What changed in this filing

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Item 1. Financial Statements

2025-11-14 compared with 2025-08-13 · 1219 added, 1227 removed, 1112 unchanged (69% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

June 30, 2025

September 30, 2025

December 31, 2024

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Stockholders’ equity:

Common stock, $ 0.000001

Common stock, $ 0.000001 par value;

1,000,000,000 shares authorized;

27,025,503 and 16,387,180

shares issued and outstanding as of June 30, 2025 and December 31, 2024, respectively

32,447,166 issued and 31,303,834 outstanding as of September 30, 2025 and 16,387,180 shares issued and outstanding as of December 31, 2024

Additional paid-in capital

Stockholder loan

Accumulated other comprehensive loss

Treasury shares, 1,143,332 and 0 shares as of September 30, 2025 and December 31, 2024, respectively

( 20,011,133 )

Accumulated other comprehensive income (loss)

( 9,509,285 )

Accumulated deficit

8 unchanged sentences

Consolidated Statements of Operations

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

Cost of revenue

3 unchanged sentences

General and administrative

Goodwill impairment

Total operating expenses

Loss from operations

( 11,979,879 )

( 30,367,151 )

( 34,749,969 )

( 33,524,181 )

Other income (expense):

Interest expense, net

Interest income (expense), net

( 1,675,616 )

( 9,197,656 )

( 2,917,364 )

Gain on extinguishment of debt

Other income (expense), net

Other income, net

Total other income (expense)

Income (loss) before income tax expense

Income tax expense

Net income (loss)

Net income (loss) per share – basic (1)

Net income (loss) per share – diluted (1)

Weighted-average number of shares of common stock used in computing net income (loss)

per share, basic (1)

Weighted-average number of shares of common stock used in computing net income (loss) per share, diluted (1)

(1) Prior year share and

per share amounts have been retroactively adjusted to reflect the impact of a 1-for-1.7 reverse stock split effected on March 7,

2025, as discussed in Note 1.

Loss before income tax benefit (expense)

( 8,575,165 )

( 27,947,730 )

( 2,333,212 )

( 34,128,673 )

Income tax benefit (expense)

( 2,382,796 )

( 1,731,130 )

( 3,811,383 )

$ ( 7,962,016 )

$ ( 30,330,526 )

$ ( 4,064,342 )

$ ( 37,940,056 )

Net loss per share – basic and diluted (1)

Weighted-average number of shares of common stock used in computing net income (loss) per share, basic and diluted (1)

year share and per share amounts have been retroactively adjusted to reflect the impact of a 1-for-1.7 reverse stock split effected

on March 7, 2025, as discussed in Note 1.

accompanying notes are an integral part of these condensed consolidated financial statements.

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Consolidated Statements of Comprehensive Income (loss)

ended June 30,

months ended June 30,

Net income (loss)

Three months ended

September 30,

Nine months ended

September 30,

$ ( 7,962,016 )

$ ( 30,330,526 )

$ ( 4,064,342 )

$ ( 37,940,056 )

Other comprehensive income (loss):

Foreign currency translation, net of tax

Total other comprehensive income (loss)

Comprehensive income (loss)

( 1,057,133 )

Total other comprehensive (loss) income

( 1,057,133 )

Comprehensive (loss) income

$ ( 9,019,149 )

$ ( 25,157,720 )

$ ( 35,819,260 )

accompanying notes are an integral part of these condensed consolidated financial statements.

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Consolidated Statements of Stockholders’ Equity

Additional Paid-In

Treasury Stock

Comprehensive Income

Stockholders’

Balance as of April 1, 2025

$ 764,816,530

Balance as of July 1, 2025

$ 873,379,525

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$ 679,559,596

Conversion of Coastal Defense promissory note

Conversion of Aspen Bridge Notes

Conversion of Jaunt Carter debt

Issuance of investor note interest shares

Conversion of Airo Drone debt

Conversion of Agile Defense debt

Conversion of Aspen Contingent Debt

Stock issued in connection with the Management Carveout Plan

Conversion of Jaunt deferred compensation

Reclassification of Libertas Warrants

Exercise of Libertas Warrants

Issuance of Underwriter Warrants

Sale of common stock in initial public offering, including over-allotment, net of $ 12,686,393 offering costs

Shares issued to NGA

Shares issued to Dangroup

Issuance and exercise of Libertas warrants

Sale of common stock in Follow-on Offering, including over-allotment, net of $ 6,792,665 offering costs

Repurchase of common stock

( 1,116,312 )

( 19,412,665 )

( 19,412,666 )

Stock-based compensation

Foreign currency translation adjustment

Balance as of June 30, 2025

( 1,057,133 )

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( 7,962,016 )

Balance as of September 30, 2025

$ 962,397,353

$ ( 20,011,133 )

$ ( 210,517,627 )

$ 739,547,146

Comprehensive

Stockholders’

Balance as of April 1, 2024 (1)

Balance as of July 1, 2024 (1)

$ 764,446,983

$ ( 3,813,173 )

$ ( 175,368,576 )

$ 585,265,245

Stock-based compensation

Foreign currency translation adjustment

Balance as of June 30, 2024 (1)

( 30,330,526 )

Balance as of September 30, 2024 (1)

$ 764,569,485

$ ( 205,699,102 )

$ 560,230,027

Treasury Stock

Comprehensive Income

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$ 764,691,988

$ ( 9,509,285 )

$ ( 206,453,285 )

$ 548,729,429

Conversion of Coastal Defense promissory note

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Sale of common stock in initial public offering, including over-allotment, net of $ 12,686,393 offering costs

Sale of common stock in initial public offering, including over-allotment, net of offering costs

Shares issued to NGA

Shares issued to Dangroup

Stock issued in connection with the Management Carveout Plan

Conversion of Jaunt deferred compensation

Issuance and exercise of Libertas warrants

Sale of common stock in Follow-on Offering, including over-allotment, net of $ 6,792,665 offering costs

Sale of common stock in Follow-on Offering, including over-allotment, net of offering costs

Repurchase of common stock

( 1,116,312 )

( 19,412,665 )

( 19,412,666 )

Stock-based compensation

Foreign currency translation adjustment

Balance as of June 30, 2025

( 4,064,342 )

Balance as of September 30, 2025

$ 962,397,353

$ ( 20,011,133 )

$ ( 210,517,627 )

$ 739,547,146

Comprehensive

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( 37,940,056 )

( 7,609,530 )

Balance as of June 30, 2024 (1)

$ 764,446,983

$ ( 3,813,173 )

Balance as of September 30, 2024 (1)

$ 764,569,485

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$ 560,230,027

(1) Share and per share

amounts have been retroactively adjusted to reflect the impact of a 1-for-1.7 reverse stock split effected on March 7, 2025, as discussed

and per share amounts have been retroactively adjusted to reflect the impact of a 1-for-1.7 reverse stock split effected on March

7, 2025, as discussed in Note 1 .

accompanying notes are an integral part of these condensed consolidated financial statements.

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Consolidated Statements of Cash Flows

Six months ended June 30,

Nine months ended September 30,

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

$ ( 4,064,342 )

$ ( 37,940,056 )

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation

Non-cash gain on IPO transactions

( 5,475,721 )

Note issuance for legal settlement

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Non-cash interest

Non-cash charge for Libertas warrants

Non-cash investor note interest

Non-cash gain on debt extinguishment

( 15,559,069 )

Change in investor notes at fair value

2 unchanged sentences

Change in fair value of contingent consideration

( 20,271,826 )

( 2,400,000 )

Change in fair value of warrant liability

1 unchanged sentence

Change in deferred taxes

Goodwill impairment

Changes in operating assets and liabilities:

Accounts receivable

( 5,315,294 )

Related party receivables

Prepaid expenses and other assets

( 1,465,396 )

( 2,881,651 )

( 6,299,068 )

( 4,357,826 )

Accounts payable, accrued expenses and other long-term liabilities

( 19,798,619 )

Related party payables

1 unchanged sentence

Deferred revenue

( 8,886,757 )

( 8,637,649 )

Deferred compensation

Net cash used in operating activities

( 36,520,602 )

( 2,453,265 )

Cash flows from investing activities:

Purchase of property and equipment and investment in intangible assets

( 2,007,171 )

Net cash used in investing activities

( 2,007,171 )

Cash flows from financing activities:

Proceeds from the sale of common stock, net

Repurchase of common stock

( 20,011,133 )

Change in lines of credit

1 unchanged sentence

Repayments on borrowings

( 20,143,878 )

Proceeds from related party borrowings

3 unchanged sentences

Payment of contingent consideration

( 8,534,610 )

Cash paid to seller

Net cash provided by financing activities

( 3,245,769 )

( 3,560,244 )

Net cash provided by (used in) financing activities

( 1,363,989 )

Effect of exchange rate changes

Net increase (decrease) in cash and restricted cash

( 4,171,554 )

Cash and restricted cash as of beginning of period

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Supplemental disclosures of non-cash information:

compensation settled in common stock

between accrued expenses and notes payable

between accrued expenses and contingent consideration

of insurance premiums

Deferred compensation settled in common stock

Reclass between accrued expenses and notes payable

Reclass between accrued expenses and contingent consideration

Financing of insurance premiums

Return of property previously included in accounts payable

Initial recognition of warrant liability

Right-of-use assets obtained in exchange for operating lease liabilities

Deferred offering cost in accrued expenses

Reclass of warrants to equity

Deferred offering cost in accounts payable

settled in common stock

consideration settled in common stock

Debt settled in common stock

Contingent consideration settled in common stock

Issuance of Underwriter Warrants

accompanying notes are an integral part of these condensed consolidated financial statements.

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Combination Agreement, dated August 29, 2023, that certain Second Amendment to the Business Combination Agreement, dated January 16,

2024, that certain Third Amendment to the Business Combination Agreement, dated February 5, 2024, and that certain Fourth Amendment

to the Business Combination Agreement, dated June 24, 2024, with Kernel Group Holdings, Inc., a Cayman Islands exempted company

(“Kernel”), AIRO Group, Inc., a Delaware corporation (“ParentCo”), Kernel Merger Sub, Inc., a Delaware

corporation and a wholly owned subsidiary of ParentCo, AIRO Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary

of ParentCo, VKSS Capital, LLC, a Delaware limited liability company, in the capacity as the representative for the stockholders of

Kernel and ParentCo and also in the capacity as Kernel’s sponsor, and Dr.

Chirinjeev Kathuria, in the capacity as the

representative for the stockholders (the “Business Combination Agreement”), pursuant to which a series of transactions

would have occurred that would have resulted in the Company becoming a wholly-owned subsidiary of ParentCo with ParentCo becoming a

publicly listed company (collectively, the “BCA Transactions”).

On August 5, 2024, the Business Combination Agreement (“BCA”)

was terminated and, as a result, none of the BCA Transactions were effectuated.

On June 16, 2025, the

Company completed its initial public offering of 6.9

million shares of its common stock (the “IPO”), which included an additional 0.9

2024, that certain Third Amendment to the Business Combination Agreement, dated February 5, 2024, and that certain Fourth Amendment to

the Business Combination Agreement, dated June 24, 2024, with Kernel Group Holdings, Inc., a Cayman Islands exempted company (“Kernel”),

AIRO Group, Inc., a Delaware corporation (“ParentCo”), Kernel Merger Sub, Inc., a Delaware corporation and a wholly owned

subsidiary of ParentCo, AIRO Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of ParentCo, VKSS Capital, LLC, a

Delaware limited liability company, in the capacity as the representative for the stockholders of Kernel and ParentCo and also in the

capacity as Kernel’s sponsor, and Dr.

Chirinjeev Kathuria, in the capacity as the representative for the stockholders (the “Business

Combination Agreement”), pursuant to which a series of transactions would have occurred that would have resulted in the Company

becoming a wholly-owned subsidiary of ParentCo with ParentCo becoming a publicly listed company (collectively, the “BCA Transactions”).

On August 5, 2024, the Business Combination Agreement (“BCA”) was terminated and, as a result, none of the BCA Transactions

were effectuated.

June 16, 2025, the Company completed its initial public offering of 6.9 million shares of its common stock (the “IPO”), which

included an additional 0.9 million shares of common stock pursuant to the full exercise of the underwriters’ option to purchase

additional shares, at an initial public offering price of $ 10.00 per share.

The shares began trading on the Nasdaq Global Market under

the ticker symbol “AIRO” on June 13, 2025.

The net proceeds to AIRO from the IPO after deducting $ 10.7 million of underwriting

discounts and commissions and issuance costs paid were $ 58.3 million.

September 12, 2025, the Company completed a public offering of 4.8

million shares of its common stock (the “Follow-on Offering”), which included an additional 0.6

million shares of common stock pursuant to the full exercise of the underwriters’ option to purchase additional shares, at an

initial public offering price of $ 10.00

The shares began trading on the Nasdaq Global Market under the ticker symbol “AIRO” on June 13, 2025.

proceeds to AIRO from the IPO, after deducting $ 7.5

million of underwriting discounts and commissions and issuance costs paid were $ 61.5

offering price of $ 18.50

The net proceeds to the Company from the Follow-on Offering after deducting $ 6.8

million of underwriting discounts and commissions and issuance costs were $ 82.6

on September 12, 2025, the Company repurchased 1.1 million shares of its common stock, which included an additional 0.1 million shares

of common stock as a result of the exercise of the underwriters’ option described above, from certain existing stockholders, including

certain directors and executive officers and their affiliates at a price of $ 17.39 per share for an aggregate purchase price of $ 19.4

million (the “Repurchase”).

Consolidation

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adjustments, considered necessary for a fair presentation of such interim results.

Certain information and disclosures normally included in unaudited condensed

consolidated financial statements prepared in accordance with U.S.

Certain information and disclosures normally included

in unaudited condensed consolidated financial statements prepared in accordance with U.S.

GAAP have been condensed or omitted.

Accordingly, the unaudited condensed consolidated financial statements

should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s final prospectus,

dated June 12, 2025, filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”),

on June 16, 2025 (the “Prospectus”) in connection with the IPO.

the unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements

and notes included in the Company’s final prospectus, dated June 12, 2025, filed with the SEC pursuant to Rule 424(b) under the

Securities Act of 1933, as amended (the “Securities Act”), on June 16, 2025 (the “Prospectus”) in connection

with the IPO.

The condensed consolidated balance sheet as of December 31, 2024 has been derived from the audited consolidated financial

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and Management’s Plans

The accompanying

condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of

assets and satisfaction of liabilities in the normal course of business.

As of March 31.

2025, the Company had incurred recurring

accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization

of assets and satisfaction of liabilities in the normal course of business.

As of March 31, 2025, the Company had incurred recurring

losses from operations and negative cash flows, which raised substantial doubt about its ability to continue as a going concern.

June 16, 2025, the Company completed its IPO of common stock, which resulted in net proceeds of $ 61.5

million after deducting underwriting discounts and commissions and issuance costs paid of $ 7.5

Management believes that the net proceeds from the IPO, together with existing

cash on hand, are sufficient to meet its obligations and fund planned operations for at least the next twelve months from the date these

condensed consolidated financial statements are issued.

Accordingly, the conditions that previously raised substantial doubt about the

Company’s ability to continue as a going concern have been alleviated.

30, 2025, the Company had cash and restricted cash of $ 40.5

million of which $ 0.2

million was either restricted or was designated to only being used for Sky-Watch operations and working capital of $ 12.6

Based on its current operating plan and available liquidity, management believes that the Company has sufficient

cash and resources to meet its obligations and continue its operations for at least the next 12 months from the date of issuance of the

financial statements.

The Company is

opportunistically pursuing additional capital through equity or debt financing to support growth initiatives.

There can be no assurance that additional financing will be available on terms acceptable to the Company, if at all.

16, 2025, the Company completed its IPO of common stock, which resulted in net proceeds of $ 58.3 million after deducting underwriting

discounts and commissions and issuance costs of $ 10.7 million.

On September 12, 2025, the Company completed the Follow-on Offering and

the Repurchase, which resulted in net proceeds to the Company of $ 63.1 million, after deducting underwriting discounts and commissions

of $ 6.8 million and $ 19.4 million in the Repurchase.

As of September 30, 2025, the Company had cash and restricted cash of $ 83.7 million

of which $ 0.2 million was either restricted or was designated to only being used for Sky-Watch operations and working capital of $ 74.5

believes that the net proceeds from the IPO and the Follow-on Offering, together with existing cash on hand, are sufficient to meet its

obligations and fund planned operations for at least the next twelve months from the date these condensed consolidated financial statements

Accordingly, the conditions that previously raised substantial doubt about the Company’s ability to continue as a going

concern have been alleviated.

Company is evaluating opportunistic debt financing to support growth initiatives;

any proceeds, if obtained, would be used to expand

our market position, pursue strategic opportunities, and support revenue growth and long-term profitability.

There can be no assurance

that additional financing will be available on terms acceptable to the Company, if at all.

preparation of condensed consolidated financial statements in conformity with U.S.

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adversely affect the Company’s business, results of operations, and financial condition.

The Company considers all highly liquid investments

with an original or remaining maturity of three months or less from the date of purchase to be cash equivalents.

The Company had no cash

equivalents as of June 30, 2025 and December 31, 2024.

The Company had $ 0.2 million in restricted cash

as of June 30, 2025 and December 31, 2024.

As of June 30, 2025 and December 31, 2024, restricted cash was primarily deposits from a customer

contract that have been placed in an escrow account to be released upon shipment of orders.

Company considers all highly liquid investments with an original or remaining maturity of three months or less from the date of purchase

to be cash equivalents.

The Company had no cash equivalents as of September 30, 2025 and December 31, 2024.

Company had $ 0.2 million in restricted cash as of September 30, 2025 and December 31, 2024.

As of September 30, 2025 and December 31,

2024, restricted cash was primarily deposits from a customer contract that have been placed in an escrow account to be released upon

shipment of orders.

Receivable, Net

Accounts receivable are reported on the accompanying

condensed consolidated balance sheets at the gross outstanding amount adjusted for a provision for credit losses.

The Company determines

the provision for credit losses by regularly evaluating expected loss as well as individual customer receivables and considering a customer’s

financial condition, credit history, and current economic conditions.

As of June 30, 2025 and December 31, 2024, the Company provided

a provision for credit losses of $ 0.1 million for amounts that may ultimately be uncollectible.

Accounts receivable are written off when

deemed uncollectible.

Recoveries of accounts receivable previously written off are recorded when received.

receivable are reported on the accompanying condensed consolidated balance sheets at the gross outstanding amount adjusted for a provision

for credit losses.

The Company determines the provision for credit losses by regularly evaluating expected loss as well as individual

customer receivables and considering a customer’s financial condition, credit history, and current economic conditions.

As of September

30, 2025 and December 31, 2024, the Company provided a provision for credit losses of $ 0.1 million for amounts that may ultimately be

uncollectible.

Accounts receivable are written off when deemed uncollectible.

Recoveries of accounts receivable previously written off

are recorded when received.

is stated at the lower of cost or net realizable value.

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Offering Costs

The Company capitalizes

certain legal, professional, accounting, and other third-party fees that are directly associated with in-process equity issuances as

deferred offering costs until such equity issuances are consummated.

Company capitalizes certain legal, professional, accounting, and other third-party fees that are directly associated with in-process

equity issuances as deferred offering costs until such equity issuances are consummated.

During the quarter ended June 30, 2025, $ 12.7

million of offering costs were recorded as a reduction to the net proceeds received from the IPO.

As of December 31, 2024, the Company

had a balance of $ 0.8 million of deferred offering

costs on the condensed consolidated balance sheet.

million of offering costs, including $ 2.0 million of non-cash warrants, were recorded as a reduction to the net proceeds received from

During the quarter ended September 30, 2025, $ 6.8 million of offering costs were recorded as a reduction to the net proceeds

received from the Follow-on Offering.

As of December 31, 2024, the Company had a balance of $ 0.8 million of deferred offering costs on

the condensed consolidated balance sheet.

Value Measurements

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to the fair value measurement.

