What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-02-11 compared with 2025-11-12 · 119 added, 227 removed, 152 unchanged (69% of the section changed)

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and Analysis of Financial Condition and Results of Operations.

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.

Special Note Regarding Forward-Looking Statements

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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 U.S.

and Exchange Commission (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.

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

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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.

Aeluma develops novel optoelectronic and electronic

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in a 9,000 sq.

facility with a state-of-the-art research and development (“R&D”)/manufacturing cleanroom and access

to world-class rapid prototyping capabilities.

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, the Company commenced a new five-year lease for an

office adjacent to its existing facility to accommodate anticipated headcount growth and support future expansion.

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

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Recent Government Contracts

In September 2025, we received a contract with

NASA that could accelerate development and commercialization for next-generation quantum computing and sensing systems.

The new contract

will help advance our efforts to commercialize entangled photon sources, a critical enabler for quantum computing and communication systems.

In June 2025, we received a contract with the

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.

In June 2025, we received a contract with the

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 April 2025, we received a contract with the

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 September 2024, we received an $11.7 million

contract with U.S.

Defense Advanced Research Projects Agency (“DARPA”) to develop heterogeneous integration technology for

nano-scale semiconductors that is compatible with leading-edge and future advanced-node semiconductors.

Technology applications include

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

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.

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.

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.

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

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.

issued upon conversion are subject to piggyback registration rights previously granted to the investors.

See Public Offerings of Common

Stock in Note 2 – Convertible Notes

During the quarter ended December 31, 2025, we

did not enter into any new material government contracts.

We continue to perform under existing contracts, including contracts with NASA,

Navy, the U.S.

Department of Energy, and U.S.

Defense Advanced Research Projects Agency, which remain significant sources of

Public Offerings 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 “March 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 March Offering closed on

March 28, 2025.

The March 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 March Offering

(including the over-allotment shares), with an exercise price equal to 115% of the public offering price.

Total gross proceeds from the March Offering,

including the over-allotment option, were $13.8 million.

Net proceeds, after underwriting discounts and Offering expenses, were $12.6

We intend to use the proceeds for business development, scaling manufacturing operations, and general corporate purposes.

In connection with the March 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.

On September 17, 2025, the Company entered into

an Underwriting Agreement (“UA”) with Craig-Hallum Capital Group LLC, as the representative of the several underwriters named

therein (the “Underwriters”), relating to the issuance and sale by the Company of 1,700,000 shares of the Company’s

common stock, par value $0.0001 per share in its previously announced public offering (the “September Offering”).

offering price in the September Offering was $13.00 per share of Common Stock.

In connection with the September Offering, the Company

granted the Underwriters a 30-day option to purchase up to 255,000 additional shares of its Common Stock at the public offering price,

less the underwriting discount, and on September 18, 2025, the Underwriters exercised such option to purchase an additional 255,000 shares

of Common Stock.

The September Offering closed on September 19, 2025.

The net proceeds to the Company from the September

Offering were $23.4 million, after deducting underwriting discounts and commissions and after payment of offering expenses.

The Company intends to use the net proceeds from

the September Offering, together with its existing cash and cash equivalents, for expansion of business development efforts including

(i) advancing manufacturing processes for production;

(ii) hiring new employees;

and (iii) working capital and general business purposes.

The Company made the September Offering pursuant

to the Company’s effective shelf registration statement on Form S-3 (File No.

333-289135) previously filed

with and declared effective by the SEC and a prospectus supplement and accompanying prospectus filed with the SEC on September 18, 2025.

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 December 31, 2025,

the proceeds from these offerings continue to support our working capital, operations, and planned business development activities.

additional equity offerings are planned at this time, but management continues to monitor capital market conditions and may consider future

financing if needed.

Other Recent Events

On August 4, 2025, the Company appointed Christopher

Stewart as its Chief Financial Officer.

On August 4, 2025, we appointed Christopher Stewart

as our Chief Financial Officer.

Pursuant to Mr.

Stewart’s employment agreement, he was granted 110,000 stock options

and 55,000 restricted stock units (“RSUs”).

The stock options have an exercise price of $21.04, with 25% of

the stock options vesting on the twelve (12) month anniversary of Mr.

Stewart’s employment agreement, he was granted 110,000 stock options and 55,000 restricted

stock units (“RSUs”).

The stock options have an exercise price of $21.04, with 25% of the stock options vesting on the

twelve (12) month anniversary of Mr.

Stewart’s employment with the Company.

The balance of the

stock options will vest in equal monthly increments, on each monthly anniversary of Mr.

Stewart’s employment start date with the

Company, over the next thirty-six (36) months.

The balance of the stock options will vest in equal

monthly increments on each monthly anniversary of Mr.

Stewart’s employment start date with the Company, over the next thirty-six

The stock options expire on the 10-year anniversary of their vesting date.

the shares underlying the RSUs will vest at the end of the fiscal quarter following the twelve (12) month anniversary of Mr.

employment start date with the Company, with a pro-rated amount for any partial quarter preceding the twelve (12) month anniversary.

balance of the RSUs will vest in equal quarterly increments, with a pro-rated amount for any partial final quarter.

