AgEagle Aerial Systems Inc.

Note1 – Description of Business**

AgEagle™ Aerial Systems Inc. (“AgEagle” or the “Company” or “we”, “our”, or “us”) is actively engaged in designing and delivering best-in-class drones and sensors that solve important problems for our customers. Founded in2010, AgEagle was originally formed to pioneer proprietary, professional-grade, fixed-winged drones and aerial imagery-based data collection and analytics solutions for the agriculture industry. Today, the Company is earning distinction as a globally respected market leader offering customer-centric, advanced, autonomous uncrewed aerial systems (“UAS”) which drive revenue at the intersection of flight hardware, sensors and software for industries that include agriculture, military/defense, public safety, surveying/mapping and utilities/engineering, among others. AgEagle has also achieved numerous regulatory firsts, earning governmental approvals for its commercial and tactical drones to fly Beyond Visual Line of Sight (“BVLOS”) and/or Operations Over People (“OOP”) in the United States, Canada, Brazil and the European Union and being awarded Blue UAS certification from the Defense Innovation Unit of the U.S. Department of Defense.

AgEagle’s shift and expansion from solely manufacturing fixed-wing farm drones in2018, to offering what the Company believes isone of the industry’s best fixed-wing, full-stack drone solutions, culminated in2021 when the Company acquiredthree market-leading companies engaged in producing UAS airframes, sensors and software for commercial and government use. In addition to a robust portfolio of proprietary, connected hardware and software products; an established global network of over165 UAS resellers; and enterprise customers worldwide; these acquisitions also brought AgEagle a highly valuable workforce comprised largely of experienced engineers and technologists with deep expertise in the fields of robotics, automation, manufacturing, and data science. In2022, the Company succeeded in integrating allthree acquired companies with AgEagle to formone global company focused on taking autonomous flight performance to a higher level.

Our core technological capabilities include robotics and robotics systems autonomy; advanced thermal and multispectral sensor design and development; embedded software and firmware; secure wireless digital communications and networks; lightweight airframes; small UAS design, integration and operations; power electronics and propulsion systems; controls and systems integration; fixed wing flight; flight management software; data capture and analytics; human-machine interface development and integrated mission solutions.

In* January 2021,AgEagle acquired MicaSense™, Inc. (“MicaSense”). Founded in2014,* MicaSense has been at the forefront of advanced drone sensor development since its founding in2014, having formed integration partnerships with several leading fixed wing and multi-rotor drone manufacturers. MicaSense’s patented, high precision thermal and multispectral sensors serve the aerial mapping and analytics needs of the agriculture market. MicaSense’s high performance proprietary products have global distribution in over75 countries.

In* April 2021,AgEagle acquired Measure Global, Inc. (“Measure”). Founded in2020,* Measure served a world class customer base, Measure enables its customers to realize the transformative benefits of drone technology through itsGround Control solution. Offered as Software-as-a-Service (“SaaS”),Ground Controlis a cloud-based, plug-and-play operating system that empowers pilots and large enterprises with everything they need to operate drone fleets, fly autonomously, collaborate globally, visualize data, and integrate with existing business systems and processes. In2024, we made the strategic decision tonot renew any SaaS subscriptions. As of* December 31, 2024,Measureno* longer had operations. We donot anticipate this decision to have a significant effect on the Company’s consolidated financial position or financial results. In2025, we sold the Measure domain name with a net book value ofzero and received cash proceeds of*$250,000* which has been included in other income on the accompanying statements of operations and comprehensive loss.

In* October 2021,AgEagle acquired senseFly S.A. and concurrent with the acquisition, AgEagle Aerial, Inc. (“AgEagle Aerial”), a wholly owned subsidiary of AgEagle, acquired senseFly Inc. Collectively senseFly S.A. and senseFly, Inc. are referred to as “senseFly”. Founded in2009,* senseFly provides fixed-wing drone solutions for commercial and government markets that simplify the collection and analysis of geospatial data, allowing professionals to make better decisions, faster. senseFly develops and produces a proprietary line ofeBee-branded, high performance, fixed-wing drones which have flown more thanone million flights around the world.

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Note1 – Description of Business–** Continued**

Collectively, MicaSense, Measure and senseFly are referred to as the*“2021* Acquired Companies.”

The Company is currently headquartered in Wichita, Kansas, where we house our sensor manufacturing operations, and we operate business and drone manufacturing operations in Raleigh, North Carolina. In addition, the Company operates business and manufacturing operations in Lausanne, Switzerland, in support of our international business activities.

The Company intends to grow our business and preserve our leadership position by developing new drones, sensors and software and capturing a significant share of the global drone market. In addition, we expect to accelerate our growth and expansion through strategic acquisitions of companies offering distinct technological and competitive advantages and have defensible IP protection in place, if applicable.

On* October 3, 2024,the Board approved a reverse stock split of the Company’s authorized, issued and outstanding shares of common stock, par value $0.001 per share, at a ratio ofone (1) share of common stock for everyfifty* (50) shares of common stock (the “Reverse Stock Split”). The Company filed a Certificate of Change with the Secretary of State of the State of Nevada to effectuate the Reverse Stock Split. The Reverse Stock Split was effective on* October 14, 2024.*All share and per share amounts have been adjusted for the effect of the Reverse Stock Split.

Note2 – Summary of Significant Accounting Policies

The summary of significant accounting policies presented below is designed to assist in understanding the Company’s consolidated financial statements. Such consolidated financial statements and accompanying notes are the representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“US GAAP”) in all material respects and have been consistently applied in preparing the accompanying consolidated financial statements.

Basis of Presentation and Consolidation – These consolidated financial statements are presented in United States dollars and have been prepared in accordance with US GAAP. The Company’s consolidated financial statements are prepared using the accrual method of accounting. The Company has elected* December 31*as its fiscal year end. In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments, for a fair statement of the Company’s consolidated financial position and results of operations for the periods presented.

The consolidated financial statements include the accounts of AgEagle and its wholly owned subsidiaries, AgEagle Aerial, Inc., Measure (currently inactive) and senseFly. All significant intercompany balances and transactions have been eliminated in consolidation. As of* January 1, 2023,*MicaSense ceased to exist as a standalone entity and was merged into AgEagle Aerial Systems, Inc. (AgEagle).

Liquidity and Going Concern– In pursuit of the Company’s long-term growth strategy and acquisitions the Company has sustained continued operating losses. During the year ended* December 31, 2025*, the Company generated a net loss of $5.3 million and used cash in operating activities of $10.0 million. As of* December 31, 2025*, the Company has working capital of $34.5 million, accumulated deficit of $(231,234,641), cash balance of $29,858,655. During the year ended* December 31, 2025* Company received cash proceeds from financing activities of $36,204,975 primarily from the sale of Series F and G preferred stock and the exercise of warrants. We believe our current cash balance, working capital help alleviate previous substantial doubt regarding our ability to continue as a going concern. As of* December 31, 2025,our cash balance is sufficient enough to meet our financial obligations for at least the nexttwelve* months from the date of these consolidated financial statements are issued and we have access to sufficient capital to implement our business strategy while meeting our financial obligations via the Securities Purchase Agreement executed in* Novemberof2025* (see Note9).

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Risks and Uncertainties– Global economic challenges, including the impact of the war in Ukraine and Iran, rising inflation supply-chain disruptions, and adverse labor market conditions could cause economic uncertainty and volatility. The aforementioned risks and their respective impacts on the UAV industry and the Company’s operational and financial performance remain uncertain and outside of the Company’s control. Specifically, because of the aforementioned continuing risks, the Company’s ability to access components and parts needed in order to manufacture its proprietary drones and sensors, and to perform quality testing have been, and continue to be, impacted. If either the Company or any of itsthird parties used in our manufacturing and assembly processes continue to be adversely impacted by these matters, the Company’s supply chain* may*be disrupted, limiting its ability to manufacture and assemble products. The Company expects inflation and supply-chain disruptions and its effects to continue to have a significant negative impact on its business for an extended period of time.

Use of Estimates– The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the reserve for obsolete inventory, valuation of intangible assets, fair value of derivative liabilities, and the value of deemed dividends resulting from the triggering of down round provisions and modifications to equity-linked instruments.

Accumulated Other Comprehensive Income (Loss)–* Accumulated other comprehensive income (loss) refers to revenues, expenses, gains and losses which are included in accumulated other comprehensive income (loss), a component of equity within the consolidated balance sheets, rather than net loss in the consolidated statements of operations and comprehensive income (loss). Under existing accounting standards, other comprehensive income (loss) may*include, among other things, unrecognized gains and losses on foreign currency translation and prior service credit related to benefit plans.

Fair Value Measurements and Disclosures– Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic820, Fair Value Measurement (“ASC820”), requires companies to determine fair value based on the price that would be received to sell the asset or paid to transfer the liability to a market participant. ASC820 emphasizes that fair value is a market-based measurement,not an entity-specific measurement.

The guidance requires that assets and liabilities carried at fair value be classified and disclosed inone of the following categories:

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For short-term classes of our financial instruments, which include cash, accounts receivable, notes receivable and accounts payable and accrued expenses, and which arenot reported at fair value, the carrying amounts approximate fair value due to their short-term nature. The current outstanding loans, including the COVID Loans, are carried at face value, which approximates fair value, due to the government backed security which requires payments. The convertible note is carried at face value and approximates fair value due to its prevailing interest rate.

Cash Concentrations – The Company maintains its cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation up to*$250,000.* The Company has significant cash balances at financial institutions which throughout the year regularly exceed the federally insured limit of*$250,000.* Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations, and cash flows.

Accounts Receivable and Credit Policy–* Trade receivables due from customers are uncollateralized customer obligations due under normal and customary trade terms. Trade receivables are stated at the amount billed to the customer. As of December 31, 2025,2024 and2023, the Company had an accounts receivable balance of $3.4 million, $1.4 million and $2.1 million, respectively. In addition, as of December 31, 2025,*2024 and2023, the Company had an allowance for credit losses balance of $0.04 million, $0.02 million and $0.2 million, respectively. The Company generally doesnot charge interest on overdue customer account balances. Payments of trade receivables are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoices. The Company estimates an allowance for credit losses based upon an evaluation of the current status of trade receivables, historical experience, and other factors as necessary. It is reasonably possible that the Company’s estimate of the allowance for credit losses will change.

Allowance for Credit Losses– We establish allowances for credit losses on accounts receivable, under ASC326-20-55-37. The adequacy of these allowances is assessed quarterly through consideration of factors such as customer credit ratings, age of the receivable, expected loss rates based on historical trends and general economic conditions. We have elected to apply the practical expedient provisions eligible to public entities that are included in ASU2025-05, Financial Instruments - Credit Losses(Topic326) in our* December 31, 2025credit loss assessment. Under ASC2025*-05, entities can assume that current conditions as of the balance sheet date donot change for the remaining life of the asset. Therefore, an entity willno longer need to develop reasonable and supportable forecasts of future economic conditions. The practical expedient applies only to current accounts receivable (due in less thantwelve months from the balance sheet).

