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.

15

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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Item 7. Management’s Discussion
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.

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.

31

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. Aeluma is based in
Goleta, California, where 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.

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 commuting,
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

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 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.

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.

32

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.

Executive Officer Announcements

As of March 18, 2025,
Mr. James Seo agreed to serve as Aeluma’s interim Chief Financial Officer/Principal Accounting Officer until we hire a full-time
CFO. Mr. Seo has been serving as our Controller since May 2023. As of August 4, 2025, Mr. Christopher Stewart agreed to serve as Aeluma’s
Chief Financial Officer/Principal Accounting Officer, replacing Mr. James Seo, our Interim CFO.

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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/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 future
success is subject to numerous uncertainties and risks inherent in the development o

[Excerpt truncated for page length; the complete text is on the linked full-MD&A page.]