Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

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.

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.

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 employee benefits. In addition, general and administrative expenses include third-party consulting, legal, insurance, audit and accounting services, and office lease and utility expenses.

Other Income (Expense)

Interest income consists primarily of interest earned in interest-bearing savings accounts, certificates of deposit held at a bank, and money market funds that invest 100% of their assets in short-term U.S. Treasury obligations.

Amortization of discount on convertible notes represents the non-cash interest expense associated with the amortization of convertible notes issued to our debtholders.

Changes in the fair value of derivative liabilities reflect valuation changes in the derivatives held by us.

Income Tax Expense

Income tax expense consists primarily of income taxes in certain state jurisdictions in which we conduct business.

Results of Operations

Our results of operations for the nine months ended March 31, 2026, as compared to the same period of 2025, were as follows ($ in thousands):

		Nine Months Ended March 31,
		2026				2025				$ Change				% Change
Revenue		$	3,879			$	3,348			$	531				16	%
Operating expenses			9,693				4,522				5,171				114	%
Other income (expense)			668				(990	)			1,658				-167	%
Loss before income tax expense			(5,146	)			(2,164	)			(2,982	)			138	%
Income tax expense			-				-				-				-
Net loss		$	(5,146	)		$	(2,164	)		$	(2,982	)			138	%

Revenue: Revenue increased $531 thousand to $3.9 million, of which $3.8 million was derived from government contracts and $41 thousand from other products and services for the nine months ended March 31, 2026. Revenue was $3.3 million, of which $3.1 million was derived from government contracts and $201 thousand from other products and services, for the same period of 2025.

Operating expenses: Operating expenses increased $5.2 million, or 114%, to $9.7 million for the nine months ended March 31, 2026, compared to $4.5 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 $668 thousand for the nine months ended March 31, 2026 consisted of interest income, compared to other (expense) of $990 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 $(279) thousand, and interest income of $3 thousand.

Income tax expense: No income tax expense was recorded for the nine months ended March 31, 2026 and 2025.

Liquidity and Capital Resources

As of March 31, 2026, we had cash, cash equivalents, and a certificate of deposit totaling $37.8 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 $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 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 an "at-the-market" offering program. Any proceeds, if and when received, are expected to be used for general corporate purposes, including working capital and other liquidity needs.

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.

As of March 31, 2026, we had net working capital, defined as total current assets less total current liabilities, of $38.6 million, compared to $16.6 million at June 30, 2025. The increase was primarily driven by a $22.8 million increase in current assets, which rose to $40.2 million from $17.3 million over the same period, largely due to a $22.0 million increase in cash and cash equivalents, including the certificate of deposit balance at June 30, 2025. Current liabilities totaled $1.5 million and $705 thousand as of March 31, 2026 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):

		Nine Months Ended March 31,
		2026				2025				$ Change				% Change
Net cash provided by (used in)
Operating activities		$	(1,643	)		$	(1,083	)		$	(560	)			-52	%
Investing activities			(439	)			(85	)			(354	)			-416	%
Financing activities			24,122				15,742				8,380				53	%
Increase in cash and cash equivalents, and certificate of deposit		$	22,040			$	14,574			$	7,466				51	%

Net cash used in our operating activities was $1.6 million and $1.1 million for the nine months ended March 31, 2026 and 2025, respectively. For the nine months ended March 31, 2026, the net cash used in operating activities primarily resulted from a net loss of $5.1 million and a decrease in prepaids and other current assets of $699 thousand, primarily offset by non-cash stock-based compensation expense of $3.2 million and an increase in accounts payable of $612 thousand. For the nine months ended March 31, 2025, the net cash used in operating activities was primarily attributable to a net loss of $2.2 million and a decrease in accounts receivable of $1.1 million. These amounts were partially offset by non-cash expenses, including stock-based compensation expense of $1.1 million, amortization of discount on convertible notes of $715 thousand, depreciation and amortization expense of $307 thousand, and changes in fair value of derivative liabilities of $278 thousand.

Net cash used in our investing activities totaled $439 thousand and $85 thousand for the nine months ended March 31, 2026 and 2025, respectively. These investing activities primarily consisted of purchases of equipment.

Net cash provided by our financing activities was $24.1 million for the nine months ended March 31, 2026, compared to $15.7 million for the same period in 2025. For the nine months ended March 31, 2026, we received $23.4 million, net of offering costs, from the public offering, $690 thousand from the exercise of stock warrants, and $103 thousand from the exercise of stock options. For the nine months ended March 1, 2025, we received $12.6 million, net of offering costs, from the public offering and $3.1 million from the issuance of convertible notes.

Critical Accounting Estimates

Certain accounting policies require us to make significant estimates and assumptions that have a material impact on the carrying value of certain assets and liabilities, and we consider these to be critical accounting policies. 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 from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods.