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

The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion should be read in conjunction with our Consolidated Financial Statements and the related notes included in Item 8 "Financial Statements and Supplementary Data" of this Annual Report. This discussion contains forward-looking statements. Please see the explanatory note concerning "Cautionary Note Regarding Forward-Looking Statements” in Part I of this Annual Report and Item 1A. Risk Factors for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements.

Overview

AgEagle, through its wholly owned subsidiaries, is actively engaged in designing and delivering best-in-class drones, sensors and software that solve important problems for our customers. 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, autonomous UAS which drive revenue at the intersection of flight hardware, sensors and software for industries that include agriculture, military/defense, public safety, surveying/mapping and utilities/engineering, among others. AgEagle has also achieved numerous regulatory firsts, earning governmental approvals for its commercial and tactical drones to fly BVLOS and/or OOP in the United States, Canada, Brazil and the European Union and being awarded Blue UAS certification from the Defense Innovation Unit of the U.S. Department of War.

AgEagle’s shift and expansion from solely manufacturing fixed-wing farm drones in 2018, to offering what the Company believes is one of the industry’s best fixed-wing, full-stack drone solutions, culminated in 2021 when the Company acquired three market-leading companies engaged in producing UAS airframes, sensors and software for commercial and government use. In addition to a robust portfolio of proprietary, connected hardware and software products; an established global network of over 165 UAS resellers; and enterprise customers worldwide; these acquisitions also brought AgEagle a highly valuable workforce comprised largely of experienced engineers and technologists with deep expertise in the fields of robotics, automation, manufacturing and data science. In 2022, the Company succeeded in integrating all three acquired companies with AgEagle to form one global company focused on taking autonomous flight performance to a higher level.

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

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The Company is currently headquartered in Wichita, Kansas, where we house our sensor manufacturing operations, and we manufacture drones in Lausanne, Switzerland. We also operate a distribution and service center for our drone products in Raleigh, North Carolina. which supports our international business activities.

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

Key Growth Strategies

We intend to materially grow our business by leveraging our proprietary, best-in-class, full-stack drone solutions, industry influence and deep pool of talent with specialized expertise in robotics, automation, custom manufacturing and data science to achieve greater penetration of the global UAS industry – with near-term emphasis on capturing larger market share of the agriculture, energy/utilities, infrastructure and government/military verticals. We expect to accomplish this goal by first bringing three core values to life in our day-to-day operations and aligning them with our efforts to earn the trust and continued business of our customers and industry partners:

Key components of our growth strategy include the following:

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Competitive Strengths

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Impact of the Risks and Uncertainties on Our Business Operations

Global economic challenges, including the impact of the war, pandemics, rising inflation and supply-chain disruptions, regulatory investigations adverse labor and capital market conditions could cause economic uncertainty and volatility. The aforementioned risks and their respective impacts on the UAV industry and our operational and financial performance remain uncertain and outside of our control. Specifically, because of the aforementioned continuing risks, our 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 we or any of our third parties in the supply chain for materials used in our manufacturing and assembly processes continue to be adversely impacted, our supply chain may be further disrupted, limiting its ability to manufacture and assemble products.

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Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. Significant estimates include the reserve for obsolete inventory, stock options and consideration, 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.

We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting estimates affect the more significant judgments and estimates used in preparing our consolidated financial statements. Please see Note 2 to our consolidated financial statements, which are included in Item 8 “Financial Statements and Supplementary Data” of this Annual Report, for our Summary of Significant Accounting Policies. There have been no material changes made to the critical accounting estimates during the periods presented in the consolidated financial statements.

Revenue Recognition

Most of the Company’s revenues are derived primarily through the sales of drones, sensors and related accessories, and software subscriptions. All contracts and agreements are a fixed price and are accounted for in accordance with ASC Topic 606, Revenue from Contracts with Customers.

The Company generally recognizes revenue on sales to customers, dealers and distributors upon satisfaction of performance obligations which generally occurs once control transfers to customers, which is when product is shipped or delivered depending on specific shipping terms and, where applicable, customer acceptance has been obtained. The Company records revenue in the statements of operations and comprehensive loss, net of any sales, use, value added, or certain excise taxes imposed by governmental authorities on specific sales transactions and net of any discounts, allowances and returns.

Under fixed-price contracts, the Company agrees to perform the specified work for a pre-determined price. To the extent the Company’s actual costs vary from the estimates upon which the price was negotiated, it will generate more or less profit or could incur a loss. The Company accounts for a contract after it has been approved by all parties to the arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

Inventories and Provision for Obsolescence

Our policy for valuation of inventory, including the determination of obsolete inventory, requires us to perform a detailed assessment of inventory at each balance sheet date, which includes a review of, among other factors, an estimate of future demand for products within specific time horizons, valuation of existing inventory, as well as product lifecycle and product development plans. Inventory reserves are also provided to cover risks arising from slow-moving items. 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 on assumptions about future demand and market conditions. We may be required to record additional inventory write-downs if actual market conditions are less favorable than those projected by our management.

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Goodwill and Intangible Assets

The assets and liabilities of acquired businesses are recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying identifiable net assets of acquired businesses. Intangible assets from acquired businesses are recognized at fair value on the acquisition date and consist of customer programs, trademarks, customer relationships, technology and other intangible assets. Customer programs include values assigned to major programs of acquired businesses and represent the aggregate value associated with the customer relationships, contracts, technology, and trademarks underlying the associated program and are amortized on a straight-line basis over a period of expected cash flows used to measure fair value, which ranges from four to five years.

As of December 31, 2025 our goodwill balance was fully impaired compared to the December 31, 2024 balance of $4.5 million, after goodwill impairment charges recognized during the years ended December 31, 2025 and 2024 of $4.5 million and $2.9 million, respectively. We perform an annual impairment test of our goodwill at least annually in the fourth quarter or more frequently whenever events or changes in circumstances indicate the carrying value of goodwill may be impaired. Such events or changes in circumstances may include a significant deterioration in overall economic conditions, changes in the business climate of our industry, a decline in our market capitalization, operating performance indicators, competition, and reorganizations of our business. Our goodwill has been allocated to and is tested for impairment at a level referred to as the business segment. The level at which we test goodwill for impairment requires us to determine whether the operations below the business segment constitute a self-sustaining business for which discrete financial information is available, and segment management regularly reviews the operating results which is referred to as a reporting unit.

We use a quantitative approach when testing goodwill. To perform the quantitative impairment test, we compare the fair value of a reporting unit to its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired. If the carrying value of the reporting unit, including goodwill, exceeds its fair value, a goodwill impairment loss is recognized in an amount equal to that excess. We generally estimate the fair value of each reporting unit using a combination of a discounted cash flow (“DCF”) analysis and market-based valuation methodologies such as comparable public company trading values and values observed in recent business acquisitions. Determining fair value requires the exercise of significant judgments, including the amount and timing of expected future cash flows, long-term growth rates, discount rates and relevant comparable public company earnings multiples and relevant transaction multiples. The cash flows employed in the DCF analysis are based on our best estimate of future sales, earnings, and cash flows after considering factors such as general market conditions, existing firm orders, expected future orders, changes in working capital, long term business plans and recent operating performance.