A summary of activity related to our allowance for credit losses during the years ended* December 31, 2025and2024* is summarized below:

Inventories– Inventories, which consist of raw materials, work-in-process and finished goods, are stated at the lower of cost or net realizable value, with cost being determined by the average-cost method, which approximates thefirst-in,first-out method. Cost components include direct materials and direct labor. At each balance sheet date, the Company evaluates its inventories for excess quantities and obsolescence. This evaluation primarily includes an analysis of forecasted demand in relation to the inventory on hand, among consideration of other factors. The physical condition (e.g., age and quality) of the inventories is also considered in establishing its valuation. Based upon the evaluation, provisions are made to reduce excess or obsolete inventories to their estimated net realizable values. Once established, write-downs are considered permanent adjustments to the cost basis of the respective inventories. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from the amounts that the Company* may*ultimately realize upon the disposition of inventories if future economic conditions, customer inventory levels, product discontinuances, sales return levels or competitive conditions differ from the Company’s estimates and expectations.

Intangible Assets – Intangible assets from acquired businesses are recognized at fair value on the acquisition date and consist of customer programs, trademarks, customer relationships, and intellectual property and technology. Customer programs include values assigned to major programs of acquired businesses and represent the aggregate value associated with the customer relationships, contracts, technology, and trademarks underlying the associated program and are amortized on a straight-line basis over a period of expected cash flows used to measure fair value, which ranges fromtwo toten years.

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In accordance with ASC Topic350-40, Software - Internal-Use Software, the Company capitalizes certain direct costs of developing internal-use software that are incurred in the application development stage, when developing or obtaining software for internal-use. Once an application has reached the development stage, internal and external costs incurred to develop internal-use software are capitalized and amortized on a straight-line basis over the estimated useful life of the software (typically three tofive years). Maintenance and enhancement costs, including those costs in the post-implementation stages, are typically expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the software that result in added functionality, in which case the costs are capitalized and amortized on a straight-line basis over the estimated useful life of the software. The Company reviews the carrying value for impairment whenever facts and circumstances exist that would suggest that assets might be impaired or that the useful lives should be modified. Amortization expense related to capitalized internal-use software development costs is included in general and administrative expenses on the consolidated statements of operations and comprehensive loss.

Finite-lived intangible assets are evaluated for impairment periodically, or whenever events or changes in circumstances indicate that their related carrying amounts* may**not* be recoverable in accordance with ASC Topic360-10-15, Impairment or Disposal of Long-Lived Assets (“ASC360-10-15”). In evaluating intangible assets for recoverability, the Company uses its best estimate of future cash flows expected to result from the use of the asset and eventual disposition in accordance with ASC360-10-15. To the extent that estimated future undiscounted net cash flows are less than the carrying amount, an impairment loss is recognized in an amount equal to the difference between the carrying value of such asset and its fair value.

Asset recoverability is an area involving management judgment, requiring assessment as to whether the carrying values of assets are supported by their undiscounted future cash flows. In estimating future cash flows, certain assumptions are required to be made in respect of highly uncertain matters such as revenue growth rates, operating expenses, and terminal growth rates. As of* December 31, 2025,the Company reviewed the impairment indicators for potential impairment and concluded that its finite-lived intangible assets were impaired on its sensor reporting unit, primarily due to declining revenues and the unit's overall operating results compared to forecasts. In assessing the recoverability of the intangible assets, the carrying value of the intangible assets exceeded the estimated undiscounted cash flows. Therefore, as of December 31, 2025,*we recognized a full impairment charge for the finite-lived intangible assets of approximately $1.3 million in our sensor reporting unit.

Goodwill– The assets and liabilities of acquired businesses are recorded in accordance with ASC805. Goodwill represents costs in excess of fair values assigned to the underlying identifiable net assets of acquired businesses. Goodwill isnot subject to amortization and is tested annually for impairment, or more frequently if events or changes in circumstances indicate that the carrying value of the goodwill* may**not* be recoverable.

During thefourth quarter of2025 and2024, respectively, and in accordance with ASC Topic350, Intangibles–* Goodwill and Other,the Company performed its annual goodwill impairment test using a quantitative approach by comparing the carrying value of the reporting unit, including goodwill, to its fair value. If the carrying value of the reporting unit, including goodwill, exceeds its fair value, a goodwill impairment loss is recognized in an amount equal to that excess. The Company estimates the fair value of each reporting unit using both a discounted cash flow (“DCF”) (Level3* input) analysis and market approach. Under the DCF analysis, determining fair value requires the exercise of significant judgments, including the amount and timing of expected future cash flows, long-term growth rates, discount rates and relevant comparable public company earnings multiples and relevant trading multiples. The cash flows employed in the DCF analysis are based on estimates of future sales, earnings and cash flows after considering factors such as general market conditions, existing firm orders, expected future orders, changes in working capital, long term business plans and recent operating performance. As of* December 31, 2025and2024,* the DCF analysis used a discount rate of 23% and 19%, respectively. The market approach entails using valuation metrics from companies that have been traded publicly, which are considered to be rightly similar to the subject entity. In most situations, direct comparability is hard to attain since a majority of public companies arenot only larger but also more dissimilar to the subject so both metrics are used to find the most reasonable valuation.

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Derivative Liabilities – The Company doesnot use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to FASB ASC480 and ASC815, Derivatives and Hedging (“ASC815”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. The Series A and Series B Warrants issued in the Company’s* October 2024Offering (see Note9*) were recognized as derivative liabilities, at issuance, in accordance with ASC815 due to the contractual terms resulting in variability in the warrants ultimate settlement. Accordingly, the Company recognized the warrants as liabilities at fair value and adjusts the carrying value of the instruments to fair value at each reporting period for so long as they are outstanding or liability classified. During2025, the contractual terms of the Series B were amended resulting in the Series B being reclassified to stockholders' equity (deficit) (see Note8). We have classified the derivative warrant liabilities as a long-term liability as their liquidation isnot reasonably expected to require the use of current assets or require the creation of current liabilities.

Revenue Recognition– Most of the Company’s revenues are derived primarily through the sales of drones, sensors and related accessories, and software subscriptions. The Company utilized ASC Topic606 and the related amendments,Revenue from Contracts with Customers, which requires revenue to be recognized in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration to which the entity expects to be entitled in exchange for those goods or services.

Generally, we recognize revenue when it satisfies its obligation by providing the benefits of the service to the customer, either over time or at a point in time. A performance obligation is satisfied over time ifone of the following criteria are met:

Revenue recognition under ASC606 as described below creates the following revenue streams:

The Company recognizes revenue on sales to customers, dealers, and distributors upon satisfaction of performance obligations which occurs once controls transfer to customers, which is when product is shipped or delivered depending on specific shipping terms and, where applicable, a customer acceptance has been obtained. The fee isnot considered to be fixed or determinable until all material contingencies related to the sales have been resolved. The Company records revenue in the consolidated statements of operations and comprehensive loss, net of any sales, use, value added, or certain excise taxes imposed by governmental authorities on specific sales transactions and net of any discounts, allowances and returns.

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Additionally, customer payments received in advance of the Company completing performance obligations are recorded as contract liabilities. Contract liabilities are short term in nature and are expected to be recognized in the next fiscal year. As of* December 31, 2025*, we have $127,874 of advanced customer payments presented as contract liabilities. As of* December 31, 2024,we have $148,054 of advanced customer payments presented as contract liabilities, which were recognized in revenue during the year ended December 31, 2025.During the year ended December 31, 2024,we recognized approximately $226,000 of revenue that was deferred as a contract liability as of December 31, 2023.Customer deposits which represent customer prepayments which were recognized in revenue during the year ended December**31,2025.*

Provision for Warranty Expense – The Company provides warranties against defects in materials and workmanship of its drone systems for specified periods of time. For the years ended* December 31, 2025and2024*, drones and sensors sold are covered by the warranty for a period of up toone year from the date of sale by the Company. Estimated warranty expenses are recorded as an accrued expenses in the consolidated balance sheets with a corresponding provision to cost of sales in the consolidated statements of operations and comprehensive loss. This estimate is recognized concurrent with the recognition of revenue on the sale to a customer. The Company reserve for warranty expense is based on its historical experience and management’s expectation of future conditions, taking into consideration the location and type of customer and the type of drone, which directly correlate to the materials and components under warranty, the duration of the warranty period, and the logistical costs to service the warranty. An increase in warranty claims or in the costs associated with servicing those claims would likely result in an increase in the reserve and a decrease in gross profit.

Shipping Costs–** All shipping costs billed directly to the customer are directly offset to shipping costs resulting in a net expense to the Company, which is included in cost of sales in the accompanying consolidated statements of operations and comprehensive loss. For the years ended December 31, 2025and2024, shipping costs were approximately $285,000 and approximately $252,000, respectively.

Advertising Costs– Advertising costs are charged to operations as incurred. For the years ended* December 31, 2025*, and2024, advertising costs, included in sales and marketing expenses in the consolidated statements of operations and comprehensive loss, were approximately $44,000 and $11,000, respectively.

Research and Development– For the years ended* December 31, 2025and2024*, research and development expenses were $3.6 million and $4.0 million, respectively. Research and development costs are expensed as incurred and are included in the accompanying consolidated statements of operations and comprehensive loss.

Defined Benefit Plan–* *The Company estimates liabilities and expenses for its defined benefit plan. Estimated amounts are based on historical information, current information, and estimates regarding future events and circumstances. Significant assumptions used in the valuation of these benefit plan liabilities include the expected return on plan assets, discount rate, and rate of increase in compensation levels.

Income (Loss) Per Common Share – Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the year. Diluted income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) related to warrants, options, unvested restricted stock and convertible instruments.

Potentially Dilutive Securities – The Company excludes common stock equivalents from the computation of diluted net income (loss) per share if the inclusion of such common stock equivalents would be anti-dilutive. As of* December 31, 2025,*the Company had the following common stock equivalents:50,797 unvested restricted stock units,60,983 Series A warrants (assumes alternate cashless exercise),12,290 Series B Warrants,4,752,096 Series F Warrants,10,788,684 shares of common stock issuable upon the conversion of our outstanding Series F preferred stock shares of 4,122 and outstanding Series G preferred stock shares of 6,190 which were excluded from the diluted net loss per share due to their inclusion being anti-dilutive.

As of* December 31, 2024*, the Company had the following common stock equivalents:3,850 unvested restricted stock units,56 options outstanding to purchase shares of common stock. The Company had an additional 317,664 common stock warrants from Series F,331,192 from Series A (assumes alternate cashless exercise),4,462,716 from Series B, and 5,935 of Series F Stock convertible into 4,856,492 shares of common stock which were excluded from the diluted net loss per share due to their inclusion being anti-dilutive.