The following is a summary of the financial liabilities

measured at fair value on a recurring basis by caption and by level within the fair value hierarchy as of June 30, 2025 and December 31,

Summary of the Financial Liabilities Measured at Fair Value on a Recurring Basis

Fair value as of June 30, 2025

following is a summary of the financial liabilities measured at fair value on a recurring basis by caption and by level within the fair

value hierarchy as of September 30, 2025 and December 31, 2024:

Schedule of the Financial Liabilities Measured at Fair Value on a Recurring Basis

Fair value as of September 30, 2025

Investor Notes at fair value

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Total financial liabilities

There were no financial assets measured at fair

value on a recurring basis as of June 30, 2025 and December 31, 2024.

There were no transfers between Levels 1, 2, or 3 within the fair

value hierarchy during the six months ended June 30, 2025 nor during the year ended December 31, 2024.

were no financial assets measured at fair value on a recurring basis as of September 30, 2025 and December 31, 2024.

There were no transfers

between Levels 1, 2, or 3 within the fair value hierarchy during the nine months ended September 30, 2025 nor during the year ended December

Consideration

As of December 31, 2024, contingent

consideration included an obligation assumed from the Jaunt acquisition that was contingent on future cash receipts (the “Jaunt Contingent

Arrangement”) and promissory notes issued in conjunction with the acquisitions of Agile Defense, Airo Drone, and Coastal Defense.

contingent consideration liabilities were measured at fair value on a recurring basis for which there was no available quoted market prices

or principal markets.

of December 31, 2024, contingent consideration included an obligation assumed from the Jaunt acquisition that was contingent on future

cash receipts (the “Jaunt Contingent Arrangement”) and promissory notes issued in conjunction with the acquisitions of Agile

Defense, Airo Drone, and Coastal Defense.

contingent consideration liabilities were measured at fair value on a recurring basis for which there was no available quoted market

prices or principal markets.

The inputs for this measurement were unobservable and were, therefore, classified as Level 3 inputs.

The Jaunt Contingent Arrangement

was valued using discounted cash flow models.

As of December 31, 2024, the significant inputs included discount factors ranging from

and a 67 % initial public offering

(“IPO”) likelihood to arrive at a total fair value of $ 33.4

The fair value of the contingent

consideration promissory notes issued to the former equity holders of Agile Defense, AIRO Drone and Coastal Defense totaled $ 9.4

million as of December 31, 2024.

Valuations were based on a 67 %

probability of the IPO closing and a discount rate of 3 %

as of December 31, 2024 based on proximity to an estimated closing date.

As a result of the closing

of the IPO, the contingencies on the liabilities discussed above were resolved and the Company recorded the fair the value of the expected

settlement in shares of common stock and cash, resulting in income of $ 17.5 million being recorded to other income (expense), net.

the three months ended June 30, 2025, 1.4 million shares were issued at a fair value of $ 10.00 per share and $ 3.3 million in cash was

paid related to these obligations.

The remaining cash obligations totaling $ 5.3

million are reflected as accrued expenses on the Company’s

condensed consolidated balance sheet as of June 30, 2025.

The Company funded $ 4.2

million of the remaining cash obligations in July 2025 and

agreed to fund the remaining $ 1.1

million to Carter Aviation Technologies LLC on September 10,

2025 through an unsecured promissory note, dated July 10, 2025.

Jaunt Contingent Arrangement was valued using discounted cash flow models.

As of December 31, 2024, the significant inputs included discount

factors ranging from 21 % to 45 % and a 67 % initial public offering (“IPO”) likelihood to arrive at a total fair value of $ 33.4

fair value of the contingent consideration promissory notes issued to the former equity holders of Agile Defense, AIRO Drone and Coastal

Defense totaled $ 9.4 million as of December 31, 2024.

Valuations were based on a 67 % probability of the IPO closing and a discount rate

of 3 % as of December 31, 2024 based on proximity to an estimated closing date.

the nine months ended September 30, 2025, 1.4 million shares were issued, $ 8.5 million in cash was paid and $ 17.5 million of income was

recorded to other income, net related to settlement of these obligations.

Notes at fair value

Company has historically issued unsecured promissory notes to certain investors (“the Investor Notes”), which have

included various interest features in the form of both stock and cash and were contingently payable upon the closing of the IPO or

qualified financing.

The Company has evaluated these features and determined that they do not meet the criteria for being accounted

as an embedded derivative under Accounting Standards Codification (“ASC”) 815.

During the fourth quarter of 2024,

certain Investor Notes were amended such that when the Company performed a significance test as of the modification date in

accordance with ASC 470-50, the Company determined that the change in terms of these Investor Notes were substantially different

than the previous terms such that the Company recorded a loss on extinguishment of $ 10.5

Company has historically issued unsecured promissory notes to certain investors (the “Investor Notes”), which have included

various interest features in the form of both stock and cash and were contingently payable upon the closing of the IPO or qualified financing.

The Company has evaluated these features and determined that they do not meet the criteria for being accounted as an embedded derivative

under Accounting Standards Codification (“ASC”) 815.

During the fourth quarter of 2024, certain Investor Notes were amended

such that when the Company performed a significance test as of the modification date in accordance with ASC 470-50, the Company determined

that the change in terms of these Investor Notes were substantially different than the previous terms such that the Company recorded

a loss on extinguishment of $ 10.5 million.

this significant modification created an election date for the fair value option and as the fair value election is applied on an instrument-by-instrument

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are inherently uncertain.

To determine the fair

value of Investor Notes at fair value, the Company estimated stock pricing and incorporated the probability of both the IPO and

non-IPO scenario with the IPO probability being 67 %

as of December 31, 2024.

Significant estimates and assumptions inherent in the valuations reflect a consideration of other

marketplace participants and include the amount and timing of future cash flows.

The Company used a present value model for the

expected cash payments, and a probability-weighted calculation to fair value the contingent interest shares to be paid.

probability-weighted calculation incorporated expectations to complete the IPO as well as a probability derived from a lattice model

with key assumptions being equity volatility and discount for lack of marketability (“DLOM”).

Equity volatility rates

utilized were 70 %

and the DLOM rates selected were 10 %

for December 31, 2024.

As described in Note 2, the terms of the Investor Notes at fair value were further amended and then partially

settled through the issuance of common stock during the six months ended June 30, 2025.

As of June 30, 2025, the $ 3.8 million of Investor

Notes at fair value included unpaid cash amounts of which $ 2.1

million was repaid in July of 2025.

determine the fair value of Investor Notes at fair value, the Company estimated stock pricing and incorporated the probability of both

the IPO and non-IPO scenario with the IPO probability being 67 % as of December 31, 2024.

Significant estimates and assumptions inherent

in the valuations reflect a consideration of other marketplace participants and include the amount and timing of future cash flows.

Company used a present value model for the expected cash payments, and a probability-weighted calculation to fair value the contingent

interest shares to be paid.

This probability-weighted calculation incorporated expectations to complete the IPO as well as a probability

derived from a lattice model with key assumptions being equity volatility and discount for lack of marketability (“DLOM”).

Equity volatility rates utilized were 70 % and the DLOM rates selected were 10 % for December 31, 2024.

As described in Note 2, the terms

of the Investor Notes at fair value were further amended and then partially settled through the issuance of common stock and cash payments

of $ 2.1 million during the nine months ended September 30, 2025.

During July 2025, the Company modified the remaining notes which totaled

$ 1.7 million such that $ 1.8 million, inclusive of a $ 0.1 million fee, would be due by December 16, 2025 .

Warrant liability

the quarter ended March 31, 2025, the Company entered into two warrant agreements whereby Libertas Funding, LLC

(“Libertas”) agreed to purchase an aggregate of 0.5 % of the fully diluted number of shares of common stock of the

Company immediately before the closing of the Company’s IPO at an exercise price of $ 0.02 per share (“Libertas

At inception, prior to the IPO, the Libertas Warrants did not meet the indexation criteria in ASC 815-40;

accordingly, the Libertas Warrants were recorded as a liability measured at fair value as of March 31, 2025.

During the three months ended March 31,

2025, in conjunction with the Libertas Agreements, as defined in Note 2, the Company allocated the net proceeds to the $ 2.9 million

warrant liability with the residual proceeds then being allocated to the debt associated with the Libertas Agreements, which

resulted in the recording of a debt discount of $ 2.9 million.

the quarter ended March 31, 2025, the Company entered into two warrant agreements whereby Libertas Funding, LLC (“Libertas”)

agreed to purchase an aggregate of 0.5 % of the fully diluted number of shares of common stock of the Company immediately before the closing

of the Company’s IPO at an exercise price of $ 0.02 per share (“Libertas Warrants”).

At inception, prior to the IPO,

the Libertas Warrants did not meet the indexation criteria in ASC 815-40;

accordingly, the Libertas Warrants were recorded as a liability

measured at fair value as of March 31, 2025.

During the three months ended March 31, 2025, in conjunction with the Libertas Agreements,

as defined in Note 2, the Company allocated the net proceeds to the $ 2.9 million warrant liability with the residual proceeds then being

allocated to the debt associated with the Libertas Agreements, which resulted in the recording of a debt discount of $ 2.9 million.

the closing of the IPO, the number of shares issuable became fixed such that the Libertas Warrants became indexed to the Company’s

stock and were eligible to be classified in stockholders’ equity on the Company’s condensed consolidated balance sheets at

As such, the Company reclassified the fair value of the warrant liability of $ 1.0

million as of June 12, 2025 to stockholders’ equity and

recognized $ 1.8 million

of income due to the change in fair value of the Libertas Warrants within other income (expense), net on the condensed consolidated statements

of operations.

As such, the Company reclassified the fair value of the warrant liability of $ 1.0 million as of June 12, 2025 to stockholders’

equity and recognized $ 1.8 million of income due to the change in fair value of the Libertas Warrants within other income, net on the

condensed consolidated statements of operations.

determine the fair value of the Libertas Warrants, the Company utilized the Black-Scholes model to determine the common stock price on

1 unchanged sentence

Key assumptions included equity volatility rate of 70 %.

The Company modified certain

debt arrangements as of March 31, 2022.

The debt was recorded at present value to estimate the fair value of the debt obligation as

of March 31, 2024 and December 31, 2023.

Since the debt was fully accreted to its expected value during the six months ended June 30, 2024, the debt is no

longer measured at fair value on a recurring basis and was transferred out of Level 3 fair value measurements.

The changes in fair value of the Level 3 financial

liabilities for the three and six months ended June 30, 2025 and 2024 were as follows:

of Changes in Fair Value of the Level 3 Financial Liabilities

Consideration

Balance as of April 1, 2025

Company modified certain debt arrangements as of March 31, 2022.

The debt was recorded at present value to estimate the fair value of

the debt obligation as of March 31, 2024 and December 31, 2023.

Since the debt was fully accreted to its expected value during the nine

months ended September 30, 2024, the debt is no longer measured at fair value on a recurring basis and was transferred out of Level 3

fair value measurements.

changes in fair value of the Level 3 financial liabilities for the three and nine months ended September 30, 2025 and 2024 were as follows:

Schedule of Changes in Fair Value of the Level 3 Financial Liabilities

Investor Notes at Fair Value

Warrant Liability

Contingent Consideration

Balance as of July 1, 2025

Change in fair value

( 2,079,222 )

( 1,843,000 )

( 17,533,572 )

( 4,529,320 )

( 17,242,462 )

Transfers out

( 1,042,000 )

( 5,267,988 )

Balance as of June 30, 2025

Balance as of September 30, 2025

Investor Notes at Fair Value

Warrant Liability

Contingent Consideration

Balance as of April 1, 2024

Balance as of July 1, 2024

Change in fair value

Transfers out

( 4,100,000 )

Balance as of June 30, 2024

Transfers out

Balance as of September 30, 2024

Investor Notes at Fair Value

Consideration

4 unchanged sentences

( 20,271,826 )

( 6,608,542 )

( 17,242,462 )

Transfers out

1 unchanged sentence

( 5,267,988 )

Balance as of June 30, 2025

Balance as of September 30, 2025

Investor Notes at Fair Value

Warrant Liability

Consideration

1 unchanged sentence

Change in fair value

( 2,400,000 )

Transfers out

Balance as of June 30, 2024

change in the fair value of the debt is included in interest expense, net on the condensed consolidated statements of

operations and represents the amortization of the debt discount.

The change in the fair value of the Investor Notes at fair value is

included in interest expense, net on the condensed consolidated statements of operations.

The change in the fair value

of the contingent consideration and warrant liability is included in other income (expense), net on the condensed consolidated

statements of operations.

( 19,440,519 )

Balance as of September 30, 2024

change in the fair value of the debt is included in interest expense, net on the condensed consolidated statements of operations and

represents the amortization of the debt discount.

The change in the fair value of the Investor Notes at fair value is included in interest

expense, net on the condensed consolidated statements of operations.

The change in the fair value of the contingent consideration and

warrant liability is included in other income, net on the condensed consolidated statements of operations.

Value of Financial Instruments

14 unchanged sentences

to be realized.

The Company evaluates

its tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the

tax positions will more-likely-than-not be sustained by the applicable tax authority.

Company evaluates its tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine

whether the tax positions will more-likely-than-not be sustained by the applicable tax authority.

Tax positions not deemed to meet the

more-likely-than-not threshold are not recorded as a tax benefit or expense in the current year.

Interest and penalties, if

applicable, are recorded in the period assessed as income tax expense.

interest or penalties have been accrued for as of June 30, 2025 or December 31, 2024.

On July 4, 2025, the One Big Beautiful

Bill Act (“OBBBA”) was enacted.

While this event has no effect on the financial results for the three and six months ended

June 30, 2025, we are currently evaluating the impact of the new legislation.

Interest and penalties, if applicable,

are recorded in the period assessed as income tax expense.

No interest or penalties have been accrued for as of September 30, 2025 or

December 31, 2024.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted.

While this event has no effect

on the financial results for the three and nine months ended September 30, 2025, we are currently evaluating the impact of the new legislation.

and equipment

2 unchanged sentences

the straight-line method for condensed consolidated financial statement purposes at rates based on the following useful lives:

of Property and Equipment Estimated Useful Lives

Schedule of Property and Equipment Estimated Useful Lives

and equipment

34 unchanged sentences

estimated useful lives for the Company’s intangible assets are as follows:

of Estimated Useful Lives for Company’s Intangible Assets

Schedule of Estimated Useful Lives for Company’s Intangible Assets

- definite-lived

70 unchanged sentences

Schedule of Revenue Recognition based on Time Period

Three Months ended June 30,

Six Months ended June 30,

Point in time

liabilities as of June 30, 2025 and December 31, 2024 were $ 4.0

million and $ 10.4 million,

respectively.

The majority of contract liabilities are expected to be recognized as revenue through 2025.

The Company had no

significant contract assets as of June 30, 2025 and December 31, 2024.

During the three and six months ended June 30, 2025, the

Company recognized $1.6 million and $ 8.7

September 30,

contract liabilities as of September 30, 2025 and December 31, 2024 were $ 2.8 million and $ 10.4 million, respectively.

The majority of

contract liabilities are expected to be recognized as revenue through 2025.

The Company had no significant contract assets as of September

30, 2025 and December 31, 2024.

During the three and nine months ended September 30, 2025, the Company recognized $ 1.3 million and $ 10.0

million, respectively, in revenue previously included in contract liabilities as of December 31, 2024.

27 unchanged sentences

Comprehensive

income (loss) generally represents all changes in the equity of a business except those resulting from investments or contributions by stockholders.

Unrealized gains and losses on foreign currency translation adjustments, net of tax are included in the Company’s components of

comprehensive income (loss), which are excluded from net loss.

income (loss) generally represents all changes in the equity of a business except those resulting from investments or contributions by

stockholders.

Unrealized gains and losses on foreign currency translation adjustments, net of tax are included in the Company’s

components of comprehensive income (loss), which are excluded from net loss.

contract inception, the Company determines whether the contract is, or contains, a lease and whether the lease should be classified as

24 unchanged sentences

the Company does not recognize ROU assets or lease liabilities for leases with a term of 12 months or less of all asset classes.

Income (Loss) Per Share

Basic net income (loss) per share is determined using

the weighted average number of common shares outstanding during the period.

Diluted net income (loss) per share is determined using the

weighted average number of common shares and potential common shares (representing the hypothetical number of incremental shares issuable

under the assumed exercise of outstanding stock options and vesting of outstanding RSUs) during the period using the treasury stock method.

The calculation of dilutive shares outstanding excludes securities that would have an antidilutive effect on net income per share.

The following table presents the computation of basic

and diluted net income (loss) per share:

Schedule of Basic and Diluted Net Income (Loss)

Three Months ended June 30,

Six Months ended June 30,

Net income (loss)

$ ( 5,599,841 )

$ ( 7,609,530 )

Basic weighted average shares outstanding

Dilutive effect of common equivalent shares outstanding

Diluted weighted average shares outstanding

Net income (loss) per share – basic

Net income (loss) per share - diluted

Anti-dilutive securities

Debt issuance costs are presented as a discount

to the related debt and are amortized over the term of the related loan for which the fees were incurred using the straight-line method,

which approximates the effective interest method.

As of June 30, 2025 and December 31, 2024, unamortized debt discount totaled $ 0.0 million

and $ 0.3 million, respectively.

The functional

currency of the Company’s foreign subsidiary is its local currency.

As such, assets and liabilities are translated to U.S.

Loss Per Share

net loss per share is determined using the weighted average number of common shares outstanding during the period.

Diluted net loss per

share is based on the treasury stock method and computed by dividing net loss available to common stockholders by the diluted weighted-average

shares of common stock outstanding during each period.

The potentially dilutive shares are considered to be common stock equivalents

and are only included in the calculation of diluted net loss per share when the effect is dilutive.

potentially dilutive shares of common stock that have been excluded from

the calculation of net loss per share because of the anti-dilutive effect are as follows as of September 30, 2025:

0.4 million warrants,

0.3 million stock options, 0.1 million unsettled stock awards and units.

The potentially dilutive shares of common stock that have been

excluded from the calculation of net loss per share because of the anti-dilutive effect are as follows as of September 30, 2024:

warrants, 0.3 million stock options, and 0.3 million contingent restricted stock awards, 2.2 million potential shares issuable under debt

conversion agreements and 1.0 million potential shares issuable for contingent interest payments.

The number of potentially dilutive shares

is based on the maximum number of shares issuable on exercise or conversion of the related securities as of the period end.

have not been adjusted for the treasury stock method or weighted-average outstanding calculations as required if the securities were dilutive.

issuance costs are presented as a discount to the related debt and are amortized over the term of the related loan for which the fees

were incurred using the straight-line method, which approximates the effective interest method.

As of September 30, 2025 and December

31, 2024, unamortized debt discount totaled zero and $ 0.3 million, respectively.

functional currency of the Company’s foreign subsidiary is its local currency.

As such, assets and liabilities are translated to

dollars at the exchange rates on the date of consolidation and related revenues and expenses are generally translated at average

exchange rates prevailing during the period included in results of operations.

Adjustments resulting from foreign currency

translation are recorded in accumulated other comprehensive loss on the condensed consolidated balance sheets.

Foreign currency

transaction gains and losses are included in other income (expense), net on the condensed consolidated statements of operations.

Losses from foreign currency transactions were not significant for the three and six months ended June 30, 2025 and 2024,

respectively.

Adjustments resulting from foreign currency translation

are recorded in accumulated other comprehensive loss on the condensed consolidated balance sheets.

Foreign currency transaction gains

and losses are included in other income, net on the condensed consolidated statements of operations.

Losses from foreign currency transactions

were not significant for the three and nine months ended September 30, 2025 and 2024, respectively.

Accounting Pronouncements Not Yet Adopted

December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740):

December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09,

Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

This ASU is intended

to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information

in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction.

It also includes certain other amendments to improve

the effectiveness of income tax disclosures.

The ASU’s amendments are effective for public business entities for annual periods

beginning after December 15, 2025.

Entities are permitted to early adopt the standard for annual financial statements that have not yet

been issued or made available for issuance.

This ASU is intended to improve the transparency of income tax

disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income

taxes paid disaggregated by jurisdiction.

It also includes certain other amendments to improve the effectiveness of income tax disclosures.

The ASU’s amendments are effective for the Company for annual periods beginning after December 15, 2025.

are permitted to early adopt the standard for annual financial statements that have not yet been issued or made available for issuance.

Adoption is either prospectively or retrospectively.

The Company will adopt this ASU on a

prospective basis.

The Company is currently evaluating the impact of the new standard on the annual consolidated financial statements

and related disclosures.

The Company will adopt this ASU on a prospective basis.

