AIRO Group Holdings, Inc. (AIRO)

CIK: 0001927958. SIC: 3721 Aircraft. Latest 10-K as of: 2026-03-31.

SIC breadcrumb: Manufacturing > Transportation Equipment > SIC 3721 Aircraft

SEC company page: https://www.sec.gov/edgar/browse/?CIK=1927958. Latest filing source: 0001493152-26-014116.

Selected Fundamentals

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-03-31. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001927958.json. Derived margins, ratios, and free cash flow are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Free cash flow = operating cash flow - capital expenditures. Missing metrics are omitted rather than fabricated.

Ratios

ROE and ROA use period-end equity/assets. Liabilities / equity uses total liabilities divided by stockholders' equity. Current ratio uses current assets divided by current liabilities when both are reported.

Financial Charts

Quarterly

Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-05-14. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001927958.json.

Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived.

Quarterly Charts

Macro Cross-References

• CPIAUCSL - Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
• UNRATE - Unemployment Rate
• FEDFUNDS - Federal Funds Effective Rate
• CES0500000003 - Average Hourly Earnings of All Employees, Total Private
• DFEDTARU - Federal Funds Target Range - Upper Limit
• DFEDTARL - Federal Funds Target Range - Lower Limit
• DGS3MO - Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
• DGS2 - Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
• DGS10 - Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
• DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
• T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
• CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
• CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
• CPIENGSL - Consumer Price Index for All Urban Consumers: Energy
• CUSR0000SAH1 - Consumer Price Index for All Urban Consumers: Shelter
• PCEPI - Personal Consumption Expenditures: Chain-type Price Index
• PCEPILFE - Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
• PPIACO - Producer Price Index by Commodity: All Commodities
• T10YIE - 10-Year Breakeven Inflation Rate
• U6RATE - Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
• PAYEMS - All Employees, Total Nonfarm
• CIVPART - Labor Force Participation Rate
• EMRATIO - Employment-Population Ratio
• UNEMPLOY - Unemployed
• CE16OV - Employment Level
• ICSA - Initial Claims
• JTSJOL - Job Openings: Total Nonfarm
• JTSQUR - Quits: Total Nonfarm
• GDPC1 - Real Gross Domestic Product
• A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
• INDPRO - Industrial Production: Total Index
• TCU - Capacity Utilization: Total Index
• HOUST - New Privately-Owned Housing Units Started: Total Units
• PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
• RSAFS - Advance Retail Sales: Retail Trade
• PCE - Personal Consumption Expenditures
• DSPIC96 - Real Disposable Personal Income
• PSAVERT - Personal Saving Rate
• M2SL - M2
• BOPGSTB - U.S. International Trade in Goods and Services: Balance
• MSPUS - Median Sales Price of Houses Sold for the United States
• HSN1F - New One Family Houses Sold: United States
• RHORUSQ156N - Homeownership Rate in the United States
• TTLCONS - Total Construction Spending: Total Construction in the United States
• RRVRUSQ156N - Rental Vacancy Rate in the United States
• TOTALSL - Total Consumer Credit Owned and Securitized
• REVOLSL - Revolving Consumer Credit Owned and Securitized
• DRCCLACBS - Delinquency Rate on Credit Card Loans, All Commercial Banks
• GDP - Gross Domestic Product
• GPDI - Gross Private Domestic Investment
• GCE - Government Consumption Expenditures and Gross Investment
• PCEC - Personal Consumption Expenditures
• NETEXP - Net Exports of Goods and Services
• GFDEBTN - Federal Debt: Total Public Debt
• GFDEGDQ188S - Federal Debt: Total Public Debt as Percent of Gross Domestic Product
• FYFSD - Federal Surplus or Deficit
• FGRECPT - Federal Government Current Receipts
• FGEXPND - Federal Government: Current Expenditures
• MANEMP - All Employees, Manufacturing
• USCONS - All Employees, Construction
• USTRADE - All Employees, Retail Trade
• USFIRE - All Employees, Financial Activities
• USGOVT - All Employees, Government
• AWHAETP - Average Weekly Hours of All Employees, Total Private
• DGORDER - Manufacturers' New Orders: Durable Goods
• NEWORDER - Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
• BUSINV - Total Business Inventories
• EXPGS - Exports of Goods and Services
• IMPGS - Imports of Goods and Services
• IR - Import Price Index (End Use): All Commodities
• PPIFIS - Producer Price Index by Commodity: Final Demand

Latest quarter (10-Q)

Latest 10-Q source: 0001493152-26-023110.

Extracted from Part I Item 2 to the first post-MD&A boundary after HTML sanitization. Confidence: high. Filing date: 2026-05-14. Report date: 2026-03-31.

Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The
following is management’s discussion and analysis of the major factors that influenced our financial condition and results of operations
as of and for the three months ended March 31, 2026. This analysis should be read in conjunction with the audited consolidated financial statements as of December 31, 2025 and 2024 and for each of the two years
then ended, together with the related notes thereto, included in our Annual Report on Form 10-K
for the year ended December 31, 2025 (the “Form 10-K”) and with the unaudited condensed consolidated financial statements
and notes thereto set forth in this Quarterly Report on Form 10-Q, which have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”). Some of the information contained in this discussion and analysis
includes forward-looking statements that involve risks and uncertainties. You should review the sections titled “Note Regarding
Forward-Looking Statements” and “Risk Factors” in this Quarterly Report on Form 10-Q for a discussion of forward-looking
statements and important factors that could cause actual results to differ materially from the results described in or implied by the
forward-looking statements contained in the following discussion and analysis. All references to “we”, “us”,
“our”, and the “Company” refer to AIRO Group Holdings, Inc.

Overview

We
are a technologically differentiated aerospace, autonomy, and air mobility platform targeting 21st century aerospace and defense
opportunities. We leverage decades of industry expertise and connections across the drone, aviation, and avionics markets to provide
leading solutions to the aerospace and defense market. We offer connected and diversified solutions providing operational synergies across
our segments and are powered by an international footprint as well as supplier and public sector relationships. Supported by complementary
and innovative technologies, we believe we bring a unique value proposition to the market and are well-positioned to become a differentiated
leader in the industry.

Our
business is organized into four operating segments, each of which represents a critical growth vector in the aerospace and defense market:
Drones, Avionics, Training, and Electric Air Mobility. These four segments collectively target a combined total addressable market estimated
to be over $315.4 billion by 2030.

Drones.
The Drones segment develops, manufactures, and sells drones and will provide drone services, such as DaaS, for military and commercial
end users. Our military drones are sold through our Sky-Watch brand, which is a key supplier to European NATO countries. A critical point
of differentiation lies in our drones’ ability to perform in a GPS-denied environment, which is a technology application relevant
for both military and commercial end markets. The segment’s portfolio includes the RQ-35 platform and the recently introduced next-generation RQ-70 ISR platform,
which is designed to support expanded operational capabilities, including longer flight range, higher payload capacity, upgraded sensor
options, and enhanced autonomous mission operations.

Avionics.
The Avionics segment develops, manufactures, and sells avionics for military and general aviation aircraft, drones, and eVTOLs. Our avionics
products include flight displays, Connected Panels, and GPS/GNSS sensors, all of which have been installed on legacy military aircraft
and general aviation platforms. We sell our avionics products through our Aspen Avionics brand, which is well-recognized in the general
aviation aftermarket sector with over 20 years of operating history and long-term customer loyalty for our value proposition. We also
serve as an avionics supplier for OEMs, including Robinson Helicopters, Pilatus, Honeywell, and Joby Aviation. We believe our avionics
solutions have a considerable market opportunity as general aviation fleets continue to age, with owners and operators seeking to upgrade
the avionics technology on their aircraft.

Training. The
Training segment currently provides military pilot training. We offer professional training and consulting services to the U.S.
military, select NATO countries, and other U.S. allies under our Coastal Defense brand. These offerings include adversary air, close
air support, ISR, aircraft leasing, pilot training, ground liaison
services, and Joint Terminal Attack Controller training, as well as full joint theatre ISR and simulated ground strike training. We
work closely with special military forces such as SEAL teams, the U.S. Naval Air Warfare Center, and United States Air Force Air
Combat Command, and are a mandated recipient on a $5.7 billion DoW Indefinite Delivery Indefinite Quantity (“IDIQ”)
Contract and a $1.9 million IDIQ Contract. Our personnel’s top security clearances and established relationships at the
Pentagon provide us with a differentiated ability to bid on mandates. The Company is evaluating the strategic fit and long-term role of its Training segment.
The Training segment remains a valuable asset with significant long-term opportunity, but the segment is capital-intensive and often requires
meaningful ongoing investment.

Electric
Air Mobility. The Electric Air Mobility segment, operated through our Jaunt brand, is developing dual-use electric and
hybrid-electric compound rotorcraft aircraft. Our near-term focus is on
cargo-configured and multi-role autonomous aircraft platforms, including the JC250 and JX250 variants, designed to support
middle-mile logistics, tactical resupply, emergency medical delivery, law enforcement, ISR, and other commercial and government
missions. The JC250 is designed as an autonomous cargo drone platform for logistics missions, while the JX250 is designed as a
variant platform for ISR and logistics applications. These platforms are being designed to support extended operational range,
payload flexibility, and autonomous mission capabilities for commercial and government use cases. We plan to pursue certification of our aircraft under
existing CAR 529 Transport Category Rotorcraft standards. Our aircraft integrate characteristics of both rotary- and fixed-wing
platforms through our patented compound rotorcraft configuration, which has accumulated over 300 piloted flight hours across
multiple Jaunt demonstrator aircraft. We are evaluating both fully electric and hybrid-electric propulsion architectures to support
varying mission requirements, including extended range and increased operational flexibility. We believe this compound rotorcraft
architecture, combined with electric and hybrid-electric propulsion strategies, provides favorable range, payload capacity, and
mission adaptability relative to conventional rotorcraft and certain eVTOL configurations. Upon certification, we expect our
cargo-configured aircraft to serve as the initial foundation of our commercialization efforts.

22

Key
Factors Affecting Our Performance

Our
financial condition and results of operations have been, and will continue to be, affected by a number of factors, including the following.

Customer
Concentration and Drone Segment Revenue Concentration

We
believe that our operating results for the foreseeable future will continue to depend to a significant extent on sales attributable to
certain end customers with such concentration primarily attributable to our Drones segment.

Lack
of Long-Term Customer Commitments

Our
sales are generally made on a purchase order basis, and we typically do not have long-term purchase commitments from our customers. As
a result, customers may cancel, reduce, reschedule, or otherwise modify their purchase orders, which may affect anticipated sales. In
addition, the timing and size of purchase orders, as well as modifications to existing orders, may vary from period to period and could
cause fluctuations in our operating results.

Global
Supply Chain

We
are dependent on a global supply chain and, in recent years, have experienced supply chain disruptions that resulted in delays and increased
costs which adversely affected our performance. These disruptions impacted our ability to procure raw materials, microelectronics, and
certain commodities on a timely basis and/or at expected prices, and have been driven by supply chain constraints and macroeconomic conditions,
including inflation and labor market shortages. Current geopolitical conditions, including conflicts and other causes of strained intercountry
relations, as well as sanctions and other trade restrictions, continue to contribute to these issues. Furthermore, our suppliers and
subcontractors have been affected by these same factors. We also experience periodic shortages of electronic and mechanical parts. Management
continues to proactively manage the supply and transportation of parts during regular sales inventory and operations meetings. This proactive
planning is an integral part of our normal operations and has allowed us to anticipate potential shortages and introduce redundancy along
our supply chain. These mitigation efforts have not introduced new material risks related to product quality, reliability or regulatory
approval of products. We continue to monitor the condition of our supply chain and evaluate our procurement strategy to reduce any negative
impact on our business, financial condition, and results of operations. We have implemented actions and programs designed to mitigate
the impacts of supply chain disruptions, but anticipate that we and others in our industry will continue to face such challenges for
the foreseeable future. The supply chain disruptions discussed above did not materially impact our outlook, business goals, results of
operations or capital resources during 2025 or the first three months of 2026.

Geopolitical
Matters

We
operate in a complex and evolving global security environment, and our business is affected by geopolitical and security issues. Conflicts,
including the conflict between Russia and Ukraine, conflicts in the Middle East and heightened tension in the Pacific region, have elevated
global security concerns resulting in increased interest for our products and services as countries seek to improve their security posture.
In addition, security assistance provided by NATO and its allies to Ukraine has increased demand to replenish NATO stockpiles, resulting
in additional and potential future orders, including for the ramp-up in production capacity for certain products. We continue to expect
additional orders over the next several years attributable to the global threat environment.

Economic
Environment

Our
business and financial performance is also affected by elevated levels of inflation and interest rates. Certain costs, including rising
labor rates and supplier costs, have increased as a result of inflation, and have adversely affected our margins on certain programs.
Due to the nature of our government and commercial aerospace businesses, and their respective customer and supplier contracts, we are
not always able to offset cost increases by increasing our contract value or pricing, in particular on our fixed-price contracts. Increasing
material, component, and labor prices could subject us to losses in our fixed price contracts in the event of cost overruns. In addition,
higher interest rates have increased the cost of borrowing and tightened the availability of capital. Among other things, these effects
can affect our ability to acquire equipment and constrain our customers’ purchasing power and decrease orders for our products
and services and impact the ability of our customers to make payments and of our suppliers to perform. Moreover, volatility in interest
rates and financial markets can lead to economic uncertainty, an economic downturn or recession and impact the demand for our products
and services as well a

[Excerpt truncated for page length; source filing is linked above.]

Latest 10-K MD&A

Extracted from Item 7 to the first post-MD&A boundary after HTML sanitization. Confidence: high. Filing date: 2026-03-31. Report date: 2025-12-31.

ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated
financial statements and related notes included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this
discussion and analysis, including information with respect to our plans, objectives, goals, strategies, future events or performance,
financing needs, plans or intentions relating to markets, and business trends, includes forward-looking statements that involve risks
and uncertainties. You should review the sections titled “Note Regarding Forward-Looking Statements” and “Risk Factors”
in this Annual Report on Form 10-K for a discussion of forward-looking statements and important factors that could cause actual results
to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion
and analysis.

Overview

We
are a technologically differentiated aerospace, autonomy, and air mobility platform targeting 21st century aerospace and defense
opportunities. We leverage decades of industry expertise and connections across the drone, aviation, and avionics markets to provide
leading solutions to the aerospace and defense market. We offer connected and diversified solutions providing operational synergies across
our segments and are powered by an international footprint as well as supplier and public sector relationships. Supported by complementary
and innovative technologies, we believe we bring a unique value proposition to the market and are well-positioned to become a differentiated
leader in the industry.

Our
business is organized into four operating segments, each of which represents a critical growth vector in the aerospace and defense market:
Drones, Avionics, Training, and Electric Air Mobility. These four segments collectively target a combined total addressable market estimated
to be over $315.4 billion by 2030.

Drones.
The Drones segment develops, manufactures, and sells drones and will provide drone services, such as DaaS, for military and commercial
end users. Our military drones are sold through our Sky-Watch brand, which is a key supplier to European NATO countries. A critical point
of differentiation lies in our drones’ ability to perform in a GPS-denied environment, which is a technology application relevant
for both military and commercial end markets.

62

Avionics.
The Avionics segment develops, manufactures, and sells avionics for military and general aviation aircraft, drones, and eVTOLs. Our
avionics products include flight displays, Connected Panels, and GPS/GNSS sensors, all of which have been installed on legacy
military aircraft and general aviation platforms. We sell our avionics products through our Aspen Avionics brand, which is
well-recognized in the general aviation aftermarket sector with over 20 years of operating history and long-term customer loyalty
for our value proposition. We also serve as an avionics supplier for OEMs, including Robinson Helicopters, Pilatus, Honeywell, and
Joby Aviation. We believe our avionics solutions have a considerable market opportunity as general aviation fleets continue to age,
with owners and operators seeking to upgrade the avionics technology on their aircraft.

Training.
The Training segment currently provides military pilot training. We offer professional training and consulting services
to the U.S. military, select NATO countries, and other U.S. allies under our CDI brand. These offerings include adversary air, close air
support, ISR, aircraft leasing, pilot training, ground liaison services, and JTAC, as well as full joint theatre ISR and simulated ground
strike training. We work closely with special military forces such as SEAL teams, the U.S. Naval Air Warfare Center, and USAF Air Combat
Command, and are a mandated recipient on a $5.7 billion IDIQ contract and a $1.9 million IDIQ contract. Our personnel’s top security
clearances and established relationships at the Pentagon provide us with a differentiated ability to bid on mandates. We also plan to
offer commercial pilot training and plan to expand our non-military capabilities in response to the global pilot shortage.

