AIRO Group Holdings, Inc. 10-Q

Item 1. Financial Statements AIRO Group Holdings, Inc. Condensed Consolidated Balance Sheets unaudited June 30, 2025 December 31, 2024 ASSETS Current assets: Cash $ 40,341,555 $ 20,740,590 Restricted cash 193,780 170,088 Accounts receivable, net 23,655,866 8,960,705 Related party receivables 790,967 790,967 Accounts receivable, net 790,967 790,967 Inventory 10,609,390 8,822,721 Prepaid expenses and other current assets 3,572,701 2,309,676 Deferred offering costs - 798,796 Total current assets 79,164,259 42,593,543 Property and equipment, net 7,390,447 6,833,817 Right-of-use operating lease assets 370,578 352,486 Goodwill 572,031,507 557,508,331 Intangible assets, net 88,647,429 93,502,277 Other assets 245,590 208,333 Total assets $ 747,849,810 $ 700,998,787 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 14,213,380 $ 16,439,760 Related party payables 1,104,525 1,099,970 Accounts payable 1,104,525 1,099,970 Accrued expenses 18,796,560 17,457,155 Operating lease liabilities, current 267,763 212,591 Deferred revenue 3,942,806 10,339,978 Related party borrowings 5,601,091 5,971,281 Revolving lines of credit - 126,589 Current maturities of debt 8,079,126 27,992,450 Investor notes at fair value 3,795,934 13,819,000 Deferred compensation 9,716,243 - Due to seller 1,000,000 3,147,762 Total current liabilities 66,517,428 96,606,536 Long-term debt, net of current maturities 847,766 688,270 Long-term deferred compensation - 11,218,573 Deferred tax liability 767,331 767,331 Long-term deferred revenue 7,943 10,158 Operating lease liabilities, noncurrent 99,746 146,214 Other long-term liabilities 50,000 50,000 Contingent consideration - 42,782,276 Total liabilities 68,290,214 152,269,358 Commitments and contingencies (Note 10) - - Stockholders’ equity: Common stock, $ 0.000001 par value; 35,000,000 shares authorized; 27,025,503 and 16,387,180 shares issued and outstanding as of June 30, 2025 and December 31, 2024, respectively 27 16 Additional paid-in capital 873,379,525 764,691,988 Stockholder loan ( 5 ) ( 5 ) Accumulated other comprehensive loss 8,735,660 ( 9,509,285 ) Accumulated deficit ( 202,555,611 ) ( 206,453,285 ) Total stockholders’ equity 679,559,596 548,729,429 Total liabilities and stockholders’ equity $ 747,849,810 $ 700,998,787 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 AIRO Group Holdings, Inc. Condensed Consolidated Statements of Operations unaudited 2025 2024 2025 2024 Three months ended June 30, Six months ended June 30, 2025 2024 2025 2024 Revenue $ 24,550,193 $ 9,780,336 $ 36,344,878 $ 23,520,272 Cost of revenue 9,515,626 4,005,251 14,377,786 9,258,106 Gross profit 15,034,567 5,775,085 21,967,092 14,262,166 Operating expenses: Research and development 4,101,005 3,161,395 7,767,469 6,318,255 Sales and marketing 1,758,223 1,409,648 3,191,221 2,660,058 General and administrative 28,864,680 3,897,598 33,778,492 8,440,883 Total operating expenses 34,723,908 8,468,641 44,737,182 17,419,196 Loss from operations ( 19,689,341 ) ( 2,693,556 ) ( 22,770,090 ) ( 3,157,030 ) Other income (expense): Interest expense, net ( 8,010,246 ) ( 953,260 ) ( 9,277,321 ) ( 1,241,748 ) Gain on extinguishment of debt 15,559,069 - 15,559,069 - Other income (expense), net 20,068,254 ( 1,514,016 ) 22,730,295 ( 1,782,165 ) Total other income (expense) 27,617,077 ( 2,467,276 ) 29,012,043 ( 3,023,913 ) Income (loss) before income tax expense 7,927,736 ( 5,160,832 ) 6,241,953 ( 6,180,943 ) Income tax expense ( 2,057,307 ) ( 439,009 ) ( 2,344,279 ) ( 1,428,587 ) Net income (loss) $ 5,870,429 $ ( 5,599,841 ) $ 3,897,674 $ ( 7,609,530 ) Net income (loss) per share – basic (1) $ 0.32 $ ( 0.34 ) $ 0.22 $ ( 0.46 ) Net income (loss) per share – diluted (1) $ 0.30 $ ( 0.34 ) $ 0.20 $ ( 0.46 ) Weighted-average number of shares of common stock used in computing net income (loss) per share, basic (1) 18,490,316 16,387,180 17,444,558 16,387,180 Weighted-average number of shares of common stock used in computing net income (loss) per share, diluted (1) 19,472,648 16,387,180 19,592,255 16,387,180 (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. The accompanying notes are an integral part of these condensed consolidated financial statements. 4 AIRO Group Holdings, Inc. Condensed Consolidated Statements of Comprehensive Income ( loss) unaudited 2025 2024 2025 2024 Three months ended June 30, Six months ended June 30, 2025 2024 2025 2024 Net income (loss) $ 5,870,429 $ ( 5,599,841 ) $ 3,897,674 $ ( 7,609,530 ) Other comprehensive income (loss): Foreign currency translation, net of tax 12,604,232 ( 670,937 ) 18,244,945 ( 3,052,010 ) Total other comprehensive income (loss) 12,604,232 ( 670,937 ) 18,244,945 ( 3,052,010 ) Comprehensive income (loss) $ 18,474,661 $ ( 6,270,778 ) $ 22,142,619 $ ( 10,661,540 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 5 AIRO Group Holdings, Inc. Condensed Consolidated Statements of Stockholders’ Equity unaudited Shares Amount Capital Loan Loss Deficit Equity Common Stock Additional Paid-In Stockholder Accumulated Other Comprehensive Income Accumulated Total Stockholders’ Shares Amount Capital Loan (Loss) Deficit Equity Balance as of April 1, 2025 16,387,180 $ 16 $ 764,816,530 $ ( 5 ) $ ( 3,868,572 ) $ ( 208,426,040 ) $ 552,521,929 Conversion of Coastal Defense promissory note 203,707 - 2,037,070 - - - 2,037,070 Conversion of Aspen Bridge Notes 440,584 1 4,405,840 - - - 4,405,841 Conversion of Jaunt Carter debt 1,122,437 1 11,224,369 - - - 11,224,370 Issuance of investor note interest shares 1,126,043 1 11,260,423 - - - 11,260,424 Conversion of Airo Drone debt 37,080 - 370,800 - - - 370,800 Conversion of Agile Defense debt 34,360 - 343,600 - - - 343,600 Conversion of Aspen Contingent Debt 43,512 - 435,120 - - - 435,120 Conversion of Jaunt deferred compensation 46,017 - 460,170 - - - 460,170 Reclassification of Libertas Warrants - - 1,042,000 - - - 1,042,000 Exercise of Libertas Warrants 104,415 - 2,088 - - - 2,088 Issuance of Underwriter Warrants - - 2,029,900 - - - 2,029,900 Sale of common stock in initial public offering, including over-allotment, net of $ 12,686,393 offering costs 6,900,000 7 56,313,600 - - - 56,313,607 Shares issued to NGA 33,995 - 339,950 - - - 339,950 Shares issued to Dangroup 546,173 1 5,461,730 - - - 5,461,731 Stock-based compensation - - 12,836,335 - - - 12,836,335 Foreign currency translation adjustment - - - - 12,604,232 - 12,604,232 Net income - - - - - 5,870,429 5,870,429 Balance as of June 30, 2025 27,025,503 $ 27 $ 873,379,525 $ ( 5 ) $ 8,735,660 $ ( 202,555,611 ) $ 679,559,596 Common Stock Additional Paid-In Stockholder Accumulated Other Comprehensive Accumulated Total Stockholders’ Shares Amount Capital Loan Loss Deficit Equity Balance as of April 1, 2024 (1) 16,387,180 $ 16 $ 764,267,961 $ ( 5 ) $ ( 3,142,236 ) $ ( 169,768,735 ) $ 591,357,001 Stock-based compensation - - 179,022 - - - 179,022 Foreign currency translation adjustment - - - - ( 670,937 ) - ( 670,937 ) Net loss - - - - - ( 5,599,841 ) ( 5,599,841 ) Balance as of June 30, 2024 (1) 16,387,180 $ 16 $ 764,446,983 $ ( 5 ) $ ( 3,813,173 ) $ ( 175,368,576 ) $ 585,265,245 Common Stock Additional Paid-In Stockholder Accumulated Other Comprehensive Income Accumulated Total Stockholders’ Shares Amount Capital Loan (Loss) Deficit Equity Balance as of January 1, 2025 16,387,180 $ 16 $ 764,691,988 $ ( 5 ) $ ( 9,509,285 ) $ ( 206,453,285 ) $ 548,729,429 Conversion of Coastal Defense promissory note 203,707 - 2,037,070 - - - 2,037,070 Conversion of Aspen Bridge notes 440,584 1 4,405,840 - - - 4,405,841 Conversion of Jaunt Carter debt 1,122,437 1 11,224,369 - - - 11,224,370 Issuance of investor note interest shares 1,126,043 1 11,260,423 - - - 11,260,424 Conversion of Airo Drone debt 37,080 - 370,800 - - - 370,800 Conversion of Agile Defense debt 34,360 - 343,600 - - - 343,600 Conversion of Aspen Contingent Debt 43,512 - 435,120 - - - 435,120 Conversion of Jaunt deferred compensation 46,017 - 460,170 - - - 460,170 Reclassification of Libertas Warrants - - 1,042,000 - - - 1,042,000 Exercise of Libertas Warrants 104,415 - 2,088 - - - 2,088 Issuance of Underwriter Warrants - - 2,029,900 - - - 2,029,900 Sale of common stock in initial public offering, including over-allotment, net of $ 12,686,393 offering costs 6,900,000 7 56,313,600 - - - 56,313,607 Shares issued to NGA 33,995 - 339,950 - - - 339,950 Shares issued to Dangroup 546,173 1 5,461,730 - - - 5,461,731 Stock-based compensation - - 12,960,877 - - - 12,960,877 Foreign currency translation adjustment - - - - 18,244,945 - 18,244,945 Net income - - - - - 3,897,674 3,897,674 Balance as of June 30, 2025 27,025,503 $ 27 $ 873,379,525 $ ( 5 ) $ 8,735,660 $ ( 202,555,611 ) $ 679,559,596 Common Stock Additional Paid-In Stockholder Accumulated Other Comprehensive Accumulated Total Stockholders’ Shares Amount Capital Loan Loss Deficit Equity Balance as of January 1, 2024 (1) 16,387,180 $ 16 $ 763,975,896 $ ( 5 ) $ ( 761,163 ) $ ( 167,759,046 ) $ 595,455,698 Balance 16,387,180 $ 16 $ 763,975,896 $ ( 5 ) $ ( 761,163 ) $ ( 167,759,046 ) $ 595,455,698 Stock-based compensation - - 471,087 - - - 471,087 Foreign currency translation adjustment - - - - ( 3,052,010 ) - ( 3,052,010 ) Net loss - - - - - ( 7,609,530 ) ( 7,609,530 ) Balance as of June 30, 2024 (1) 16,387,180 $ 16 $ 764,446,983 $ ( 5 ) $ ( 3,813,173 ) $ ( 175,368,576 ) $ 585,265,245 Balance 16,387,180 $ 16 $ 764,446,983 $ ( 5 ) $ ( 3,813,173 ) $ ( 175,368,576 ) $ 585,265,245 (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 in Note 1. The accompanying notes are an integral part of these condensed consolidated financial statements. 6 AIRO Group Holdings, Inc. Condensed Consolidated Statements of Cash Flows unaudited 2025 2024 Six months ended June 30, 2025 2024 Cash flows from operating activities: Net income (loss) $ 3,897,674 $ ( 7,609,530 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: - Stock-based compensation 18,762,558 471,087 Non-cash gain on IPO transactions ( 932,170 ) - Note issuance for legal settlement 750,000 Provision for credit losses 7,016 1,326 Non-cash interest 1,064,130 897,718 Non-cash investor note interest 6,731,103 - Non-cash gain on debt extinguishment ( 15,559,069 ) - Change in investor notes at fair value 186,000 - Depreciation and amortization 6,125,888 6,343,846 Amortization of right-of-use lease assets 86,221 143,758 Change in fair value of contingent consideration ( 20,271,826 ) 1,700,000 Change in fair value of warrant liability ( 1,843,000 ) - Change in deferred taxes - ( 71,389 ) Changes in operating assets and liabilities: Accounts receivable ( 12,612,699 ) ( 2,866,043 ) Related party receivables - ( 129,523 ) Prepaid expenses and other assets ( 119,036 ) ( 219,959 ) Inventory ( 633,018 ) ( 2,402,759 ) Accounts payable, accrued expenses and other long-term liabilities ( 9,404,463 ) 3,370,937 Related party payables 4,555 74,257 Lease liabilities ( 103,575 ) ( 149,337 ) Deferred revenue ( 7,216,365 ) ( 8,531,557 ) Deferred compensation 325,130 1,148,410 Net cash used in operating activities ( 30,754,946 ) ( 7,828,758 ) Cash flows from investing activities: Purchase of property and equipment and investment in intangible assets ( 1,066,934 ) ( 454,254 ) Net cash used in investing activities ( 1,066,934 ) ( 454,254 ) Cash flows from financing activities: Proceeds from the sale of common stock, net 61,471,250 - Change in lines of credit ( 127,396 ) ( 8,935 ) Proceeds from borrowings 8,500,000 1,700,000 Repayments on borrowings ( 14,071,726 ) ( 416,898 ) Proceeds from related party borrowings 230,900 834,000 Repayments on related borrowings ( 708,899 ) ( 25,000 ) Debt issuance costs paid ( 170,000 ) ( 25,000 ) Proceeds from the exercise of warrants 2,088 - Payment of contingent consideration ( 3,266,622 ) - Cash paid to seller ( 2,245,769 ) ( 1,311,941 ) Net cash provided by financing activities 49,613,826 746,226 Effect of exchange rate changes 1,832,711 ( 311,566 ) Net increase (decrease) in cash and restricted cash 19,624,657 ( 7,848,352 ) Cash and restricted cash as of beginning of period 20,910,678 13,102,312 Cash and restricted cash as of end of period $ 40,535,335 $ 5,253,960 Supplemental disclosures of non-cash information: Deferred compensation settled in common stock $ 460,170 $ - Reclass between accrued expenses and notes payable $ 621,716 $ - Reclass between accrued expenses and contingent consideration $ 5,267,988 $ - Financing of insurance premiums $ 926,744 $ - Initial recognition of warrant liability $ 2,885,000 $ - Reclass of warrants to equity $ 1,042,000 $ - Deferred offering cost in accounts payable $ 3,125,655 $ - Debt settled in common stock $ 8,935,160 $ - Contingent consideration settled in common stock $ 13,975,851 $ - The accompanying notes are an integral part of these condensed consolidated financial statements. 