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Leases–** **The Company accounts for its operating leases in accordance with ASC Topic842, Leases, which requires that lessees recognize a right-of-use asset and a lease liability for virtually all their leases with lease terms of more thantwelve months. Consistent with current US GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. As the Company’s leases donot provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

Right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease terms at the commencement dates. The Company uses its incremental borrowing rates as the discount rate for its leases, which is equal to the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. The incremental borrowing rate for all existing leases as of the opening balance sheet date was based upon the remaining terms of the leases; the incremental borrowing rate for all new or amended leases is based upon the lease terms. The lease terms for all the Company’s leases include the contractually obligated period of the leases, plus any additional periods covered by options to extend the leases that the Company is reasonably certain to exercise at lease commencement.

Certain adjustments to the right-of-use asset* maybe required for items such as initial direct costs paid or incentives received. The components of a lease are split intothree* categories: lease components, non-lease components and non-components; however, the Company has elected to combine lease and non-lease components into a single component. Operating lease expense is recognized on a straight-line basis over the lease term and is included in general and administrative expense on the consolidated statement of operations and comprehensive loss. Variable lease payments are expensed as incurred.

Income Taxes –** **The Company accounts for income taxes in accordance with ASC Topic740, Accounting for Income Taxes, which requires an asset and liability approach for accounting for income taxes. The Company evaluates its tax positions that have been taken or are expected to be taken on income tax returns to determine if an accrual is necessary for uncertain tax positions. The Company will recognize future accrued interest and penalties related to unrecognized tax benefits in income tax expense if incurred. All income tax returnsnot filed more thanthree years ago are subject to federal and state tax examinations by tax authorities.

Stock-Based Compensation Awards – The Company accounts for its stock-based awards in accordance with ASC Subtopic718-10, Compensation–* Stock Compensation,*which requires fair value measurement on the grant date and recognition of compensation expense for all stock-based payment awards made to employees and directors. For stock options, the Company estimates the fair value using a closed option valuation (Black-Scholes) model. The estimated fair value is then expensed over the requisite service period of the award, which is generally the vesting period. Stock-based compensation expenses are presented in the consolidated statements of operations and comprehensive loss within general and administrative expenses. The Company recognizes forfeitures at the time they occur.

The Black-Scholes option-pricing model requires the input of certain assumptions that require the Company’s judgment, including the expected term and the expected stock price volatility of the underlying stock. The assumptions used in calculating the fair value of stock-based compensation represent management’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change resulting in the use of different assumptions, stock-based compensation expense could be materially different in the future.

Segment Reporting– In accordance with ASC Topic280, Segment Reporting (“ASC280”), the Company identifies operating segments as components of an entity for which discrete financial information is available and is regularly reviewed by the chief operating decision maker in making decisions regarding resource allocation and performance assessment. The Company defines the term “chief operating decision maker” to be its chief executive officer.

The Company has determined that it operates inthree segments:

Contingencies– In the ordinary course of business, the Company is subject to loss contingencies that cover a range of matters. An estimated loss from a loss contingency, such as a legal proceeding or claim, is accrued if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued, the Company evaluates, among other factors, the degree of probability and the ability to reasonably estimate the amount of any such loss.

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Recently Issued and Adopted Accounting Pronouncements

In* July 2025,the FASB issued ASU2025*-05, Measurement of Credit Losses for Accounts Receivable and Contract Assets (ASU2025-5). The ASU2025 -05 relates to estimating credit losses under the calculation of current expected credit losses (CECL) for current accounts receivable and current contract assets arising from revenue transactions accounted for under ASC606, Revenue from Contracts with Customers. For all entities, the ASU provides a practical expedient to assume that current conditions as of the balance sheet date will persist through the reasonable and supportable forecast period for eligible assets. Entities will still be required to adjust historical data used in the estimation to reflect current conditions. This policy election is available only if the entity elects the practical expedient. The date selected must be when or before financial statements are available to be issued. Under this accounting policy election,no credit loss would be recorded on balances that have been collected through subsequent receipts. Remaining uncollected amounts would be evaluated for credit losses using the practical expedient. The provisions of ASU2025-05 are effective for annual reporting periods beginning after* December 15, 2025,and interim reporting periods within those annual reporting periods. Early adoption is permitted in both interim and annual reporting periods in which financial statements havenot* yet been issued or made available for issuance. The Company has elected to apply the practical expedient in its assessment of an allowance for credit losses as of* December 31, 2025.*

In* December 2023,FASB issued ASU2023*-09, Income Taxes (Topic740*): Improvements to Income Tax Disclosures (“ASU2023*-09”). The ASU focuses on income tax disclosures around effective tax rates and cash income taxes paid. ASU2023-09 requires public business entities to disclose, on an annual basis, a rate reconciliation presented in both dollars and percentages. The guidance requires the rate reconciliation to include specific categories and provides further guidance on disaggregation of those categories based on a quantitative threshold equal to5% or more of the amount determined by multiplying pretax income (loss) from continuing operations by the applicable statutory rate. For entities reconciling to the US statutory rate of21%, this would generally require disclosing any reconciling items that impact the rate by1.05% or more. ASU2023-09 is effective for public business entities for annual periods beginning after* December 15, 2024 (generally, calendar year2025*) and effective for all other business entitiesone year later. Entities should adopt this guidance on a prospective basis, though retrospective application is permitted. The Company has applied the provisions of ASU2023-09 these consolidated financial statements see Note15 for our Income Tax footnote.

Recently Issued Accounting PronouncementsNot* Yet Adopted*

ASU2025-06, Goodwill and Other–* Internal-Use Software.In September 2025,the FASB issued a new accounting standard to modernize the accounting guidance for costs to develop internal use software. The new guidance amends the existing standard that refers to various stages of a software development project to align better with current software development methods, such as agile programming. Under the new standard, entities will start capitalizing eligible costs when (1) management has authorized and committed to funding the software project, and (2) it is probable that the project will be completed and the software will be used to perform the function intended. In evaluating whether it is probable the project will be completed, an entity is required to consider whether there is significant uncertainty associated with the development activities of the software. The new guidance will be effective for all entities for annual periods beginning after December 15, 2027.*The guidance can be applied on a fully prospective basis, a modified basis for in-process projects, or a full retrospective basis.

ASU2024-03, Disaggregation of Income Statement Expenses (“DISE”). In* November 2024,the FASB issued a new accounting standard to improve the disclosures about an entity’s expenses and address requests from investors for more detailed information about the types of expenses included in commonly presented expense captions. The new standard is effective for annual reporting periods beginning after December 15, 2026,and interim reporting periods beginning after December 15, 2027,*with retrospective application permitted. The Company is evaluating the disclosure requirements related to the new standard and its impact on our consolidated financial statements.

Other recent accounting pronouncements issued by FASB didnot or arenot believed by management to have a material impact on the Company’s present or future consolidated financial statements.

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Note3 – Balance Sheet Accounts

Accounts Receivable, Net

As of* December 31, 2025and2024*, accounts receivable, net consist of the following:

As of* December 31, 2025,one customer made up 65.8% of the Company's accounts receivable balance, this balance was received and fully paid as of January 5, 2026.*

Customer Concentration

Customers comprising more than10% of the Company’s total revenue are summarized below:

Inventories, Net

As of* December 31, 2025and2024*, inventories, net consist of the following:

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Note3 – Balance Sheet Accounts – Continued******

Property and Equipment, Net

Property and Equipment is recorded at cost. Depreciation is computed using the straight-line method over estimated useful lives ofthree tofive years. Expenses for maintenance and repairs are charged to expenses as incurred. Leasehold improvements are amortized on a straight-line basis over the shorter of the remaining lease term, or the estimated useful life of the related asset.

As of* December 31, 2025and2024*, property and equipment, net consist of the following:

For the years ended* December 31, 2025and2024,* depreciation expense totaled $243,566 and $345,002, respectively.

For the years ended* December 31, 2025and2024*, depreciation and amortization (see Note4) expense is classified within the consolidated statements of operations and comprehensive loss as follows:

Accrued Liabilities

As of* December 31, 2025and2024*, accrued liabilities consist of the following:

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Note4 – Intangible Assets, Net

Current year activity of, intangible assets, net, other than goodwill, consisted of following:

As of* December 31, 2025*, the gross carrying amount of intangible assets, accumulated amortization, impairments, and net book value, consist of following:

As of* December 31, 2024*, intangible assets, net, other than goodwill, consist of following:

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Note4 – Intangible Assets, Net– Continued******

As of* December 31, 2024*, the gross carrying intangible assets, accumulated amortization, impairments, and net book value, consist of following:

As of* December 31, 2025and2024*, the weighted average remaining amortization period in years was 0.96 and 2.30 years, respectively. Amortization expense for the years ended* December 31, 2025and2024* was $566,166 and $731,079, respectively, which is included in general and administrative expenses on the statement of operations and comprehensive loss (see Note3).

As ofDecember31, 2025, the Company recognized animpairment charge of $1,333,288 on the finite-lived intangible assets held by our sensor reporting unit due to the carrying value of the intangible asset exceeding the units estimated undiscounted cash flows. As of* December 31, 2025,*after the impairment, our intangible assets consist of our internal-use software.

For the following years ending, the future amortization expense of our finite-lived intangible assets is as follows:

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Note5 – Goodwill

Goodwill represents the difference between the purchase price and the estimated fair value of net assets acquired, when accounted for by the acquisition method of accounting. As of* December 31, 2025* and2024, the goodwill balance relates to a business acquisition completed in2021 of MicaSense.

The annual impairment assessment conducted during thefourth quarter of2025 and2024 indicated that the fair value of the Company’s Sensor reporting unit was less than the carrying value. The impairment assessment of the Sensor reporting unit considered the lower than forecasted sales and profitability along with declining markets conditions, declining stock price and changes in our technologies. Accordingly, the Company recorded animpairment charge for2025 of $4,459,644 and in2024 an impairment charge of $2,943,000.

As of* December 31, 2025and2024*, the change in the carrying value of goodwill for ourone operating segment with goodwill balance remaining, Sensors, is as follows:

Note6 – COVID Loan

In connection with the senseFly Acquisition, the Company assumed the obligations fortwo COVID Loans originally made by the SBA to senseFly S.A. on* July 27, 2020 (“senseFly COVID Loans”). As of the senseFly Acquisition Date, the fair value of the COVID Loan was $1,440,046 (“senseFly COVID Loans”). For the years ended December 31, 2025and2024*, senseFly S.A. made the required payments on the senseFly COVID Loans, including principal and accrued interest, aggregating approximately $258,000 and $318,793, respectively. As of* December 31, 2025*, the Company’s outstanding obligations under the senseFly COVID Loans are $314,350. On* August 25, 2023,the Company modifiedone* (1) of its existing agreements to extend the repayment period of the COVID Loan from a maturity date of* December 2023to June 2027.*The other COVID loan remains unchanged.