Electric Air Mobility.
The Electric Air Mobility segment, operated through our Jaunt brand, is developing dual-use electric and hybrid-electric compound rotorcraft
aircraft designed for cargo, government, and passenger applications. Our near-term focus is on a cargo-configured platform intended to
support middle-mile logistics, tactical resupply, emergency medical delivery, law enforcement, ISR, and other commercial and government
missions. Over time, we intend to develop a multi-role variant capable of supporting both cargo and passenger operations. We plan to
pursue certification of our aircraft under existing CAR 529 Transport Category Rotorcraft standards. Our aircraft integrate characteristics
of both rotary- and fixed-wing platforms through our patented compound rotorcraft configuration, which has accumulated over 300 piloted
flight hours across multiple Jaunt demonstrator aircraft. We are evaluating both fully electric and hybrid-electric propulsion architectures
to support varying mission requirements, including extended range and increased operational flexibility. We believe this compound rotorcraft
architecture, combined with electric and hybrid-electric propulsion strategies, provides favorable range, payload capacity, and mission
adaptability relative to conventional rotorcraft and certain eVTOL configurations. Upon certification, we expect our cargo-configured
aircraft to serve as the initial foundation of our commercialization efforts.

Initial
Public Offering, Follow-on Offering and Repurchase

On
June 16, 2025, we completed our IPO of 6.9 million shares of our common stock, which
included an additional 0.9 million shares of common stock pursuant to the full exercise of the underwriters’ option to
purchase additional shares, at an initial public offering price of $10.00 per share (the “Closing”). Our common stock began trading on the Nasdaq
Global Market under the ticker symbol “AIRO” on June 13, 2025. The net proceeds from the IPO, after deducting
$10.7 million of underwriting discounts and commissions, and issuance costs paid were $58.3 million.

On
September 12, 2025, we completed our Follow-on Offering of 4.8 million shares of common stock, which included an additional
0.6 million shares of common stock pursuant to the full exercise of the underwriters’ option to purchase additional shares, at
an offering price of $18.50 per share. The net proceeds from the Follow-on Offering, after deducting $6.8 million of underwriting
discounts and commissions were $82.6 million.

On
September 12, 2025, we repurchased 1.1 million shares, which included an additional 0.1 million shares of common stock as a
result of the underwriters’ option described above, from certain existing stockholders, including certain directors and
executive officers and their affiliates at an offering price of $17.39 per share. The proceeds to such stockholders were $19.4
million.

63

Key
Factors Affecting Our Performance

Our
financial condition and results of operations have been, and will continue to be, affected by a number of factors, including the following.

Customer Concentration and Drone Segment Revenue
Concentration

We believe that our operating results for the foreseeable future
will continue to depend to a significant extent on sales attributable to certain end customers. For the year ended December 31, 2025,
two customers accounted for 79% of our consolidated revenue, all of which related to Drone segment revenue. For the year ended December
31, 2024, two customers accounted for 72% of our revenue, all of which related to Drone segment revenue. No other customer directly or
indirectly accounted for more than 10% of our revenue for either period.

Lack of Long-Term Customer Commitments

Our sales are generally made on a purchase
order basis, and we typically do not have long-term purchase commitments from our customers. As a result, customers may cancel, reduce,
reschedule, or otherwise modify their purchase orders, which may affect anticipated sales. In addition, the timing and size of purchase
orders, as well as modifications to existing orders, may vary from period to period and could cause fluctuations in our operating results.

Global
Supply Chain

We
are dependent on a global supply chain and, in recent years, have experienced supply chain disruptions that resulted in delays and increased
costs which adversely affected our performance. These disruptions impacted our ability to procure raw materials, microelectronics, and
certain commodities on a timely basis and/or at expected prices, and have been driven by supply chain constraints and macroeconomic
conditions, including inflation and labor market shortages. Current geopolitical conditions, including conflicts and other causes of
strained intercountry relations, as well as sanctions and other trade restrictions, continue to contribute to these issues.
Furthermore, our suppliers and subcontractors have been affected by these same factors. We also experience periodic shortages of electronic
and mechanical parts. Management continues to proactively manage the supply and transportation of parts during regular sales inventory
and operations meetings. This proactive planning is an integral part of our normal operations and has allowed us to anticipate potential
shortages and introduce redundancy along our supply chain. These mitigation efforts have not introduced new material risks related to
product quality, reliability or regulatory approval of products. We continue to monitor the condition of our supply chain and evaluate
our procurement strategy to reduce any negative impact on our business, financial condition, and results of operations. We have implemented
actions and programs designed to mitigate the impacts of supply chain disruptions, but anticipate that we and others in our industry
will continue to face such challenges for the foreseeable future. The supply chain disruptions discussed above did not materially impact
our outlook, business goals, results of operations or capital resources during 2024 or the first six months of 2025.

During
the quarter ended September 30, 2025, a key customer requested a configuration change to dual-band antennas on certain RQ-35
systems. During the fourth quarter of 2025, we qualified additional antenna suppliers and implemented dual-sourcing to reduce
component risk.

Geopolitical
Matters

We
operate in a complex and evolving global security environment, and our business is affected by geopolitical and security issues. Conflicts,
including the conflict between Russia and Ukraine, conflicts in the Middle East and heightened tension in the Pacific region, have elevated
global security concerns resulting in increased interest for our products and services as countries seek to improve their security posture.
In addition, security assistance provided by NATO and its allies to Ukraine has increased demand to replenish NATO stockpiles, resulting
in additional and potential future orders, including for the ramp-up in production capacity for certain products. We continue to expect
additional orders over the next several years attributable to the global threat environment.

64

Economic
Environment

Our
business and financial performance is also affected by elevated levels of inflation and interest rates. Certain costs, including rising
labor rates and supplier costs, have increased as a result of inflation, and have adversely affected our margins on certain programs.
Due to the nature of our government and commercial aerospace businesses, and their respective customer and supplier contracts, we are
not always able to offset cost increases by increasing our contract value or pricing, in particular on our fixed-price contracts. Increasing
material, component, and labor prices could subject us to losses in our fixed price contracts in the event of cost overruns. In addition,
higher interest rates have increased the cost of borrowing and tightened the availability of capital. Among other things, these effects
can affect our ability to acquire equipment and constrain our customers’ purchasing power and decrease orders for our products
and services and impact the ability of our customers to make payments and of our suppliers to perform. Moreover, volatility in interest
rates and financial markets can lead to economic uncertainty, an economic downturn or recession and impact the demand for our products
and services as well as our supply chain.

Development
of the Electric Air Mobility Market

Our
future revenue for our Electric Air Mobility segment will be tied to the continued development of short distance aerial
transportation. While we believe the global market for electric air mobility will be large, it remains undeveloped and there is no
guarantee of future demand. We anticipate receiving certification of our 33% downscaled cargo eVTOL under drone rules as early as
2027 and expect our first passenger production aircraft to be certified by the TCCA under existing CAR 529 Transport Category
Rotorcraft airworthiness rules as early as 2031. Our business will require significant investment leading up to launching these
services, including, but not limited to, final engineering designs, prototyping and testing, manufacturing, software development,
certification, pilot training, infrastructure and commercialization. We benefit from supplier cost sharing, whereby our suppliers
have agreed to defer their non-recurring engineering costs until commercialization, which has reduced our initial funding
requirements prior to commercialization.

Key
Components of Results of Operations

Revenue

Revenue
consists primarily of product sales, fees for consulting services, licensing revenue, warranty sales and after sale services. A majority
of our revenue is derived from the Drones segment. To date, our Electric Air Mobility segment has not generated material revenue.

Cost
of Revenue

Cost
of revenue includes direct labor (including salary, benefits and taxes), material costs and indirect production costs. Indirect production
costs include indirect labor, purchasing, quality and manufacturing leadership, consumables, freight, charges for inventory reserves
and amortization of intangible assets. We expect our cost of revenue to fluctuate based on a number of factors including, among others,
availability and ability to obtain suitable aircraft, availability and cost of raw materials, such as lithium, and fluctuations in the
labor market, in particular with respect to individuals who are highly skilled and specialized, such as pilots, and foreign currency
exchange rates.

Operating
Expenses

Research
and Development

Research
and development (“R&D”) expenses consist primarily of personnel expenses, including salaries, benefits, costs of consulting,
equipment and materials, direct allocable overhead costs, including staff development cost, travel costs and technology costs, and amortization
of intangible assets. We expect our R&D expenses to increase as we continue to invest in our infrastructure and technology and seek
to develop new products and services.

Sales
and Marketing

Sales
and marketing expenses include salary, benefits and taxes, commissions, travel, costs of leased airplanes, advertising, trade shows and
amortization of intangible assets. We expect our sales and marketing expenses to increase as we seek to build out our capabilities in
these areas to acquire new customers.

65

General
and Administrative

General
and administrative expenses include costs of executive leadership, corporate governance, consulting fees, accounting and finance operations,
travel, and support functions, including human resources and information technology. We expect our general and administrative expenses
to increase as we incur additional costs associated with being a public company and certain terms of our consulting and incentive agreements
become effective.

Goodwill
Impairment

Goodwill
represents the excess of the aggregate purchase price over the fair value of net identifiable assets acquired in a business combination.
We manage our business primarily based upon four operating segments: (i) Drones, (ii) Avionics, (iii) Training and (iv) Electric Air
Mobility, each of which represents a reportable segment. See “—Critical Accounting Policies and Estimates—Goodwill”
for additional information.

Other
Income (Expense)

Interest
Expense, Net

Interest
expense, net consists primarily of the interest expense from borrowings relating to revolving lines of credit with external banks and
third-party notes, net of interest income earned on invested cash balances.

Gain
(Loss) on Debt Extinguishment, Net

Gain
(loss) on debt extinguishment, net includes gains and losses on debt extinguishments.

Other
Income (Expense), Net

Other
income (expense), net includes changes in fair value on contingent consideration obligations and foreign currency exchange adjustments
based on the terms of payments related an earnout obligation.

Income Tax Expense

Income tax expense primarily consists of income taxes in certain foreign jurisdictions in which we conduct business.

Non-GAAP
Financial Measures

To
supplement our consolidated financial statements prepared and presented in accordance with GAAP, we use EBITDA, Adjusted EBITDA
and Adjusted EBITDA margin, as described below, to facilitate analysis of our financial and business trends and for internal planning
and forecasting purposes.

We
define (1) EBITDA as net income (loss) before interest expense, income tax expense or provision, depreciation and amortization, (2)
Adjusted EBITDA as net income (loss) before interest expense, income tax expense or provision, depreciation and amortization, gain
(loss) on extinguishment of debt, stock-based compensation, contingent consideration and warrant fair value adjustments, goodwill
impairments, and other one-time adjustments related to the IPO, and (3) Adjusted EBITDA margin as Adjusted EBITDA divided by
revenue. The above items are excluded from our Adjusted EBITDA measure because these items are either non-cash in nature, or because
the amount and timing of these items is unpredictable, or because they are not driven by core results of operations, thereby
rendering comparisons with prior periods and competitors less meaningful. We believe Adjusted EBITDA provides useful information to
investors and others in understanding and evaluating our results of operations, as well as provides a useful measure for
period-to-period comparisons of our business performance. Moreover, we have included Adjusted EBITDA in this Annual Report on Form
10-K because it is a key measurement used by our management internally to make operating decisions, including those related to
analyzing operating expenses, evaluating performance, and performing strategic planning and annual budgeting.

66

These
non-GAAP financial measures should not be considered as alternatives to performance measures derived in accordance with GAAP. Our presentation
of these non-GAAP financial measures should not be construed to imply that our future results will be unaffected by items that are excluded
from these metrics. In addition, our definitions of these non-GAAP financial measures may be different from similarly titled non-GAAP
measures used by other companies. These non-GAAP financial measures have limitations as an analytical tool, and you should not consider
any of these non-GAAP financial measures in isolation or as a substitute for analysis of our results as reported under GAAP. Some of
these limitations are that our non-GAAP financial measures:

●

do
not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

●

exclude
depreciation and amortization expense, and although these are non-cash expenses, the assets being depreciated may have to be replaced
in the future, increasing our cash requirements; and

●

do
not reflect provision for or benefit from income taxes that reduces cash available to us.

Because
of these limitations, we consider, and you should consider, the non-GAAP financial measures alongside other financial performance measures,
including net income (loss) and our other GAAP results. A reconciliation of EBITDA and Adjusted EBITDA to net income (loss), and Adjusted
EBITDA Margin to net income (loss) margin, the most directly comparable financial measures stated in accordance with GAAP, is provided
below. Investors are encouraged to review the related GAAP financial measures and the reconciliation of the non-GAAP financial measure
to their most directly comparable GAAP financial measure.

Year
Ended

(in thousands, except percentages)

December
31, 2025

December
31, 2024

Net loss

$

(4,104

)

$

(38,694

)

Depreciation and amortization

12,009

12,640

Income tax expense

7,043

9,209

Interest
expense, net 1

9,800

3,764

EBITDA

24,748

(13,081

)

(Gain) loss on
extinguishment 1

(15,559

)

10,461

Stock-based compensation

19,906

716

Contingent consideration
fair value adjustments

(20,272

)

(2,400

)

Warrant fair value adjustment

(1,843

)

-

Goodwill impairment

-

37,994

IPO contingencies 2

(1,322

)

-

Adjusted EBITDA

$

5,658

$

33,690

Net loss margin

(4.5

)%

(44.5

)%

Adjusted EBITDA Margin

6.2

%

38.8

%

1 The Company reclassified $10.5 million
of loss on debt extinguishment previously included in interest expense, net to a separate line item, gain (loss) on extinguishment of
debt, in the consolidated statement of operations for the year ended December 31, 2024 to conform to the 2025 presentation. This reclassification
had no impact on net loss for the year ended December 31, 2024, but resulted in a corresponding change to EBITDA for the prior year.

2
IPO contingencies for the year ended December 31, 2025 are $1.0 million related to Kipps, $0.8 million related to the legal settlement,
$0.5 million legal accrual, $0.2 million for NGA, $0.3 million bonus, $0.6 million Aspen contingent debt, $1.2 million charge related
to the Libertas warrants, $0.1 million cash portion of the Aspen carve-out, net of a $5.9 million gain on deferred compensation.

67

Results
of Operations

Years
Ended December 31, 2025 and 2024

The
following table shows our consolidated financial results for the years ended December 31, 2025 and 2024:

Year ended

December 31,

Period over period change

(in thousands, except percentages)

2025

2024

$

%

Revenue

$

90,907

$

86,935

$

3,972

4.6

%

Cost of revenue

36,492

28,618

7,874

27.5

%

Gross profit

54,415

58,317

(3,902

)

(6.7

)%

Operating expenses:

Research and development

17,918

13,133

4,785

36.4

%

Sales and marketing

6,618

6,422

196

3.1

%

General and administrative

58,644

18,201

40,443

222.2

%

Goodwill impairment

-

37,994

(37,994

)

(100.0

)%

Total operating expenses

83,180

75,750

7,430

9.8

%

Loss from operations

(28,765

)

(17,433

)

(11,332

)

(65.0

)%

Other income (expense):

Interest expense, net

(9,800

)

(3,764

)

(6,036

)

(160.4

)%

Gain (loss) on extinguishment of debt

15,559

(10,461

)

26,020

248.7

%

Other income, net

25,945

2,173

23,772

N.m.

Total other income (expense)

31,704

(12,052

)

43,756

363.1

%

Income (loss) before income tax expense

2,939

(29,485

)

32,424

110.0

%

Income tax expense

(7,043

)

(9,209

)

2,166

23.5

%

Net loss

$

(4,104

)

$

(38,694

)

$

34,590

89.4

%

N.m. - Not meaningful

Revenue

For the year ended December 31, 2025
compared to the year ended December 31, 2024, the $4.0 million increase in revenue was due to a $4.4 million increase in the Drones
segment and a $1.3 million increase in the Training segment partially offset by a $1.7 million decrease in the Avionics segment. The
increase in revenue in the Drones segment was due to the continued success of market entry strategies that target NATO member
countries that have resulted in increased shipments. Training revenue continues to reflect deferred aircraft acquisitions; the
segment benefited from a biennial government contract with higher margins associated with ground target vehicle programs. Avionics
revenue reflects deliberate sequencing of R&D and commercialization activities during the period to prioritize drone production
in the Drones segment. Following the Company’s completed equity offerings, we have begun reinitiating targeted investments in Training and
Avionics.

Cost
of Revenue

For the year ended December 31, 2025 compared to the year ended December
31, 2024, cost of revenue increased by $7.9 million primarily due to a $8.2 million and a $0.9 million increase in cost of revenue within
the Drones and Training segments, respectively, offset by a decrease of $1.3 million within the Avionics segment. Gross margin decreased
from 67.1% to 59.9% during the year ended December 31, 2025, with a 9.0% decrease in the Drones segment margin
partially offset by increases in margins within the Training and Avionics segments. The decrease in margin within the Drones segment
was primarily due to product discounting and the mix of products sold during the period. The Training segment margin increased 3.8% due
to the higher profitability of the ground target vehicles contract and the Avionics segment had a 2.1% increase in margin due to favorable
operating variances.  

Operating
Expenses

Research
and Development

For the year ended December 31, 2025 compared to the year ended December
31, 2024, R&D expense increased $4.8 million primarily due to a $3.8 million increase and a $0.8 million increase within the Drones
segment and Avionics segment, respectively. Increases within the Drones segment were primarily due to increased personnel and other costs
while the increases in Avionics represents targeted investments within the Avionics platform.

Sales
and Marketing

For the year ended December 31, 2025
compared to the year ended December 31, 2024, sales and marketing expense increased $0.2 million primarily due to a $0.3 million
increase within the Drones segment offset by immaterial decreases in other segments. Increases within the Drones segment were primarily due to increased personnel costs.

68

General
and Administrative

For the year ended December 31, 2025
compared to the year ended December 31, 2024, general and administrative expense increased $40.4 million primarily due to a $25.3
million increase in corporate costs which included $7.7 million of equity compensation, $0.5 million of bonus compensation, $1.0
million of advisory services, and $1.3 million of legal settlement accruals, all of which were previously contingent upon the IPO.
The remaining increase was driven by a $6.5 million increase in incentive and consulting fees related to the expansion of the Drones
segment, $1.7 million of higher bonus compensation, and $6.6 million of other corporate costs, mainly due to increased
personnel-related expenses. There was also a $3.2 million increase within the Drones segment, an $11.1 million increase within the
Training segment, and a $1.7 million increase within the Avionics segment partially offset by a $0.9 million decrease within the
Electric Air Mobility segment. Increases within the Drones segment were primarily due to increases in personnel and other costs.
Increases within the Avionics segment and Training segment were primarily attributable to equity compensation. The $0.9 million
decrease within the Electric Air Mobility segment was due to cost reduction initiatives in the business.

Goodwill
Impairment

For
the year ended December 31, 2024, we recorded $38.0 million of goodwill impairment. Primary factors leading to the impairment were the
continuation of funding delays which resulted in the change of projected cash flows within the Training and Electric Air Mobility segments.
There was no goodwill impairment for the year ended December 31, 2025. See “Critical Accounting Policies and Estimates—Goodwill”
for additional information.

Interest
Expense, Net

For the year ended December 31, 2025
and 2024, we had interest expense, net, of $9.8 million and $3.8 million, respectively. The interest for year ended December 31,
2025 was primarily attributable to the interest paid in shares on the investor notes which totaled $6.7 million and additional
interest paid on borrowings with WebBank and Libertas. The interest for year ended December 31, 2024 primarily related to a contingent payment arrangement and accrued interest
associated with a promissory note and earnout obligations.

Gain
(loss) on extinguishment of debt, net

For
the year ended December 31, 2025, we had a gain on debt extinguishment, net of $15.6 million which was the result of the partial
settlement in equity of the Aspen bridge notes which resulted in a $13.1 million gain and a $5.7 million gain on settlement of
certain investor notes at fair value, partially offset by losses on debt extinguishment of a combined $3.2 million for WebBank and
Libertas. During the year ended December 31, 2024, we recognized a $10.5 million loss on debt extinguishment resulting
from amendments to certain Investor Notes.

Other
Income (Expense), Net

For the year ended December 31, 2025 compared to the year ended December
31, 2024, we had $25.9 million of other income, primarily due to $20.3 million of income from fair value adjustments on contingent consideration,
$1.8 million of income from a fair value adjustment on the Libertas warrants and $4.5 million of income from the settlement of deferred
compensation offset by a $1.2 million charge related to Libertas warrants and a $0.6 million contingency recorded related to the Aspen
contingent debt as compared to $2.2 million of other income during the year ended December 31, 2024, which was primarily due to the decrease
in the fair value of the Jaunt Contingent Arrangement.

Income
Tax Expense

For
the year ended December 31, 2025, our income tax expense was $7.0 million and our effective tax rate was 239.6%. Income tax expense for the
year ended December 31, 2025 was primarily attributable to Sky-Watch generating positive pre-tax income and its inability to claim high-tax exception for the 2025 tax year. For the year ended
December 31, 2024, our income tax expense was $9.2 million and our effective tax rate was 31.2%. The $9.2 million tax expense for
the year ended December 31, 2024 was primarily attributable to Sky-Watch generating positive pre-tax income. The primary drivers of
our effective tax rate consisted of the full valuation allowance positions taken by our U.S. and Canadian entities and the profit
generated by our entities in other jurisdictions, mainly Denmark. On a worldwide basis, while our profit before tax was minimal, it
represented significant losses in the United States and significant profits in Denmark, resulting in a high effective tax
rate.

69

Liquidity
and Capital Resources

As of December 31, 2025, we had cash
and restricted cash of $74.6 million, of which $0.2 million was either restricted or was designated exclusively for Sky-Watch
operations, and working capital of $75.6 million.

Based
on its current operating plan and available liquidity, management believes that the Company has sufficient cash and resources to meet
its obligations and continue its operations for at least the next 12 months from the date of issuance of the financial statements.

The
Company is evaluating opportunistic debt financing to support growth initiatives; any proceeds, if obtained, would be used to expand
our market position, pursue strategic opportunities, and support revenue growth and long-term profitability.

Investor
Notes

As
of December 31, 2025, the Investor Notes described within Note 2 and Note 18 to our consolidated financial statements were fully settled,
and we had no remaining Investor Note obligations.

Dangroup
Incentive Agreement

In June 2024, we entered the Dangroup Incentive Agreement with Dangroup,
whereby we agreed to pay Dangroup 20% of Sky-Watch’s EBITDA as an incentive bonus for their continued involvement in Sky-Watch’s
governance, management and/or other operations, commencing on January 1, 2025 for an initial term of five years, which shall renew upon
mutual agreement of the parties. During the year ended December 31, 2025, the Company recorded $5.7 million of expense related to this
agreement which was classified as a related party payable as of December 31, 2025. In December 2024, we amended the Dangroup Incentive
Agreement, whereby we agreed to transfer to Dangroup shares of our common stock immediately prior to the completion of the IPO such that
Dangroup’s ownership would be increased to 5% of our capital stock on a fully diluted basis. During the year ended December 31,
2025, we issued 0.5 million shares to Dangroup in satisfaction of this agreement.

Cash
Flows

The
following summarizes our cash flows for the periods indicated:

Year
Ended

(in thousands)

December
31, 2025

December
31, 2024

Net cash (used in) provided by
operating activities

$

(32,432

)

21,485

Net cash used in investing activities

(3,074

)

(789

)

Net cash provided by (used in) financing activities

86,413

(10,583

)

Net Cash (Used in) Provided by Operating Activities

Net
cash used in operations for the year ended December 31, 2025 totaled $32.4 million, and was primarily due to $19.2 million in
settled accounts payable, accrued expenses, and other long-term liabilities, $6.9 million decrease in deferred revenue, and other working
capital adjustments. Net cash provided by operations for the year ended December 31, 2024 totaled $21.5 million which was primarily
due to positive non-cash adjustments, including goodwill impairment, depreciation and amortization, non-cash loss on debt
extinguishment, and stock-based compensation, net of a negative non-cash adjustment for change in fair value of contingent
consideration, offset by working capital adjustments, primarily consisting of the changes in accounts receivable, inventory, prepaid
expenses, net of changes in accounts payable, accrued expenses and other long-term liabilities and deferred compensation partially
offset by a net loss of $38.7 million

70

Net
Cash Used in Investing Activities

Cash
of $3.1 million and $0.8 million was used in investing activities during the years ended December 31, 2025 and 2024, respectively, to
purchase property and equipment and intangible assets.

Net
Cash Provided by (Used in) Financing Activities

Net
cash provided by financing activities during the year ended December 31, 2025 was $86.4 million primarily due to $58.3 million of proceeds
from the IPO net of issuance costs, $82.6 million of proceeds from the Follow-on Offering net of issuance costs, $8.5 million of proceeds
from the Libertas warrants and WebBank loans that were partially offset by $19.4 million of stock repurchases, $30.5 million of debt
repayments on borrowings and related borrowings, $8.5 million of contingent consideration payments, and $3.2 million in payments due
to seller. Net cash used in financing activities during the year ended December 31, 2024 was $10.6 million, primarily due to payments
made to the sellers of Sky-Watch that were partially offset primarily by the proceeds from borrowings (including related party borrowings),
net of repayments.

Critical
Accounting Policies and Estimates

Our
consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States.
The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates
and assumptions. Our actual results may differ from these estimates under different assumptions or conditions. We believe that of our
significant accounting policies, which are described in Note 1. The Company and Summary of Significant Accounting Policies to
our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, the following accounting policies
and specific estimates involve a greater degree of judgment and complexity. Accordingly, these are the policies and estimates we believe
are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations:

●

the
standalone selling price (“SSP”) of performance obligations for revenue contracts with multiple performance obligations;

●

goodwill
impairment;

●

impairment
of indefinite lived and long-lived assets;

●

valuation
of debt;

●

stock-based
compensation;

●

inventory
valuation; and

●

the
recognition, measurement and valuation of current and deferred income taxes and uncertain tax positions.

As
described more fully below, these estimates bear the risk of change due to the inherent uncertainty of the estimate. We base our estimates
and judgments on historical experience, industry benchmarking information, and on various other factors that we believe to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources.

71

These
estimates may change, as new events occur and additional information is obtained, and such changes will be recognized in the
consolidated financial statements as soon as they become known. Actual results could differ from these estimates and any such differences
may be material to our consolidated financial statements.

Revenue
Recognition

We
recognize revenue when, or as, we satisfy performance obligations by transferring promised products or services to our customers in an
amount that reflects the consideration we expect to receive. We apply the following five steps: (i) identify the contract with a customer,
(ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price
to the performance obligations in the contract, and (v) recognize revenue when a performance obligation is satisfied. We account for
a contract with a customer when there is a legally enforceable contract, the rights of the parties are identified, the contract has commercial
terms, and collectability of the contract consideration is probable.

For
certain sales, we have contracts with customers that include multiple performance obligations. For these contracts, we account for individual
performance obligations separately, by allocating the contract’s total transaction price to each performance obligation in an amount
based on the relative SSP of each distinct good or service in the contract. We determine the SSP based on our overall pricing objectives,
taking into consideration market conditions. Determining whether products or services are considered distinct performance obligations
that should be accounted for separately versus together may require significant judgment. A contract’s transaction price is allocated
to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Revenue is recognized
when control of the promised services is transferred to the customer in an amount that reflects the consideration we expect to be entitled
to receive in exchange for those services. Our contracts do not include highly variable components. The timing of revenue recognition,
billings, and cash collections can result in billed accounts receivable, unbilled receivables (contract assets), and deferred revenue
(contract liabilities). The costs to obtain contracts, primarily commission expenses, are expensed when incurred.

Amounts
that are invoiced are recorded in accounts receivable and revenue or deferred revenue, depending on whether the revenue recognition criteria
have been met. A large portion of our sales result in partial prepayments prior to shipment from customers. Otherwise, customer invoices
generally have payment terms of net 30 days and do not have a significant financing component.

Our
revenue is derived from various sources: (i) avionics products consisting primarily of hardware with embedded firmware sold to an authorized
dealer network and avionics and GNSS products sold to OEMs, (ii) R&D projects, (iii) sales-based royalties related to GNSS technology
licensed to OEMs, (iv) consultation and training services related to aerial integration and close air support providing the latest tactics,
technique, and procedures to incorporate contract close air support/intelligence surveillance reconnaissance with video downlink systems
into tactical operations, (v) technology and equipment sales (vi) mUAS, commonly referred to as “commercial drones,” sales,
including hardware, software, training, support and product service, and (vii) drone services, including surveys, imaging, security,
and other drone applications.

72

Goodwill

Goodwill
represents the excess of the aggregate purchase price over the fair value of net identifiable assets acquired in a business combination.
We manage our business primarily based upon four operating segments: (i) Drones, (ii) Avionics, (iii) Training and (iv) Electric Air
Mobility, each of which represents a reportable segment. We have determined that each reportable segment represents a reporting unit
and, in accordance with ASC 350, Intangibles - Goodwill and Other (“ASC 350”), each reporting unit requires an allocation
of goodwill. We will continue to reevaluate reportable and operating segments.

Goodwill
is not amortized and is tested at the reporting unit level for impairment on an annual basis or whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. We have selected October 1st as the date to perform our annual impairment
test. In the valuation of goodwill, management must make assumptions regarding estimated future cash flows to be derived from our business.
If these estimates or their related assumptions change in the future, we may be required to record an impairment for these assets. Management
may first evaluate qualitative factors to assess if it is more likely than not that the fair value of a reporting unit is less than its
carrying amount and to determine if an impairment test is necessary. Management may choose to proceed directly to the evaluation, bypassing
the initial qualitative assessment. The impairment test involves comparing the fair value of the reporting unit to which goodwill is
allocated to its net book value, including goodwill. A goodwill impairment loss would be the amount by which a reporting unit’s
carrying value exceeds its fair value, however, the loss recognized should not exceed the total amount of goodwill allocated to that
reporting unit. No goodwill impairment charges were recorded for the year ended December 31, 2025. We recorded goodwill
impairment charges of $38.0 million during the year ended December 31, 2024.

2025
Goodwill Impairment Test

On
October 1, 2025, our annual goodwill impairment testing date, the Company determined it appropriate to test the fair value of each reporting
unit for goodwill impairment for all of its reporting units except Avionics as no goodwill had been allocated to this reporting unit.
Management determined that the fair value of the reporting units exceeded their respective carrying value as detailed below.

Drones

Electric Air

Mobility

Training

Goodwill carrying value as of October 1, 2025

$

121.7 million

$

434.3 million

$

15.5 million

Fair value of reporting unit as of October 1, 2025

$

190.0 million

$

529.6 million

$

21.2 million

Carrying value of reporting unit as of October 1, 2025

$

144.3 million

$

499.1 million

$

20.4 million

Impairment as of October 1, 2025

$

-

$

-

$

-

Estimates and assumptions varied between each reporting unit depending
on the facts and circumstances specific to that reporting unit. The discount rate for each reporting unit is influenced by general market
conditions as well as factors specific to the reporting unit. The fair value of the reporting units for which we performed quantitative
impairment tests was estimated using an income approach, which incorporates the use of the discounted cash flow method. The projections
used required the use of significant estimates and assumptions specific to the reporting unit as well as those based on general economic
conditions. Factors specific to each reporting unit include revenue growth, profit margins, terminal value growth rates, capital expenditure
projections, assumed tax rates, discount rates, and other assumptions deemed reasonable by management. For the 2025 impairment test, the
weighted average cost of capital (“WACC”) discount rates we used for its reporting units was 31%-40% and the terminal value
growth rate was 4%. The terminal value growth rate represents the expected long-term growth rate for the Company’s industry, which
incorporates the type of services each reporting unit provides as well as the global economy. Other factors influencing the revenue growth
rates include the nature of the services the reporting unit provides to its clients, the geographic locations in which the reporting unit
conducts business and the maturity of the reporting unit.

Specific to the Electric Air Mobility segment’s projections as of
October 1, 2025, projected revenue reflects management’s continued prioritization of its cargo unmanned aerial vehicle (“UAV”)
program due to improved market visibility and lower regulatory complexity relative to passenger aircraft. Management continues to expect
commercialization of the cargo UAV to begin in the fourth quarter of 2027, followed by the Jaunt Journey passenger aircraft in late 2031.
Revenue projections assume increasing production volumes over time, reaching long-term capacity of approximately 400 units per year for
the cargo UAV and 3,000 units per year for the Jaunt Journey at a single production facility. Projected selling prices include a 1.5%
annual escalation rate and remain generally consistent with prior year assumptions.

Earnings before interest, taxes,
depreciation and amortization (“EBITDA”) projections as of October 1, 2025 were developed using estimates of
manufacturing costs, production hours per unit, learning curves and subsequent efficiencies with operating losses expected to
continue through the end of fiscal year 2031. The forecast assumes cost of revenue improves as volumes scale, stabilizing at
approximately 74% of revenues over the longer term, and operating expenses as a percentage of revenue peak in 2027 at approximately
62% before trending down and stabilizing near 3% of revenue after 2033. Long-term EBITDA margins are estimated at approximately 22%.
Projected EBITDA as of October 1, 2025 gave effect to net research and development costs expected to be incurred (i) between 2026
and 2028 leading up to the commercialization of the cargo UAV and (ii) between 2029 and 2031 leading up to the commercialization of
the Jaunt Journey and assumed positive EBITDA during the two years following commercialization. Manufacturing cost estimates and
estimated efficiencies as well as mid-term and long-term EBITDA projections at maximum capacity have not significantly changed
compared to the Company’s prior year testing. We continue to anticipate profitability in the Electric Air Mobility segment
commencing in year two following commercialization of the cargo UAV. As to the degree of uncertainty associated with our
assumptions, we believe our long-term projected revenue is reasonable given a sales price supported by non-binding letters
of intent and a relatively small number of units. There is a higher degree of uncertainty in projected EBITDA as compared to
projected revenue as projected EBITDA includes estimates as to future labor and material costs, efficiency rates as to the number of
production hours required over time, and synergies.

The
discounted cash flow analysis as of October 1, 2025 indicated no impairment of the Electric Air Mobility reporting unit’s
goodwill. The most sensitive factor in our analysis was the discount rate. As of October 1, 2025, a 34.0% WACC rate
was applied. This represents a 100-basis points increase compared to the prior valuation, which was considered appropriate in light
of our IPO-related developments and management’s outlook as well as the current stage of the development
process. As to the sensitivity of the WACC rate, another hypothetical 100-basis-point increase in the WACC discount rate would have
yielded $13.0 million in goodwill impairment. We believe the factors considered in the impairment analysis are reasonable;
however, significant changes in any one of our assumptions could produce a different result and result in future impairment charges
that could be material to our consolidated financial statements.

73

Specific to the Training segment’s projections as of October 1, 2025,
projected revenue, margins and EBITDA have not significantly changed compared to prior year testing. As to the degree of uncertainty associated
with our assumptions, we believe our short-term projected revenue is reasonable given our history with military
contract practices and the historical results of flight schools, while long-term projected revenue is subject to a higher degree of uncertainty.
To mitigate this risk, a 31% WACC discount rate was applied to these projections which reflected a 100-basis points increase compared
with the prior year testing date of October 1, 2024. As to the sensitivity of the WACC rate, another hypothetical 100-basis-point increase
in the WACC discount rate would have yielded $2.4 million in goodwill impairment.

In addition to the income approach
described above, we considered our observable market capitalization when assessing the reasonableness of the estimated fair values
of our reporting units as of the valuation date. We reconciled the aggregate estimated fair value of our reporting units,
inclusive of corporate assets and liabilities and after consideration of outstanding debt, to our market
capitalization as of the testing date. The aggregate estimated fair value exceeded our observable market
capitalization. This difference reflects that the estimated fair values of the reporting units represent values on a controlling
interest basis, whereas our market capitalization reflects the trading value of minority shares. Accordingly, the
difference represents an implied control premium. The reasonableness of the implied control premium was evaluated with reference to
observable market data, including published control premium studies and other evidence of premiums paid in transactions in relevant
sectors, and was determined to be consistent with assumptions that market participants would use in estimating fair value.

We believe the factors considered in
the impairment analysis are reasonable; however, significant changes in any one of the assumptions discussed above could produce a
different result and result in additional impairment charges that could be material to the consolidated financial statements. For
example, the fair value of the Training segment could be adversely affected and may result in an additional impairment of goodwill
if this reporting unit is not able to purchase the needed aircraft, if the estimated costs for managing the flight schools are
significantly higher than estimated or if the WACC discount rate is increased.

2024
Goodwill Impairment Test

As
a result of the termination of our Business Combination Agreement and related transactions (the “BCA Transactions”) in August
2024 and the continued delays in securing financing, we determined it appropriate to test the fair value of each reporting unit for goodwill
impairment as of September 30, 2024 for all of our reporting units except Avionics as no goodwill had been allocated to this reporting
unit. We determined that the fair value of the Drones reporting unit substantially exceeded its respective carrying value. The Electric
Air Mobility and Training reporting unit fair values indicated goodwill impairment as detailed below.

Drones

Electric
Air Mobility

Training

Goodwill carrying value as of September 30, 2024

$

115.8
million

$

451.4
million

$

36.5
million

Fair value of reporting unit as of September 30, 2024

$

185.1
million

$

510.2
million

$

25.1
million

Carrying value of reporting unit as of September 30, 2024

$

133.5
million

$

527.2
million

$

46.1
million

Impairment as of September 30, 2024

$

—

$

17.0
million

$

21.0
million

Estimates
and assumptions varied between each reporting unit depending on the facts and circumstances specific to that reporting unit. The discount
rate for each reporting unit is influenced by general market conditions as well as factors specific to the reporting unit. The fair value
of the reporting units for which we performed quantitative impairment tests was estimated using an income approach, which incorporates
the use of the discounted cash flow method. Projections used require the use of significant estimates and assumptions specific to the
reporting unit as well as those based on general economic conditions. Factors specific to each reporting unit include revenue growth,
profit margins, terminal value growth rates, capital expenditures projections, assumed tax rates, discount rates and other assumptions
deemed reasonable by management. For the 2024 impairment test, the WACC discount rates we used for our reporting units was 30%-35% and
the terminal value growth rate was 4%. The terminal value growth rate represents the expected long-term growth rate for our industry,
which incorporates the type of services each reporting unit provides as well as the global economy. Other factors influencing the revenue
growth rates include the nature of the services the reporting unit provides for its clients, the geographic locations in which the reporting
unit conducts business and the maturity of the reporting unit.

74

Specific
to the Electric Air Mobility segment’s projections as of September 30, 2024, projected revenue was revised to include projected
aircraft production timing for the Jaunt Journey in 2031 as compared to a previous estimate of 2028 and further incorporated production
of a cargo UAV in 2027. Projected revenue in years 1 and 2 of commercialization of
the cargo UAV as of September 30, 2024 were added to our September 30, 2024 projections based on an estimated assumed selling price and
expected production levels of approximately 240 units over the two-year period. Projected revenue in years 1 and 2 of commercialization
(i.e., 2028 and 2029) of the Jaunt Journey as of October 1, 2023 was based on a sales price that was in line with the negotiated
pricing contained in our non-binding letters of intent and projected volume of 630 units over the same two-year period. Following the
revision of the estimated commercialization date to 2031, the escalation rate utilized in our original projections continued to be consistently
applied. Accordingly, such escalation rate was applied to the original estimated selling price in 2028 for a period of three additional
years (i.e., 2028 to 2031). As a result, the sales price in the revised estimated first year of commercialization (2031) increased compared
to prior projections. Revenue projections for both programs were based on increasing production quantities year-over-year that max out
at approximately 400 units per year for the cargo UAV and 3,000 units per year for the Jaunt Journey at a single production facility,
and a per-unit sales price that increases over time assuming a 1.5% escalation rate. The foregoing escalation rate and production volume
of the Jaunt Journey remained consistent with prior year projections.

EBITDA
projections as of September 30, 2024 were developed using estimates of manufacturing costs, production hours per unit, learning curves
and subsequent efficiencies, and operating costs. While mid-term and long-term EBITDA projections at maximum capacity have not significantly
changed compared to our prior year testing date of October 1, 2023, the impact of delaying the projected cash flows from the Jaunt Journey
as a result of a later expected commercialization date resulted in a decrease in the fair value of the Electric Air Mobility segment,
which indicated impairment. Projected EBITDA as of October 1, 2023 gave effect to net research and development costs expected to be incurred
between 2024 and 2027 leading up to the commercialization of the Jaunt Journey aircraft and assumed positive EBITDA during the two years
following commercialization. Projected EBITDA as of September 30, 2024 gave effect to net research and development costs expected to
be incurred (i) between 2025 and 2028 leading up to the commercialization of the cargo UAV and (ii) between 2029 and 2031 leading up
to the commercialization of the Jaunt Journey and assumed positive EBITDA during the two years following commercialization. Mid-term
and long-term EBITDA margin projections at full rate production were reduced slightly (1-2%) compared to our prior year testing date
of October 1, 2023.

EBITDA
projections as of September 30, 2024 were also revised to incorporate estimates of manufacturing costs of the cargo UAV, which reduced
mid-term and long-term gross margins by approximately 2% at full rate production, as well as estimated efficiencies, which resulted in
reduced operating expenses slightly (0.5%-1%) as a percentage of revenue as compared to the October 1, 2023 projections.

While
the timing of projected cash flows from the Jaunt Journey has been delayed and as operations now include a plan to produce a cargo UAV,
profitability of the Electric Air Mobility segment post-commercialization of the Jaunt Journey has always been part of our projections.
We anticipate profitability in the Electric Air Mobility segment commencing in year two following commercialization of the cargo UAV.
As to the degree of uncertainty associated with our assumptions, we believe our long-term projected revenue is reasonable given a sales
price supported by non-binding letters of intent and a relatively small number of units in comparison to an anticipated global market ranging between an expected $1 trillion and with an upside $4.4 trillion by 2040. There is a higher
degree of uncertainty in projected EBITDA, as compared to projected revenue as projected EBITDA includes estimates as to future labor
and material costs, efficiency rates as to the number of production hours required over time, and synergies.

75

The
most sensitive factor in our analysis was the WACC discount rate. As of September 30, 2024, a 33% WACC discount rate was applied to the
Electric Air Mobility segment, which is fairly consistent with the 35% WACC discount rate used as of our prior year testing date of October
1, 2023. The 200 basis-point decrease from prior year was deemed appropriate due to more conservative projected long term EBITDA margins
as compared to sales in the prior year, regulatory harmonization that has occurred for the industry between the FAA, TCCA, and EASA,
advances in electric propulsion, battery density, and autonomous systems which lower remaining technical development risk. While these
factors reduce risk to the Electric Air Mobility segment, a larger decrease in the WACC was not deemed appropriate due to delays in funding
for development efforts and overall implementation risk that remains similar to October 1, 2023. As to the sensitivity of the WACC rate,
another hypothetical 100 basis-point increase in the WACC discount rate would have yielded an additional $46.0 million in goodwill impairment.

We
believe the factors considered in the impairment analysis are reasonable; however, significant changes in any one of our assumptions
could produce a different result and result in additional impairment charges that could be material to our consolidated financial
statements. For example, the fair value of the Electric Air Mobility segment could be adversely affected and may result in an additional
impairment of goodwill if this reporting unit is not able to advance the development of our aircraft and other products, obtain regulatory
approvals, and launch and commercialize our products at scale, if the estimated production costs are significantly higher than estimated
or if the WACC discount rate is increased.

