Aeluma, Inc. (ALMU)

Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations.

Special Note Regarding Forward-Looking Statements

This report contains forward-looking statements
and information that are based on the beliefs of our management as well as assumptions made by and information currently available to
us. Such statements should not be unduly relied upon. Forward-looking statements include statements about our expectations, beliefs, plans,
objectives, intentions, assumptions and other statements that are not historical facts or that are not present facts or conditions. Forward-looking
statements and information can generally be identified by the use of forward-looking terminology or words, such as “anticipate,”
“approximately,” “believe,” “continue,” “estimate,” “expect,” “forecast,”
“intend,” “may,” “ongoing,” “pending,” “perceive,” “plan,” “potential,”
“predict,” “project,” “seeks,” “should,” “views” or similar words or phrases
or variations thereon, or the negatives of those words or phrases, or statements that events, conditions or results “can,”
“will,” “may,” “must,” “would,” “could” or “should” occur or be
achieved and similar expressions in connection with any discussion, expectation or projection of future operating or financial performance,
costs, regulations, events or trends. The absence of these words does not necessarily mean that a statement is not forward-looking.

Forward-looking statements and information are
based on management’s current expectations and assumptions, which are inherently subject to uncertainties, risks and changes in
circumstances that are difficult to predict. These statements reflect our current view concerning future events and are subject to risks,
uncertainties, and assumptions. There are important factors that could cause actual results to vary materially from those described in
this report as anticipated, estimated or expected, as well as general conditions in the economy, capital markets, the SEC regulations
which affect trading in the securities of “penny stocks,” and other risks and uncertainties. Except as required by law, we
assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially
from those anticipated in any forward-looking statements, even if new information becomes available in the future. Depending on the market
for our stock and other conditional tests, a specific safe harbor under the Private Securities Litigation Reform Act of 1995 may be available.
Notwithstanding the above, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), expressly state that the safe harbor for forward-looking
statements does not apply to companies that issue penny stock. Because we may from time to time be considered to be an issuer of penny
stock, the safe harbor for forward-looking statements may not apply to us at certain times.

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.

Unless otherwise stated or the context otherwise
indicates, references to “Aeluma,” the “Company,” “we,” “our,” “us,” or similar
terms refer to Aeluma, Inc. and Subsidiary.

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Overview

Aeluma develops novel optoelectronic and electronic
devices for sensing, communication, and computing applications. Aeluma has pioneered a technique to produce semiconductor materials and
chips using high-performance compound semiconductors on large-diameter substrates that are commonly used to manufacture mass-market microelectronics.
This enables cost-effective manufacturing of high-performance photodetectors and photodetector arrays for imaging applications in mobile
devices, as well as other applications. Aeluma’s technology has the potential to impact a broad range of market verticals. We operate
in a 9,000 sq. ft. facility with a state-of-the-art R&D/manufacturing cleanroom and access to world-class rapid prototyping capabilities.
The facility houses unique equipment for scalable manufacturing. Aeluma also partners with production-scale fabrication foundries and
packaging companies. Aeluma maintains extensive patent protection and trade secrets that relate to its materials, manufacturing technology,
and applications. On September 5, 2025, we commenced a new five-year lease for an office adjacent to our existing facility to accommodate
anticipated headcount growth and support future expansion. Since the fiscal year ended June 30, 2025, we have made progress on our expansion
initiatives, including selectively increasing headcount to support operational and strategic objectives. Headcount increased compared
to the fourth quarter of 2025 with the addition of eight qualified and experienced personnel.

Aeluma is a transformative semiconductor company
specializing in high-performance technology that scales. Applications include mobile, automotive, AI, defense & aerospace, communication,
AR/VR, high-performance computing, and quantum computing. Aeluma aims to break out of traditional manufacturing to expand the reach of
its technology into mass markets. The demand for higher-performance semiconductors in consumer markets is increasing (https://www.marketsandmarkets.com/Market-Reports/shortwave-ir-market-52975079.html).
Aeluma’s disruptive technology is scalable, cost-effective, while not sacrificing performance.