The Company is currently

evaluating the impact of the new standard on the annual consolidated financial statements and related disclosures.

January 6, 2025 and November 4, 2024, the FASB issued ASU No.

14 unchanged sentences

this new guidance on its condensed consolidated financial statements and related disclosures.

On May 12, 2025, the

FASB issued ASU No.

May 12, 2025, the FASB issued ASU No.

2025-03, “Business Combinations (Topic 805) and Consolidation (Topic 810):

Determining the Accounting

Acquirer in the Acquisition of a Variable Interest Entity”.

Determining the

Accounting Acquirer in the Acquisition of a Variable Interest Entity”.

This guidance revises ASC 805 on identifying the accounting

acquirer in a business combination in which the legal acquiree is a variable interest entity (VIE).

The ASU is intended to improve

comparability between business combinations and is effective for fiscal years beginning after December 15, 2026.

Early adoption is

The Company is currently evaluating the potential impact of adopting this new guidance on its condensed consolidated

financial statements and related disclosures.

On May 15, 2025, the FASB issued ASU No.

2025-04, “Compensation

– Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606):

Clarifications to Share-based Consideration

Payable to a Customer.” This guidance clarifies ASC 606 and ASC 718 on the accounting for share-based payment awards that

are granted by an entity as consideration payable to its customer.

The ASU is intended to reduce diversity in practice and improve existing

guidance, primarily by revising the definition of a “performance condition” and eliminating a forfeiture policy election for

service conditions associated with share-based consideration payable to a customer.

In addition, the ASU clarifies that the guidance in

ASC 606 on the variable consideration constraint does not apply to share-based consideration payable to a customer “regardless of

whether an award’s grant date has occurred” (as determined under ASC 718).

Entities can use either a modified retrospective

or a retrospective method to adopt the ASU’s amendments.

The guidance is effective for fiscal years beginning after December 15,

The ASU is intended to improve comparability

between business combinations and is effective for fiscal years beginning after December 15, 2026.

Early adoption is permitted.

The Company is currently evaluating the potential impact of adopting this new guidance on its condensed

consolidated financial statements and related disclosures.

On July 30, 2025, the

FASB issued ASU 2025-05, “Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses for Accounts Receivable

and Contract Assets.” This guidance amends ASC 326-20 to provide a practical expedient and an accounting policy election related to

the estimation of expected credit losses for current accounts receivable and current contract assets that arise from transactions

accounted for under ASC 606.

is currently evaluating the potential impact of adopting this new guidance on its condensed consolidated financial statements and related

May 15, 2025, the FASB issued ASU No.

2025-04, “Compensation – Stock Compensation (Topic 718) and Revenue from Contracts

with Customers (Topic 606):

Clarifications to Share-based Consideration Payable to a Customer.” This guidance clarifies ASC 606

and ASC 718 on the accounting for share-based payment awards that are granted by an entity as consideration payable to its customer.

The ASU is intended to reduce diversity in practice and improve existing guidance, primarily by revising the definition of a “performance

condition” and eliminating a forfeiture policy election for service conditions associated with share-based consideration payable

to a customer.

In addition, the ASU clarifies that the guidance in ASC 606 on the variable consideration constraint does not apply to

share-based consideration payable to a customer “regardless of whether an award’s grant date has occurred” (as determined

under ASC 718).

Entities can use either a modified retrospective or a retrospective method to adopt the ASU’s amendments.

is effective for fiscal years beginning after December 15, 2026.

Early adoption is permitted.

The Company is currently evaluating the

potential impact of adopting this new guidance on its condensed consolidated financial statements and related disclosures.

July 30, 2025, the FASB issued ASU 2025-05, “Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses for

Accounts Receivable and Contract Assets.” This guidance amends ASC 326-20 to provide a practical expedient (for all entities) and

an accounting policy election (for all entities, other than public business entities, that elect the practical expedient) related to

the estimation of expected credit losses for current accounts receivable and current contract assets that arise from transactions accounted

for under ASC 606.

The guidance is effective for fiscal years beginning after December 15, 2025.

Early adoption is

The Company is currently evaluating the potential impact of adopting this new guidance on its condensed consolidated

financial statements and related disclosures.

Lines of Credit and Long-Term Debt

Early adoption is permitted.

is currently evaluating the potential impact of adopting this new guidance on its condensed consolidated financial statements and related

Revolving Lines of Credit and Debt

Lines of Credit

In February 2020,

Aspen Avionics entered into a Loan and Security Agreement for an asset-based loan facility (the “Facility”) with

Crestmark, a Division of Pathward (formerly known as Metabank), with a maximum advance limit of $ 2.5

The Facility was due on demand, carried variable interest at the greater of 9 %

or prime plus 4.25 %

and was collateralized by substantially all assets of Aspen Avionics.

In October 2024, Aspen Avionics terminated the Facility and

repaid the Facility in full.

In November 2018,

Coastal Defense obtained two variable rate non-disclosable revolving lines of credit of up to $ 0.5

million and $ 0.2

million, due on demand, from First Citizens Community Bank (“FCCB”).

These arrangements were collateralized by aircraft

security agreements, assignments of life insurance, an assignment of a deposit account, and commercial security agreements dated

November 15, 2018, and all associated financing statements.

Interest was initially set at the

prime rate as published in the Wall Street Journal plus 0.50 percentage points.

Commencing in 2022, the Company was in default on

these facilities, resulting in an additional 4% in interest per annum.

The annual interest rate was 12% as of December 31,

Parker, Coastal Defense’s former Vice-President and Treasurer, and stockholder of Holdings;

Parker, stockholder of Holdings;

and Kyle Stanbro, Coastal Defense’s President and stockholder of Holdings;

guaranteed these

As part of the Coastal Defense acquisition, the maturity dates of these notes were modified to be in 2022 as opposed to the

original maturity date in 2069 .

No withdrawals were made during the six months ended June 30, 2025 or the year ended December 31, 2024.

During the quarter ended

March 31, 2025, the lines of credit with FCCB were fully repaid and closed.

The total amount outstanding on the lines of

credit as of June 30, 2025 and December 31, 2024 was $ 0

million, respectively.

February 2020, Aspen Avionics entered into a Loan and Security Agreement for an asset-based loan facility (the “Facility”)

with Crestmark, a Division of Pathward (formerly known as Metabank), with a maximum advance limit of $ 2.5 million.

The Facility was due

on demand, carried variable interest at the greater of 9 % or prime plus 4.25 % and was collateralized by substantially all assets of Aspen

In October 2024, Aspen Avionics terminated the Facility and repaid the Facility in full.

November 2018, Coastal Defense obtained two variable rate non-disclosable revolving lines of credit of up to $ 0.5 million and $ 0.2 million,

due on demand, from First Citizens Community Bank (“FCCB”).

These arrangements were collateralized by aircraft security agreements,

assignments of life insurance, an assignment of a deposit account, and commercial security agreements dated November 15, 2018, and all

associated financing statements.

Interest was initially set at the prime rate as published in the Wall Street Journal plus 0.50 percentage

Commencing in 2022, the Company was in default on these facilities, resulting in an additional 4% in interest per annum.

annual interest rate was 12% as of December 31, 2024 .

Parker, Coastal Defense’s former Vice-President and Treasurer,

and stockholder of Holdings;

Kenneth Parker, stockholder of Holdings;

and Kyle Stanbro, Coastal Defense’s President and stockholder

guaranteed these notes.

As part of the Coastal Defense acquisition, the maturity dates of these notes were modified to be

in 2022 as opposed to the original maturity date in 2069 .

No withdrawals were made during 2025 or 2024.

During the quarter ended March

31, 2025, the lines of credit with FCCB were fully repaid and closed.

The total amount outstanding on the lines of credit as of September

30, 2025 and December 31, 2024 was $ 0 and $ 0.1 million, respectively.

two lines of credit with FCCB contained certain financial covenants.

As of December 31, 2024, the Company was not in

compliance with these financial covenants.

However, the Company entered into a series of forbearance agreements with FCCB, under which

FCCB agreed not to exercise its rights and remedies arising from such noncompliance through March 31, 2025, subject to the Company’s

adherence to the terms of said forbearance agreements, which were satisfied at the time of repayment during the quarter ended March 31, 2025.

As of December 31, 2024, the Company was not in compliance with

these financial covenants.

However, the Company entered into a series of forbearance agreements with FCCB, under which FCCB agreed not

to exercise its rights and remedies arising from such noncompliance through March 31, 2025, subject to the Company’s adherence

to the terms of said forbearance agreements, which were satisfied at the time of repayment during the nine months ended September 30,

Maturities of Debt and Long-Term Debt

Current maturities of debt and long-term debt consist of the following

as of June 30, 2025 and December 31, 2024:

of Current Maturities of Debt and Long Term Debt

June 30, 2025

maturities of debt and long-term debt consist of the following as of September 30, 2025 and December 31, 2024:

Schedule of Current Maturities of Debt and Long Term Debt

September 30, 2025

December 31, 2024

6 unchanged sentences

First Citizens Community Bank

Long-term debt, gross

unamortized debt discount

3 unchanged sentences

Long-term debt, net of current maturities

Aggregate maturities required on long-term debt

as of June 30, 2025 are due in future years as follows:

of Maturities of Long Term Debt

maturities required on long-term debt as of September 30, 2025 are due in future years as follows:

Schedule of Maturities of Long Term Debt

2025 (remaining)

From May 2022 through June

30, 2025, the Company issued unsecured promissory notes, with no collateral or guarantees, to third parties for purposes of funding its

The aggregate principal balance of these notes was $ 3.0

million as of June 30, 2025 for which $ 0.2 million was due 30 days from the closing of the IPO (“Closing Date”) and remaining

$ 2.8 million is due 190 days from the Closing Date.

During the quarter ended June 30, 2025, the Company issued 0.3 million shares related

to these Investor Notes and recorded interest expense of $ 2.9 million.

During the first quarter of fiscal 2025, the notes below except for $ 0.1

million, were amended such that interest would be payable in shares of common stock at the “Closing

Date” whereby the number of shares would be based on the IPO price and the principal amounts due would be payable within the

same number days subsequent to the closing of the IPO as stated in the prior amended note agreements.

Bridge Loans were primarily

made up of the following as of December 31, 2024:

Notes totaling $ 0.8

million accrue

an interest charge equal to 100% of the principal amount, payable in shares of common stock based on the IPO price, with 110% of the principal

paid 190 days following the Closing Date plus 12 %

interest per annum accruing from the Closing Date.

Notes totaling $ 0.2

million carry the

same terms as above except only 100% of the principal is paid 190 days following the Closing Date .

Notes totaling $ 1.0

million, as amended, accrue

an interest charge equal to 110% of the principal amount, payable in shares of common stock based on the IPO price, with 110% of the

principal paid 190 days following the Closing Date plus 12 %

interest per annum accruing from the Closing Date.

Notes totaling $ 0.1

million which include a one-time

interest charge equal to 100% of the aggregate principal amount, contingently payable in shares of common stock immediately prior to

the Closing Date, with 110% of the principal to be paid on the maturity date, which is 30 days following the closing of the IPO and

accruing interest at a rate of 12 %

per annum from the Closing Date.

Notes totaling $ 0.5

million accrue

an interest charge equal to 50% of the principal amount, payable in shares of common stock based on the IPO price with 100% of the

principal paid 190 days following the Closing Date plus 12 %

interest per annum accruing from the Closing Date.

Notes totaling $ 0.1

million accrue

an interest charge equal to 150% of the principal amount, payable in shares of the Company’s common stock based on the IPO price,

with the principal to be paid 190 days following the Closing Date and accruing interest at a rate of 12 %

interest per annum from the Closing Date.

Notes totaling $ 0.1

million accrue

an interest charge equal to 125% of the principal amount, payable in shares of common stock on the Closing Date, with 100% of the

principal paid 190 days following the Closing Date plus 12 %

interest per annum accruing from the Closing Date.

Notes totaling $ 0.1

million accrue

an interest charge equal to 100% of the principal amount, payable in shares of the Company’s common stock based on the IPO price,

with 120% of the principal to be paid 190 days following the Closing Date and accruing interest at a rate of 15 %

May 2022 through November 2024, the Company issued unsecured promissory notes, with no collateral or guarantees, to third parties for

purposes of funding its operations.

The aggregate principal balance of these notes was $ 2.8 million as of September 30, 2025 and are

due 190 days from the closing of the IPO (the “Closing Date”.) During the nine months ended September 30, 2025, the Company

issued 0.3 million shares related to these Investor Notes, funded $ 0.2 million and recorded interest expense of $ 2.9 million.

the first quarter of fiscal 2025, the notes below except for $ 0.1 million, were amended such that interest would be payable in shares

of common stock at the Closing Date whereby the number of shares would be based on the IPO price and the principal amounts due would

be payable within the same number days subsequent to the closing of the IPO as stated in the prior amended note agreements.

Loans were primarily made up of the following as of December 31, 2024:

totaling $ 0.8 million accrue an interest charge equal to 100% of the principal amount, payable in shares of common stock based on

the IPO price, with 110% of the principal paid 190 days following the Closing Date plus 12 % interest per annum accruing from the

Closing Date.

totaling $ 0.2 million carry the same terms as above except only 100% of the principal is paid 190 days following the Closing Date .

totaling $ 1.0 million, as amended, accrue an interest charge equal to 110% of the principal amount, payable in shares of common stock

based on the IPO price, with 110% of the principal paid 190 days following the Closing Date plus 12% interest per annum accruing

from the Closing Date .

totaling $ 0.1 million which include a one-time interest charge equal to 100% of the aggregate principal amount, contingently payable

in shares of common stock immediately prior to the Closing Date, with 110% of the principal to be paid on the maturity date, which

is 30 days following the closing of the IPO and accruing interest at a rate of 12 % per annum from the Closing Date.

totaling $ 0.5 million accrue an interest charge equal to 50% of the principal amount, payable in shares of common stock based on

the IPO price with 100% of the principal paid 190 days following the Closing Date plus 12 % interest per annum accruing from the Closing

totaling $ 0.1 million accrue an interest charge equal to 150% of the principal amount, payable in shares of the Company’s common

stock based on the IPO price, with the principal to be paid 190 days following the Closing Date and accruing interest at a rate of

12 % interest per annum from the Closing Date.

Notes totaling $ 0.1

million, as amended, due

at the earlier of April 30, 2025 or 30 days subsequent to the IPO, with 120% contingent stock premium, contingently payable in

shares of the Company’s common stock immediately prior to the Closing Date with an interest rate of 15 %

per annum from either the date of the Note through April 30, 2025 or from the Closing Date to 30 days subsequent to the Closing

Note was amended in April to include 130% principal with a revised maturity date of June 30, 2025 .

In July 2025, $ 0.2

million of the $ 3.0

million third party obligations of the Notes as of June 30, 2025 was repaid.

totaling $ 0.1 million accrue an interest charge equal to 125% of the principal amount, payable in shares of common stock on the Closing

Date, with 100% of the principal paid 190 days following the Closing Date plus 12 % interest per annum accruing from the Closing Date.

totaling $ 0.1 million accrue an interest charge equal to 100% of the principal amount, payable in shares of the Company’s common

stock based on the IPO price, with 120% of the principal to be paid 190 days following the Closing Date and accruing interest at

a rate of 15 % interest per annum from the Closing Date.

totaling $ 0.1 million, as amended, due at the earlier of April 30, 2025 or 30 days subsequent to the IPO, with 120% contingent stock

premium, contingently payable in shares of the Company’s common stock immediately prior to the Closing Date with an interest

rate of 15 % per annum from either the date of the Note through April 30, 2025 or from the Closing Date to 30 days subsequent to the

Closing Date.

This Note was amended in April to include 130% principal with a revised maturity date of June 30, 2025.

Citizens Community Bank

November 15, 2018 and May 15, 2019, Coastal Defense entered into three agreements which totaled $ 3.0

million with FCCB which had an outstanding of $ 0.2

million as of December 31, 2024.

November 15, 2018 and May 15, 2019, Coastal Defense entered into three agreements which totaled $ 3.0 million with FCCB which had an outstanding

of $ 0.2 million as of December 31, 2024.

These arrangements were collateralized by aircraft security agreements, assignments of life

insurance, an assignment of a deposit account, a commercial security agreement, and all associated financing statements.

December 31, 2024, Coastal Defense was in default on the debt service coverage ratio covenant, and the term note was due on demand

and is shown as a component of “Current maturities of debt” on the condensed consolidated balance sheets.

Civil actions

were filed against Coastal Defense and individual guarantors in the Tioga County Court, State of Pennsylvania, in July 2023.

claimant, FCCB, alleged that payment under certain promissory notes is due, and FCCB sought recovery of the outstanding amounts.

FCCB obtained judgments against all named defendants.

Parker, Coastal Defense’s former Vice President and Treasurer

and stockholder of Holdings;

the estate of Kenneth Parker, stockholder of Holdings;

and Kyle Stanbro, Coastal Defense’s

President and stockholder of Holdings have guaranteed this note.

The Company negotiated forbearance agreements to prevent FCCB

from enforcing the judgments through March 31, 2025.

On March 27, 2025, the Company and FCCB agreed to payment terms and a release

whereby $ 0.2

million in amounts due, including interest and fees, would be paid by April 30, 2025.

During the six months ended June 30, 2025, all

amounts due to FCCB were paid.

As of December

31, 2024, Coastal Defense was in default on the debt service coverage ratio covenant, and the term note was due on demand and is shown

as a component of “Current maturities of debt” on the condensed consolidated balance sheets.

Civil actions were filed against

Coastal Defense and individual guarantors in the Tioga County Court, State of Pennsylvania, in July 2023.

The claimant, FCCB, alleged

that payment under certain promissory notes is due, and FCCB sought recovery of the outstanding amounts.

FCCB obtained judgments against

all named defendants.

Parker, Coastal Defense’s former Vice President and Treasurer and stockholder of Holdings;

estate of Kenneth Parker, stockholder of Holdings;

and Kyle Stanbro, Coastal Defense’s President and stockholder of Holdings have

guaranteed this note.

The Company negotiated forbearance agreements to prevent FCCB from enforcing the judgments through March 31, 2025.

On March 27, 2025, the Company and FCCB agreed to payment terms and a release whereby $ 0.2 million in amounts due, including interest

and fees, would be paid by April 30, 2025.

During the nine months ended September 30, 2025, all amounts due to FCCB were paid.

2019 and 2022 Notes

maturity date of the $ 19.4

million of debt related to that certain (i) Note and Warrant

Purchase Agreement dated as of March 9, 2018, as amended (the “2018 Notes”), (ii) Note Purchase Agreement dated as of October

18, 2019, as amended (the “2019 Notes”), and (iii) Note Purchase Agreement dated as of January 31, 2022, as amended (the

“2022 Notes” and, together with the 2018 Notes and the 2019 Notes, the “Bridge Notes”) was extended to June 30,

On October 6, 2023, the Company signed a Satisfaction of Indebtedness and Satisfaction of Covenant Agreement, whereby all of the

holders agreed to convert $ 17.5

million of the principal owed to them under the Bridge Notes

shares of common stock immediately prior to the closing of

the BCA Transactions, with the remaining principal of $ 1.9

million owed to such holders to be paid at the closing of the

BCA Transactions.

On June 30, 2025, the Company amended the

Satisfaction of Indebtedness and Satisfaction of Covenant Agreement to stipulate that the terms in the original agreement that were

contingent upon the BCA Transactions would be completed within 15 business days of the IPO and identified the underlying recipients

of the 440,584

shares described above.

The Company issued 440,584

shares of the Company’s common stock and recognized a gain on debt extinguishment of $ 13.1

million within interest expense, net during the quarter ended June 30, 2025 to partially satisfy the obligations attributable to the

Bridge Notes.

Of the remaining balance of $ 1.9 million as of June 30, 2025, the Company funded $ 1.5

million in August 2025.

maturity date of the $ 19.4 million of debt related to that certain (i) Note and Warrant Purchase Agreement dated as of March 9, 2018,

as amended (the “2018 Notes”), (ii) Note Purchase Agreement dated as of October 18, 2019, as amended (the “2019 Notes”),

and (iii) Note Purchase Agreement dated as of January 31, 2022, as amended (the “2022 Notes” and, together with the 2018

Notes and the 2019 Notes, the “Bridge Notes”) was extended to June 30, 2025.

On October 6, 2023, the Company signed a Satisfaction

of Indebtedness and Satisfaction of Covenant Agreement, whereby all of the holders agreed to convert $ 17.5 million of the principal owed

to them under the Bridge Notes into 440,584 shares of common stock immediately prior to the closing of the BCA Transactions, with the

remaining principal of $ 1.9 million owed to such holders to be paid at the closing of the BCA Transactions.

June 30, 2025, the Company amended the Satisfaction of Indebtedness and Satisfaction of Covenant Agreement to stipulate that the terms

in the original agreement that were contingent upon the BCA Transactions would be completed within 15 business days of the IPO and identified

the underlying recipients of the 440,584 shares described above.

The Company issued 440,584 shares of the Company’s common stock,

funded $ 1.9 million and recognized a gain on debt extinguishment of $ 13.1 million within interest expense, net during the nine months

ended September 30, 2025 to satisfy the obligations attributable to the Bridge Notes.

Bank & Trust Company 2021-1

September 15, 2021, Coastal Defense entered into a $ 0.7

million commercial promissory note agreement with Muncy Bank & Trust Company (“Muncy”) for continuing operations.

The loan originally carried an annual interest rate of 4.5 %

per year and matured in March 2022.

The maturity date of this promissory note was extended such that the principal amount of $ 0.7

million is due and payable on September 15, 2025 with interest payments at a rate of 8.5 %

per year due monthly.

This arrangement is collateralized by a life insurance policy and a contract with the Air Force.

September 15, 2021, Coastal Defense entered into a $ 0.7 million commercial promissory note agreement with Muncy Bank & Trust Company

(“Muncy”) for continuing operations.

The loan originally carried an annual interest rate of 4.5 % per year and matured in

The maturity date of this promissory note was extended such that the principal amount of $ 0.7 million was due and payable

on September 15, 2025 with interest payments at a rate of 8.5 % per year due monthly.

The Company repaid the Muncy note during the nine

months ended September 30, 2025.

This arrangement was collateralized by a life insurance policy and a contract with the Air Force.

Parker, Coastal Defense’s former Vice President and Treasurer, and stockholder of Holdings, and Alison D.

2 unchanged sentences

Bank & Trust Company 2021-2

January 21, 2021, Coastal Defense entered into a $ 0.4

million commercial promissory note agreement with the Muncy for continuing operations and for the execution of the Naval Special

Warfare task orders.

The loan originally carried an annual interest rate of 4.5 %

per year and matured in October 2021.

The maturity date of this promissory note was extended such that the principal amount of

million is due and payable on September 20, 2025 with interest payments at a rate of 8.5 %

per year due monthly.

This arrangement is collateralized by a contract with the Naval Special Warfare Command.

Coastal Defense’s former Vice President and Treasurer, and stockholder of Holdings has guaranteed this note.

January 21, 2021, Coastal Defense entered into a $ 0.4 million commercial promissory note agreement with the Muncy for continuing operations

and for the execution of the Naval Special Warfare task orders.

The loan originally carried an annual interest rate of 4.5 % per year

and matured in October 2021.

The maturity date of this promissory note was extended such that the principal amount of $ 0.4 million was

due and payable on September 20, 2025 with interest payments at a rate of 8.5 % per year due monthly.

The Company repaid the Muncy note

during the nine months ended September 30, 2025.

This arrangement was collateralized by a contract with the Naval Special Warfare Command.

Parker, Coastal Defense’s former Vice President and Treasurer, and stockholder of Holdings has guaranteed this note.

Small Business Administration (“SBA”) COVID-19 Economic Injury Disaster Loan (“EIDL”)

18 unchanged sentences

are collateralized by a security interest in the premium refund due under the policies being purchased.

2024, Coastal Defense entered into financing agreements which totaled $ 0.3

million in relation to financing its insurance premiums.

financings have various maturity dates during 2025 and have interest rates ranging from 8.27 %

These agreements are collateralized by a security interest in the premium refund due under the policies being purchased.

During 2025, the

Company entered into a financing agreement which totaled $ 0.9

million in relation to financing its insurance premiums.

The financing has a maturity date during 2026 and has an interest rate of 7.98 %.

2024, Coastal Defense entered into financing agreements which totaled $ 0.3 million in relation to financing its insurance premiums.

financings have various maturity dates during 2025 and have interest rates ranging from 8.27 % to 13.75 % per year.

These agreements are

collateralized by a security interest in the premium refund due under the policies being purchased.

2025, the Company entered into financing agreements which totaled $ 1.1 million in relation to financing its insurance premiums.

The financings

have maturity dates during 2026 and have interest rates ranging from 7.98 % to 8.4 % per year.

October 2, 2024, January 31, 2025 and February 28, 2025, the Company entered into separate Agreements of Sale of Future Receipts (collectively,

the “Libertas Agreements”) with Libertas.

the terms of the agreement dated October 2, 2024, the Company sold $ 4.1

million of its future receivables with a factor rate of 1.25

in exchange for immediate cash proceeds net of origination fees of $ 3.2

On April 17, 2025, the Company made a $ 1.9

million payment and recognized a $ 0.2 million loss on debt extinguishment to fully resolve the Company’s obligations under this agreement.

the terms of the agreement dated October 2, 2024, the Company sold $ 4.1 million of its future receivables with a factor rate of 1.25

in exchange for immediate cash proceeds net of origination fees of $ 3.2 million.

On April 17, 2025, the Company made a $ 1.9 million payment

and recognized a $ 0.2 million loss on debt extinguishment to fully resolve the Company’s obligations under this agreement.

the terms of the agreement dated January 31, 2025, the Company sold $ 2.5 million of its future receivables in exchange for immediate

12 unchanged sentences

Warrants in Note 1.

the terms of the agreement dated April 16, 2025, the Company sold $ 2.2

million of its future receivables in exchange for immediate

cash proceeds net of origination fees of $ 1.7

On June 30, 2025, the Company made a $ 4.5 million payment and recognized a $ 2.6 million loss on debt extinguishment to fully resolve the Company’s obligations under the remaining Libertas agreements described above.

the terms of the agreement dated April 16, 2025, the Company sold $ 2.2 million of its future receivables in exchange for immediate cash

proceeds net of origination fees of $ 1.7 million.

June 30, 2025, the Company made a $ 4.5 million payment and recognized a $ 2.6 million loss on debt extinguishment to fully resolve the

Company’s obligations under the remaining Libertas agreements described above.

October 2, 2024, the Company entered into a Business Loan and Security Agreement (the “October WebBank Agreement”) with WebBank,

11 unchanged sentences

outstanding balance on the loan affiliated with the October 2, 2024 Libertas Agreement as described above.

In conjunction with the modification of the October WebBank Agreement, the Company recognized a $ 0.2 million loss on extinguishment.

On June 30, 2025, the Company made a $ 3.0 million payment and recognized a $ 0.2 million loss on debt extinguishment to fully resolve the Company’s obligations to WebBank.

In conjunction with the modification

of the October WebBank Agreement, the Company recognized a $ 0.2 million loss on extinguishment.

June 30, 2025, the Company made a $ 3.0 million payment and recognized a $ 0.2 million loss on debt extinguishment to fully resolve the

Company’s obligations to WebBank.

November 18, 2024, the Company entered into a Receivables Financing Agreement with Code 1 Aviation, LLC (“Code 1”) whereby

3 unchanged sentences

Code 1 obtained mechanic’s liens and other similar encumbrances on certain Coastal Defense aircraft.

Husch Blackwell

On June 24, 2025, the Company entered into a promissory note with Husch

Blackwell LLP (“Husch Blackwell”) whereby the Company agreed to fund aged invoices which totaled $ 0.6 million.

are due by December 15, 2025 with no interest.

June 24, 2025, the Company entered into a promissory note with Husch Blackwell LLP (“Husch Blackwell”) whereby the Company

agreed to fund aged invoices which totaled $ 0.6 million.

All amounts are due by December 15, 2025 with no interest.

Notes at Fair Value

3 unchanged sentences

terms such that the Company recorded a loss on debt extinguishment of $ 10.5 million during the fourth quarter of 2024.

As described in Note 1, the Company determined

it appropriate to elect the fair value option for ten individual Investor Notes which had significantly different terms established during

the fourth quarter of 2024.

Investor Notes at fair value are issued unsecured promissory notes, with no collateral or guarantees, to third

parties for purposes of funding the Company’s operations.

As of June 30, 2025, the Investor Notes had a fair value of $ 3.8 million and represented cash amounts due to holders.

During July 2025, the

Company repaid $ 2.1 million of the Investor notes at fair value and amended the remaining notes such that the remaining $ 1.8 million,

inclusive of a $ 0.1 million extension fee, is due December 16, 2025.

During the quarter ended June 30, 2025, the Company issued 0.4 million

shares related to the Investor Notes, which is inclusive of 0.1 million of default shares for the IPO being completed after May 31, 2025,

and recognized a $ 5.7 million gain on debt extinguishment.

Investor Notes at fair value were made up of the following as of December 31, 2024:

● Note A which had

a fair value of $ 3.7

million as of December 31, 2024.

The December 31, 2024 balance includes a one-time

interest charge equal to the issuance of 0.1 million shares of the Company’s common stock immediately prior to the Closing Date,

with the $0.8 million principal paid on the earlier of 5 days subsequent to the Closing Date or a capital raise of at least $10 million

or May 31, 2025 and with interest accruing from the date of the note through the earlier of 5 days subsequent to the Closing Date or

a capital raise of at least $10 million or May 31, 2025 at a rate of 12 %

As of December 31, 2024, this

note had a term whereby the number of shares issued as an interest charge was calculated using an enterprise value of $ 770 million, which

was to be increased by a factor of 1.25x if the Company’s valuation was less than $770 million at the Closing Date.

2025, Note A was amended such that the number of shares became fixed at 0.1 million shares with an additional 22,058 shares of common

stock if the IPO was not completed prior to May 31, 2025 .

Note B which had a fair value of $ 2.5

million as of December 31, 2024 which includes a one-time interest

charge equal to 0.1 million shares of the Company’s common stock immediately prior to the Closing Date, with the $0.1 million principal

to be paid on the earlier of 5 days subsequent to the Closing Date or a capital raise of at least $10 million or May 31, 2025 and with

interest accruing from the date of the note through the earlier of 5 days subsequent to the Closing Date or a capital raise of at least

$10 million or May 31, 2025 at a rate of 12 % per annum.

As of December 31, 2024, this note had a term whereby the number of shares issued

as an interest charge was calculated using an enterprise value of $ 770 million, which shall be increased by a factor of 1.25x if the

Company’s valuation is less than $770 million at the Closing Date.

On March 27, 2025, Note B was amended such that the number of

shares became fixed at 0.1 million shares.

An additional 12,867 shares of common stock will be issued if the IPO is not completed prior

to May 31, 2025.

Note C which had a fair value of $ 1.5

million as of December 31, 2024 which includes a one-time interest

charge equal to 0.04 million shares of the Company’s common stock immediately prior to the Closing Date, with the $0.2 million

principal and a $0.2 million additional cash payment to be paid on the earlier of 5 days subsequent to the Closing Date or a capital

raise of at least $10 million or May 31, 2025 and with interest accruing from the date of the note through the earlier of 5 days subsequent

to the Closing Date or a capital raise of at least $10 million or May 31, 2025 at a rate of 12 % per annum.

As of December 31, 2024, this

note had a term whereby the number of shares issued as an interest charge was calculated using an enterprise value of $ 770 million, which

shall be increased by a factor of 1.25x if the Company’s valuation was less than $770 million at the Closing Date.

2025, Note C was amended such that the number of shares became fixed at 0.04 million shares.

An additional 5,514 shares of common stock

will be issued if the IPO is not completed prior to May 31, 2025.

Note D which had a fair value of $ 1.0

million as of December 31, 2024 which includes a one-time interest

charge equal to 0.02 million shares of the Company’s common stock immediately prior to the Closing Date, with the $0.2 million

principal to be paid on the earlier of 5 days subsequent to the Closing Date or a capital raise of at least $10 million or May 31, 2025

described in Note 1, the Company determined it appropriate to elect the fair value option for ten individual Investor Notes which had

significantly different terms established during the fourth quarter of 2024.

Investor Notes at fair value are issued unsecured promissory

notes, with no collateral or guarantees, to third parties for purposes of funding the Company’s operations.

of September 30, 2025, the Investor Notes had a fair value of $ 1.7 million and represented cash amounts due to holders.

During the nine

months ended September 30, 2025, the Company repaid $ 2.1 million of the Investor Notes at fair value and amended the remaining Investor

Notes such that the remaining $ 1.8 million, inclusive of a $ 0.1 million extension fee, is due December 16, 2025.

During the nine months

ended September 30, 2025, the Company issued 0.4 million shares related to the Investor Notes at fair value, which is inclusive of 0.1

million of default shares for the IPO being completed after May 31, 2025, and recognized a $ 5.7 million gain on debt extinguishment.

Notes at fair value were made up of the following as of December 31, 2024:

Note A which had a fair value of $ 3.7 million as of December 31, 2024.

The December 31, 2024 balance includes a one-time interest charge

equal to the issuance of 0.1 million shares of the Company’s common stock immediately prior to the Closing Date, with the $0.8

million principal paid on the earlier of 5 days subsequent to the Closing Date or a capital raise of at least $10 million or May 31,

2025 and with interest accruing from the date of the note through the earlier of 5 days subsequent to the Closing Date or a capital raise

1 unchanged sentence

As of December 31, 2024, this note had a term whereby the number

of shares issued as an interest charge was calculated using an enterprise value of $ 770 million, which shall be increased by a factor

of shares issued as an interest charge was calculated using an enterprise value of $ 770 million, which was to be increased by a factor

of 1.25x if the Company’s valuation was less than $770 million at the Closing Date.

On March 27, 2025, Note D was amended such

that the number of shares became fixed at 0.02 million shares.

An additional 5,882 shares of common stock will be issued if the IPO is

not completed prior to May 31, 2025.

Note E which had a fair value of $ 0.7

million as of December 31, 2024 which includes a one-time interest

charge equal to 0.02 million shares of the Company’s common stock immediately prior to the Closing Date, with the $0.2 million

principal to be paid on the earlier of 5 days subsequent to the Closing Date or a capital raise of at least $10 million or May 31, 2025

and with interest accruing from the date of the note through the earlier of 5 days subsequent to the Closing Date or a capital raise

of at least $10 million or May 31, 2025 at a rate of 12 % per annum.

As of December 31, 2024, this note had a term whereby the number

of shares issued as an interest charge is calculated using an enterprise value of $770 million, which shall be increased by a factor

of 1.25x if the Company’s valuation is less than $ 770 million at the Closing Date.

On March 27, 2025, Note E was amended such that

the number of shares became fixed at 0.02 million shares.

An additional 4,411 shares of common stock will be issued if the IPO is not

completed prior to May 31, 2025.

Note F which had a fair value of $ 0.8

million as of December 31, 2024 which includes a one-time interest

charge equal to 0.02 million in shares of the Company’s common stock immediately prior to the Closing Date, with the $0.1 million

principal to be paid on the earlier of 5 days subsequent to the Closing Date or a capital raise of at least $10 million or May 31, 2025

and with interest accruing from the date of the note through the earlier of 5 days subsequent to the Closing Date or a capital raise

of at least $10 million or May 31, 2025 at a rate of 12 % per annum.

As of December 31, 2024, this note had a term whereby the number

of shares issued as an interest charge is calculated using an enterprise value of $ 770 million, which shall be increased by a factor

of 1.25x if the Company’s valuation is less than $770 million at the Closing Date.

On March 27, 2025, Note E was amended such that

the number of shares became fixed at 0.02 million shares.

On March 27, 2025, Note F was amended such that the number of shares became

On March 27, 2025, Note A was amended such

that the number of shares became fixed at 0.1 million shares with an additional 22,058 shares of common stock if the IPO was not completed

prior to May 31, 2025.

Note B which had a fair value of $ 2.5 million as of December 31, 2024 which includes a one-time interest charge equal to 0.1 million

shares of the Company’s common stock immediately prior to the Closing Date, with the $0.1 million principal to be paid on the earlier

of 5 days subsequent to the Closing Date or a capital raise of at least $10 million or May 31, 2025 and with interest accruing from the

date of the note through the earlier of 5 days subsequent to the Closing Date or a capital raise of at least $10 million or May 31, 2025

at a rate of 12 % per annum.

As of December 31, 2024, this note had a term whereby the number of shares issued as an interest charge was

calculated using an enterprise value of $ 770 million, which shall be increased by a factor of 1.25x if the Company’s valuation

is less than $770 million at the Closing Date.

On March 27, 2025, Note B was amended such that the number of shares became fixed at 0.1

million shares.

An additional 12,867 shares of common stock will be issued if the IPO is not completed prior to May 31, 2025.

Note C which had a fair value of $ 1.5 million as of December 31, 2024 which includes a one-time interest charge equal to 0.04 million

shares of the Company’s common stock immediately prior to the Closing Date, with the $0.2 million principal and a $0.2 million

additional cash payment to be paid on the earlier of 5 days subsequent to the Closing Date or a capital raise of at least $10 million

or May 31, 2025 and with interest accruing from the date of the note through the earlier of 5 days subsequent to the Closing Date or

a capital raise of at least $10 million or May 31, 2025 at a rate of 12 % per annum.

As of December 31, 2024, this note had a term whereby

the number of shares issued as an interest charge was calculated using an enterprise value of $ 770 million, which shall be increased

by a factor of 1.25x if the Company’s valuation was less than $770 million at the Closing Date.

On March 27, 2025, Note C was amended

such that the number of shares became fixed at 0.04 million shares.

An additional 5,514 shares of common stock will be issued if the

IPO is not completed prior to May 31, 2025.

Note D which had a fair value of $ 1.0 million as of December 31, 2024 which includes a one-time interest charge equal to 0.02 million

shares of the Company’s common stock immediately prior to the Closing Date, with the $0.2 million principal to be paid on the earlier

of 5 days subsequent to the Closing Date or a capital raise of at least $10 million or May 31, 2025 and with interest accruing from the

date of the note through the earlier of 5 days subsequent to the Closing Date or a capital raise of at least $10 million or May 31, 2025

at a rate of 12 % per annum.

As of December 31, 2024, this note had a term whereby the number of shares issued as an interest charge was

calculated using an enterprise value of $ 770 million, which shall be increased by a factor of 1.25x if the Company’s valuation

was less than $770 million at the Closing Date.

On March 27, 2025, Note D was amended such that the number of shares became fixed at

0.02 million shares.

An additional 5,882 shares of common stock will be issued if the IPO is not completed prior to May 31, 2025.

Note E which had a fair value of $ 0.7 million as of December 31, 2024 which includes a one-time interest charge equal to 0.02 million

shares of the Company’s common stock immediately prior to the Closing Date, with the $0.2 million principal to be paid on the earlier

of 5 days subsequent to the Closing Date or a capital raise of at least $10 million or May 31, 2025 and with interest accruing from the

date of the note through the earlier of 5 days subsequent to the Closing Date or a capital raise of at least $10 million or May 31, 2025

at a rate of 12 % per annum.

As of December 31, 2024, this note had a term whereby the number of shares issued as an interest charge is

calculated using an enterprise value of $770 million, which shall be increased by a factor of 1.25x if the Company’s valuation

is less than $ 770 million at the Closing Date.

On March 27, 2025, Note E was amended such that the number of shares became fixed at 0.02

million shares.

An additional 4,411 shares of common stock will be issued if the IPO is not completed prior to May 31, 2025.

Note F which had a fair value of $ 0.8 million as of December 31, 2024 which includes a one-time interest charge equal to 0.02 million

in shares of the Company’s common stock immediately prior to the Closing Date, with the $0.1 million principal to be paid on the

earlier of 5 days subsequent to the Closing Date or a capital raise of at least $10 million or May 31, 2025 and with interest accruing

from the date of the note through the earlier of 5 days subsequent to the Closing Date or a capital raise of at least $10 million or

May 31, 2025 at a rate of 12 % per annum.

As of December 31, 2024, this note had a term whereby the number of shares issued as an interest

charge is calculated using an enterprise value of $ 770 million, which shall be increased by a factor of 1.25x if the Company’s

valuation is less than $770 million at the Closing Date.

On March 27, 2025, Note E was amended such that the number of shares became

fixed at 0.02 million shares.