As of* December 31, 2025*, scheduled principal payments due under the senseFly COVID Loans are as follows:

F-22

Note7 – Convertible Note

The Company had a Convertible Note outstanding with Alpha Capital Anstalt (“Alpha”) which was due* January 8, 2025** and went into default upon maturing. The Convertible Note was a result of an exchange agreement executed on February 8, 2024in which the parties agreed to exchange the then outstanding promissory note into a convertible note in the principal amount of $4,849,491 convertible into Common Stock at the initial conversion price of $100.00 (the "Convertible Note"), subject to adjustment based on the effectiveness of the Company’s Reverse Stock Split which became effective on February 9, 2024.On February 16, 2024,*the conversion price was adjusted downward to $62.64 pursuant to the terms of the Convertible Note. The conversion price was adjusted downward several times during the year due to down round trigger events that occurred (see below).

On* February 16, 2024,*the Company received a notification from Alpha to convert $100,000 into 1,597 shares of common stock at an exercise price of $62.64, reducing the principal balance to $4,749,491.

On* April 12, 2024,the Company received an investor notice for the aggregate purchase of 1,050 shares of Series F Convertible Preferred convertible into 28,378 shares of Common Stock, in the aggregate, at a conversion price of $37.00 for an aggregate purchase price of $1,050,000, Alpha retained $569,091 as a payment on the Convertible Note which consisted of the scheduled principal payment of $484,950 for the month of April 2024*and $84,141 of interest, as result, the Company received $480,909.

The Company wasnot able to make the Amortization Payments required in thethird quarter of2024. Therefore $426,454 of accrued interest was added to principal due to this failure.

Pursuant to the Omnibus Agreement executed between the Company and Alpha in connection with the* October 2024Offering (see Note9*), Alpha agreed to purchase $3,000,000 of the units in the offering and the Company agreed to apply said $3,000,000 towards the repayment of the Convertible Note balance. Upon such repayment, $2,000,000 remained outstanding on the Convertible Note to be paid insix monthly installments consisting of $333,333 in principle plus all accrued interest commencing on* October 15, 2024and continuing on the15th* day of each calendar month until the Convertible Note was paid in full. The Company remitted the* Octoberand November 2024monthly payments and the December 2024*payment was waived by the lender.

During the year ended* December 31, 2024,* $1,164,590 of interest was added to the principal balance, payments of $4,235,757 were made on the principal balance of the Convertible Note and Alpha converted $100,000 of principal into 1,597 shares of common stock at a conversion price of $62.64.

As of* December 31, 2024,the principal outstanding was $1,333,333. During the year ended December 31, 2024,the Company recorded $884,769 of interest expense related to the Convertible Note in the consolidated statements of operations and comprehensive loss, and as of December 31, 2024,*there was $47,123 of accrued interest included in accrued liabilities on the consolidated balance sheets.

During the year ended* December 31, 2025,the remaining principal and accrued interest of $1,425,606 was converted into 1,490,495 of shares of common stock and we recognized $92,273 of interest expense prior to conversion. As of December 31, 2025,*there wereno amounts outstanding due on the Convertible Note.

Convertible Note Conversion Price Adjustments

During the year ended* December 31 2025and prior to repayment, the conversion price of the Convertible Note was reduced from $1.10 to$0.8294 due to the sale of Series F preferred stock and Series F warrants with a conversion price and exercise price of$0.8294 (see Note9*) which resulted in the reduction of the Convertible Note's conversion price. The Company recognized a loss on debt extinguishment of $125,242 for the incremental value of the conversion feature due to the reduced conversion price. The incremental value was determined using a Black-Scholes pricing model pre and post modification and the following inputs: expected term 0.50 years, risk free rate of 4.27%, volatility of 203.53%, and dividend rate of 0.00%.

During the year ended* December 31, 2024,the conversion price of the Convertible Note was reduced on March 6,** August 27,and October 1, 2024due to equity or equity-linked issuances or modifications which triggered reductions in the conversion price from $62.50 to $30.00 to $20.19 and to $4.00, respectively. Upon the conversion price reductions , the Company determined the incremental value using a Black-Scholes pricing model pre and post reduction and the following inputs: expected term 0.50 -0.92 years, risk free rate of 3.96% -4.83% , volatility of 89.6% -130.57% and dividend rate of 0.00%. During the year ended December 31, 2024,*the Company recognized a total of $6,351,221 of expense due to the incremental value received by Alpha related to the conversion price reductions.

Further, in* October 2024,the conversion price of the Convertible Note was reduced again from $4.00 to $1.10 due to an agreed upon modification to the conversion price due to the Share Combination Event that occurred on October 14, 2024 (see Note9*). The modification was deemed to be a debt extinguishment due to the conversion price reduction being substantive. The incremental value of $1,572,512 has been reflected on the statement of operations and comprehensive loss as a loss on debt extinguishment.

The* October 2024*incremental value from the modification was determined using a Black-Scholes pricing model pre and post modification and the following inputs: expected term 0.50 years, risk free rate 4.24%, volatility 144.88%, and dividend rate of 0.00%.

F-23

Note8 – Fair Value Measurements

In connection with the* October 2024Offering, we sold units comprised of common stock, Series A Warrants and a Series B Warrants ( the Series A and B Warrants are collectively referred to as the “Warrants”) (see Note9*). At issuance, the Warrants were deemed to be derivative liabilities due to variability in the ultimate settlement of the Series A and B Warrants caused by various settlement provisions embedded within the Warrants. Therefore, the Series A and B Warrants met the definition of a derivative liability requiring the Warrants to be reported at fair value upon issuance and subsequently at each reporting period.

On* April 2, 2025**,* the Company and the majority holder of the Series B warrants, executed an Amendment to the Series B Warrant to Purchase Common Stock and Exchange Agreement (the "Series B Amendment"). The Series B Amendment amended the contractual terms of the Series B warrants by removing Section3.2 of the original warrant agreement in its entirety (the "Share Combination Event"). Pursuant to the Share Combination Event, if a share split, share dividend, share combination recapitalization or other similar transaction involving common stock occurred after the issuance date of the Series B warrants, the exercise price of the Series B warrants would be adjusted to the lowest volume weighted average price during thefive days prior and after such a Share Combination Event if less than the exercise price in effect. The Company reassessed the classification of the Series B warrants after the execution of the Series B Amendment and concluded that the Series B warrants wereno longer precluded from being classified within stockholders' equity (deficit). On* April 2, 2025,we reclassified the fair value of the outstanding Series B warrants of $7,766,000 from warrant liability to additional paid-in capital. See Note 9 for further disclosures regarding the Series A and B warrants. The Series A warrants remain liability classified as the terms include an alternate cashless exercise provision that allows the holder to exercise the Series A withno* consideration and receivetwo shares of common stock.

The following tables present information about the Company’s derivative liabilities that are measured at fair value on a recurring basis as of* December 31, 2025* and2024 and* October 1, 2024 (*Issuance) and indicate the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value:

The fair value of the warrants was determined using a Black-Scholes pricing model and the following assumptions:

As of* December 31, 2025* and2024 and Issuance, the Company measured the Warrants using significant unobservable inputs that are based on little orno verifiable market data, which is Level3 in the fair value hierarchy. Inherent in a Black Scholes option pricing model are assumptions related to expected share-price volatility, expected term, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock based on historical volatility. The risk-free interest rate is based on the U.S. Treasuryzero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero. The probability of a capital raise below the Warrants’ current exercise price is a significant unobservable input based on management’s estimate factoring in the Company’s capital needs and the Company’s stock price, which is volatile. Fluctuations to this estimate could significantly impact the fair value.

F-24

Note8 – Fair Value Measurements– Continued******

The initial fair value of the warrant liabilities of $19,494,000 exceeded the net proceeds received in the* October 2024Offering (see Note9*). Therefore, we recognized a loss in equity financing of $15,305,761 during the year ended* December 31, 2024,*comprised of the following:

During the year ended* December 31, 2025and2024*, we recognized a change in fair value gain on the warrant liabilities of $8,584,000 and $3,094,000, respectively. A reconciliation of the warrant liabilities for the years ended* December 31, 2025and2024* is below:

Note9 – Equity

Capital Stock Issuances

Preferred Series F Convertible Stock

On* June 26, 2022 (the “Series F Closing Date”), the Company entered into a Securities Purchase Agreement (the “Series F Agreement”) with Alpha. Pursuant to the terms of the Series F Agreement, the Board of Directors of the Company (the “Board”) designated a new series of Preferred Stock, the Series F 5% Preferred Convertible Stock (“Series F”), and authorized the sale and issuance of up to 35,000 shares of Series F. The sale of Series F includes 100% warrant coverage (“Series F Warrants”). The Series F Warrants arenot* exercisable for thefirst six months after its issuance and have athree-year term from its exercise date. The initial conversion and exercise price of the Series F and the Series F Warrants are based on the volume weighted average market price for thefour days prior to the issuance of the Series F and Serries F Warrants. Conversion and exercise prices are subject to downward adjustment for any equity instrument or equity-linked instrument sold or granted at an effective price per share that is lower than the initial conversion and exercise price (“Down Round Provision”). See Note11 for warrant related disclosures.

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Additional Investment Right ("AIR")

Alpha has the right, subject to certain conditions, including shareholder approval, to purchase up to $25,000,000 of additional shares of Series F and Series F Warrants (collectively, the “Series F Option”). The Series F Option will be available for an initial period ofeighteen months, extended through* June 1, 2026 (see Note17*). The Series F and Series F Warrants shall be identical to the initial purchase, except the conversion and exercise price shall be adjusted to the volume weighted average price forthree trading days prior to the date that Alpha gives notice to the Company of its intent to exercise the Series F Option. As of* December 31, 2025,*1,000 additional Series F shares remain for purchase under the AIR for $1,000,000.

Since the Series F Closing Date, the Company has sold and issued Series F and Series F Warrants to Alpha or Investors that Alpha has assigned the AIR for cash proceeds through the exercise of their Series F Option. A summary of the Series F activity during the years ended* December 31, 2025and2024* is as follows:

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During the years ended* December 31, 2025and2024*, the Company issued an aggregate of 12,800 and 6,350 shares of Series F and Series F Warrants (see Note11), respectively, and received total proceeds $12,800,000 and $4,775,000, respectively. The initial conversion price of the Series F and Series F Warrants ranged from $0.8294 to $2.3427 and $5.25 to $60.29, respectively. During the years ended* December 31, 2025and2024,* the initial conversion prices were adjusted down due to Down Round Provisions that were triggered at various times during2025 and2024 (see summary of Down Round Provision triggers in the table below).

