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 UNITED
STATES

 SECURITIES
AND EXCHANGE COMMISSION

 Washington,
D.C. 20549

 Form

 (Mark
One)

 ANNUAL
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For
the fiscal year ended December 31, 2024

 OR

 TRANSITION
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For
the transition period from _______ to ________

 Commission
file number: 001-36492

 AERIAL SYSTEMS INC.

 (Exact
 name of registrant as specified in its charter)

 Nevada

 88-0422242

 (State
 or other jurisdiction

 of
 incorporation or organization)

 (I.R.S.
 Employer

 Identification
 No.)

 8201
 E. 34th Street N, Suite 1307, Wichita, Kansas

 67226

 (Address
 of principal executive offices)

 (Zip
 Code)

 Registrant's
telephone number, including area code: (620) 325-6363

 Securities
registered pursuant to Section 12(b) of the Act:

 Title
 of Each Class

 Trading
 Symbol(s)

 Name
 of Each Exchange on Which Registered

 Common
 Stock, par value $0.001 per share

 UAVS

 NYSE
 American LLC

 Securities
registered pursuant to Section 12(g) of the Act: None.

by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No

by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act") during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes No

by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer," "emerging growth company"
and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 Large
 accelerated filer

 Accelerated
 filer

 Non-accelerated
 Filer

 Smaller
 reporting company

 Emerging
 growth company

 If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.

 If
securities are registered pursuant to Section 12(b) of the Exchange Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements.

by check mark whether any of those error corrections are restatements that require a recovery analysis of incentive-based compensation
received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D(b).

by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

 The
aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which
the common equity was last sold as of the last business day of the registrant's most recently completed second fiscal quarter was
$ 6,919,353.

 As
of March 31, 2025, there were 12,820,421 shares of Common Stock, par value $ 0.001 per share, issued and outstanding.

 DOCUMENTS INCORPORATED BY REFERENCE

 Portions of the registrant's Proxy Statement relating to the 2024
Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated
herein. Such Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the registrant's fiscal
year ended December 31, 2024.

AERIAL SYSTEMS INC.

 TABLE
OF CONTENTS

 ITEM
 1.

 BUSINESS

 ITEM
 1A.

 RISK FACTORS

 ITEM
 1B.

 UNRESOLVED STAFF COMMENTS

 ITEM
 1C.

 CYBER-SECURITY

 ITEM
 2.

 PROPERTIES

 ITEM
 3.

 LEGAL PROCEEDINGS

 ITEM
 4.

 MINE SAFETY DISCLOSURES

 ITEM
 5.

 MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 ITEM
 6.

 [RESERVED]

 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

 INDEX TO FINANCIAL STATEMENTS

 ITEM 16. FORM 10-K SUMMARY

 PART
I

 This
Annual Report on Form 10-K ("Annual Report"), including "Management's Discussion and Analysis of Financial Condition and Results of Operations"
in Item 7, contains forward-looking statements within the meaning of the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or the Private Securities Litigation Reform Act of 1995. Investors
are cautioned that such forward-looking statements are based on our management's beliefs and assumptions and on information currently
available to our management and involve risks and uncertainties. Forward-looking statements include statements regarding our plans, strategies,
objectives, expectations and intentions, which are subject to change at any time at our discretion. Forward-looking statements include
our assessment, from time to time of our competitive position, the industry environment, potential growth opportunities, the effects
of regulation and events outside of our control, such as natural disasters, wars or health epidemics. Forward-looking statements include
all statements that are not historical facts and can be identified by terms such as "anticipates," "believes,"
"could," "estimates," "expects," "hopes," "intends," "may," "plans,"
"potential," "predicts," "projects," "should," "will," "would"
or similar expressions.

 Forward-looking
statements are merely predictions and therefore inherently subject to uncertainties and other factors which could cause the actual results
to differ materially from the forward-looking statement. These uncertainties and other factors include, among other things:

 unexpected
 technical and marketing difficulties inherent in major research and product development efforts;

 our
 ability to remain a market innovator, to create new market opportunities, and/or to expand into new markets;

 the
 potential need for changes in our long-term strategy in response to future developments;

 our
 ability to attract and retain skilled employees;

 our
 ability to raise sufficient capital to support our operations and fund our growth initiatives;

 unexpected
 changes in significant operating expenses, including components and raw materials;

 any
 disruptions or threatened disruptions to or relations with our resellers, suppliers, customers and employees, including shortages
 in components for our products;

 changes
 in the supply, demand and/or prices for our products;

 increased
 competition, including from companies which may have substantially greater resources than we have, and, in the uncrewed aircraft
 systems segments from lower-cost commercial drone manufacturers who may seek to enhance their systems' capabilities over time;

 the
 complexities and uncertainty of obtaining and conducting international business, including export compliance and other reporting
 and compliance requirements;

 the
 impact of potential security and cyber threats or the risk of unauthorized access to our, our customers' and/or our suppliers'
 information and systems;

 uncertainty
 in the customer adoption rate of commercial use uncrewed aerial systems;

 changes
 in the regulatory environment and the consequences to our financial position, business and reputation that could result from failing
 to comply with such regulatory requirements;

 our
 ability to continue to successfully integrate acquired companies into our operations, including the ability to timely and sufficiently
 integrate international operations into our ongoing business and compliance programs;

 failure
 to develop new products or integrate new technology into current products;

 unfavorable
 results in legal proceedings to which we may be subject;

 failure
 to establish and maintain effective internal control over financial reporting; and

 general
 economic and business conditions in the United States and elsewhere in the world, including the impact of inflation.

 Set
forth below in Item 1A, "Risk Factors," are additional significant uncertainties and other factors affecting forward-looking
statements. The reader should understand that the uncertainties and other factors identified in this Annual Report are not a comprehensive
list of all the uncertainties and other factors that may affect forward-looking statements. We do not undertake any obligation to update
or revise any forward-looking statements or the list of uncertainties and other factors that could affect those statements.

 ITEM
1. BUSINESS

 Overview

 Aerial Systems Inc. ("AgEagle" or the "Company", "we", "our" or "us"), 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 uncrewed aerial systems ("UAS") which drive revenue at the intersection of
flight hardware, sensors and software for industries that include military/defense, public safety, surveying/mapping, agriculture, and
utilities/engineering, among others. AgEagle has also achieved numerous regulatory firsts, including earning governmental approvals for
its commercial and tactical drones to fly Beyond Visual Line of Sight ("BVLOS") and/or Operations Over People ("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.

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 200 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 successfully integrated 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 ("sUAS")
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.

 As
the Company pursues its strategy to pursue new initiatives that improve its operations and cost structure, the Company is also expanding
and improving its information technologies, resulting in a larger technological presence, utilization of "cloud" computing
services, and corresponding exposure to cybersecurity risk. Certain technologies, such as use of autonomous vehicles, remote-controlled
equipment, virtual reality, automation and artificial intelligence, present new and significant cybersecurity safety risks that must
be analyzed and addressed before implementation. If we fail to assess and identify cybersecurity risks associated with new initiatives,
we may become increasingly vulnerable to such risks. As such, the Company is developing and securing technology that aims to secure against
hacking and malicious attacks. As the software that drives our drones and cameras become more autonomous and interconnected, they become
potential targets for cyber threats. Ensuring the security of data transmission and control systems has been and continue to be critical
in preventing unauthorized access and misuse.

 The
Company is currently headquartered in Wichita, Kansas, where we house our sensor manufacturing operations, and we manufacture drones
in Lausanne, Switzerland.

 Product
Lines

 senseFly,
S.A. – Uncrewed Aerial Vehicles

 In
October 2021, the Company acquired senseFly, S.A. and senseFly Inc. (collectively "senseFly"), a global leader in fixed-wing
drones that simplify the collection and analysis of geospatial data, allowing professionals to make better and faster decisions. Founded
in 2009, 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. Safe, ultra-light and easy to use, these autonomous drones are utilized by thousands
of customers around the world in agriculture, government/defense, engineering, and construction, among other industry verticals, to collect
actionable aerial data intelligence.

 MicaSense,
Inc. – Multi Spectral Cameras

 In
January 2021, AgEagle acquired MicaSense, Inc. ("MicaSense"), a company that has been at the forefront of advanced
drone sensor development since its founding in 2014. In early 2022, AgEagle completed development and brought to market the Altum-PT
 and RedEdge-P — next generation thermal and multispectral sensors which offer critical advancements
on MicaSense's legacy sensor products to customers primarily in agriculture, plant research, land management and forestry management.
Today, AgEagle's multispectral sensors are distributed in over 75 countries worldwide and help customers use drone-based imagery
to make better and more informed business decisions.

 Measure
Global, Inc.

 In
April 2021, AgEagle acquired Measure Global, Inc. ("Measure"), a company founded in 2020. Measure offered a Software-as-a-Service
("SaaS") product known as " Ground Control" as a cloud-based, plug-and-play operating system that enabled
pilots and large enterprises to operate drone fleets, fly autonomously, collaborate globally, visualize data, and integrate with existing
business systems and processes. Measure ceased operations on December 31, 2024.

 senseFly,
S.A. and SenseFly Inc.

 In
October 2021, the Company acquired senseFly, S.A. and senseFly Inc. (collectively "senseFly"), a global leader in fixed-wing
drones that simplify the collection and analysis of geospatial data, allowing professionals to make better and faster decisions. Founded
in 2009, 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. Safe, ultra-light and easy to use, these autonomous drones are utilized by thousands
of customers around the world in agriculture, government/defense, engineering, and construction, among other industry verticals, to collect
actionable aerial data intelligence.

 Our
Branded Line of Uncrewed Aerial Vehicles

 eBee
 Line of Professional Drones

 Sold
worldwide through AgEagle's direct sales team and global network of trusted resellers, the Company's eBee line of
commercial and government/military UAS have logged more than 500,000 flight hours on more than one million successful missions over the
past decade.

 eBee
 TAC – Designed specifically for government and military mapping and mission planning applications,
 the eBee TAC operates in disconnected environments, providing a higher accuracy mobile solution to map and locally share aerial
 imagery data on rapidly changing field conditions to analyze and provide near real-time situational awareness to ground forces. Weighing
 only 3.5 pounds and featuring a digital camouflage skin for increased stealth and up to 90 minutes flight time and silent mission
 mode, the eBee TAC can be rapidly deployed, from assembly to hand-launch, in three minutes by a single user to generate 3D
 modeling, terrain and thermal maps. Each system features National Defense Authorization Act ("NDAA") compliant drone,
 sensors and active components, secure extension, Endurance activation, two Endurance batteries, one Pitot Pro-kit, two micro-SD cards
 with adapters, AES256-bit encryption, pixel camouflage and an IP67 hard transport case with STANAG military standard certification
 that is lightweight, rugged and dust and water resistant. Camera options include RGB, multispectral and thermal payloads; and the
 system can also be upgraded to include additional features and payloads.

 In
 March 2022, AgEagle's eBee TAC Uncrewed Aerial System was the first approved drone to be added to the U.S. Department
 of Defense's ("DoD") Defense Innovation Unit's ("DIU") Blue UAS Cleared List as part of Blue
 sUAS 2.0. The eBee TAC successfully completed a series of demonstrations in association with Blue sUAS 2.0 to provide the
 DIU with information and verification of the drone systems' mission planning and launch capabilities, range and endurance,
 NDAA compliance, operational safety of flight procedures and cyber security, in addition to scripted and ad hoc flight profiles.
 Based on its evaluation, the DIU designated the eBee TAC as an approved light-weight, medium-range UAS available for immediate
 procurement by the DoD without a waiver to operate; and is also available for procurement by other Federal Government agencies. AgEagle's
 success with Blue sUAS 2.0 follows eBee 's use as an integral asset for both conventional and unconventional Department
 of Defense units for over five years.

 eBee
 X – the eBee X has been recognized as the fixed-wing drone that revolutionized the uncrewed aerial vehicle sector
 with its ease-of-use and multiple, state-of-the-art sensors designed to suit a wide range of mapping jobs. At just 1.6 kg (3.5 lbs.),
 eBee X is a lightweight, ultra-portable solution that is easy for a single person to operate. With a unique Endurance Extension
 option enabling a flight time of up to 90 minutes and single-flight coverage of up to 500 ha at 122m (1,236 acres at 400 ft.), the
 eBee X is a premium drone that offers users the high-precision of on-demand RTK/PPK for achieving absolute accuracy of down
 to 1.5 cm (0.6 in) – without ground control points. This capability makes the eBee X ideal for BVLOS operations, such
 as long corridor mapping missions for utility companies, expansive crop scouting in agriculture and by enterprise customers who desire
 a robust and professional drone fleet.

 The
 eBee X has proven that it meets the highest possible quality and ground risk safety standards, and due to its lightweight
 design, the effects of ground impact are reduced. Consequently, the eBee X has been granted BVLOS operations permission in
 Brazil and has been approved to run OOP and BVLOS operations in Canada.

 On
 June 21, 2022, the Company announced that the eBee X was the first drone in its class to receive design verification essential
 for BVLOS and OOP from the European Union Aviation Safety Agency, enabling drone operations to seek Specific Operations Risk Assessment
 ("SORA") authorization to fly BVLOS and OOP with eBee X in 27 European Union member states, as well as Iceland, Lichtenstein,
 Norway and Switzerland.

 In
 October 2022, the eBee X series of fixed wing uncrewed aircraft systems, including the eBee X, eBee Geo and
 eBee TAC, were the first and only drones on the market to comply with Category 3 of the Operations of Small Uncrewed Aircraft
 Systems Over People rules published in the Federal Registry by the FAA in March 2021. Securing a Part 107 certificate of waiver from
 the FAA is a long, arduous and costly process for sUAS users. Now that the eBee has proven compliant with Category 3 of the
 rules, eBee drone operators no longer need an FAA waiver for OOP or Operations Over Moving Vehicles. This major milestone
 was achieved by AgEagle following months of work, historic reliability review and extensive testing conducted by Virginia Tech Mid-Atlantic
 Aviation Partnership ("MAAP").

 eBee
 VISION – in December 2022, AgEagle announced its latest innovation in commercial and tactical drone technology with
 the unveiling of its new eBee VISION Intelligence, Surveillance and Reconnaissance ("ISR") UAS. The
 eBee VISION delivers high resolution, medium-range video imagery made possible by its 32x zoom and powerful thermal observation
 capabilities. Its sensor payloads are capable of detecting, tracking and geo-locating objects in both day and night conditions. Offering
 up to 90 minutes of flight time and the same ease-of-use that has earned AgEagle's eBee line of drones industry distinction,
 the eBee VISION can be deployed and operated by a single person. Designed, developed and manufactured by AgEagle's research
 and development team in Switzerland, the eBee VISION is NDAA compliant, weighs less than 3.5 pounds/1.6 kilograms and can
 be carried in a backpack.

 In
 December 2022, eBee VISION prototypes were successfully tested by European Armed Forces. According to an official from a UAV
 experimentation unit of a European military force present at the testing, " eBee VISION 's specifications fill the
 gap between low endurance quadcopters and large military fixed-wing drones. The small size, lightweight, ease-of-use, autonomy, range
 and sensor capabilities make it a promising drone for tactical ISR missions."

 As
 a result of the tests, European military units ordered multiple eBee VISION prototypes, with delivery having occurred in late
 2023. Commercial production of eBee VISION began shortly thereafter, with successful deliveries to a number of global military
 forces.

 Market
Opportunity for UAVs

have transformed from being freelance videographer toys to mission critical inspection tools for enterprise businesses like construction,
energy and agriculture, and for military/defense applications worldwide. Moreover, the number of use cases for drones has also grown
as drone hardware has become more advanced, safer and more reliable. Advanced aerial mapping, crop monitoring, publicly safety uses,
disaster response and consumer drone deliveries have all become available as the commercial drone industry has matured.

 In
September 2022, the Drone Infrastructure Inspection Grant Act was passed by the U.S. House of Representatives. This bi-partisan bill
establishes programs within the Department of Transportation ("DOT") to support the use of drones and other sUAS when inspecting,
repairing or constructing road infrastructure, electric grid infrastructure, water infrastructure or other critical infrastructure. Specifically,
DOT must award grants in the aggregate of $100 million to state, tribal and local governments, metropolitan planning organizations, or
groups of those entities to purchase or otherwise use drones to increase efficiency, reduce costs, improve worker and community safety,
reduce carbon emissions, or meet other priorities related to critical infrastructure projects. Grant recipients must use domestically
manufactured drones that are made by companies not subject to influence or control from certain foreign entities, including China and
Russia. This legislation is supported by the U.S. Chamber of Commerce, National League of Cities, National Council of State Legislatures,
American Association of State Highway and Transportation Officials, Commercial Drone Alliance and Association of Uncrewed Vehicle Systems
International among others. This bill is currently pending approval by the U.S. Senate.

 The
Military Drone Market is expected to see substantial growth in the coming years. A recent report
 from Straits Research said that the global military drone market size was valued at USD 21.81 billion
in 2024 and is expected to grow from USD 24.25 billion in 2025 to reach USD 56.69 billion by 2033, growing at a CAGR of 11.20% during
the forecast period (2025-2033). The report said: "A military drone, also known as an uncrewed aerial vehicle (UAV), is a type
of aircraft that operates without a human pilot on board. These drones are equipped with advanced technologies for surveillance, reconnaissance,
intelligence gathering, and, in some cases, targeted strikes. Military drones are used extensively in modern warfare for a variety of
roles, including combat, surveillance, logistical support, and search-and-rescue missions. The global market is experiencing rapid growth,
driven by technological advancements and increasing global demand for enhanced surveillance, intelligence, and reconnaissance capabilities.
As nations recognize the strategic advantages of uncrewed aerial systems (UAS) in military operations, drones are increasingly deployed
in both combat and non-combat roles. This expansion is further supported by rising defense budgets, particularly in regions such as Asia-Pacific,
Europe, and the Middle East. Despite the promising growth, there are significant challenges facing the global market, including complex
regulatory issues and ethical concerns surrounding the use of autonomous weapons. However, innovations in artificial intelligence (AI),
miniaturization, and battery life are expected to open new growth opportunities, enabling more advanced, efficient, and versatile drone
capabilities in the near future."

 Straits
Research continued: "Geopolitical tensions, especially in regions like Asia-Pacific, the Middle East, and Eastern Europe, are driving
a significant demand for military drones. As nations seek to strengthen their surveillance, intelligence, and tactical capabilities,
military drones have become integral to modern defense strategies. For example, the Indo-Pacific region increasingly views drones as
vital for maintaining a strategic balance in contested areas. Similarly, Russia's actions in Ukraine have highlighted the tactical advantages
of drones, prompting Eastern European nations near the conflict zone to prioritize drone investments to enhance border security and ensure
readiness in case of escalations.

 Multi Spectral Cameras

 Setting
entirely new standards of excellence for high resolution aerial imaging solutions, our proprietary thermal and multispectral sensors
are broadly recognized as the cameras of choice worldwide for advanced applications in agriculture, plant research, land management and
forestry management.

 Altum-PT
 – an optimized three-in-one solution for advanced remote sensing and agricultural research. It seamlessly integrates
 an ultra-high resolution panchromatic imager, a built-in 320X256 radiometric thermal imager and five discrete spectral bands to produce
 synchronized outputs such as RGB color, crop vigor, heat maps and high resolution panchromatic in just one flight. Offering twice
 the spatial resolution of the prior Altum sensor, Altum-PT, introduced in early 2022, the sensor that empowers
 users with deeper analytical capabilities and broader, more diverse applications; enable them to discern issues at the plant level,
 even in the early growth stages; and conduct early stage stand counting, as well as season-long soil monitoring, among other critical
 uses. Altum-PT also features a global shutter for distortion-free results, open APIs and a new storage device allowing for
 two captures per second.