Specific
to the Training segment’s projections as of September 30, 2024, we noted a significant decrease in sales and gross margins as a
result of not being able to meet contractual demands due to delays in the funding of aircraft. In prior years, government ISR aircraft
contracts did not require that the aircraft be able to employ weapons. As those contracts have aged-out, the new requirements for the
re-competitions require assets that have the ability to employ training munitions and have been approved by the government to do so.
CDI does not possess aircraft that can achieve this requirement; thus, we have either not been awarded or chose not to bid on certain
contracts. The projected revenue and margins were revised to include the timing of projected aircraft and investments to be made in flight
schools in the short-term (between 2025 and 2028) and then the acquisition of additional aircraft beginning in years after 2029.

EBITDA
projections as of September 30, 2024 have not significantly changed compared to our prior year testing date of October 1, 2023, and we
do not anticipate any changes until we are able to make more significant investments in aircraft, and at which time we can better leverage
our operating expenses. At that point, we anticipate that mid-term and long-term EBITDA margins would increase. The shifting and corresponding
discounting of these projections resulted in a significant decrease in the fair value of the Training segment, which indicated impairment.

As
to the degree of uncertainty associated with our assumptions, we believe our short-term projected revenue is reasonable given our history
with military contract practices and the historical results of flight schools, while our long-term projected revenue is subject to a
higher degree of uncertainty. To mitigate this risk, a 30% WACC discount rate was applied to these projections which was consistent with
our prior year testing date of October 1, 2023. As to the sensitivity of the WACC rate, another hypothetical 100-basis-point increase
in the WACC discount rate would have yielded an additional $3.4 million in goodwill impairment.

We
believe the factors considered in the impairment analysis are reasonable; however, significant changes in any one of our assumptions
could produce a different result and result in additional impairment charges that could be material to our consolidated financial
statements. For example, the fair value of the Training segment could be adversely affected and may result in an additional impairment
of goodwill if this reporting unit is not able to purchase the needed aircraft, if the estimated costs for managing the flight schools
are significantly higher than estimated or if the WACC discount rate is increased.

Intangible
Assets

We
perform valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business combination and allocates
the purchase price of the acquired business to the respective net tangible and intangible assets. We determine the appropriate useful
life by performing an analysis of expected cash flows based on historical experience of the acquired businesses. Intangible assets are
amortized over their estimated useful lives using the straight-line method which approximates the pattern in which the economic benefits
are consumed. We capitalize third-party legal costs and filing fees, if any, associated with obtaining patents. Once the patent asset
has been placed in service, we amortize these costs over the shorter of the asset’s legal life, generally 20 years from the initial
filing date, or its estimated economic life using the straight-line method.

76

The
estimated useful lives for our intangible assets are as follows:

Estimated

useful
life

Developed technology

8
to 13 years

Tradenames – definite-lived

4
to 8 years

Customer relationships

3
to 7 years

Patents

up
to 20 years

In
addition to the long-lived intangible assets, we also had $8.8 million of indefinite lived intangible assets which is primarily the $8.7
million tradename obtained in conjunction with the Jaunt acquisition.

Impairment
of Indefinite Lived Assets

Under
ASC 350-30-35-18, an intangible asset that is not subject to amortization shall be tested for impairment annually and more frequently
if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. In testing for impairment,
we define our Asset Groups at the reporting unit level. Under ASC 360-10-35-26 when an asset group is a reporting unit, the asset group
includes goodwill. When goodwill and indefinite lived intangibles are included in the long-lived asset group being tested for impairment,
the indefinite-lived intangible assets are tested for impairment in accordance with ASC 350-30 first, then the long-lived assets (groups)
are tested for impairment in accordance with ASC 360-10, and goodwill is tested for impairment at the reporting unit level in accordance
with ASC 350-20 last.

ASC
350-30-35-18A specifies that an entity may first perform a qualitative assessment, as described in this paragraph and paragraphs 350-30-35-18B
through 35-18F, to determine whether it is necessary to perform the quantitative impairment test.

As
a result of the termination of our Business Combination Agreement in August 2024 and the continued delays in financing, we determined
it appropriate to perform a qualitative assessment considering factors listed in ASC 350, which includes cost factors, financial performance,
legal, regulatory, contractual, political, business, or other factors. Based on our review of these factors, there was no indication
of impairment for the Avionics or Drones segments. However, we determined it appropriate to perform a quantitative analysis on intangible
and long-lived assets within the Electric Air Mobility and Training segments. The fair value of the undiscounted cashflows of both the
Electric Air Mobility and Training segments was significantly higher than the respective asset group’s carrying value and therefore
no impairment charges were required to be recorded for the year ended December 31, 2024.

No
impairment charges were recorded during the year ended December 31, 2025.

Impairment
of Long-Lived Assets

We
evaluate long-lived assets, including property and equipment and intangible assets, for impairment in accordance with ASC 360 whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held
and used is measured by a comparison of the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows
expected to be generated by the asset or asset group. If such evaluation indicates that the carrying amount of the asset or the asset
group is not recoverable, any impairment loss would be equal to the amount the carrying value exceeds the fair value.

As
a result of the termination of our Business Combination Agreement in August 2024 and the continued delays in financing, we determined
it was appropriate to perform a qualitative assessment considering factors listed in ASC 350 which includes cost factors, financial performance, legal, regulatory, contractual, political, business, or other factors.
Based on our review of these factors, there was no indication of impairment for the Avionics or Drones segments. However, we determined
it was appropriate to perform a quantitative analysis on intangible and long-lived assets within the Electric Air Mobility and Training
segments. The fair value of the undiscounted cashflows of both the Electric Air Mobility and Training segments was significantly higher
than the respective asset group’s carrying value and therefore no impairment charges were required to be recorded in 2024.

No impairment charges were recorded during the
year ended December 31, 2025.

77

Valuation
of Debt

During
2024, certain Investor Notes were amended which resulted in significant modifications of debt. In accordance with ASC 470-50, as this
significant modification was considered an extinguishment and created an election date for the fair value option and as the fair value
election is applied on an instrument-by-instrument basis, we chose to record these Investor Notes at fair value beginning on the modification
date in October 2024. Investor Notes have historically included various interest features in the form of both stock and cash upon the
closing of an initial public offering or qualified financing. In conjunction with the IPO, common stock was issued to partially settle
the Investor Notes at fair value. As of December 31, 2025, the Investor Notes at fair value were fully settled.

Inventory
Valuation

We
write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and
the estimated net realizable value based upon assumptions about future demand and market conditions. Reductions to the carrying value
of inventory are charged to cost of revenue and a new, lower cost basis for that inventory is established. Subsequent changes to facts
or circumstances do not result in the restoration or increase in the related inventory value. If actual market conditions are less favorable
than those projected by management, additional inventory write-downs may be required.

Stock-based
Compensation

We
recognize compensation expense for stock-based awards based on the grant-date estimated fair value of the awards. Options and restricted
stock awards may be granted as time-based awards, performance-based awards or combinations of the time-based and performance-based awards.
We expense the fair value of our options to employees and non-employees on a straight-line basis over the associated service period for
time-based awards, which is generally the vesting period. The performance-based awards begin their period of ratable vesting at the time
that we determine that the achievement of the performance thresholds is probable. We account for forfeitures as they occur and does not
estimate forfeitures at the time of grant. Ultimately, the actual expense recognized over the vesting period will be for only those options
that vest.

Income
Taxes

We
account for income taxes in accordance with the asset and liability approach method. Deferred tax assets and liabilities are recognized
for future tax consequences attributable to temporary differences between the consolidated financial statements carrying amounts
of existing assets and liabilities and their respective tax bases, as well as for net operating losses and tax credit carryforwards.
Deferred tax amounts are determined by using the enacted tax rates expected to be in effect when the temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance reduces the deferred tax assets to the amount that is more-likely-than-not
to be realized.

We
evaluate our tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions
will more-likely-than-not be sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold
are not recorded as a tax benefit or expense in the current year. Interest and penalties, if applicable, are recorded in the period assessed
as income tax expense.

Off-Balance Sheet Arrangements

As of December 31, 2025 and 2024,
we have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or
commitments of other entities, or purchased any non-financial assets. We do not participate in transactions that create relationships
with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established
for the purpose of facilitating off-balance sheet arrangements.

Recent
Accounting Pronouncements

See
Note 1. The Company and Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements contained
in “Item 8. Financial Statements and Supplementary Data” for information on recent accounting pronouncements and their expected
impact, if any, on our consolidated financial statements.