As of December 31, 2025, we performed our annual goodwill impairment tests for our Sensor reporting unit. The results of our annual impairment test indicated that the fair value of the sensors reporting unit was less than their carrying amount, indicating an impairment. As of December 31, 2025, the Company recorded an aggregate goodwill impairment charge of $4.5 million. This impairment charge is based on the excess carrying value of the reporting unit over its fair value which resulted in a full impairment charge of the goodwill balance.

As of December 31, 2024, we performed our annual goodwill impairment tests for our three reporting units. The results of our annual impairment test indicated that the fair value of the sensors reporting unit and the fair value of the SaaS reporting units were less than their carrying amount, indicating an impairment. As of December 31, 2024, the Company recorded an aggregate goodwill impairment charge of $2.9 million on the two impaired reporting units. This impairment charge is based on the excess carrying value of the reporting units over their fair values.

Finite-lived intangibles are amortized to expense over the applicable useful lives, ranging from three to ten years, based on the nature of the asset and the underlying pattern of economic benefit as reflected by future net cash inflows. We perform an impairment test of finite-lived intangibles whenever events or changes in circumstances indicate their carrying value may be impaired. If events or changes in circumstances indicate the carrying value of a finite-lived intangible may be impaired, the sum of the undiscounted future cash flows expected to result from the use of the asset group is compared to the asset group’s carrying value. If the asset group’s carrying amount exceeds the sum of the undiscounted future cash flows, we would determine the fair value of the asset group and record an impairment loss in net earnings. The intangible assets related to the historical acquisitions were fully impaired as of December 31, 2025, leaving a balance of $56,850 for internal use software, compared to the balance of $2.0 million as of December 31,2024.

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Share-Based Compensation Awards

The value we assign to the options that we issue is based on the fair market value as calculated by the Black-Scholes pricing model. To perform a calculation of the value of our options, we determine an estimate of the volatility of our stock. We need to estimate volatility because there has not been enough trading of our stock to determine an appropriate measure of volatility. We believe our estimate of volatility is reasonable, and we review the assumptions used to determine this whenever we issue new equity instruments. If we have a material error in our estimate of the volatility of our stock, our expenses could be understated or overstated. All share-based awards are expensed on a straight-line basis over the vesting period of the options.

Results of Operations

Year Ended December 31, 2025 as Compared to Year Ended December 31, 2024

Revenues

For the year ended December 31, 2025, revenues were $12.8 million as compared to $13.4 million during the year ended December 31, 2024, a decrease of $0.6 million, or 4.3%. The decline in revenues is mainly due to the RedEdge-P and Altum-PTTM panchromatic sensors of $1.7 million, $0.3 million of our SaaS subscription services related to our HempOverview and Ground Control platforms, offsetting with the increase of the eBee drone products of $1.6 million. For the sensors, the declines are attributed to staffing challenges and rebuilding a best in class sales team along with delayed R&D activity which impeded our ability to market new versions of our sensors.

Cost of Sales

For the year ended December 31, 2025, cost of sales was $6.2 million as compared to $7.1 million during 2024, a decrease of $0.9 million, or 13.1%. The primary factors contributing to the decrease in our cost of sales and the increase gross profit margin were due to better inventory management sourcing and having a full year of automated processes in the new bill of material system.

Gross Profit

For the year ended December 31, 2025, gross profit was $6.6 million as compared to $6.3 million for the year ended December 31, 2024, an increase of $0.4 million or 5.6%. For the year ended December 31, 2025, gross profit margin was 51.8% as compared to 47.0% for the year ended December 31, 2024. The increase in gross profit margin was a result of cost of sales decreasing, during 2025 resale agreements were renegotiated to limit discounts on product sales and encourage resellers to achieve hit certain sales targets to achieve larger discounts. During the 2025 calendar year pricing of products stabilized increasing gross profit.

General and Administrative Expenses

For the year ended December 31, 2025, general and administrative expenses were $9.0 million as compared to $9.6 million for the prior year ended December 31, 2024, resulting in a decrease of $0.6 million, or 6.4%. The decrease was driven by reductions in legal fees, consulting fees, stock compensation costs and the decrease in shareholder special meeting costs.

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Research and Development

For the year ended December 31, 2025, research and development expenses were $3.6 million as compared to $4.0 million for the year ended December 31, 2024, a decrease of $0.4 million or 9.0%. The decrease was primarily due to the reduction of staff related to the Measure business unit that ceased operations in December 2024.

Sales and Marketing

For the year ended December 31, 2025, sales and marketing expenses were $3.1 million as compared to $2.4 million for the year ended December 31, 2024, an increase of $0.6 million, or 25.5%. The increase was primarily due to increased in headcount, travel, tradeshows, general marketing activities, along with in-person demos, particularly for the eBee VISON.

Impairment

Goodwill Impairment

For the year ended December 31, 2025, goodwill impairment was $4.5 million. The impairment was attributable to the goodwill related to our sensor reporting unit, specifically due to lower sales compared to forecasted sales along with the declining market conditions. The goodwill on the sensor's reporting unit was deemed fully impaired. For the year ending December 31, 2024, the Company recorded a partial goodwill impairment of $2.9 million. The impairment was attributable to the goodwill related to our sensor reporting unit, specifically due to lower sales compared to forecasted sales along with the declining market conditions.

Intangible Impairment

The annual intangible impairment conducted during the fourth quarter of 2025 indicated an impairment of $1.3 million related to the sensor reporting unit. Accordingly, the Company recorded a full impairment charge to sensor units of $1.3 million, which is included in “Impairment” on the accompanying consolidated statements of operations and comprehensive loss.

The goodwill and intangible impairment recorded on the sensor reporting unit resulted in a full impairment charges. As of December 31, 2025, the carrying value of goodwill and intangible assets, after the impairment charges, is zero for the sensor's reporting unit.

Other Income (Expenses), net

For the year ended December 31, 2025, other income, net for the Company reported a gain of $9.5 million as compared to a loss of $22.4 million for the year ended December 31, 2024. The fluctuation of $31.9 million was primarily due to the 2024 $15.3 million on loss on equity financing, $1.6 million of loss on debt extinguishment, and $8.4 million interest on promissory note, offset by the 2024 $3.1 million gain and the 2025 gain of $8.6 million on change in fair value of warrant liabilities.