On March 27, 2025, Note F was amended such that the number of shares became fixed at 0.02 million shares.

An additional 3,676 shares of common stock will be issued if the IPO is not completed prior to May 31, 2025.

Note G which had a fair value of $ 0.5 million as of December 31, 2024 which includes a one-time interest charge equal

to 0.01 million in shares of the Company’s common stock immediately prior to the Closing Date, with the $0.1 million principal

to be paid on the earlier of 5 days subsequent to the Closing Date or a capital raise of at least $10 million or May 31, 2025 and with

interest accruing from the date of the note through the earlier of 5 days subsequent to the Closing Date or a capital raise of at least

$10 million or May 31, 2025 at a rate of 12 % per annum .

As of December 31, 2024, this note had a term whereby the number of shares issued

as an interest charge is calculated using an enterprise value of $ 770 million, which shall be increased by a factor of 1.25x if the Company’s

Note G which had a fair value of $ 0.5 million as of December 31, 2024 which includes a one-time interest charge equal to 0.01 million

in shares of the Company’s common stock immediately prior to the Closing Date, with the $0.1 million principal to be paid on the

earlier of 5 days subsequent to the Closing Date or a capital raise of at least $10 million or May 31, 2025 and with interest accruing

from the date of the note through the earlier of 5 days subsequent to the Closing Date or a capital raise of at least $10 million or

May 31, 2025 at a rate of 12 % per annum.

As of December 31, 2024, this note had a term whereby the number of shares issued as an interest

charge is calculated using an enterprise value of $ 770 million, which shall be increased by a factor of 1.25x if the Company’s

valuation is less than $770 million at the Closing Date.

2 unchanged sentences

An additional 2,941 shares of common stock will be issued if the IPO is not completed prior to May 31,

Note H which had a fair value of $ 0.2

million as of December 31, 2024 which includes a one-time interest

charge equal to 0.01 million in shares of the Company’s common stock immediately prior to the Closing Date, with the $0.05 million

principal to be paid on the earlier of 5 days subsequent to the Closing Date or a capital raise of at least $10 million or May 31, 2025

and with interest accruing from the date of the note through the earlier of 5 days subsequent to the Closing Date or a capital raise

of at least $10 million or May 31, 2025 at a rate of 12 % per annum.

As of December 31, 2024, this note had a term whereby the number

of shares issued as an interest charge is calculated using an enterprise value of $ 770 million, which shall be increased by a factor

of 1.25x if the Company’s valuation is less than $770 million at the Closing Date.

On March 27, 2025, Note H was amended such that

the number of shares became fixed at 0.01 million shares.

An additional 1,470 shares of common stock will be issued if the IPO is not

completed prior to May 31, 2025.

Notes I and J with a combined fair value of $ 2.9

million as of December 31, 2024 which each includes a one-time

interest charge equal to 0.1 million in shares of the Company’s common stock immediately prior to the Closing Date, with the 120%

of the combined $1.0 million principal to be paid on the earlier of 30 days subsequent to the Closing Date or April 30, 2025 and with

interest accruing from the date of the note or from October 31, 2022 through the earlier of 30 days subsequent to the Closing Date or

April 30, 2025 at a rate of 15 % per annum.

During the second quarter of 2025, Notes

I and J were amended such that 130% of the combined principal was to be paid on the earlier of 30 days subsequent to the Closing Date

or June 30, 2025 .

Stock, Warrants and Equity Incentive Plan

The Company has

reserved the following shares of authorized but unissued common stock as of June 30, 2025:

Note H which had a fair value of $ 0.2 million as of December 31, 2024 which includes a one-time interest charge equal to 0.01 million

in shares of the Company’s common stock immediately prior to the Closing Date, with the $0.05 million principal to be paid on the

earlier of 5 days subsequent to the Closing Date or a capital raise of at least $10 million or May 31, 2025 and with interest accruing

from the date of the note through the earlier of 5 days subsequent to the Closing Date or a capital raise of at least $10 million or

May 31, 2025 at a rate of 12 % per annum.

As of December 31, 2024, this note had a term whereby the number of shares issued as an interest

charge is calculated using an enterprise value of $ 770 million, which shall be increased by a factor of 1.25x if the Company’s

valuation is less than $770 million at the Closing Date.

On March 27, 2025, Note H was amended such that the number of shares became

fixed at 0.01 million shares.

An additional 1,470 shares of common stock will be issued if the IPO is not completed prior to May 31,

Notes I and J with a combined fair value of $ 2.9 million as of December 31, 2024 which each includes a one-time interest charge equal

to 0.1 million in shares of the Company’s common stock immediately prior to the Closing Date, with the 120% of the combined $1.0

million principal to be paid on the earlier of 30 days subsequent to the Closing Date or April 30, 2025 and with interest accruing from

the date of the note or from October 31, 2022 through the earlier of 30 days subsequent to the Closing Date or April 30, 2025 at a rate

of 15 % per annum.

During the second quarter of 2025, Notes I and J were amended such that 130% of the combined principal was to be paid

on the earlier of 30 days subsequent to the Closing Date or June 30, 2025.

Warrants and Equity Incentive Plan

capital stock consists of 1.0 billion shares of our common stock, par value $ 0.000001 per share, and 10.0 million shares of preferred

stock, par value $ 0.000001 per share.

All of our authorized preferred stock is undesignated.

Company has reserved the following shares of authorized but unissued common stock as of September 30, 2025:

0.3 million stock options,

million warrants, 0.3

million of contingent restricted stock awards and units, and 0.2

million shares to be issued in connection with the debt conversion agreements.

conjunction with the IPO, the Company recorded $ 11.1

million of stock compensation expense related to 0.3

million contingent restricted stock awards and units during the quarter ended June 30, 2025.

The majority of these awards and units

were issued in July 2025.

In December 2024, the Company amended an Incentive Agreement with Dangroup such that Dangroup will receive shares in conjunction

with the closing on the IPO such that their ownership will be 5 %

on a fully diluted basis.

In conjunction with the IPO, the Company recorded $ 5.5 million of stock compensation expense related to the 0.5 million shares that were

issued to Dangroup on June 12, 2025.

The Company assumed warrants to purchase 0.1 million

shares of the Company’s common stock as part of the merger with Jaunt.

These warrants expire ten years from the date of issuance,

March 10, 2022, have an exercise price of $ 16.83 per share and were outstanding as of June 30, 2025 and December 31, 2024.

determined that these warrants are equity classified.

During the quarter

ended March 31, 2025, the Company entered into two warrant agreements with Libertas to purchase an aggregate

of the fully diluted number of shares of common stock immediately before the closing of the IPO at an exercise price of $ 0.02

per share as described in Note 1.

On June 12, 2025, in conjunction with the IPO, the number of Libertas Warrants became fixed, and

on June 13, 2025, Libertas exercised their warrants in exchange for 104,415

shares of common stock.

In July 2025, the Company entered into a warrant agreement with Libertas whereby Libertas had the option to

million shares with an exercise price of $ 0.02

between July 28, 2025 and July 28, 2030.

Libertas exercised the warrants on July 31, 2025.

0.4 million warrants, and 0.1 million of contingent restricted stock awards and units.

Company recorded $ 14.4 million of stock compensation expense which was primarily related to 0.5 million contingent restricted stock awards

and units during the nine months ended September 30, 2025.

The majority of these awards and units were issued in July 2025.

December 2024, the Company amended an Incentive Agreement with Dangroup such that Dangroup will receive shares in conjunction with the

closing on the IPO such that their ownership will be 5 % on a fully diluted basis.

During the nine months ended September 30, 2025, the

Company recorded $ 5.5 million of stock compensation expense related to the 0.5 million shares that were issued to Dangroup on June 12,

Company assumed warrants to purchase 0.1 million shares of the Company’s common stock as part of the merger with Jaunt.

These warrants

expire ten years from the date of issuance, March 10, 2022, have an exercise price of $ 16.83 per share and were outstanding as of September

30, 2025 and December 31, 2024.

The Company determined that these warrants are equity classified.

the quarter ended March 31, 2025, the Company entered into two warrant agreements with Libertas to purchase an aggregate of 0.5 % of the

fully diluted number of shares of common stock immediately before the closing of the IPO at an exercise price of $ 0.02 per share as described

On June 12, 2025, in conjunction with the IPO, the number of Libertas Warrants became fixed, and on June 13, 2025, Libertas

exercised their warrants in exchange for 104,415 shares of common stock.

In July 2025, the Company entered into a warrant agreement with

Libertas whereby Libertas had the option to purchase 0.1 million shares with an exercise price of $ 0.02 between July 28, 2025 and July

28, 2030 which resulted in the Company recording a charge of $ 1.2 million during the nine months ending September 30, 2025.

exercised the warrants on July 31, 2025.

September 2024, the Company executed a financing advisor agreement with Cantor Fitzgerald & Co.

as compensation for assistance

with the IPO, pursuant to which the Company agreed to issue to certain of the underwriters upon the closing of the IPO, the

Underwriter Warrants, which are warrants exercisable for the number of shares of common stock equal to 5 %

of the total number of shares of common stock sold in such IPO.

In conjunction with the IPO, the Company issued the Underwriter

Warrants, which are exercisable into 345,000

shares of common stock.

The Company determined the fair value of the Underwriter Warrants at the grant date on June 12, 2025 to be $ 2.0

million which was recorded as an issuance cost against IPO proceeds during the quarter ended June 30, 2025.

The Underwriter Warrants have an exercise price of $ 11.00

and can be exercised between December 12, 2025 and June 12, 2030.

as compensation for assistance with

the IPO, pursuant to which the Company agreed to issue to certain of the underwriters upon the closing of the IPO, the Underwriter Warrants,

which are warrants exercisable for the number of shares of common stock equal to 5 % of the total number of shares of common stock sold

In conjunction with the IPO, the Company issued the Underwriter Warrants, which are exercisable into 345,000 shares of common

The Company determined the fair value of the Underwriter Warrants at the grant date on June 12, 2025 to be $ 2.0 million which

was recorded as an issuance cost against IPO proceeds during the nine months ended September 30, 2025.

The Underwriter Warrants have

an exercise price of $ 11.00 and can be exercised between December 12, 2025 and June 12, 2030.

Incentive Plan

17 unchanged sentences

common stock that may be issued upon the exercise of ISOs under the 2025 Plan will be three times the Share Reserve.

During the six months ended June 30, 2025, there

million of stock awards and 0

options, respectively, granted to employees under the 2025 Plan.

the nine months ended September 30, 2025, there were 0.1 million of stock awards and 0 options, respectively, granted under the 2025

Carveout Plan

In December 2021, the Company adopted the 2021

Management Carveout Plan (the “Aspen Carveout Plan”), which establishes a benefit pool for designated employees and consultants

payable upon the occurrence of a change in control, which is defined as two steps consisting of 1) the closing of the merger with Holdings

and 2) the IPO of Holdings or merger with a special purpose acquisition company (“SPAC”) by a specified expiration date, which was extended through June 30, 2025.

The amount to be

paid as benefits under the Aspen Carveout Plan are determined based upon percentages of the total net proceeds calculated at the closing

of the IPO or a SPAC merger, ranging from 0 % to 5 %.

The net proceeds are calculated as the net sum of cash and the fair

value of equity securities available for distribution to the stockholders of the Company after all liabilities, exclusive of the subordinated

convertible notes or other loans from the stockholders and transaction costs are paid, capped at $ 2.3 billion.

The benefit payments to

the participants in the Aspen Carveout Plan are to be made in the form or forms of payment and in the same proportions as the consideration

paid by the purchaser which were estimated to be $ 2.0 million in stock and $ 0.9 million in cash.

On October 6, 2023,

the Company signed a Satisfaction of Indebtedness and Satisfaction of Covenant Agreement, whereby all of the holders agreed to

convert $ 0.8

million of the cash amount owed to them under the Aspen Carveout Plan into 20,010

shares of common stock immediately prior to the closing of the BCA Transactions, with the remaining amount of $ 0.1

million owed to such holders to be paid at the closing of the BCA Transactions.

In addition, the Satisfaction of Indebtedness and Satisfaction of Covenant Agreement stipulated that the $ 2.0 million in stock would be

settled through the issuance of 51,309 shares.

On June 30, 2025, the Company amended the Aspen

Satisfaction of Indebtedness and Satisfaction of Covenant Agreement to stipulate that the terms in the original agreement that were

contingent upon the BCA Transactions would be completed within 15 business days of the IPO and identified the underlying recipients

of the 71,319 shares related

to the Aspen Carveout Plan.

The Company recognized $ 1.7

million of stock compensation expense based on the June 30, 2025 modification date and accrued $ 0.1

million in conjunction with the Aspen Carve-out Plan.

During July 2025, the Company issued 71,319

shares of common stock and funded the remaining $ 0.1

December 2021, the Company adopted the 2021 Management Carveout Plan (the “Aspen Carveout Plan”), which establishes a benefit

pool for designated employees and consultants payable upon the occurrence of a change in control, which is defined as two steps consisting

of 1) the closing of the merger with Holdings and 2) the IPO of Holdings or merger with a special purpose acquisition company (“SPAC”)

by a specified expiration date, which was extended through June 30, 2025.

The amount to be paid as benefits under the Aspen Carveout

Plan are determined based upon percentages of the total net proceeds calculated at the closing of the IPO or a SPAC merger, ranging from

The net proceeds are calculated as the net sum of cash and the fair value of equity securities available for distribution to

the stockholders of the Company after all liabilities, exclusive of the subordinated convertible notes or other loans from the stockholders

and transaction costs are paid, capped at $ 2.3 billion.

The benefit payments to the participants in the Aspen Carveout Plan are to be

made in the form or forms of payment and in the same proportions as the consideration paid by the purchaser which were estimated to be

$ 2.0 million in stock and $ 0.9 million in cash.

October 6, 2023, the Company signed a Satisfaction of Indebtedness and Satisfaction of Covenant Agreement, whereby all of the holders

agreed to convert $ 0.8 million of the cash amount owed to them under the Aspen Carveout Plan into 20,010 shares of common stock immediately

prior to the closing of the BCA Transactions, with the remaining amount of $ 0.1 million owed to such holders to be paid at the closing

of the BCA Transactions.

In addition, the Satisfaction of Indebtedness and Satisfaction of Covenant Agreement stipulated that the $ 2.0

million in stock would be settled through the issuance of 51,309 shares.

June 30, 2025, the Company amended the Aspen Satisfaction of Indebtedness

and Satisfaction of Covenant Agreement to stipulate that the terms in the original agreement that were contingent upon the BCA Transactions

would be completed within 15 business days of the IPO and identified the underlying recipients of the 71,319 shares related to the Aspen

Carveout Plan.

During the nine months ended September 30, 2025, the Company issued 63,447 shares of common stock, net of 7,872 shares

that were withheld for taxes, funded $ 0.1 million, and recognized $ 1.7 million of stock compensation expense based on the June 30, 2025

modification date.

changes in the carrying value of goodwill were as follows:

Balance as of April 1, 2025

Balance as of July 1, 2025

$ 122,143,519

2 unchanged sentences

Effect of exchange rate

Balance as of June 30, 2025

Balance as of September 30, 2025

$ 121,680,414

1 unchanged sentence

$ 571,568,402

Balance as of April 1, 2024

Balance as of July 1, 2024

$ 111,562,065

1 unchanged sentence

$ 599,444,053

( 17,024,000 )

( 20,970,000 )

( 37,994,000 )

Effect of exchange rate

Balance as of June 30, 2024

Balance as of September 30, 2024

$ 115,790,613

2 unchanged sentences

Balance as of January 1, 2025

$ 107,620,343

$ 434,346,520

$ 557,508,331

Effect of exchange rate

Balance as of June 30, 2025

Balance as of September 30, 2025

$ 121,680,414

$ 434,346,520

$ 571,568,402

Balance as of January 1, 2024

$ 114,720,513

$ 451,370,520

$ 602,602,501

$ 114,720,513

$ 451,370,520

$ 602,602,501

( 17,024,000 )

( 20,970,000 )

( 37,994,000 )

Effect of exchange rate

Balance as of June 30, 2024

Balance as of September 30, 2024

$ 115,790,613

$ 434,346,520

$ 565,678,601

$ 115,790,613

$ 434,346,520

$ 565,678,601

a result of the BCA Transactions being terminated in August 2024 and the continued delays in securing financing, the Company determined

6 unchanged sentences

of Goodwill Impairment

carrying value as of September 30, 2024

value of reporting unit as of September 30, 2024

as of September 30, 2024

Goodwill carrying value as of September 30, 2024

$ 115.8 million

$ 451.4 million

Fair value of reporting unit as of September 30, 2024

Carrying value of reporting unit as of September 30, 2024

$ 133.5 million

Impairment as of September 30, 2024

and assumptions varied between each reporting unit depending on the facts and circumstances specific to that reporting unit.

46 unchanged sentences

Company believes the factors considered in the impairment analysis are reasonable;

however, significant changes in any one of its

assumptions could produce a different result and result in additional impairment charges that could be material to its condensed

consolidated financial statements.

For example, the fair value of the Electric Air Mobility segment could be adversely affected and

may result in an additional impairment of goodwill if this reporting unit is not able to advance the development of its aircraft and

other products, obtain regulatory approvals, and launch and commercialize its products at scale, if the estimated production costs

are significantly higher than estimated or if the WACC discount rate is increased.

however, significant changes in any one of its assumptions

could produce a different result and result in additional impairment charges that could be material to its condensed consolidated financial

For example, the fair value of the Electric Air Mobility segment could be adversely affected and may result in an additional

impairment of goodwill if this reporting unit is not able to advance the development of its aircraft and other products, obtain regulatory

approvals, and launch and commercialize its products at scale, if the estimated production costs are significantly higher than estimated

or if the WACC discount rate is increased.

to the Training segment’s projections as of September 30, 2024, the Company noted a significant decrease in sales and gross margins

25 unchanged sentences

Company believes the factors considered in the impairment analysis are reasonable;

however, significant changes in any one of its

assumptions could produce a different result and result in additional impairment charges that could be material to its condensed

consolidated financial statements.

For example, the fair value of the Training segment could be adversely affected and may result in

an additional impairment of goodwill if this reporting unit is not able to purchase the needed aircraft, if the estimated costs for

managing the flight schools are significantly higher than estimated or if the WACC discount rate is increased.

Intangible Assets, Net

however, significant changes in any one of its assumptions

could produce a different result and result in additional impairment charges that could be material to its condensed consolidated financial

For example, the fair value of the Training segment could be adversely affected and may result in an additional impairment

of goodwill if this reporting unit is not able to purchase the needed aircraft, if the estimated costs for managing the flight schools

are significantly higher than estimated or if the WACC discount rate is increased.

assets acquired through business combinations were as follows:

of Intangible Assets, Net

Weighted Average

Remaining Life (Years)

As of June 30, 2025

As of September 30, 2025

Weighted Average

Remaining Life (Years)

7 unchanged sentences

$ 131,826,146

Weighted Average

As of December 31, 2024

Weighted Average

Developed technology - definite lived

5 unchanged sentences

$ 130,657,359

expense is reported on the condensed consolidated statements of operations line items as shown in the table below for the three and six months ended

expense is reported on the condensed consolidated statements of operations line items as shown in the table below for the three and nine

months ended September 30:

of Amortization Expense

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

Cost of revenue

3 unchanged sentences

Amortization expense

estimated future amortization expense as of June 30, 2025 is as follows:

estimated future amortization expense as of September 30, 2025 is as follows:

of Estimated Future Amortization Expense

1 unchanged sentence

Amortization expense

Inventory consisted of the following as of June 30, 2025 and December

June 30, 2025

consisted of the following as of September 30, 2025 and December 31, 2024:

September 30, 2025

December 31, 2024

3 unchanged sentences

Sheet Details

Accrued expenses consisted of the following as

of June 30, 2025 and December 31, 2024:

expenses consisted of the following as of September 30, 2025 and December 31, 2024:

of Accrued expenses

June 30, 2025

September 30, 2025

December 31, 2024

Accrued legal and professional fees

Outstanding cash obligations on previously contingent liabilities

Payroll related expenses

3 unchanged sentences

Accrued expenses

The Company has deferred salary arrangements with

various employees that allow for a portion of their compensation to be deferred and paid upon a single outside investment of no less than

$ 25 million, or such earlier time as the Company determines in its sole discretion that sufficient funds are available to commence payment

of the deferred amounts.