Additionally, Aeluma’s technology may be
used to manufacture other electronic and optoelectronic devices including lasers, transistors, and solar cells.

Recent Government Contracts

During the three and nine months ended March 31,
2026, we entered into four and five new material government contracts, respectively, that include NASA, the State University of New York,
and the Office of the Secretary of Defense. We also continue to perform under existing contracts, including contracts with the U.S. Navy,
the U.S. Department of Energy, and U.S. Defense Advanced Research Projects Agency, which remain significant sources of revenue.

Public Offerings of Common Stock

We completed two underwritten public offerings
of our common stock, raising net proceeds of $12.6 million in March 2025 and $23.4 million in September 2025. As of March 31, 2026, the
proceeds from these offerings continue to support our working capital, operations, and planned business development activities.

On March 20, 2026, we entered into a sales agreement,
pursuant to which we may sell shares of our common stock having an aggregate offering price of up to $50 million, through an “at-the-market”
offering program. As of March 31, 2026, no sales of our common stock were transacted under this agreement. We are not obligated to sell,
and the agents are not obligated to buy or sell, any shares under the agreement. Any shares will be offered and sold under the agreement
will be pursuant to the Company’s effective shelf registration statement on Form S-3.

Management continues to monitor capital market
conditions and may consider other future financing if needed.

Plan of Operations

Our technology is based on heterogeneous integration
of compound semiconductor materials on large-diameter substrates such as silicon. This heterogeneous integration enables the subsequent
device fabrication and manufacturing in large-scale manufacturing environments that are suited to mass markets.

We will continue to develop our technology that
includes novel materials and devices based on our core intellectual property. Our primary focus is to manufacture high-performance semiconductor
technologies that scale for mass markets. Aeluma operates R&D and manufacturing facilities at its headquarters in Goleta, California,
and has developed relationships with volume fabrication foundries and packaging partners. We will continue to mature our manufacturing
processes to further our commercialization traction. We have generated revenue through various customer and government contracts, including
small-volume orders, engineering sample evaluations, non-recurring engineering (NRE) development efforts, and R&D projects. We will
continue to perform on these various efforts, expand our business development and marketing efforts, further engage with our manufacturing
partners, and continue our efforts toward volume production and commercialization. We expect to rely on such external capabilities to
scale our production capacity in support of high-volume markets.

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Limited Operating History

We have a limited operating history and our operations
remain in the development stage. To date, our activities have been primarily concentrated on product design, engineering validation, prototyping,
and establishing manufacturing and supply chain relationships. We have not yet generated significant revenues from commercial product
sales and continue to devote substantial resources to research and development, product qualification, and market readiness.

To support these activities, we completed public
offerings in March 2025 and September 2025, raising gross proceeds of $13.8 million and $25.4 million, respectively. The proceeds have
been used primarily to fund research and development efforts, expand engineering capabilities, and support general corporate operations.
The proceeds from the completed offerings have provided near-term capital to support our operations and ongoing development efforts. However,
we continue to face risks typical of development stage companies including, but not limited to, operational and financial challenges,
uncertainty in product development, and product-market fit.

On March 20, 2026, we entered into a sales agreement,
pursuant to which we may, from time to time, offer and sell shares of our common stock, par value $0.0001 per share. The Sales Agreement
provides for an aggregate offering amount of up to $50.0 million of our common stock, through an “at-the-market” offering
program. Proceeds from the sales will be used for general corporate purposes, including working capital and other liquidity needs.

Components of Results of Operations

Revenue

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

Operating Expenses

Cost of revenue consists of costs of materials,
as well as direct compensation and other expenses incurred to provide deliverables that result in payment of our services performed and
wafers delivered. All such costs are derived through an allocation of R&D expenses that are directly associated with specific projects.
We anticipate that our cost of revenue will vary substantially depending on the nature of products and/or services delivered in each customer
engagement.

R&D 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 R&D expenses as incurred.