 RedEdge-P
 – Offering three times the capture speed and twice the spatial resolution of the RedEdge-MX, the all new RedEdge-P,
 launched in early 2022, the sensor that builds on the legacy of the rugged, high-quality, multispectral sensor that the industry
 has come to trust and adds the power of a higher resolution, panchromatic band to double the output data resolution. A single camera
 solution which is compatible with a wide array of drone aircraft ranging from large, fixed wing to small multirotor, RedEdge-P
 captures calibrated high-resolution multispectral and RGB imagery with an optimized field of view and capture rate for efficient
 flights. This solution seamlessly integrates a high resolution, all-color imager with synchronized multispectral imagers to enable
 pixel-aligned outputs at previously unattainable resolutions, while maintaining the efficiency and reliability of its RedEdge
 legacy. Processing of data outputs is enabled through industry standard software platforms, including AgEagle's Ground
 Control flight management software. With RedEdge-P, agricultural professionals benefit from a sensor that can enable effective
 plant counting and spectral analysis of small plants. Likewise, federal, state and local government and commercial forestry enterprises
 will also benefit from precise, efficient data collection and tree-level analysis as opposed to being limited to analyzing large
 swaths of land to make critical forestry management decisions.

 RedEdge-Pdual
 – A further specialized product, the RedEdge-Pdual offers a combined solution of
 the RedEdge-P and RedEdge-P blue cameras, this camera provides specialized insight into plant
 classification, weed identification, environmental research and vegetation analysis of water
 bodies, adding a coastal blue band. The camera coves 10 multispectral bands, and a
 fast capture rate. Additionally, it allows synchronized capture of all 10 bands, providing
 AI functions such as automatic triggering and geo-tagging for optimizing flight efficiency
 and easy post-processing.

 Market
Opportunity for Sensor Solutions

for drones are increasingly being used for surveying, mapping and inspections – particularly in the mining, construction, energy,
environmental management, agriculture, infrastructure and waste management industries. Moreover, with every new innovation in sensor
technologies, the functionality and the underpinning value proposition of commercial UAS continues to improve and allows for an even
wider range of possible applications.

Manufacturing Operations

 For
years, federal agencies have been using drones for a wide range of use cases, from mapping to surveillance, search and rescue, and scientific
research. However, in recent years federal agencies' use of and ability to procure UAS has evolved, largely stemming from security
concerns about drones from Chinese manufacturers. In 2020, for example, the U.S. Department of Interior grounded its entire fleet of
drones over concerns "that Chinese parts in them might be used for spying, making exceptions only for emergency missions like fighting
wildfires and search-and-rescue operations," as The New York Times reported on January 29, 2020.

believes that these measures to ban China-manufactured drones and components not only protects our nation, but has fueled and will continue
to fuel, demand for "Made in America" drones and components, creating a significant opportunity for U.S.-based drone manufacturers,
like AgEagle. Consequently, it is AgEagle's intention to establish best industry practices and define quality standards for manufacturing,
assembly, design/engineering and testing of drones, drone subcomponents and related drone equipment in the Company's U.S. facilities.
The Company also has established manufacturing operations in its Lausanne, Switzerland facility, where it assembles its line of eBee -branded
fixed wing drones for AgEagle's international customer base.

commitment to its discerning customers has driven its efforts to establish recognized centers of excellence in drone airframes, sensors
and software, which, in turn, has driven the the Company's drone production and distribution operations to actively seek ISO:9001
certification for its Quality Management System ("QMS"), a process that the Company expects to complete within the second
quarter of 2025. Demonstrating that the Company delivers consistently high-quality products and services in every aspect of its fixed-wing
drone operations, including design, manufacturing, marketing, sales and after-sales. An international certification, ISO:9001 recognizes
organizational excellence and good quality practices based on a strong customer focus, robust process approach and proof of continual
improvement.

 Competitive
Strengths

believes the following attributes and capabilities provide us with long-term competitive advantages:

 Proprietary
 technologies, in-house capabilities and industry experience – We believe our decade of experience in commercial UAS design
 and engineering; in-house manufacturing, assembly and testing capabilities; and advanced technology development skillset serve to
 differentiate AgEagle in the marketplace. In addition, AgEagle is committed to meeting and exceeding quality and safety
 standards for manufacturing, assembly, design and engineering and testing of drones, drone subcomponents and related drone equipment
 in our U.S. and Swiss-based manufacturing operations.

 is more than just customer- and product-centric, we are obsessed with innovation and knowing the needs of our customers before they
 do – We are focused on capitalizing on our specialized expertise in innovating and commercializing advanced drone, sensor
 and software technologies to provide our existing and future customers with autonomous robotic solutions that meet the highest possible
 safety and operational standards and fit their specific business needs. We have established three Centers of Excellence that our
 leadership has challenged to cross-pollinate ideas, industry insights and interdisciplinary skillsets to generate intelligent autonomous
 solutions that efficiently leverage our expertise in robotics, automation and manufacturing to solve problems for our customers,
 irrespective of the industry sector in which they may operate.

 Since
 launching our eBee VISION, a small, fixed-wing UAS designed to provide real-time,
 enhanced situational awareness for critical intelligence, surveillance and reconnaissance
 missions, we have been awarded a contract from
 the U.S. Department of Defense's Defense Innovation Unit ("DIU"),
 and secured purchase orders from a lead distributor in the United Arab Emirates, and a reseller
 for French Army surveillance operations.

 In
May 2023, we released the new RedEdge-P dual high resolution and RGB composite drone sensor, representing yet another AgEagle
technological advancement in aerial imaging cameras, seamlessly integrating the power and performance of the RedEdge-P and the
new RedEdge-P blue cameras in a single solution. The RedEdge-P dual doubles analytical capabilities with the benefit of
a single camera workflow. Its coastal blue band – the first of its kind in the market – was specifically designed for vegetation
analysis of water bodies; environmental monitoring; water management; habitat monitoring, protection and restoration; and vegetation
species and weeds identification, including differentiating and counting plants, trees, invasive species and weeds.

 was awarded a Multiple Award Schedule ("MAS") Contract by the U.S. federal government's General Services Administration
 ("GSA") – In April 2023, the centralized procurement arm of the federal government, the GSA, awarded us with a
 five-year MAS contract. The GSA Schedule Contract is a highly coveted award in the government contracting space and is the result
 of a rigorous proposal process involving the demonstration of products and services in-demand by government agencies, and the negotiation
 of their prices, qualifications, terms and conditions. Contractors selling through the GSA Contract are carefully vetted and must
 have a proven track record in the industry. We believe that this will serve to advance our efforts to achieve deeper penetration
 of the government sector over the next five years.

 We
 offer market-tested drones, sensors and software solutions that have earned the longstanding trust and fidelity of customers worldwide
 – through successful execution of our acquisition integration strategy in 2022, AgEagle is now delivering a unified line
 of industry trusted drones, sensors and software that have been vigorously tested and consistently proven across multiple industry
 verticals and use cases. For instance, our line of eBee fixed wing drones have flown more than one million flights over the
 past decade serving customers spanning surveying and mapping; engineering and construction; military/defense; mining, quarries and
 aggregates; agriculture humanitarian aid and environmental monitoring, to name just a few. Featured in over 100 research publications
 globally, advanced sensor innovations developed and commercialized by AgEagle have served to forge new industry standards for high
 performance, high resolution, thermal and multispectral imaging for commercial drone applications in agriculture, plant research,
 land management and forestry. In addition, we have championed the development of end-to-end software solutions which power autonomous
 flight and deliver actionable, contextual data and analytics for numerous Fortune 500 companies, government agencies and a wide range
 of businesses in agriculture, energy and utilities, construction and other industry sectors.

 Our
 eBee TAC UAS has been approved by the Defense Innovation Unit (DIU) for procurement by the Department of Defense – We
 believe that the eBee TAC is ideally positioned to become an in-demand, mission critical tool for the U.S. military, government
 and civil agencies and our allies worldwide; and expect that this will prove to be a major growth catalyst for our Company positively impacting our financial performance in the years ahead. eBee TAC is available for purchase by U.S. government agencies
 and all branches of the military on GSA Schedule Contract #47QTCA18D003G, supplied by Hexagon US Federal and partner Tough Stump
 Technologies as a standalone solution or as part of the Aerial Reconnaissance Tactical Edge Mapping Imagery System ("ARTEMIS").
 Tough Stump is actively engaged in training military ground forces based in the U.S. and in Central Europe on the use of eBee
 TAC for mid-range tactical mapping and reconnaissance missions.

 Our
 eBee X series of fixed wing UAS, including the eBee X and eBee TAC, are the first drones on the market
 to comply with Category 3 of the sUAS Over People rules published by the FAA. It is another important testament to our commitment
 to provide best-in-class solutions to our commercial customers, and we believe it will serve as a key driver in the growth of eBee
 utilization in the United States. We further believe it will improve the business applications made possible by our drone platform
 for a wide range of commercial enterprises which stand to benefit from adoption of drones in their businesses – particularly
 those in industries such as insurance for assessment of storm damage, telecommunications for network coverage mapping and energy
 for powerline and pipeline inspections, just to name a few.

 Our
 eBee X series of drones are the world's first UAS in its class to receive design verification for BVLOS and OOP from
 European Union Aviation Safety Agency ("EASA"). The EASA design verification report ("DVR") demonstrates
 that the eBee X meets the highest possible quality and ground risk safety standards and, thanks to its lightweight design,
 effects of ground impact are reduced. As such, drone operators conducting advanced drone operations in 27 European Member States,
 Iceland, Liechtenstein, Norway, and Switzerland can obtain the HIGH or MEDIUM robustness levels of the M2 mitigation without additional
 verification from EASA. Regulatory constraints relating to limitations of BVLOS and OOP have continued to be a gating factor to widespread
 adoption of commercial drone technologies across a wide range of industry sectors worldwide. Being the first company to receive this
 DVR from EASA for M2 mitigation is a milestone for AgEagle and our industry in the European Union and will be key to fueling growth
 of our international customer base.

 Our
 global reseller network currently has more than 200 drone solutions providers in 75+ countries – By leveraging our relationships
 with the specialty retailers that comprise our global reseller network, AgEagle benefits from enhanced brand-building, lower customer
 acquisition costs and increased reach, revenues and geographic and vertical market penetration. We leverage our collective reseller
 network to accelerate our revenue growth by educating and encouraging our partners to market AgEagle's full suite of airframes,
 sensors and software as bundled solutions in lieu of marketing only previously siloed products or product lines to end users.

 Government
Regulation

 UAV
Regulation

is subject to industry-specific regulations due to the nature of the products we sell to our customers. For example, certain aspects
of our U.S. business are subject to regulation by the Federal Aviation Administration ("FAA"), which regulates airspace for
all air vehicles in the U.S. National Airspace System.

 In
August 2016, the FAA's final rules for routine use of certain small UAS in the U.S. National Airspace System went into effect,
providing safety rules for small UAS (under 55 pounds) conducting non-recreational operations. These rules limit flights to visual-line-of-sight
daylight operation, unless the UAS has anti-collision lights in which case twilight operation is permitted. The final rule also addresses
height and speed restrictions, operator certification, optional use of a visual observer, aircraft registration and marking and operational
limits, including prohibiting flights over unprotected people on the ground who are not directly participating in the operation of the
UAS. Current FAA regulations require drone operators to register their systems with the FAA and secure operating licenses for their drones.
These regulations continue to evolve to accommodate the integration of UAS into the National Airspace System for commercial applications.

 In
April 2021, the FAA's final rule for remote identification of UAS went into effect. On the same day, the final rule for operation
of small UAS over people also went into effect. This rule permits routine operations of small uncrewed aircraft over people, moving vehicles
and at night under certain conditions, provided that the operation meets the requirements of one of four operational categories.

 On
October 27, 2022, AgEagle announced that the Company's eBee X series of fixed wing UAS were the first and only drones on
the market at that time to comply with Category 3 (as defined below) of the Operations of Small Uncrewed Aerial Systems Over People rules
published by the FAA. Now that the eBee has proven compliant with Category 3 (as defined below) of the rules, eBee drone
operators no longer need an FAA waiver for OOP or Operations Over Moving Vehicles. Category 3 eligible sUAS must not cause injury to
a human being that is equivalent to or greater than the severity of injury caused by a transfer of 25 foot-pounds of kinetic energy upon
impact from a rigid object, does not contain any exposed rotating parts that could lacerate human skin upon impact with a human being,
and does not contain any safety defects. Category 3 aircraft also require FAA-accepted means of compliance and FAA-accepted declaration
of compliance.

 Our
non-U.S. operations are subject to the laws and regulations of foreign jurisdictions, which may include regulations that are more stringent
than those imposed by the U.S. government on our U.S. operations.

 Environmental

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 climate change, 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.

 Suppliers

 In
2024, we maintained strong relationships established with companies that provide many of the parts and services necessary to construct
our advanced fixed-wing drones and sensors. As our Company grows, we expect to pursue additional supplier relationships from which we
can source less costly and better supplies to stay ahead of the needs of the market. In addition, we have forged strong relationships
with key suppliers in the U.S. and in U.S.-allied countries based on their ability to meet our needs and delivery timelines. We will
continue to expand upon our suppliers' expertise to improve our existing products and develop new solutions. In 2023, we experienced
some supply delays from in our inability to muster funds due to high interest rates and tighter borrowing requirements that continue
to crimp borrowing capacity, and thereby hindering our ability to fulfill current and backorders of our products to convert accounts
receivables into cash. We may continue to experience potential supply chain disruptions in 2025 for the same reason.

 Operating
Segment Revenues

 The
table below reflects our revenue by operating segment for the years indicated below:

 For the Year Ended December 31,

 Type

 2024

 2023

 $
 6,410,305

 $
 6,197,049

 6,663,196

 7,100,419

 Software-as-a-Service (SaaS)

 319,276

 443,930

 Total

 $
 13,392,777

 $
 13,741,398

 Research
and Development

 Research
and development activities are core components of our business, and we follow a disciplined approach to investing our resources to create
new drone technologies and solutions. A fundamental part of this approach is a well-defined screening process that helps us identify
commercial opportunities that support current desired technological capabilities in the markets we serve. Our research includes the expansion
of our fixed wing products, providing for developing a portfolio of UAVs, sensors and ongoing software platform development costs, as
well as other technological solutions to problems to which our existing and prospective customers must confront. We cannot predict when,
if ever, we will successfully commercialize these projects, or the exact level of capital expenditures they could require, which could
be substantial.

 Organizational
History

 On
March 26, 2018, our predecessor company, EnerJex Resources, Inc. ("EnerJex"), a Nevada company, consummated the transactions
contemplated by the Agreement and Plan of Merger (the "Merger Agreement"), dated October 19, 2017, pursuant to which AgEagle
Merger Sub, Inc., a Nevada corporation and a wholly-owned subsidiary of EnerJex, merged with and into AgEagle Aerial Systems Inc., a
privately held company organized under the laws of the state of Nevada ("AgEagle Sub"), with AgEagle Sub surviving as a wholly-owned
subsidiary of EnerJex (the "Merger"). In connection with the Merger, EnerJex changed its name to AgEagle Aerial Systems Inc.
(the "Company, "we," "our," or "us") and AgEagle Sub changed its name initially to "Eagle
Aerial, Inc." and then to "AgEagle Aerial, Inc." Prior to this merger, all of the EnerJex operations were conducted
through EnerJex Kansas, Inc., Black Sable Energy, LLC, a Texas limited liability company ("Black Sable") and Black Raven
Energy, Inc. a Nevada corporation ("Black Raven"). Its leasehold interests were held in its wholly-owned subsidiaries Black
Sable, Working Interest, LLC, EnerJex Kansas and Black Raven. As of December 31, 2021, the Company continued with the wholly-owned subsidiaries,
AgEagle Aerial, Inc. and EnerJex Kansas, Inc.

 On
January 27, 2021 ("MicaSense Acquisition Date"), we entered into a stock purchase agreement (the "MicaSense Purchase
Agreement") with Parrot Drones S.A.S. and Justin B. McAllister (the "MicaSense Sellers") pursuant to which the Company
acquired 100% of the issued and outstanding capital stock of MicaSense, Inc. from the MicaSense Sellers (the "MicaSense Acquisition").
The aggregate purchase price for the shares of MicaSense was $23 million less any debt, and subject to a customary working capital adjustment.
MicaSense became a wholly-owned subsidiary of the Company as a result of the MicaSense Acquisition.

 On
April 19, 2021 (the "Measure Acquisition Date"), the Company entered into a stock purchase agreement (the "Measure
Purchase Agreement") with Brandon Torres Declet ("Mr. Torres Declet"), in his capacity as representative of the sellers,
and the sellers named in the Measure Purchase Agreement (the "Measure Sellers") pursuant to which the Company acquired 100%
of the issued and outstanding capital stock of Measure Global, Inc. ("Measure") from the Measure Sellers (the "Measure
Acquisition"). The aggregate purchase price for the shares of Measure is $45 million, less the amount of Measure's debt and
transaction expenses, and subject to a customary working capital adjustment. Measure became a wholly-owned subsidiary of the Company
as a result of the Measure Acquisition.

 On
October 18, 2021 (the "senseFly S.A. Acquisition Date"), the Company entered into a stock purchase agreement with Parrot
Drones S.A.S. pursuant to which the Company acquired 100% of the issued and outstanding capital stock of senseFly S.A. from Parrot
Drones S.A.S. (the "senseFly S.A. Purchase Agreement") The aggregate purchase price for the shares of senseFly S.A. is
$21 million, less the amount of senseFly S.A.'s debt and subject to a customary working capital adjustment. senseFly S.A.
became a wholly-owned subsidiary of the Company as a result.

 On
October 18, 2021 (the "senseFly Inc. Acquisition Date), AgEagle Aerial and the Company entered into a stock purchase agreement
(the "senseFly Inc. Purchase Agreement") with Parrot Inc. pursuant to which AgEagle Aerial agreed to acquire 100% of the
issued and outstanding capital stock of senseFly Inc. from Parrot Inc. The aggregate purchase price for the shares of senseFly Inc. is
$2 million, less the amount of senseFly Inc.'s debt and subject to a customary working capital adjustment. senseFly Inc. became
a wholly-owned subsidiary of the Company as a result.

 Our
Headquarters

 Our
principal executive offices are located at 8201 E. 34 th Street North, Suite 1307, Wichita, Kansas 67226 and our telephone
number is 620-325-6363. Our website address is www.ageagle.com. The information contained on, or that can be accessed through, our website
is not a part of this Annual Report. We have included our website address in this Annual Report solely as an inactive textual reference.

 Human
Capital Resources

 As
of March 31, 2025, we employed 50 full-time employees and 2 part-time employees. We acknowledge that our employees are the Company's
most valued asset and the driving force behind our success. For this reason, we aspire to be an employer that is known for cultivating
a positive and welcoming work environment and one that fosters growth, provides a safe place to work, supports diversity and embraces
inclusion. To support these objectives, our human resources programs are designed to develop talent to prepare them for critical roles
and leadership positions for the future; reward and support employees through competitive pay, benefit and perquisite programs; enhance
the Company's culture through efforts aimed at making the workplace more engaging and inclusive; acquire talent and facilitate
internal talent mobility to create a high performing, diverse workforce; engage employees as brand ambassadors of the Company's
products; and evolve and invest in technology, tools and resources to enable employees at work.

 Diversity,
Equity, and Inclusion

 We
are committed to fostering, cultivating and preserving a culture of diversity, equity and inclusion (DE&I). We recognize that a diverse,
extensive talent pool provides the best opportunity to acquire unique perspectives, experiences, ideas, and solutions to drive our business
forward. We believe that diverse teams solving complex problems leads to the best business results. We promote diversity by developing
policies, programs, and procedures that foster a work environment where differences are respected, and all employees are treated fairly.

 Talent
Management

 We
recognize the importance of attracting and retaining the best employees. Our continued success is not only contingent upon seeking out
the best possible candidates but also retaining and developing the talent that lies within the organization. We strive to attract, develop,
and retain the best and brightest from all walks of life and backgrounds. Our goal is to offer opportunities for employees to improve
their skills to achieve their career goals.

 Employee
Health and Safety

 We
acted quickly to protect the health and safety of our employees in response to the pandemic protocols. In March 2020, all employees who
could work remotely began working from home. Employees continue to have the flexibility to work remotely or on a hybrid basis with most
of our employees. The health and safety of our employees has been and continues to be a priority.

 No
OSHA recordable or lost time injuries in the US and zero injuries at our other global sites.