Each restricted stock

unit represents the contingent right to receive, at settlement, one share of common stock.

25% of the shares underlying the RSUs will

vest at the end of the fiscal quarter following the twelve (12) month anniversary of Mr.

Stewart’s employment start date with the

Company, with a pro-rated amount for any partial quarter preceding the twelve (12) month anniversary.

The remaining RSUs will vest in

equal quarterly increments, with a pro-rated amount for any partial final quarter.

Each restricted stock unit represents the contingent

right to receive, at settlement, one share of common stock.

Plan of Operations

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success is subject to numerous uncertainties and risks inherent in the development of a new business.

Although we successfully completed

public offerings on March 26, 2025 and September 22, 2025, raising gross proceeds of $13.8 million and $25.4 million, respectively, there

can be no assurance that these funds will be sufficient to carry out all aspects of our business plan.

Although we raised substantial funds

through underwritten completed public offerings in March 2025 and September 2025, raising gross proceeds of $13.8 million and $25.4 million,

respectively, there can be no assurance that these funds will be sufficient to carry out all aspects of our business plan.

Following the offerings, management has assessed

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However, we continue to face risks typical of early-stage companies, including limited capital resources,

operational and financial challenges, and uncertainty in product development.

operational and financial challenges, uncertainty in product development and product-market fit.

Components of Results of Operations

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Cost of revenue consists of costs of materials,

as well as direct compensation and other expenses incurred to provide deliverables that resulted 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

We anticipate that our cost of revenue will vary substantially depending on the nature of products and/or services delivered

in each customer engagement.

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

R&D expenses consist primarily of compensation

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Interest income consists primarily of interest

earned in interest-bearing savings accounts and certificates of deposit placed in a bank.

earned in interest-bearing savings accounts and certificates of deposit held at a bank.

Amortization of discount on convertible notes

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Results of Operations

Our results of operations for the three months

ended September 30, 2025, as compared to the same period of 2024, were as follows ($ in thousands):

Three Months Ended September 30,

Our results of operations for the six months ended

December 31, 2025, as compared to the same period of 2024, were as follows ($ in thousands):

Six Months Ended December 31,

Operating expenses

Other income (expense)

Loss before income tax expense

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to $2.7 million, of which $2.6 million was derived from government contracts and $41 thousand from other products and services for the

three months ended September 30, 2025.

Revenue was $481 thousand, of which $431 thousand was derived from government contracts and $50

thousand from other products and services, for the same period of 2024.

six months ended December 31, 2025.

Revenue was $2.1 million, of which $1.9 million was derived from government contracts and $201 thousand

from other products and services, for the same period of 2024.

Operating expenses :

Operating expenses

increased $1.8 million, or 146.9%, to $3.0 million for the three months ended September 30, 2025, compared to $1.2 million for the same

period in 2024.

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 hires to support the expansion of the business and scaling of operations.

increased $3.9 million, or 160.7%, to $6.3 million for the six months ended December 31, 2025, compared to $2.4 million for the same period

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)

expense consists of interest income of $115 thousand for the three months ended September 30, 2025, compared to amortization of discount

on convertible notes of ($145) thousand, changes in fair value of derivative liabilities of $146 thousand, and interest income of $1 thousand

for the three months ended for the same period of 2024.

Other income (expense)

consists of interest income of $343 thousand for the six months ended December 31, 2025, compared to ($3.3) million comprised of amortization

of discount on convertible notes of ($428) thousand and changes in fair value of derivative liabilities of ($2.9) million for the same

period of 2024.

Income tax expense :

No income tax expense

was recorded for the three months ended September 30, 2025 and 2024.

was recorded for the six months ended December 31, 2025 and 2024.

Liquidity and Capital Resources

As of September 30, 2025, we had cash, cash equivalents,

As of December 31, 2025, we had cash, cash equivalents,

and a certificate of deposit totaling $38.6 million, compared to $15.7 million as of June 30, 2025.

The increase in cash was primarily

attributable to the net proceeds from the public offerings, which generated gross proceeds of $25.4 million, offset by underwriting discounts

and offering expenses totaling $2.0 million.

attributable to net proceeds from the public offerings, totaling $23.4 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 offerings, our operations were primarily

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has been alleviated for at least the next twelve months.

We intend to use the net proceeds from the offerings

to support operational growth, invest in product development, and fund working capital and general corporate purposes.

Based on our current

operating plan, we believe that our existing cash, cash equivalents, and certificate of deposit, combined with projected revenues and

cost management strategies, will be sufficient to meet our working capital and capital expenditure requirements for at least the next

twelve months.

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.

Based on our current operating plan, we believe that our existing cash, cash equivalents, and certificate of deposit, combined with projected

revenues and cost management strategies, will be sufficient to meet our working capital and capital expenditure requirements for at least

the next twelve months.

