Aeluma, Inc. (ALMU) Business

Item 1. Business.

Overview

We develop high-performance semiconductors for sensing, communication,
and computing applications. Aeluma has pioneered a technique to manufacture devices using 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 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. Aeluma is based in Goleta, California, considered one of the most important
technology hubs in the world that some claim is the next Silicon Valley. We operate in a 9,000 sq. ft. facility with a state-of-the-art
research and development (R&D)/manufacturing cleanroom and access to world-class rapid prototyping capabilities. The facility houses
unique equipment for scalable manufacturing. We also partner with production-scale fabrication foundries and packaging companies. We maintain
extensive patent protection and trade secrets that relate to our materials, manufacturing technology and applications.

Recent Events

Shelf Registration Statement

On July 31st, 2025, we filed a
registration statement on Form S-3 with the SEC, using a “shelf” registration process. Under this shelf registration
process, we may sell any combination of the securities described in the related prospectus in one of more offerings up to a total
dollar amount of proceeds of $100,000,000. The prospectus describes the general manner in which our securities may be offered by the
prospectus. Each time we sell securities under the prospectus, we will provide a prospectus supplement that will contain specific
information about the terms of that offering. The prospectus supplement may also add, update, or change information contained in
this prospectus or in documents incorporated by reference in this prospectus. The prospectus supplement that contains specific
information about the terms of the securities being offered may also include a discussion of certain U.S. Federal income tax
consequences and any risk factors or other special considerations applicable to those securities. To the extent that any statement
that we make in a prospectus supplement is inconsistent with statements made in this prospectus or in documents incorporated by
reference in this prospectus, you should rely on the information in the prospectus supplement. The “shelf” registration
statement was originally filed on July 31, 2025, amended on August 6, 2025 and declared effective on August 8, 2025 (File No.
3330289135) (the “Shelf S3”).

Recent Government Contracts

In August 2024, we received a contract by NASA
to develop quantum dot photonic integrated circuits (PICs) on silicon. This advanced technology targets next-generation space and aerospace
applications, enabling capabilities such as free-space laser communication, autonomous navigation, and precision sensing.

In September 2024, we received an $11.7 million contract with
DARPA to develop heterogeneous integration technology for nano-scale semiconductors that is compatible with leading-edge and future advanced-node
semiconductors. Technology applications include artificial intelligence (“AI”), mobile devices, and 5G/6G wireless networking.
This DARPA contract to Aeluma is structured with $6.0 million expected to be invoiced over the first 18 months and the remaining
$5.7 million invoiced over the following 18 months, contingent on Aeluma meeting certain milestones.

In April 2025, we received a contract with the
U.S. Department of Energy to develop commercially viable, low-cost shortwave infrared (SWIR) photodetectors. The award will accelerate
commercialization of Aeluma’s wafer-scale platform for high-sensitivity, energy-efficient photodetector sensors applicable across
critical growth sectors.

In June 2025, we received a contract with the
U.S. Navy that could accelerate development of high-speed photodetectors for government and commercial applications. The new contract
is for up to $1.3 million in funding, includes a major global interconnect manufacturer as a proposed subcontractor, and involves support
from a top-tier government prime contractor.

In June 2025, we received a contract with the
U.S. Navy that could accelerate development and commercialization for next-generation quantum computing and sensing systems. The new contract
will support Aeluma’s low size, weight, and power imaging sensors for next-generation submarine systems.

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Private Placements and Conversion of Notes

Between August 5, 2024 and August 27, 2024, we issued convertible promissory
notes in the aggregate principal amount of $3.1 million to 10 accredited investors, pursuant to a private note financing. The Notes were
to mature in June 2026 and did not carry any interest. The Notes were 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 $5.0 million to the Company, if the Common Stock is uplisted to a national securities exchange or if neither of those such events
occur prior to the maturity date, (together with Sale of the Company (as hereinafter defined), a “Conversion Event”)). In
the event the Company did not complete qualified financing or uplist at or before the maturity date, the outstanding balance of the Notes
would automatically convert without any further action by the Holder into shares of the Company’s common stock equal to eighty-five
percent (85%) to the VWAP of the Common Stock on the OTC Markets for the five trading days immediately prior to maturity date. The Note
also provided that if there was 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 was dependent upon the type of Conversion Event that occurs, the Note carried a ceiling and floor price: the applicable
conversion price would not be lower than 85% of the 5-day VWAP on the applicable Closing Date (the “Floor Price”) nor would
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 was equal to $2.68 per share. Since the Floor Price is tied to the Closing Date, the Floor Price may be different
for investors who are part of a different closing, should the Company hold additional closings. The Investors were granted piggyback registration
rights for the shares of Common Stock underlying the Note.

The Note Purchase Agreement (“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.