7 AIRO Group Holdings, Inc. Notes to Unaudited Condensed Consolidated Financial Statements 1. The Company and Summary of Significant Accounting Policies Nature of Operations AIRO Group Holdings, Inc., a Delaware corporation (“Holdings” or the “Company”), is a technologically differentiated aerospace, autonomy, and air mobility platform targeting 21st century aerospace and defense opportunities. The Company is organized into four operating segments: (i) Drones, (ii) Avionics, (iii) Training and (iv) Electric Air Mobility. The Drones segment develops, manufactures, and sells drones and expects to provide drone services, such as Drone as a Service (“DaaS”), for military and commercial end users. The Avionics segment develops, manufactures, and sells avionics for military and general aviation aircraft, drones, and electric vertical takeoff and landing (“eVTOL”) aircraft. The Training segment currently provides military pilot training and expects to provide commercial pilot training in the future. The Electric Air Mobility segment is developing a rotorcraft eVTOL for cargo and passenger use for fixed route flights, on-demand trips, and cargo operations. In October 2021, Holdings entered into agreements and plans of merger (the “Merger Agreements”) with AIRO Drone, LLC (“AIRO Drone”), Agile Defense, LLC (“Agile Defense”), Coastal Defense, Inc. (“Coastal Defense”), Jaunt Air Mobility, LLC (“Jaunt”), and Aspen Avionics, Inc. (“Aspen Avionics”). Holdings also entered into an equity purchase agreement (“Equity Purchase Agreement”) with Sky-Watch A/S (“Sky-Watch”). AIRO Drone, Agile Defense, Coastal Defense, Jaunt, Aspen Avionics and Sky-Watch together represent the “Merger Entities.” Under the Merger Agreements and Equity Purchase Agreement, the parties entered into a series of transactions in which Holdings acquired all of the equity of the Merger Entities. The acquisitions of the Merger Entities by Holdings were completed between February and April 2022. On March 3, 2023, the Company entered into a Business Combination Agreement, as amended by that certain First Amendment to the Business 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 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 $ 7.5 million of underwriting discounts and commissions and issuance costs paid were $ 61.5 million. Consolidation and Basis of Presentation The accompanying condensed consolidated financial statements include the accounts of Holdings and its wholly owned subsidiaries, including Old AGI, Inc. f/k/a AIRO Group, Inc. (“AIRO Group”), AIRO Drone, Agile Defense, Jaunt, Sky-Watch, Coastal Defense, and Aspen Avionics. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring 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. 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 condensed consolidated balance sheet as of December 31, 2024 has been derived from the audited consolidated financial statements as of that date. The results for the unaudited interim condensed consolidated statements of operations are not necessarily indicative of results to be expected for the year ending December 31, 2025 or for any future interim period. Reverse Stock Split On March 7, 2025, the Board of Directors approved a 1-for-1.7 reverse stock split (“Stock Split”) of the Company’s issued and outstanding shares of common stock and options to purchase common stock. The Stock Split reduced the number of shares of the Company’s issued and outstanding common stock, as well as the numbers of shares reserved and available for future issuance and underlying outstanding options to purchase common stock. No fractional shares were distributed as a result of the reverse stock split, and stockholders were entitled to a cash payment in lieu of fractional shares. The Stock Split did not affect the par values per share or total authorized common stock. Accordingly, all share and per share amounts for all periods presented in the condensed consolidated financial statements have been adjusted retroactively, where applicable, to reflect this Stock Split. 8 Liquidity 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 losses from operations and negative cash flows, which raised substantial doubt about its ability to continue as a going concern. On 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 million. 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. As of June 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 million. 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. Use of Estimates The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These judgments, estimates and assumptions are used to determine litigation and claims and other asset and liability amounts. The Company bases its estimates and judgments on historical experience along with other pertinent information available at the time the estimate is made. However, future events are subject to change and the estimates and judgments may require adjustments. Actual results could differ from these estimates and these differences may be material. Business Combinations and Asset Acquisitions The Company recognizes identifiable assets acquired and liabilities assumed at their acquisition date fair values. Goodwill is measured as the excess of the consideration transferred over the fair value of assets acquired and liabilities assumed on the acquisition date. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed, these estimates are inherently uncertain and subject to refinement. Examples of estimates and assumptions in valuing certain of the intangible assets and goodwill the Company has acquired include, but are not limited to, future expected cash flows from acquired developed technologies, customer relationships, and tradenames. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. The authoritative guidance allows a measurement period of the purchase price allocation that ends when the entity has obtained all relevant information about facts that existed at the acquisition date, and that cannot exceed one year from the date of acquisition. As a result, during the measurement period the Company may record adjustments to the fair values of assets acquired and liabilities assumed, with the corresponding offset to goodwill to the extent that it identifies adjustments to the preliminary purchase price allocation. Upon conclusion of the measurement period or final determination of the values of the assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments will be recorded to the condensed consolidated statements of operations. Where the purchase of an entity or net assets does not meet the definition of a business, the Company accounts for the transaction as an asset acquisition. In an asset acquisition, the purchase price is allocated to the net assets acquired on a relative fair value basis, and no goodwill is recognized in the transaction. Direct costs for asset acquisitions are generally considered part of the purchase price. 9 Business Risk and Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and accounts receivable. Cash is maintained with financial institutions and the composition and maturities are regularly monitored by management. Deposits at any time may exceed federally insured limits. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for accounts receivable. A large portion of the Company’s sales result in partial prepayments prior to shipment from customers. Otherwise, customer invoices generally have payment terms of net 30 days and do not have a significant financing component. The Company’s operational structure includes an existing operating business and early-stage businesses in emerging and developing markets that are concentrated in an industry characterized by rapid technological advances, changes in customer requirements, and evolving regulatory requirements and industry standards. Any significant delays in the development or introduction of products or services, or any failure by the Company to anticipate or to respond adequately to technological developments in its industry, changes in customer requirements, or changes in regulatory requirements or industry standards, could have a material adverse effect on the Company’s business and operating results. The Company’s business, results of operations, and financial condition for the foreseeable future will likely continue to depend on sales to a relatively small number of customers. In the future, these customers may decide not to purchase the Company’s products, may purchase fewer products than in previous years, or may alter their purchasing patterns. Further, the amount of revenue attributable to any single customer or customer concentration generally may fluctuate in any given period. In addition, a decline in the production levels of one or more of the Company’s major customers could reduce revenue. The loss of one or more key customers, a reduction in sales to any key customer or the Company’s inability to attract new significant customers could negatively impact revenue and adversely affect the Company’s business, results of operations, and financial condition. Cash Equivalents 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. Restricted Cash 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. Accounts 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. 10 Inventory Inventory is stated at the lower of cost or net realizable value. Cost is primarily determined based on standard cost and approximates actual cost on a first-in, first-out basis. Work-in-process and finished goods include materials, labor and allocated overhead. The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions. Reductions to the carrying value of inventory are charged to cost of revenue and a new, lower cost basis for that inventory is established. Subsequent changes to facts or circumstances do not result in the restoration or increase in the related inventory value. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Deferred 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. 