 Intellectual
Property

 As
reflected in the table below, we currently have registered trademarks, several patents or pending patents for our proprietary drone,
sensor and software technologies filed in the United States and certain jurisdictions abroad. As of December 31, 2024, our trademark
portfolio includes registered and/or pending in various countries and patents in various stages of the patent granting process.
We also consider our UAV and sensor manufacturing processes to be trade secrets and have non-disclosure agreements with current employees
and business partners to protect those and other trade secrets held by the Company. Risks related to the protection and exploitation
of IP rights are set forth in "Risk Factors."

 Trademarks

 Mark

 Country

 Application
 No.

 Filing
 Date

 Registration
 No.

 Registration
 Date

 Status

 (RE)DEFINING
 AGRICULTURAL DRONE SENSING

 US

 /521832

 7/18/2019

 6078193

 6/16/2020

 ALTUM

 US

 /412439

 5/2/2019

 6823409

 8/23/2022

 ALTUM-PT

 US

 /174411

 12/15/2021

 6918181

 12/6/2022

 2198057

 1672211

 China

 1672211

 Union

 1672211

 Japan

 Mexico

 Madrid
 Protocol

 A0124015

 1672211

 MICASENSE

 US

 /659942

 6/11/2015

 4922111

 3/22/2016

 REDEDGE

 US

 /749873

 1/7/2020

 6344611

 5/11/2021

 REDEDGE-MX

 US

 /749880

 1/7/2020

 6359035

 5/25/2021

 REDEDGE-P

 US

 /105307

 11/2/2021

 6917109

 12/6/2022

 2189471

 REDEDGE-P

 Union

 Japan

 Mexico

 Madrid
 Protocol

 A0122452

 THE
 SENSOR THAT DOESN'T COMPROMISE

 US

 /521846

 7/18/2019

 6062427

 5/26/2020

 US

 90/837274

 7/20/2021

 6808302

 8/2/2022

 2068393

 12/3/2020

 Pending

 SENSEFLY,
 A KAMBILL COMPANY AND DESIGN

 India

 5249406

 12/16/2021

 3020013

 7/23/2022

 Australia

 1553690

 Brazil

 3/25/2013

 840461313

 1/12/2016

 Brazil

 3/25/2013

 840461305

 3/6/2018

 1618501

 3/15/2013

 TMA932233

 3/21/2016

 China

 03/13/2013

 Union

 EBEE

 Russia

 61158/2012

 9/18/2012

 638841

 1/21/2013

 US

 79128567

 4503673

 4/1/2014

 WIPO

 United Kingdom

 UK00801156183

 UK00801156183

 9/21/2016

 EXOM

 Australia

 China

 Union

 Russia

 South
 Africa

 2015/01806

 1/23/2015

 2015/01806

 6/19/2017

 59684/2014

 8/20/2014

 663964

 9/24/2014

 WIPO

 SENSEFLY

 Australia

 Brazil

 3/4/2016

 910715637

 4/17/2018

 Brazil

 3/4/2016

 910715580

 4/17/2018

 1769512

 2/25/2016

 TMA1013787

 1/24/2019

 China

 Union

 Russia

 62950/2010

 5/8/2011

 615741

 5/26/2011

 WIPO

 United Kingdom

 UK00801322220

 UK00801322220

 5/11/2017

 ALBRIS

 Australia

 1814255

 1322220

 China

 1322220

 Union

 132220

 ALBRIS

 Russia

 132220

 53355/2016

 3/16/2016

 685791

 3/30/2016

 US

 79197603

 5178765

 4/11/2017

 WIPO

 132220

 EBEE
 TAC

 15306/2020

 10/29/2020

 754619

 11/6/2020

 WIPO

 4/21/2021

 1615756

 4/21/2021

 Patents
 and Pending Patents

 Invention
 Name

 Country
 Code

 Status

 Application
 No.

 Filing
 Date

 Publication
 No.

 Publication
 Date

 Patent
 No.

 Patent
 Date

 REFLECTANCE
 PANELS FEATURING MACHINE-READABLE SYMBOL AND METHODS OF USE

 US

 NP-Filed

 62/160732

 5/13/15

 REFLECTANCE
 PANELS FEATURING MACHINE-READABLE SYMBOL AND METHODS OF USE

 US

 15/154719

 5/13/16

 20170352110

 12/7/17

 10467711

 11/5/19

 THERMAL
 CALIBRATION OF AN INFRARED IMAGE SENSOR

 US

 15/620627

 6/12/17

 20170358105

 10518900

 12/31/19

 THERMAL
 CALIBRATION OF AN INFRARED IMAGE SENSOR

 US

 NP-Filed

 62/350116

 6/14/16

 MULTI-SENSOR
 IRRADIANCE ESTIMATION

 PCT

 Converted

 US2017/066524

 WO2018/136175

 7/26/18

 MULTI-SENSOR
 IRRADIANCE ESTIMATION

 US

 16/037952

 7/17/18

 20180343367

 11/29/18

 11290623

 3/29/22

 MULTI-SENSOR
 IRRADIANCE ESTIMATION

 China

 Published

 201780083888.1

 CN110291368A

 9/27/19

 AERIAL VEHICLE COMPRISING IRRADIANCE SENSOR AND IMAGING DEVICE

 Europe

 Converted

 17892899.0

 3571480

 11/27/19

 3571480

 12/11/24

 MULTI-SENSOR
 IRRADIANCE ESTIMATION

 Austria

 Belgium

 Switzerland/Lichtenstein

 Germany

 Denmark

 Spain

 Finland

 France

 United Kingdom

 Netherlands

 Norway

 Sweden

 Japan

 2019-529189

 2020-515809

 5/28/20

 7321093

 7/27/2023

 IMAGE
 SENSOR AND THERMAL CAMERA DEVICE, SYSTEM AND METHOD

 Europe

 Published

 19892185.0

 12/3/19

 3890466

 10/13/21

 IMAGE
 SENSOR AND THERMAL CAMERA DEVICE, SYSTEM AND METHOD

 China

 201980079714.7

 12/3/19

 CN113226007A

 8/6/21

 ZL201980079714.7

 4/14/2023

 IMAGE
 SENSOR AND THERMAL CAMERA DEVICE, SYSTEM AND METHOD

 US

 /299258

 6/2/21

 20220038644

 2/3/22

 12028588

 7/2/2024

 IMAGE
 SENSOR AND THERMAL CAMERA DEVICE, SYSTEM AND METHOD

 PCT

 Converted

 US2019/064296

 12/3/19

 WO2020/117847

 6/11/20

 IMAGE SENSOR AND THERMAL CAMERA DEVICE, SYSTEM AND METHOD

 US

 Allowed

 18/744539

 6/14/24

 2019064296

 12/3/19

 DIFFUSER
 FOR IRRADIANCE SENSOR INCLUDING DIFFUSER PROTRUDING FROM EXTERIOR SURFACE

 US

 /720093

 4/13/22

 20220333979

 10/20/22

 12055434

 8/6/2024

 DIFFUSER
 FOR LIGHT SENSOR

 US

 NP-Filed

 /174929

 4/14/21

 CAMERA

 US

 29/691510

 5/16/19

 D907099

 1/5/21

 CAMERA

 US

 29/691512

 5/16/19

 D907100

 1/5/21

 LIGHT
 SENSOR

 US

 29/691513

 5/16/19

 D906845

 1/5/21

 LENS
 HOUSING

 US

 29/691516

 5/16/19

 D907102

 1/5/21

 Where
You Can Find Additional Information

 The
Company is subject to the reporting requirements under the Exchange Act. The Company files with, or furnishes to, the Securities and
Exchange Commission ("SEC") annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
and amendments to those reports and other filings with the SEC. These filings are available free of charge on the Company's
website, www.ageagle.com, as soon as reasonably practicable after they are filed with, or furnished to, the SEC. The SEC maintains
an Internet website, www.sec.gov, which contains reports and information statements and other information regarding issuers. The information found on our website is not incorporated into this or any other report we file with or furnish to
the SEC.

 ITEM
1A. RISK FACTORS

 The
risk factors discussed below could cause our actual results to differ materially from those expressed in any forward-looking statements.
Although we have attempted to list comprehensively these important factors, we caution you that other factors may in the future prove
to be important in affecting our results of operations. New factors emerge from time to time, and it is not possible for us to predict
all of these factors, nor can we assess the impact of each such factor on the business or the extent to which any factor, or combination
of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

 The
risks described below set forth what we believe to be the most material risks associated with the purchase of our Common Stock. Before
you invest in our Common Stock, you should carefully consider these risk factors, as well as the other information contained in this
prospectus.

 We
have a history of operating losses and expect to incur significant additional operating expenses.

 We have been operating through
our wholly-owned subsidiary, AgEagle Aerial, Inc. for over ten years. It was not until 2021 that we acquired
the latest go-to-market airframes, sensors and software technologies of our products. As of December 31, 2024, we had an accumulated
deficit of approximately $218.4 million which included net losses of approximately $35.0 million and $42.4 million for the years ended
December 31, 2024 and 2023, respectively. We are currently still incurring significant net losses as we continue to invest in our business
strategy and grow our business as a result, we cannot guarantee that when we expect to generate sufficient cash flows from operations
to be adequate to cover our operating business. Moreover, even if we achieve profitability, given the competitive and evolving nature
of the industries in which we operate, we may be unable to sustain or increase profitability and failure to do so would adversely affect
our business, including our ability to raise additional funds.

 We
will need additional funding and may be unable to raise capital when needed, which would force us to delay, curtail or eliminate one
or more of our research and development programs or commercialization efforts.

 Our
operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts on product and
software development. We will require additional funds to support our continued research and development activities, as well as the costs
of commercializing, marketing and selling any existing and new products and/or services resulting from those activities. Until such time,
that we can generate sufficient revenue and achieve profitability, we will need to meet our future cash needs through equity or debt
financings. There can be no assurance that we will be successful in our capital raising efforts.

 On
March 10, 2023, the Company issued and sold to the Alpha Capital Anstalt ("Alpha" or "Investor") an
additional 3,000 shares of Series F convertible into 2,381 shares of the Company's common stock, per $1,000 Stated Value per
share of Preferred Stock, at a conversion price of $420.00 per share and associated common stock warrant to purchase up to 7,143
shares of common stock at the exercise price of $420.00 per share warrant (the "Additional Warrant") in a private
placement and raised $3,000,000 in gross proceeds. The Additional Warrant is exercisable upon issuance and has a three-year
term.

 On
June 5, 2023, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement") with certain accredited
investors, which included Alpha, (the "Investors"). Pursuant to the terms of the Purchase Agreement, the Company has agreed to issue and sell to
Investors (i) 16,720 shares of Common Stock (the "Offering Shares") at $250.00 per share and (ii) warrants to purchase up
to 25,080 shares of common stock (the "Warrants"), exercisable at $380.00 per share (the "Warrant Shares" together
with the Warrants and Offering Shares, the "Securities") and raised gross sales proceeds of $4,180,000. The Warrant is for
a term of 5.5 years commencing on the closing date but is not exercisable for the first six months after closing. As a result, pursuant
to the Purchase Agreement the Company issued 16,720 shares of Common Stock for proceeds of $3,817,400, net of issuance costs from the
offering and warrants to purchase up to 25,080 shares of common stock exercisable at $380.00 per share.

 On
November 15, 2023, the Company and Investors, which included Alpha, entered into the Assignment Agreement, pursuant to which, among other
things, (i) Alpha transferred and assigned to certain institutional and accredited investors (the "Assignees"), the rights
and obligations to purchase up to $1,850,000 or 1,850 shares at a price of $1,000 per share of Series F Preferred pursuant to the Additional
Investment Right provided in the Series F Agreement (the "Assigned Rights"), (ii) the Series F Agreement was amended so that
the Assignees are party thereto and have the same rights and obligations thereunder as the investor to the extent of the Assigned Rights,
(iii) the time period during which the investor can provide an investor notice was extended from August 3, 2024 until February 3, 2025;
and (iv) Alpha and the Company agreed to a one-time waiver of the Minimum Subscription Requirement to allow exercise of the Assigned
Rights.

to the investor notices received by the Company from Alpha and the Assignees on November 15, 2023, delivered in connection with
the Assignment, the Investor and the Assignees have provided notices of their desire to purchase 1,850 shares of Preferred Stock (the
"November Additional Series F Preferred") convertible into 14,836 shares of Common Stock (the "November Conversion
Shares") at a conversion price of $124.70 per share and warrants (the "November Additional Warrants") to purchase up
to 14,836 shares of our Common Stock an exercise price of $124.70 per share for an aggregate purchase price of $1,850,000. The November
Additional Warrants will be exercisable upon issuance and have a three-year term.

to the Investor Notice received by the Company from Alpha, the Company sold to Alpha 650 shares of November Additional Series F Preferred,
which are part of the 1,850 shares and are convertible into 5,213 shares of Common Stock at a conversion price of $124.70 per share (which
was adjusted to $100.00 per share as a result of the Common Stock Offering) and November Additional Warrants to purchase up to 5,213
shares of our Common Stock an initial exercise price of $124.70 per share (which was adjusted to $100.00 per warrant as a result of the
Common Stock Offering) for an aggregate purchase price of $650,000.

 On
March 6, 2024, in connection with the Assigned Rights, the Company received investor notices from Alpha and the Assignees for the aggregate
purchase of 1,000 shares of Series F Convertible Preferred convertible into 16,588 shares of Common Stock at a conversion price of $60.29
and warrants to purchase up to 16,588 shares of Common Stock an exercise price of $60.29 per share for an aggregate purchase price of
$1,000,000. The Warrants were immediately exercisable upon issuance and have a three-year term.

 On
April 12, 2024, the Company received an investor notice from Alpha 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 and warrants to purchase
up to 28,378 shares of Common Stock at an exercise price of $37.00 per share (based on the VWAPs of the Company's common stock
for April 9, 2024, April 10, 2024, and April 11,2024) for an aggregate purchase price of $1,050,000. The Warrants were immediately exercisable
upon issuance and have a three-year term.

 On
May 31, 2024, the Company received investor notices from Alpha and certain of the Assignees for the aggregate purchase of 1,050 shares
of Series F Convertible Preferred convertible into 32,659 shares of Common Stock at a conversion price of $32.15 and warrants to purchase
up to 32,659 shares of Common Stock at an exercise price of $32.15 per share for an aggregate purchase price of $1,050,000. The Warrants
were immediately exercisable upon issuance and have a three-year term.

 On
July 25, 2024, the Company received investor notice from Alpha for the aggregate purchase of 500 shares of Series F Convertible Preferred
convertible into 21,598 shares of Common Stock at a conversion price of $23.15 and warrants to purchase up to 21,598 shares of Common
Stock at an exercise price of $23.15 per share for an aggregate purchase price of $500,000. The Warrants were immediately exercisable
upon issuance and have a three-year term.

 On
August 27, 2024, the Company received investor notice from Alpha for the aggregate purchase of 500 shares of Series F Convertible
Preferred convertible into 24,765 shares of Common Stock at a conversion price of $20.19 and warrants to purchase up to 24,765
shares of Common Stock at an exercise price of $20.19 per share for an aggregate purchase price of $500,000. The Warrants were
immediately exercisable upon issuance and have a three-year term.

 On
September 30, 2024, the Company entered into a placement agency agreement (the "Placement
Agency Agreement") with Spartan Capital Securities, LLC (the "Placement Agent") in connection with the issuance and
sale by the Company in a public offering (the "Offering") of 538,000 units (the "Units"), consisting of common units
("Common Units"), each consisting of one share of common stock of the Company, $0.001 par value per share, one Series A warrant
("Series A Warrant") to purchase one share of common stock and one Series B warrant ("Series B Warrant") to purchase
one share of common stock and pre-funded Units (the "Pre-Funded Units" and together with the Common Units, the "Units"),
with each Pre-Funded Unit consisting of one pre-funded warrant (the "Pre-Funded Warrants") to purchase one share of common
stock, one Series A Warrant to purchase one share of common stock and one Series B Warrant to purchase one share of common stock, resulting
in net proceed of $5,677,739.

 On
October 7, 2024, as part of "October 2024 Offering", the Company issued and delivered to Alpha 1,500 shares of Series F 5%
Convertible Preferred Stock with an aggregate stated value of $1,500,000 and having all the rights and benefits of Series F 5% Convertible
Preferred Stock convertible into 1,363,636 shares of Common Stock with a conversion price of $1.10 as of December 31, 2024.

 On
December 18, 2024, the Company received investor notice from Alpha for the aggregate purchase of 750 shares of Series F Convertible Preferred
convertible into 142,857 shares of Common Stock at a conversion price of $5.25 and warrants to purchase up to 142,857 shares of Common
Stock at an exercise price of $5.25 per share for an aggregate purchase price of $750,000. The Warrants were immediately exercisable
upon issuance and have a three-year term.

 Despite
the foregoing, we will require additional financing in the future. If we are unable to raise additional capital, we may have to delay,
curtail, or eliminate commercializing, marketing and selling one or more of our solutions. Should the financing we require be unavailable
to us, or on terms unacceptable to us when we require it, the consequences could have a material adverse effect on our business, operating
results, financial condition, and prospects.

 In
addition, if additional funds are obtained through arrangements with collaborative partners or other non-dilutive sources, we may have
to relinquish economic and/or proprietary rights to some of our technologies or products under development that we would otherwise seek
to develop or commercialize by ourselves. Such events may have a material adverse effect on our business, operating results, financial
condition and prospects.

 Our
independent registered public accounting firm's report contains an explanatory paragraph that expresses substantial doubt about
our ability to continue as a "going concern."

 As
of December 31, 2024, the Company had $3.6 million cash on hand and a working capital of $3.1 million. During the year ended December
31, 2024, the Company incurred a net loss of approximately $35.0 million and used cash in operating activities of approximately $6.6
million. While the Company has historically been successful in raising capital to meet its working capital needs, the ability to continue
raising such capital to enable the Company to continue its growth is not guaranteed. As the Company will require additional liquidity
to continue its operations and meet its financial obligations over the next twelve months, there is substantial doubt about the Company's
ability to continue as a going concern. The Company is evaluating strategies to obtain the required additional funding for future operations
and the restructuring of operations to grow revenues and reduce expenses.

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

 Risks
Related to Our Business and the Industries We Serve

 We
operate in evolving markets, which makes it difficult to evaluate our business and future prospects.

drone, sensor and software technologies are and will be sold in new and rapidly evolving markets. The commercial UAV industry is in the
early stages of customer adoption and the FAA's definition of regulations relating to the integration of commercial drones into
the U.S. National Airspace System is rapidly evolving. Accordingly, our business and future prospects may be difficult to evaluate. We
cannot accurately predict the extent to which demand for our drone systems and solutions will increase, if at all. The challenges, risks
and uncertainties frequently encountered by companies in rapidly evolving markets could impact our ability to do the following:

 Generate
 sufficient revenue to achieve sustainable profitability;

 Acquire
 and maintain market share;

 Achieve
 or manage growth in our business operations;

 Renew
 contracts;

 Attract
 and retain software and system engineers and other highly qualified personnel;

 Successfully
 develop for the commercial market new products and end-to-end solutions;

 Adapt
 to new or changing polices and spending priorities of current and prospective clients; and

 Access
 to additional capital when required and on reasonable terms.

 If
we fail to address these and other challenges, risks and uncertainties successfully, our business, results of operations and financial
condition would be materially harmed.

 Product
development is a long, expensive, and uncertain process.

 The
development of UAV systems is a costly, complex and time-consuming process, and investments in product development often involve a long
wait until a return, if any, can be achieved on such investment. We might face difficulties or delays in the development process that
will result in our inability to timely offer products that satisfy the market, which might allow competing products to emerge during
the development and certification process. We plan to continue making significant investments in research and development relating to
our products and technology services, but such investments are inherently speculative and require substantial capital expenditures. Any
unforeseen technical obstacles and challenges that we encounter in the research and development process could result in delays in or
the abandonment of product commercialization, may substantially increase development costs, and will likely negatively affect our results
of operations.

 Successful
technical development of our products does not guarantee successful commercialization.