On March 25, 2025, we determined that a Conversion
Event had occurred pursuant to the terms of the Notes. As a result, all holders elected to convert their Notes at the applicable Ceiling
Price of $3.50 per share, resulting in the issuance of an aggregate of 898,573 shares of Common Stock in exchange for $3.1 million in
outstanding principal under the Notes. Following the conversion, we have no further obligations under the converted Notes. The shares
issued upon conversion are subject to piggyback registration rights previously granted to the investors. See Public Offering of Common
Stock in Note 3 – Convertible Notes

Public Offering of Common Stock

On March 26, 2025, we entered into an Underwriting
Agreement (“UA”) with Craig-Hallum Capital Group LLC in connection with a public offering of 2,285,714 shares of its common
stock at a price of $5.25 per share (the “Offering”). We also granted the Underwriter a 30-day option to purchase up to an
additional 342,857 shares to cover over-allotments, which was exercised in full on March 27, 2025. The Offering closed on March 28, 2025.

The Offering was conducted pursuant to our registration
statements on Form S-1 (File No. 333-285469), declared effective by the SEC on March 25, 2025, and on Form S-1MEF filed under Rule 462(b),
effective March 26, 2025.

Under the terms of the UA, we provided a 7.0%
underwriting discount per share and issued to the Underwriter warrants to purchase up to 5.0% of the total shares sold in the Offering
(including the over-allotment shares), with an exercise price equal to 115% of the public offering price.

Total gross proceeds from the Offering, including
the over-allotment option, were $13.8 million. Net proceeds, after underwriting discounts and Offering expenses, were $12.6 million. We
intend to use the proceeds for business development, scaling manufacturing operations, and general corporate purposes.

In connection with the Offering, we, as well as
our directors and officers, agreed to a 90-day lock-up period restricting sales or transfers of Company securities, subject to customary
exceptions. The Underwriter has the discretion to release these restrictions at any time.

Our Strategy

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. Our technology has the potential to impact across mobile, automotive, AI, defense & aerospace, communication,
augmented reality (“AR”), virtual reality (“VR”), high-performance computing (“HPC”) and quantum computing
applications. Aeluma operates an R&D/manufacturing facility 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.

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Our Technology

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.

Competition

There are two primary classes of image sensors currently on the market,
low-cost silicon sensors for mass market applications, and high-performance compound semiconductor (e.g., indium gallium arsenide or “InGaAs”)
sensors deployed primarily in specialty applications. According to Yole Development, the major suppliers of silicon complementary metal-oxide
semiconductor (“CMOS”) image sensors include Sony, Samsung, Omnivision, onsemi, STMicroelectronics, Panasonic, Canon, SK Hynix,
and others. According to Markets and Markets, the major suppliers of InGaAs sensors include Hamamatsu, Sumitomo, Teledyne/FLIR, Excelitas,
and others. InGaAs sensors are manufactured primarily on 2- to 4-inch substrates. As an example, to manufacture 20 million sensor chips
of a nominal size (i.e. chip area), approximately 425,000 3-inch wafers are required, whereas only 18,000 12-inch wafers would be required
for the same volume. Aeluma aims to leverage larger diameter substrates up to 12-inch.

We believe that our technology will be able to
compete effectively because we are uniquely positioned to outperform silicon CMOS image sensors while achieving a cost of manufacturing
that is lower than that for traditional InGaAs sensors. Compared to silicon, InGaAs demonstrates higher detection sensitivity and a broader
wavelength absorption spectrum. Silicon absorbs or detects light in the visible spectral region (400-750 nm) and partially in the near
infrared (NIR) spectral region (greater than 750 nm), cutting off near 940 nm. InGaAs not only demonstrates high absorption in the NIR,
but also extends well into the shortwave infrared (SWIR) spectrum (900-1700 nm), with the ability to extend to near 2500 nm. Generally
speaking, 940 nm is not considered “eye-safe;” wavelengths in the SWIR are considered “eye-safe”.

We believe that we are also positioned to win
on price in competing with current InGaAs sensors while having the ability to realize much larger area photodetector arrays because of
our ability to manufacture on up to 12-inch substrates, whereas competing InGaAs photodetectors are manufactured on indium phosphide (InP)
substrates that are typically 2 to 4 inches in size. Therefore, in addition to realizing many more sensor chips per wafer, we have the
ability to realize array sizes that are larger than what is possible with traditional InGaAs, and to leverage wafer-scale integration
and packaging that is available for 8- and 12-inch substrates. As a result, we believe we are positioned to manufacture our products potentially
at a ten times lower cost for mass market applications and are able to scale our production to meet mass market demands at a faster rate
than incumbent technologies.

In addition to photodetectors for sensors, our
technology may apply to a broad range of photonic and electronic semiconductors.