During the years ended* December 31, 2025and2024*, a total of 14,613 and 6,490 Series F were converted into a total of 13,089,255 and 200,645 shares of common stock, respectively. During the years ended* December 31, 2025and2024,* the Series F dividends totaled $201,867 and $234,439, respectively. As of* December 31, 2025and2024*, total outstanding accrued dividends on the Series F total $948,532 and $746,666, respectively, which are included in accrued expenses on the consolidated balance sheets, and accrue at the rate per share (as a percentage of the $1,000 stated par value per share of Series F) of 5% per annum, beginning on thefirst purchase date of* June 30, 2022.*

Preferred Series G Convertible Preferred Stock

*** *** On* November 5, 2025,the Company executed a certificate of designation of preferences, rights and limitations of the Series G Convertible Preferred Stock (the “Certificate of Designation”), designating 100,000 shares of Series G Convertible Preferred Stock ("Series G"), with a par value of $0.001 and a stated value of $1,000. The Series G haveno* voting rights and only receive dividends when declared by the board of directors. Series G have liquidation preferences over common stockholders and are pari passu to Series F. Further, on* November 5, 2025,*the Company entered into a Securities Purchase Agreement (the “SPA”) with certain existing investors,one of which is Alpha (the “Purchasers”), pursuant to which, subject to the terms and conditions set forth therein, the Company agreed to issue and sell to the Purchasers in a registered direct offering (the “Offering”) an aggregate of up to 100,000 shares of the Series G. Subject to the terms and conditions of the Certificate of Designation, the Series G are convertible immediately upon issuance, at an initial conversion price equal to $1.2300 per share (the “Conversion Price”).

The Conversion Price is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustments in the event of any issuances of Common Stock or securities convertible, exercisable or exchangeable for Common Stock, at a price below the then-applicable Conversion Price (subject to certain exceptions) ("Down Round Provision"). The Company agreed to sell, and the Purchasers, severally andnot jointly, agreed to purchase an aggregate of 12,000 shares of Series G on the initial closing date. Subject to the terms and conditions of the SPA , including approval by the Company’s stockholders (the “Stockholder Approval”) with respect to the transactions contemplated by the SPA and the Certificate of Designation, including the issuance of all of the shares of the Company’s Common Stock, issuable upon conversion of the shares of the Series G in accordance with the terms of the SPA in excess of 19.99% of the issued and outstanding Common Stock on the date of the SPA. The Purchasers* mayelect in their sole discretion to purchase up to a total aggregate of 88,000 additional shares of Series G inone* or more closings (the “Additional Preferred Shares”). Upon each issuance of Additional Preferred Shares, the Conversion Price will be reduced to equal the lower of (i) the Conversion Price on the trading day immediately prior to the issuance of such Additional Preferred Shares, and (ii)75% of the “Minimum Price” (as defined in Section713(c) of the NYSE American LLC Company Guide) on the trading day immediately prior to the issuance of such Additional Preferred Shares, provided that, the Conversion Price* may**not* be less than $1.00 (the “Floor Price Condition”); provided further that, the Company* may*waive, in its sole discretion, the Floor Price Condition.

On* November 10, 2025,the Company sold 12,000 shares of Series G and received net cash proceeds of $11,507,338. After issuance of the Series G, the Company sold Series F and warrants on November 24,and December 22, 2025with conversion and exercise prices of $1.1347 and$$0.9615, respectively. This triggered the Down Round Provision embedded within the Series G and reduced the initial conversion price of $1.2300 to $1.1347 (the "November 2025Down Round Trigger") and further to $0.9615 (the "December 2025Down Round Trigger"). See table below under the subheading Down Round Provision Triggers and Deemed Dividends for a summary of down round triggers that occurred during the years ended December 31, 2025and2024* and the impact on the consolidated financial statements.

During the year ended* December 31, 2025,*the holders of the Preferred Stock converted 5,810 shares of Series G into 4,912,784 shares of common stock at an average conversion price of $1.1826.

A summary of the Series G activity during the year ended* December 31, 2025and2024* is as follows:

Common Stock and Warrant Transactions

.

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2025 Issuances

Conversions

During the year ended* December 31, 2025,a total of 1,490,495 and 1,597 shares of Common Stock were issued for the conversion of $1,425,606 of outstanding principal and accrued interest on the Convertible Note at an average conversion rate of $0.9565 (see Note7*).

During the year ended* December 31, 2025,*a total of 13,089,255 shares of Common Stock were issued for the conversion of 14,613 shares of Series F with a stated value of $1,000 at an average conversion rate of $1.1164.

During the year ended* December 31, 2025,*a total of 4,912,784 shares of Common Stock were issued for the conversion of 5,810 shares of Series G with a stated value of $1,000 at an average conversion rate of $1.1826.

Warrant Exercises

During the year ended* December 31, 2025,we issued 10,089,612 shares of Common Stock for the exercise of Series B warrants with exercise prices ranging from $0.8294 to $1.1000 and received aggregate cash proceeds of $8,667,002. In connection withone* of the Series B exercises, the Company agreed to credit $350,000 of the aggregate exercise price pursuant to a settlement reached with the Series B warrant holder over a dispute.

During the year ended* December 31, 2025,*we issued 3,922,918 shares of Common Stock for the exercise of Series F warrants with exercise prices ranging from $0.8294 to $1.2546 and received aggregate cash proceeds of $4,224,319.

During the year ended* December 31, 2025**,* we issued 63,017 shares of common stock for the alternate cashless exercise of 31,509 Series A warrants with an exercise price of $1.9445 and alternate cashless exercise price of $0.00.

Warrant Exchange

On* April 2, 2025,the Company and the majority holder of the Series B warrants executed an Amendment to the Series B Warrant to Purchase Common Stock and Exchange Agreement (the "Series B Amendment"). The Series B Amendment amended the contractual terms of the Series B warrants as disclosed in Note8**.* As consideration for the holder amending the contractual terms of the Series B warrants, we issued to the holder 88,908 shares of Common Stock forno consideration in exchange for 125,242 Series F warrants with a weighted average exercise price of $1.10 (see Note11). We have included the fair value of these shares issued of $108,468, based on the market price of our stock on the date of the exchange, within stockholders' equity as a deemed dividend.

Restricted Common Stock

During the year ended* December 31, 2025**,235,147 *shares of fully vested restricted Common Stock were issued to certain employees and service providers, respectively.

2024 Issuances

On* February 16, 2024,the Company received a notification from the holder of the Convertible Note to convert $100,000 of principal outstanding on a Convertible Note (see Note7*) into 1,597 shares of common stock at a conversion price of $62.62.

On* March 6, 2024,the Company entered into a warrant exercise agreement with several institutional investors holding warrants issued pursuant to a securities purchase agreement, dated as of June 5, 2023,in connection with a private placement. The warrant exercise agreement provided a reduction in exercise to $30 from $380 per share of Common Stock for those Investors who exercised their existing warrants. The shares of Common Stock are issuable upon exercise of the existing warrants were registered pursuant to a registration statement on Form S-1 FileNo.* 333-273332 and declared effective on* July 27, 2023.The Company received up to $497,701 from the exercise of 16,590 warrants converted to 16,590 shares of common stock. The reduction in exercise price ( “March 2024*Down Round Trigger”) triggered down round provisions embedded in the outstanding Series F and Series F Warrants (see below).

**** October 2024Unit Offering**

We closed the following Offering on* October 1, 2024.*

The Company entered into a placement agency agreement (the “Placement Agency Agreement”) with Spartan Capital Securities, LLC (the “Placement Agent”) in connection with the issuance and sale by the Company in a public offering (the “Offering”) of 538,000 units (the “Units”), consisting of common units (“Common Units”), each consisting ofone share of common stock of the Company, $0.001 par value per share, one Series A warrant (“Series A Warrant”) to purchaseone share of common stock andone Series B warrant (“Series B Warrant”) to purchaseone share of common stock and pre-funded Units (the “Pre-Funded Units” and together with the Common Units, the “Units”), with each Pre-Funded Unit consisting ofone pre-funded warrant (the “Pre-Funded Warrants”) to purchaseone share of common stock, one Series A Warrant to purchaseone share of common stock andone Series B Warrant to purchaseone share of common stock.

The purchase price of each Common Unit was $12.00, and the purchase price of each Pre-Funded Unit was $11.95, less Placement Agent fees and commissions.

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The Units haveno stand-alone rights and willnot be certificated or issued as stand-alone securities. Each Series A Warrant is immediately exercisable on the date of issuance at an exercise price of the public offering price of the Units of $12, or pursuant to an alternate cashless exercise option, and expires five years from the closing date of the Offering. Each Series B Warrant was immediately exercisable on the date of issuance at an exercise price of $25 and expires five years from the closing date of the offering.

Under the alternate cashless exercise option of the Series A Warrants, a holder of the Series A Warrant, has the right to receive an aggregate number of shares equal to the product of (x) the aggregate number of shares of common stock that would be issuable upon a cash exercise of the Series A Warrant and (y)2.0. In addition, the Series A Warrants and Series B Warrants contain a reset of the exercise price to a price equal to the lesser of (i) the then exercise price and (ii) the lowest volume weighted average price for thefive trading days immediately preceding and immediately following the date the Company effects a reverse stock split in the future with a proportionate adjustment to the number of shares underlying the Series A Warrants and Series B Warrants so that the aggregate exercise price remains constant in such an event (the “Share Combination Event”). The Share Combination Event was removed from the Series B Warrant in* April 2025 (see Note8*). Finally, with certain exceptions, the Series B Warrants provide for a down round adjustment to the exercise price and number of shares underlying the Series B Warrants upon the Company’s issuance of its common stock or common stock equivalents at a price per share that is less than the exercise price of the Series B Warrant.

Each Pre-Funded Warrant is immediately exercisable forone share of common stock at an exercise price of $0.001 per share. Subject to limited exceptions, a holder of Pre-Funded Warrants doesnot have the right to exercise any portion of its Pre-Funded Warrants if the holder, together with its affiliates, would beneficially own in excess of 4.99% (or, at the election of the holder, such limit* maybe increased to up to 9.99%) of the number of shares of common stock outstanding immediately after giving effect to such exercise. The Pre-Funded Warrants may*be exercised at any time until all of the Pre-Funded Warrants are exercised in full.

The shares of common stock, the Pre-Funded Warrants, the Series A Warrants and the Series B Warrants and the shares of common stock issuable upon exercise of the Pre-Funded Warrants, the Series A Warrants and the Series B Warrants described above, were offered by the Company pursuant to a Registration Statement on Form S-1 (FileNo. 333-281897), filed with the Securities and Exchange Commission (the “SEC”) under the Securities Act of1933, as amended (the “Securities Act”) and declared effective by the SEC on* September 30, 2024.*

Upon completing the* October 2024Offering, the Company issued 538,000 shares of common stock,538,000 Series A and 538,000 Series B warrants and received gross proceeds of $6,466,500 and paid issuance related costs for placement agent fees and legal fees totaling $778,261 resulting in net proceeds of $5,688,239 from the October 2024Offering (see Note8*).

