NASDAQ: ALMU

We leverage a capital-efficient manufacturing
model that combines internal materials production, process-development, prototyping, and test capabilities with external fabrication,
packaging, and integration. We have relationships with production-scale foundries and other supply-chain partners, including relationships
announced during fiscal year 2026 with Tower Semiconductor and Sumitomo Chemical Advanced Technologies for wafer production and fabrication.
We expect these external capabilities to be important to our ability to qualify manufacturing processes and increase production capacity
if substantial customer demand develops.

We are transitioning from a predominantly R&D-stage
business toward commercialization. Our revenue currently consists of government development contracts, with emerging commercial development
and product revenue. We have delivered wafers, chips, and engineering samples, performed non-recurring engineering projects, and have
begun accepting initial commercial sales orders. These initial commercial orders have been relatively small, and commercial customers
generally require extensive evaluation and qualification before committing to production volumes.

Plan of Operations

Our operating priorities are to advance product
development, complete customer and manufacturing qualifications, deliver on existing commercial and government contracts, increase manufacturing
readiness, and convert qualified customer engagements into recurring product revenue. We expect to continue investing in engineering,
materials growth, wafer fabrication, packaging, testing, quality systems, sales, and business development.

We intend to continue supplying engineering samples,
prototype wafers and chips, small volume products, and development services while customers evaluate our technology. We plan to work directly
with prospective customers and with system integrators, module manufacturers, Tier-1 suppliers, component suppliers, semiconductor companies,
and government prime contractors. We also intend to continue working with external foundries, packaging providers, and integration partners
to establish repeatable, qualified production flows that can support large volumes.

The timing and scale of commercialization will
depend on several factors, including technical performance, reliability testing, customer qualification, product design decisions, supply
chain readiness, and market demand. We may continue to derive a substantial portion of our revenue from government and customer development
programs while commercial products progress through qualification.

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Our Strategy

Advance a
differentiated technology platform.

We will continue to develop and broaden our heterogeneous
integration platform across photodetectors, imaging arrays, lasers, nonlinear photonic materials, and other technologies, with an emphasis
on products for which compound semiconductor performance and microelectronics-scale manufacturing can provide meaningful customer benefits.

Focus resources
on selected high-value markets.

Priority applications include AI datacom, mobile
and consumer electronics, defense and aerospace, and quantum. Adjacent opportunities include robotics, automotive, and AR/VR. We select
opportunities based on performance requirements, potential production volume, time to qualification, expected economics, and strategic
fit with our platform.

Scale through
a capital-efficient manufacturing ecosystem.

We will continue to maintain internal capabilities
in materials growth, process development, prototyping, and test, while using established foundries, packaging providers, and integration
companies for production-scale activities. This model is intended to reduce the capital and time required to access larger-scale manufacturing
infrastructure, although it also creates dependence on third-party capacity, quality, delivery, and pricing.

Leverage
funded development and strategic relationships.

We use government sponsored R&D programs,
customer funded engineering programs, strategic partnerships, and initial product sales to advance technology readiness and support the
transition to commercial products. Government programs can help fund development and domestic manufacturing capabilities, but program
requirements may differ from commercial customer requirements.

Protect intellectual
property and build organizational capability.

We seek to continuously expand our patent portfolio,
protect trade secrets and process know-how, as well as recruit personnel with experience in semiconductor manufacturing, product development,
supply chain management, and commercialization.

Our Technology

Our technology is based on heterogeneous integration,
which combines materials with different physical properties within a single semiconductor platform. We synthesize compound semiconductor
materials on large-diameter substrates, such as silicon and gallium arsenide (“GaAs”), which are compatible with manufacturing
infrastructure used for mainstream microelectronics.