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. Fair Value Measurements The Company applies the requirements of the fair value measurements framework, which establishes a hierarchy for measuring fair value and requires enhanced disclosures about fair value measurements. The fair value measurement guidance clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement guidance also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy in which these assets and liabilities must be grouped based on significant levels of inputs as follows: Level 1: Quoted prices in active markets for identical assets or liabilities. Level 2: Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability. Level 3: Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions. The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant 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, 2024: Summary of the Financial Liabilities Measured at Fair Value on a Recurring Basis Level 1 Level 2 Level 3 Total Fair value as of June 30, 2025 Level 1 Level 2 Level 3 Total Liabilities: Investor Notes at fair value $ - $ - $ 3,795,934 $ 3,795,934 Total financial liabilities $ - $ - $ 3,795,934 $ 3,795,934 Level 1 Level 2 Level 3 Total Fair value as of December 31, 2024 Level 1 Level 2 Level 3 Total Liabilities: Contingent consideration $ - $ - $ 42,782,276 $ 42,782,276 Investor Notes at fair value - - 13,819,000 13,819,000 Total financial liabilities $ - $ - $ 56,601,276 $ 56,601,276 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. 11 Contingent 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. The 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 21 % to 45 % and a 67 % initial public offering (“IPO”) likelihood to arrive at a total fair value of $ 33.4 million. 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. During 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. Investor Notes at fair value The 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. As 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 basis, the Company chose to record these Investor Notes at fair value beginning on the modification date in October 2024 (“Investor Notes at fair value”). Significant judgment was required in estimating the fair value of debt prior to the IPO. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management but 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. 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 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. 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 . 12 Warrant liability During 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. Upon 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 that time. 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. To determine the fair value of the Libertas Warrants, the Company utilized the Black-Scholes model to determine the common stock price on a non-controlling, non-marketable value basis. Key assumptions included equity volatility rate of 70 %. Debt 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: Schedule of Changes in Fair Value of the Level 3 Financial Liabilities Debt Investor Notes at Fair Value Warrant liability Contingent Consideration Balance as of April 1, 2025 $ - $ 14,005,000 $ 2,885,000 $ 40,044,022 Change in fair value - ( 5,679,746 ) ( 1,843,000 ) ( 17,533,572 ) Settlement - ( 4,529,320 ) - ( 17,242,462 ) Transfers out - - ( 1,042,000 ) ( 5,267,988 ) Balance as of June 30, 2025 $ - $ 3,795,934 $ - $ - Debt Investor Notes at Fair Value Warrant liability Contingent consideration Balance as of April 1, 2024 $ 19,440,519 $ - $ - $ 45,382,276 Change in fair value - - - 1,500,000 Transfers out ( 19,440,519 ) - - - Balance as of June 30, 2024 $ - $ - $ - $ 46,882,276 Debt Investor Notes at Fair Value Warrant liability Contingent Consideration Balance as of January 1, 2025 $ - $ 13,819,000 $ - $ 42,782,276 Addition - - 2,885,000 - Change in fair value - ( 5,493,746 ) ( 1,843,000 ) ( 20,271,826 ) Settlement - ( 4,529,320 ) - ( 17,242,462 ) Transfers out - - ( 1,042,000 ) ( 5,267,988 ) Balance as of June 30, 2025 $ - $ 3,795,934 $ - $ - Debt Investor Notes at Fair Value Warrant liability Contingent Consideration Balance as of January 1, 2024 $ 19,426,848 $ - $ - $ 45,182,276 Change in fair value 13,671 - - 1,700,000 Transfers out ( 19,440,519 ) - - - Balance as of June 30, 2024 $ - $ - $ - $ 46,882,276 The 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. Fair Value of Financial Instruments The carrying value of accounts receivable, prepaid expenses and other current assets, accounts payable, and accrued expenses approximate fair value due to the short time to maturity. The carrying value of the Company’s borrowings approximates fair value based on current rates available to the Company. Income Taxes The Company accounts for income taxes in accordance with the asset and liability approach method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the condensed consolidated financial statements carrying amounts of existing assets and liabilities and their respective tax bases, as well as for net operating losses and tax credit carryforwards. Deferred tax amounts are determined by using the enacted tax rates expected to be in effect when the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance reduces the deferred tax assets to the amount that is more-likely-than-not to be realized. 13 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. 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. No 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. Property and equipment Property and equipment are stated at cost, net of accumulated depreciation. Depreciation of property and equipment is provided primarily utilizing the straight-line method for condensed consolidated financial statement purposes at rates based on the following useful lives: Schedule of Property and Equipment Estimated Useful Lives Aircraft equipment 5 - 20 years Machinery and equipment 2 - 15 years Furniture and fixtures 3 - 10 years Leasehold improvements The shorter of the useful life or term of the lease Software 3 - 7 years Additions, improvements, and expenditures that significantly add to the productivity or extend the economic life of assets are capitalized. Any amounts incurred as recurring expenditures or that do not extend or improve the economic life of the asset are expensed as incurred. Goodwill Goodwill represents the excess of the aggregate purchase price over the fair value of net identifiable assets acquired in a business combination. Goodwill is not amortized and is tested at the reporting unit level for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company has selected October 1st as the date to perform its annual impairment test. In the valuation of goodwill, management must make assumptions regarding estimated future cash flows to be derived from the Company’s business. If these estimates or their related assumptions change in the future, the Company may be required to record an impairment for these assets. Management may first evaluate qualitative factors to assess if it is more likely than not that the fair value of a reporting unit is less than its carrying amount and to determine if an impairment test is necessary. Management may choose to proceed directly to the evaluation, bypassing the initial qualitative assessment. The impairment test involves comparing the fair value of the reporting unit to which goodwill is allocated to its net book value, including goodwill. A goodwill impairment loss would be the amount by which a reporting unit’s carrying value exceeds its fair value, however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. See Note 5 for additional considerations related to goodwill impairment recorded in 2024. Definite-lived Intangible Assets The Company performs valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business combination and allocates the purchase price of the acquired business to the respective net tangible and intangible assets. The Company determines the appropriate useful life by performing an analysis of expected cash flows based on historical experience of the acquired businesses. Intangible assets are amortized over their estimated useful lives using the straight-line method which approximates the pattern in which the economic benefits are consumed. The Company capitalizes third-party legal costs and filing fees, if any, associated with obtaining patents. Once the patent asset has been placed in service, the Company amortizes these costs over the shorter of the asset’s legal life, generally 20 years from the initial filing date, or its estimated economic life using the straight-line method. 14 The estimated useful lives for the Company’s intangible assets are as follows:   Schedule of Estimated Useful Lives for Company’s Intangible Assets Estimated useful life Developed technology 8 to 13 years Tradenames - definite-lived 4 to 8 years Customer relationships 3 to 7 years Patents up to 20 years Impairment of Long-Lived Assets The Company evaluates long-lived assets, including property and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated by the asset or asset group. If such evaluation indicates that the carrying amount of the asset or the asset group is not recoverable, any impairment loss would be equal to the amount the carrying value exceeds the fair value. Revenue Recognition The Company recognizes revenue when, or as, it satisfies performance obligations by transferring promised products or services to its customers in an amount that reflects the consideration the Company expects to receive. The Company applies the following five steps: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. The Company accounts for a contract with a customer when there is a legally enforceable contract, the rights of the parties are identified, the contract has commercial terms, and collectibility of the contract consideration is probable. For certain sales, the Company has contracts with customers that include multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately, by allocating the contract’s total transaction price to each performance obligation in an amount based on the relative standalone selling price (“SSP”) of each distinct good or service in the contract. The Company determines the SSP based on its overall pricing objectives, taking into consideration market conditions. Determining whether products or services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Revenue is recognized when control of the promised services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those services. The Company’s contracts do not include highly variable components. The timing of revenue recognition, billings, and cash collections can result in billed accounts receivable, unbilled receivables (contract assets), and deferred revenue (contract liabilities). The costs to obtain contracts, primarily commission expenses, are expensed when incurred. Amounts that are invoiced are recorded in accounts receivable and revenues or deferred revenue, depending on whether the revenue recognition criteria have been met. A large portion of the Company’s sales result in partial prepayments prior to shipment from customers. Otherwise customer invoices generally have payment terms of net 30 days and do not have a significant financing component. The Company’s revenues are derived from various sources: (i) avionics products consisting primarily of hardware with embedded firmware sold to an authorized dealer network and avionics and global navigation satellite system technologies (“GNSS”) products sold to original equipment manufacturers (“OEMs”), (ii) research and development (“R&D”) projects, (iii) sales-based royalties related to GNSS technology licensed to OEMs, (iv) consultation and training services related to aerial integration and close air support providing the latest tactics, technique, and procedures (“TTP”) to incorporate contract close air support/intelligence surveillance reconnaissance (“CCAS/ISR”) with video downlink systems into tactical operations, (v) technology and equipment sales, (vi) mini unmanned aerial systems (“MUAS” or “commercial drones”) sales, including hardware, software, training, support and product service, and (vii) drone services, including surveys, imaging, security, and other drone applications. 