General and administrative expenses consist primarily
of compensation and related costs for personnel, including stock-based compensation and employ

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

The following discussion and analysis of our
financial condition and results of operations should be read in conjunction with our financial statements and the accompanying notes included
elsewhere in this Annual Report on Form 10-K. The forward-looking statements include statements that reflect management’s good faith
beliefs, plans, objectives, goals, expectations, anticipations and intentions with respect to our future development plans, capital resources
and requirements, results of operations, and future business performance. Our actual results could differ materially from those anticipated
in the forward-looking statements included in this discussion as a result of certain factors, including those identified in Part I, Item
1A, of this report.

Overview

Our business commenced operations in 2021 and
our operations remain in the development stage. To date, our activities have been primarily concentrated on product design, engineering
validation, prototyping, and establishing manufacturing and supply chain relationships. We have not yet generated significant revenues
from commercial product sales and continue to devote substantial resources to R&D, product qualification, and market readiness.

We have raised approximately $60 million through
public offerings from March 2025 to date. We have also established an at-the-market offering program to sell up to $50 million of common
stock, pursuant to which we have $29.3 million in remaining capacity. The proceeds of these offerings have been used primarily to fund
R&D efforts, expand engineering capabilities, and support general corporate operations. The proceeds from the completed offerings
have provided near-term capital to support our operations and ongoing development efforts. However, we continue to face risks typical
of development stage companies including, but not limited to, operational and financial challenges, uncertainty in product development,
and product-market fit.

As of June 30, 2026, the proceeds from these
offerings continued to support our working capital, operations, and planned business development activities. Management continues to monitor
capital market conditions and may consider other future financing if needed.

Recent Government
Customer Contracts

During the fiscal year ended June 30, 2026, we
entered into six new government customer contracts, including with NASA, the State University of New York, and the Office of the Secretary
of Defense. We also continued to perform under existing customer contracts, including contracts with the U.S. Navy and U.S. Defense Advanced
Research Projects Agency, which contributed significantly to our revenue during the year.

Also, as previously announced, we have signed
a letter of intent for up to $30 million of proposed funding under the CHIPS Act, which is administered by the U.S. Department of Commerce.
The award would support R&D of our scalable, non-InP semiconductor manufacturing platform for photonics, an important technology for
the U.S. economy and national security.

The award remains subject to the completion of
further due diligence, required approvals, including internal approvals of the U.S. Government, and the parties’ negotiation and
execution of definitive award documents. The letter of intent contemplates a portion of the award being funded up front and the remainder
funded on a milestone-based award structure tied to eligible project costs and technical progress. In connection with executing final
award documents, We would issue equity securities to the U.S. Department of Commerce with an aggregate value equal to the award amount.

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Results of Operations

Our results of operations for the fiscal year
ended June 30, 2026, as compared to the same period of 2025, were as follows ($ in thousands):

Revenue

Revenue decreased $204 thousand to $4.5 million,
of which $4.3 million was derived from government contracts and $183 thousand from other products and services for the fiscal year ended
June 30, 2026. Revenue was $4.7 million, of which $4.4 million was derived from government contracts and $266 thousand from other products
and services, for the same period of 2025.

Operating
expenses

Operating expenses increased $7.8 million, or
115%, to $14.6 million for the fiscal year ended June 30, 2026, compared to $6.8 million for the same period in 2025. The increase was
primarily driven by an increase in material purchases to support the delivery of our products and services associated with revenue, as
well as higher compensation and related costs, including salaries, stock-based compensation and employee benefits driven by new employees
hired to support the expansion of the business and scaling of operations.

Other (income)
expense

Other income of $1.0 million for the fiscal year
ended June 30, 2026 consisted of interest income, compared to other expense of $880 thousand for the same period of 2025, comprised of
amortization of discount on convertible notes of ($715) thousand and changes in fair value of derivative liabilities of ($278) thousand,
and interest income of $113 thousand.

Income tax expense

No income tax expense was recorded for the fiscal years ended June
30, 2026 and 2025.

Liquidity and
Capital Resources

As of June 30, 2026, we had cash, cash equivalents,
and a certificate of deposit totaling $56.0 million, compared to $15.7 million as of June 30, 2025. The increase in cash was primarily
attributable to net proceeds from the public offerings, totaling $43.5 million. These funds are primarily held in cash on deposit and
money market funds that invest 100% of their assets in short-term U.S. Treasury obligations.

Prior to the public offerings, our operations
were primarily financed through the issuance of convertible notes and sales of common stock in private placement transactions. We intend
to continue to use the net proceeds from the offerings to support operational growth, invest in product development, and fund working
capital and general corporate purposes.

On March 20, 2026, we entered into a Sales Agreement
under which we may, from time to time, offer and sell shares of our common stock, par value $0.0001 per share, for aggregate gross proceeds
of up to $50.0 million, through the ATM program. During May and June 2026, we sold 830,484 shares of our common stock under the ATM program,
resulting in net proceeds of $20.1 million, after deducting commissions and other offering expenses.

We continue to assess our capital requirements
and may pursue additional financing opportunities to support long-term growth initiatives or respond to changes in market conditions.

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As of June 30, 2026, we had net working capital,
defined as total current assets less total current liabilities, of $55.4 million, compared to $16.6 million at June 30, 2025. The increase
was primarily driven by a $40.0 million increase in current assets, which rose to $57.3 million from $17.3 million over the same period,
largely due to a $40.3 million increase in cash and cash equivalents, including the certificate of deposit balance at June 30, 2025.
Current liabilities totaled $1.9 million and $705 thousand as of June 30, 2026 and 2025, respectively, and the balances primarily consisted
of accounts payable, along with accrued expenses and other short-term obligations expected to be settled within one year. We
believe that our current cash and cash equivalents balances, cash generated from operations and our ability to raise additional funds
pursuant to the ATM program will be sufficient to fund our business operations and capital expenditures for the next twelve months and
beyond.

The following table shows a summary of our cash
flows for the periods presented ($ in thousands):

Net cash used in our operating activities was
$3.3 million and $1.1 million for the fiscal year ended June 30, 2026 and 2025, respectively. For the fiscal year ended June 30, 2026,
the net cash used in operating activities primarily resulted from a net loss of $9.2 million and an increase in prepaids and other current
assets of $332 thousand, primarily offset by non-cash stock-based compensation expense of $4.5 million, an increase in accrued expenses
and other current liabilities of $660 thousand and an increase in accounts receivable of $622 thousand. For the fiscal year ended June
30, 2025, the net cash used in operating activities primarily resulted from a net loss of $3.0 million and decreases in accounts receivable
of $902 thousand and prepaid and other current assets of $611 thousand, primarily offset by non-cash stock-based compensation expense
of $1.8 million and non-cash amortization of discount on convertible notes of $715 thousand.

Net cash used in our investing activities totaled
$646 thousand and $161 thousand for the fiscal year ended June 30, 2026 and 2025, respectively. These investing activities primarily consisted
of purchases of equipment.

Net cash provided by our financing activities
was $44.2 million for the fiscal year ended June 30, 2026, compared to $15.8 million for the same period in 2025. For the fiscal year
ended June 30, 2026, we received $43.5 million, net of offering costs, from the public offering, $708 thousand from the exercise of stock
warrants, and $104 thousand from the exercise of stock options. We received $12.6 million from the Offering, $3.1 million from the issuance
of convertible notes, and $25 thousand from the exercise of stock options for the fiscal year ended June 30, 2025.

Critical Accounting
Estimates

The accompanying discussion and analysis of our
financial condition and results of operations is based upon our audited consolidated financial statements, which have been prepared in
accordance with GAAP. We believe certain of our accounting policies are critical to understanding our financial position and results of
operations. Our significant accounting policies and estimates are discussed in Note 2 to the Consolidated Financial Statements “Summary
of Significant Accounting Policies.”