Employees must be actively employed, including approved leave, or if a consultant, providing services to the

Company, to be eligible to receive such deferred compensation.

As of June 30, 2025 and December 31, 2024, the accrued deferred compensation was $ 9.7 million and $ 11.2 million, respectively.

In October 2023 and July 2024, the Company signed

various deferred compensation agreements whereby the holders agreed to convert $ 7.8 million of the principal owed to them into 195,582

shares of the Company’s common stock immediately prior to the closing of the BCA Transactions, with the remaining principal of $ 0.9

million owed to such holders to be paid at the closing of the BCA Transactions.

The Company issued 46,017

shares of common stock and used proceeds of $ 0.2

million to satisfy the obligations of certain holders under the Jaunt merger agreement at the closing of the IPO.

The Company recorded $ 1.4 million of other income during the three months

ended June 30, 2025 related to the common stock issued to partially settle these obligations.

During August 2025,

the Company signed amendments with various employees such that remaining amounts outstanding as of June 30, 2025 will be settled

through the issuance of 0.2

million shares during the quarter ending September 30, 2025 and with cash payments of $ 0.9

million to be made during the second half of 2025.

part of the Agreement and Plan of Merger by and among Jaunt, Legacy AIRO, the Company, Jaunt Merger Sub, LLC and Martin Peryea as member

representative, dated as of October 6, 2021, as amended, and subsequent to that acquisition, the Company had deferred salary arrangements

with various employees that allowed for a portion of their compensation to be deferred and paid upon a single outside investment of no

less than $ 25 million, or such earlier time as the Company determined in its sole discretion that sufficient funds were available to

commence payment of the deferred amounts.

As of December 31, 2024, the accrued deferred compensation was $ 11.2 million.

the nine months ended September 30, 2025, the Company issued 0.2 million

shares, net of shares withheld for taxes, made cash payments of $ 0.8 million and recorded a $ 5.9 million gain within other income to partially

settle these obligations.

During October 2025, the Company funded the remaining $ 0.3 million to fully settle these obligations.

and Contingencies

4 unchanged sentences

raise of at least $ 100 million or an acquisition of at least 50 % of the equity of the Company.

The fee for these consulting services

was included in “Accrued expenses” on the condensed consolidated balance sheets.

During the nine months ended September

30, 2025, the Company recorded $ 0.5 million of expense and funded the payment related to this consulting agreement.

Fee Arrangement

In June 2022, the

Company executed a previously arranged contingent fee agreement with New Generation Aerospace, Inc.

compensate NGA for past services rendered and future services rendered through December 31, 2022 related to the acquisitions and

financing of the Merger Entities in the amount of $ 1.5

million (the “Contingent Fee”).

The Contingent Fee is payable upon the closing of the IPO.

On October 2, 2023, the

Company signed an Amended and Restated Success Fee Agreement, whereby NGA agreed to convert $ 1.4

million of the amounts owed to it into 33,995

shares of the Company’s common stock immediately prior to the closing of the BCA Transactions, with the remaining amount of

million owed to such holders to be paid at the closing of the BCA Transactions.

In conjunction with

the IPO, the Company recorded $ 0.3

million of stock compensation and accrued $ 0.1

million in cash due to NGA.

During the quarter ended June 30, 2025, the Company issued 33,995

shares of common stock.

The Company funded $ 0.1

million in July 2025 to fully satisfy obligations under this agreement.

June 2022, the Company executed a previously arranged contingent fee agreement with New Generation Aerospace, Inc.

to compensate NGA for past services rendered and future services rendered through December 31, 2022 related to the acquisitions and financing

of the Merger Entities in the amount of $ 1.5 million (the “Contingent Fee”).

The Contingent Fee is payable upon the closing

On October 2, 2023, the Company signed an Amended and Restated Success Fee Agreement, whereby NGA agreed to convert $ 1.4

million of the amounts owed to it into 33,995 shares of the Company’s common stock immediately prior to the closing of the BCA

Transactions, with the remaining amount of $ 0.1 million owed to such holders to be paid at the closing of the BCA Transactions.

the nine months ended September 30, 2025, the Company issued 33,995 shares of common stock, recorded $ 0.3 million of stock compensation

and funded $ 0.1 million to fully satisfy obligations under this agreement.

Financing Fee Arrangement

In September 2024, the Company executed a financing

advisor agreement with Cantor Fitzgerald & Co.

as compensation for assistance with the IPO which totals the greater of $ 2 million and

7 % of the gross proceeds in conjunction with the IPO (the “Cantor Contingent Financing Fee”).

In conjunction with the IPO, the Company recorded $ 4.8 million related to the Cantor Contingent Financing Fee as an offset to gross proceeds.

September 2024, the Company executed a financing advisor agreement with Cantor Fitzgerald & Co.

as compensation for assistance with

the IPO which totals the greater of $ 2 million and 7 % of the gross proceeds in conjunction with the IPO (the “Cantor Contingent

Financing Fee”).

In conjunction with the IPO, the Company recorded $ 4.8 million related to the Cantor Contingent Financing Fee

as an offset to gross proceeds.

IPO Payment Agreement

In April 2022, Aspen Avionics

and KippsDeSanto & Co.

(“KDC”) entered into an amendment (the “KDC IPO Payment Agreement”) to the parties’

prior engagement letter dated August 7, 2018 (the “KDC Agreement”), pursuant to which Aspen Avionics engaged KDC to provide

financial advisory services in connection with AIRO’s potential acquisition of Aspen Avionics.

Pursuant to the terms of the KDC

IPO Payment Agreement upon the closing of the IPO, Aspen Avionics is obligated to cause a one-time, final payment of $ 1.0

million to be made to KDC in satisfaction of Aspen Avionics obligations under the KDC Agreement.

In conjunction with the IPO, the Company

recorded an accrual of $ 1.0

million during the three months ended June 30, 2025, which was funded in July 2025.

April 2022, Aspen Avionics and KippsDeSanto & Co.

(“KDC”) entered into an amendment (the “KDC IPO Payment Agreement”)

to the parties’ prior engagement letter dated August 7, 2018 (the “KDC Agreement”), pursuant to which Aspen Avionics

engaged KDC to provide financial advisory services in connection with AIRO’s potential acquisition of Aspen Avionics.

to the terms of the KDC IPO Payment Agreement upon the closing of the IPO, Aspen Avionics was obligated to fund a one-time, final payment

of $ 1.0 million to be made to KDC in satisfaction of Aspen Avionics obligations under the KDC Agreement.

During the nine months ended

September 30, 2025, the Company recorded $ 1.0 million of expense and funded the payment related to the KDC Agreement.

Letters of Intent

November 2023, the Company signed non-binding letters of intent to acquire two businesses for the Training segment including flight

training schools.

November 2023, the Company signed non-binding letters of intent to acquire two businesses for the Training segment including flight training

The parties have undertaken due diligence to determine whether a binding purchase agreement will be negotiated.

The total anticipated purchase price for the acquisitions is expected to range from $ 5.1 million to $ 7.7 million, which would be

paid in a combination of cash and the issuance of common stock.

A civil action was

filed against Old AGI, Inc.

The total anticipated

purchase price for the acquisitions is expected to range from $ 5.1 million to $ 7.7 million, which would be paid in a combination of cash

and the issuance of common stock.

During the quarter ended September 30, 2025, the Company entered into a 5 five-year lease agreement in Phoenix, Arizona

in support of its efforts to expand its U.S.

footprint for advanced drone innovation which resulted in a right-of-use operating lease

asset of $ 1.9 million, current operating lease liability of $ 0.3 million and noncurrent operating lease liability of $ 1.6 million.

civil action was filed against Old AGI, Inc.

in the Circuit Court of Cook County, State of Illinois in February 2022 (the “2022

3 unchanged sentences

However, the court allowed the claimant to amend its complaint.

August 5, 2022, the claimant filed its amended complaint, and the Company filed its response on October 12, 2022.

The parties have

engaged in discovery and mandatory arbitration.

The arbitration resulted in an award in favor of the Company, which was contested by

the claimant.

5, 2022, the claimant filed its amended complaint, and the Company filed its response on October 12, 2022.

The parties have engaged in

discovery and mandatory arbitration.

The arbitration resulted in an award in favor of the Company, which was contested by the claimant.

On December 19, 2024, the Circuit Court denied the Company’s motion for summary judgment.

In March 2025, the

Company agreed to settle Mr.

In March 2025, the Company agreed to

Perrin’s individual claims in the lawsuit as described below.

actions were filed against Coastal Defense and individual guarantors in the Tioga County Court, State of Pennsylvania, in July 2023.

The claimant, First Citizens Community Bank (“FCCB”), alleged that payment under certain promissory notes is due, and the claimant is seeking recovery of the outstanding

The claimant, First Citizens Community Bank (“FCCB”), alleged that payment under certain promissory notes is due, and the

claimant is seeking recovery of the outstanding amounts.

The claimant obtained judgments against all named defendants.

On March 27, 2025, the Company entered into a settlement agreement

with FCCB providing for a full and unconditional release of all claims related to the underlying debt upon completion of payments totaling

approximately $ 0.2 million.

As of April 30, 2025, the Company had fulfilled its payment obligations under the agreement, and the parties had

fully and unconditionally released each other from and all claims/liabilities, or obligations related to the underlying debt.

civil action was filed against Holdings, AIRO Group, AIRO Group (Illinois), AIRO Drone, Agile Defense, Joseph Burns, Chirinjeev

Kathuria and John Uczekaj in Chancery Court in Delaware in September 2023.

The claimant, Robert Perrin, one of the Company’s

stockholders, alleged that the these entities failed to pay him for services allegedly rendered under an Employment Agreement with

AIRO Group (Illinois), that the individual defendants have breached their fiduciary duties as members of the Company’s board

of directors, and that defendants violated the Computer Fraud and Abuse Act.

On November 17, 2023, the Company filed a motion to

In response, the claimant filed an Amended Complaint on February 22, 2024 in which he dropped AIRO Group (Illinois) as a

defendant, dropped the breach of contract claim and added a wage claim under Delaware statute.

On April 5, 2024, the Company filed a

Partial Answer and Affirmative Defenses as well as a Partial Motion to Dismiss.

In response, the claimant filed a Second Amended

Complaint on May 16, 2024 in which he dropped the wage claim under Delaware statute and added a civil conspiracy claim against all

On March 27, 2025,

the Company entered into a settlement agreement with FCCB providing for a full and unconditional release of all claims related to the

underlying debt upon completion of payments totaling approximately $0.2 million.

As of April 30, 2025, the Company had fulfilled its

payment obligations under the agreement, and the parties had fully and unconditionally released each other from and all claims/liabilities,

or obligations related to the underlying debt.

civil action was filed against Holdings, AIRO Group, AIRO Group (Illinois), AIRO Drone, Agile Defense, Joseph Burns, Chirinjeev Kathuria

and John Uczekaj in Chancery Court in Delaware in September 2023.

The claimant, Robert Perrin, one of the Company’s stockholders,

alleged that the these entities failed to pay him for services allegedly rendered under an Employment Agreement with AIRO Group (Illinois),

that the individual defendants have breached their fiduciary duties as members of the Company’s board of directors, and that defendants

violated the Computer Fraud and Abuse Act.

On November 17, 2023, the Company filed a motion to dismiss.

In response, the claimant filed

an Amended Complaint on February 22, 2024 in which he dropped AIRO Group (Illinois) as a defendant, dropped the breach of contract claim

and added a wage claim under Delaware statute.

On April 5, 2024, the Company filed a Partial Answer and Affirmative Defenses as well

as a Partial Motion to Dismiss.

In response, the claimant filed a Second Amended Complaint on May 16, 2024 in which he dropped the wage

claim under Delaware statute and added a civil conspiracy claim against all defendants.

The Company filed an Amended Answer on November

In March 2025, the Company agreed to settle Mr.

individual claims in the lawsuit for $ 0.8

million, which will be paid over six quarters beginning the quarter ending September 30, 2025.

As of June 30, 2025, the Company had

recorded the $ 0.5

million and $ 0.3 million in current maturities of debt and long-term debt, net of current maturities, respectively.

Aside from the above matters,

the Company is not a party to any material legal proceedings and is not aware of any pending or threatened claims.

From time to time,

the Company may be subject to various legal proceedings and claims that arise in the ordinary course of its business activities.

contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss or the measurement of a loss

can be complex.

During the nine months ended September 2025, the Company agreed to settle Mr.

Perrin’s individual claims in the lawsuit

for $ 0.8 million, which will be paid over six quarters beginning the quarter ending September 30, 2025.

As of September 30, 2025, the

Company had recorded the $ 0.5 million and $ 0.1 million in current maturities of debt and long-term debt, net of current maturities, respectively.

from the above matters, the Company is not a party to any material legal proceedings and is not aware of any pending or threatened claims.

From time to time, the Company may be subject to various legal proceedings and claims that arise in the ordinary course of its business

Legal contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss or the

measurement of a loss can be complex.

The Company will accrue losses that are both probable and reasonably estimable.

29 unchanged sentences

aircraft and support services to DoD contractors.

The Company evaluates the performance of its reportable

segments based on the net income (loss) for each reporting segment.

Presented below are reconciliations of the reportable segment total

revenues to the condensed consolidated revenues and the reportable segment total net income (loss) to the condensed consolidated net income (loss)

for the three and six months ended June 30, 2025 and June 30, 2024:

Company evaluates the performance of its reportable segments based on the net income (loss) for each reporting segment.

Presented below

are reconciliations of the reportable segment total revenues to the condensed consolidated revenues and the reportable segment total

net income (loss) to the condensed consolidated net loss for the three and nine months ended September 30, 2025 and September 30, 2024:

of Segment Information

months ended June 30, 2025

and development

and marketing

and administrative

on extinguishment of debt, net

Electric Air Mobility

Three months ended September 30, 2025

Electric Air Mobility

Cost of revenue

Research and development

Sales and marketing

General and administrative

Interest expense

Interest income

Other expense (income), net

( 4,543,419 )

( 4,466,845 )

expense (income), net

Income tax benefit (expense)

Segment (loss) profit

$ ( 1,311,132 )

1 unchanged sentence

$ ( 1,240,059 )

tax benefit (expense)

( 1,988,111 )

Unallocated amounts:

Corporate expenses

Interest expense, net

Other expense, net

$ ( 7,962,016 )

profit (loss)

Electric Air Mobility

Three months ended September 30, 2024

Electric Air Mobility

Cost of revenue

Research and development

Sales and marketing

General and administrative

Goodwill impairment

Interest expense

Interest income

Other (income) expense, net

( 4,100,628 )

on debt extinguishment, net

( 4,108,660 )

expense (income), net

Income tax expense

( 2,382,796 )

months ended June 30, 2024

and development

and marketing

and administrative

expense (income), net

tax benefit (expense)

profit (loss)

( 2,382,796 )

3 unchanged sentences

( 29,301,788 )

months ended June 30, 2025

and development

and marketing

and administrative

on debt extinguishment, net

Unallocated amounts:

Corporate expenses

Interest expense, net

Other expense, net

$ ( 30,330,526 )

Electric Air Mobility

Nine months ended September 30, 2025

Electric Air Mobility

Cost of revenue

Research and development

Sales and marketing

General and administrative

Interest expense

Interest income

Gain on debt extinguishment, net

( 13,090,628 )

expense (income), net

( 13,090,628 )

Other expense (income), net

( 23,116,974 )

( 2,678,450 )

tax benefit (expense)

( 25,373,193 )

Income tax expense

( 1,731,130 )

profit (loss)

( 1,731,130 )

on debt extinguishment, net

Segment profit (loss)

$ ( 10,672,612 )

expense (income), net

Unallocated amounts:

Corporate expenses

Interest expense, net

Gain on debt extinguishment, net

( 2,468,441 )

months ended June 30, 2024

and development

and marketing

and administrative

expense (income), net

tax benefit (expense)

profit (loss)

The following table presents revenue by geographic

area for the three and six months ended June 30:

Other income, net

$ ( 4,064,342 )

Electric Air Mobility

Nine months ended September 30, 2024

Electric Air Mobility

Cost of revenue

Research and development

Sales and marketing

General and administrative

Goodwill impairment

Interest expense

Interest income

Other expense (income), net

( 2,400,783 )

( 2,326,495 )

Income tax expense

( 3,811,383 )

Segment (loss) profit

$ ( 865,223 )

$ ( 22,194,615 )

$ ( 24,243,705 )

( 34,143,830 )

Unallocated amounts:

Corporate expenses

Interest expense, net

Other expense, net

$ ( 37,940,056 )

following table presents revenue by geographic area for the three and nine months ended September 30:

of Revenue by Geographic

Three months ended June 30, 2025

Electric Air Mobility

Three months ended September 30, 2025

Electric Air Mobility

United States

Three months ended June 30, 2024

Electric Air Mobility

Three months ended September 30, 2024

Electric Air Mobility

United States

ended June 30, 2025

Electric Air Mobility

Nine months ended September 30, 2025

Electric Air Mobility

United States

months ended June 30, 2024

Electric Air Mobility

Nine months ended September 30, 2024

Electric Air Mobility

United States

The Company identified classification errors in

the revenue by geographic area table above for the Avionics segment for the six months ended June 30, 2024 and corrected these classification

errors for comparability to the current period presentation.

The Company determined that the errors corrected were not material to any

previously issued condensed consolidated financial statements and did not change the Company’s previously reported condensed consolidated

financial statements.

The following table presents revenue by products

and services for the three and six months ended June 30:

following table presents revenue by products and services for the three and nine months ended September 30:

of Revenue by Products and Services

Three months ended June 30, 2025

Electric Air Mobility

Three months ended June 30, 2024

Three months ended September 30, 2025

Electric Air Mobility

Six months ended June 30, 2025

Six months ended June 30, 2024

The following table presents capital expenditures,

depreciation and amortization, stock-based compensation and contingent consideration fair value adjustments for the three and six months ended June

Electric Air Mobility

Three months ended September 30, 2024

Electric Air Mobility

months ended September 30, 2025

Electric Air Mobility

Nine months ended September 30, 2024

Electric Air Mobility

following table presents capital expenditures, depreciation and amortization, stock-based compensation and contingent consideration fair

value adjustments for the three and nine months ended September 30:

of Capital Expenditures, Depreciation and Amortization

Three months ended June 30, 2025

Electric Air Mobility

Three months ended September 30, 2025

Electric Air Mobility

Depreciation and amortization

Stock-based compensation

Capital expenditures

Electric Air Mobility

Three months ended September 30, 2024

Electric Air Mobility

Depreciation and amortization

Stock-based compensation

Contingent consideration fair value adjustments

1 unchanged sentence

( 4,100,000 )

( 17,533,572 )

Capital expenditures

Three months ended June 30, 2024

Electric Air Mobility

Nine months ended September 30, 2025

Electric Air Mobility

Depreciation and amortization

1 unchanged sentence

Contingent consideration fair value adjustments

( 17,223,030 )

( 2,683,743 )

( 20,271,826 )

Capital expenditures

Six months ended June 30, 2025

Electric Air Mobility

Nine months ended September 30, 2024

Electric Air Mobility

Depreciation and amortization

3 unchanged sentences

( 2,400,000 )

( 20,271,826 )

Capital expenditures

Six months ended June 30, 2024

and amortization

consideration fair value adjustments

The following table presents tangible long-lived

assets by geographic area as of June 30, 2025 and December 31, 2024:

following table presents tangible long-lived assets by geographic area as of September 30, 2025 and December 31, 2024:

of Tangible Long Lived Assets by Geographic Area

June 30, 2025

Electric Air Mobility

September 30, 2025

Electric Air Mobility

United States

Electric Air Mobility

December 31, 2024

Electric Air Mobility

United States

Total segment assets reconciled to consolidated amounts are as follows

as of June 30, 2025 and December 31, 2024:

segment assets reconciled to consolidated amounts are as follows as of September 30, 2025 and December 31, 2024:

of Segment Assets

Total Segment assets

June 30, 2025

Electric Air Mobility

September 30, 2025

$ 158,044,795

11 unchanged sentences

safety, employment, labor and data privacy.

it contracts with the Department of Defense (“DoD”) and other agencies of the U.S.

government—and, for certain of those contracts, requires access to classified

information—the Company’s Drones segment is subject to extensive federal statutes and regulations, including the Federal Acquisition Regulation, the

Defense Federal Acquisition Regulation Supplement, the Truthful Cost and Pricing statute, the Foreign Corrupt Practices Act, the False Claims Act, and the regulations implementing

the National Industrial Security Program Operating Manual (“NISPOM”).