 Although
we have successfully acquired our fully developed go-to-market UAV systems, sensors, and software technology solutions ready for sale
or subscription, we may still fail to achieve commercial success for several reasons, including, among others, the following:

 failure
 to obtain the required regulatory approvals for their use;

 rapid
 obsolescence of a product due to new, more advanced technologies;

 prohibitive
 production costs;

 competing
 products;

 lack
 of product innovation;

 unsuccessful
 distribution and marketing through our sales channels;

 insufficient
 cooperation from our supply and distribution partners; and

 product
 development that does not align with or meet customer needs.

 Our
success in the market for the products and services we develop will depend largely on our ability to properly demonstrate their capabilities.
Upon demonstration, our solutions may not have the capabilities they were designed to have or that we believed they would have. Furthermore,
even if we do successfully demonstrate our products' capabilities, potential customers may be more comfortable doing business with
our competitors; or may not feel there is a significant need for the products we develop. As a result, significant revenue from our current
and new product investments may not be achieved for several years, if at all, and that will affect the Company's profitability.

 We
face competition from other companies, many of which have substantially greater resources.

 Our
competitors may be able to provide customers with products that have different or greater capabilities or benefits than we can provide
in areas such as technical qualifications, past contract performance, geographic presence, price, and the availability of key professional
personnel. Furthermore, many of our competitors may be able to utilize their substantially greater resources and economies of scale to
develop competing products and technologies, manufacture in high volumes more efficiently, divert sales away from us by winning broader
contracts or hire away our employees by offering more lucrative compensation packages. Small business competitors may be able to offer
more cost competitive solutions, due to their lower overhead costs. The markets for commercial drones and services are quickly expanding,
and competition is intensifying as additional competitors enter the market and current competitors expand their product offerings. In
order to secure contracts successfully when competing with larger, better financed companies, we may be forced to agree to contractual
terms that provide for lower aggregate payments to us over the life of the contract, which could adversely affect our margins. Our failure
to compete effectively could have a material adverse effect on our business, prospects, financial condition or future operating results.

 If
we fail to protect our intellectual property rights, we could lose our ability to compete in the marketplace.

 Our
intellectual property and proprietary rights are important to our ability to remain competitive and successful in the development of
our products and to our future growth potential. Patent protection can be limited and not all intellectual property can be patented.
We expect to rely on a combination of patent, trademark, copyright and trade secret laws, as well as confidentiality and non-disclosure
agreements and procedures, non-competition agreements and other contractual provisions to protect our intellectual property, other proprietary
rights and our brand. As we currently only have a limited amount of granted patent or copyright protections, we must rely on trade secrets
and nondisclosure agreements, which provide limited protections. Our intellectual property rights may be challenged, invalidated, or
circumvented by third parties. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade
secrets by employees or competitors.

 Furthermore,
our competitors may independently develop technologies and products that are substantially equivalent or superior to our technologies
and products, which could result in decreased revenues. Litigation may be necessary to enforce our intellectual property rights, which
could result in substantial costs to us and substantial diversion of management's attention. If we do not adequately protect our
intellectual property, our competitors could use it to enhance their products. Our inability to adequately protect our intellectual property
rights could adversely affect our business and financial condition, and the value of our brand and other intangible assets.

 Other
companies may claim that we infringe their intellectual property, which could materially increase our costs and harm our ability to generate
future revenue and profit.

 We
do not believe that our technologies infringe on the proprietary rights of any third party; however, claims of infringement are becoming
increasingly common and third parties may assert infringement claims against us. It may be difficult or impossible to identify, prior
to receipt of notice from a third party, the trade secrets, patent position or other intellectual property rights of a third party, either
in the United States or in foreign jurisdictions. Any such assertion may result in litigation or may require us to obtain a license for
the intellectual property rights of third parties. If we are required to obtain licenses to use any third-party technology, we would
have to pay royalties, which may significantly reduce any profit on our products. In addition, any such litigation could be expensive
and disruptive to our ability to generate revenue or enter into new market opportunities. If any of our products were found to infringe
other parties' proprietary rights and we are unable to come to terms regarding a license with such parties, we may be forced to
modify our products to make them non-infringing or to cease production of such products altogether.

 The
nature of our business involves significant risks and uncertainties that may not be covered by insurance or indemnification.

 We
have developed and sold products and services in circumstances where insurance or indemnification may not be available, for example,
in connection with the collection and analysis of various types of information. In addition, our products and services raise questions
with respect to issues of civil liberties, intellectual property, trespass, conversion, and similar concepts, which may create legal
issues. Indemnification to cover potential claims or liabilities resulting from the failure of any technologies that we develop or deploy
may be available in certain circumstances but not in others. Currently, the uncrewed aerial systems industry lacks a formative insurance
market. We may not be able to maintain insurance to protect against all operational risks and uncertainties that our customers confront.
Substantial claims resulting from an accident, product failure, or personal injury or property liability arising from our products and
services in excess of any indemnity or insurance coverage (or for which indemnity or insurance coverage is not available or is not obtained)
could harm our financial condition, cash flows and operating results. Any accident, even if fully covered or insured, could negatively
affect our reputation among our customers and the public, and make it more difficult for us to compete effectively.

 We
may incur substantial product liability claims relating to our products.

 As
a manufacturer of UAV products, and with aircraft and aviation sector companies under increased scrutiny in recent years, claims could
be brought against us if use or misuse of one of our UAV products causes, or merely appears to have caused, personal injury or death.
In addition, defects in our products may lead to other potential life, health and property risks. Any claims against us, regardless of
their merit, could severely harm our financial condition, strain our management and other resources. We are unable to predict if we will
be able to obtain or maintain product liability insurance for any of our products.

 We
maintain cash deposits in excess of federally insured limits. Adverse developments affecting financial institutions, including bank failures,
could adversely affect our liquidity and financial performance.

 We
regularly maintain domestic cash deposits in Federal Deposit Insurance Corporation ("FDIC") insured banks, which exceed the
FDIC insurance limits. We also maintain cash deposits in foreign banks where we operate, some of which are not insured or are only partially
insured by the FDIC or other similar agencies. Bank failures, events involving limited liquidity, defaults, non-performance or other
adverse developments that affect financial institutions, or concerns or rumors about such events, may lead to liquidity constraints.
For example, on March 10, 2023, Silicon Valley Bank failed and was taken into receivership by the FDIC. Additionally, on March 15, 2023,
Credit Suisse announced that it would borrow up to 50 billion Swiss francs, or $53.7 billion, from the Swiss National Bank to address
its liquidity concerns. We have historically maintained deposits less than $1 million euros at Credit Suisse and have now lowered our
funds as part of our risk mitigation plan in connection with the foregoing, we may increase our deposits at Credit Suisse in the future
however there can be no assurance that we will be able to effectively mitigate the risk of loss should a similar event impact Credit
Suisse in the future or any other bank at which we maintain deposits. The failure of a bank, or other adverse conditions in the financial
or credit markets impacting financial institutions at which we maintain balances, could adversely impact our liquidity and financial
performance. There can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be backstopped
by the U.S. or applicable foreign government, or that any bank or financial institution with which we do business will be able to obtain
needed liquidity from other banks, government institutions or by acquisition in the event of a failure or liquidity crisis.

 If
our subcontractors or suppliers fail to perform their contractual obligations, our performance and reputation as a contractor and our
ability to obtain future business could suffer.

 We
often rely upon other companies to perform work we are obligated to perform for our customers. As we secure more work under certain of
our contracts, we expect to require an increasing level of support from subcontractors that provide complementary or supplementary services
to our offers. We are responsible for the work performed by our subcontractors, even though in some cases we have limited involvement
in that work. If one or more of our subcontractors fails to satisfactorily perform the agreed-upon services on a timely basis or violates
contracting policies, laws or regulations, our ability to perform our obligations as a prime contractor or meet our customers'
requirements may be compromised. In extreme cases, performance, or other deficiencies on the part of our subcontractors could result
in a customer terminating our contract for default. A termination for default could expose us to liability, including liability for the
costs of re-procurement, could damage our reputation and could hurt our ability to compete for future contracts.

 For
certain of the components included in our products, there are a limited number of suppliers we can rely upon. If we are unable to obtain
these components when needed, we could experience delays in the manufacturing of our products and our financial results could be adversely
affected.

 Suppliers
of some of the components of our products may require us to place orders with significant lead-time to assure supply in accordance with
their manufacturing requirements and enter into agreements specifically for our technological services business. Delays in supply may
significantly hurt our ability to fulfill our contractual obligations and therefore our business and result of operations. In addition,
we may not be able to continue to obtain such components from these suppliers on satisfactory commercial terms. Disruptions of our manufacturing
operations would ensue if we were required to obtain components from alternative sources, which would have an adverse effect on our business,
results of operations and financial condition.

 If
we are unable to recruit and retain key management, technical and sales personnel, our business would be negatively affected.

 For
our business to be successful, we need to attract and retain highly qualified executive, technical and sales personnel. The failure to
recruit additional key personnel when needed, with specific qualifications, on acceptable terms and with an ability to maintain positive
relationships with our partners, might impede our ability to continue to develop, commercialize and sell our products and services. To
the extent the demand for skilled personnel exceeds supply, we could experience higher labor, recruiting and training costs in order
to attract and retain such employees. The loss of any members of our management team may also delay or impair achievement of our business
objectives and result in business disruptions due to the time needed for their replacements to be recruited and become familiar with
our business. We face competition for qualified personnel from other companies with significantly more resources available to them and
thus may not be able to attract the level of personnel needed for our business to succeed.

 If
our proposed marketing efforts are unsuccessful, we may not earn enough revenue to become profitable.

 Our
future growth depends on our gaining market acceptance and regular production orders for our products and services. Our marketing plan
includes attendance at trade shows, conducting private demonstrations, advertising, social media, public relations, promotional materials
and advertising campaigns in print and/or broadcast media. In addition, our marketing plan incorporates strategies to nurture, expand
and leverage our global reseller network and relationships with government and defense contractors to achieve greater market penetration
in the commercial and government/military verticals. In the event we are not successful in obtaining a significant volume of orders for
our products and technology services, we will face significant obstacles in expanding our business. We cannot give any assurance that
our marketing efforts will be successful. If they are not, revenue may not be sufficient to cover our fixed costs and we may not become
profitable.

 Our
operating margins may be negatively impacted by a reduction in sales or an increase in the cost of products sold.

 Expectations
regarding future sales and expenses are largely fixed in the short term. We maintain raw materials and finish goods at a volume we feel
is necessary for anticipated distribution and sales. Therefore, we may not be able to reduce costs in a timely manner to compensate for
any unexpected shortfalls between forecasted and actual sales. Additionally, the countries in which we purchase raw materials from to manufacture our finished product could become
subject to new trade restrictions, including increased taxation on imported goods, customs restrictions, tariffs or quotas.

 We
face a significant risk of failure because we cannot accurately forecast our future revenues and operating results.

 The
rapidly changing nature of the markets in which we compete makes it difficult to accurately forecast our revenues and operating results.
Furthermore, we expect our revenues and operating results to fluctuate in the future due to a number of factors, including the following:

 the
 timing of sales or subscription of our products;

 unexpected
 delays in introducing new products and services;

 increased
 expenses, whether related to sales and marketing or administration; and

 costs
 related to possible acquisitions of businesses.

 Rapid
technological changes may adversely affect the market acceptance of our products and could adversely affect our business, financial condition,
and results of operations.

 The
markets in which we compete are subject to technological changes, introduction of new products, change in customer demands and evolving
industry standards. Our future success will depend upon our ability to keep pace with technological developments and to timely address
the increasingly sophisticated needs of our customers by supporting existing and new technologies and by developing and introducing enhancements
to our current products and services and new products and services. We may not be successful in developing and marketing enhancements
to our products that will respond to technological change, evolving industry standards or customer requirements. In addition, we may
experience difficulties internally or in conjunction with key vendors and partners that could delay or prevent the successful development,
introduction and sale of such enhancements and such enhancements may not adequately meet the requirements of the market and may not achieve
any significant degree of market acceptance. If the release dates of our new products or enhancements are delayed or, if when released,
they fail to achieve market acceptance, our business, operating results, and financial condition may be adversely affected.

 Failure
to obtain necessary regulatory approvals from the FAA or other governmental agencies, or limitations put on the use of small UAS in response
to public privacy concerns, may prevent us from expanding the sales of our drone solutions to commercial and industrial customers in
the United States.

 The
regulation of small UAS for commercial use in the United States is undergoing substantial change and the ultimate treatment is uncertain.
In August 2016, the FAA's final rules regarding the routine use of certain small UAS (under 55 pounds) in the U.S. National Airspace
System went into effect, providing safety regulations for small UAS conducting non-recreational operations and contain various limitations
and restrictions for such operations, including a requirement that operators keep UAS within visual-line-of-sight and prohibiting flights
over unprotected people on the ground who are not directly participating in the operation of the UAS. In April 2021, the FAA's
final rules requiring remote identification of UAS went into effect. On the same day, the final rule for operation of small UAS to fly
over people and at night under certain conditions also went into effect. We cannot assure you that any additional final rules will result
in the expanded use of our UAS and UAS solutions by commercial and industrial entities. In addition, there exists public concern regarding
the privacy implications of U.S. commercial use of small UAS. This concern has included calls to develop explicit written policies and
procedures establishing usage limitations. We cannot assure you that the response from regulatory agencies, customers and privacy advocates
to these concerns will not delay or restrict the adoption of small UAS by the commercial use markets.

 We
may pursue additional strategic transactions in the future, which could be difficult to implement, disrupt our business or change our
business profile significantly.

 We
intend to consider additional potential strategic transactions, which could involve acquisitions of businesses or assets, joint ventures
or investments in businesses, products or technologies that expand, complement or otherwise relate to our current or future business.
We may also consider, from time to time, opportunities to engage in joint ventures or other business collaborations with third parties
to address particular market segments. Should our relationships fail to materialize into significant agreements, or should we fail to
work efficiently with these companies, we may lose sales and marketing opportunities and our business, results of operations and financial
condition could be adversely affected.

 These
activities, if successful, create risks such as, among others: (i) the need to integrate and manage the businesses and products acquired
with our own business and products; (ii) additional demands on our resources, systems, procedures and controls; (iii) disruption of our
ongoing business; (iv) potential unknown or unquantifiable liabilities associated with the target company; and (v) diversion of management's
attention from other business concerns. Moreover, these transactions could involve: (a) substantial investment of funds or financings
by issuance of debt or equity securities; (b) substantial investment with respect to technology transfers and operational integration;
and (c) the acquisition or disposition of product lines or businesses. Also, such activities could result in one-time charges and expenses
and have the potential to either dilute the interests of our existing shareholders or result in the issuance of, or assumption of debt.
Such acquisitions, investments, joint ventures or other business collaborations may involve significant commitments of financial and
other resources. Any such activities may not be successful in generating revenue, income or other returns, and any resources we committed
to such activities will not be available to us for other purposes. Moreover, if we are unable to access the capital markets on acceptable
terms or at all, we may not be able to consummate acquisitions or may have to do so on the basis of a less than optimal capital structure.
Our inability to take advantage of growth opportunities or address risks associated with acquisitions or investments in businesses may
negatively affect our operating results.

 Additionally,
any impairment of goodwill or other intangible assets acquired in an acquisition or in an investment, or charges to earnings associated
with any acquisition or investment activity, may materially reduce our earnings. Future acquisitions or joint ventures may not result
in their anticipated benefits and we may not be able to properly integrate acquired products, technologies or businesses with our existing
products and operations or successfully combine personnel and cultures. Failure to do so could deprive us of the intended benefits of
those acquisitions.

 Cyberattacks
and other security breaches of network or information technology security could have an adverse effect on our business.

 We
maintain information necessary to conduct our business, including confidential and proprietary information as well as personal information
regarding our customers and employees, in digital form. We also use computer systems to deliver our products and services and operate
our businesses. Data maintained in digital form is subject to the risk of unauthorized access, modification, exfiltration, destruction
or denial of access and our computer systems are subject to cyberattacks that may result in disruptions in service. We use many third-party
systems and software, which are also subject to supply chain and other cyberattacks. We develop and maintain an information security
program to identify and mitigate cyber risks, but the development and maintenance of this program is costly and requires ongoing monitoring
and updating as technologies change and efforts to overcome security measures become more sophisticated. Accordingly, despite our efforts,
the risk of unauthorized access, modification, exfiltration, destruction or denial of access with respect to data or systems and other
cybersecurity attacks cannot be eliminated entirely, and the risks associated with a potentially material incident remain. In addition,
we provide some confidential, proprietary and personal information to third parties in certain cases when it is necessary to pursue business
objectives. While we obtain assurances that these third parties will protect this information and, where we believe appropriate, monitor
the protections employed by these third parties, there is a risk the confidentiality of data held by third parties may be compromised.

 The
potential liabilities associated with these events could exceed the insurance coverage we maintain. Our inability to operate our facilities
as a result of such events, even for a limited period of time, may result in significant expenses or loss of market share to other competitors.
In addition, a failure to protect the privacy of customer and employee confidential data against breaches of technology platforms or
IT security could result in damage to our reputation. To date, we have not been subject to cyber-attacks or other cyber incidents which,
individually or in aggregate, resulted in a material adverse effect on our business, operating results and financial condition.

 Successful
cybersecurity attacks or other security incidents however, could result in, for example, one or more of the following: unauthorized access
to, disclosure, modification, misuse, loss, or destruction of company, customer, or other third party data or systems; theft or import
or export of sensitive, regulated, or confidential data including personal information and intellectual property, including key innovations
in artificial intelligence, quantum, or other disruptive technologies; the loss of access to critical data or systems through ransomware,
crypto mining, destructive attacks or other means; and business delays, service or system disruptions or denials of service.

 We
may not be successful in our artificial intelligence initiatives, which could adversely affect our business, reputation, or financial
results.

 The
development of generative artificial intelligence ("AI") technologies is complex, and there are technical challenges associated
with achieving the desired level of accuracy, efficiency, and reliability. The algorithms and models utilized in generative AI systems
may have limitations, including biases, errors, or inability to handle certain data types or scenarios. Furthermore, there is a risk
of system failures, disruptions, or vulnerabilities that could compromise the integrity, security, or privacy of the generated content.
These limitations or failures could result in reputational damage, legal liabilities, or loss of user confidence.

 The
preparation of our financial statements involves use of estimates, judgments and assumptions, and our financial statements may be materially
affected if our estimates prove to be inaccurate.

 Financial
statements prepared in accordance with generally accepted accounting principles in the United States require the use of estimates, judgments,
and assumptions that affect the reported amounts. Different estimates, judgments, and assumptions reasonably could be used that would
have a material effect on the financial statements, and changes in these estimates, judgments and assumptions are likely to occur from
period to period in the future. These estimates, judgments, and assumptions are inherently uncertain, and, if they prove to be wrong,
then we face the risk that charges to income will be required.

 Our
results of operations can be significantly affected by foreign currency fluctuations and regulations.

 A
significant portion of our revenues are currently derived in the local currencies of the foreign jurisdictions in which our products
are sold. Accordingly, we are subject to risks relating to fluctuations in currency exchange rates. In the future, and especially as
we further expand our sales efforts in international markets, our customers will increasingly make payments in non-U.S. currencies. Fluctuations
in foreign currency exchange rates could affect our revenues, operating costs, and operating margins. In addition, currency devaluation
can result in a loss to us if we hold deposits of that currency or if it reduces the cost-competitiveness of our products. We cannot
predict the effect of future exchange rate fluctuations on our operating results.

 Our
results could be adversely affected by natural disasters, public health crises, political crises, or other catastrophic events.

 Natural
disasters, such as hurricanes, tornadoes, floods, earthquakes and other adverse weather and climate conditions; unforeseen public health
crises, such as pandemics and epidemics; political crises, such as terrorist attacks, war, labor unrest, and other political instability;
or other catastrophic events, such as disasters occurring at our manufacturing facilities, could disrupt our operations or the operations
of one or more of our vendors. In particular, these types of events could impact our product supply chain from or to the impacted region
and could impact our ability to operate. In addition, these types of events could negatively impact consumer spending in the impacted
regions. Disasters occurring at our facilities could impact on our reputation and our customers' perception of our brands. To the
extent any of these events occur, our operations and financial results could be adversely affected.