15 The Company expenses costs to obtain a contract as incurred when the amortization period is one year or less. In general, revenue is disaggregated by segment and geography. See Note 11. Segment Information. Product Revenue Product revenue, which includes avionics, MUAS/commercial drones and other equipment sales, is recognized upon the transfer of control of promised products to the customer in an amount that depicts the consideration the Company is entitled to for the related products. Product revenue is recognized upon shipment or delivery and title and risk of loss have transferred to the customer. Service and Extended Warranty Revenue Service revenue includes drone services, support, training, consultations, and out-of-warranty repairs. Revenue from services rendered is recognized over time in amounts that correspond directly with the value to the customer when performance is completed. Support revenue is recognized on a straight line basis over the support period, which is generally one year. Extended warranties are service-type warranties and are typically sold under separate contracts. Revenue for those extended warranties is recognized over the contractual service period, which is typically two or three years. Research and Development Contracts Revenue from engineering development projects is recognized over a period of time based on the input method and is measured by the percentage of total labor and materials cost incurred to date to estimated total labor and materials cost at completion for each contract. The input method of accounting involves considerable use of estimates in determining revenues, costs, and profits and in assigning the amounts to accounting periods; as a result, there can be a significant disparity between earnings as reported and actual cash received by the Company during any reporting period. Sales-based Royalties Revenue for sales-based royalties is recognized at a point in time as subsequent sales occur. The following table summarizes the revenue recognition based on time periods: Schedule of Revenue Recognition based on Time Period 2025 2024 2025 2024 Three Months ended June 30, Six Months ended June 30, 2025 2024 2025 2024 Point in time $ 22,814,809 $ 8,847,400 $ 32,734,066 $ 21,790,943 Over time 1,735,384 932,936 3,610,812 1,729,329 Revenue $ 24,550,193 $ 9,780,336 $ 36,344,878 $ 23,520,272 The contract 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 million, respectively, in revenue previously included in contract liabilities as of December 31, 2024. 16 Cost of Revenue Cost of revenue includes labor cost and direct material cost, including freight and duties. Indirect production costs comprising of consumables, cost of sales freight, quality related costs and production maintenance costs are also included in cost of revenue. Shipping and Handling Shipping charges billed to customers are included in revenue and related costs are included in cost of revenue. Research and Development Research and development costs are expensed when incurred. Product Warranty Drone Product Warranty The Company provides a one-year warranty on drone sales. Estimated future warranty obligations related to those products are recorded as a component of cost of revenue in the condensed consolidated statements of operations at the time of sale. Avionics Product Warranty The Company establishes warranty reserves based on estimates of avionics product warranty return rates over two or three years depending on the product and the related warranty period and the expected costs to repair or to replace the avionics products under warranty. The warranty provision is recorded as a component of cost of revenue in the condensed consolidated statements of operations. The Company does not offer returns unless special circumstances exist and the return is approved by the Company. Stock-Based Compensation The Company recognizes compensation expense for stock-based awards based on the grant-date estimated fair value of the awards. Options and restricted stock awards may be granted as time-based awards, performance-based awards or combinations of the time-based and performance-based awards. The Company expenses the fair value of its options to employees and non-employees on a straight-line basis over the associated service period for time-based awards, which is generally the vesting period. The performance-based awards begin their period of ratable vesting at the time that the Company determines that the achievement of the performance thresholds is probable. The Company accounts for forfeitures as they occur and does not estimate forfeitures at the time of grant. Ultimately, the actual expense recognized over the vesting period will be for only those options that vest. Comprehensive Income (Loss) 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. Lease Accounting At contract inception, the Company determines whether the contract is, or contains, a lease and whether the lease should be classified as an operating or a financing lease and reassesses that conclusion if the contract is modified. Operating leases are recorded in operating lease right-of-use (“ROU”) assets, lease liability, current and lease liability, noncurrent on the condensed consolidated balance sheets. The Company did not have any finance leases during the periods presented. 17 The Company recognizes operating lease ROU assets and operating lease liabilities based on the present value of the future minimum lease payments over the lease term at commencement date. The lease ROU asset is reduced for tenant incentives, if any, and excludes any initial direct costs incurred, if any. The Company uses its incremental borrowing rate based on the information available at commencement date to determine the present value of future payments and the appropriate lease classification. In determining the inputs to the incremental borrowing rate calculation, the Company makes judgments about the value of the leased asset, its credit rating and the lease term including the probability of its exercising options to extend or terminate the underlying lease. The Company defines the initial lease term to include renewal options determined to be reasonably certain. If the Company determines the option to extend or terminate is reasonably certain, it is included in the determination of lease assets and liabilities. The Company reassesses the lease term if and when a significant event or change in circumstances occurs within the control of the Company, such as construction of significant leasehold improvements that are expected to have economic value when the option becomes exercisable. The Company recognizes a single lease cost on a straight-line basis over the term of the lease, and the Company classifies all cash payments within operating activities in the condensed consolidated statements of cash flows. The Company has lease agreements with lease and non-lease components, which it has elected to not combine for all asset classes. In addition, the Company does not recognize ROU assets or lease liabilities for leases with a term of 12 months or less of all asset classes. Net 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) Per Share 2025 2024 2025 2024 Three Months ended June 30, Six Months ended June 30, 2025 2024 2025 2024 Numerator: Net income (loss) $ 5,870,429 $ ( 5,599,841 ) $ 3,897,674 $ ( 7,609,530 ) Denominator: Basic weighted average shares outstanding 18,490,316 16,387,180 17,444,558 16,387,180 Dilutive effect of common equivalent shares outstanding 982,332 - 2,147,697 - Diluted weighted average shares outstanding 19,472,648 16,387,180 19,592,255 16,387,180 Net income (loss) per share – basic $ 0.32 $ ( 0.34 ) $ 0.22 $ ( 0.46 ) Net income (loss) per share - diluted $ 0.30 $ ( 0.34 ) $ 0.20 $ ( 0.46 ) Anti-dilutive securities - 2,972,284 - 2,972,284 Debt Discounts 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. Foreign Currency The functional currency of the Company’s foreign subsidiary is its local currency. As such, assets and liabilities are translated to U.S. 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. 18 Recent Accounting Pronouncements Not Yet Adopted In 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. 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. On January 6, 2025 and November 4, 2024, the FASB issued ASU No. 2025-01, “Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date” (“ASU 2025-01”) and ASU No. 2024-03, “Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” (“ASU 2024-03”), respectively. ASU 2025-01 and ASU 2024-03 requires disclosure of certain costs and expenses on an interim and annual basis in the notes to the condensed consolidated financial statements. The guidance is effective for annual reporting periods beginning after December 15, 2026 and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The guidance is to be applied either (1) prospectively to financial statements issued for reporting periods after the effective date or (2) retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the potential impact of adopting this new guidance on its condensed consolidated financial statements and related disclosures. On 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”. 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 permitted. 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, 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. The guidance is effective for fiscal years beginning after December 15, 2025. 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. 2. Revolving Lines of Credit and Long-Term Debt Revolving 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 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 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, 2024 . Jeffrey F. 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 of Holdings; 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 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 and $ 0.1 million, respectively. The 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. 19 Current 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: Schedule of Current Maturities of Debt and Long Term Debt June 30, 2025 December 31, 2024 Bridge Loans $ 2,959,500 $ 2,959,500 Libertas - 2,791,691 WebBank - 1,510,179 Muncy Bank & Trust Company 2021-1 651,000 651,000 Muncy Bank & Trust Company 2021-2 450,000 450,000 SBA COVID-19 Economic Injury Disaster Loan (“EIDL”) 500,000 500,000 Code 1 272,693 331,795 Perrin Legal Settlement 750,000 - Husch Blackwell 422,153 - Financed Insurance Premiums 977,494 173,348 First Citizens Community Bank - 152,706 2022 Notes 1,944,052 2,066,396 2019 Notes - 5,022,353 2018 Notes - 12,351,771 Long-term debt, gross 8,926,892 28,960,739 Less: unamortized debt discount - ( 280,019 ) Less: current maturities of long-term debt ( 8,079,126 ) ( 27,992,450 ) Long-term debt, net of current maturities $ 847,766 $ 688,270 Aggregate maturities required on long-term debt as of June 30, 2025 are due in future years as follows: Schedule of Maturities of Long Term Debt Amount 2025 (remaining) $ 7,738,622 2026 688,270 2027 6,974 2028 10,891 2029 11,358 Thereafter 470,777 Total $ 8,926,892 Bridge Loans 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 operations. 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 % 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 Date. This 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. 20 First Citizens Community Bank Between 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. 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. Jeffrey F. 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. 2018, 2019 and 2022 Notes The 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. 