The NISPOM regulations establish the security requirements

applicable to classified contracts and programs, facility security clearances, and personnel security clearances.

The federal government

audits and reviews contractors’ performance on contracts, pricing practices, cost accounting systems and practices, and compliance

with applicable laws, regulations and standards.

Like most government contractors, the Drones segment’s contracts are audited and

reviewed regularly by federal agencies, including the Defense Contract Management Agency and the Defense Contract Audit Agency.

it contracts with the “DoD” and other agencies of the U.S.

government—and, for certain of those contracts, requires

access to classified information—the Company’s Drones segment is subject to extensive federal statutes and regulations, including

the Federal Acquisition Regulation, the Defense Federal Acquisition Regulation Supplement, the Truthful Cost and Pricing statute, the

Foreign Corrupt Practices Act, the False Claims Act, and the regulations implementing the National Industrial Security Program Operating

Manual (“NISPOM”).

The NISPOM regulations establish the security requirements applicable to classified contracts and programs,

facility security clearances, and personnel security clearances.

The federal government audits and reviews contractors’ performance

on contracts, pricing practices, cost accounting systems and practices, and compliance with applicable laws, regulations and standards.

Like most government contractors, the Drones segment’s contracts are audited and reviewed regularly by federal agencies, including

the Defense Contract Management Agency and the Defense Contract Audit Agency.

addition, the Drones segment is subject to industry-specific regulations due to the nature of the products and services it provides.

2 unchanged sentences

(i) the Federal Aviation Administration (“FAA”), which regulates airspace for all air vehicles in the U.S.

National Airspace System (“NAS”);

(ii) the National Telecommunications and Information Administration

and the Federal Communications Commission, which regulate the wireless communications upon which its unmanned aircraft system (“UAS”) depend in the U.S.;

National Airspace

System (“NAS”);

(ii) the National Telecommunications and Information Administration and the Federal Communications Commission,

which regulate the wireless communications upon which its unmanned aircraft system (“UAS”) depend in the U.S.;

Directorate of Defense Trade Controls of the U.S.

14 unchanged sentences

the near-term, the efforts of the Electric Air Mobility segment will focus on obtaining FAA certification of its aircraft and engaging

with key decision makers in the cities in the United States in which it anticipates its aircraft and urban air mobility (“UAM”) service will initially operate.

with key decision makers in the cities in the United States in which it anticipates its aircraft and urban air mobility (“UAM”)

service will initially operate.

Its aircraft will be required to comply with regulations governing aircraft design, production and airworthiness.

In the United States,

this primarily includes regulations put forth by the FAA and the Department of Transportation (“DOT”).

Outside the United

States, similar requirements are generally administered by the national civil aviation and transportation authorities of each country.

Aspen Avionics designs and manufactures equipment under worldwide aviation

regulatory agency approvals.

These include but are not limited to FAA, European Union Aviation Safety Agency (“EASA”), Transport

Canada Civil Aviation (“TCCA”), and National Civil Aviation Agency of Brazil (“ENAC (Brazil)”) regulations.

govern the design test, certification, installation, and manufacturing of Aspen’s equipment.

In the United States, this primarily includes regulations put forth by the FAA and the Department of Transportation (“DOT”).

Outside the United States, similar requirements are generally administered by the national civil aviation and transportation authorities

of each country.

Avionics designs and manufactures equipment under worldwide aviation regulatory agency approvals.

These include but are not limited to

FAA, European Union Aviation Safety Agency (“EASA”), Transport Canada Civil Aviation (“TCCA”), and National Civil

Aviation Agency of Brazil (“ENAC (Brazil)”) regulations.

These govern the design test, certification, installation, and manufacturing

of Aspen’s equipment.

FAA regulates the manufacture, repair and operation of all aircraft and aircraft parts operated in the United States.

22 unchanged sentences

The Company’s businesses that sell defense products directly to the U.S.

government or for use in systems delivered to the U.S.

government or for use in systems delivered

government can be subject to various laws and regulations that govern pricing and other factors.

1 unchanged sentence

party transactions include the following:

Aspen Avionics has a Commercialization Agreement with Centro Italiano Richerche Aerospaziali S.c.p.A (“CIRA”), a stockholder of Aspen Avionics, whereby CIRA licensed certain technology to Aspen Avionics.

As consideration for the license, CIRA will receive a royalty based on each unit sold by Aspen Avionics.

In March 2020, Aspen Avionics entered into an agreement with CIRA to settle unpaid royalty amounts due under a development agreement.

The Company owed $ 0.6 million to CIRA as of June 30, 2025 and December 31, 2024.

Aspen Avionics owed $ 0.4

million to Accord Global, a stockholder, as of June 30, 2025 and December 31, 2024.

Sales to Accord Global were $ 0

million during the three and six months ended June 30, 2025 and 2024, respectively.

Amounts due from Accord Global were $ 0.4

million as of June 30, 2025 and December 31, 2024.

As of June 30, 2025 and

December 31, 2024, Coastal Defense had net receivables due from Failor Services, Inc.

(“Failor”), which is owned by a

stockholder of the Company, of $ 0.4

million which are included in “Related party receivables” on the condensed consolidated balance sheets.

were made from Failor during the three and six months ended June 30, 2025 or 2024.

Coastal Defense also pays for certain expenses on

Failor’s behalf, which are reimbursable to Coastal Defense.

Coastal Defense uses West Run LLC (“West Run”) as a subcontractor for its military exercises.

West Run is owned by both a Coastal Defense employee and a shareholder of the Company and the wife of Coastal Defense’s former President.

The Company owed $ 0.6 million and $ 0.3 million to West Run as of June 30, 2025 and December 31, 2024, respectively.

During 2024, the Company

issued a series of promissory notes to Martin Peryea, its Senior Vice President and General Manager, Electric Air Mobility Division,

which totaled $ 0.2

million as of June 30, 2025 and December 31, 2024 which were payable within two weeks of closing of the

IPO and has an interest charge of $ 1 .

The Company is in discussions with Peryea and is evaluating potential changes to the terms.

From May 2022 through June 30, 2025, the Company issued unsecured promissory notes, with no collateral or guarantees, to employees and stockholders for purposes of funding its operations.

The principal balance of these notes was $ 3.8 million and $ 4.2 million as of June 30, 2025 and December 31, 2024, respectively.

As of June 30, 2025, the $ 3.8 million of Investor Notes as described below are due 190 days from the IPO.

During the three months ended

June 30, 2025, the Company repaid $ 0.6 million, issued 0.4 million shares related to these Investor Notes and recognized $ 3.9 million

of interest expense.

During the first quarter of 2025, $ 3.4 million of the notes below were amended such that interest would be payable in shares at the closing of the IPO whereby the number of shares would be based on the trading price and the principal amounts due would be payable within the same number days subsequent to the closing of the IPO.

As of December 31, 2024, notes totaling $2.3 million, as amended, accrue an interest charge equal to 100% of the principal amount, payable in shares of common stock on the Closing Date, with 110% of the principal paid 190 days following the Closing Date plus 12% interest per annum accruing from the Closing Date.

Notes totaling $0.6 million carry the same terms except only 100% of the principal is paid 190 days following the Closing Date.

Notes totaling $0.2 million accrue an interest charge equal to 50% of the principal amount, payable in shares of common stock on the Closing Date with 100% of the principal paid 190 days following the Closing Date plus 12% interest per annum accruing from the Closing Date.

Notes totaling $0.2 million accrue an interest charge equal to 115% of the principal amount, payable in shares of common stock on the Closing Date, with 100% of the principal paid 190 days following the Closing Date plus 15% interest per annum accruing from the Closing Date.

Notes totaling $0.4 million accrue an interest charge equal to 125% of the principal amount, payable in shares of common stock on the Closing Date, with 100% of the principal paid 190 days following the Closing Date plus 12% interest per annum accruing from the Closing Date.

Notes totaling $0.1 million accrue an interest charge equal to 150% of the principal amount, payable in shares of common stock on the Closing Date, with 100% of the principal paid 190 days following the Closing Date plus 12% interest per annum accruing from the Closing Date.

Notes totaling $ 0.1 million, as amended, accrue

an interest charge equal to $ 50,000 payable in shares of common stock immediately prior to closing of the IPO, with the principal

due by June 30, 2025.

Notes totaling $ 0.5 million with Dangroup which

accrued interest at a rate of 10.5 % per annum and becomes payable five days after the closing of the IPO or the closing of one or

more financing transactions with an aggregate value of at least $ 35.0 million

Coastal Defense entered into unsecured due on demand notes

with two stockholders (the “Stockholder Notes”).

Interest is charged at 7.00 %

As of June 30, 2025 and December 31, 2024, the total outstanding balance of the Stockholder Notes was $ 1.0

Avionics has a Commercialization Agreement with Centro Italiano Richerche Aerospaziali S.c.p.A (“CIRA”), a stockholder

of Aspen Avionics, whereby CIRA licensed certain technology to Aspen Avionics.

As consideration for the license, CIRA will receive

a royalty based on each unit sold by Aspen Avionics.

In March 2020, Aspen Avionics entered into an agreement with CIRA to settle

unpaid royalty amounts due under a development agreement.

The Company owed $ 0.6 million to CIRA as of September 30, 2025 and December

Avionics owed $ 0.4 million to Accord Global, a stockholder, as of December 31, 2024, which was funded during the nine months ended

September 30, 2025.

Sales to Accord Global were $ 0 during the three and nine months ended September 30, 2025, respectively.

to Accord Global were $ 0.2 million and $ 0.3 million during the three and nine months ended September 30, 2024, respectively.

of September 30, 2025 and December 31, 2024, Coastal Defense had net receivables due from Failor Services, Inc.

which is owned by a stockholder of the Company, of $ 0.4 million which are included in “Related party receivables” on

the condensed consolidated balance sheets.

No purchases were made from Failor during the three and nine months ended September 30,

2025 or 2024.

Coastal Defense also pays for certain expenses on Failor’s behalf, which are reimbursable to Coastal Defense.

Defense uses West Run LLC (“West Run”) as a subcontractor for its military exercises.

West Run is owned by both a Coastal

Defense employee and a shareholder of the Company and the wife of Coastal Defense’s former President.

The Company owed $ 0.4

million and $ 0.3 million to West Run as of September 30, 2025 and December 31, 2024, respectively.

2024, the Company issued a series of promissory notes to Martin Peryea, its Senior Vice President and General Manager, Electric Air

Mobility Division, which totaled $ 0.2 million as of September 30, 2025 and December 31, 2024 which were payable within two weeks

of closing of the IPO and has an interest charge of $ 1 .

The Company is in discussions with Mr.

Peryea and is evaluating potential

changes to the terms.

May 2022 through January 2025, the Company issued unsecured promissory notes, with no collateral or guarantees, to employees and

stockholders for purposes of funding its operations.

The principal balance of these notes was $ 3.8 million and $ 4.2 million as of

September 30, 2025 and December 31, 2024, respectively.

As of September 30, 2025, the $ 3.8 million of Investor Notes as described

below are due 190 days from the IPO.

the nine months ended September 30, 2025, the Company repaid $ 0.6 million, issued 0.4 million shares related to these Investor Notes

and recognized $ 3.9 million of interest expense.

the first quarter of 2025, $ 3.4 million of the notes below were amended such that interest would be payable in shares at the Closing

whereby the number of shares would be based on the trading price and the principal amounts due would be payable within the same number

days subsequent to the Closing.

of December 31, 2024, notes totaling $2.3 million, as amended, accrue an interest charge equal to 100% of the principal amount, payable

in shares of common stock on the Closing Date, with 110% of the principal paid 190 days following the Closing Date plus 12% interest

per annum accruing from the Closing Date.

Notes totaling $0.6 million carry the same terms except only 100% of the principal is paid

190 days following the Closing Date.

Notes totaling $0.2 million accrue an interest charge equal to 50% of the principal amount,

payable in shares of common stock on the Closing Date with 100% of the principal paid 190 days following the Closing Date plus 12%

interest per annum accruing from the Closing Date.

Notes totaling $0.2 million accrue an interest charge equal to 115% of the principal

amount, payable in shares of common stock on the Closing Date, with 100% of the principal paid 190 days following the Closing Date

plus 15% interest per annum accruing from the Closing Date.

Notes totaling $0.4 million accrue an interest charge equal to 125% of

the principal amount, payable in shares of common stock on the Closing Date, with 100% of the principal paid 190 days following the

Closing Date plus 12% interest per annum accruing from the Closing Date.

Notes totaling $0.1 million accrue an interest charge equal

to 150% of the principal amount, payable in shares of common stock on the Closing Date, with 100% of the principal paid 190 days

following the Closing Date plus 12% interest per annum accruing from the Closing Date.

totaling $ 0.1 million, as amended, accrued an interest charge equal to $ 50,000 payable in

shares of common stock immediately prior to Closing, with the principal due by June 30, 2025.

totaling $ 0.5 million with Dangroup which accrued interest at a rate of 10.5 % per annum became payable five days after the Closing

or the closing of one or more financing transactions with an aggregate value of at least $ 35.0 million.

Defense entered into unsecured due on demand notes with two stockholders (the “Stockholder Notes”).

Interest is charged

at 7.00 % per year.

As of September 30, 2025 and December 31, 2024, the total outstanding balance of the Stockholder Notes was $ 1.0

The Company is in discussions with the counterparties and is evaluating potential changes to the terms.

The Company entered into promissory notes with the Merger

Entities during 2022.

The fair value of the contingent consideration promissory notes issued to the former equity holders of Agile

Defense, AIRO Drone and Coastal Defense totaled $ 9.4 million

as of December 31, 2024 and were included in contingent consideration on the condensed consolidated balance sheets.

In October 2023,

the Company signed various agreements pursuant to which approximately 90 %

of the principal owed would be converted to equity in the Company at a rate of $ 39.7112 per

Company entered into promissory notes with the Merger Entities during 2022.

The fair value

of the contingent consideration promissory notes issued to the former equity holders of Agile

Defense, AIRO Drone and Coastal Defense totaled $ 9.4 million as of December 31, 2024 and

were included in contingent consideration on the condensed consolidated balance sheets.

October 2023, the Company signed various agreements pursuant to which approximately 90 % of

the principal owed would be converted to equity in the Company at a rate of $ 39.7112 per

share no later than two days prior to closing of the BCA Transactions.

In March 2025, the Company signed an amendment with Coastal Defense pursuant to which immediately prior to the closing of the IPO, the

Company would issue 203,707 shares for 80 % of the principal owed under the contingent consideration promissory note.

Given that the BCA Transactions were not consummated, at the closing of the IPO, the Company issued the following shares and used the following proceeds to satisfy the following contingent consideration obligations:

Note issued in connection with the Agile Defense Acquisition (the “Agile Defense Promissory Note”) - issued 34,360

shares of common stock and used proceeds of $ 0.8

million during the quarter ended June 30, 2025 to partially satisfy the Company’s obligations to the under the Agile Defense

Promissory Note and Note Termination Agreement.

The remaining $ 0.2

million, which is included within accrued expenses 2025 on the Company’s condensed consolidated balance sheet as of June 30, 2025, was funded in

Note issued in connection with the Airo Drone acquisition (the “Airo Drone Promissory Note”) - issued 37,080

shares of common stock and used proceeds of $ 0.4

million during the quarter ended June 30, 2025 to partially satisfy the Company’s obligations under the Airo Drone Promissory

Note and Note Termination Agreement.

The remaining $ 0.2

million, which is included within accrued expenses on the Company’s condensed consolidated balance sheet as of June 30, 2025, was funded in July

In March 2025, the

Company signed an amendment with Coastal Defense pursuant to which immediately prior to the

closing of the IPO, the Company would issue 203,707 shares for 80 % of the principal owed

under the contingent consideration promissory note.

that the BCA Transactions were not consummated, at the closing of the IPO, the Company issued the following shares and used the following

proceeds to satisfy the following contingent consideration obligations:

Note issued in connection with the Agile Defense Acquisition (the “Agile Defense Promissory Note”) - issued 34,360 shares

of common stock and used proceeds of $ 1.0 million during the nine months ended September 30, 2025 to satisfy the Company’s

obligations to the under the Agile Defense Promissory Note and Note Termination Agreement.

Note issued in connection with the Airo Drone acquisition (the “Airo Drone Promissory Note”) - issued 37,080 shares of

common stock and used proceeds of $ 0.6 million during the nine months ended September 30, 2025 to satisfy the Company’s obligations

under the Airo Drone Promissory Note and Note Termination Agreement.

Note issued in connection with the acquisition of Coastal Defense (the “CDI Promissory Note”), as amended on March 7,

2025 - issued 203,707

shares of common stock and used proceeds of $ 2.0

million during the quarter ended June 30, 2025 to satisfy the Company’s obligations to the holders under the CDI Promissory

Note pursuant to a Promissory Note Termination Agreement.

part of the Jaunt acquisition, the Company acquired a contingent obligation originating from Jaunt’s acquisition of certain patents,

licenses, and other intellectual property from Carter Aviation, a former member of Jaunt, in April 2019 (the “Jaunt Contingent

Arrangement”).

Under the Jaunt Contingent Arrangement, 10 % of any cash receipt, including all income, receipts, proceeds, debt

or equity investment, earnings, sales, or winnings, up to $ 50 million is payable to Carter Aviation.

As of the acquisition date,

$ 49.6 million in future payments remained on this obligation.

2025 - issued 203,707 shares of common stock and used proceeds of $ 2.0 million during the nine months ended September 30, 2025 to

satisfy the Company’s obligations to the holders under the CDI Promissory Note pursuant to a Promissory Note Termination Agreement.

part of the Jaunt acquisition, the Company acquired a contingent obligation originating from

Jaunt’s acquisition of certain patents, licenses, and other intellectual property from

Carter Aviation, a former member of Jaunt, in April 2019 (the “Jaunt Contingent Arrangement”).

Under the Jaunt Contingent Arrangement, 10 % of any cash receipt, including all income, receipts,

proceeds, debt or equity investment, earnings, sales, or winnings, up to $ 50 million is payable

to Carter Aviation.

As of the acquisition date, $ 49.6 million in future payments remained

on this obligation.

The original terms of the Jaunt Contingent Arrangement provided that

upon the completion of a business combination, the contingent consideration assumed from Jaunt would be replaced by promissory notes,

the first of which would be for $ 23.0 million due one day after the closing of such business combination, and the second would be

for the remaining portion of the contingent consideration and would be paid over three years subsequent to such closing.

27, 2023, the Company signed a satisfaction of indebtedness and satisfaction of covenant agreement (the “Jaunt Satisfaction of Indebtedness

and Satisfaction of Covenant Agreement”), whereby the holder agreed to convert $ 44.6 million of the obligations owed to it

as part of the Jaunt acquisition into 1,122,437 shares of the Company’s common stock immediately prior to the closing of the BCA Transactions,

with the remaining portion of the contingent consideration of $ 5.0 million owed to such holders to be paid at the closing of the

BCA Transactions.

Given that the BCA

Transactions were not consummated, at the closing of the IPO, the Company issued 1,122,437

shares of the Company’s common stock during the quarter ended June 30, 2025 to partially satisfy the Company’s

obligations to the holders under the Jaunt Satisfaction of Indebtedness and Satisfaction of Covenant Agreement.

The remaining $ 5.0

million, which is included within accrued expenses on the Company’s condensed consolidated balance sheet as of June 30, 2025, was partially

funded with a $ 3.9

million payment in July 2025.

On July 10, 2025, the Company entered into an unsecured promissory note with Carter Aviation

Technologies LLC to fund the remaining $ 1.1

million by September 10, 2025.

In conjunction with the

Aspen Avionics acquisition, the Company agreed to assume $ 25.3 million

of obligations as defined within the merger agreement of which $ 19.4 million

was attributable to the Aspen Notes, $ 1.9 million

was attributable to future allowable services or to be payable to the former Aspen Avionics shareholders at the closing of the IPO,

and $ 0.9 million

was attributable to the Aspen Carveout Plan.