Reverse Stock Split and Share Combination Event

On* October 3, 2024,the Board approved a reverse stock split of the Company’s authorized, issued and outstanding shares of common stock, par value $0.001 per share, at a ratio ofone* (1) share of common stock for everyfifty (50) shares of common stock (the “Reverse Stock Split”). The Company filed a Certificate of Change with the Secretary of State of the State of Nevada to effectuate the Reverse Stock Split. The Reverse Stock Split was effective on* October 14, 2024.*

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As a result of the Reverse Stock Split, the Share Combination Event embedded in the Series A and B warrants were triggered resulting in the exercise price of the Series A and B Warrants adjusting down to the lowest volume weighted average price for thefive trading days immediately preceding and immediately following the effective date of the Reverse Stock Split. This resulted in the exercise prices in the Series A and B Warrants adjusting down from $12 and $25, respectively, to $1.9445 and the issuance of 2,782,133 of Series A and 6,378,944 of Series B to keep the aggregate exercise price constant. The Share Combination Event triggered down round provisions embedded within Series F, Series F warrants and a Convertible Note (the “Share Combination Event Down Round Trigger”) (see below – Down Round Triggers and Deemed Dividends).

Omnibus Agreement

The* October 2024Offering required the consent of Alpha, the holder of the Convertible Note (Note7*) and the primary holder of our issued and outstanding Series F and Series F Warrants.

Pursuant to the Omnibus Agreement, among other things, Alpha consented to the* October 2024Offering and agreed to purchase $3,000,000 of the units in the offering and the Company agreed to apply said $3,000,000 towards the repayment of the Convertible Note balance (see Note7*). The Company issued to Alpha 1,500 shares of Series F 5% Convertible Preferred Stock with an aggregate stated value of $1,500,000 as consideration for entering into the Omnibus Agreement. The estimated fair value of the Series F of $1,500,000 has been treated as an equity issuance cost and reflected in the loss on equity issuance on the consolidated statements of operations and comprehensive loss (see below).

Loss on the October 2024Offering**

As more fully disclosed in Note8, the Series A and B Warrants were determined to meet the definition of derivative liabilities due to the variability embedded in the instruments due to multiple settlement scenarios which precludes the Series A and B Warrants from being equity classified. Pursuant to ASC815-40-35-4, liability classified contracts are initially and subsequently measured at fair value. Changes in fair value are presented on the statements of operations and comprehensive loss within the other income (expense).

At issuance, the fair value of the Series A and B Warrants was determined to be an aggregate of $19,494,000. As noted above, the net proceeds received in the* October 2024*Offering was $5,688,239. Therefore, the fair value of the warrants upon issuance exceeded the net proceeds. In such cases, a loss is recognized for the excess fair value of the derivative liabilities over the net proceeds received in the offering. Therefore, we have reflected such an excess of $15,305,761, inclusive of the $1,500,000 estimated fair value of the Series F issued to Alpha for their consent, as a loss on equity financing on the consolidated statements of operations and comprehensive loss.

Down Round Provision Triggers and Deemed Dividends

We have several outstanding equity classified and equity-linked instruments that include down round provisions in which the conversion or exercise price is adjusted down upon the Company’s issuance of its common stock or common stock equivalents at a price per share that is less than the conversion or exercise price of the equity-linked instruments. As of* December 31, 2025*, these equity-linked instruments include the Series F, Series F Warrants, Series G and Series B Warrants. As of* December 31, 2024,*the down round provisions included in these equity-linked instruments have been triggered several times.

Upon a down round provision being triggered in an equity classified instrument, we compute the incremental value provided to the holder for the reduction in conversion or exercise price using a Black-Scholes model to determine the fair value of the equity-linked instruments prior to and after the down round provision trigger. The incremental value is recorded within stockholders’ equity (deficit) as a deemed dividend and reduced from net loss available to common stockholders in our computation of earnings per share.

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During the years ended* December 31, 2025and2024*, we used the following assumptions in the Black-Scholes model used to compute the incremental value for the conversion price reductions in the Series F Preferred Stock, Series F and Series B warrants:

During the year ended* December 31, 2025*, the following transactions resulted in down round provision triggers:

On* ** March 17, 2025**,* we issued 500 Series F to Alpha upon the exercise of their AIR and received $500,000 of gross proceeds. The Series F are initially convertible into 415,420 shares of Common Stock at an initial conversion price of $1.2036 and Series F Warrants to purchase up to 415,420 shares of Common Stock at an initial exercise price of $1.2036 (the* “March 2025*Down Round Trigger”).

On* May 5, 2025,we issued 500 Series F to Alpha upon the exercise of their AIR and received $500,000 of gross proceeds. The Series F are initially convertible into 602,846 shares of Common Stock at an initial conversion price of $0.8294 and Series F Warrants to purchase up to 602,846 shares of Common Stock at an initial exercise price of$0.8294 (the “May 2025*Down Round Trigger”).

On* ** July11,* 2025,** we issued 800 Series F to Alpha upon the exercise of their AIR and received $800,000 of gross proceeds. The Series F are initially convertible into an aggregate of 671,818 shares of Common Stock at an initial conversion price of $1.1908 and Series F Warrants to purchase up to 671,818 shares of Common Stock at an initial price of $1.1908 (the* “July2025* Down Round Trigger”), specifically the issuances on June 6,** 9, and17, which reduced the conversion and exercise prices on all of these issuances down to $1.1908.

On* August22,* 2025,** we issued 500 Series F to Alpha upon the exercise of their AIR and received $500,000 of gross proceeds. The Series F are initially convertible into an aggregate of 275,497 shares of Common Stock at an initial conversion price of $1.8149 and Series F Warrants to purchase up to 275,497 shares of Common Stock at an initial price of $1.8149 (the* “August 2025Down Round Trigger”), specifically the issuance on July 24, 2025*which reduced the conversion and exercise prices on these issuances down to $1.8149 from $2.19.

On* November 24,2025,* we issued 500 Series F to Alpha upon the exercise of their AIR and received $500,000 of gross proceeds. The Series F are initially convertible into an aggregate of shares of Common Stock at an initial conversion price of $1.1347 and Series F Warrants to purchase up to 440,645 shares of Common Stock at an initial price of $1.1347 (the* “November 2025*Down Round Trigger”).

On* December 22,2025,* we issued 500 Series F to Alpha upon the exercise of their AIR and received $500,000 of gross proceeds. The Series F are initially convertible into an aggregate of shares of Common Stock at an initial conversion price of $0.9615 and Series F Warrants to purchase up to 520,021 shares of Common Stock at an initial price of $0.9615 (the* “December 2025*Down Round Trigger”).

During the year ended* December 31, 2024*, the following transactions resulted in down round triggers:

The* March 2024*Down Round Trigger disclosed above resulted in the reduction of the conversion and exercise prices to $30.00.

On* August 27, 2024,the Company issued 500 shares of Series F Convertible Preferred convertible into 24,765 shares of Common Stock, in the aggregate, at a conversion price of $20.19 and warrants to purchase up to 24,765 shares of Common Stock at an exercise price of $20.19 for an aggregate purchase price of $500,000 (the “August 2024*Down Round Trigger”).

The* October 2024Offering resulted in an effective price per share of $4.00 which resulted in another down round trigger as the effective price per share in the October 2024Offering was lower than the previous $20.19 (the “October 2024*Down Round Trigger”).

The Share Combination Event Down Round Trigger resulted in the modification of the conversion and exercise prices of the Series F, Series F Warrants and Convertible Debt being reduced to $1.10 based on an acknowledgement and price reset executed between the Company and Alpha in connection with the Share Combination Event resulting in the reduction of the effective price per share paid in the* October 2024*Offering.

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Below is a summary of the deemed dividends resulting from various down round triggers that occurred during the year ended* December 31, 2025*:

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The below is a summary of the deemed dividends resulting from various down round triggers that occurred during the year ended* December 31, 2024*:

(ii) On May 31, 2024, the Company agreed to reduce the exercise price of a warrant held by Alpha originally issued in June 2023 from $380.00 to $30.00. As result, the Company recorded a deemed dividend of $7,752 for the incremental value due to the modification.

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Stock-Based Compensation

The Company determines the fair value of awards granted under the Equity Plan based on the fair value of its Common Stock on the date of grant. Stock-based compensation expenses related to grants under the Equity Plan are included in general and administrative expenses on the consolidated statements of operations and comprehensive loss.

2017 Omnibus Equity Incentive Plan

On* March 26, 2018,the2017* Omnibus Equity Incentive Plan (the “Equity Plan”) became effective. Under the Equity Plan, the Company* maygrant equity-based and other incentive awards to officers, employees, and directors of, and consultants and advisers to, the Company. The purpose of the Equity Plan is to help the Company attract, motivate, and retain such persons and thereby enhance shareholder value. The Equity Plan shall continue in effect, unless sooner terminated, until thetenth* (10th) anniversary of the date on which it is adopted by the Board (except as to awards outstanding on that date). The Board in its discretion* mayterminate the Equity Plan at any time with respect to any shares for which awards havenot* theretofore been granted; provided, however, that the Equity Plan’s termination shallnot materially and adversely impair the rights of a holder, without the consent of the holder, with respect to any award previously granted. As of* December 31, 2025*,15,000 shares of common stock have been reserved for issuance under the Equity Plan which was approved at the Annual Shareholders’ Meeting held on* November 14, 2023.*

The Company determines the fair value of awards granted under the Equity Plan on the date of grant.

Stock- based compensation expenses related to grants under the Equity Plan are included in general and administrative expenses on the consolidated statements of operations and comprehensive loss.

Restricted Stock Units**(“RSUs”)**

For the year ended* December 31, 2025*, a summary of RSU activity is as follows:

For the year ended* December 31, 2025*, the aggregate fair value of RSUs at the time of grant was $387,955 based on the market price of our common stock.

As of* December 31, 2025*, the Company had $32,735 of unrecognized stock-based compensation expense related to RSUs, which will be amortized over approximately seven months. During the year ended* December 31, 2025*, the Company recognized $417,747 of stock compensation related to restricted stock units.

Issuance of RSUs to Current Officers and Directors of the Company

For the year ended* December 31, 2025*, the Company granted 214,068 RSUs to officers, equal to $247,515 as compensation, which $200,395 vested immediately and $47,120 overone year. During the same period, the Company granted 56,000 RSUs to thefour non-executive directors as annual board compensa

tion for services provided, equal to $125,440 which were immediately vested.

For the year ended* December* 31,2024, the Company granted 6,000 RSUs to officers, equal to $95,970 as compensation, which vest overtwo years.

For the year ended* December 31, 2024,the Company granted 500 RSUs equal to $7,560 to thefour* non-executive directors as quarterly board compensation, which vested immediately.

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For the year ended* December 31, 2024*, a summary of RSU activity is as follows:

For the year ended* December 31, 2024*, the aggregate fair value of RSUs at the time of vesting was $131,606.

As of* December 31, 2024*, the Company had $40,969 of unrecognized stock-based compensation expense related to RSUs, which was amortized over approximately eleven months. During the year ended* December 31, 2024*, the Company recognized $80,606 of stock compensation related to restricted stock units.

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Stock Options

For the year ended* December 31, 2025*, a summary of the options activity is as follows:

For the year ended* December 31, 2024*, a summary of the options activity is as follows:

As of* December 31, 2025*, the Company hadno unrecognized compensation cost related to stock options, respectively.