We will 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.

As of September 30, 2025, we had working capital

of $39.5 million, compared to $16.6 million as of June 30, 2025.

The increase was primarily driven by a $22.9 million increase in current

assets, which rose to $40.2 million from $17.3 million over the same period, largely due to a $22.4 million increase in cash, cash equivalents,

and a certificate of deposit.

Current liabilities totaled $768 thousand and $705 thousand as of September 30, 2025 and June 30, 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.

As of December 31, 2025, we had net working capital,

defined as total current assets less total current liabilities, of $39.4 million, compared to $16.6 million at June 30, 2025.

was primarily driven by a $22.9 million increase in current assets, which rose to $40.3 million from $17.3 million over the same period,

largely due to a $22.8 million increase in cash and cash equivalents.

Current liabilities totaled $825 thousand and $705 thousand as of

December 31, 2025 and June 30, 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.

The following table shows a summary of our cash

flows for the periods presented ($ in thousands):

Three Months Ended September 30,

Six Months Ended December 31,

Net cash provided by (used in)

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Increase in cash and cash equivalents, and certificate of deposit

Net cash used in our operating activities were

$815 thousand and $931 thousand for the three months ended September 30, 2025 and 2024, respectively.

For the three months ended September

30, 2025, the net cash used in operating activities primarily resulted from a net loss of $1.5 million, and increases in accounts receivable

of $286 thousand and prepaids and other current assets of $196 thousand, primarily offset by non-cash stock-based compensation expense

of $1.1 million.

For the three months ended September 30, 2024, the net cash used in operating activities was primarily attributable to

a net loss of $730 thousand, increases in accounts receivable of $262 thousand, prepaids and other current assets of $167 thousand, and

changes in fair value of derivative liabilities of $146.

These amounts were partially offset by non-cash expenses including stock-based

compensation expense of $167 thousand, amortization of discount on convertible notes of $145 thousand, and depreciation and amortization

expense of $100 thousand.

Net cash used in our operating activities was

$1.1 million and $1.3 million for the six months ended December 31, 2025 and 2024, respectively.

For the six months ended December 31,

2025, the net cash used in operating activities primarily resulted from a net loss of $3.3 million and decreases in accounts payable of

$177 thousand, primarily offset by non-cash stock-based compensation expense of $2.1 million and depreciation and amortization expense

of $210 thousand.

For the six months ended December 31, 2024, the net cash used in operating activities was primarily attributable to

a net loss of $3.6 million, increases in accounts receivable of $1.3 million and prepaid and other current assets of $115 thousand, and

a decrease in accounts payable of $134 thousand.

These amounts were partially offset by non-cash expenses including changes in fair value

of derivative liabilities of $2.9 million, amortization of discount on convertible notes of $428 thousand, stock-based compensation expense

of $316 thousand, and depreciation and amortization expense of $202 thousand.

Net cash used in our investing activities totaled

$210 thousand and $2 thousand for the three months ended September 30, 2025 and 2024, respectively.

$241 thousand and $41 thousand for the six months ended December 31, 2025 and 2024, respectively.

These investing activities primarily

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Net cash provided by our financing activities

was $23.4 million for the three months ended September 30, 2025, compared to net cash provided by our financing activities of $3.1 million

was $24.1 million for the six months ended December 31, 2025, compared to net cash provided by our financing activities of $3.1 million

for the same period in 2024.

We received $23.4 million, net of offering costs, from the public offering and $47 thousand from the exercise

of stock options for the three months ended September 30, 2025, compared to $3.1 million from the issuance of convertible notes during

the same period in 2024.

Critical Accounting Policies

We have established various accounting policies

that govern the application of U.S.

generally accepted accounting principles (GAAP) in the preparation of our financial statements.

significant accounting policies are described in the Notes to Consolidated Financial Statements in our 2025 Annual Report on Form 10-K.

We had no significant changes in what constituted our accounting policies since the filing of our fiscal year 2025 Annual Report on Form

We received $23.4 million, net of offering costs, from the public offering, $690 thousand from the exercise

of stock warrants and $64 thousand from the exercise of stock options for the six months ended December 31, 2025, compared to $3.1 million

from the issuance of convertible notes during the same period in 2024.

Critical Accounting Estimates

Certain accounting policies require us to make

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these to be critical accounting policies.

For a description of these critical accounting policies, see Notes to Consolidated Financial

Statements, Note 1 — The Company and Basis of Presentation in this Report on Form 10-Q.

For a description of these critical accounting policies, see Notes to Condensed Consolidated

Financial Statements, Note 1 — The Company and Basis of Presentation in this Report on Form 10-Q.

Actual results could differ significantly

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sheet dates and our results of operations for the reporting periods.

Recent Accounting Pronouncements

New accounting pronouncements under evaluation

are discussed in the “Notes to Consolidated Financial Statements, Note 1 — The Company and Basis of Presentation.”

Quantitative and Qualitative Disclosures About Market Risk.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis