AgEagle Aerial Systems Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 –Description of the Business and Basis of Presentation

*Description of Business –*AgEagle™ Aerial Systems Inc. and its wholly-owned subsidiaries (“AgEagle” or the “Company”, “we”, “our”), is actively engaged in designing and delivering best-in-class drones and sensors that solve important problems for its customers in a wide range of industry verticals, including energy/utilities, infrastructure, agriculture and government.

Founded in 2010, 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 unmanned 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, including earning governmental approvals for its commercial and tactical drones to fly Beyond Visual Line of Sight (“BVLOS”) and/or Operations Over People 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.

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

Reverse Stock Splits - On February 8, 2024, the Company filed a Certificate of Amendment to its Articles of Incorporation, as amended to date, effecting a 1-for-20 reverse stock split (the “February Reverse Stock Split”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”) (the “Reverse Split Amendment”). The Reverse Split Amendment was approved by the Board of the Directors of the Company (the “Board”) and became effective on February 9, 2024. On October 3, 2024, the Board approved another reverse stock split of the Company’s authorized, issued and outstanding shares of Common Stock, par value $0.001 per share, at aratio of one (1) share of common stock for every fifty (50) shares of Common Stock (the “October Reverse Stock Split”). The Company filed a Certificate of Change with the Secretary of State of the State of Nevada to effectuate the October Reverse Stock Split. The October Reverse Stock Split was effective on October 14, 2024. All share and per share amounts have been retrospectively adjusted for the effect of the February and October Reverse Stock Splits.

Basis of Presentation – The condensed consolidated financial statements of the Company are presented in United States dollars and have been prepared in accordance with accounting principles generally accepted in United States of America (“U.S. GAAP”). 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. Certain information and disclosures included in the annual consolidated financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to the U.S. Securities and Exchange Commission (“SEC”) rules. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2024, included in the Company’s Annual Report on Form 10-K, as filed with the SEC on March 31, 2025. The results for the three months ended March 31, 2025 and 2024 are not necessarily indicative of the results to be expected for a full year, any other interim periods or any future year or periods.

The condensed consolidated financial statements include the accounts of AgEagle and its wholly-owned subsidiaries, AgEagle Aerial, Inc., Measure Global, Inc, currently inactive with no operations, and senseFly. All significant intercompany balances and transactions have been eliminated in consolidation.

Note 1 – Description of the Business and Basis of Presentation-Continued

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 three months ended March 31, 2025, the Company had net income of $7,060,039 due to non-cash warrant valuation gain of $7,780,000 and used cash in operating activities of $1,294,556. As of March 31, 2025, the Company has a working capital of $5,383,426 and an accumulated deficit of $212,377,511. While the Company has historically been successful in raising capital to meet its working capital needs and executed a funding agreement on February 7, 2025 with Alpha Capital Anstalt (“Alpha”), pursuant to the Funding Agreement, among other things, Alpha agreed to provide quarterly financing for the Company for the next twelve months pursuant to their Additional Investment Rights (AIR), with such amounts and timing of funding to be agreed to by the parties (see Note 7). However, the amount of funding to be provided may not be sufficient for our working capital needs and we have minimal recourse if Alpha choices not to exercise their AIR.

There is substantial doubt about the Company’s ability to continue as a going concern as the Company will require additional liquidity to continue its operations and meet its financial obligations for 12 months from the date these condensed consolidated financial statements are issued. The Company is evaluating strategies to obtain the required additional funding for future operations and the restructuring of operations to grow revenues and reduce expenses.

If the Company is unable to generate significant sales growth in the near term and raise additional capital, there is a risk that the Company could default on additional obligations; and could be required to discontinue or significantly reduce the scope of its operations if no other means of financing operations are available. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustment that might be necessary should the Company be unable to continue as a going concern.

Note 2 –Summary of Significant Accounting Policies

Risks and Uncertainties – Global economic challenges, including the impact of the war in Ukraine, 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 its third 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. The company continues to monitor developments in trade policy and is evaluating alternatives to mitigate the impact of these tariffs, including supplier diversification. However, additional or sustained tariff actions could materially and adversely affect our operations, financial condition, and results of operations.

*Use of Estimates *– The preparation of condensed consolidated financial statements in conformity with U.S. GAAP 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 condensed consolidated financial statements and the reported amounts of revenues 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 deemed dividends resulting from the triggering of down round provisions and modifications to equity-linked instruments.

Note 2 – Summary of Significant Accounting Policies-Continued

*Summary of Significant Accounting Policies -*A description of the Company’s significant accounting policies and other financial information is included in the Company’s audited consolidated financial statements filed on March 31, 2025, with the SEC on Form 10-K for the year ended December 31, 2024. These policies have been applied consistently in these unaudited condensed interim consolidated financial statements.

*Per Common Share and Potentially Dilutive Securities –*Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. 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, and convertible instruments. For the three months ended March 31, 2024, the Company has excluded all common equivalent shares outstanding for restricted stock units (“RSUs”), warrants and options to purchase Common Stock and convertible instruments from the calculation of diluted net loss per share, because these securities are anti-dilutive for the periods presented. As of March 31, 2024, the Company had 176 unvested RSUs,67,406 warrants and 1,302 options outstanding to purchase shares of Common Stock, and 131,500 of issuable shares upon the conversion of Series F preferred stock that have been excluded from diluted earnings per share as their inclusion would be anti-dilutive.

Net income (loss) per common share basic and dilutive is as follows for the three months ended March 31, 2025 and 2024:

Note 2 – Summary of Significant Accounting Policies-Continued

Segment Reporting – In accordance with ASC Topic 280,Segment Reporting, 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 in three segments:

*Recently Issued Accounting Pronouncements Not Yet Adopted *– In March 2024, the Securities and Exchange Commission (“SEC”) released a final rule that requires registrants to provide comprehensive climate-related disclosures in their annual reports and registration statements, including those for IPOs, beginning with annual reports for the year ending December 31, 2027, for smaller reporting companies (“SRC”). Registrants must disclose climate-related financial metrics and impacts on their financial estimates and assumptions in a footnote to the audited financial statements. The disclosures will also need to be addressed as part of management’s internal control over financial reporting (“ICFR”) and will be subject to the financial statement and ICFR audit (if applicable) of an independent registered public accounting firm. We are currently evaluating the impacts of the improvements to our disclosure.

In December 2023, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09,Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). The ASU focuses on income tax disclosures around effective tax rates and cash income taxes paid. ASU 2023-09 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 to 5% 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 of 21%, this would generally require disclosing any reconciling items that impact the rate by 1.05% or more. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024 (generally, calendar year 2025) and effective for all other business entities one year later. Entities should adopt this guidance on a prospective basis, though retrospective application is permitted. The adoption of ASU 2023-09 is expected to have a financial statement disclosure impact only and is not expected to have a material impact on the Company’s condensed consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03,*Disaggregation of Income Statement Expenses (“DISE”)*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 the FASB did not or are not believed by management to have a material impact on the Company’s present and future condensed consolidated financial statements.

Note 3 –Inventories, Net

Inventories, Net

As of March 31, 2025 and December 31, 2024, inventories, net consist of the following:

Note 4 –COVID Loans

The Company assumed the obligations for two COVID Loans originally made by the Small Business Administration to senseFly S.A. on July 27, 2020 (“senseFly COVID Loans”). As of senseFly Acquisition Date, the fair value of the COVID Loan was $1,440,046 (“senseFly COVID Loans”). For the three months ended March 31, 2025, senseFly S.A. made the required payments on the senseFly COVID Loans, including principal and accrued interest, aggregating approximately $100,930. As of March 31, 2025, the Company’s outstanding obligations under the senseFly COVID Loans are $420,369.

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

**Note 5 –Convertible Note **

As of March 31, 2025, the Company has a Convertible Note outstanding with Alpha Capital Anstalt (“Alpha”) which was due January 8, 2025 (the “Note”) and is considered in default. The Note is a result of an exchange agreement executed on February 8, 2024 in which the parties agreed to exchange the then outstanding promissory note into a convertible note. The Note accrues interest at 12% per annum and will increase to the lesser of 18% or the maximum rate permitted under applicable law upon an Event of Default as defined under the Note. As of March 31, 2025, the Note is convertible into shares of Common Stock at a conversion ratio of $1.10, subject to adjustment pursuant to dilutive protection terms included in the Note.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024

During the three months ended March 31, 2025 and 2024, Alpha converted $770,000 and $100,000 of outstanding principal into 700,000 and 1,597 into shares of Common Stock at a conversion rate of $1.10 and $62.50, respectively.

As of March 31, 2025 and March 31, 2024, the outstanding principal and accrued interest on the Note was $563,333 and $4,749,491 and $65,926 and $69,659, respectively.

For the three months ended March 31, 2025 and 2024, we recognized interest expense on the Note of $18,802 and $106,000, respectively.

During the three months ended March 31, 2024, the conversion price of the Note was reduced from $62.50 to $30.00 pursuant to dilution protection provisions and due to the reduction in warrant exercise prices to $30.00 to induce exercise (see Note 7). The Company recognized in interest expense the amount of $3,488,851 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 0.92 years, risk free rate of 4.83%, volatility of 89.6%, and dividend rate of 0%.

During the three months ended March 31, 2025, there were no adjustments to the conversion price on the Note.

Note 6 –Fair Value Measurements

We closed on an offering of units consisting of Common Stock, Series A and B warrants in October 2024 (the “October 2024 Offering). In connection with the October 2024 Offering, we sold units comprised of Common Stock, Series A warrants and a Series B warrants (collectively referred to as the “Warrants”) (see Note 8). The Warrants were deemed to be derivative liabilities due to variability in the ultimate settlement of the Warrants caused by various settlement provisions embedded within the Warrants. Therefore, these Warrants meet the definition of a derivative liability requiring the Warrants to be reported at fair value upon issuance and subsequently at each reporting period.

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

Note 6 – Fair Value Measurements – Continued

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

As of March 31, 2025 and December 31, 2024, the Company measured the Warrants using significant unobservable inputs that are based on little or no verifiable market data, which is Level 3 in the fair value hierarchy, resulting in a fair value estimate of approximately $8.6 and $16.4 million, respectively. Inherent in a option pricing models 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. Treasury zero-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.

During the three months ended March 31, 2025, we recognized a gain on the change in the fair value of the warrant liabilities of $7,780,000. A reconciliation of the warrant liabilities is below:

Note 7 –Stockholders’ Equity (Deficit)

Preferred Series F Convertible Stock

Purchase History

On June 26, 2022, 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 with a stated value of $1,000 per share. Pursuant to the Series F Agreement, sales of Series F are accompanied by warrants equal to the number of issuable shares upon conversion of the Series F to Common Stock (the “Series F Warrants”).

Alpha Investment Right

The Series F Agreement provides Alpha the right to purchase up to an additional $25,000,000 stated value of Series F, after their initial 10,000 Series F purchased on June 26, 2022, and accompanying warrants (the “Additional Investment Right” or “AIR”). Under the AIR, the Series F and Series F warrants are initially convertible and exercisable at a conversion and exercise price equal to the volume-weighted average price of the Company’s Common Stock for three trading days prior to the date Alpha gives notice to the Company that it will exercise its AIR. Under the terms of the AIR, 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 Note 8 for warrant related disclosures.

On February 7, 2025, Alpha and the Company executed a funding agreement in which Alpha agreed to exercise its AIR quarterly to provide financing the Company for the next twelve months, with such amounts and timing of funding to be agreed to by the parties.

As consideration for Alpha’s commitment to additional funding, the Company agreed to (i) extend the period in which Alpha can exercise its AIR by extending the termination date of December 31, 2025 to June 1, 2026 and (ii) granting Alpha certain registration rights related to the Series F Alpha currently holds and will receive upon further exercises of its AIR. The Company filed the required registration statement to register 6,500,000 shares of Common Stock which became effective by the Securities and Exchange Commission on April 25, 2025.

During the three months ended March 31, 2025, we issued the following Series F pursuant to the exercise of the AIR by Alpha:

During the three months ended March 31, 2024, we issued the following Series F pursuant to the exercise of the AIR by Alpha:

Since the execution of the Series F Agreement, 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 the AIR.

A summary of the Series F activity for the three months ended March 31, 2025 is as follows:

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024

(UNAUDITED)

A summary of the Series F activity for the three months ended March 31, 2024, is as follows:

During the three months ended March 31, 2025 and 2024, a total of 2,410 and 3,130 Series F were converted into a total of 2,190,908 and 59,041 shares of Common Stock, respectively, and dividends accrued to the Series F were $67,651 and $61,235, respectively. As of March 31, 2025 and December 31, 2024, accrued dividends on the Series F total $814,317 and $746,666 which are included in accrued expenses on the unaudited consolidated balance sheets, 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 the purchase date.

Common Stock Issuances

Conversions

During the three months ended March 31, 2025 and 2024, the Company issued 700,000 and 1,597 shares of Common Stock for the conversion of $770,000 and $100,000 of principal outstanding on a convertible note at a conversion ratio of $1.10 and $62.50, respectively (see Note 5).

During the three months ended March 31, 2025 and 2024, the Company issued 2,190,908 and 59,041 shares of Common Stock for the conversion of 2,410 and 3,130 shares of Series F with a stated value of $1,000 per share, respectively.

Warrant Exercises

During the three months ended March 31, 2025, we issued 267,849 shares of Common Stock for the exercise of Series B warrants with an exercise price of $1.9445 and aggregate exercise price of $520,833. 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 and received approximately $171,000 of cash proceeds.

On March 6, 2024, the Company entered into a warrant exercise agreement with several institutional investors holding warrants pursuant to a securities purchase agreement, dated as of June 5, 2023, in connection with a private placement. The warrant exercise agreement provided that for those investors who exercised their existing warrants they would receive a reduction in the exercise price to $30.00 per share of Common Stock. During the three months ended March 31, 2024, the Company received $497,701 from the exercise of 16,590 warrants converted to 16,590 shares of Common Stock.

Down Round Triggers and Deemed Dividend

Below is a summary of the deemed dividends resulting from the March 2025 and 2024 Down Round Triggers:

Series F and Series F Warrants issued prior to December 2024 have conversion and exercise prices equal to $1.10 and were not impacted by the March 2025 Down Round Trigger.

Deemed dividends are reflected as an increase to additional paid in capital and an increase to accumulated deficit and as an increase to total net loss or decrease to total net income attributable to Common Stockholders in computing earnings per share on the condensed consolidated statements of operations and comprehensive income (loss).

Stock-based Compensation

The Company determines the fair value of awards granted under the 2017 Omnibus Equity Incentive Plan (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 condensed consolidated statements of operations and comprehensive income (loss). For the three months ended March 31, 2025 and 2024, the Company recorded stock-based compensation of $49,880 and $18,580, respectively.

Restricted Stock Units (“RSUs”)

For the three months ended March 31, 2025, a summary of RSU activity is as follows:

For the three months ended March 31, 2025, the aggregate fair value of RSU awards at the time of grant was $151,640 based the market price of our Common Stock on the date of grant.

For the three months ended March 31, 2025, the Company recognized $49,880 of stock-based compensation expense, and had approximately $137,886 of unrecognized stock-based compensation expense related to RSUs, which will be amortized over approximately fifteen months.

For the three months ended March 31, 2024, a summary of RSU activity is as follows:

For the three months ended March 31, 2024, no RSUs were awarded. The Company recognized $18,580 of stock compensation expense, and had $25,000 of unrecognized stock-based compensation expense related to RSUs.

Issuance of RSUs to Current Officers and Directors of the Company

For the three months ended March 31, 2025, the Company granted 5,000 RSUs to officers, equal to $11,200 as compensation, which vested immediately. For the three months ended March 31, 2024, no RSUs were granted to officers.

For the three months ended March 31, 2025, the Company granted 56,000 RSUs equal to $125,440 to the four non-executive directors as quarterly board compensation, which vest in 330 days. For the three months ended March 31, 2024, the Company assigned 2,000 RSUs equal to $74,000 to the four non-executive directors as quarterly board compensation, which were granted on April 1, 2024, and vested immediately

Stock Options

For the three months ended March 31, 2025 a summary of the options activity is as follows:

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

Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) or as of March 31, 2025 (for outstanding options), less the applicable exercise price.

For the three months ended March 31, 2025, there wasno stock compensation expense related to the stock options.

For the three months ended March 31, 2024, a summary of the options activity is as follows:

As of March 31, 2024, the Company had approximately $21,000 of total unrecognized compensation cost related to stock options, which will be amortized through June 30, 2025.

Cancellations of Options

For the three months ended March 31, 2025 and 2024, as a result of employee terminations and options expirations, stock options aggregating 5 and 1,203 with fair market values of $1,235 and $1,292,459 were canceled, respectively.

Note 8 –Warrants

Equity Classified Warrants

As previously disclosed in Note 7, we issued Series F Warrants in connection with the issuance of Series F Preferred Stock upon Alpha exercising their AIR on February 7, 2025 and March 17, 2025.

During the three months ended March 31, 2025, we issued the following Series F Warrants in connection with the issuance of Series F Preferred Stock pursuant to the exercise of the AIR by Alpha:

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

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

Liability Classified Warrants

The Series A and B warrants issued in October 2024 pursuant to an offering have the following contractual terms.

Each Series A Warrant and B Warrant is immediately exercisable on the date of issuance 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 the five 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”). 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. As of December 31, 2024, the exercise price of the Series A and B Warrants was $1.9445. This was adjusted down to $1.20 with the March 2025 Down Round Trigger and an additional 2,582,234 warrants were issued.

A summary of activity related to the Series A and B warrants, classified as liabilities, for the three months ended March 31, 2025 is as follows:

Note 9 –Commitments and Contingencies

Legal Matters

We note that in the ordinary course of business that we may be the subject of, or party to, various pending or threatened legal actions which could result in a material adverse outcome for which the related damage may not be estimable. We do not 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 March 31, 2025, the Company had purchase commitments of $1,647,407.

Note 10 –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.

During the three months ended March 31, 2025, the Company conducted the business through two primary operating segments: Drones and Sensors. During the year ended December 31, 2024, our SaaS segment ceased operations and did not renew any of its software subscription. Transactions in this segment during 2025 will consist of run off related expenses until this segment is fully shut down.

The accounting policies of the operating segments are the same as those described in Note 2. Non-allocated administrative and other expenses are reflected in Corporate. Corporate assets include cash, prepaid expenses, right-of-use asset and other assets.

As of March 31, 2025 and December 31, 2024 and for the years then ended, operating information about the Company’s reportable segments consisted of the following:

Goodwill and Assets

Net Income (Loss)

Note 10 – Segment Information– Continued

Revenues by Geographic Area

Note 11 –Subsequent Events

Management has evaluated subsequent events through the date that the Company’s unaudited condensed consolidated financial statements were issued. Based on this evaluation, the Company has determined that no additional subsequent events have occurred, other than those noted below, which require disclosure through the date that these unaudited condensed consolidated financial statements were issued.

On April 2, 2025, the Company and Alpha, the holder of a majority interest of the Series B Warrants (see Note 8), entered into an Amendment to the Series B Common Stock Purchase Warrant and Exchange Agreement (the “Warrant Amendment”), pursuant to which the contractual terms of the Series B Warrant was amended to (x) remove the Floor Price limitation that was no longer applicable and (y) remove the anti-dilution provision applicable in a Share Combination Event (as defined in the Series B Warrant), and (ii) Alpha exchanged 125,361 previously issued Series F Warrants with an exercise price of $1.10 for 88,908 shares of Common Stock for no consideration. The Warrant Amendment amends all outstanding Series B Warrants. The Warrant Amendment resulted in the reassessment of the Series B classification. Due to the contractual terms of the Series B Warrants being amended and the Share Combination Event being removed these Warrants will no longer be precluded from being classified as equity.

On April 14, 2025 (the “CFO Commencement Date”), the Board of Directors of the Company appointed Ms. Alison Burgett, age 47, to the position of Chief Financial Officer of the Company. As the Company’s Chief Financial Officer, she assumes the Company’s principal accounting officer duties from the Company’s Interim Chief Financial Officer, Adrienne Anderson. Ms. Anderson resigned from her position with the Company upon Ms. Burgett’s appointment to the position of Chief Financial Officer.

On the CFO Commencement Date, the Company entered into an executive employment agreement with Ms. Burgett (the “Employment Agreement”). Pursuant to the Employment Agreement, Ms. Burgett is entitled to receive (i) compensation of $225,000 per year, (ii) an award of restricted stock units (“RSUs”) with a value rounded to the equivalent of $25,000 at the time of the award within 120 days of the CFO Commencement Date, (iii) an award of RSUs with a value rounded to the equivalent of $25,000 at the time of the award within 30 days of each anniversary of the CFO Commencement Date, so long as Ms. Burgett continues to serve in the role of Chief Financial Officer, and (iv) an annual performance bonus, which will be determined each year by the Compensation Committee of the Board and approved by the Board.

We have issued a total of 1,016,398 of shares of Common Stock for the conversion of 966 shares of Series F Preferred Stock with a stated value of $1,000 per share and conversion prices ranging from $0.82 - $1.10.

On May 5, 2025, Alpha exercised its Additional Investment Right for the aggregate purchase of 500 shares of Series F Convertible Preferred initially convertible into 602,846 shares of Common Stock, in the aggregate, at a conversion price of $0.8294 and warrants to purchase up to 602,846 shares of Common Stock at an initial exercise price of $0.8294 per share for an aggregate purchase price of $500,000. The warrants will be immediately exercisable upon issuance and have a three-year term.