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. Muncy Bank & Trust Company 2021-1 On 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. Jeffrey F. Parker, Coastal Defense’s former Vice President and Treasurer, and stockholder of Holdings, and Alison D. Parker, Corporate Secretary of Coastal Defense, have guaranteed this note. Muncy Bank & Trust Company 2021-2 On 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 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. Jeffrey F. Parker, Coastal Defense’s former Vice President and Treasurer, and stockholder of Holdings has guaranteed this note. 21 U.S. Small Business Administration (“SBA”) COVID-19 Economic Injury Disaster Loan (“EIDL”) On May 28, 2020, Coastal Defense entered into a $ 0.5 million EIDL agreement with the SBA. The loan matures on May 28, 2050 and has an interest rate of 3.75 % per year. The SBA granted a payment deferral and amended the first payment due date to November 2022. These payments first reduce the interest accrued prior to reducing the principal owed. As such, the outstanding loan balance was included as a component of “Long-term debt, net of current maturities” on the condensed consolidated balance sheets. The EIDL is collateralized by all assets of Coastal Defense. Jeffrey F. Parker, Coastal Defense’s former Vice President and stockholder of Holdings; Kenneth Parker, stockholder of Holdings; and Kyle Stanbro, Coastal Defense’s President and Treasurer, and stockholder of Holdings have guaranteed this note. Financed Insurance Premiums During 2023, Coastal Defense entered into financing agreements which totaled $ 0.4 million in relation to financing its insurance premiums. The financings have various maturity dates during 2023 and 2024 and have interest rates ranging from 8.0 % to 13.3 % per year. These agreements are collateralized by a security interest in the premium refund due under the policies being purchased. During 2024, Coastal Defense entered into financing agreements which totaled $ 0.3 million in relation to financing its insurance premiums. The 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. 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 %. Libertas On 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. Under 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. Under the terms of the agreement dated January 31, 2025, the Company sold $ 2.5 million of its future receivables in exchange for immediate cash proceeds of $ 2.0 million. Under the terms of the agreement dated February 28, 2025, the Company sold $ 1.9 million of its future receivable in exchange for immediate cash proceeds of $ 1.5 million. While there were no repayment terms on the Libertas Agreements, based on historical revenues, the Company estimated the associated receivables to be remitted in 1 year. The receivables were remitted to Libertas as they were collected, subject to a specific percentage deduction from weekly receipts. The Libertas Agreements were collateralized by all Accounts, as defined by UCC Article 9. In conjunction with each of the Agreements dated January 31, 2025 and February 28, 2025, the Company entered into a warrant agreement whereby Libertas agreed to purchase an aggregate of 0.25 % 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. See additional considerations related to the Libertas Warrants in Note 1. Under 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. 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. WebBank On October 2, 2024, the Company entered into a Business Loan and Security Agreement (the “October WebBank Agreement”) with WebBank, with Libertas acting as its servicer. Under the October WebBank Agreement, the Company received a loan of $ 1.8 million collateralized by an interest in the Company’s Accounts, Payment Intangibles and Letter of Credit Rights, as defined under UCC Article 9. The repayment terms are structured to deduct a fixed amount from collected receivables on a weekly basis with maximum term of one year and a factor rate of 1.25 . The Company has the right to pay to end this financing transaction early by repurchasing the future receipts sold to WebBank but not yet delivered. On April 17, 2025, the Company entered into a Business Loan and Security Agreement with WebBank whereby the Company received a loan of $ 3.3 million which was structured with similar terms to those in the October WebBank Agreement. With the proceeds from the April WebBank Agreement, the Company repaid the $ 1.1 million outstanding balance on the loan affiliated with the October WebBank Agreement and the $ 1.9 million 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. Code 1 On November 18, 2024, the Company entered into a Receivables Financing Agreement with Code 1 Aviation, LLC (“Code 1”) whereby the Company financed aircraft maintenance services provided by Code 1 between January 2018 and August 2024 which totaled $ 0.4 million. The Receivables Financing Agreement has a payment term of two years , an interest rate of 15 %, requires monthly payments and can be prepaid without penalty. Code 1 obtained mechanic’s liens and other similar encumbrances on certain Coastal Defense aircraft. 22 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. All amounts are due by December 15, 2025 with no interest. Investor Notes at Fair Value In October 2024, certain Investor Notes were amended, and the Company performed a significance test as of the modification date in accordance with ASC 470-50. The Company determined that the modified terms of these Investor Notes were substantially different than the previous 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 % 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 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 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 valuation is less than $770 million at the Closing Date. On March 27, 2025, Note G was amended such that the number of shares became fixed at 0.01 million shares. An additional 2,941 shares of common stock will be issued if the IPO is not completed prior to May 31, 2025 . 23 ● 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 . 3. Common Stock, Warrants and Equity Incentive Plan Common Stock The Company has reserved the following shares of authorized but unissued common stock as of June 30, 2025: 0.3 million stock options, 0.4 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. In 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. Warrants 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. The Company 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 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 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 purchase 0.1 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. In 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. Equity Incentive Plan In March 2025, the Board of Directors adopted, and the stockholders approved, the AIRO Group Holdings, Inc. 2025 Equity Incentive Plan (the “2025 Plan”). The 2025 Plan provides for the grant of incentive stock options (“ISOs”) to employees, including employees of any parent or subsidiary, and for the grant of non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other forms of stock awards to employees, directors, and consultants, including employees and consultants of the Company’s affiliates. The 2025 Plan is a successor to and continuation of the Legacy Plan (referred to in the 2025 Plan as the Prior Plan) and will become effective on the execution of the underwriting agreement related to the IPO. Initially, the maximum number of shares of the Company’s common stock that may be issued under the 2025 Plan after it becomes effective will not exceed 1.9 million shares of the Company’s common stock (the “Share Reserve”). In addition, the number of shares of the Company’s common stock reserved for issuance under the 2025 Plan will automatically increase on January 1 of each year, starting on January 1, 2026, through and including January 1, 2035, in an amount equal to (1) 5% of the total number of shares of the Company’s common stock outstanding on the last day of the preceding calendar year, or (2) a lesser number of shares of the Company’s common stock determined by the Board of Directors prior to the date of the increase . The maximum number of shares of the Company’s 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 were 0.1 million of stock awards and 0 options, respectively, granted to employees under the 2025 Plan. 24 4. Management 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 million. 5. Goodwill The changes in the carrying value of goodwill were as follows: Schedule of goodwill Advanced Avionics Uncrewed Air Systems Electric Air Mobility Training Total Balance as of April 1, 2025 $ - $ 112,133,712 $ 434,346,520 $ 15,541,468 $ 562,021,700 Effect of exchange rate - 10,009,807 - - 10,009,807 Balance as of June 30, 2025 $ - $ 122,143,519 $ 434,346,520 $ 15,541,468 $ 572,031,507 Balance as of April 1, 2024 $ - $ 112,090,854 $ 451,370,520 $ 36,511,468 $ 599,972,842 Effect of exchange rate - ( 528,789 ) - - ( 528,789 ) Balance as of June 30, 2024 $ - $ 111,562,065 $ 451,370,520 $ 36,511,468 $ 599,444,053 Advanced Avionics Uncrewed Air Systems Electric Air Mobility Training Total Balance as of January 1, 2025 $ - $ 107,620,343 $ 434,346,520 $ 15,541,468 $ 557,508,331 Effect of exchange rate - 14,523,176 - - 14,523,176 Balance as of June 30, 2025 $ - $ 122,143,519 $ 434,346,520 $ 15,541,468 $ 572,031,507 Balance as of January 1, 2024 $ - $ 114,720,513 $ 451,370,520 $ 36,511,468 $ 602,602,501 Balance $ - $ 114,720,513 $ 451,370,520 $ 36,511,468 $ 602,602,501 Effect of exchange rate - ( 3,158,448 ) - - ( 3,158,448 ) Balance as of June 30, 2024 $ - $ 111,562,065 $ 451,370,520 $ 36,511,468 $ 599,444,053 Balance $ - $ 111,562,065 $ 451,370,520 $ 36,511,468 $ 599,444,053 As a result of the BCA Transactions being terminated in August 2024 and the continued delays in securing financing, the Company determined it appropriate to test the fair value of each reporting unit for goodwill impairment as of September 30, 2024 for all of its reporting units except Avionics as no goodwill had been allocated to this reporting unit. Management determined that the fair value of the Drones reporting unit substantially exceeded its respective carrying value. The Electric Air Mobility and Training reporting unit fair values indicated goodwill impairment as detailed below. Schedule of goodwill impairment Drones Electric Air Mobility Training Goodwill carrying value as of September 30, 2024 $ 115.8 million $ 451.4 million $ 36.5 million Fair value of reporting unit as of September 30, 2024 $ 185.1 million $ 510.2 million $ 25.1 million Carrying value of reporting unit as of September 30, 2024 $ 133.5 million $ 527.2 million $ 46.1 million Impairment as of September 30, 2024 $ - $ 17.0 million $ 21.0 million Estimates and assumptions varied between each reporting unit depending on the facts and circumstances specific to that reporting unit. The discount rate for each reporting unit is influenced by general market conditions as well as factors specific to the reporting unit. The fair value of the reporting units for which the Company performed quantitative impairment tests was estimated using an income approach, which incorporates the use of the discounted cash flow method. Projections used require the use of significant estimates and assumptions specific to the reporting unit as well as those based on general economic conditions. Factors specific to each reporting unit include revenue growth, profit margins, terminal value growth rates, capital expenditures projections, assumed tax rates, discount rates and other assumptions deemed reasonable by management. For the 2024 impairment test, the weighted average cost of capital (“WACC”) discount rates the Company used for its reporting units was 30 %- 35 % and the terminal value growth rate was 4 % . The terminal value growth rate represents the expected long-term growth rate for the Company’s industry, which incorporates the type of services each reporting unit provides as well as global economic conditions. Other factors influencing the revenue growth rates include the nature of the services the reporting unit provides for its customers, the geographic locations in which the reporting unit conducts business and the maturity of the reporting unit. Specific to the Electric Air Mobility segment’s projections as of September 30, 2024, projected revenue was revised to include projected aircraft production timing for the Jaunt Journey in 2031 and a downscaled cargo version of the Jaunt Journey in 2028. Projected revenue in years 1 and 2 of commercialization of the downscaled cargo version of the Jaunt Journey as of September 30, 2024 were increased as compared to prior revenue estimates from the Company’s prior year testing date of October 1, 2023 for the same two-year period. Projected revenue in years 1 and 2 of commercialization of the Jaunt Journey as of September 30, 2024 also increased as compared to prior revenue estimates from the Company’s prior year testing date of October 1, 2023 for the same two-year period. Earnings before interest, taxes, depreciation and amortization (“EBITDA”) projections as of September 30, 2024 were developed using revised estimates of manufacturing costs, production hours per unit, learning curves and subsequent efficiencies, and operating costs. 