which we consummate a business combination could be materially and adversely affected. Furthermore, we may be unable to complete
a business combination if continued concerns relating to COVID-19 restrict travel, limit the ability to have meetings with potential
investors or the target company’s personnel, vendors and services providers are unavailable to negotiate and consummate
a transaction in a timely manner. The extent to which COVID-19 impacts our search for a business combination will depend on future
developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity
of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. If the disruptions posed by COVID-19 or other
matters of global concern continue for an extended period of time, our ability to consummate a business combination, or the operations
of a target business with which we ultimately consummate a business combination, may be materially adversely affected.

Liquidity
and Capital Resources

As
of December 31, 2020, the Company had total assets equal to $3,325 comprised exclusively of cash. The Company’s current
liabilities as of December 31, 2020, totaled $35,000 comprised of amounts due under a note payable to a shareholder. The Company
can provide no assurance that it can continue to satisfy its cash requirements for at least the next twelve months.

The
following is a summary of the Company’s cash flows provided by (used in) operating and financing activities for the period
August 21, 2020 (inception) to December 31, 2020:

The
Company has only cash assets and has generated no revenues since inception. The Company is also dependent upon the receipt of
capital investment or other financing to fund its ongoing operations and to execute its business plan of seeking a combination
with a private operating company. In addition, the Company is dependent upon certain related parties to provide continued funding
and capital resources. If continued funding and capital resources are unavailable at reasonable terms, the Company may not be
able to implement its plan of operations.

10

Issuance of Promissory
Note to a Stockholder and Director

On
August 21, 2020, in connection with advances made regarding costs incurred by the Company, the Company issued a promissory note
to Mark Tompkins, a stockholder and director of the Company, pursuant to which the Company agreed to repay Mr. Tompkins the sum
of any and all amounts that Mr. Tompkins may advance to the Company on or before the date that the Company consummates a business
combination with a private company or reverse takeover transaction or other transaction after which the Company would cease to
be a shell company (as defined in Rule 12b-2 under the Exchange Act). The Company has used the proceeds from the note to cover
its expenses. Although Mr. Tompkins has no obligation to advance funds to the Company under the terms of the note, it is anticipated
that he may advance funds to the Company as fees and expenses are incurred in the future. As a result, the Company issued the
note in anticipation of such advances. Interest shall not accrue on the outstanding principal amount of the note except if an
Event of Default (as defined in the note) has occurred. In the event of an Event of Default, the entire note shall automatically
become due and payable (the “Default Date”), and starting from five (5) days after the Default Date, the interest
rate on the note shall accrue at the rate of eighteen percent (18%) per annum. As of December 31, 2020, the total amount due under
the note was $35,000.

Results
of Operations

The
Company has not conducted any active operations since inception, except for its efforts to locate suitable acquisition candidates.
No revenue has been generated by the Company from August 21, 2020 (Inception) through December 31, 2020. It is unlikely the Company
will have any revenues unless it is able to effect an acquisition or merger with an operating company, of which there can be no
assurance. It is management’s assertion that these circumstances may hinder the Company’s ability to continue as a
going concern. The Company’s plan of operations for the next twelve months shall be to continue its efforts to locate suitable
acquisition candidates.

For
the period August 21, 2020 (inception) to December 31, 2020, the Company had a net loss of $32,175 comprised of accounting, audit
and other professional service fees incurred in relation to the preparation and filing of the Company’s SEC filings and
general and administrative expenses.

Off-Balance
Sheet Arrangements

The
Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect
on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.

Contractual
Obligations

As
a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this
information.

Emerging
Growth Company

As
an “emerging growth company” under the JOBS Act, the Company has elected to use the extended transition period for
complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the
adoption of new or revised accounting standards that have different effective dates for public and private companies until those
standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies
that comply with public company effective dates.

Fiscal
Year

Our
fiscal year ends on December 31.

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