 International
trade disruptions or disputes could adversely affect our business and operating results.

 Significant
portions of our business are conducted in Europe, Asia, and other international geographies. Interruptions in international relationships
such as the exit by the U.K., commonly referred to as "Brexit" from the EU, or the rapidly evolving conflict between Russia
and Ukraine, Isarael and Hamas and trade disputes such as the current trade negotiations between the U.S. and China, could result in
changes to regulations governing our products and our intellectual property, disruption of our manufacturing or commercial operations,
our inability to timely engage with and collect payment from customers in Russia and other affected regions, or otherwise affect our
ability to do business. Although these global problems transcend our company and afflict companies across industries and borders, these
and similar events could adversely affect us, or our business partners or customers.

 Russia's
military conflict in Ukraine have led to, and may lead to, additional sanctions being levied by the United States, European Union and
other countries against Russia. Russia's military incursion and the resulting sanctions could adversely affect global energy and
financial markets. Although our business does not have any direct exposure to Russia or the adjoining geographic regions, the extent
and duration of the military action, sanctions, and resulting market disruptions are impossible to predict, but could be substantial.
Any such disruptions caused by Russian military action or resulting sanctions may magnify the impact of other risks described in this
section. We cannot predict the progress or outcome of the situation in Ukraine, as the conflict and governmental reactions are rapidly
developing and beyond our control. Prolonged unrest intensified military activities or more extensive sanctions impacting the region
could have a material adverse effect on the global economy, and such effect could in turn have a material adverse effect on the operations,
results of operations, financial condition, liquidity and business outlook of our business.

 There
has been volatility in financial markets as a result of a number of factors, including, but not limited to, banking instability, global
conflict, including the war in Ukraine and the Israel-Hamas war, inflation, changes in interest rates, and volatile markets. There is
a risk that as a result of these macroeconomic factors, we could experience declines in all, or in portions, of our business. Economic
uncertainty may cause some of our current or potential customers to curtail spending in our marketplace and may ultimately result in
cost challenges to our operations. Any resulting adverse effects to our customers' liquidity or financial performance could reduce
the demand for our products or affect our allowance for collectability of accounts receivable. These adverse conditions could result
in reductions in revenue, increased operating expenses, longer sales cycles, slower adoption of new technologies, and increased competition.
We cannot predict the timing, strength, or duration of any economic slowdown or any subsequent recovery generally. If general economic
conditions significantly deviate from present levels, our business, financial condition, and operating results could be adversely affected.

 We
are subject to the Foreign Corrupt Practices Act (the "FCPA"), which generally prohibits companies and their intermediaries
from making payments to non-U.S. government officials for the purpose of obtaining or retaining business or securing any other improper
advantage.

 We
are also subject to anti-bribery laws in the jurisdictions in which we operate. Although we have policies and procedures designed to
ensure that we, our employees and our agents comply with the FCPA and other anti-bribery laws, there is no assurance that such policies
or procedures will protect us against liability under the FCPA or other laws for actions taken by our agents, employees and intermediaries
with respect to our business or any businesses that we acquire. We do business in a number of countries in which FCPA violations by other
companies have recently been enforced. Failure to comply with the FCPA, other anti-bribery laws or other laws governing the conduct of
business with foreign government entities, including local laws, could disrupt our business and lead to severe criminal and civil penalties,
including imprisonment, criminal and civil fines, loss of our export licenses, suspension of our ability to do business with the federal
government, denial of government reimbursement for our products and/or exclusion from participation in government healthcare programs.
Other remedial measures could include further changes or enhancements to our procedures, policies, and controls and potential personnel
changes and/or disciplinary actions, any of which could have a material adverse effect on our business, financial condition, results
of operations and liquidity. We could also be adversely affected by any allegation that we violated such laws.

 We
are subject to governmental export and import controls that could impair our ability to compete in international markets due to licensing
requirements and subject us to liability if we are not in compliance with applicable laws.

 Our
products are subject to export control and import laws, tariffs, and regulations, including the U.S. Export Administration Regulations,
U.S. Customs regulations, and various economic and trade sanctions regulations administered by the U.S. Treasury Department's Office
of Foreign Assets Controls. Exports of our products must be made in compliance with these laws, tariffs, and regulations. If we fail
to comply with these laws, tariffs, and regulations, we and certain of our employees could be subject to substantial civil or criminal
penalties, including the possible loss of export or import privileges; fines, which may be imposed on us and responsible employees or
managers; and, in extreme cases, the incarceration of responsible employees or managers. In addition, changes in our products or changes
in applicable export or import laws, tariffs, and regulations may create delays in the introduction and sale of our products in international
markets or, in some cases, prevent the export or import of our products to certain countries, governments or persons altogether. Any
change in export or import laws and regulations, shift in the enforcement or scope of existing laws, tariffs, and regulations, or change
in the countries, governments, persons, products, or technologies targeted by such laws, tariffs, and regulations, could also result
in decreased use of our products, or in our decreased ability to export or sell our products to existing or potential customers. Any
decreased use of our products or limitation on our ability to export or sell our products would likely adversely affect our business,
financial condition and results of operations.

 Worldwide
and domestic economic trends and financial market conditions, including an economic decline in the industries we serve, may adversely
affect our operating performance.

 We
intend to distribute our products and services in a number of countries and derive revenues from both inside and outside the United States.
We expect our business will be subject to global competition and may be adversely affected by factors in the United States and other
countries that are beyond our control, such as disruptions in financial markets, economic downturns in the form of either contained or
widespread recessionary conditions, elevated unemployment levels, sluggish or uneven recovery, in specific countries or regions, or in
the agricultural industry; social, political or labor conditions in specific countries or regions; natural and other disasters affecting
our operations or our customers and suppliers; or adverse changes in the availability and cost of capital, interest rates, tax rates,
or regulations in the jurisdictions in which we operate. Unfavorable global or regional economic conditions, including an economic decline
in the industries we serve – including, but not limited to, agriculture, construction, energy, environmental monitoring, military/defense
and public safety – could adversely impact our business, liquidity, financial condition and results of operations.

 Our
senior management and key employees are important to our customer relationships and overall business.

 We
believe that our success depends in part on the continued contributions of our senior management and key employees. We rely heavily on
our executive officers, senior management and key employees to generate business and execute programs successfully. In addition, the
relationships and reputation that members of our management team and key employees have established and maintain with certain key customers
continue to our ability to maintain good customer relations and to identify new business opportunities. The loss of any of our executive
officers, members of our senior management team or key employees could significantly delay or prevent the achievement of our business
objectives and could materially harm our business and customer relationships and impair our ability to identify and secure new contracts
and otherwise manage our business.

 We
indemnify our officers and directors against liability to us and our security holders, and such indemnification could increase our operating
costs.

 Our
bylaws allow us to indemnify our officers and directors against claims associated with carrying out the duties of their offices. Our
bylaws also allow us to reimburse them for the costs of certain legal defenses. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to our officers, directors or control persons, the SEC has advised that such indemnification is against
public policy and is therefore unenforceable.

 Risks
Associated with Our Securities

 Our
executive officers and directors may sell shares of their stock, and these sales could adversely affect our stock price.

 Sales
of our common stock by our executive officers and directors, or the perception that such sales may occur, could adversely affect the
market price of our common stock. Our executive officers and directors may sell stock in the future, either as part, or outside, of trading
plans under Rule 10b5-1 under the Exchange Act.

 The
market price of our securities may be volatile and may fluctuate in a way that is disproportionate to our operating performance.

 Our
securities may experience substantial volatility as a result of a number of factors, including, among others:

 sales
 or potential sales of substantial amounts of our Common Stock;

 potential
 stock splits;

 announcements
 about us or about our competitors or new product introductions;

 developments
 concerning our product manufacturers;

 the
 loss or unanticipated underperformance of our global distribution channel;

 litigation
 and other developments relating to our patents or other proprietary rights or those of our competitors;

 conditions
 in the UAV, domestic hemp cultivation and drone-enabled package delivery industries;

 governmental
 regulation and legislation;

 variations
 in our anticipated or actual operating results;

 changes
 in securities analysts' estimates of our performance, or our failure to meet analysts' expectations;

 foreign
 currency values and fluctuations; and

 overall
 political and economic conditions, including Russia's invasion of Ukraine.

 Our
Common Stock closed as high as $112.40 and as low as $1.61 per share between January 1, 2024 and December 31, 2024 on NYSE American,
post-split.

 We
do not intend to pay cash dividends. As a result, capital appreciation, if any, will be your sole source of gain.

 We
intend to retain future earnings, if any, to fund the development and growth of our business. In addition, the terms of existing and
future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, from the sale of our Common
Stock will be your sole source of gain for the foreseeable future.

 Provisions
in our articles of incorporation, our by-laws and Nevada law might discourage, delay or prevent a change in control of our Company or
changes in our management and, therefore, depress the trading price of our Common Stock.

 Provisions
of our Articles of Incorporation, our By-Laws and Nevada law may have the effect of deterring unsolicited takeovers or delaying or preventing
a change in control of our Company or changes in our management, including transactions in which our stockholders might otherwise receive
a premium for their shares over then current market prices. In addition, these provisions may limit the ability of stockholders to approve
transactions that they may deem to be in their best interests. These provisions include:

 the
 inability of stockholders to call special meetings; and

 the
 ability of our board of directors to designate the terms of and issue new series of preferred stock without stockholder approval,
 which could include the right to approve an acquisition or other change in our control or could be used to institute a rights plan,
 also known as a poison pill, that would work to dilute the stock ownership of a potential hostile acquirer, likely preventing acquisitions
 that have not been approved by our board of directors.

 The
existence of the forgoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future
for shares of our Common Stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could
receive a premium for your Common Stock in an acquisition.

 We
incur significant costs as a result of operating as a public reporting company, and our management is required to devote substantial
time to regulatory compliance initiatives.

 As
a public reporting company, we incur significant legal, accounting and other expenses not otherwise incurred by a private company. In
addition, the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the SEC, have imposed various requirements on public companies,
including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management
and other personnel continue to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations
have increased our legal and financial compliance costs and have made some activities more time consuming and costly. For example, we
expect that these rules and regulations will continue to make it more difficult and more expensive for us to obtain director and officer
liability insurance.

 We
currently have outstanding, and we may in the future issue, instruments which are convertible into shares of Common Stock, which will
result in additional dilution to our shareholders.

 We
currently have outstanding instruments which are convertible into shares of Common Stock, and we may need to issue similar instruments
in the future. In the event that these convertible instruments are converted into shares of outstanding Common Stock, or that we make
additional issuances of other convertible or exchangeable securities, you could experience additional dilution. Furthermore, we cannot
assure you that we will be able to issue shares or other securities in any offering at a price per share that is equal to or greater
than the price per share paid by investors or the current market price.

 FINRA
sales practice requirements may limit a stockholder's ability to buy and sell our securities.

 The
Financial Industry Regulatory Authority, Inc. ("FINRA") has adopted rules that a broker-dealer must have reasonable grounds
for believing that an investment recommended to a customer is suitable for that customer. Prior to recommending speculative low-priced
securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's
financial status, tax status, investment objectives, and other information. Under interpretations of these rules, FINRA believes that
there is a high probability that speculative low-priced securities will not be suitable for certain customers. FINRA requirements will
likely make it more difficult for broker-dealers to recommend that their customers buy our Common Stock, which may have the effect of
reducing the level of trading activity in the shares, resulting in fewer broker-dealers being willing to make a market in our shares,
potentially reducing a stockholder's ability to resell our securities.

 If
securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations
regarding our shares or if our results of operations do not meet their expectations, the price of our securities and trading volume could
decline.

 The
trading market for our securities will be influenced by the research and reports that industry or securities analysts publish about us
or our business. We do not have any control over these analysts. If one or more of these analyst's cease coverage of our company
or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our share price
or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade our stock, or if our results of operations
do not meet their expectations, the price of our securities could decline.

 ITEM
1B. UNRESOLVED STAFF COMMENTS

 Not
applicable.

 ITEM
1C. CYBER SECURITY

 Cybersecurity
Risk Management and Strategy

 We
have developed and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity, and availability
of our critical systems and information.

 We
design and assess our program based on the National Institute of Standards and Technology Cybersecurity Framework Special Publication
 800-53, 800-61, rev 2 ("NIST CSF). This does not imply that we meet any particular
technical standards, specifications, or requirements. We use the NIST CSF as a guide to help us identify, assess, and manage cybersecurity
risks relevant to our business.

 Our
cybersecurity risk management program is integrated into our overall enterprise risk management program and shares common methodologies,
reporting channels, and governance processes that apply across the enterprise risk management program to other legal, compliance, strategic,
operational, and financial risk areas.

 Our
cybersecurity risk management program includes the following:

 risk
 assessments designed to help identify material cybersecurity risks to our critical systems, information, products, services, and
 our broader enterprise IT environment;

 a
 security team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and
 (3) our response to cybersecurity incidents;

 the
 use of external service providers, where appropriate, to assess, test, or otherwise assist with aspects of our security controls;

 cybersecurity
 awareness training of our employees, incident response personnel, and senior management; and

 a
 cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents.

 There
can be no assurance that our cybersecurity risk management program and processes, including our policies, controls or procedures, will
be fully implemented, complied with or effective in protecting our systems and information.

 We
have no t identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially
affected or are reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial
condition. For more information, please refer to Item 1A: Risk Factors for further insights into cyber attack-related risks.

 Cybersecurity
Governance

 Our
Board considers cybersecurity risks as part of its risk oversight function of cybersecurity and other information technology risks.

 The
Audit Committee oversees management's implementation of our cybersecurity risk management program and receives updates on the cybersecurity
risk management program from management at least annually. In addition, management updates the Audit Committee regarding any material
or significant cybersecurity incidents, as well as incidents with lesser impact potential as necessary.

 The
Audit Committee reports to the full Board annually regarding cybersecurity. The full Board also receives annual briefings from external
experts on cybersecurity as part of the Board's continuing education on topics that impact public companies.

 Ongoing
Risks

 We
have not experienced any material cybersecurity incidents. We have not identified risks from known cybersecurity threats, including as
a result of any prior cybersecurity incidents, that have materially affected us, including our operations, business strategy, results
of operations, or financial condition. For more information on our cybersecurity related risks, see Item 1A Risk Factors of this Annual
Report on Form 10-K.

 Risk
Management and Strategy

 The
Company recognizes the critical importance of cybersecurity in safeguarding sensitive information, maintaining operational resilience,
and protecting stakeholders' interests. This cybersecurity policy is designed to establish a comprehensive framework for identifying,
assessing, mitigating, and responding to cybersecurity risks across the organization.

 The
Company is in the process of establishing a cybersecurity policy which implement protocols to evaluate, recognize, and address significant
risks, including those posed by cybersecurity threats. This strategy encompasses the utilization of standard traffic monitoring tools,
educating personnel to identify and report abnormal activities, and partnering with reputable service providers capable of upholding
security standards equivalent to or exceeding our own.

 These
measures are to be seamlessly integrated into our broader operational risk management framework aimed at minimizing exposure to unnecessary
risks across our operations. For cybersecurity, we collaborate with expert consultants and third-party service providers to implement
industry-standard strategies aimed at identifying and mitigating potential threats or vulnerabilities within our systems. Additionally,
the policy strategy will have a comprehensive cyber crisis response plan to manage high severity security incidents, ensuring efficient
coordination across the organization. We are aware of the risks associated with third-party service providers and have implemented policies and processes
to oversee and assist with managing these risks. Our management team evaluates third-party providers before engagement and monitors these
providers on an ongoing basis commensurate with the level of risk and complexity of the relationship with, and the activities performed
by, such providers. This approach is designed to help identify and mitigate risks related to data breaches or other cybersecurity incidents
originating from third-parties in order to better protect our assets and data.

 Cybersecurity
threats haven't significantly impacted our operations, and we don't anticipate such risks materially affecting our business,
strategy, financial condition, or results of operations. However, given the escalating sophistication of cyber threats, our preventive
measures may not always suffice. Despite well-designed controls, we acknowledge the inability to foresee all security breaches, including
those stemming from third-party misuse of AI technologies, and the potential challenges in implementing timely preventive measures. Please
refer to Item 1A: Risk Factors for further insights into cyber attack-related risks.

 The
Chief Operating Officer oversees our information security programs, including cybersecurity initiatives, and is integrated into
our Cybersecurity Incident response process. The Audit committee oversees cybersecurity risk management activities, supported by Company
management, the Board of Directors, and external consultants. We assess and prioritize risks based on potential impact, implement technical
controls, and monitor third-party vendors' security practices.

 ITEM
2. PROPERTIES

 As
of December 31, 2024, the Company is a party to the following non-cancellable operating leases for manufacturing facilities and office
space:

 Location

 Purpose

 Initial Term

 (months)

 Lease Expiration Date

 8201 E. 34 th North
 Suite 1307
 Wichita, Kansas

 Manufacturing Facility & Corporate Headquarters

 October 31, 2026

 Route de Gen ve 38
 1033 Cheseaux-sur-Lausanne, Switzerland

 Distribution & Assembly Facility & Offices

 April 30, 2028

 1300 N. Northlake Way
 Seattle, Washington (Subleased)

 Offices

 December 31, 2026

 As
of December 31, 2024, the Company held properties in Wichita, KS, Lausanne, Switzerland; and Seattle, WA and represent non-cancellable
lease obligations assumed by the Company as a result of its 2021 business acquisitions of senseFly S.A., senseFly Inc., Measure Global
Inc., and MicaSense, Inc., respectively.

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3. LEGAL PROCEEDINGS

 Legal
Proceedings

 From
time to time, we may become involved in lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
Although we currently maintain liability insurance coverage intended to cover professional liability and certain other claims, we cannot
assure that our insurance coverage will be adequate to cover liabilities arising out of claims asserted against us in the future where
the outcomes of such claims are unfavorable to us. Liabilities in excess of our insurance coverage, including coverage for professional
liability and certain other claims, could have a material adverse effect on our business, financial condition and results of operations.

 ITEM
4. MINE SAFETY DISCLOSURES

 Not
applicable.

 PART
II

 ITEM
5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 Our
Common Stock is currently quoted on the NYSE American under the symbol "UAVS."

 The
following table sets forth, for the period indicated, the quarterly high and low closing sales prices per share of our Common Stock for
each quarter during our last two fiscal years, as reported by the New York Stock Exchange. The table represents the price closures for
fiscal year 2024, prior to the approved reverse stock split as of October 14, 2024, as well as the adjusted 50 for 1 reverse stock split
on an historical basis for comparison.

 2024

 High Pre

 Split

 High Post

 Split 50:1

 Low Pre

 Split

 Low Post

 Split 50:1

 First Quarter

 $
 2.25

 $
 112.40

 $
 0.68

 $
 34.00

 Second Quarter

 $
 0.79

 $
 39.68

 $
 0.49

 $
 24.34

 Third Quarter

 $
 0.49

 $
 24.42

 $
 0.09

 $
 4.71

 Fourth Quarter

 $
 0.18

 $
 8.94

 $
 0.03

 $
 1.61

 2023

 High Pre

 Split

 High Post

 Split 50:1

 Low Pre

 Split

 Low Post

 Split 50:1

 First Quarter

 $
 11.60

 $
 580.00

 $
 7.00

 $
 350.00

 Second Quarter

 $
 10.00

 $
 500.00

 $
 4.40

 $
 220.00

 Third Quarter

 $
 5.20

 $
 260.00

 $
 3.20

 $
 160.00

 Fourth Quarter

 $
 3.60

 $
 180.00

 $
 2.00

 $
 100.00

 As
of March 31, 2025, we had approximately 285 individual shareholders of record of our Common Stock. We believe that the number of beneficial
owners of our Common Stock is greater than the number of record holders, because a number of shares of our Common Stock is held through
brokerage firms in "street name."

 Dividend
Policy

 We
do not intend to pay cash dividends to our stockholders in the foreseeable future. We currently intend to retain all our available funds
and future earnings, if any, to finance the growth and development of our business. Any future determination related to our dividend
policy will be made at the discretion of our Board of Directors and will depend upon, among other factors, our results of operations,
financial condition, capital requirements, contractual restrictions, business prospects and other factors our Board of Directors may
deem relevant.

 Equity
Compensation Plan

 The
following table sets forth information as of the fiscal year ended December 31, 2024 about our equity compensation plan and arrangements.

 Plan Category

 Number of shares

to be issued
 upon exercise of
 outstanding options,
 and restricted

stock units

 Weighted-average
 exercise price of
 outstanding options

and restricted

stock units

 Number of shares
 remaining available

for future issuance

under equity

compensation plans

 Equity compensation plans approved by stockholders

 7,349

 $
 33.63

 3,473

 Equity compensation plans not approved by stockholders

 —

 —

 —

 7,349

 $
 33.63

 3,473

 Recent
Sales of Unregistered Securities

 On
March 6, 2024, the Company received an investor notice from Alpha and the Assignees for the aggregate purchase of 1,000 shares of Series
F Convertible Preferred convertible into 16,588 shares of Common Stock at an initial conversion price of $60.29 and warrants to purchase
up to 16,588 shares of Common Stock at an initial exercise price of $60.29 (the "Warrants") per share for an aggregate purchase
price of $1,000,000. The Warrants were immediately exercisable upon issuance and have a three-year term.

 On
April 12, 2024, the Company received an investor notice from Alpha 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 an initial conversion price of $37.00 and
warrants to purchase up to 28,378 shares of Common Stock at an initial exercise price of $37.00 per share (based on the VWAPs of the
Company's common stock for April 9, 2024, April 10, 2024, and April 11, 2024) for an aggregate purchase price of $1,050,000.
The Warrants were immediately exercisable upon issuance and have a three-year term.

 On
May 31, 2024, the Company received investor notices from Alpha and certain of the Assignees for the aggregate purchase of 1,050 shares
of Series F Convertible Preferred convertible into 32,659 shares of Common Stock at an initial conversion price of $32.15 and warrants
to purchase up to 32,659 shares of Common Stock at an initial exercise price of $32.15 per share for an aggregate purchase price of $1,050,000.
The Warrants were immediately exercisable upon issuance and have a three-year term.

 On
July 25, 2024, the Company received investor notice from Alpha for the aggregate purchase of 500 shares of Series F Convertible Preferred
convertible into 21,598 shares of Common Stock at a conversion price of $23.15 and warrants to purchase up to 21,598 shares of Common
Stock at an exercise price of $23.15 per share for an aggregate purchase price of $500,000. The Warrants were immediately exercisable
upon issuance and have a three-year term.

 On
August 27, 2024, the Company received investor notice from Alpha for the aggregate purchase of 500 shares of Series F Convertible Preferred
convertible into 24,765 shares of Common Stock at an initial conversion price of $20.19 and warrants to purchase up to 24,765 shares
of Common Stock at an initial exercise price of $20.19 per share for an aggregate purchase price of $500,000. The Warrants were immediately
exercisable upon issuance and have a three-year term.

 On
December 18, 2024, the Company received investor notice from Alpha for the aggregate purchase of 750 shares of Series F Convertible Preferred
convertible into 142,857 shares of Common Stock at an initial conversion price of $5.25 and warrants to purchase up to 142,857 shares
of Common Stock at an initial exercise price of $5.25 per share for an aggregate purchase price of $750,000. The Warrants were immediately
exercisable upon issuance and have a three-year term.

 The
Series F Preferred Stock and the Warrants, except those issued pursuant to placement agent agreements, include pricing adjustments for
stock splits, dividends, recapitalization and subsequent equity sales and issuance of equity-linked instruments.

 Issuer
Purchases of Securities

 There
were no repurchases of the Company's securities during the year ended December 31, 2024 by or on behalf of the Company or any "affiliated
purchaser," as defined in § 240.10b-18(a)(3) of the Exchange Act.

 Purchases
of Equity Securities by Issuer and Its Affiliates

 None.

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6. [RESERVED]

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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 of this Form 10-K. This discussion contains forward-looking statements. Please see
the explanatory note concerning "Forward-Looking Statements" in Part I of this Annual Report on Form 10-K and Item 1A. Risk
Factors for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements.

 Overview

 Aerial Systems Inc. ("AgEagle" or the "Company"), 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 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.

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 200 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 ("sUAS")
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.

 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:

 Innovation
 – committed to driving forward with positive change, our team is committed to innovate
 in technology, strategies, and cross-department initiatives.

 Passion
 – this fuels our obsession with excellence, our desire to try the difficult things and tackle big problems, and our commitment
 to meet our customers' needs – and then surpass them.

 Integrity
 – this is not optional or situational at AgEagle – it is the foundation for everything we do, even when no one is
 watching.

 Key
 components of our growth strategy include the following:

 Establish
 three centers of excellence with respective expertise in UAS software, sensors and airframes. These centers of excellence cross
 pollinate ideas, industry insights and skillsets to yield intelligent autonomous solutions that fully leverage AgEagle's experienced
 team's specialized knowledge and know-how in robotics, automation, custom manufacturing and data science.

 Deliver
 new and innovative solutions. AgEagle's research and development efforts are critical building blocks of the Company, and
 we intend to continue investing in our own innovations, pioneering new and enhanced products and solutions that enable us to satisfy
 our customers – both in response to and in anticipation of their needs. AgEagle believes that by investing in research and
 development, the Company can be a leader in delivering innovative autonomous robotics systems and solutions that address market needs
 beyond our current target markets, enabling us to create new opportunities for growth.

 Foster
 our entrepreneurial culture and continue to attract, develop and retain highly skilled personnel. AgEagle's company culture
 encourages innovation and entrepreneurialism, which helps attract and retain highly skilled professionals. We believe this culture
 is key to nurture the design and development of the innovative, highly technical system solutions that give us our competitive advantage.

 Effectively
 manage our growth portfolio for long-term value creation. Our production and development programs present numerous investment
 opportunities that we believe will deliver long-term growth by providing our customers with valuable new capabilities. We evaluate
 each opportunity independently, as well as within the context of other investment opportunities, to determine its relative cost,
 timing, and potential for generation of returns, and thereby its priority. This process helps us make informed decisions regarding
 potential growth capital requirements and supports our allocation of resources based on relative risks and returns to maximize long-term
 value creation, which is the key objective of our growth strategy. We also review our portfolio on a regular basis to determine if
 and when to narrow our focus on the highest potential growth opportunities.

 Growth
 through acquisition. Through successful execution of our growth-through-acquisition strategies, we intend to acquire technologically
 advanced UAS companies and intellectual property that complement and strengthen our value proposition to the market. We believe that
 by investing in complementary acquisitions, we can accelerate our revenue growth and deliver a broader array of innovative autonomous
 flight systems and solutions that address specialized market needs within our current target markets and in emerging markets that
 can benefit from innovations in artificial intelligence-enabled robotics and data capture and analytics.

 Competitive
Strengths

 believes the following attributes and capabilities provide us with long-term competitive advantages:

 Proprietary
 technologies, in-house capabilities and industry experience – We believe our decade of experience in commercial UAS design
 and engineering; in-house manufacturing, assembly and testing capabilities; and advanced technology development skillset serve to
 differentiate AgEagle in the marketplace. In fact, approximately 70% of our Company's global workforce is comprised of engineers
 and data scientists with deep experience and expertise in robotics, automation, custom manufacturing, and data analytics. In addition,
 AgEagle is committed to meeting and exceeding quality and safety standards for manufacturing, assembly, design and engineering and
 testing of drones, drone subcomponents and related drone equipment in our U.S. and Swiss-based manufacturing operations. As a result,
 we have earned ISO:9001 international certification for our Quality Management System.

 In
December 2022, we unveiled our new eBee VISION, a small, fixed-wing UAS designed to provide real-time, enhanced situational
awareness for critical intelligence, surveillance and reconnaissance missions; to produce and deliver eBee VISION fixed-wing
drones and customized command and control software that proves compatible and is in full compliance with the DoD Robotic and Autonomous
System-Air Interoperability Profile ("RAS-A IOP"). In addition, three branches of European military forces have taken delivery
of eBee VISION drones in 2023. In support of its sales and pre-order efforts, AgEagle's team has been engaged in numerous
live demonstrations and intensive training sessions with officials from government and military agencies across the world seeking to
leverage the power of eBee VISION in their respective drone operations. In July 2023 alone, we completed a comprehensive training
session with our first European military customers, who were confirmed as eBee VISION operators and qualified trainers of new
users. These new customers confirmed with AgEagle's technical teams that all operational capabilities of the eBee VISION
continue to meet and exceed performance benchmarks in scouting, surveillance, usability, fast deployment and flight time, among other
use case criteria specified by the international military community. We have also been working in close collaboration with our network
of valued added reselling partners in France, United Kingdom, Poland, Italy and Spain, among other countries, to conduct live demonstrations
and technical exchanges with prospective new customers, with emphasis on showcasing use of eBee VISION UAS for public safety and
first responder missions, border patrol and a wide range of commercial applications.

 In
 May 2023, we released the new RedEdge-P dual high resolution and RGB composite drone sensor, representing yet another
 AgEagle technological advancement in aerial imaging cameras, seamlessly integrating the power and performance of the RedEdge-P
 and the new RedEdge-P blue cameras in a single solution. The RedEdge-P dual doubles analytical capabilities with
 the benefit of a single camera workflow. Its coastal blue band – the first of its kind in the market – was specifically
 designed for vegetation analysis of water bodies; environmental monitoring; water management; habitat monitoring, protection and
 restoration; and vegetation species and weeds identification, including differentiating and counting plants, trees, invasive species
 and weeds.

 We
 offer market-tested drones, sensors and software solutions that have earned the longstanding trust and fidelity of customers worldwide
 – Through successful execution of our acquisition integration strategy in 2022, AgEagle is now delivering a unified line
 of industry trusted drones, sensors and software that have been vigorously tested and consistently proven across multiple industry
 verticals and use cases. For instance, our line of eBee fixed wing drones have flown more than one million flights over the
 past decade serving customers spanning surveying and mapping; engineering and construction; military/defense; mining, quarries and
 aggregates; agriculture humanitarian aid and environmental monitoring, to name just a few. Featured in over 100 research publications
 globally, advanced sensor innovations developed and commercialized by AgEagle have served to forge new industry standards for high
 performance, high resolution, thermal and multispectral imaging for commercial drone applications in agriculture, plant research,
 land management and forestry. In addition, we have championed the development of end-to-end software solutions which power autonomous
 flight and deliver actionable, contextual data and analytics for numerous Fortune 500 companies, government agencies and a wide range
 of businesses in agriculture, energy and utilities, construction and other industry sectors.

 was awarded a Multiple Award Schedule ("MAS") Contract by the U.S. federal government's General Services Administration
 ("GSA") – In April 2023, the centralized procurement arm of the federal government, the GSA, awarded us with a
 five-year MAS contract. The GSA Schedule Contract is a highly coveted award in the government contracting space and is the result
 of a rigorous proposal process involving the demonstration of products and services in-demand by government agencies, and the negotiation
 of their prices, qualifications, terms and conditions. Contractors selling through the GSA Contract are carefully vetted and must
 have a proven track record in the industry. We believe that this will serve to advance our efforts to achieve deeper penetration
 of the government sector over the next five years.

 Our
 eBee TAC UAS has been approved by the Defense Innovation Unit (DIU) for procurement by the Department
 of Defense – We believe that the eBee TAC is ideally positioned to become an in-demand, mission critical tool for
 the U.S. military, government and civil agencies and our allies worldwide; and expect that this will prove to be a major growth catalyst
 for our Company and positively impacting our financial performance in the years ahead. eBee TAC is available for purchase
 by U.S. government agencies and all branches of the military on GSA Schedule Contract #47QTCA18D003G, supplied by Hexagon US Federal
 and partner Tough Stump Technologies as a standalone solution or as part of the Aerial Reconnaissance Tactical Edge Mapping Imagery
 System ("ARTEMIS"). Tough Stump is actively engaged in training military ground forces based in the U.S. and in Central
 Europe on the use of eBee TAC for mid-range tactical mapping and reconnaissance missions.

 Our
 eBee X series of fixed wing UAS, including the eBee X, eBee Geo and eBee TAC,
 are the first and only drones on the market to comply with Category 3 of the sUAS Over People rules published by the FAA. It
 is another important testament of our commitment to providing best-in-class solutions to our commercial customers, and we believe
 it will serve as a key driver in the growth of eBee utilization in the United States. We further believe it will improve the
 business applications made possible by our drone platform for a wide range of commercial enterprises which stand to benefit from
 adoption of drones in their businesses – particularly those in industries such as insurance for assessment of storm damage,
 telecommunications for network coverage mapping and energy for powerline and pipeline inspections, just to name a few.

 Our
 eBee X series of drones are the world's first UAS in its class to receive design verification for BVLOS and OOP from
 European Union Aviation Safety Agency ("EASA"). The EASA design verification report demonstrates that the eBee
 X meets the highest possible quality and ground risk safety standards and, thanks to its lightweight design, effects of ground
 impact are reduced. As such, drone operators conducting advanced drone operations in 27 European Member States, Iceland, Liechtenstein,
 Norway, and Switzerland can obtain the HIGH or MEDIUM robustness levels of the M2 mitigation without additional verification from
 EASA.Regulatory constraints relating to limitations of BVLOS and OOP have continued to be a gating factor to widespread adoption
 of commercial drone technologies across a wide range of industry sectors worldwide. Being the first company to receive this DVR from
 EASA for M2 mitigation is a milestone for AgEagle and our industry in the European Union and will be key to fueling growth of our
 international customer base.

 |In
 August 2022, we announced that the eBee X, eBee GEO and eBee AG were the first commercial drones to be designated with
 the C2 class identification label in accordance with EASA regulations. As of August 22, 2022, drone operators flying C2 labeled eBee s
 are able to conduct missions in the "Open Category" with all the advantages that this entails. The C2 certification allows
 the eBee X series, with correct labelling, to fly at a horizontal distance of 30 meters from uninvolved people. By contrast,
 heavy drones like VTOLs or quadcopters must maintain a distance of 150 meters from people and any residential, commercial, industrial
 and recreational areas, limiting their operational capabilities to remote zones.

 In
 early October 2023, the eBee X series of drones were designated with the C6 class identification label in accordance with
 European Union regulations. As of January 1, 2024, drone operators of C6-labeled eBee s will be able to conduct Beyond Visual
 Line of Sight ("BVLOS") operations with airspace observers over a controlled ground area in a sparsely populated environment
 throughout Europe. Operators simply need to submit a required declaration with their applicable National Aviation Authority indicating
 whether they intend to fly missions in accordance with the European Standard Scenario- ("STS-") 01 or STS-02. The inclusion
 of the C6 marking alongside our C2-labeled eBee drones will significantly enhance the market advantages for our European customers.
 It grants access to areas and operational modes restricted to drones weighing over 4 kg, all without the requirement for formal permissions
 or regulatory waivers. Currently, only eBee drones possess both the C2 and C6 marking, affirming their status as the safest
 choice for flying over people and conducting BVLOS operations.

 Our
 global reseller network currently has more than 200 drone solutions providers in 75+ countries – By leveraging our relationships
 with the specialty retailers that comprise our global reseller network, AgEagle benefits from enhanced brand-building, lower customer
 acquisition costs and increased reach, revenues and geographic and vertical market penetration. With the integration of our 2021
 Acquisitions, we can now leverage our collective reseller network to accelerate our revenue growth by educating and encouraging our
 partners to market AgEagle's full suite of airframes, sensors and software as bundled solutions in lieu of marketing only previously
 siloed products or product lines to end users.

 In
 late 2022, we partnered with government contractor Darley to expand the market reach of AgEagle's high performance fixed wing
 drones and sensors to the U.S. first responder and tactical defense markets. Distinguished as one of the nation's longest standing
 government contracting organizations, Darley is expected to become a key contributor to AgEagle's success in delivering best-in-class
 UAS solutions to a wide range of state and federal agencies. Providing our best-in-class autonomous flight solutions for public safety
 applications through trusted resellers like Darley represents an entirely new market opportunity for AgEagle and one we intend to
 vigorously pursue in the coming year.

 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.

 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.

 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. Customer deposits represent
customer prepayments and are recognized as revenue when the term of the sale or performance obligation is completed.

 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.

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, 2024 and 2023, our goodwill balance was $4.5 million and $7.4 million, respectively, after goodwill impairment charges
recognized during the years ended December 31, 2024 and 2023 of $2.9 million and $15.8 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, 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, 2024, 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, 2024, the Company recorded an aggregate goodwill impairment charge of $2.9 million. This impairment charge is based on the
excess carrying value of the reporting units over their fair values.

 As
of December 31, 2023, 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, 2023, the Company recorded an aggregate goodwill impairment charge of $15.8
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 would be 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. Intangible assets balance as of December 31, 2024 and 2023 was $2.0 million and $2.6 million, respectively. Additionally,
as of December 31, 2023 the Company recorded an aggregate intangible assets impairment of $5.9 million, no intangible impairment was
recorded for the same period during the year ended December 31, 2024.

 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, 2024 as Compared to Year Ended December 31, 2023

 For
the year ended December 31, 2024, revenues were $13.4 million as compared to $13.7 million during the year ended December 31, 2023, a
decrease of $0.3 million, or 2.2%. The decline in revenues is mainly due to the, RedEdge-P and Altum-PT panchromatic sensors
of $0.4 million, $0.1 million of our SaaS subscription services related to our HempOverview and Ground Control platforms, offsetting
with the increase of the eBee drone products of $0.2 million. For the sensors, the declines are attributed to the challenge to
secure financing for the component parts to meet demand while at the same time utilizing the operating capital to expedite the eBee VISION
completion.

 Cost
of Sales

 For
the year ended December 31, 2024, cost of sales was $7.1 million as compared to $8.3 million during 2023, a decrease of $1.2 million,
or 14.5%. The primary factors contributing to the decrease in our cost of sales and
the increase gross profit margin were due to the historical inventory adjustments and new bill of material system implementation.

 Gross
Profit

 For
the year ended December 31, 2024, gross profit was $6.3 million as compared to $5.5 million for the year ended December
31, 2023, an increase of $0.8 million or 14.5%. For the year ended December 31, 2024, gross profit margin was 47.0% as compared
to 39.8% for the year ended December 31, 2023. The increase in gross profit margin was a result of our drone products
along with significant price reduction in the second and third quarter of 2023 to stimulate market demand and bring us in line specifically
with competitive products manufactured in China. During the 2024 calendar year pricing of products stabilized increasing gross profit.

 General
and Administrative Expenses

 For
the year ended December 31, 2024, general and administrative expenses were $9.6 million as compared to $13.6 million for the prior year
ended December 31, 2023, resulting in a decrease of $4.0 million, or 29.4%. The decrease was driven by reduction in employee payroll related costs due to integration of roles, ERP consulting integration costs,
less stock compensation costs offset by increased shareholder annual meeting costs.

 Research
and Development

 For
the year ended December 31, 2024, research and development expenses were $4.0 million as compared to $5.5 million for the year ended December 31, 2023, a decrease of $1.5 million or 27.3%. The decrease was primarily due to the integration of research and
development teams that provide development of our new airframe, sensor and software technologies resulting in a reduction in our consultants
and internal headcounts.

 Sales
and Marketing

 For
the year ended December 31, 2024, sales and marketing expenses were $2.4 million as compared to $3.7 million for the year ended December 31, 2023, a decrease of $1.3 million, or 35.1%. The decrease was primarily due to a reduction in headcount, travel,
tradeshows, general marketing activities, along with a decrease in consulting expenses offset by an increase with in-person demos, particularly
for the new ebee VISON.

 For
the year ended December 31, 2024, goodwill impairment was $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.
For the year ending December 31, 2023, the company recorded a goodwill impairment of $15.8 million. The impairment was attributable to the goodwill related to our SaaS and sensor reporting units, specifically due to lower sales compared to forecasted
sales along with the declining market conditions.