25 Mid-term and long-term EBITDA projections at maximum capacity have not significantly changed compared to the Company’s prior year testing date of October 1, 2023, but the shifting and corresponding discounting of these projections resulted in a significant decrease in the fair value of the Electric Air Mobility segment, which indicated impairment. As to the degree of uncertainty associated with the Company’s assumptions, the Company believes its long-term projected revenue is reasonable given a sales price supported by non-binding letters of intent and a relatively small number of units. There is a higher degree of uncertainty in projected EBITDA, as compared to projected revenue as projected EBITDA includes estimates as to future labor and material costs, efficiency rates as to the number of production hours required over time, and synergies. The most sensitive factor in the Company’s analysis was the WACC discount rate. As of September 30, 2024, a 33 % WACC discount rate was applied to the Electric Air Mobility segment, which is fairly consistent with the 35 % WACC discount rate used as of the Company’s prior year testing date of October 1, 2023. The 200 basis-point decrease from prior year was deemed appropriate due to more conservative projected long term EBITDA margins as compared to sales in the prior year, regulatory harmonization that has occurred for the industry between the Federal Aviation Association, Transport Canada Civil Aviation, and European Union Aviation Safety Agency, advances in electric propulsion, battery density, and autonomous systems which lower remaining technical development risk. While these factors reduce risk to the Electric Air Mobility segment, a larger decrease in the WACC was not deemed appropriate due to delays in funding for development efforts and overall implementation risk that remains similar to October 1, 2023. As to the sensitivity of the WACC rate, another hypothetical 100-basis-point increase in the WACC discount rate would have yielded an additional $ 46.0 million in goodwill impairment. The 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. Specific to the Training segment’s projections as of September 30, 2024, the Company noted a significant decrease in sales and gross margins as a result of not being able to meet contractual demands due to delays in the funding of aircraft. In prior years, government intelligence, surveillance and reconnaissance (“ISR”) aircraft contracts did not require that the aircraft be able to employ weapons. As those contracts have aged-out, the new requirements for the re-competitions require assets that have the ability to employ training munitions and have been approved by the government to do so. Coastal Defense does not possess aircraft that can achieve this requirement; thus, the Company has either not been awarded or chose not to bid on certain contracts. The projected revenue and margins were revised to include the timing of projected aircraft and investments to be made in flight schools in the short-term (between 2025 and 2028) and then the acquisition of additional aircraft beginning in years after 2029. EBITDA projections as of September 30, 2024 did not significantly change compared to the Company’s prior year testing date of October 1, 2023, and the Company does not anticipate any changes until the Company is able to make more significant investments in aircraft, and at which time the Company can better leverage its operating expenses. At that point, the Company anticipates that mid-term and long-term EBITDA margins would increase. The shifting and corresponding discounting of these projections resulted in a significant decrease in the fair value of the Training segment, which indicated impairment. As to the degree of uncertainty associated with the Company’s assumptions, the Company believes its short-term projected revenue is reasonable given its history with military contract practices and the historical results of flight schools, while the Company’s long-term projected revenue is subject to a higher degree of uncertainty. To mitigate this risk, a 30 % WACC discount rate was applied to these projections which was consistent with the Company’s prior year testing date of October 1, 2023. As to the sensitivity of the WACC rate, another hypothetical 100-basis-point increase in the WACC discount rate would have yielded an additional $ 3.4 million in goodwill impairment. The 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. 26 6. Intangible Assets, Net Intangible assets acquired through business combinations were as follows: Schedule of Intangible Assets, Net Weighted Average Remaining Life (Years) Gross Accumulated Amortization Carrying Value As of June 30, 2025 Weighted Average Remaining Life (Years) Gross Accumulated Amortization Carrying Value Developed technology-definite lived 9.4 $ 100,194,953 $ 29,096,843 $ 71,098,110 Developed technology-indefinite lived N/A 66,216 - 66,216 Tradenames - definite lived 3.7 1,933,783 1,008,653 925,130 Tradenames - indefinite lived N/A 8,737,607 - 8,737,607 Customer Relationships 3.8 20,344,834 12,732,928 7,611,906 Patents 6.9 569,347 360,887 208,460 Intangible assets net $ 131,846,740 $ 43,199,311 $ 88,647,429 Weighted Average Remaining Life (Years) Gross Accumulated Amortization Carrying Value As of December 31, 2024 Weighted Average Remaining Life (Years) Gross Accumulated Amortization Carrying Value Developed technology - definite lived 9.9 $ 99,377,209 $ 24,818,823 $ 74,558,386 Patents pending N/A 66,216 - 66,216 Tradenames - definite-lived 4.1 1,892,631 824,044 1,068,587 Tradenames - indefinite-lived N/A 8,737,607 - 8,737,607 Customer relationships 4.2 20,014,349 11,208,224 8,806,125 Patents 7.5 569,347 303,991 265,356 Intangible assets net $ 130,657,359 $ 37,155,082 $ 93,502,277 Amortization 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 June 30: Schedule of Amortization Expense 2025 2024 2025 2024 Three months ended June 30, Six months ended June 30, 2025 2024 2025 2024 Cost of revenue $ 106,666 $ 106,666 $ 213,333 $ 213,333 Research and development 1,905,273 1,895,505 3,798,145 3,792,791 Sales and marketing 504,145 705,786 1,204,957 1,413,479 General and administrative 88,656 87,700 175,747 175,815 Amortization expense $ 2,604,740 $ 2,795,657 $ 5,392,182 $ 5,595,418 Total estimated future amortization expense as of June 30, 2025 is as follows: Schedule of Estimated Future Amortization Expense 2025 (remaining) $ 5,310,642 2026 10,288,250 2027 10,053,147 2028 9,886,633 2029 8,405,921 Thereafter 35,899,013 Amortization expense $ 79,843,606 7. Inventory Inventory consisted of the following as of June 30, 2025 and December 31, 2024: Schedule of inventory June 30, 2025 December 31, 2024 Raw materials $ 6,255,566 $ 8,150,164 Work in process 1,805,820 32,449 Finished goods 2,548,004 640,108 Total $ 10,609,390 $ 8,822,721 27 8. Balance Sheet Details Accrued expenses consisted of the following as of June 30, 2025 and December 31, 2024: Schedule of Accrued expenses June 30, 2025 December 31, 2024 Accrued legal and professional fees $ 4,976,582 $ 2,656,421 Outstanding cash obligations on previously contingent liabilities 5,417,988 - Payroll related expenses 4,394,136 3,380,449 Accrued warranty 213,119 286,874 Accrued taxes 2,628,972 9,669,506 Other accrued expenses 1,165,763 1,463,905 Accrued expenses $ 18,796,560 $ 17,457,155 9. Deferred Compensation 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. 10. Commitments and Contingencies Consulting Agreement In October 2020, the Company entered into an agreement for market analysis and business strategy consulting. The services were performed in prior periods. The agreement states a fee of $ 0.5 million for the services, due upon the completion of the IPO, SPAC merger, financing 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. Contingent Fee Arrangement In June 2022, the Company executed a previously arranged contingent fee agreement with New Generation Aerospace, Inc. (“NGA”) 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 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 $ 0.1 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. Contingent 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. KDC 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. Non-binding Letters of Intent In November 2023, the Company signed non-binding letters of intent to acquire two businesses for the Training segment including flight training schools. 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. 28 Litigation A civil action was filed against Old AGI, Inc. in the Circuit Court of Cook County, State of Illinois in February 2022 (the “2022 Lawsuit”). The claimant alleged that an agreement for certain services entered into in March 2020 was breached and resulted in damages to claimant. This case was dismissed on July 5, 2022. However, the court allowed the claimant to amend its complaint. On 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. On December 19, 2024, the Circuit Court denied the Company’s motion for summary judgment. In March 2025, the Company agreed to settle Mr. Perrin’s individual claims in the lawsuit as described below. Civil 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 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. A 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 15, 2024. In March 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 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. 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. 11. Segment Information The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments. The Company’s chief operating decision maker (“CODM”) has been identified as the chief executive officer. The Company will continue to reevaluate reportable and operating segments. The Company manages its business primarily based upon four operating segments: Avionics, Drones, Electric Air Mobility and Training. In accordance with the segment reporting accounting standard, the Company evaluated the economic similarity of its operating segments and determined that each of these operating segments represents a reportable segment. 