Nuburu Inc

Comparison of the three months ended March 31, 2024 and 2023

The following tables set forth our operations for the periods presented:

Revenue. Revenue decreased $376,440 during the three months ended March 31, 2024 compared to the same period in 2023. This decrease is primarily due to a decrease in the number of laser system sales during the period as we work to optimize the BLTM series.

Cost of Revenue. Cost of revenue decreased $355,481 during the three months ended March 31, 2024 compared to the same period in 2023. This decrease is primarily due to a period-over-period decrease of $861,000 of direct job costs due to decreased production of the laser systems as we focus on optimizing the BL-250 and the BL-300. This decrease was partially offset by increases of approximately $410,000 of operations personnel expenses as we expanded our production team later in 2023 and approximately $146,000 of other overhead costs period-over-period.

Research and Development. Research and development expenses decreased $565,810 during the three months ended March 31, 2024 compared to the same period in 2023. This decrease is primarily due to approximately $242,000 of lower spend on the BLTM series as it transitioned to production in 2023 as well as $241,000 of lower personnel costs due to the cost reduction measures instituted by management in the first quarter of 2024, as further discussed in "Recent Developments" above.

Selling and Marketing. Selling and marketing expenses increased $169,334 during the three months ended March 31, 2024 compared to the same period in 2023. This increase is primarily due to the addition of our new Chief Marketing and Sales Officer in March 2023 as well as other sales and marketing personnel hired during late 2023 and early 2024.

General and Administrative. General and administrative expenses decreased $160,914 during the three months ended March 31, 2024 compared to the same period in 2023. This decrease is primarily driven by decreased professional fees associated with legal, compliance and accounting matters, which were heightened in the first quarter of 2023 due to the Business Combination and the transition to being a public company.

Interest Income. Interest income decreased $20,687 during the three months ended March 31, 2024 compared to the same period in 2023 due to lower cash balances between periods.

Interest Expense. Interest expense increased $950,867 during the three months ended March 31, 2024 compared to the same period in 2023 primarily due to higher debt balances between periods. Interest expense in the first quarter of 2024 was comprised of interest accrued on the Senior Convertible Notes and the debt discount amortization for the Junior Notes. No interest was incurred during the first quarter of 2023 Refer to Note 8 in the condensed consolidated financial statements included in Note 1 of this Quarterly Report for more information on our debt obligations.

Other income (expense), net. Other income (expense), net decreased $498,013 during the three months ended March 31, 2024 compared to the same period in 2023 due to the decrease in the fair value of the Public Warrants as of March 31, 2023. The difference in the fair value of the Public Warrants as of March 31, 2023 and the Closing decreased significantly and led to a gain of $501,324 recorded during the first quarter of 2023. As of December 31, 2023, the Public Warrants have a zero value due to being delisted from the NYSE American, as further discussed in Note 10 to the condensed consolidated financial statements included in Item 1 of this Quarterly Report. The gain recorded in the first quarter of 2024 resulted from the slight decrease in fair value of the Junior Note Warrants between December 31, 2023 and March 31, 2024.

Liquidity and Capital Resources

Overview

Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions, contractual obligations, and other commitments. As of the date of this Quarterly Report, we have yet to generate meaningful revenue from our business operations and have funded capital expenditure and working capital requirements through debt and equity financing.

As of March 31, 2024, we had cash and cash equivalents of $231,885 as compared to $2,148,700 as of December 31, 2023. Our cash flows from operations are not sufficient to fund our current operating model and expansion plans. On the second anniversary of the Closing Date, the Company must also, under certain circumstances, redeem the maximum portion of the Preferred Stock as permitted by law in cash at an amount equal to the Original Issuance Price as of such date. Notwithstanding the foregoing, the Company shall not be required to redeem any shares of Preferred Stock to the extent the Company does not have legally available funds to effect such redemption.