During the years ended* December 31, 2025and2024*, the Company recognized $0 of stock compensation related to stock options, respectively.

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Issuances of Options to Officers and Directors

For the years ending* December 31, 2024and2025,* the Company decided tono longer grant stock option.

Cancellations of Options

During the year ended* December 31, 2025*, as a result of options expirations,56 options were cancelled with an estimated value of approximately of $160,941. During the year ended* December 31, 2024*,2,449 options were cancelled with a grant-date fair value of $2,554,225 due to employee terminations.

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Note10 – Retirement Plans

Defined Benefit Plan

senseFly S.A. sponsors a defined benefit pension plan (the “Defined Benefit Plan”) covering all its employees. The Defined Benefit Plan provides benefits in the event of retirement, death or disability, with benefits based on age and salary. The Defined Benefit Plan is funded through contributions paid by senseFly S.A. and its employees, respectively. The Defined Benefit Plan assets are Groupe Mutuel Prévoyance (“GMP”), which invests these plan assets in cash and cash equivalents, equities, bonds, real estate and alternative investments.

The Projected Benefit Obligation (“PBO”) includes in full the accrued liability for the plan death and disability benefits, irrespective of the extent to which these benefits* maybe reinsured with an insurer. The actuarial valuations are based on the census data as of December 31, 2025*, provided by allea Ltd.

The Company recognizes the overfunded or underfunded status of the Defined Benefit Plan as an asset or liability in its consolidated balance sheets and recognizes changes in the funded status of the Defined Benefit Plan in the year in which the changes occur through accumulated other comprehensive loss. The Defined Benefit Plan’s assets and benefit obligations are remeasured as of* December 31*each year.

The net periodic benefit cost of the Defined Benefit Plan for the period from* January 1,2025 through December 31, 2025* was as follows:

The PBO is the present value of benefits earned to date by plan participants, including the effect of assumed future salary increases. The changes in the projected benefit obligation for the period from* January 1,2025 through December 31, 2025* were as follows:

For the period from* January 1,2025 through December 31, 2025*, the change in fair value of the Pension Plan assets was as follows:

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Note10 – Retirement Plans– Continued******

senseFly S.A.’s investment objectives are to ensure that the assets of its Defined Benefit Plan are invested to provide an optimal rate of investment return on the total investment portfolio, consistent with the assumption of a reasonable risk level, and to ensure that pension funds are available to meet the plans’ benefit obligations as they become due. senseFly S.A. believes that a well-diversified investment portfolio will result in the highest attainable investment return with an acceptable level of overall risk. Investment strategies and allocation decisions are also governed by applicable governmental regulatory agencies. senseFly’s investment strategy with respect to the Defined Benefit Plan is to invest in accordance with the following allocation:34.1% in equities,36.3% in bonds,17.7% in real estate,7.6% in alternative investments and 4.3% in cash and cash equivalents.

The following table presents the fair value of the Defined Benefit Plan assets by major categories and by levels within the fair value hierarchy as of* December 31, 2025*:

The following tables present the fair value of the Defined Benefit Plan assets by major categories and by levels within the fair value hierarchy as of* December 31, 2024*:

The following table shows the unfunded status of the Defined Benefit Plan, defined as plan assets less the projected benefit obligation as of* December 31, 2025*:

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Note10 – Retirement Plans– Continued******

As of* December 31, 2025and2024*, the underfunded status is included in defined plan obligation on the consolidated balance sheets.

The Defined Benefit Plan has a PBO in excess of Defined Benefit Plan assets. For the period from* January 1,2025 through December 31, 2025*, the amounts recognized in accumulated other comprehensive loss related to the defined benefit plan were as follows:

The net prior service credit included in accumulated other comprehensive loss as of* December 31, 2025*, is expected to be recognized as a component of net periodic benefit cost during the year ending* December 31, 2026.*

The actuarial assumptions for the Defined Benefit Plan were as follows:

The following table shows expected benefit payments from the Defined Benefit Plan for the nextfive fiscal years and the aggregatefive years thereafter:

Defined Contribution Plan

The Company sponsors the AgEagle Aerial Systems401(k) Plan (the*“401*(k) Plan”) that covers substantially all eligible employees in the United States. The Company matches contributions made by eligible employees, subject to certain percentage limits of the employees’ earnings. For the years ended* December 31, 2025and2024*, the Company’s employer contribution to the401(k) Plan totaled $87,244 and $97,845, respectively.

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Note11 – Warrants

Equity Classified Warrants

As disclosed in Note9, the Series F Agreement with Alpha includes 100% warrant coverage. Therefore, anytime we receive an investor notice to purchase Series F Convertible Preferred Stock, we also issue Series F Warrants.

As disclosed in Notes8 and9 above, we issued Series A and B Warrants in the* October 2024Offering that were deemed to be derivative liabilities at issuance. As of December 31, 2024,the fair value of the Series A and B Warrants was classified and presented within long-term liabilities. As of December 31, 2025,the fair value of the Series A Warrants remain liability classified. In connection with the Series B Amendment (see Note8*), the total Series B warrants outstanding at the time of the Series B Amendment were reclassified from warrant liabilities to equity classified liabilities. As of* December 31, 2025,*12,960 Series B warrants remain outstanding and exercisable with an exercise price of $0.8294 which are included in the table below.

All the Warrants contain a beneficial ownership limitation, such thatnone of such Warrants* may*be exercised, if, at the time of such exercise, the holder would become the beneficial owner of more than 4.99% or 9.99%, as determined by the holder, of the Company’s outstanding shares of Common Stock following the exercise of such Warrant (the “Beneficial Ownership Limitation”).

A summary of activity related to warrants, classified within stockholders’ equity (deficit) for the years presented is as follows:

As of* December 31, 2025,the intrinsic value of the warrants wasnil based on the market price of our stock at December 31, 2025*and the warrant exercise price.

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A summary of activity related to the Series A, classified as liabilities for the years ended* December 31, 2025and2024,* and the Series B warrants, classified as liabilities, for the year ended* December 31, 2024*is as follows:

Note12 – Leases

The Company has an operating lease in Wichita, Kansas, which serves as its corporate offices. The lease commencement date was* November 1, 2023,and will expire on October 31, 2026,*unless sooner terminated or extended. The estimated cash rent payments due through the expiration of this operating lease total $64,289.

As a result of the MicaSense Acquisition, the Company assumed an operating lease for office space in Seattle, Washington, that expires in* January 2026with a 3% per year increase, andtwo months of abated rent for December 2020and January 2021.The estimated cash rent payments due through the expiration of this operating lease total approximately $18,860. Starting late2022,* the Company engaged in consolidating its business and manufacturing operations from multiple offices totwo centralized locations in Wichita, Kansas and Lausanne, Switzerland. In* May 2023,*the Company executed a sublease agreement for their facility located in Seattle, Washington; however, the Company remains the primary obligor under the original lease.

As a result of the senseFly Acquisition, the Company assumed the operating leases for office spaces in Raleigh, North Carolina and Lausanne, Switzerland. The operating lease in Raleigh expired in* July 2023and the operating lease in Lausanne was set to expire in April 2023.The Company was required to notify the landlord of its intention tonot* renew the lease in* March 2022.The Company neglected to provide such notification, therefore, afive year renewal option was automatically triggered in March 2022.The Lausanne lease is now set to expire in April**2028.* The estimated cash rent payments due through the expiration of this operating lease total approximately $1,791,328.

As of* December 31, 2025and2024*, balance sheet information related to the Company’s operating leases is as follows:

For the years ended* December 31, 2025and2024*, operating lease expense payments were $1,075,382 and $1,054,116, respectively, and are included in general and administrative expenses in the consolidated statements of operations and comprehensive loss.

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Note12 – Leases– Continued******

As of* December 31, 2025*, scheduled future maturities of the Company’s lease liabilities are as follows:

As of* December 31, 2025and2024*, the weighted average lease-term and discount rate of the Company’s leases are as follows:

For the years ended* December 31, 2025and2024*, supplemental cash flow information related to leases is as follows:

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Note13 – Commitments and Contingencies

Legal Matters

We note that in the ordinary course of business that we* maybe the subject of, or party to, various pending or threatened legal actions which could result in a material adverse outcome for which the related damages may**not* be estimable. We donot believe any legal action would have a significant impact on the financials other than the matter disclosed above. However, there is inherent uncertainty regarding such matters.

Purchase Commitments

The Company routinely places orders for manufacturing services and materials. As of* December 31, 2025*, the Company had purchase commitments of approximately $1,522,321. These purchase commitments are expected to be realized during the year ending* December 31, 2026.As of December 31, 2024*, the Company had purchase commitments of $1,723,399, which were realized during the year ending* December 31, 2025*.

Note14 – Related Party Transactions

No related party transactions occurred during the years ended* December 31, 2025,and2024.*

Note15 – Income Taxes

As of* December 31, 2025and2024*, the total of all net deferred tax assets was $22,257,268 and $20,169,952 respectively. The amount of and ultimate realization of the benefits from the deferred tax assets for income tax purposes is dependent, in part, upon the tax laws in effect, the Company’s future earnings and taxable income, and other future events, the effects of which cannot be determined. Because of the uncertainty surrounding the realization of the deferred tax assets, the Company has established a valuation allowance of $23,543,847 and $19,672,250 as of* December 31, 2025and2024*, respectively. The change in the valuation allowance during the years ended* December 31, 2025and2024* was $3,871,597 and $1,877,486, respectively.

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As of* December 31, 2025,the Company had federal net operating losses carryforwards of approximately $66,219,831, of which approximately $3,297,341 start expiring in2036* and approximately $62,922,490 that can be carried forward indefinitely. While these federal NOLs donot expire, the Tax Cuts & Jobs Act of2017 limits the amount of federal net operating loss utilized each year after* December 31, 2020to80%* of taxable income. The Company has state NOLs of $28,845,878 that start expiring in2025. In addition, the Company has foreign NOLs of $40,857,236 that start expiring in2042.

As of* December 31, 2024*, the Company has a federal and state net operating loss carryforwards of approximately $61,117,035 and $26,659,210, respectively. Of those balances, the Company has $6,296,936 of federal net operating losses expiring in2035-2037 and the remaining amounts haveno expiration. The Company has a foreign net operating loss carryforwards of $36,139,319 which expire in2028-2030. The Company has state net operating carryforwards of $7,213,814 which expire between2024-2041, and the remaining amounts haveno expiration.

Under Internal Revenue Code Section382, if a corporation undergoes an "ownership change," the corporation's ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income* maybe limited. Generally, an ownership change occurs when certain shareholders increase their aggregated ownership by more than50* percentage points over their lowest ownership percentage in a testing period (typicallythree years). The Company hasnot completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since becoming a "loss corporation" as defined in Section382. Future changes in stock ownership, which* maybe outside the Company's control, maytrigger an ownership change. In addition, future equity offerings or acquisitions that have an equity component of the purchase price could result in an ownership change. If an ownership change has occurred or does occur in the future, utilization of the NOL carryforwards or other tax attributes may*be limited.

The ultimate realization of deferred tax assets is dependent upon the generation of sufficient future taxable income during the periods in which those temporary differences become deductible. Management has considered all positive and negative evidence in connection with the realization of the deferred tax assets based on projected future taxable income and tax planning strategies. Based upon the level of projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely thannot the Company willnot realize the benefits of these deductible differences. Therefore, the Company continues to record a100% valuation allowance against all deferred tax assets as of* December 31, 2025and2024.* Accordingly, the deferred tax assets have been fully offset by a valuation allowance. The valuation allowance for the year ending* December 31, 2025*increased by $3,871,597.

Income tax returns are filed in the United States and various state jurisdictions. The Company isnot currently under examination by income tax authorities in federal or state jurisdictions. Due to net operating loss carryforwards, the Company's returns remain open for all prior years.

During the years ended* December 31, 2025and2024*, the Company didnot recognize any uncertain tax positions, interest or penalty expense related to income taxes. AgEagle files U.S. federal and state income tax returns, as required by law. The federal return generally has athree-year statute of limitations, and most states have afour-year statute of limitations; however, the taxing authorities can review the tax year in which the net operating loss was generated when the loss is utilized on a tax return. Income tax returns are filed in the United States and various state jurisdictions. The Company isnot currently under examination by income tax authorities in federal or state jurisdictions. Due to net operating loss carryforwards, the Company's returns remain open for all prior years.

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Effective* January 1, 2025,the Company adopted ASU2023*-09, Income Taxes: Improvements to Income Tax Disclosures. The amendments in ASU2023-09 enhance the transparency and decision usefulness of income tax disclosures by requiring, among other things, (i) expanded rate reconciliation disclosures with specified categories presented both in dollar amounts and as a percentage of pretax loss, and (ii) disaggregation of income taxes paid (net of refunds) by federal, state and foreign jurisdictions, including separate disclosure of material jurisdictions.

The disclosures for the year ended* December 31, 2024were prepared in accordance with the income tax disclosure requirements of ASC740*-50 prior to the adoption of ASU2023-09, and are presented in the format previously required. Accordingly, the2024 rate reconciliation and related disclosures reflect the previously required categories and disclosure objectives under the prior guidance

For the years ended* December 31, 2025and2024*, a reconciliation of income tax expense at the federal statutory rate to income tax expense at the Company’s effective rate is as follows:

As of* December 31, 2025and2024*, the temporary differences, tax credits and carryforwards that gave rise to the following deferred tax assets (liabilities):

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The Company’s provision is primarily driven by the full valuation allowance in2025 and2024.

The Company’s loss before provision for incomes taxes consisted of the following amounts:

Note16 – Segment Information

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly provided to the Chief Operating Decision Maker (CODM) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s Chief Executive Officer is the Company’s CODM. The CODM reviews financial information presented by operating segment in making operating decisions, allocating resources, and evaluating financial performance.

The Company conducts the business through the following three operating segments: Drones, Sensors, and SaaS.

The accounting policies of the operating segments are the same as those described in Note2. Non-allocated administrative and other expenses are reflected in Corporate. Corporate assets include cash, prepaid expenses, notes receivable, right of use asset and other assets.

As of* December 31, 2025and2024* and for the years then ended, operating information about the Company’s reportable segments consisted of the following:

Goodwill and Assets

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Note16 – Segment Information– Continued******

Net (Loss) Income

Other segment expenses are primarily comprised of software and IT related subscriptions, rent, insurance, listing fees to be public, and other general and administrative costs.

Revenues by Geographic Area

Note17 – Subsequent Events

On* January 1, 2026,a lease commenced for a33,144* square foot space located in Dallas, Texas. The lease term ends* January 31, 2031withone* optional extension ofsixty months. Monthly rental payments required over the lease term range from $36,597 - $42,813 with annual increases of 3.75% commencing on* February 1*of each year. Thefirst month of rent was abated and a $165,720 tenant improvement allowance was provided by the landlord. The lease required a security deposit of $162,000 and a standby letter of credit of $165,720.

On* January 2, 2026*Alpha exercised its right under the Securities Purchase Agreement to purchase an additional 500 shares of Series F convertible into 586,441 shares of common stock, in the aggregate, at a conversion price of $0.8526 and warrants to purchase up to 586,441 shares of common stock at an exercise price of $0.8526 per share for an aggregate purchase price of $500,000.

On* January 22, 2026,a special meeting of stockholders was held and the stockholders approved an increase to the number of shares that maybe issued under our2017* Omnibus Equity Incentive Plan from 300,000 to 2,300,000, which was previously approved by the Board on* November 24, 2025*and subject to approval by our stockholders.

On* January 22, 2026,*a special meeting of stockholders was held and the stockholders approved the AgEagle Aerial Systems Inc. Employee Stock Purchase Plan (the "ESPP"). The purpose of the ESPP is to attract the services of new employees, to retain the services of existing employees, and to provide incentives for such individuals to exert maximum efforts toward our success by purchasing shares of common stock on favorable terms. The ESPP would be open to a broad base of full-time employees and would help further align their financial interests with those of existing stockholders. The following is a summary of the relevant terms of the ESPP.

Shares Available for Issuance

The maximum aggregate share reserve under the ESPP available for purchase shall be equal to 500,000 shares of common stock. The maximum aggregate number of shares available for purchase under the ESPP will be subject to certain adjustments in the event that any dividend or other distribution (whether in the form of cash, common stock, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of common stock or other securities of the Company, or other change in the Company’s structure affecting the common stock, occurs. Any increase in the aggregate number of shares of stock to be issued under the ESPP is subject to the approval of the Company’s stockholders.

Administration

The ESPP will be administered by the Committee (as defined in the ESPP). The Committee has the authority to construe and interpret the ESPP, prescribe, amend and rescind rules relating to the ESPP’s administration and take any other actions necessary or desirable for the administration of the ESPP including, without limitation, adopting sub-plans applicable to particular subsidiaries or locations, which sub-plans* maybe designed to be outside the scope of Section423* of the Code. The Committee* may*correct any defect or supply any omission or reconcile any inconsistency or ambiguity in the ESPP, and decisions of the Committee will be final and binding on all persons.

Eligibility

Employees who (i) have been employed by the Company or a subsidiary for at least2 years and (ii) are customarily employed for at least20 hours per week are eligible to participate in the ESPP. However, we are allowed to exclude “highly compensated employees” of the Company (within the meaning of Section414(q) of the Code) or a sub-set of such highly compensation employees. We expect to exclude our executive officers from participating in the ESPP. Excluding executive officers, there were approximately52 employees who would be eligible to participate in the ESPP as of* November 24, 2025.*

Each eligible employee will be able to authorize payroll deductions from his or her paycheck in an amount equal to at least1%, butnot more than 10% of his or her compensation on each pay day occurring during an Offering Period (as defined below) (or such other maximum percentage as the Committee* mayestablish from time to time before an Offering Period begins). At the beginning of each Offering Period, each participating employee will be granted an option to purchase a number of shares of common stock determined by dividing such employee’s accumulated payroll deductions by the applicable purchase price. Notwithstanding the foregoing,no eligible employee will be granted such an option if (i) immediately after the grant of the option, such employee (or any other person whose stock would be attributed to such employee pursuant to Section424*(d) of the Code) would own capital stock of the Company or hold outstanding options to purchase stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or any subsidiary or (ii) such option would permit his or her rights to purchase stock under all employee stock purchase plans (described in Section423 of the Code) of the Company and its subsidiaries to accrue at a rate that exceeds $10,000 of the fair market value of such stock (determined at the time the option is granted) in any calendar year. In addition,no employee will be permitted to purchase more than 2,500 shares of common stock during an Offering Period (subject to adjustment in accordance with the terms of the ESPP).

Offering Periods and Purchase Price

The ESPP will be implemented by a series of Offering Periods, each of which will be6 months in duration, with new periods commencing on or about* January 1st and July 1st of each year (or such other times as determined by the Committee) (each, an “Offering Period”). The Committee mayalso specify Offering Periods with a duration ofnot* more than27 months and* mayspecify shorter purchase periods within each offering. During each period, payroll deductions will accumulate, without interest. If any Offering Period is terminated before its scheduled expiration, all amounts that havenot* been used to purchase shares of common stock will be returned to the applicable employees (without interest, except as otherwise required by law).

On the last day of each period, accumulated payroll deductions will be used to purchase shares of the Company’s common stock for participating employees. For purposes of the ESPP, the purchase price will be equal to the lesser of (i)90% (or such greater percentage as designated by the Committee) of the fair market value of a share of common stock on thefirst trading day of the applicable Offering Period or (ii)90% (or such greater percentage as designated by the Committee) of the fair market value of a share of common stock on the date such a share is purchased. The fair market value of the Company’s common stock for this purpose will generally be the closing price on The New York Stock Exchange as reported by the Wall Street Journal for the date in question, or if such date isnot a trading day, for the last trading day before the date in question.

The ESPP will automatically terminate on the10-year anniversary of its effective date. In addition, the Committee* may,in its sole discretion, suspend or terminate the ESPP at any time and for any reason. Any amendment is subject to the approval of the Company’s stockholders only to the extent required under applicable law or regulation, including Section423* of the Code.

On* March 4, 2026,*AgEagle Aerial Systems Inc. entered into a private placement subscription (the “Agreement”) with Aerodrome Group Ltd. (“Aerodrome”). Pursuant to the Agreement, the Company purchased 11,523,750 ordinary shares of Aerodrome at a price of 0.80 NIS per share for an aggregate of 9,219,000 NIS or $3,000,000 USD.

On* March 4, 2026*an investor exercised its right under the Securities Purchase Agreement to purchase an additional 250 shares of Series G convertible into 250,000 shares of common stock, in the aggregate, at a conversion price of $1.00 per share for an aggregate purchase price of $250,000. Immediately after the purchase they exercised their right to convert 250 preferred shares into 250,000 common stock.

On* March 5, 2026*Alpha exercised its right under the Securities Purchase Agreement to purchase an additional 2,000 shares of Series G convertible into 2,000,000 shares of common stock, in the aggregate, at a conversion price of $1.00 per share for an aggregate purchase price of $2,000,000. Immediately after purchase they exercised their right to convert 1,000 preferred shares into 1,000,000 common stock.

As of* March 31, 2026,*Alpha has converted 2,759 shares of Preferred Stock Series F into 3,235,983 shares of Common Stock. In addition, Alpha exercised 1,128,050 warrants of Series F into 1,128,050 shares of common stock at an exercise price of $0.8526 for an aggregate amount of $961,775. Also, Alpha exercise 358,806 Seirs F warrants into 358,806 shares of common stock, on a cashless basis.

As of* March 31, 2026,*Alpha and other investors converted 7,940 shares of Preferred Stock Series G into 9,010,144 shares of Common Stock at an exercise price of between $0.8526 and $1.00.