29 The Company has determined that each reportable segment represents a reporting unit and, in accordance with ASC 350, each reporting unit requires an allocation of goodwill. ● Avionics: This segment develops, manufactures, and sells avionics and GPS sensors for the GA, UAS and eVTOL market segments. The Company’s advanced avionics products are focused on GA aftermarket, OEM display, integration and connected panel solutions. ● Drones: This segment offers direct operation of drones and drone systems, provision of drone-derived information, and the development of drone-optimized communication services. Additionally, it consists of development and commercialization of market leading MUAS for professional users, primarily in the defense and security markets. The MUAS includes internally developed software, hardware, and mechanical system components. Operations cover sourcing, manufacturing, assembly, quality assurance testing activities and logistics. ● Electric Air Mobility: This segment includes designing, licensing and ultimately the manufacturing of air vehicles incorporating slowed rotor compound technology that is capable of transporting people and packages operated by pilots or autonomous flight systems. ● Training: This segment provides and operates military aircraft for U.S. military services and Department of Defense (“DOD”) contractors. Segment revenues are earned from 1) flying training missions as part of armed forces training groups, and 2) providing 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: Schedule of Segment Information Avionics Drones Electric Air Mobility Training Total Three months ended June 30, 2025 Avionics Drones Electric Air Mobility Training Total Revenue $ 1,526,926 $ 21,969,290 $ - $ 1,053,977 $ 24,550,193 Cost of revenue 957,613 7,900,096 - 657,917 9,515,626 Gross profit 569,313 14,069,194 - 396,060 15,034,567 Research and development 199,162 2,061,974 1,839,869 - 4,101,005 Sales and marketing 340,617 921,178 - 496,428 1,758,223 General and administrative 2,123,329 1,748,122 214,823 10,660,103 14,746,377 Interest expense 4,124 50,464 - 79,492 134,080 Interest income - ( 27,272 ) - - ( 27,272 ) Gain on extinguishment of debt, net ( 13,090,628 ) - - - ( 13,090,628 ) Other expense (income), net 626,973 ( 196,778 ) ( 16,790,395 ) ( 1,878,398 ) ( 18,238,598 ) Income tax benefit (expense) - ( 2,057,307 ) - - ( 2,057,307 ) Segment profit (loss) $ 10,365,736 $ 7,454,199 $ 14,735,703 $ ( 8,961,565 ) 23,594,073 Unallocated amounts: Corporate expenses 14,118,303 Interest expense, net 7,903,438 Gain on debt extinguishment, net ( 2,468,441 ) Other expense (income), net ( 1,829,656 ) Net income $ 5,870,429 Avionics Drones Electric Air Mobility Training Total Three months ended June 30, 2024 Avionics Drones Electric Air Mobility Training Total Revenue $ 2,286,734 $ 6,942,556 $ - $ 551,046 $ 9,780,336 Cost of revenue 1,599,451 1,893,586 - 512,214 4,005,251 Gross profit 687,283 5,048,970 - 38,832 5,775,085 Research and development 239,874 1,004,632 1,916,889 - 3,161,395 Sales and marketing 307,089 604,016 - 498,543 1,409,648 General and administrative 524,303 1,337,138 602,064 646,646 3,110,151 Interest expense 38,892 617,131 - 73,694 729,717 Interest income - ( 57,020 ) ( 2,654 ) - ( 59,674 ) Other expense (income), net 13,953 24,886 1,499,845 ( 17,992 ) 1,520,692 Income tax benefit (expense) - ( 439,009 ) - - ( 439,009 ) Segment profit (loss) $ ( 436,828 ) $ 1,079,178 $ ( 4,016,144 ) $ ( 1,162,059 ) ( 4,535,853 ) Unallocated amounts: Corporate expenses 787,447 Interest expense, net 283,217 Other income, net ( 6,676 ) Net loss $ ( 5,599,841 ) Avionics Drones Electric Air Mobility Training Total Six months ended June 30, 2025 Avionics Drones Electric Air Mobility Training Total Revenue $ 3,775,876 $ 30,452,390 $ - $ 2,116,612 $ 36,344,878 Cost of revenue 2,149,344 10,554,832 - 1,673,610 14,377,786 Gross profit 1,626,532 19,897,558 - 443,002 21,967,092 Research and development 443,839 3,608,318 3,715,312 - 7,767,469 Sales and marketing 614,570 1,583,795 - 992,856 3,191,221 General and administrative 2,531,177 4,010,813 491,335 11,416,722 18,450,047 Interest expense 19,783 158,474 - 146,058 324,315 Interest income - ( 115,487 ) - - ( 115,487 ) Gain on debt extinguishment, net ( 13,090,628 ) - - - ( 13,090,628 ) Other expense (income), net 628,459 ( 281,171 ) ( 18,573,555 ) ( 2,680,081 ) ( 20,906,348 ) Income tax benefit (expense) - ( 2,344,279 ) - - ( 2,344,279 ) Segment profit (loss) $ 10,479,332 $ 8,588,537 $ 14,366,908 $ ( 9,432,553 ) 24,002,224 Unallocated amounts: Corporate expenses 15,328,445 Interest expense, net 9,068,493 Gain on debt extinguishment, net ( 2,468,441 ) Other expense (income), net ( 1,823,947 ) Net income $ 3,897,674 Avionics Drones Electric Air Mobility Training Total Six months ended June 30, 2024 Avionics Drones Electric Air Mobility Training Total Revenue $ 5,278,329 $ 16,391,934 $ - $ 1,850,009 $ 23,520,272 Cost of revenue 3,267,200 4,453,434 - 1,537,472 9,258,106 Gross profit 2,011,129 11,938,500 - 312,537 14,262,166 Research and development 587,490 1,865,606 3,865,159 - 6,318,255 Sales and marketing 630,055 1,034,152 - 995,851 2,660,058 General and administrative 1,018,137 2,473,564 1,335,139 1,357,187 6,184,027 Interest expense 78,623 632,450 - 155,488 866,561 Interest income - ( 135,445 ) - - ( 135,445 ) Other expense (income), net 50,060 47,177 1,699,845 ( 14,917 ) 1,782,165 Income tax benefit (expense) - ( 1,428,587 ) - - ( 1,428,587 ) Segment profit (loss) $ ( 353,236 ) $ 4,592,409 $ ( 6,900,143 ) $ ( 2,181,072 ) ( 4,842,042 ) Unallocated amounts: Corporate expenses 2,256,856 Interest expense, net 510,632 Net loss $ ( 7,609,530 ) 30 The following table presents revenue by geographic area for the three and six months ended June 30: Schedule of Revenue by Geographic Area Avionics Drones Electric Air Mobility Training Total Three months ended June 30, 2025 Avionics Drones Electric Air Mobility Training Total United States $ 914,222 $ 1,214 $ - $ 1,053,977 $ 1,969,413 Europe 422,345 21,968,076 - - 22,390,421 Other 190,359 - - - 190,359 Revenue $ 1,526,926 $ 21,969,290 $ - $ 1,053,977 $ 24,550,193 Avionics Drones Electric Air Mobility Training Total Three months ended June 30, 2024 Avionics Drones Electric Air Mobility Training Total United States $ 1,311,206 $ - $ - $ 551,046 $ 1,862,252 Europe 556,378 6,942,556 - - 7,498,934 Other 419,150 $ - $ - $ - $ 419,150 Revenue $ 2,286,734 $ 6,942,556 $ - $ 551,046 $ 9,780,336 Avionics Drones Electric Air Mobility Training Total Six months ended June 30, 2025 Avionics Drones Electric Air Mobility Training Total United States $ 2,308,007 $ 33,376 $ - $ 2,116,612 $ 4,457,995 Europe 919,507 30,419,014 - - 31,338,521 Other 548,362 - - - 548,362 Revenue $ 3,775,876 $ 30,452,390 $ - $ 2,116,612 $ 36,344,878 Avionics Drones Electric Air Mobility Training Total Six months ended June 30, 2024 Avionics Drones Electric Air Mobility Training Total United States $ 2,875,265 $ - $ - $ 1,850,009 $ 4,725,274 Europe 1,353,274 16,391,934 - - 17,745,208 Other 1,049,790 $ - $ - $ - $ 1,049,790 Revenue $ 5,278,329 $ 16,391,934 $ - $ 1,850,009 $ 23,520,272 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: Schedule of Revenue by Products and Services Avionics Drones Electric Air Mobility Training Total Three months ended June 30, 2025 Avionics Drones Electric Air Mobility Training Total Products $ 1,523,491 $ 20,173,681 $ - $ 585,712 $ 22,282,884 Services 3,435 1,795,609 - 468,265 2,267,309 Revenue $ 1,526,926 $ 21,969,290 $ - $ 1,053,977 $ 24,550,193 Avionics Drones Electric Air Mobility Training Total Three months ended June 30, 2024 Avionics Drones Electric Air Mobility Training Total Products $ 2,286,734 $ 5,945,408 $ - $ 15,117 $ 8,247,259 Services - 997,148 - 535,929 1,533,077 Revenue $ 2,286,734 $ 6,942,556 $ - $ 551,046 $ 9,780,336 Avionics Drones Electric Air Mobility Training Total Six months ended June 30, 2025 Avionics Drones Electric Air Mobility Training Total Products $ 3,765,984 $ 26,851,469 $ - $ 585,712 $ 31,203,165 Services 9,892 3,600,921 - 1,530,900 5,141,713 Revenue $ 3,775,876 $ 30,452,390 $ - $ 2,116,612 $ 36,344,878 Avionics Drones Electric Air Mobility Training Total Six months ended June 30, 2024 Avionics Drones Electric Air Mobility Training Total Products $ 5,278,329 $ 14,668,054 $ - $ 79,970 $ 20,026,353 Services - 1,723,880 - 1,770,039 3,493,919 Revenue $ 5,278,329 $ 16,391,934 $ - $ 1,850,009 $ 23,520,272 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 30: Schedule of Capital Expenditures, Depreciation and Amortization Avionics Drones Electric Air Mobility Training Total Three months ended June 30, 2025 Avionics Drones Electric Air Mobility Training Total Depreciation and amortization $ 120,599 $ 359,465 $ 1,700,329 $ 807,404 $ 2,987,797 Stock-based compensation 1,716,648 - 41,514 10,087,029 11,845,191 Contingent consideration fair value adjustments - ( 230,205 ) ( 15,423,030 ) ( 1,880,337 ) ( 17,533,572 ) Capital expenditures - 463,537 - 258,605 722,142 Avionics Drones Electric Air Mobility Training Total Three months ended June 30, 2024 Avionics Drones Electric Air Mobility Training Total Depreciation and amortization $ 124,051 $ 471,392 $ 1,700,331 $ 811,851 $ 3,107,625 Stock-based compensation - - 179,022 - 179,022 Contingent consideration fair value adjustments - - 1,500,000 - 1,500,000 Capital expenditures - 283,217 - - 283,217 Avionics Drones Electric Air Mobility Training Total Six months ended June 30, 2025 Avionics Drones Electric Air Mobility Training Total Depreciation and amortization $ 243,795 $ 866,626 $ 3,400,660 $ 1,614,807 $ 6,125,888 Stock-based compensation 1,716,648 - 166,056 10,087,029 11,969,733 Contingent consideration fair value adjustments - ( 365,053 ) ( 17,223,030 ) ( 2,683,743 ) ( 20,271,826 ) Capital expenditures - 808,329 - 258,605 1,066,934 Avionics Drones Electric Air Mobility Training Total Six months ended June 30, 2024 Avionics Drones Electric Air Mobility Training Total Depreciation and amortization $ 248,262 $ 940,116 $ 3,400,662 $ 1,754,806 $ 6,343,846 Stock-based compensation - - 471,087 - 471,087 Contingent consideration fair value adjustments - - 1,700,000 - 1,700,000 Capital expenditures - 454,254 - - 454,254 31 The following table presents tangible long-lived assets by geographic area as of June 30, 2025 and December 31, 2024: Schedule of Tangible Long Lived Assets by Geographic Area Avionics Drones Electric Air Mobility Training Total June 30, 2025 Avionics Drones Electric Air Mobility Training Total United States $ 195,218 $ - $ 1,163 $ 5,089,165 $ 5,285,546 Europe - 2,104,901 - - 2,104,901 Total $ 195,218 $ 2,104,901 $ 1,163 $ 5,089,165 $ 7,390,447 Avionics Drones Electric Air Mobility Training Total December 31, 2024 Avionics Drones Electric Air Mobility Training Total United States $ 201,112 $ - $ 1,822 $ 5,338,936 $ 5,541,870 Europe - 1,291,947 - - 1,291,947 Total $ 201,112 $ 1,291,947 $ 1,822 $ 5,338,936 $ 6,833,817 Total segment assets reconciled to consolidated amounts are as follows as of June 30, 2025 and December 31, 2024: Schedule of Segment Assets Total Segment assets Avionics Drones Electric Air Mobility Training Corporate Total June 30, 2025 $ 7,564,074 $ 164,618,561 $ 510,786,055 $ 31,025,451 $ 33,855,669 $ 747,849,810 December 31, 2024 $ 1,208,363 $ 150,721,804 $ 514,151,757 $ 32,377,740 $ 2,539,123 $ 700,998,787 Government Regulation The Company is subject to various local, state, federal and international laws and regulations relating to the development, manufacturing, sale and distribution of its products, systems and services, and it is the Company’s policy to comply with the applicable laws in each jurisdiction in which it conducts business. Regulations include but are not limited to those related to import and export controls, corruption, bribery, environment, government