From inception through March 31, 2024, we have incurred operating losses and negative cash flows from operating activities. For the three months ended March 31, 2024 and 2023, we have incurred operating losses, including net losses of $5,700,653 and $4,767,517, respectively, and we have an accumulated deficit of $87,599,345 as of March 31, 2024. We anticipate that we will incur net losses for the foreseeable future and, even if we increase our revenue, there is no guarantee that it will ever become profitable. All of the aforementioned factors raise substantial doubt about our ability to continue as a going concern. We expects to continue to expand our operations, including by investing in manufacturing, sales and marketing, research and development and infrastructure to support our growth.

Until we can generate sufficient revenue to cover our operating expenses, working capital, and capital expenditures, we will rely on private and public capital raising efforts.

We would also obtain additional funds if the holders of our Public Warrants and private warrants issued in 2023 (refer to Note 10 in the condensed consolidated financial statements included in Note 1 of this Quarterly Report for more information) were to exercise their warrants. However, the exercise price is $11.50 per share of Common Stock for our Public Warrants, $1.03 per share of Common Stock for our Senior Note Warrants, and $0.25 per share of Common Stock for our Junior Note Warrants, respectively, which exceeds $0.131, the closing price of our Common Stock on the NYSE American on May 14, 2024. The likelihood that warrant holders will exercise the warrants and any cash proceeds that we would receive is dependent upon the market price of our Common Stock. If the market price for our Common Stock is less than the exercise price per share, we believe warrant holders will be unlikely to exercise their warrants.

The further development of our products, commencement of commercial operations and expansion of our business will require a significant amount of cash for expenditures. Our ability to successfully manage this growth will depend on many factors, including our working capital needs, the availability of equity or debt financing and, over time, our ability to generate cash flows from operations.

Given the Company’s current liquidity position, the Company will need to raise additional capital. If we raise additional funds by issuing equity securities, this would result in dilution to our stockholders. If we raise additional funds by issuing any additional preferred stock, such securities may also provide for rights, preferences, or privileges senior to those of holders of Common Stock. If we raise additional funds by issuing debt securities, such debt securities would have rights, preferences and privileges senior to those of holders of Common Stock. The terms of debt securities or borrowings could impose significant restrictions on our operations. The credit market and financial services industry have in the past, and may in the future, experience periods of uncertainty that could impact the availability and cost of equity and debt financing.

Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities for the periods presented.

Cash flows from operating activities

Our cash flows used in operating activities to date have been primarily comprised of costs related to research and development, selling and marketing, and other general and administrative activities. We expect our expenses related to personnel, research and development, selling and marketing, and general and administrative activities to increase as a result of operating as a public company.

Net cash used in operating activities was $2,093,442 and $4,050,573 for the three months ended March 31, 2024 and 2023, respectively. The decrease in net cash flows used in operating activities is primarily driven by decreased operating expenses and changes in working capital, partially offset by decreases in revenue.

Cash flows from investing activities

Our cash flows from investing activities have been comprised primarily of purchases of equipment and installation of improvements to our leased facilities and headquarters.

Net cash used in investing activities was nil and $344,801 for the three months ended March 31, 2024 and 2023, respectively. The decrease was primarily due to purchases of equipment to build out our production line that occurred during the first quarter of 2023.

Cash flows from financing activities

We have financed our operations primarily through the sale of preferred stock and promissory notes.

Net cash provided by financing activities was $176,627 and $3,038,166 for the three months ended March 31, 2024 and 2023, respectively. Net cash provided by financing in activities in the first quarter of 2024 is comprised of proceeds from the issuance of Common Stock, offset by payments of accrued debt issuance costs for the Junior Notes. Net cash provided by financing in activities in the first quarter of 2023 is comprised of proceeds received from the issuance of convertible promissory notes and warrants, proceeds from the issuance of Common Stock from the Lincoln Park Purchase Agreement, and the proceeds received from the Closing of the Business Combination. These combined proceeds were partially offset by payments of transaction costs associated with the Business Combination.

