# Aeluma, Inc. (ALMU) FY 2026 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Aeluma, Inc.'s 10-K for fiscal year 2026.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1828805/000121390026100584/ea0305364-10k_aeluma.htm
Accession: 0001213900-26-100584
Filing date: 2026-09-16
Report date: 2026-06-30
Extracted from a later financial-section MD&A body after the formal Item 7 span was a short reference.
Confidence: high

Company profile: /company/ALMU/
All MD&A years: /company/ALMU/mda/
Previous year: /company/ALMU/mda/fy2025/ (FY 2025)

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.

38

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): 

[[GREPCENT_TABLE]]
[["","","Year Ended June 30,"],["","","2026","","","2025","","","$ Change","","","% Change"],["Revenue","","$","4,461","","","$","4,665","","","$","(204",")","","","-4","%"],["Operating expenses","","","14,647","","","","6,807","","","","7,840","","","","115","%"],["Other income (expense)","","","1,027","","","","(880",")","","","1,907","","","","-217","%"],["Loss before income tax expense","","","(9,159",")","","","(3,022",")","","","(6,137",")","","","203","%"],["Income tax expense","","","-","","","","-","","","","-","","","","-"],["Net loss","","$","(9,159",")","","$","(3,022",")","","$","(6,137",")","","","203","%"]]
[[/GREPCENT_TABLE]]

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. 

39

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):

[[GREPCENT_TABLE]]
[["","","Year Ended June 30,"],["","","2026","","","2025","","","$ Change","","","% Change"],["Net cash provided by (used in)"],["Operating activities","","$","(3,266",")","","$","(1,148",")","","$","(2,118",")","","","184","%"],["Investing activities","","","(646",")","","","(161",")","","","(485",")","","","301","%"],["Financing activities","","","44,178","","","","15,758","","","","28,420","","","","180","%"],["Increase in cash and cash equivalents, and certificate of deposit","","$","40,266","","","$","14,449","","","$","25,817","","","","179","%"]]
[[/GREPCENT_TABLE]]

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.”