procurement, wireless communications, competition, product safety, workplace health and safety, employment, labor and data privacy. Drones Because 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. In addition, the Drones segment is subject to industry-specific regulations due to the nature of the products and services it provides. For example, certain aspects of its business are subject to further regulation by additional U.S. government authorities, including: (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.; (iii) the Directorate of Defense Trade Controls of the U.S. Department of State, which administers the International Traffic in Arms Regulations that regulate the export of controlled technical data, defense articles and defense services and (iv) the Bureau of Industry and Security of the U.S. Department of Commerce, which regulates matters relating to U.S. national security and technology. Electric Air Mobility A transport category type certification is the highest level in safety provided by the Civil Aviation Authorities. Jaunt intends to certify under CAR 529, single pilot IFR (instrument flight rules) and comply with Category Enhanced of EASA SC-VTOL-01 by: ● using System Safety Assessment processes (Aerospace Recommended Practice “ARP” 4761 with ARP 4754A) that are industry standard for commercial transport aircraft (Exposure Draft (ED) 79A); ● designing flight critical systems to meet the requirements of a probability of catastrophic failure of less than 10-9 per flight hour (less than once every billion flight hours); ● developing robust software design processes to meet Development Assurance Level A for functions that could exhibit catastrophic failures; and ● meeting requirements for bird strike, fatigue and damage tolerance, lightning strike, fire protection, and designing and incorporating elements for crashworthiness right from conceptual stage. In 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. 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. Avionics 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. These govern the design test, certification, installation, and manufacturing of Aspen’s equipment. 32 The FAA regulates the manufacture, repair and operation of all aircraft and aircraft parts operated in the United States. Its regulations are designed to ensure that all aircraft and aviation equipment are continuously maintained in proper condition to ensure safe operation of the aircraft. Similar rules apply in other countries. All aircraft must be maintained under a continuous condition monitoring program and must periodically undergo thorough inspection and maintenance. The inspection, maintenance and repair procedures for the various types of aircraft and equipment are prescribed by regulatory authorities and can be performed only by certified repair facilities utilizing certified technicians. Certification and conformance is required prior to installation of a part on an aircraft. Aircraft operators must maintain logs concerning the utilization and condition of aircraft engines, life-limited engine parts and airframes. In addition, the FAA requires that various maintenance routines be performed on aircraft engines, some engine parts, and airframes at regular intervals based on cycles or flight time. Engine maintenance must also be performed upon the occurrence of certain events, such as foreign object damage in an aircraft engine or the replacement of life-limited engine parts. Such maintenance usually requires that an aircraft engine be taken out of service. Aspen Avionics’ operations may in the future be subject to new and more stringent regulatory requirements. In that regard, Aspen Avionics closely monitors the FAA and industry trade groups in an attempt to understand how possible future regulations might impact it. 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 can be subject to various laws and regulations that govern pricing and other factors. 12. Related Party Transactions Related 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 and $ 0.1 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. No purchases 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 33 ● Coastal Defense entered into unsecured due on demand notes with two stockholders (the “Stockholder Notes”). Interest is charged at 7.00 % per year. As of June 30, 2025 and December 31, 2024, the total outstanding balance of the Stockholder Notes was $ 1.0 million. 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 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: ● Promissory 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 July 2025. ● Promissory 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 2025. ● Promissory 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. ● As 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. 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. 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. The Company issued 440,584 shares of the Company’s common stock and recognized a gain on debt extinguishment of $ 13.1 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 $ 1.7 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. 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. 34 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. The loss on debt extinguishment was not significant. The Company recorded $ 0 and $ 0.3 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 repaid $ 2.3 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. ● On 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 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. 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. 13. Subsequent Events 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 $ 1.5 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. On 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”). Under 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 Mr. Uczekaj’s continued employment through each such vesting date. Under the Kathuria Employment Agreement, Dr. Kathuria is 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. During August 2025, the Company entered into a five-year lease agreement in Phoenix, Arizona in support of its efforts to expand its U.S. footprint for advanced drone innovation. The Company expects total rent payments to equal approximately $ 2.3 million over the lease term . 35 Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which statements are subject to substantial risks and uncertainties and are based on estimates and assumptions. All statements other than statements of historical facts, including statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, financing needs, plans or intentions relating to markets, and business trends and other information contained in this Quarterly Report on Form 10-Q are forward-looking statements, including statements about: ● our ability to grow and manage growth profitably; ● our financial and business performance and business metrics; ● our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects and plans; ● the implementation, market acceptance and success of our business model; ● our market opportunity and the potential growth of that market; ● our ability to compete effectively in a competitive industry; ● our ability to protect and enhance our corporate reputation and brand; ● the impact from future regulatory, judicial, and legislative changes in our industry; ● our ability to effect our growth strategies, acquisitions or investments successfully; and ● our future capital requirements and sources and uses of cash. These statements are subject to known and unknown risks, uncertainties and assumptions that could cause actual results to differ materially from those projected or otherwise implied by the forward-looking statements. The following factors, among others, may cause actual results to differ materially from those expressed or implied in our forward-looking statements: ● our failure to comply with covenants under debt instruments; ● our ability to successfully integrate the businesses and personnel of acquired companies and businesses, including those acquired in the Put-Together Transaction, and our ability to realize the anticipated synergies and benefits of such acquisitions; ● our ability to keep pace with technological advances and our dependance on advances in technology by other companies, many of which have substantially greater resources than we do; ● our inability to acquire additional aircraft to support our Training segment on acceptable terms or at all; ● the impact that our customers may experience from service failures or interruptions due to defects in the software, infrastructure, components or engineering system that comprise our products and services, or due to errors in product installation; ● our dependence on the continuing efforts of our key personnel and on our ability to attract and retain highly skilled personnel and senior management; ● that we have identified material weaknesses in our internal control over financial reporting which, if not corrected, could affect the reliability of our condensed consolidated financial statements; 36 ● our failure to comply with applicable government regulations; ● any disruptions or threatened disruptions to our relationships with our distributors, suppliers, customers and employees, including shortages in components for our products; ● our significant reliance on sales to the U.S. government, particularly to agencies of the DoD and a decline in government budgets, funding, changes in spending or budgetary priorities, or delays in contract awards; ● changes in the supply, demand and/or prices for our products and services and our ability to perform under existing contracts and obtain new contracts; ● the complexities and uncertainty of obtaining and conducting international business, including export compliance and other reporting and compliance requirements; ● the impact of potential security and cyber threats or the risk of unauthorized access to our, our customers’ and/or our suppliers’ information and systems; ● our ability to respond and adapt to changes in economic, capital market, and political conditions in the U.S. and globally, such as from the global sanctions and export controls with respect to Russia, and any changes therein, and including changes related to financial market conditions, banking industry disruptions, fluctuations in commodity prices or supply (including energy supply), inflation, interest rates and foreign currency exchange rates, disruptions in global supply chain and labor markets, and geopolitical risks, including in the Middle East and Ukraine; ● failure to develop new products or integrate new technology into current products; ● unfavorable results in legal proceedings; ● our anticipated use of the net proceeds; ● the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing; and ● our expectations regarding the period during which we qualify as an emerging growth company and smaller reporting company. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “continue” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target” or “will” or the negative of these terms or other similar expressions intended to identify statements about the future. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. You should read the section titled “Risk Factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this Form 10-Q will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. You should read this Form 10-Q and the documents that we reference in this report and have filed as exhibits to the report, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements in this Form 10-Q by these cautionary statements. 37