Compound semiconductors possess optical and electronic
properties that are either superior to those of or not available from silicon. For example, indium gallium arsenide (“InGaAs”)
can provide high sensitivity in the NIR and SWIR spectral regions. These characteristics may be useful for three-dimensional sensing,
low-light imaging, industrial and robotic vision, defense imaging, optical communications, and other applications. Silicon image sensors
generally offer low-cost and high-volume manufacturing but have declining sensitivity at longer NIR wavelengths and an absorption cutoff
near 1,100 nanometers. Standard InGaAs devices commonly operate across approximately 900 to 1,700 nanometers, with extended-wavelength
material systems capable of detecting longer wavelengths. Eye safety depends on wavelength, optical power, exposure duration, beam geometry,
and applicable safety standards. At certain SWIR wavelengths, applicable exposure limits may permit higher optical power than at shorter
NIR wavelengths because the radiation does not present the same risk of damage to the retina. Higher illumination levels can improve signal
strength and signal-to-noise ratio, potentially increasing range, depth accuracy, and performance under bright ambient light or allowing
shorter exposure times that reduce motion artifacts. These characteristics may benefit applications such as facial authentication and
other three-dimensional sensing systems.

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InGaAs and similar materials are also commonly
used for high-speed photodetection at wavelengths commonly used for optical communications. Photodetectors derived from these materials
enable high-speed communications for telecommunications and AI data center networking. Aeluma’s platform may enable larger volume
production and wafer-scale integration of such photodetectors.

We are also developing quantum dot laser technology
for optical communications and sensing applications. Silicon is well-suited for passive photonic circuits but does not efficiently generate
light. Integrating compound semiconductor lasers with silicon can provide an on-chip or closely integrated optical source while retaining
the scale and integration benefits of silicon manufacturing. Quantum dot lasers are being evaluated in the industry for potential advantages
that include high power handling, reliability, and low noise, which may be relevant to data center interconnects, co-packaged optics,
sensing, and quantum applications.

In addition, we are developing a nonlinear photonics
platform for the generation and manipulation of photons used in quantum communication, computing, and sensing. Our development work includes
integration of compound semiconductor materials with silicon and silicon nitride photonic circuits. Competing nonlinear photonic material
systems include lithium niobate, aluminum nitride, barium titanate, and other emerging materials.

Our technology platform includes materials structures,
epitaxial processes, device designs, wafer fabrication methods, integration techniques, packaging concepts, and system-level applications.
Although our current commercial focus is on photonic sensing and communications products, the platform may support a broader range of
photonic and electronic semiconductor devices.

Competition

We compete in rapidly evolving semiconductor,
sensor, and photonics markets. Competition occurs at the device, materials, manufacturing platform, and system levels, and competitiveness
is based on performance, reliability, power consumption, size, integration, manufacturability, cost, production capacity, supply assurance,
intellectual property, customer relationships, and time to market.

In imaging and sensing, silicon complementary
metal-oxide semiconductor (“CMOS”) image sensors are widely used in high-volume consumer and automotive applications due to
their low cost, mature manufacturing ecosystem, and high level of integration. Major suppliers include Sony, Samsung, OmniVision, onsemi,
STMicroelectronics, Panasonic, Canon, SK hynix, and others. Traditional InGaAs sensor suppliers include Hamamatsu, Sumitomo, Teledyne
FLIR, Excelitas, and others. Conventional InGaAs photodetectors are generally manufactured on relatively small InP substrates, commonly
in the two- to four-inch range. Our objective is to compete by enabling compound semiconductor performance at potentially substantially
lower cost by using large-diameter substrates and large-scale manufacturing methods, which may enable more devices per wafer, larger array
formats, and access to wafer-scale integration and packaging infrastructure.

In lasers and optical communications, we compete
with established suppliers of InP, GaAs, and other compound semiconductor lasers, vertically integrated optical component manufacturers,
silicon photonics companies, and emerging providers of integrated light sources. In quantum photonics, our technologies may compete with
solutions based on lithium niobate, aluminum nitride, barium titanate, silicon, silicon nitride, and other materials, as well as with
alternative system architectures.

We believe our potential competitive advantages
include the ability to integrate high-performance compound semiconductor materials on large-diameter substrates; a platform that can address
photodetectors, lasers, and nonlinear photonics; domestic research, development, and wafer-production capabilities; and a capital-efficient
manufacturing model that can use established foundries and packaging infrastructure. These potential advantages have not yet been demonstrated
in large-volume commercial production. Existing and potential competitors may have greater name recognition, longer operating histories,
broader product portfolios, larger customer bases, substantially greater financial, technical, and manufacturing resources, more mature
quality systems, and stronger relationships with customers and supply chain partners. Competitors may also develop alternative technologies
that achieve comparable or superior performance or cost.

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Customers

Our customers and prospective customers include
U.S. Government agencies and contractors, semiconductor and optical component companies, system integrators, module manufacturers, Tier-1
suppliers, and manufacturers of mobile and consumer electronics, data center and communications equipment, defense and aerospace systems,
and quantum technologies. Our engagements include government R&D contracts, customer-funded non-recurring engineering, wafer development,
delivery of engineering samples, small-volume chips and wafer sales, and technical evaluations.

During fiscal year 2026, we experienced increased
customer and partner engagement across AI data center communications, mobile and consumer electronics, defense and aerospace, and quantum
applications. We began receiving requests for price quotations and accepting initial commercial sales orders. These orders have been relatively
small and may not lead to production orders. Prospective customers typically conduct extensive technical, reliability, manufacturing,
and supply chain evaluations before selecting a new semiconductor component, manufacturing platform, or supplier.

Our commercial strategy includes direct sales
relationships and strategic partnerships. We may engage with customers directly or through manufacturing, packaging, module, system integration,
or government prime contractor partners. Many of our customer and partner discussions are subject to confidentiality agreements, which
can limit the information we publicly disclose regarding specific programs and counterparties.

For the customer concentration disclosure, see
Concentration of Risk in Note 2 – Summary of Significant Accounting Policies

Markets

Our technology addresses markets in which system
performance increasingly depends on the ability to generate, detect, transmit, or process light using compact, energy-efficient, and manufacturable
semiconductor components. Industry demand is being influenced by growth in AI computing and data center bandwidth, increasing use of optical
interconnects, the need for improved sensing in consumer and industrial systems, defense demand for advanced domestic semiconductor technologies,
and continued investment in quantum technologies.

AI infrastructure
and optical communications

AI clusters require increasingly high data transfer
rates among processors, memory, and network equipment. This increases demand for optical transceivers, silicon photonics, lasers, and
high-speed photodetectors and is driving interest in co-packaged optics and other architectures intended to reduce power consumption and
improve bandwidth density. Our photodetector and quantum dot laser platforms are being developed for potential use in these applications.

Mobile, consumer,
AR/VR, robotics, and automotive sensing

Mobile devices and other consumer products increasingly
incorporate depth sensing, biometric authentication, low-light imaging, spatial mapping, and other optical functions. Related sensing
capabilities are also being developed for AR/VR systems, industrial automation, robotics, and automotive applications. Our photodetector
platform is intended to address applications that require performance beyond conventional silicon sensors while maintaining a path toward
large-volume manufacturing.

Defense and
aerospace

Defense and aerospace systems use high-performance
photodetectors, imaging arrays, lasers, and optical communications for surveillance, navigation, targeting, electronic warfare, autonomous
systems, and secure communications. These applications often require high-sensitivity, high-speed, low-size, low-weight, and low-power
operation in demanding environments and a secure domestic supply chain. Our government-funded programs include development of SWIR imaging,
high-speed photodetectors, heterogeneous integration, and quantum photonic technologies.

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Quantum technologies

Quantum communication, computing, and sensing
systems require high-quality photon sources, photodetectors, and nonlinear optical materials. The industry is working to transition these
technologies from laboratory systems to manufacturable photonic integrated circuits. Our quantum dot laser, nonlinear materials, and photodetector
platforms are intended to support this transition using large-diameter substrates and established photonic integration methods.

The timing, size, and growth of these markets
are uncertain, and broad market forecasts may not be representative of the portion that is addressable by our products. We prioritize
specific product opportunities based on identifiable customer requirements, expected qualification timelines, potential production volume,
competitive differentiation, and the resources required to reach commercial readiness.

Intellectual
Property

Our intellectual property portfolio includes
issued patents, pending patent applications, trade secrets, manufacturing know-how, process recipes, device designs, integration methods,
and other proprietary information. Our portfolio includes approximately 36 issued and pending patents. Our patents and applications cover
areas that include heterogeneous integration of compound semiconductor materials on large-diameter substrates, scalable manufacturing
processes, photodetectors and imaging arrays, photonic components, three-dimensional sensing, large-format imaging, quantum dot lasers,
high-performance semiconductor electronic device platforms, and system integration.