Net Loss

For the year ended December 31, 2025, the Company incurred a net loss of $5.3 million as compared to a net loss of $35.0 million for the year ended December 31, 2024, a decrease in loss of $29.8 million or 84.9%. Overall, the net loss decrease is primarily a result of a $15.3 million loss on equity financing that was not recorded in 2025 along with 2025 gain on fair value or warrant liabilities of $8.6 million. The Company also incurred impairment of goodwill and intangible assets of $5.8 million related to the sensor reporting until offset by $1.4 million credit for the employee retention credit.

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Cash Flows

For the Year Ended December 31, 2025 as Compared to the Year Ended December 31, 2024

As of December 31, 2025, cash on hand was $29.9 million, an increase of $26.2 million or 726.2%, as compared to $3.6 million as of December 31, 2024. For the year ended December 31, 2025, cash used in operations was $9.9 million, an increase of $3.3 million, as compared to $6.6 million for the year ended December 31, 2024. The increase in cash used in operating activities was driven by $8.6 million warrant liability change offset by $5.8 million impairment expense and paydown of accounts payable of $1.3 million.

For the year ended December 31, 2025, cash used in investing activities was $0.1 million, as compared to $0.1 million for the year ended December 31, 2024. These costs are related to property and equipment.

For the year ended December 31, 2025, cash provided by financing activities was $36.2 million an increase of $26.7 million, or 279.4% as compared to cash provided of $9.5 million for the year ended December 31, 2024. The increase in cash provided by our financing activities was due to exercise of Series B Warrants, sale and conversion of warrants issued with Series F Convertible Preferred shares, sale of Series F Preferred stock, and the sale of Series G Preferred stock.

Liquidity and Capital Resources

As of December 31, 2025, we had a working capital of $34.5 million. For the year ended December 31, 2025, we incurred a loss from operations of $14.8 million, a increase of $2.2 million, as compared to $12.6 million for the year ended December 31, 2024. Further, we utilized our cash in our operating activities of $9.9 million, an increase of $3.3 million as compared to $6.6 million for the year ended December 31, 2024.

During the year ended December 31, 2025, we raised $36.8 million in equity from the additional sale of Series F and Series G Preferred Stock, and for the conversion of warrants of Series B and Series F.

During the year ended December 31, 2024, we raised $15.7 million in equity from the additional sale of Series F Preferred Stock and Offering of our Common Stock and for the conversion of warrants.

Our primary need for liquidity is to fund working capital requirements of our business, capital expenditures, acquisitions, debt service, and for general corporate purposes. Our primary source of liquidity is funds generated by financing activities and from private placements. Our ability to fund our operations, to make planned capital expenditures, to make planned acquisitions, to make scheduled debt payments, and to repay or refinance indebtedness depends on our future operating performance and cash flows, which are subject to prevailing economic conditions and financial, business and other factors, some of which are beyond our control.

In addition to sales of Series F Preferred and Series F Preferred in 2025, we believe our current cash balance, and working capital, help alleviate previous doubt regarding our ability to continue as a going concern. As of December 31, 2025, our cash balance was sufficient enough to meet our financial obligations for at least the next twelve months from the date the consolidated financial statements are issued, and we believe we have access to sufficient capital to implement our business strategy while meeting our financial obligations under the Purchase Agreement.

Off-Balance Sheet Arrangements

On December 31, 2025, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. Since our inception, except for standard operating leases, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities. We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

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Contractual Obligations

Material contractual obligations arising in the normal course of business primarily consist of principal and interest payments for loans made under the COVID program in Switzerland, defined benefit plan obligations, principal and interest payments for operating leases and other purchase obligations. See Notes 6, 10, 12 and 13 to the consolidated financial statements for amounts outstanding as of December 31, 2025, for these contractual obligations.

Inflation

During the year ended December 31, 2025, inflation has had a negative impact on the uncrewed aerial vehicle systems industry, our customers, and our business globally. Specifically, our ability to access components and parts needed in order to manufacture our proprietary drones and sensors, and to perform quality testing have been, and continue to be, impacted. If either the Company or any of the third-parties in the supply chain for materials used in our manufacturing and assembly processes continue to be adversely impacted, our supply chain may be further disrupted, limiting its ability to manufacture and assemble products. In addition, the eventual implications of higher government deficits and debt, tighter monetary policies and potentially higher, long-term interest rates may drive a higher cost of raising capital in the future.

Environmental Regulations

AgEagle is subject to various federal, state, local and non-U.S. laws and regulations relating to environmental protection, including the discharge, treatment, storage, disposal and remediation of hazardous substances and wastes. We could also be affected by future laws and regulations relating to the Earth’s climate, including laws related to greenhouse gas emissions and regulating energy efficiency. These laws and regulations could lead to increased environmental compliance expenditures, increased energy and raw materials costs and new and/or additional investment in designs and technologies. We continually assess our compliance status and management of environmental matters to ensure our operations are in compliance with all applicable environmental laws and regulations. Investigation, remediation and operation and maintenance costs associated with environmental compliance and management of sites are a normal, recurring part of our operations. These costs often are allowable costs under our contracts with the U.S. government. While environmental protection regulations have not had a significant adverse effect on our overall operations historically, it is reasonably possible that costs incurred to ensure continued environmental compliance in the future could have a material impact on our results of operations, financial condition or cash flows if additional work requirements or more stringent clean-up standards are imposed by regulators, or if new areas of soil, air and groundwater contamination are discovered and/or expansions of work scope are prompted by the results of investigations.

Recent Events

On March 4, 2026, the Company entered into a private placement subscription (the “Aerodrome Agreement”) with Aerodrome Group Ltd. (“Aerodrome”). Pursuant to the Aerodrome Agreement, the Company purchased 11,523,750 ordinary shares of Aerodrome at a price of 0.80 new Israeli shekels (“NIS”) per share for an aggregate of 9,219,000 NIS. The Aerodrome Agreement also outlined the framework for the creation of a joint venture between EagleNXT and Aerodrome that would distribute advanced autonomous uncrewed systems in the United States and Canada. The formation of the joint venture is subject to the execution of mutually acceptable definitive documents setting forth the terms and conditions governing the joint venture and applicable regulatory approvals. The Aerodrome Agreement is subject to customary closing conditions.

[1]Note to AgEagle: Language duplicated from the Business section.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our financial statements are contained in pages F-1 through F-50, which appear at the end of this Annual Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

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ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure and Control Procedures

The Company’s Chief Executive Officer and the Company’s Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2025, and concluded that the Company’s disclosure controls and procedures were effective. The term disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated, recorded, processed, summarized and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure to be reported within the time periods specified in the SEC’s rules and forms.

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Generally Accepted Accounting Principles (“US GAAP”).

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance of such reliability and may not prevent or detect misstatements. Also, projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has conducted, with the participation of our Chief Executive Officer and our Chief Financial Officer, an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2025. Management’s assessment of internal control over financial reporting used the criteria set forth in SEC Release 33-8810 based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control over Financial Reporting — Guidance for Smaller Public Companies. Based on this evaluation, Management concluded that our system of internal control over financial reporting were effective as of December 31, 2025, based on these criteria.

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. As a smaller reporting company, our management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only the management’s report.

Material Weakness over Financial Reporting

During the preparation of our interim condensed consolidated financial statements for the period ended September 30, 2024, management identified a material weakness in our internal controls related to the computation of net loss attributable to common stockholders resulting in an understatement of loss per share (“EPS”) as presented on our consolidated statements of operations and comprehensive income loss. In addition to the EPS computation error, accrued dividends and deemed dividends were included as a component of other comprehensive loss instead of being included in net loss attributable to common stockholders.

We have amended the 2024 filings impacted by this identified error. The Company has also engaged an external consultant with technical accounting expertise to assist the Company with the technical documentation and accounting for significant and unusual transactions.

Changes in Internal Control over Financial Reporting

Other than as described above, there were no changes in our internal control over financial reporting, as defined in Rules 13a-15(t) and 15d-15(f) under the Exchange Act, during the year ended December 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION

Insider Trading Plan

During the year ended December 31, 2025, no director or officer of the Company adopted or terminated a “Rule 10-b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is incorporated by reference to the definitive proxy statement for our 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2025 (our “Proxy Statement”).

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item 11 will be set forth in the sections entitled “Compensation Discussion and Analysis” and “Executive Officers” in our Proxy Statement and is incorporated in this Annual Report by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item will be set forth in the section entitled “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in our Proxy Statement and is incorporated in this report by.

Information regarding our equity compensation plans will be set forth in the section entitled “Executive Compensation” in our Proxy Statement and is incorporated in this report by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item will be set forth in the section entitled “Transactions with Related Persons” in our Proxy Statement and is incorporated in this report by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item will be set forth in the section entitled “—Ratification of Selection of Independent Registered Public Accounting Firm” in our Proxy Statement and is incorporated in this report by reference.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES

Exhibit No. Description

4.1 Description of Registrant's Securities

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31.1* Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer.

31.2* Rule 13(a)-14(a)/15(d)-14(a) Certification of principal financial officer.

101.INS Inline XBRL Instance Document

101.SCH Inline XBRL Taxonomy Extension Schema Document

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Filed herewith

Item 16. Form 10-K Summary

None.

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

AGEAGLE AERIAL SYSTEMS INC.

Dated: March 31, 2026 By: /s/ William Irby

William Irby

Chief Executive Officer and Director of the Company

Dated: March 31, 2026 By: /s/ Alison Burgett

Alison Burgett

Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signatures Title Date

William Irby (Principal Executive Officer)

/s/ Alison Burgett Chief Financial Officer March 31, 2026

Alison Burgett (Principal Financial and Accounting Officer)

/s/ Grant Begley Director

Grant Begley

/s/ Brent Klavon Director March 31, 2026

Brent Klavon

/s/ Kevin Lowdermilk Director March 31, 2026

Kevin Lowdermilk

/s/ L B Day Director March 31, 2026

L B Day

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INDEX TO FINANCIAL STATEMENTS

Contents Page No.

Report of Independent Registered Public Accounting Firm (PCAOB ID 606 ) F-2

Report of Independent Registered Public Accounting Firm (PCAOB ID 100) F-4

Consolidated Balance Sheets as of December 31, 2025 and 2024 F-5

Notes to the Consolidated Financial Statements F-9

F-1

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

AgEagle Aerial Systems Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of AgEagle Aerial Systems Inc. and Subsidiaries (the Company) as of December 31, 2025, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity (deficit), and cash flows for the year then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Accounting for and Valuation of Liability Classified Derivative Financial Instruments

As described in Note 2, Note 8, Note 9, and Note 11 to the financial statements, the Company accounts for its derivative financial instruments, which include Series A warrants and Series B warrants, based on an assessment of the instruments’ specific terms and the applicable accounting standards. The derivative financial instruments, classified as liabilities, are stated at fair value at each reporting period with the change in fair value recorded in the statement of operations. The fair value of the Series A warrants on the date of issuance and at year end as of December 31, 2025 were estimated using a Black Scholes model. During 2025, the contractual terms of the Series B were amended resulting in the Series B being reclassified to stockholders' equity (deficit) (see Note 8). As of December 31, 2025, the fair value of Series A warrants was approximately $50.0 thousand, resulting in approximately $8.5 million of gain related to the change in fair value for the year ended December 31, 2025.

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The principal considerations for our determination that performing procedures relating to the accounting for and valuation of the derivative financial instruments as a critical audit matter are: (i) the significant judgment used by management when determining the valuation method; (ii) management’s significant assumptions related to the implied volatility and probability of subsequent equity sales; (iii) the high degree of auditor judgment, subjectivity, and effort used in performing procedures and evaluating audit evidence related to the accounting for the fair value of the derivative financial instruments, and (iv) the audit effort involved in the use of professionals with specialized skill and knowledge.

Our audit procedures related to the accounting for and valuation of liability classified derivative financial instruments included the following, among others:

● Evaluating the professional credentials of management’s valuation specialist.

Accounting for Down Round Triggers and Deemed Dividends

As described in Note 9 to the financial statements, the Company has equity-linked instruments that include down round provisions in which the conversion or exercise price is adjusted down upon the Company’s issuance of its common stock or common stock equivalents at a price per share that is less than the conversion or exercise price of the equity-linked instrument. Upon a down round provision being triggered, the Company will compute the incremental value provided to the holder of the equity instrument for the reduction in the conversion or exercise price using a Black Scholes model. The Company determines the incremental value by computing the fair value of the equity-linked instrument prior to and after the down round provision trigger. During the year ended December 31, 2025, there were six down round triggers that occurred which resulted in deemed dividends totaling approximately $7.6 million.

The principal considerations for our determination that performing procedures relating to the accounting for down round triggers and deemed dividends as a critical audit matter are: (i) the significant judgment by management when determining the valuation method; (ii) management’s significant assumptions related to the implied volatility used in the Black Scholes model; (iii) the high degree of auditor effort used in performing procedures and evaluating audit evidence related to the accounting for the down round triggers and the deemed dividends, and (iv) the audit effort involved in the use of professionals with specialized skill and knowledge.

Our audit procedures related to accounting for down round triggers and deemed dividends included the following, among others:

● Testing the mathematical accuracy of the Black Scholes calculation.

/s/ Grassi & Co., CPAs, P.C.

We have served as the Company’s auditor since 2025.

Glastonbury, Connecticut

March 31, 2026

PCAOB ID Number 606

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

AgEagle Aerial Systems, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of AgEagle Aerial Systems, Inc. and subsidiaries, (the “Company”) as of December 31, 2024, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity (deficit) and comprehensive loss and cash flows for the year ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America

Substantial Doubt Regarding Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations, has experienced cash used from operations in excess of its current cash position, and has an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ WithumSmith+Brown, PC

We served as the Company’s auditor from 2020 to July 2025

Orlando, Florida

March 31, 2025

PCAOB ID Number 100

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AGEAGLE AERIAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of December 31,

ASSETS

CURRENT ASSETS:

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Other short-term loan — 99,735

COMMITMENTS AND CONTINGENCIES (NOTE 13)

STOCKHOLDERS’ EQUITY (DEFICIT):

Preferred Stock, $0.001 par value, 25,000,000 shares authorized:

Accumulated other comprehensive income (loss) 191,185 (86,376 )

See Accompanying Notes to Consolidated Financial Statements.

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

For the Years Ended December 31,

Operating expenses:

Other income (expense):

Gain on change in fair value of warrant liabilities 8,584,000 3,094,000

Gain (loss) on disposal of fixed assets (1,385 ) 13,522

Provision for income taxes — —

Accrued dividends on Series F Preferred Stock (201,867 ) (234,439 )

Net loss per common share - Basic and Diluted $ (0.52 ) $ (46.24 )

Comprehensive loss:

Amortization of unrecognized periodic pension costs 16,012 10,246

Foreign currency cumulative translation adjustment 261,549 (202,925 )

See Accompanying Notes to Consolidated Financial Statements.

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE YEARS ENDED December 31, 2025 and 2024

Dividends on Series F Preferred Stock — — — — — — (234,439 ) — — (234,439 )

Stock-based compensation expense — — — — — — 80,606 — — 80,606

Issuance of Restricted Common Stock — — — — 688 — — — — —

Dividends on Series F Preferred Stock — — — — — — (201,867 ) — — (201,867 )

Stock-based compensation expense — — — — — — 417,747 — — 417,747

Issuance of Restricted Common Stock — — — — 235,147 235 (235 ) — — —

Alternate Cashless Exercise of Series A Warrants — — — — 63,017 63 (63 ) — — —

See Accompanying Notes to Consolidated Financial Statements.

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

Defined benefit plan obligation and other (82,877 ) (88,777 )

Loss (gain) on disposal of property and equipment 1,385 (13,522 )

Interest added to convertible note payable — 1,164,590

Interest expense for reduction in convertible note conversion price — 6,351,221

Amortization of debt discount and warrant modification 35,265 1,116,735

Gain on change in fair value of warrant liabilities (8,584,000 ) (3,094,000 )

Changes in assets and liabilities:

Accrued liabilities and other liabilities (45,729 ) 185,000

CASH FLOW FROM INVESTING ACTIVITIES:

Purchases of property and equipment (74,658 ) (49,485 )

Proceeds from the sale of property and equipment — 27,510

Capitalization of internal-use software costs — (72,102 )

Net cash used in investing activities (74,658 ) (94,077 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from the sale of Common Stock and warrant liabilities — 5,688,239

Proceeds from the exercise of Series F warrants 4,224,319 —

Payments on convertible note — (4,235,757 )

Conversion of warrants issued with Series F shares — 497,701

Effects of foreign exchange rates on cash flows 72,875 (80,405 )

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Income taxes paid $ — $ —

NON-CASH INVESTING AND FINANCING ACTIVITIES:

Conversion of Preferred Stock Series F to Common Stock $ 13,089 $ 201

Conversion of Preferred Stock Series G to Common Stock $ 4,913 $ —

Series F Warrants exchanged for shares of Common Stock $ 89 $ —

Issuance of vested restricted Common Stock $ 235 $ —

Accrued dividends on Series F Preferred Stock $ 201,867 $ 234,439

Accrued expense settled with Series B Warrant exercise $ 350,000 $ —

Alternate cashless exercise of Series A Warrants $ — $ 6,309

See Accompanying Notes to Consolidated Financial Statements.

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024

Note 1– Description of Business

AgEagleTM Aerial Systems Inc. (“AgEagle” or the “Company” or “we”, “our”, or “us”) is actively engaged in designing and delivering best-in-class drones and sensors that solve important problems for our customers. Founded 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, autonomous uncrewed aerial systems (“UAS”) which drive revenue at the intersection of flight hardware, sensors and software for industries that include agriculture, military/defense, public safety, surveying/mapping and utilities/engineering, among others. AgEagle has also achieved numerous regulatory firsts, earning governmental approvals for its commercial and tactical drones to fly Beyond Visual Line of Sight (“BVLOS”) and/or Operations Over People (“OOP”) in the United States, Canada, Brazil and the European Union and being awarded Blue UAS certification from the Defense Innovation Unit of the U.S. Department of Defense.

AgEagle’s shift and expansion from solely manufacturing fixed-wing farm drones in 2018, to offering what the Company believes is one of the industry’s best fixed-wing, full-stack drone solutions, culminated in 2021 when the Company acquired three market-leading companies engaged in producing UAS airframes, sensors and software for commercial and government use. In addition to a robust portfolio of proprietary, connected hardware and software products; an established global network of over 165 UAS resellers; and enterprise customers worldwide; these acquisitions also brought AgEagle a highly valuable workforce comprised largely of experienced engineers and technologists with deep expertise in the fields of robotics, automation, manufacturing, and data science. In 2022, the Company succeeded in integrating all three acquired companies with AgEagle to form one global company focused on taking autonomous flight performance to a higher level.

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

In January 2021, AgEagle acquired MicaSenseTM, Inc. (“MicaSense”). Founded in 2014, MicaSense has been at the forefront of advanced drone sensor development since its founding in 2014, having formed integration partnerships with several leading fixed wing and multi-rotor drone manufacturers. MicaSense’s patented, high precision thermal and multispectral sensors serve the aerial mapping and analytics needs of the agriculture market. MicaSense’s high performance proprietary products have global distribution in over 75 countries.

In April 2021, AgEagle acquired Measure Global, Inc. (“Measure”). Founded in 2020, Measure served a world class customer base, Measure enables its customers to realize the transformative benefits of drone technology through its Ground Control solution. Offered as Software-as-a-Service (“SaaS”), Ground Control is a cloud-based, plug-and-play operating system that empowers pilots and large enterprises with everything they need to operate drone fleets, fly autonomously, collaborate globally, visualize data, and integrate with existing business systems and processes. In 2024, we made the strategic decision to not renew any SaaS subscriptions. As of December 31, 2024, Measure no longer had operations. We do not anticipate this decision to have a significant effect on the Company’s consolidated financial position or financial results. In 2025, we sold the Measure domain name with a net book value of zero and received cash proceeds of $250,000 which has been included in other income on the accompanying statements of operations and comprehensive loss.

In October 2021, AgEagle acquired senseFly S.A. and concurrent with the acquisition, AgEagle Aerial, Inc. (“AgEagle Aerial”), a wholly owned subsidiary of AgEagle, acquired senseFly Inc. Collectively senseFly S.A. and senseFly, Inc. are referred to as “senseFly”. Founded in 2009, senseFly provides fixed-wing drone solutions for commercial and government markets that simplify the collection and analysis of geospatial data, allowing professionals to make better decisions, faster. senseFly develops and produces a proprietary line of eBee-branded, high performance, fixed-wing drones which have flown more than one million flights around the world.