 Intangible

 The
annual intangible impairment conducted during the fourth quarter of 2024 indicated no impairment. The annual intangible impairment conducted
during the fourth quarter of 2023 indicated that the fair value of the SaaS and the Company's Drones reporting units were less
than carrying value. Accordingly, the Company recorded an impairment charge to SaaS and Drones units of $2.4 million and $3.5 million,
respectively, which is included in "Impairment" on the accompanying consolidated statements of operations and comprehensive
loss.

 Other
Income (Expenses), net

 For
the year ended December 31, 2024, other expenses, net for the Company reported a loss of $22.4 million as compared to a $3.3 million
loss for the year ended December 31, 2023. The fluctuation of $19.1 million was primarily due to the $15.3 million on loss on
equity financing, $1.6 million of loss on debt extinguishment, and $8.4 million interest on the Promissory Note and Note
Payable, offset by the $3.1 million gain on change in fair value of warrant liabilities.

 Net
Loss

 For
the year ended December 31, 2024, the Company incurred a net loss of $35.0 million as compared to a net loss of $42.4 million for the
year ended December 31, 2023, a decrease in loss of $7.4 million or 17.4%. Overall, the net loss decrease is primarily a result of a
$25.7 million decrease in operating expenses from 2023 to 2024. This was offset with an increase of $15.3 million on loss of equity financing
that was not recognized in 2023.

 Cash
Flows

 For the Year Ended December 31, 2024 as Compared to the Year Ended December 31, 2023

 As
of December 31, 2024, cash on hand was $3.6 million, an increase of $2.8 million or 350%, as compared to $0.8 million as of December
31, 2023. For the year ended December 31, 2024, cash used in operations was $6.6 million, a decrease of $4.4 million, as compared to
$11.0 million for the year ended December 31, 2023. The decrease in cash used in operating activities was principally driven by lower operating expenses which included significantly lower inventory purchases, prepaids, accounts payable, accrued expenses and
contract liabilities.

 For
the year ended December 31, 2024, cash used in investing activities was $0.1 million, a decrease of $0.7 million as compared to $0.8
million for the year ended December 31, 2023. The decrease in cash used in our investing activities resulted mainly from a decrease in platform and internal-use software costs
along with purchases of property and equipment.

 For the year ended December 31,
2024, cash provided by financing activities was $9.5 million an increase of $0.9 million, or 10.5% as compared to cash provided of $8.6
million for the year ended December 31, 2023. The increase in cash provided by our financing activities was due to exercise of Series
B warrants, conversion of warrants issued with Series F shares, sale of Common stock and warrant liabilities and the sale of Series F
Preferred stock.

 Liquidity
and Capital Resources

 As
of December 31, 2024, we had a working capital of $3.1 million. For the year ended December 31, 2024, we incurred a loss from operations
of $12.6 million, a decrease of $26.5 million, as compared to $39.2 million for the year ended December 31, 2023. Further, we utilized
our cash in our operating activities of $6.6 million, a decrease of $4.4 million as compared to $11.0 million for the year ended December
31, 2023.

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

the year ended December 31, 2023, we raised $8.6 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.

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

 Off-Balance
Sheet Arrangements

 On
December 31, 2024, 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.

 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,
2024, for these contractual obligations.

 Inflation

the year ended December 31, 2024, 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.

 Climate
Change

 The
drone industry is subject to many forms of environmental regulation, including but not limited to regulation of hazardous substances,
and other risks associated with climate change. The cost of compliance with more stringent environmental regulations, failure to comply
with existing or future regulations or failure to otherwise manage the risks of climate change effectively could have a material adverse
effect on our business. Many aspects of our operations are subject to evolving and increasingly stringent federal, state, local and international
laws governing environmental protection. Compliance with existing and future environmental laws and regulations could require capital
investment and increase operational costs, and violations can lead to significant fines and penalties and reputational harm. The ultimate
impact and associated cost to our Company of these legislative and regulatory developments cannot be predicted at this time.

 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 on Form 10-K.

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

 None.

 ITEM
9A. CONTROLS AND PROCEDURES

 Evaluation
of Disclosure and Control Procedures

 The
Company's Chief Executive Officer and the Company's Interim Chief Financial Officer evaluated the effectiveness of the Company's
disclosure controls and procedures as of December 31, 2024, and concluded that the Company's disclosure controls and procedures
were not 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 Interim Chief Financial Officer, an assessment of the effectiveness
of our internal control over financial reporting as of December 31, 2024. 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 was not effective as
of December 31, 2024, based on these criteria.

 This
Annual Report on Form 10-K 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

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 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, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

 ITEM
9B. OTHER INFORMATION

 Insider
Trading Plan

the fiscal quarter ended December 31, 2024, 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, 2024 (our "Proxy Statement").

 ITEM
11. EXECUTIVE COMPENSATION

 The
information required by this item will be set forth in the section entitled " Executive Compensation " in our Proxy
Statement and is incorporated in this 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.

 PART
IV

 ITEM
15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES

 Exhibit
 No.

 Description

 3.1

 Amended and Restated Articles of Incorporation, as currently in effect (incorporated by reference to Exhibit 3.1 to the Form 10-Q filed on August 14, 2008)

 3.2

 Certificate of Designation to Articles of Incorporation as filed with the Nevada Secretary of State on May 29, 2014 (incorporated herein by reference as Exhibit 3.2 on Annual Report Form 10-K filed on April 4, 2023)

 3.3

 of Designation of Articles of Incorporation (incorporated by reference as Exhibit 3.3 on Annual Report Form 10-K filed on April 4,
 2023)

 3.4

 of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (incorporated herein by reference as
 Exhibit 4.1 on Current Report Form 8-K filed on March 11, 2015)

 3.5

 of Designation of Series C Preferred Stock filed with the Nevada Secretary of State on April 27, 2017 (incorporated herein by reference
 to Exhibit 3.1 to the Current Report on Form 8-K filed on April 28, 2017)

 3.6

 of Amendment to Certificate of Designation of Series C Preferred Stock (incorporated by reference to Exhibit 3.3 on the Form 8-K
 filed on March 29, 2018)

 3.7

 Certificate of Designation for Series A Preferred Stock (incorporated by reference to Exhibit 4.1 to the Form 8-K filed on January 6, 2011)

 3.8

 Amendment to Certificate of Designation of Preferences, Rights and Limitations of the 10% Series A Redeemable Perpetual Preferred
 Stock (incorporated by reference to Exhibit 3.1 to the Form 8-K filed on March 29, 2018)

 3.9

 Amendment to Certificate of Designation of Preferences, Rights and Limitations of the 10% Series A Redeemable
 Perpetual Preferred Stock (incorporated by reference to Exhibit 3.2 to the Form 8-K filed on March 29, 2018)

 3.10

 of Amendment to the Articles of Incorporation of Energex Resources, Inc. to change the company's name (incorporated by reference
 to Exhibit 3.4 to the Form 8-K filed on March 29, 2018)

 3.11

 of Amendment to the Articles of Incorporation of EnerJex Resources, Inc. to effect a 1-for-25 reverse stock split (incorporated by
 reference to Exhibit 3.5 to the Form 8-K filed on March 29, 2018)

 3.12

 Articles
 of Merger, dated March 26, 2018, by and between AgEagle Aerial Systems, Inc. and AgEagle Merger Sub, Inc. (incorporated by reference
 from Exhibit 3.6 on Form 8-K filed on March 29, 2018)

 3.13

 Second
 Amended and Restated Bylaws of AgEagle Aerial Systems, Inc., as currently in effect (incorporated by reference from Exhibit 3.1 on Form 8-K filed on January 25,
 2023)

 3.14

 Certificate of Designation of Series D 8% Preferred Stock filed with the Nevada Secretary of State on December 26, 2018 (incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 10-K filed on April 4, 2023)

 3.15

 of Designation for the Series E Convertible Preferred Stock filed with the Nevada Secretary of State on April 2, 2020 (incorporated
 herein by reference to Exhibit 3.1 of the Current Report on Form 8-K filed on April 8, 2020)

 3.16

 of Designation for the Series F 5% Convertible Preferred Stock filed with the Nevada Secretary of State on June 29, 2022 (incorporated
 herein by reference to Exhibit 3.1 of the Current Report on Form 8-K filed on June 30, 2022)

 3.17

 Certificate of Amendment to Articles of Incorporation (incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K filed on February 9, 2024)

 3.18

 Certificate of Amendment to the Articles of Incorporation, as filed with the Secretary of State of Nevada on December 20, 2024 (incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K filed on December 20, 2024)

 3.19

 Certificate of Change, as filed with the Secretary of State of Nevada on October 4, 2024 (incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K filed on October 15, 2024)

 4.1*

 Description of Registrant's Securities

 4.2

 Common
 Stock Purchase Warrant (incorporated herein by reference to Exhibit 4.1 of the Current Report on Form 8-K filed on June 30, 2022)

 4.3

 Common
 Stock Purchase Warrant (incorporated herein by reference to Exhibit 4.1 of the Current Report on Form 8-K filed on March 14, 2023)

 4.4

 Common Stock Purchase Warrant (incorporated herein by reference to Exhibit 4.1 of the Current Report on Form 8-K filed on June 6, 2023)

 4.5

 Form
 of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 of Form 8-K filed on November 16, 2023)

 4.6

 Form
 of Placement Agent Common Stock Purchase Warrants (incorporated by reference to Exhibit 4.2 of Form 8-K filed on November 16,
 2023)

 4.7

 Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 of Form 8-K Filed on June 5, 2024)

 4.8

 Form of Pre-Funded Warrant to Purchase Common Stock (incorporated by reference to Exhibit 4.1 On Form 8-K filed on October 2, 2024)

 4.9

 Form of Series A Warrant to Purchase Common Stock (incorporated by reference to Exhibit 4.2 On Form 8-K filed on October 2, 2024)

 4.10

 Form of Series B Warrant to Purchase Common Stock (incorporated by reference to Exhibit 4.3 On Form 8-K filed on October 2, 2024)

 10.1+

 2017
 Equity Incentive Plan of the Registrant (Incorporated by reference to the Registration Statement on Form S-1 (Reg. No. 333-226324)
 originally filed on July 24, 2018)

 10.2

 Lease
 Agreement, dated August 3, 2020, by and among AgEagle Aerial Systems Inc. and U.S. Business Centers, L.L.C. (Incorporated herein
 by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on August 7, 2020)

 10.3

 8%
 Original Issue Discount Promissory Note, dated December 6, 2022 (Incorporated herein by reference to Exhibit 10.2 on Form 8-K filed
 on December 6, 2022)

 10.4

 Placement Agency Agreement, dated June 5, 2023 (incorporated by reference to Exhibit 10.1 on Form 8-K filed June 6, 2023).

 10.5

 Securities Purchase Agreement, dated June 5, 2023 (incorporated by reference to Exhibit 10.2 on Form 8-K filed June 6, 2023).

 10.6

 Warrant
 Exchange Agreement dated September 15, 2023 (incorporated by reference to Exhibit 10.1 on Form 8-K filed on September 15, 2023)

 10.7

 Note Amendment Agreement, dated August 14, 2023 by and between AgEagle Aerial Systems Inc. and Alpha Capital Anstalt (incorporated by reference to Exhibit 10.1 on Form 10-Q filed on August 14, 2023)

 10.8

 Second
 Note Amendment Agreement dated October 5, 2023 (incorporated by reference to Exhibit 10.1 on Form 8-K filed on October 6, 2023)

 10.9

 Engagement
 Agreement with Dawson James Securities Inc., dated November 15, 2023 (incorporated by reference to Exhibit 10.1 of Form 8-K filed
 on November 16, 2023)

 10.10

 Form
 of Assignment, Waiver and Amendment Agreement, dated November 15, 2023 (incorporated by reference to Exhibit 10.2 of Form 8-K filed
 on November 16, 2023)

 10.11

 Form
 of Securities Purchase Agreement, dated November 15, 2023 (incorporated by reference to Exhibit 10.3 of Form 8-K filed on November
 16, 2023)

 10.12

 Offer
 Letter, dated as of November 28, 2023, between AgEagle Aerial Systems, Inc. and Mark DiSiena (incorporated by reference to Exhibit
 10.1 on Form 8-K filed on December 4, 2023)

 10.13

 Executive Employment Agreement, dated as of December 28, 2023 between AgEagle Aerial Systems, Inc. and Mark DiSiena (incorporated by reference as Exhibit 10.1 on Form 8-K filed on December 29, 2023).

 10.14

 Interim CEO Agreement, dated as of December 28, 2023 between AgEagle Aerial Systems, Inc. and Concepts to Capabilities Consulting, LLC (incorporated by reference as Exhibit 10.2 on Form 8-K filed on December 29, 2023).

 10.15

 Agreement for the Purchase and Sale of Future Receipts (incorporated by reference to Exhibit 10.1 on Form 8-K filed on January 30, 2024)

 10.16

 Series
 F Amendment Agreement dated February 8, 2024 (incorporated by reference to Exhibit 10.1 on Form 8-K filed on February 8,
 2024)

 10.17

 Securities
 Exchange Agreement dated February 8, 2024 (incorporated by reference to Exhibit 10.2 on Form 8-K filed on February 8, 2024)

 10.18

 Convertible
 Promissory Note dated February 8, 2024 (incorporated by reference to Exhibit 10.3 on Form 8-K filed on February 8, 2024)

 10.19

 Statement of Work Agreement by and between AgEagle Aerial Systems Inc. and Mark DiSiena, dated September 27, 2023 (incorporated by reference to Exhibit 10.1 on Form 10-K filed on October 19, 2023).

 10.20

 Form
 of Warrant Exercise Agreement dated March 6, 2024 (incorporated by reference to Exhibit 10.1 on Form 8-K filed on March 7,
 2024)

 10.21

 Securities Purchase Agreement, dated June 26, 2022 (incorporated by reference to Exhibit 10.1 on Form 8-K filed on June 30, 2022)

 10.22

 Lock-Up Agreement, dated June 26, 2022 (incorporated by reference to Exhibit 10.2 on Form 8-K filed on June 30, 2022)

 10.23

 Consulting Agreement, dated November 14, 2024, by and between the Company and Adrienne Anderson (incorporated by reference to Exhibit 99.1 On Form 8-K filed on November 18, 2024)

 10.24

 Placement Agency Agreement, dated September 30, 2024, between AgEagle Aerial Systems Inc. and Spartan Capital Securities, LLC (incorporated by reference to Exhibit 1.01 On Form 8-K filed on October 2, 2024)

 10.25

 SPA Amendment Agreement, dated July 25, 2024, by and between AgEagle Aerial Systems, Inc., and Alpha Capital Anstalt (incorporated by reference to Exhibit 10.1 On Form 8-K filed on July 25, 2024)

 10.26

 Note Amendment Agreement, dated July 25, 2024, by and between AgEagle Aerial Systems, Inc., and Alpha Capital Anstalt (incorporated by reference to Exhibit 10.2 On Form 8-K filed on July 25, 2024)

 10.27

 Agreement for the Future Purchase and Sale of Future Receipts, dated June 21, 2024 (incorporated by reference to Exhibit 10.1 On Form 8-K filed on June 26, 2024).

 10.28

 Form of Assignment, Waiver and Amendment Agreement, dated May 31, 2024, by and between AgEagle Aerial Systems Inc. and Alpha Capital Anstalt and the other parties thereto (incorporated by reference to Exhibit 10.1 On Form 8-K filed on June 5, 2024).

 10.29

 Executive Employment Agreement, dated April 15, 2024 between AgEagle Aerial Systems, Inc. and William Irby (incorporated by reference to Exhibit 10.1 On Form 8-K filed on April 18, 2024).

 10.30

 Series F SPA Amendment Agreement, dated February 8, 2024, by and between AgEagle Aerial Systems, Inc. and Alpha Capital Anstalt (incorporated by reference to Exhibit 10.1 On Form 8-K filed on February 8, 2024).

 10.31

 Securities Exchange Agreement, dated February 8, 2024, by and between AgEagle Aerial Systems, Inc. and the Holders set forth on the signature page thereto (incorporated by reference to Exhibit 10.2 On Form 8-K filed on February 8, 2024).

 10.32

 Convertible Note, dated January 8, 2024, issued by AgEagle Aerial Systems Inc. (incorporated by reference to Exhibit 10.3 On Form 8-K filed on February 8, 2024).

 10.33

 Omnibus Agreement, dated September 30, 2024, by and between AgEagle Aerial Systems, Inc. and Alpha Capital Anstalt (incorporated by reference to Exhibit 10.1 On Form 8-K filed on October 2, 2024).

 14.1

 Code of Ethics of the Registrant Applicable To Directors, Officers And Employees (Incorporated by reference to the Registration Statement on Form S-1 (Reg. No. 333-226324) originally filed on July 24, 2018).

 19.1

 Insider Trading Policy

 21.1

 List of Subsidiaries

 23.1

 Consent of WithumSmith+Brown, PC., an independent registered public accounting firm

 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

 101.SCH

 101.CAL

 101.DEF

 101.LAB

 101.PRE

 Cover

 *
Filed herewith

 Item
16. Form 10-K Summary

 None.

 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.

 AERIAL SYSTEMS INC.

 Dated:
 March 31, 2025

 By:

 /s/
 William Irby

 William
 Irby

 Chief
 Executive Officer and Director of the Company

 Dated:
 March 31, 2025

 By:

 /s/
 Adrienne Anderson

 Adrienne
 Anderson

 Interim
 Chief Financial Officer

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

 /s/
 William Irby

 Chief
 Executive Officer and Director of the Company

 March

 William
 Irby

 (Principal
 Executive Officer)

 /s/
 Adrienne Anderson

 Interim
 Chief Financial Officer

 March

 Adrienne
 Anderson

 (Principal
 Financial and Accounting Officer)

 /s/
 Brent Klavon

 Director

 March

 Brent
 Klavon

 /s/
 Kevin Lowdermilk

 Director

 March

 Kevin
 Lowdermilk

 /s/
 L B Day

 Director

 March

 L
 B Day

TO FINANCIAL STATEMENTS

 Contents

 Page

 No.

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

 Consolidated Balance Sheets as of December 31, 2024 and 2023

 Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2024 and 2023

 Consolidated Statements of Changes in Stockholders' Equity (Deficit) and Comprehensive Loss for the Years Ended December 31, 2024 and 2023

 Consolidated Statements of Cash Flows for the Years Ended December 31, 2024 and 2023

 Notes to the Consolidated Financial Statements

 F- 1

 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 To
the Board of Directors and Stockholders of

Aerial Systems, Inc.:

 Opinion
on the Consolidated Financial Statements

 We
have audited the accompanying consolidated balance sheets of AgEagle Aerial Systems, Inc. and subsidiaries, (the "Company")
as of December 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive loss, changes in stockholders'
equity (deficit) and comprehensive loss and cash flows for each of the two years in the period 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 2023, and the results of
its operations and its cash flows for each of the two years in the period 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.

 Critical
Audit Matters

 The
critical audit matters communicated below are matters arising from the current period audit of the consolidated 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.

 F- 2

and other finite-lived intangibles – impairment assessment

 As
described in Note 2, Note 4, and Note 5 to the consolidated financial statements, management evaluates goodwill and other finite-lived
intangible assets on an annual basis, or more frequently if impairment indicators exist, at each reporting unit level. The Company estimates
the fair value of the equity related to each reporting unit by weighting the results from the income approach and the market approach.
The income approach incorporates the use of cash flow projections and a discount rate that are developed using market participant-based
assumptions. The cash-flow projections are based on ten-year financial forecasts developed by management that include revenue projections,
future operational costs, and investments in working capital to support anticipated revenue growth. The selected discount rate considers
the risk and nature of the respective reporting unit's cash flows and the rates of return market participants would require investing
their capital in its reporting units. The market approach utilizes the guideline public company and guideline transaction methods. Additionally,
the fair value of the finite-lived intangible assets was valued using an undiscounted cash flow.

 The
determination of fair value of the asset requires significant judgement and estimation. Based on the methodology described above, the
Company recorded an impairment adjustment to the goodwill asset.

 Prior
to the goodwill impairment adjustment, the fair value of the goodwill of the Sensors reporting unit amounted to $7.4 million. The Company
determined that the reporting unit was impaired. Accordingly, the Company recorded a $2.9 million impairment charge.