We have filed trademark applications for the
name “Aeluma” and the slogan “Sensing Reimagined.” We also rely on confidentiality agreements, invention-assignment
agreements, access controls, and other measures to protect trade secrets and proprietary information. Important aspects of our device
designs and manufacturing processes may be protected as trade secrets rather than disclosed in patent applications.

Our Intellectual
Property Strategy

Our strategy is to seek patent protection in
the United States and selected foreign jurisdictions that represent significant semiconductor markets, manufacturing locations, or customer
bases. We evaluate whether to seek patent protection or maintain an invention, process, or item of know-how as a trade secret based on
factors that include the ability to detect infringement, the likelihood that a patent could be designed around, the expected commercial
life of the technology, and the value of keeping the information confidential.

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 a 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 operating results.

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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 macroeconomic 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.

Manufacturing

Our internal operations include semiconductor
materials and wafer production, process development, quick-turn chip fabrication, prototyping, wafer-level and device-level testing and
validation. Our equipment includes materials synthesis and semiconductor fabrication tools, automated and semi-automated wafer probers,
packaging and prototyping equipment, and test and validation instruments. These capabilities allow us to develop process flows, produce
engineering samples, evaluate externally fabricated wafers, and support customer and manufacturing qualification activities.

We also use external foundries, wafer suppliers,
packaging companies, test providers, and integration partners. During fiscal year 2026, we expanded outsourced wafer fabrication activities
and announced relationships with Tower Semiconductor and Sumitomo Chemical Advanced Technologies for wafer production and fabrication.
Our manufacturing strategy is to retain control of core materials, processes, and product know-how while using qualified third parties
for production-scale processes and capacity.

This manufacturing model may allow us to scale
more efficiently than constructing and operating a fully integrated production facility. However, we depend on third parties for portions
of our manufacturing flow, and we may encounter capacity constraints, long lead times, process-transfer challenges, yield variability,
quality issues, cost increases, equipment limitations, or disruptions. We will need to establish repeatable processes, quality systems,
supplier controls, and customer-approved production flows before supporting material commercial volumes.

Sales

Our revenue currently consists primarily of government
development contracts and limited commercial product sales. We have sold small volumes of wafers and chips, delivered engineering samples,
performed non-recurring engineering and R&D services, and have begun taking initial commercial sales orders. Our commercial products
are in early stages of customer evaluation and qualification, and we cannot predict whether current engagements or orders will result
in recurring or high-volume sales.

The sales cycle for semiconductor components
can be lengthy and may include technical evaluation, prototype delivery, reliability testing, manufacturing qualification, system design
in, and end customer approval. A design win may not result in material revenue, and production volumes can be affected by changes in customer
products, forecasts, market demand, competing technologies, and supply chain conditions.

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Marketing

Our marketing and business development activities
focus on direct engagement with prospective customers, strategic partners, government agencies, and participants in the semiconductor
and photonics ecosystem. We work with potential customers to identify performance requirements, provide technical information and samples,
support evaluations, and develop product and manufacturing roadmaps. We are subject to confidentiality obligations with many current and
prospective customers and partners.

We also market our technology and products through
our website, technical publications, industry conferences, trade shows, investor and customer meetings, and participation in government
and industry consortia. During fiscal year 2026, we joined the Midwest Microelectronics Consortium, a Microelectronics Commons hub focused
on transitioning critical technologies to domestic manufacturing, and we continued participating in technical and industry events focused
on optical communications, defense and aerospace, compound semiconductors, and quantum photonics.

Employees &
Human Capital

At June 30, 2026, Aeluma had 27 employees, of
whom 24 were full-time employees. All employees reside in the United States of America. On occasion, we engage independent contractors
to support our efforts. None of our employees or contractors is subject to a collective bargaining agreement. We have not experienced
any work stoppages, and we consider our relations with our employees to be good. Our human capital management objectives are to acquire,
engage, develop, and retain top talent. We believe that our compensation and benefit programs are appropriately designed to attract and
retain qualified talent. To create and maintain a successful work environment, we offer an annual base salary and a comprehensive package
of additional benefits that support the overall well-being of all our employees and their families. Additionally, we may also grant equity
awards to attract, reward, and retain key employees to allow them to share in our overall performance.

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.

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