The Aspen Carveout Plan also includes a one-time stock payment of $ 2.0 million

for designated employees and consultants payable upon the occurrence of certain change in control events.

On October 6, 2023, the

Company signed a satisfaction of indebtedness and satisfaction of covenant agreement (the “Aspen Satisfaction of Indebtedness

and Satisfaction of Covenant Agreement”), whereby all of the holders agreed to convert various amounts due, which included

$ 17.5 million

under the Bridge Notes, $ 0.8 million

related to the cash portion of Aspen Carveout Plan, and $ 1.7 million

attributable to the a contingency to Aspen shareholders (“Aspen Contingent Debt”) into 440,584 shares, 20,010 shares

and 43,512 shares,

respectively, of the Company’s common stock immediately prior to the closing of the BCA Transactions, with the remaining

amount of $ 2.2 million

owed to such holders to be paid at the closing of the BCA Transactions.

The Aspen Carveout Plan also provides for a $ 2.0 million

payment in stock which equates to 51,309 shares

that is also due at the closing of a business combination.

Company issued 440,584

shares of the Company’s common stock and recognized a gain on debt extinguishment

million during the quarter ended June 30, 2025 as described

in Note 2 to partially satisfy the obligations attributable to the Bridge Notes.

The Company funded $ 1.5

million during August 2025.

Prior to the IPO, the Company had not recorded

the Aspen Contingent Debt as it was not probable or estimable in accordance with ASC 450.

On June 12, 2025, the Company issued 43,512

shares to the target representative and recorded an accrual for $ 0.2

million related to the Aspen Contingent Debt which resulted in $ 0.6

million of other expense during the three and six months ended June 30, 2025.

On June 30, 2025, the Company amended the Aspen Satisfaction of Indebtedness and Satisfaction of Covenant

Agreement to stipulate that the terms in the original agreement that were contingent upon the BCA Transactions would be completed

within 15 business days of the IPO and identified the underlying recipients of 43,512

of the shares described above.

In conjunction with the amended Satisfaction of Indebtedness and Satisfaction of Covenant Agreement,

the target representative transferred the shares to the underlying shareholders.

In August 2025, the Company agreed to fund the

remaining $ 0.2

million owed under the Aspen Contingent Debt by October 1, 2025.

On June 30, 2025, the Company also recognized

million of stock compensation and accrued $ 0.1

million as described in Note 4 in conjunction with the Aspen Carve-out Plan.

During July 2025, the Company issued 71,319

shares of the Company’s common stock and funded the remaining $ 0.1

million to fully settle all obligations with the participants of the Aspen Carveout Plan.

The Company entered into a $ 12.9 million promissory

note in conjunction with the acquisition of Sky-Watch in 2022.

The $ 12.9 million promissory note was fully repaid during the year

ended December 31, 2024.

As detailed in Note 1, the Sky-Watch earnout

liability was originally payable up to $ 6.5 million, of which up to a maximum of $ 3.0 million was payable on a dollar-for-dollar basis

on revenue earned within the first two-year anniversary of the acquisition and $ 3.5 million would become due and payable if and only

if Sky-Watch earns a minimum of $ 13.8 million in revenue during the period from the acquisition date through June 2024.

upon the completion of a business combination, the contingent consideration assumed from

Jaunt would be replaced by promissory notes, the first of which would be for $ 23.0 million

due one day after the closing of such business combination, and the second would be for the

remaining portion of the contingent consideration and would be paid over three years subsequent

to such closing.

On October 27, 2023, the Company signed a satisfaction of indebtedness and

satisfaction of covenant agreement (the “Jaunt Satisfaction of Indebtedness and Satisfaction

of Covenant Agreement”), whereby the holder agreed to convert $ 44.6 million of the

obligations owed to it as part of the Jaunt acquisition into 1,122,437 shares of the Company’s

common stock immediately prior to the closing of the BCA Transactions, with the remaining

portion of the contingent consideration of $ 5.0 million owed to such holders to be paid at

the closing of the BCA Transactions.

that the BCA Transactions were not consummated, at the Closing, the Company issued 1,122,437 shares of the Company’s common

stock and funded $ 5.0 million during the nine months ended September 30, 2025 to satisfy the Company’s obligations to the holders

under the Jaunt Satisfaction of Indebtedness and Satisfaction of Covenant Agreement.

conjunction with the Aspen Avionics acquisition, the Company agreed to assume $ 25.3 million of obligations as defined within the

merger agreement of which $ 19.4 million was attributable to the Aspen Notes, $ 1.9 million was attributable to future allowable services

or to be payable to the former Aspen Avionics shareholders at the Closing, and $ 0.9 million was attributable to the Aspen Carveout

The Aspen Carveout Plan also includes a one-time stock payment of $ 2.0 million for designated employees and consultants payable

upon the occurrence of certain change in control events.

On October 6, 2023, the Company signed a satisfaction of indebtedness and

satisfaction of covenant agreement (the “Aspen Satisfaction of Indebtedness and Satisfaction of Covenant Agreement”),

whereby all of the holders agreed to convert various amounts due, which included $ 17.5 million under the Bridge Notes, $ 0.8 million

related to the cash portion of Aspen Carveout Plan, and $ 1.7 million attributable to the a contingency to Aspen shareholders (“Aspen

Contingent Debt”) into 440,584 shares, 20,010 shares and 43,512 shares, respectively, of the Company’s common stock immediately

prior to the closing of the BCA Transactions, with the remaining amount of $ 2.2 million owed to such holders to be paid at the closing

of the BCA Transactions.

The $ 2.0 million payment in stock, which equates to 51,309 shares, was also due at the closing of a business

Company issued 440,584 shares of the Company’s common stock, funded $ 1.9 million and

recognized a gain on debt extinguishment of $ 13.1 million during the nine months ended September

30, 2025 as described in Note 2 to satisfy the obligations attributable to the Bridge Notes.

to the IPO, the Company had not recorded the Aspen Contingent Debt as it was not probable or estimable in accordance with ASC 450.

On June 12, 2025, the Company issued 43,512 shares to the target representative and recorded an accrual for $ 0.2 million related

to the Aspen Contingent Debt which resulted in $ 0.6 million of other expense during the nine months ended September 30, 2025.

June 30, 2025, the Company amended the Aspen Satisfaction of Indebtedness and Satisfaction of Covenant Agreement to stipulate that

the terms in the original agreement that were contingent upon the BCA Transactions would be completed within 15 business days of

the IPO and identified the underlying recipients of 43,512 of the shares described above.

In conjunction with the amended Satisfaction

of Indebtedness and Satisfaction of Covenant Agreement, the target representative transferred the shares to the underlying shareholders.

The Company agreed to fund the remaining $ 0.2 million owed under the Aspen Contingent Debt by December 1, 2025.

the nine months ended September 30, 2025, the Company issued 71,319 shares of the Company’s common stock, funded $ 0.1 million

and recognized $ 1.7 million of stock compensation, as described in Note 4, to fully settle all obligations with the participants

of the Aspen Carveout Plan.

Company entered into a $ 12.9 million promissory note in conjunction with the acquisition of Sky-Watch in 2022.

The $ 12.9 million

promissory note was fully repaid during the year ended December 31, 2024.

detailed in Note 1, the Sky-Watch earnout liability was originally payable up to $ 6.5 million, of which up to a maximum of $ 3.0 million

was payable on a dollar-for-dollar basis on revenue earned within the first two-year anniversary of the acquisition and $ 3.5 million

would become due and payable if and only if Sky-Watch earns a minimum of $ 13.8 million in revenue during the period from the acquisition

date through June 2024.

In December 2022, the Equity Purchase Agreement was amended to increase the second earnout amount to $ 7.5

million and to extend the earnout period to include the full fiscal year periods of 2022 through 2024.

In March 2023, the Equity

Purchase Agreement was further amended to add a third earnout of $ 4.0 million if revenue during the full fiscal year periods of 2022

through 2024 reaches $ 17.0 million with the earnouts payable by May 31, 2024.

As of December 31, 2023, the earnout liability was

recorded to the full amount owed net of $ 3.0 million in payments made to date, or $ 11.5 million and was classified as due to seller

as all contingencies had been resolved.

March 2024, the parties further amended the Equity Purchase Agreement, to extend the due dates of the earnout liability and the promissory

note to June 30, 2024 in exchange for the former shareholders of Sky-Watch becoming eligible for an additional earnout of $ 1.0 million

if Sky-Watch achieved EBITDA of DKK 127,107,500 or above for fiscal year 2024.

As both the promissory note and the second and third

earnouts were due within three months of the amendment date and as the Company would not have been able to refinance the then current

balance of $ 18.3 million with another lender, the Company determined this modification to be an extinguishment in accordance with

The loss on debt extinguishment was not significant.

June 2024, the Company amended the Equity Purchase Agreement to extend the payment dates for the remaining balance on the seller

promissory note to five business days following the date that the Company, or its successor, closes one or more financing transactions

with an aggregate value of at least $ 35 million, and for the remaining earnout liability to five business days following the date

that the Company, or its successor, closes one or more financing transactions with an aggregate value of at least $ 45 million.

shall continue to accrue on the earned but unpaid earnout amounts at the federal discount rate plus five percent, compounded quarterly.

The former shareholders agreed to waive enforcement of payment until June 30, 2025.

The Company recorded $ 0.7 million and $ 1.0 million

of interest during the three and nine months ended September 30, 2024, respectively.

The Company recorded $ 0 million and $ 0.2 million

of interest during the three and nine months ended September 30, 2025, respectively.

the nine months ended September 30, 2025, the Company repaid $ 3.2 million of its Due to seller obligations.

As of December 31, 2024,

the total amount included in due to seller and owed under the earnouts was $ 3.1 million.

June 28, 2024, the Company signed an Incentive Agreement whereby the Company will pay Dangroup 20 % of Sky-Watch’s EBITDA as

an incentive bonus for their continued involvement in Sky-Watch’s governance, management and/or other operations commencing

on January 1, 2025 for an initial term of five years.

The Incentive Agreement also included a contingent 5 % payout on any aggregate

earnout awards that the Company’s stockholders were entitled to in conjunction with the BCA Transactions.

In December 2024,

the Equity Purchase Agreement was amended to increase the second earnout amount to $ 7.5 million and to extend the earnout period to include

the full fiscal year periods of 2022 through 2024.

In March 2023, the Equity Purchase Agreement was further amended to add a third earnout

of $ 4.0 million if revenue during the full fiscal year periods of 2022 through 2024 reaches $ 17.0 million with the earnouts payable by

May 31, 2024.

As of December 31, 2023, the earnout liability was recorded to the full amount owed net of $ 3.0 million in payments made

to date, or $ 11.5 million and was classified as due to seller as all contingencies had been resolved.

In March 2024, the parties further amended the Equity

Purchase Agreement, to extend the due dates of the earnout liability and the promissory note to June 30, 2024 in exchange for the

former shareholders of Sky-Watch becoming eligible for an additional earnout of $ 1.0

million if Sky-Watch achieved EBITDA of DKK 127,107,500

or above for fiscal year 2024.

As both the promissory note and the second and third earnouts were due within three months of the

amendment date and as the Company would not have been able to refinance the then current balance of $ 18.3

million with another lender, the Company determined this modification to be an extinguishment in accordance with ASC 470-50.

loss on debt extinguishment was not significant.

The Company recorded $ 0

million of interest during the three and six months ended June 30, 2025 and 2024, respectively.

In June 2024, the Company amended the Equity

Purchase Agreement to extend the payment dates for the remaining balance on the seller promissory note to five business days following

the date that the Company, or its successor, closes one or more financing transactions with an aggregate value of at least $ 35 million,

and for the remaining earnout liability to five business days following the date that the Company, or its successor, closes one or

more financing transactions with an aggregate value of at least $ 45 million.

Interest shall continue to accrue on the earned but

unpaid earnout amounts at the federal discount rate plus five percent, compounded quarterly.

The former shareholders agreed to waive

enforcement of payment until June 30, 2025.

During the three months ended June 30, 2025, the Company

million of its Due to seller obligations.

As of June 30, 2025 and December 31, 2024, the total amount included in due to seller and

owed under the earnouts was $ 1.0

million and $ 3.1

million, respectively.

During July 2025, the Company funded the remaining $ 1.0

million earnout balance.

June 28, 2024, the Company signed an Incentive Agreement whereby the Company will pay Dangroup 20 %

of Sky-Watch’s EBITDA as an incentive bonus for their continued involvement in Sky-Watch’s governance, management and/or

other operations commencing on January 1, 2025 for an initial term of five years.

The Incentive Agreement also included a contingent

payout on any aggregate earnout awards that the Company’s stockholders were entitled to in conjunction with the BCA Transactions.

In December 2024, the Incentive Agreement was amended such that Dangroup will contingently receive shares in conjunction with the Closing

such that their ownership will be 5 %

on a fully diluted basis.

In conjunction with the IPO, the Company recorded $ 5.5 million of stock compensation expense related to the 0.5 million shares that were

issued to Dangroup during the quarter ended June 30, 2025.

On June 28, 2024, the Company signed a Consulting Agreement whereby

the Company will pay a shareholder and former board member of Sky-Watch 2.5 % of Sky-Watch’s EBITDA as a consulting fee for

his assistance with branding and rolling out products and services into new and additional markets commencing on January 1, 2024.

the Incentive Agreement was amended such that Dangroup will contingently receive shares in conjunction with the Closing such that

their ownership will be 5 % on a fully diluted basis.

In conjunction with the IPO, the Company recorded $ 5.5 million of stock compensation

expense related to the 0.5 million shares that were issued to Dangroup during the nine months ended September 30, 2025.

June 28, 2024, the Company signed a Consulting Agreement whereby the Company will pay a shareholder and former board member of Sky-Watch

2.5 % of Sky-Watch’s EBITDA as a consulting fee for his assistance with branding and rolling out products and services into

new and additional markets commencing on January 1, 2024.

This agreement may be terminated by either party with 30 days notice.

During the three and six months ended June 30, 2025, the

Company recorded $ 2.0

million and $ 2.6

million, respectively, of expense within general and administrative expense related to the Incentive and Consulting Agreement.

During the three and six months ended June 30, 2024, the Company recorded $ 0.2

million related to the Incentive and Consulting Agreement.

The Company funded $ 3.9 million

of the remaining cash obligations to Carter Aviation Technologies LLC in July 2025 and agreed to fund the remaining $ 1.1 million on

September 10, 2025 through an unsecured promissory note dated July 10, 2025.

During July 2025, the Company issued 71,319

shares of the Company’s common stock and funded the remaining $ 0.1

million to fully settle all obligations with the participants of the Aspen Carveout Plan.

During August 2025, the Company funded

million of the remaining obligations under the Aspen Bridge Notes and agreed to fund the remaining $ 0.2 million owed under the Aspen

Contingent Debt by October 1, 2025.

The Company funded $ 0.3 million of the remaining cash

obligations under the Agile Defense Promissory Note and Airo Drone Promissory Note in July 2025.

During July 2025, the Company repaid $ 2.1 million

of Investor Notes at fair value and modified the remaining Investor Notes at fair value such that the remaining $ 1.8 million, inclusive of a $ 0.1 million fee, is due

on December 16, 2025 .

In July 2025, the Company entered into a warrant

agreement with Libertas whereby Libertas has the option to purchase 0.1

million shares with an exercise price of $ 0.02

between July 28, 2025 and July 28, 2030.

Libertas exercised these warrants on July 31, 2025.

During August 2025, the Company signed amendments

with various holders such that remaining amounts outstanding as of June 30, 2025 will be settled through the issuance of 0.2 million shares

during the quarter ending September 30, 2025 and with cash payments of $ 0.9 million to be made during the second half of 2025.

August 11, 2025, the Company entered into employment agreements with Joseph Burns (the “Burns Employment Agreement”), John

Uczekaj (the “Uczekaj Employment Agreement”), and Chirinjeev Kathuria (the “Kathuria Employment Agreement”, and

together with the Burns Employment Agreement and the Uczekaj Employment Agreement, the “Employment Agreements”).

the Burns Employment Agreement, Captain Burns is entitled to base compensation of $ 700,000

per year and an IPO bonus of $ 350,000 .

Under the Uczekaj Employment Agreement, Mr.

Uczekaj is entitled to base compensation of $ 500,000

per year, as well as a grant of restricted stock units (“RSUs”) with a total value of $ 50,000 .

The RSUs vest in four equal quarterly installments on the first day of each calendar quarter following the grant date, subject to

Uczekaj’s continued employment through each such vesting date.

Under the Kathuria Employment Agreement, Dr.

entitled to base compensation of $ 400,000

per year and an IPO bonus of $ 100,000 .

Captain Burns, Mr.

Uczekaj and Dr.

Kathuria will also be entitled to other benefits on the same basis as those benefits are made

available to other similarly situated employees of the Company.

August 2025, the Company entered into a five-year lease agreement in Phoenix, Arizona in support of its efforts to expand its U.S.

for advanced drone innovation.

The Company expects total rent payments to equal approximately $ 2.3 million over the lease term .

the three and nine months ended September 30, 2025, the Company recorded $ 0.5 million of income and $ 2.1 million of expense, respectively,

within general and administrative expense related to the Incentive and Consulting Agreement.

During the three and nine months ended

September 30, 2024, the Company recorded $ 0.3 million and $ 0.5 million, respectively, related to the Incentive and Consulting Agreement.

Company has evaluated subsequent events through November 14, 2025, which represents the date the condensed consolidated financial statements

were available for issuance.

Other than the items listed below, there were no subsequent events that would require adjustment to or disclosure

in these condensed consolidated financial statements.

October 2025, the Company entered into a non-binding letter of intent with Degree-Trans LLC dba Bullet (“Bullet”), a Ukrainian developer of turbojet

unmanned interceptor systems, to establish a 50/50 joint venture to produce and deploy Bullet’s combat-proven fixed-wing unmanned aerial vehicle (“UAV”) technology

across the United States, North Atlantic Treaty Organization (“NATO”) defense markets and Ukraine.

November 13, 2025, AIRO Drone, entered into a Joint Venture and Operating Agreement (the “JV Agreement”) with Nord Drone

Group, LLC (“NDG”), a Ukrainian limited liability company, pursuant to which AIRO Drone and NDG will form AIRO

Nord-Drone, LLC, a Delaware limited liability company (the “JV”).

Pursuant to the terms of the JV Agreement, the JV will

develop, manufacture, and commercialize unmanned aerial systems primarily designed for delivering munitions, targeting U.S., NATO,

and Ukrainian defense markets.

Each of the parties will contribute operational resources and capabilities to the JV.

will contribute business development, sales, manufacturing, engineering, and government certification resources, as well as

manufacturing facilities in the United States, while NDG will contribute intellectual property, engineering data, operational

resources, and manufacturing facilities in Ukraine.

In addition, the Company will reimburse NDG for reasonable out-of-pocket

costs incurred by NDG in obtaining NATO certification required by the JV Agreement, up to a maximum amount of $ 50,000

within 30 days of the closing of the JV.

party to the JV will receive 50% of the limited liability company interests of the JV.

The JV will be governed by a five-member board

of managers, with each party appointing two directors and the acting chairman of the Company’s board of directors serving as the fifth director

and chairman of the JV.

consummation of the JV is subject to various closing conditions, including executing certain ancillary agreements between the parties

and the JV, including intellectual property license, manufacturing, and services agreements, and obtaining any regulatory required under

applicable law or by any governmental authority.

Unless the parties agree, the JV Agreement will terminate and the JV will

not be consummated if closing does not occur by February 11, 2026.

can be no assurance that closing conditions under the JV Agreement will be satisfied or when or that the JV will be consummated on the

terms described herein or at all.

The JV involves material risks including operational challenges related to NDG’s location in Ukraine

during ongoing military conflict, complex export control and sanctions compliance requirements, and potential regulatory scrutiny regarding

foreign defense partnerships.

Regarding Forward-Looking Statements

36 unchanged sentences

changes in spending or budgetary priorities, or delays in contract awards;

uncertainty, the risk of future budget cuts, the impact of continuing resolution funding mechanisms, the debt ceiling and government

shutdowns, and changing funding and acquisition priorities;

in the supply, demand and/or prices for our products and services and our ability to perform under existing contracts and obtain

43 unchanged sentences

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 1. Financial Statements