Existing and potential competitors have or could have advantages such
as greater name recognition, longer operating histories, broader and deeper product portfolios, larger customer bases, substantially greater
financial and other resources, and larger-scale manufacturing operations. However, we believe that our products will have the potential
to compete because of our unique ability to manufacture high-performance semiconductors at scale.

Customers

Aeluma has customer engagements that involve development
of wafers, delivery of engineering samples for evaluation, delivery of small volumes of chips, and R&D contracts. Aeluma’s technology
is broadly applicable. Potential markets for our technology include mobile, consumer electronics, AI, defense and aerospace, automotive,
AR/VR, and quantum computing. Our current strategy is to pursue partnerships with system integrators, including mobile and consumer electronics
manufacturers, Tier-1 suppliers, module manufacturers, component suppliers, or semiconductor manufacturing companies. Aeluma is pursuing
direct sales relationships and strategic partnerships. We have active engagements with approximately 20 prospective customers.

3

See “Risk Factors—Risks
Relating to Our Business, Growth Prospects and Operating Results—Our customers may require our products to undergo a lengthy
and expensive qualification process without any assurance of product sales.”

Markets

Aeluma’s technology is broadly applicable
and has the potential to impact across mobile and consumer electronics, AI, defense and aerospace, robotics, automotive, AR/VR, quantum
computing, and other markets. According to a report by Yole Development dated June 2024, the CMOS image sensors market is projected to
be $28.6 billion by 2029. In the mobile market, Apple arguably leads in terms of deploying advanced capabilities such as facial identification
and lidar sensing in their devices. Apple does not currently use our technology in any of their products. According to a press release
from Apple issued May 5, 2021, Apple leverages vertical cavity surface emitting laser (VCSEL) emitters in conjunction with single-photon
avalanche diode (SPAD) photodetectors for the facial identification and the lidar scanner in smartphones and tablets, and such technology
“helps to deliver faster, more realistic AR experiences and improves autofocus in low-light scenes in photos and videos”.
Other major smartphone suppliers include Samsung, Xiaomi, OPPO, vivo, Huawei, and realme according to Counterpoint Research. According
to an estimate by Velodyne, the automotive lidar market is projected to be between $5 billion to $80 billion in 2030. According to
Statista, the AI market is projected to be $826 billion in 2030. The silicon photonics market is projected to be $8 billion in 2030 according
to Grand View Research. Silicon photonics is a key technology that enables optical interconnects inside data centers in support of AI
infrastructure. The total addressable market for the quantum computing industry is projected to grow to $20 billion by 2030 according
to UBS. According to Yole Group, the mobile and consumer market represented $296 billion in semiconductor revenue in 2023, and according
to DIGITIMES Asia, the global semiconductor market is projected to exceed $1 trillion in 2030. Based on third party market research and
internal assumptions, we estimate our serviceable addressable market could reach $4.9 billion in 2030, growing at a 47% compound annual
rate from $1.0 billion in 2026.

Intellectual Property

Aeluma has filed several patent applications with
the United States Patent and Trademark Office (USPTO), and several patents have been issued. To date, we have approximately 30 issued
and pending patents. We have filed trademarks for the name “Aeluma” and the slogan “Sensing Reimagined” with the
USPTO. We maintain protection of trade secrets that include “know-how” and process recipes.

Our Intellectual Property Approach

Our strategy for the protection of our proprietary
technology is to seek worldwide patent protection with a focus on jurisdictions that represent significant global semiconductor markets.
However, we will assess on a case-by-case basis whether it is strategically more favorable to maintain trade secret protection for our
inventions and “know-how” rather than pursue patent protection. Generally, patents have a term of twenty years from the earliest
priority date, assuming that all maintenance fees are paid, no portion of the patent has been terminally disclaimed, and the patent has
not been invalidated. In certain jurisdictions, and in certain circumstances, patent terms can be extended or shortened.

Governmental & Environmental Regulations

Our primary products are anticipated to be photonics and electronics
based on high-performance semiconductors. To the extent that our products are or become subject to U.S. export controls and regulations,
these regulations may limit the export of our products and technology, and provision of our services outside of the United States, or
may require export authorizations, including by license, a license exception, or other appropriate government authorizations and conditions,
including annual or semi-annual reporting. Export control and economic sanctions laws may also include prohibitions on the sale or supply
of certain of our products to embargoed or sanctioned countries, regions, governments, persons, and entities. In addition, various countries
regulate the importation of certain products through import permitting and licensing requirements, and have enacted laws that could limit
our ability to distribute our products. The exportation, re-exportation, and importation of our products and technology and the provision
of services, including by our partners, must comply with these laws or else we may be adversely affected, through reputational harm, government
investigations, penalties, and a denial or curtailment of our ability to export our products and technology. Complying with export control
and sanctions laws may be time-consuming and may result in the delay or loss of sales opportunities. Although we take precautions to prevent
our products and technology from being provided in violation of such laws, our products and technology may have previously been, and could
in the future be, provided inadvertently in violation of such laws, despite the precautions we take. If we are found to be in violation
of U.S. sanctions or export control laws, it could result in substantial fines and penalties for us and for the individuals working for
us. Export or import laws or sanctions policies are subject to rapid change and have been the subject of recent U.S. and non-U.S. government
actions. Changes in export or import laws or sanctions policies, may adversely impact our operations, delay the introduction and sale
of our products in international markets, or, in some cases, prevent the export or import of our products and technology to certain countries,
regions, governments, persons, or entities altogether, which could adversely affect our business, financial condition and results of operations.