Key Operating and Financial Metrics (Non-GAAP Results)

We regularly review several metrics, including the metrics presented in the table below, to measure our performance, identify trends affecting our business, prepare financial projections, and make strategic decisions. We believe that these key business metrics provide meaningful supplemental information for management and investors in assessing our historical and future operating performance. The calculation of the key metrics and other measures discussed below may differ from other similarly-titled metrics used by other companies.

The following table presents our key performance indicators for the three months ended.

(1) EBITDA and Free cash flow are non-GAAP financial measures. See “Non-GAAP Information” below for our definitions of, and additional information about, EBITDA and Free cash flow and for a reconciliation to the most directly comparable U.S. GAAP financial measures.

Non-GAAP Information

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operational performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively and in context, may be helpful to investors in assessing our operating performance and trends and in comparing our financial measures with those of comparable companies that may present similar non-GAAP financial measures.

EBITDA and Free Cash Flow

We define “EBITDA” as income (loss), plus (minus) depreciation and amortization expenses, plus (minus) interest, plus (minus) taxes and define “Free cash flow” as net cash from (used in) operating activities less capital expenditures. EBITDA and Free cash flow are intended as supplemental measures of our performance that are neither required by, nor presented in accordance with, GAAP and these measures should not be considered a substitute for net income (loss), and net cash used in operating activities reported in accordance with GAAP. Our computation of EBITDA and Free cash flow may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate EBITDA or Free cash flow in the same fashion.

Limitations of Non-GAAP Measures

There are a number of limitations related to EBITDA, including the following:

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EBITDA excludes certain recurring, non-cash charges, such as depreciation of property and equipment and amortization of intangible assets. While these are non-cash charges, we may need to replace the assets being depreciated and amortized in the future and EBITDA does not reflect cash requirements for these replacements or new capital expenditure requirements.

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EBITDA does not reflect interest expense, net, which may constitute a significant recurring expense in the future.

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Free cash flow does not reflect the impact of equity or debt raises or repayment of debt or dividends paid.

Because of these and other limitations, EBITDA and Free cash flow should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and Free cash flow on a supplemental basis. You should review the reconciliation of our net loss to EBITDA and net loss to Free cash flow below and not rely on any single financial measure to evaluate our business.

Our presentation of EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items and our presentation of Free cash flow does not necessarily indicate whether cash flows will be sufficient to fund our cash needs.

Reconciliation

The following table reconciles our net loss (the most directly comparable GAAP measure) to EBITDA for the periods presented:

The following table reconciles our net cash used in operating activities (the most directly comparable GAAP measure to Free cash flow) to Free cash flow for the three months ended:

Off-Balance Sheet Arrangements

We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of March 31, 2024. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.

For our contractual obligations that are expected to have an effect on our liquidity and cash flow, see section “Notes to Condensed Consolidated Financial Statements – Note 6 – Commitments and Contingencies” in the condensed consolidated financial statements.

Critical Accounting Estimates

Our condensed consolidated financial statements are prepared in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses. We evaluate our estimates and assumptions on an ongoing basis. Our estimates and assumptions are based on historical experience and on various other factors that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

There have been no significant changes to our accounting policies during the three months ended March 31, 2024, as compared to the critical accounting policies described in our audited financial statements included in the Form 10-K filed with the SEC on April 15, 2024, and as subsequently amended by the Form 10-K/A filed with the SEC on April 29, 2024.

Recently Issued and Adopted Accounting Pronouncements

We review new accounting standards to determine the expected financial impact, if any, that the adoption of each new standard will have. For the recently issued and adopted accounting standards that we believe may have an impact on our condensed consolidated financial statements, see the section entitled “Notes to Condensed Consolidated Financial Statements – Note 2 – Summary of Significant Accounting Policies” in the condensed consolidated financial statements.