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 2025 AND

2024

Note 1– Description of Business – Continued

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

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

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

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

Note 2– Summary of Significant Accounting Policies

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

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

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

Liquidity and Going Concern – In pursuit of the Company’s long-term growth strategy and acquisitions the Company has sustained continued operating losses. During the year ended December 31, 2025, the Company generated a net loss of $5.3 million and used cash in operating activities of $10.0 million. As of December 31, 2025, the Company has working capital of $34.5 million, accumulated deficit of $(231,234,641), cash balance of $29,858,655. During the year ended December 31, 2025 Company received cash proceeds from financing activities of $36,204,975 primarily from the sale of Series F and G preferred stock and the exercise of warrants. We believe our current cash balance, working capital help alleviate previous substantial doubt regarding our ability to continue as a going concern. As of December 31, 2025, our cash balance is sufficient enough to meet our financial obligations for at least the next twelve months from the date of these consolidated financial statements are issued and we have access to sufficient capital to implement our business strategy while meeting our financial obligations via the Securities Purchase Agreement executed in November of 2025 (see Note 9).

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 2025 AND

2024

Note 2– Summary of Significant Accounting Policies – Continued

Risks and Uncertainties – Global economic challenges, including the impact of the war in Ukraine and Iran, rising inflation supply-chain disruptions, and adverse labor market conditions could cause economic uncertainty and volatility. The aforementioned risks and their respective impacts on the UAV industry and the Company’s operational and financial performance remain uncertain and outside of the Company’s control. Specifically, because of the aforementioned continuing risks, the Company’s ability to access components and parts needed in order to manufacture its proprietary drones and sensors, and to perform quality testing have been, and continue to be, impacted. If either the Company or any of 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.

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

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

Fair Value Measurements and Disclosures – Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820,Fair Value Measurement (“ASC 820”), requires companies to determine fair value based on the price that would be received to sell the asset or paid to transfer the liability to a market participant. ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement.

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

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 2025 AND

2024

Note 2– Summary of Significant Accounting Policies – Continued

For short-term classes of our financial instruments, which include cash, accounts receivable, notes receivable and accounts payable and accrued expenses, and which are not reported at fair value, the carrying amounts approximate fair value due to their short-term nature. The current outstanding loans, including the COVID Loans, are carried at face value, which approximates fair value, due to the government backed security which requires payments. The convertible note is carried at face value and approximates fair value due to its prevailing interest rate.

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

Accounts Receivable and Credit Policy –Trade receivables due from customers are uncollateralized customer obligations due under normal and customary trade terms. Trade receivables are stated at the amount billed to the customer. As of December 31, 2025, 2024 and 2023, the Company had an accounts receivable balance of $3.4 million, $1.4 million and $2.1 million, respectively. In addition, as of December 31, 2025, 2024 and 2023, the Company had an allowance for credit losses balance of $0.04 million, $0.02 million and $0.2 million, respectively. The Company generally does not charge interest on overdue customer account balances. Payments of trade receivables are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoices. The Company estimates an allowance for credit losses based upon an evaluation of the current status of trade receivables, historical experience, and other factors as necessary. It is reasonably possible that the Company’s estimate of the allowance for credit losses will change.

Allowance for Credit Losses – We establish allowances for credit losses on accounts receivable, under ASC 326-20-55-37. The adequacy of these allowances is assessed quarterly through consideration of factors such as customer credit ratings, age of the receivable, expected loss rates based on historical trends and general economic conditions. We have elected to apply the practical expedient provisions eligible to public entities that are included in ASU 2025-05,Financial Instruments - Credit Losses (Topic 326) in our December 31, 2025 credit loss assessment. Under ASC 2025-05, entities can assume that current conditions as of the balance sheet date do not change for the remaining life of the asset. Therefore, an entity will no longer need to develop reasonable and supportable forecasts of future economic conditions. The practical expedient applies only to current accounts receivable (due in less than twelve months from the balance sheet).

A summary of activity related to our allowance for credit losses during the years ended December 31, 2025 and 2024 is summarized below:

Allowance for credit losses, beginning balance $ 16,465 $ 158,689

Allowance for credit losses, ending balance $ 42,106 $ 16,465

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

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

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 2025 AND

2024

Note 2– Summary of Significant Accounting Policies – Continued

In accordance with ASC Topic 350-40,Software - Internal-Use Software, the Company capitalizes certain direct costs of developing internal-use software that are incurred in the application development stage, when developing or obtaining software for internal-use. Once an application has reached the development stage, internal and external costs incurred to develop internal-use software are capitalized and amortized on a straight-line basis over the estimated useful life of the software (typically three to five years). Maintenance and enhancement costs, including those costs in the post-implementation stages, are typically expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the software that result in added functionality, in which case the costs are capitalized and amortized on a straight-line basis over the estimated useful life of the software. The Company reviews the carrying value for impairment whenever facts and circumstances exist that would suggest that assets might be impaired or that the useful lives should be modified. Amortization expense related to capitalized internal-use software development costs is included in general and administrative expenses on the consolidated statements of operations and comprehensive loss.

Finite-lived intangible assets are evaluated for impairment periodically, or whenever events or changes in circumstances indicate that their related carrying amounts may not be recoverable in accordance with ASC Topic 360-10-15,Impairment or Disposal of Long-Lived Assets (“ASC 360-10-15”). In evaluating intangible assets for recoverability, the Company uses its best estimate of future cash flows expected to result from the use of the asset and eventual disposition in accordance with ASC 360-10-15. To the extent that estimated future undiscounted net cash flows are less than the carrying amount, an impairment loss is recognized in an amount equal to the difference between the carrying value of such asset and its fair value.

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

Goodwill – The assets and liabilities of acquired businesses are recorded in accordance with ASC 805. Goodwill represents costs in excess of fair values assigned to the underlying identifiable net assets of acquired businesses. Goodwill is not subject to amortization and is tested annually for impairment, or more frequently if events or changes in circumstances indicate that the carrying value of the goodwill may not be recoverable.

During the fourth quarter of 2025 and 2024, respectively, and in accordance with ASC Topic 350,Intangibles – Goodwill and Other, the Company performed its annual goodwill impairment test using a quantitative approach by comparing the carrying value of the reporting unit, including goodwill, to its fair value. If the carrying value of the reporting unit, including goodwill, exceeds its fair value, a goodwill impairment loss is recognized in an amount equal to that excess. The Company estimates the fair value of each reporting unit using both a discounted cash flow (“DCF”) (Level 3 input) analysis and market approach. Under the DCF analysis, determining fair value requires the exercise of significant judgments, including the amount and timing of expected future cash flows, long-term growth rates, discount rates and relevant comparable public company earnings multiples and relevant trading multiples. The cash flows employed in the DCF analysis are based on estimates of future sales, earnings and cash flows after considering factors such as general market conditions, existing firm orders, expected future orders, changes in working capital, long term business plans and recent operating performance. As of December 31, 2025 and 2024, the DCF analysis used a discount rate of 23% and 19%, respectively. The market approach entails using valuation metrics from companies that have been traded publicly, which are considered to be rightly similar to the subject entity. In most situations, direct comparability is hard to attain since a majority of public companies are not only larger but also more dissimilar to the subject so both metrics are used to find the most reasonable valuation.

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 2025 AND

2024

Note 2– Summary of Significant Accounting Policies – Continued

Derivative Liabilities – The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to FASB ASC 480 and ASC 815,Derivatives and Hedging (“ASC 815”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. The Series A and Series B Warrants issued in the Company’s October 2024 Offering (see Note 9) were recognized as derivative liabilities, at issuance, in accordance with ASC 815 due to the contractual terms resulting in variability in the warrants ultimate settlement. Accordingly, the Company recognized the warrants as liabilities at fair value and adjusts the carrying value of the instruments to fair value at each reporting period for so long as they are outstanding or liability classified. During 2025, the contractual terms of the Series B were amended resulting in the Series B being reclassified to stockholders' equity (deficit) (see Note 8). We have classified the derivative warrant liabilities as a long-term liability as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.

Revenue Recognition – Most of the Company’s revenues are derived primarily through the sales of drones, sensors and related accessories, and software subscriptions. The Company utilized ASC Topic 606 and the related amendments, Revenue from Contracts with Customers, which requires revenue to be recognized in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration to which the entity expects to be entitled in exchange for those goods or services.

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

Revenue recognition under ASC 606 as described below creates the following revenue streams:

The Company recognizes revenue on sales to customers, dealers, and distributors upon satisfaction of performance obligations which occurs once controls transfer to customers, which is when product is shipped or delivered depending on specific shipping terms and, where applicable, a customer acceptance has been obtained. The fee is not considered to be fixed or determinable until all material contingencies related to the sales have been resolved. The Company records revenue in the consolidated statements of operations and comprehensive loss, net of any sales, use, value added, or certain excise taxes imposed by governmental authorities on specific sales transactions and net of any discounts, allowances and returns.

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 2025 AND

2024

Note 2– Summary of Significant Accounting Policies – Continued

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

Provision for Warranty Expense – The Company provides warranties against defects in materials and workmanship of its drone systems for specified periods of time. For the years ended December 31, 2025 and 2024, drones and sensors sold are covered by the warranty for a period of up to one year from the date of sale by the Company. Estimated warranty expenses are recorded as an accrued expenses in the consolidated balance sheets with a corresponding provision to cost of sales in the consolidated statements of operations and comprehensive loss. This estimate is recognized concurrent with the recognition of revenue on the sale to a customer. The Company reserve for warranty expense is based on its historical experience and management’s expectation of future conditions, taking into consideration the location and type of customer and the type of drone, which directly correlate to the materials and components under warranty, the duration of the warranty period, and the logistical costs to service the warranty. An increase in warranty claims or in the costs associated with servicing those claims would likely result in an increase in the reserve and a decrease in gross profit.

Shipping Costs –All shipping costs billed directly to the customer are directly offset to shipping costs resulting in a net expense to the Company, which is included in cost of sales in the accompanying consolidated statements of operations and comprehensive loss. For the years ended December 31, 2025 and 2024, shipping costs were approximately $285,000 and approximately $252,000, respectively.

Advertising Costs – Advertising costs are charged to operations as incurred. For the years ended December 31, 2025, and 2024, advertising costs, included in sales and marketing expenses in the consolidated statements of operations and comprehensive loss, were approximately $44,000 and $11,000, respectively.

Research and Development – For the years ended December 31, 2025 and 2024, research and development expenses were $3.6 million and $4.0 million, respectively. Research and development costs are expensed as incurred and are included in the accompanying consolidated statements of operations and comprehensive loss.

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

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

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

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

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 2025 AND

2024

Note 2– Summary of Significant Accounting Policies – Continued

Leases –The Company accounts for its operating leases in accordance with ASC Topic 842,Leases, which requires that lessees recognize a right-of-use asset and a lease liability for virtually all their leases with lease terms of more than twelve months. Consistent with current US GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

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

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

Income Taxes –The Company accounts for income taxes in accordance with ASC Topic 740,Accounting for Income Taxes, which requires an asset and liability approach for accounting for income taxes. The Company evaluates its tax positions that have been taken or are expected to be taken on income tax returns to determine if an accrual is necessary for uncertain tax positions. The Company will recognize future accrued interest and penalties related to unrecognized tax benefits in income tax expense if incurred. All income tax returns not filed more than three years ago are subject to federal and state tax examinations by tax authorities.

Stock-Based Compensation Awards – The Company accounts for its stock-based awards in accordance with ASC Subtopic 718-10,Compensation – Stock Compensation, which requires fair value measurement on the grant date and recognition of compensation expense for all stock-based payment awards made to employees and directors. For stock options, the Company estimates the fair value using a closed option valuation (Black-Scholes) model. The estimated fair value is then expensed over the requisite service period of the award, which is generally the vesting period. Stock-based compensation expenses are presented in the consolidated statements of operations and comprehensive loss within general and administrative expenses. The Company recognizes forfeitures at the time they occur.

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

Segment Reporting – In accordance with ASC Topic 280,Segment Reporting (“ASC 280”), 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:

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

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 2025 AND

2024

Note 2– Summary of Significant Accounting Policies – Continued

Recently Issued and Adopted Accounting Pronouncements

In July 2025, the FASB issued ASU 2025-05,Measurement of Credit Losses for Accounts Receivable and Contract Assets (ASU 2025-5). The ASU 2025 -05 relates to estimating credit losses under the calculation of current expected credit losses (CECL) for current accounts receivable and current contract assets arising from revenue transactions accounted for under ASC 606,Revenue from Contracts with Customers. For all entities, the ASU provides a practical expedient to assume that current conditions as of the balance sheet date will persist through the reasonable and supportable forecast period for eligible assets. Entities will still be required to adjust historical data used in the estimation to reflect current conditions. This policy election is available only if the entity elects the practical expedient. The date selected must be when or before financial statements are available to be issued. Under this accounting policy election, no credit loss would be recorded on balances that have been collected through subsequent receipts. Remaining uncollected amounts would be evaluated for credit losses using the practical expedient. The provisions of ASU 2025-05 are effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted in both interim and annual reporting periods in which financial statements have not yet been issued or made available for issuance. The Company has elected to apply the practical expedient in its assessment of an allowance for credit losses as of December 31, 2025.

In December 2023, FASB issued 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 Company has applied the provisions of ASU 2023-09 these consolidated financial statements see Note 15 for our Income Tax footnote.

Recently Issued Accounting Pronouncements Not Yet Adopted

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

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

Other recent accounting pronouncements issued by FASB did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 2025 AND

2024

Note 3– Balance Sheet Accounts

Accounts Receivable, Net

As of December 31, 2025 and 2024, accounts receivable, net consist of the following:

Less: Allowance for credit losses* (42,106 ) (16,465 )

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

Customer Concentration

Customers comprising more than 10% of the Company’s total revenue are summarized below:

Percent of total revenue for years ended December 31,

Customer B 17.0 % — %

Inventories, Net

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

December 31,

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 2025 AND

2024

Note 3– Balance Sheet Accounts – Continued

Property and Equipment, Net

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

As of December 31, 2025 and 2024, property and equipment, net consist of the following:

Estimated Useful Life December 31,

For the years ended December 31, 2025 and 2024, depreciation expense totaled $243,566 and $345,002, respectively.

For the years ended December 31, 2025 and 2024, depreciation and amortization (see Note 4) expense is classified within the consolidated statements of operations and comprehensive loss as follows:

For the Years Ended December 31,

Accrued Liabilities

As of December 31, 2025 and 2024, accrued liabilities consist of the following:

December 31,

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 2025 AND

2024

Note 4– Intangible Assets, Net

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

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

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

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 2025 AND

2024

Note 4– Intangible Assets, Net – Continued

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

As of December 31, 2025 and 2024, the weighted average remaining amortization period in years was 0.96 and 2.30 years, respectively. Amortization expense for the years ended December 31, 2025 and 2024 was $566,166 and $731,079, respectively, which is included in general and administrative expenses on the statement of operations and comprehensive loss (see Note 3).

As of December31,2025, the Company recognized an impairment charge of $1,333,288 on the finite-lived intangible assets held by our sensor reporting unit due to the carrying value of the intangible asset exceeding the units estimated undiscounted cash flows. As of December 31, 2025, after the impairment, our intangible assets consist of our internal-use software.

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

For the Years Ending December 31,

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 2025 AND

2024

Note 5– Goodwill

Goodwill represents the difference between the purchase price and the estimated fair value of net assets acquired, when accounted for by the acquisition method of accounting. As of December 31, 2025 and 2024, the goodwill balance relates to a business acquisition completed in 2021 of MicaSense.

The annual impairment assessment conducted during the fourth quarter of 2025 and 2024 indicated that the fair value of the Company’s Sensor reporting unit was less than the carrying value. The impairment assessment of the Sensor reporting unit considered the lower than forecasted sales and profitability along with declining markets conditions, declining stock price and changes in our technologies. Accordingly, the Company recorded an impairment charge for 2025 of $4,459,644 and in 2024 an impairment charge of $2,943,000.

As of December 31, 2025 and 2024, the change in the carrying value of goodwill for our one operating segment with goodwill balance remaining, Sensors, is as follows:

Sensors Total

Balance as of December 31, 2025 $ — $ —

Note 6– COVID Loan

In connection with the senseFly Acquisition, the Company assumed the obligations for two COVID Loans originally made by the SBA to senseFly S.A. on July 27, 2020 (“senseFly COVID Loans”). As of the senseFly Acquisition Date, the fair value of the COVID Loan was $1,440,046 (“senseFly COVID Loans”). For the years ended December 31, 2025 and 2024, senseFly S.A. made the required payments on the senseFly COVID Loans, including principal and accrued interest, aggregating approximately $258,000 and $318,793, respectively. As of December 31, 2025, the Company’s outstanding obligations under the senseFly COVID Loans are $314,350. On August 25, 2023, the Company modified one (1) of its existing agreements to extend the repayment period of the COVID Loan from a maturity date of December 2023 to June 2027. The other COVID loan remains unchanged.

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

Year Ending December 31,

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 2025 AND

2024

Note 7– Convertible Note

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

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

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

The Company was not able to make the Amortization Payments required in the third quarter of 2024. Therefore $426,454 of accrued interest was added to principal due to this failure.

Pursuant to the Omnibus Agreement executed between the Company and Alpha in connection with the

October 2024 Offering (see N

ote 9), Alpha agreed to purchase

$3,000,000 of the units in the offering and the Company agreed to apply said

$3,000,000 towards the repayment of the Convertible Note balance. Upon such repayment,

$2,000,000 remained outstanding on the Convertible Note to be paid in

six monthly installments consisting of

$333,333 in principle plus all accrued interest commencing on

October 15, 2024 and continuing on the

15th day of each calendar month until the Convertible Note was paid in full. The Company remitted the

October and

November 2024 monthly payments and the

December 2024 payment was waived by the lender.

During the year ended

December 31, 2024,

$1,164,590 of interest was added to the principal balance, payments of

$4,235,757 were made on the principal balance of the Convertible Note and Alpha converted

$100,000 of principal into

1,597 shares of common stock at a conversion price of

$62.64.

As of

December 31, 2024, the principal outstanding was

$1,333,333. During the year ended

December 31, 2024, the Company recorded

$884,769 of interest expense related to the Convertible Note in the consolidated statements of operations and comprehensive loss, and as of

December 31, 2024, there was

$47,123 of accrued interest included in accrued liabilities on the consolidated balance sheets.

During the year ended December 31, 2025, the remaining principal and accrued interest of $1,425,606 was converted into 1,490,495 of shares of common stock and we recognized $92,273 of interest expense prior to conversion. As of December 31, 2025, there were no amounts outstanding due on the Convertible Note.

Convertible Note Conversion Price Adjustments

During the year ended December 31 2025 and prior to repayment, the conversion price of the Convertible Note was reduced from $1.10 to $0.8294 due to the sale of Series F preferred stock and Series F warrants with a conversion price and exercise price of $0.8294 (see Note 9) which resulted in the reduction of the Convertible Note's conversion price. The Company recognized a loss on debt extinguishment of $125,242 for the incremental value of the conversion feature due to the reduced conversion price. The incremental value was determined using a Black-Scholes pricing model pre and post modification and the following inputs: expected term 0.50 years, risk free rate of 4.27%, volatility of 203.53%, and dividend rate of 0.00%.

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

Further, in October 2024, the conversion price of the Convertible Note was reduced again from $4.00 to $1.10 due to an agreed upon modification to the conversion price due to the Share Combination Event that occurred on October 14, 2024 (see Note 9). The modification was deemed to be a debt extinguishment due to the conversion price reduction being substantive. The incremental value of $1,572,512 has been reflected on the statement of operations and comprehensive loss as a loss on debt extinguishment.

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

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AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 2025 AND

2024

UAVS US Equity

UAVS · 10-K · period ended 2025-12-31

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A. CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES

Item 16. Form 10-K Summary

UAVS US Equity☆

UAVS · 10-K · period ended 2025-12-31

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A. CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES

Item 16. Form 10-K Summary

UAVS US Equity