4

We seek to comply with all applicable statutory
and administrative requirements concerning environmental quality. Expenditures for compliance with federal state and local environmental
laws have not had, and are not expected to have, a material effect on our capital expenditures, results of operations or competitive position.

In addition, to the extent that our facilities
and operations are or become subject to the plant and laboratory safety requirements of various environmental and occupational safety
and health laws in the U.S., we believe we are in compliance with all such laws and regulations, and to date, those regulations have not
materially restricted or impeded operations. Further, we believe our processes to be highly efficient, generating very low levels of waste
and emissions. For this reason, we do not view issues surrounding climate change and any currently foreseeable related regulations as
materially impacting our business and financial statements, beyond any inestimable impact on the macro-economic environment.

We are also generally subject to other industry
and environmental regulations for electronic and semiconductor products such as the Restriction of Hazardous Substances Directive 2002/95/EC.

See “Risk Factors—Risks
Relating to Our Business, Growth Prospects and Operating Results—Environmental and health and safety liabilities and expenditures
could materially adversely affect our results of operations and financial condition” for additional information.

Manufacturing

Our operations include R&D and manufacturing
capabilities for semiconductor wafer production, quick-turn chip fabrication, rapid prototyping, test and validation. We also partner
with production-scale fabrication foundries, packaging and integration companies. We expect to rely on such external resources and capabilities
to scale our production capacity in support of high-volume markets.

Sales

We have sold chips and wafers in relatively small volumes to customers,
and have shipped samples for R&D and sampling evaluations. However, we cannot predict whether or not customers will ultimately purchase
our product in large volumes.

See “Risk Factors—Risks
Relating to Our Business, Growth Prospects and Operating Results—We will depend on a limited number of customers and the
loss of one or more of these customers could have a material adverse effect on our business, financial condition and results of operations.”

Marketing

Marketing activities include direct relationships with potential customers
and partners. We are under nondisclosure agreements (NDA) with several current and potential customers and partners. In addition to posting
information on our website, we occasionally participate in conferences and trade shows to market our technology and product offerings.

5

Employees & Human Resources

At June 30, 2025, Aeluma had 12 full-time employees,
two part-time employees, and consultants. The majority of employees work in engineering. None of our employees are represented by a labor
union. We have not experienced any work stoppages, and we consider our relations with our employees to be very good. We plan to hire additional
persons on an as-needed basis. On a case-by-case basis, Aeluma may offer stock options to employees for attraction and retention.

Sustainability

We are committed to leveraging our technology
for sustainable operations. Recognizing the profound impact of climate change on the global economy, our company, and our stakeholders,
we embrace our responsibility to safeguard the planet. Our journey toward sustainability is ongoing, driven by a commitment to understand
our environmental footprint and enhance our positive impact.

Litigation

There is no material litigation, arbitration,
governmental proceeding, or any other legal proceeding currently pending or known to be contemplated against us or any members of our
management team in their capacity as such, and we and the members of our management team have not been subject to any such proceeding
in the 10 years preceding the date of this Report. We may however be involved, from time to time, in claims and lawsuits incidental to
the conduct of our business in the ordinary course. We carry insurance coverage in such amounts as we believe to be reasonable under the
circumstances and that may or may not cover any or all of our liabilities in respect of these matters. We do not believe that the ultimate
resolution of these matters will have a material adverse impact on our consolidated financial position, cash flows or results of operations,
but cannot guarantee the same.

Corporate Information

Aeluma was incorporated in Delaware on August
21, 2020, under the name Parc Investments, Inc.; the name was changed to Aeluma, Inc. in June 2021. Our principal executive offices are
located at 27 Castilian Drive, Goleta, California 93117. Our website is located at www.aeluma.com and we make available,
free of charge, on or through our website all of our periodic reports, including our Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q, and current reports on Form 8-K, as soon as reasonably practicable after we file such reports with the SEC. Our website and
the information contained on our website is not incorporated by reference and is not a part of this Annual Report.