 The
principal considerations for our determination that performing procedures relating to the goodwill impairment assessment as a critical
audit matter was the significant judgement by management to determine the fair value estimates, which in turn led to a high degree of
auditor judgement, subjectivity and effort in performing procedures and in evaluating management's significant assumptions in determining
fair value, including the involvement of professionals with specialized skill and knowledge.

 Addressing
the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated
financial statements.

 Our
audit procedures related to the impairment assessment of the Company's reporting units included the following, among others:

 management's process for determining the fair value of its reporting unit.

 the appropriateness of the valuation methods utilized.

 management's ability to accurately forecast future revenue and operational costs by
 comparing prior year forecasts to actual results in the current year.

 the reasonableness of the forecasts and consistency with the historical performance of the
 Company.

 the consistency of external market and industry data.

 the completeness and accuracy of the underlying data utilized by management in the methodologies
 to determine estimated fair value.

 the reasonableness of the discount rate utilized in the discounted cash flow model with the
 assistance of our internal valuation specialists.

 F- 3

 Accounting
for and Valuation of Liability Classified Derivative Financial Instruments

 As described in Note 2, Note 9, and Note 11
to the consolidated 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, 2024
were estimated using a Black Scholes model as compared to a current value model to capture the alternative cashless exercise value. The
fair value of the Series B warrants on the date of issuance and at year end as of December 31, 2024 were estimated using a Black Scholes
model and a Full-Ratchet Strike Reset Option model. At issuance, the fair value of the Series A and Series B warrants was approximately
$19.5 million, which resulted in a loss on equity financing of approximately $15.3 million. As of December 31, 2024, the fair value of
Series A warrants and Series B warrants was approximately $16.4 million, resulting in approximately $3.1 million of gain related to the
change in fair value for the year ended December 31, 2024.

 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:

 Obtaining
 an understanding of and evaluating management's process for accounting for and determining
 the fair value of the derivative financial instruments.

 the appropriateness of the valuation methods and assumptions utilized to determine the fair
 value of the derivative financial instruments.

 the professional credentials of management's valuation specialist.

 Utilizing
 professionals with specialized skills and knowledge to assist in (i) evaluating management's
 methodology to determine fair value (ii) testing the mathematical accuracy of the models;
 and (iii) evaluating the reasonableness of the significant assumptions related to implied
 volatility.

 the completeness and accuracy of the underlying data utilized by management in the models.

 F- 4

 Accounting
for Down Round Triggers and Deemed Dividends

 As
described in Note 9 to the consolidated 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, 2024, there were four down round triggers that occurred which resulted in deemed dividends totaling
approximately $17.8 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; and (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

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

 Obtaining
 an understanding of and evaluating management's process for calculating and accounting
 for deemed dividends.

 the appropriateness of the valuation methods and assumptions utilized to determine the amount
 of deemed dividends.

 the mathematical accuracy of the Black Scholes calculation.

 the reasonableness of the assumptions related to implied volatility.

 the completeness and accuracy of the underlying data utilized by management in the models.

 /s/
 WithumSmith+Brown, PC

 We
have served as the Company's auditor since 2020.

 Orlando,
Florida

 March

 PCAOB
ID Number 100

 F- 5

AERIAL SYSTEMS, INC. AND SUBSIDIARIES

 CONSOLIDATED
BALANCE SHEETS

 As of December 31,

 2024

 2023

 ASSETS

 CURRENT ASSETS:

 Cash

 $
 3,613,996

 $
 819,024

 Accounts receivable, net

 1,432,470

 2,057,546

 Inventories, net

 5,475,857

 6,936,980

 Prepaid and other current assets

 425,182

 548,561

 Notes receivable

 —

 185,000

 Total current assets

 10,947,505

 10,547,111

 Property and equipment, net

 455,592

 799,892

 Right-of-use assets

 2,511,572

 3,525,406

 Intangible assets, net

 1,956,304

 2,615,281

 Other assets

 250,937

 265,567

 Total assets

 $
 20,581,554

 $
 25,155,901

 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 Accounts payable

 $
 2,786,492

 $
 3,062,794

 Accrued liabilities

 2,360,775

 1,944,352

 Convertible note

 1,333,333

 4,504,500

 Other short-term loan

 99,735

 —

 Contract liabilities

 148,054

 226,316

 Current portion of lease liabilities

 921,038

 901,925

 Current portion of COVID loan

 237,464

 391,545

 Total current liabilities

 7,886,891

 11,031,432

 Long-term portion of lease liabilities

 1,646,878

 2,721,743

 Long-term portion of COVID loan

 274,389

 489,037

 Warrant liabilities

 —

 Defined benefit plan obligation

 115,355

 216,133

 Total liabilities

 26,323,513

 14,458,345

 COMMITMENTS AND CONTINGENCIES (NOTE 13)

 -

 -

 STOCKHOLDERS' EQUITY (DEFICIT):

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

 Preferred Stock, Series F Convertible, $ 0.001 par value, 35,000 shares authorized, 5,935 shares issued and outstanding as of December 31, 2024, and 6,075 shares issued and outstanding as of December 31, 2023

 Preferred Stock, $0.001 par value, 25,000,000 shares authorized: Preferred Stock,
 Series F Convertible, $0.001 par value, 35,000 shares authorized, 5,935 shares issued and outstanding as of December 31, 2024, and
 6,075 shares issued and outstanding as of December 31, 2023

 Common Stock, $ 0.001
 par value, 200,000,000
 and 250,000,000
 shares authorized as of December 31, 2024 and 2023, respectively, 9,661,664
 (i) and 140,521 (i)
 shares issued and outstanding as of December 31, 2024 and 2023, respectively

 9,662

 Additional paid-in capital

 212,715,967

 176,174,197

 Accumulated deficit

 ( 218,381,218
)

 ( 165,583,091
)

 Accumulated other comprehensive income (loss)

 ( 86,376
)

 106,303

 Total stockholders' equity (deficit)

 ( 5,741,959
)

 10,697,556

 Total liabilities and stockholders' equity (deficit)

 $
 20,581,554

 $
 25,155,901

 (i)
 Adjusted
 for the effect of a 50:1 reverse stock split that was effective October 14, 2024 (see Note
 1).

 See
Accompanying Notes to Consolidated Financial Statements.

 F- 6

 CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 For the Years Ended December 31,

 2024

 2023

 $
 13,392,777

 $
 13,741,398

 Cost of sales

 7,104,141

 8,278,158

 Gross profit

 6,288,636

 5,463,240

 Operating expenses:

 General and administrative

 9,580,137

 13,602,791

 Research and development

 3,969,517

 5,523,541

 Sales and marketing

 2,431,351

 3,731,660

 Impairment charge

 2,943,000

 21,755,360

 Total operating expenses

 18,924,005

 44,613,352

 Loss from operations

 ( 12,635,369
)

 ( 39,150,112
)

 Other income (expense):

 Interest expense

 ( 8,387,794
)

 ( 948,564
)

 Loss on debt extinguishment

 ( 1,572,512
)

 ( 1,933,368
)

 Loss on equity financing

 ( 15,305,761
)

 —

 Gain on change in fair value of warrant liabilities

 3,094,000

 —

 Gain on disposal of fixed assets

 13,522

 —

 Other expense, net

 ( 247,759
)

 ( 389,693
)

 Total other expense, net

 ( 22,406,304
)

 ( 3,271,625
)

 Net loss before provision for income taxes

)

)

 Provision for income taxes

 —

 —

)

)

 Accrued dividends on Series F Preferred Stock

 ( 234,439
)

 ( 339,631
)

 Deemed dividends on Series F Preferred Stock and Warrants

 ( 17,756,454
)

 ( 11,607,910
)

 Net loss attributable to common stockholders

 $
 ( 53,032,566
)

 $
 ( 54,369,278
)

 Net loss per common share - Basic and Diluted - (i)

 $
 ( 46.24
)

 $
 ( 514.90
)

 Weighted average number of shares outstanding during the period — Basic and Diluted (i)

 1,146,981

 105,592

 Comprehensive loss:

 $
)

 $
)

 Amortization of unrecognized periodic pension costs

 10,246

 ( 244,323
)

 Foreign currency cumulative translation adjustment

 ( 202,925

)

 340,543

 Total comprehensive loss, net of tax

 $
 ( 35,234,352
)

 $
 ( 42,325,517
)

 (i)

 Adjusted
 for the effect of a 50:1 reverse stock split that was effective October 14, 2024 (see Note 1)

 See
Accompanying Notes to Consolidated Financial Statements.

 F- 7

 CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

 AND
COMPREHENSIVE LOSS

 FOR

 Par $0.001 Preferred Stock, Series F Convertible Shares

 Preferred Stock, Series F Convertible Amount

 Par
 $0.001
 Common Stock Shares

 Common Stock Amount

 Additional Paid-In

 Capital

 Other

 Comprehensive

 Income (Loss)

 Deficit

 Total
 Stockholders'
 Equity

 (Deficit)

 Balance as of December 31, 2022

 5,863

 $

 88,466,613

 $
 88,467

 $
 154,679,363

 $
 10,083

 $
 ( 111,553,444
)

 $
 43,224,475

 Effect on existing shares due to Reverse Split on February 9, 2024

 —

 —

 ( 84,043,282
)

 ( 84,043
)

 84,043

 —

 —

 —

 Effect on existing shares due to Reverse Split on October 14, 2024

 ( 4,334,864
)

 ( 4,335
)

 4,335

 —

 —

 —

 Issuance of Preferred Stock, Series F Convertible, net of issuance cost

 4,850

 —

 —

 4,674,995

 —

 —

 4,675,000

 Conversion of Preferred Stock, Series F Convertible shares to Common Stock

 ( 4,638
)

 ( 5
)

 27,805

 ( 23
)

 —

 —

 —

 Dividends on Series F Preferred Stock

 —

 —

 —

 —

 ( 339,631
)

 —

 —

 ( 339,631
)

 Deemed dividend on Series F Preferred Stock

 —

 —

 —

 —

 11,607,910

 —

 ( 11,607,910
)

 —

 Sale of Common Stock, net of issuance costs

 —

 —

 18,220

 3,967,382

 —

 —

 3,967,400

 Conversion of warrants issued with promissory note and incremental value modification

 —

 —

 5,000

 190,495

 —

 —

 190,500

 Issuance of restricted Common Stock

 —

 —

 1,029

 ( 1
)

 —

 —

 —

 Stock-based compensation expense

 —

 —

 —

 —

 1,305,329

 —

 —

 1,305,329

 Amortization of unrecognized periodic pension costs

 —

 —

 —

 —

 —

 ( 244,323
)

 —

 ( 244,323
)

 Foreign currency cumulative translation adjustment

 —

 —

 —

 —

 —

 340,543

 —

 340,543

 —

 —

 —

 —

 —

 —

)

)

 Balance as of December 31, 2023

 6,075

 $

 140,521

 $

 $
 176,174,197

 $
 106,303

 $
 ( 165,583,091
)

 $
 10,697,556

 Balance

 6,075

 $

 140,521

 $

 $
 176,174,197

 $
 106,303

 $
 ( 165,583,091
)

 $
 10,697,556

 Fractional effect on existing shares due to Reverse Split on October 14, 2024

 —

 —

 —

 —

 —

 —

 —

 Issuance of Preferred Stock, Series F Convertible, net of issuance cost

 6,350

 —

 —

 4,774,994

 —

 —

 4,775,000

 Conversion of Preferred Stock, Series F Convertible shares to Common Stock

 ( 6,490
)

 ( 6
)

 200,645

 ( 195
)

 —

 —

 —

 Conversion of Convertible Note principal to Common Stock

 —

 —

 1,597

 99,998

 —

 —

 100,000

 Dividends on Series F Preferred Stock

 —

 —

 —

 —

 ( 234,439
)

 —

 —

 ( 234,439
)

 Exercise of warrants issued with Series F

 —

 —

 16,590

 497,684

 —

 —

 497,701

 Stock-based compensation expense

 —

 —

 —

 —

 80,606

 —

 —

 80,606

 Issuance of Restricted Common Stock

 —

 —

 —

 —

 —

 —

 —

 Reduction of Conversion Price on Convertible Note

 —

 —

 —

 —

 6,351,221

 —

 —

 6,351,221

 Debt Extinguishment on modification of Convertible Note

 —

 —

 —

 —

 1,572,512

 —

 —

 1,572,512

 Deemed dividend on Series F Preferred Stock and Series F Warrants

 —

 —

 —

 —

 17,756,454

 —

 ( 17,756,454
)

 —

 Sale of Common Stock and warrant liabilties, net of issuance costs

 —

 —

 538,000

 ( 538
)

 —

 —

 —

 Legal fees incurred on financing activities

 —

 —

 —

 —

 ( 615,082
)

 —

 —

 ( 615,082
)

 Alternate Cashless Exercise of Series A Warrants

 —

 —

 6,309,074

 6,309

 ( 6,309
)

 —

 —

 —

 Exercise of Series B Warrants

 —

 —

 2,454,228

 2,454

 4,764,864

 —

 —

 4,767,318

 Issuance Cost on Series F as consideration for Omnibus Agreement

 —

 —

 —

 —

 1,500,000

 —

 —

 1,500,000

 Amortization of unrecognized periodic pension costs

 —

 —

 —

 —

 —

 10,246

 —

 10,246

 Foreign currency cumulative translation adjustment

 —

 —

 —

 —

 —

 ( 202,925
)

 —

 ( 202,925
)

 —

 —

 —

 —

 —

 —

)

)

 Balance as of December 31, 2024

 5,935

 $

 9,661,664

 $
 9,662

 $
 212,715,967

 $
 ( 86,376
)

 $
 ( 218,381,218
)

 $
 ( 5,741,959
)

 Balance

 5,935

 $

 9,661,664

 $
 9,662

 $
 212,715,967

 $
 ( 86,376
)

 $
 ( 218,381,218
)

 $
 ( 5,741,959
)

 See
Accompanying Notes to Consolidated Financial Statements.

 F- 8

 CONSOLIDATED
STATEMENTS OF CASH FLOWS

 For the Years Ended December 31,

 2024

 2023

 CASH FLOWS FROM OPERATING ACTIVITIES:

 $
)

 $
)

 Adjustments to reconcile net loss to net cash used in operating activities:

 Goodwill impairment

 2,943,000

 15,776,767

 Intangibles impairment

 —

 5,899,307

 Lease impairment

 —

 79,287

 Stock-based compensation

 80,606

 1,305,329

 Depreciation and amortization

 1,076,081

 3,811,770

 Defined benefit plan obligation and other

 ( 88,777
)

 93,692

 Gain on disposal of property and equipment

 ( 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

 1,116,735

 612,712

 Loss on equity financing

 15,305,761

 —

 Gain on change in fair value of warrant liabilities

 ( 3,094,000
)

 —

 Loss on debt extinguishment

 1,572,512

 1,933,368

 Changes in assets and liabilities:

 Accounts receivable

 593,038

 223,457

 Inventories

 1,248,186

 53,178

 Prepaid expenses and other current assets

 199,652

 543,703

 Accounts payable

 ( 281,367
)

 1,105,947

 Accrued liabilities and other liabilities

 185,000

 44,499

 Contract liabilities

 ( 74,215
)

 ( 280,685
)

 Other

 185,000

 263,029

 Net cash used in operating activities

 ( 6,572,172
)

 ( 10,956,377
)

 CASH FLOW FROM INVESTING ACTIVITIES:

 Purchases of property and equipment

 ( 49,485
)

 ( 215,357
)

 Proceeds from the sale of property and equipment

 27,510

 -

 Capitalization of platform development costs

 —

 ( 357,724
)

 Capitalization of internal-use software costs

 ( 72,102
)

 ( 203,889
)

 Net cash used in investing activities

 ( 94,077
)

 ( 776,970
)

 CASH FLOWS FROM FINANCING ACTIVITIES:

 Proceeds from the sale of Common Stock and warrant liabilities

 5,688,239

 3,967,400

 Exercise of Series B warrants

 4,767,318

 —

 Sale of Series F preferred stock

 4,775,000

 4,675,000

 Repayments on COVID loans

 ( 318,793
)

 ( 91,856
)

 Payments on convertible note

 ( 4,235,757
)

 —

 Conversion of warrants issued with Series F shares

 497,701

 —

 Other short-term loan

 ( 1,017,000
)

 —

 Legal fees incurred on financing activities

 ( 615,082
)

 —

 Net cash provided by financing activities

 9,541,626

 8,550,544

 Effects of foreign exchange rates on cash flows

 ( 80,405
)

 ( 348,010
)

 Net change in cash

 2,794,972

 ( 3,530,813
)

 Cash at beginning of year

 819,024

 4,349,837

 Cash at end of year

 $
 3,613,996

 $
 819,024

 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 Interest cash paid

 $
 2,281,325

 $
 —

 Income taxes paid

 $
 —

 $
 —

 NON-CASH INVESTING AND FINANCING ACTIVITIES:

 Right-of-use asset and liability

 $
 —

 $
 212,756

 Conversion of Preferred Stock, Series F Convertible to Common Stock

 27,805

 Dividends on Series F Preferred Stock

 $
 234,439

 $
 339,631

 Deemed dividend on Series F Preferred stock and warrant

 $
 17,756,454

 $
 11,607,910

 Principal on convertible note converted to common stock

 $
 100,000

 —

 Alternate cashless exercise of Series A Warrants

 $
 6,309

 —

 See
Accompanying Notes to Consolidated Financial Statements.

 F- 9

 NOTES

 FOR

 Note
1 – Description of Business

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.

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 200 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 MicaSense, 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 (see Note 17).

 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.

 F- 10

 AGEAGLE AERIAL SYSTEMS
INC. AND SUBSIDIARIES

 NOTES

 FOR

 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 retrospectively 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 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, 2024, the Company incurred a net loss of $ 35.0 million and used cash in
operating activities of $ 6.6 million. As of December 31, 2024, the Company has a working capital of $ 3.1 million. While the Company has
historically been successful in raising capital to meet its working capital needs, the ability to continue raising such capital to enable
the Company to continue its growth is not guaranteed. Therefore, there is substantial doubt about the Company's ability to continue
as a going concern as the Company will require additional liquidity to continue its operations and meet its financial obligations for
twelve months from the date these consolidated financial statements were issued. The Company is evaluating strategies to obtain the required
additional funding for future operations and the restructuring of operations to grow revenues and reduce expenses.

 F- 11

 NOTES

 FOR

 Note

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

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

 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 deemed dividends resulting from the triggering of down round provisions and modifications to equity-linked instruments.

Other Comprehensive Income (Loss) – Accumulated other comprehensive income (loss) refers to revenues, expenses,
gains and losses that under US GAAP 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 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:

 Level
 1: Quoted market prices in active markets for identical assets or liabilities.

 Level
 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

 Level
 3: Unobservable inputs that are not corroborated by market data.

 As
 of December 31, 2024, the Company has classified common stock warrants issued in the October 2024 Offering as warrant liabilities
 due to the warrants including various settlement provisions that precluded equity classification and resulted in the warrants
 meeting the definition of a derivative liability. Therefore, the warrant liabilities have been reported at their fair value at
 issuance and subsequently as of December 31, 2024 using significant unobservable inputs that are based on little or no verifiable
 market data, which is Level 3 in the fair value hierarchy (see Note 8).

 F- 12

 AGEAGLE AERIAL SYSTEMS
INC. AND SUBSIDIARIES

 NOTES

 FOR

 Note

 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, 2024, 2023 and 2022,
the Company had an accounts receivable balance of $ 1.4 million, $ 2.1 million and $ 2.2 million, respectively. In addition, as of December
31, 2024, 2023 and 2022, the Company had an allowance for credit losses balance of $ 0.02 million, $ 0.2 million and $ 0.5 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
and general economic conditions.

 A
summary of activity related to our allowance for credit losses during the years ended December 31, 2024 and 2023 is summarized below:

of Allowance for Credit Losses

 2024

 2023

 Allowance for credit losses, beginning balance

 $
 158,689

 $
 16,801

 Credit loss provision

 16,465

 141,888

 Write-offs

 ( 158,689
)

 -

 Recoveries

 -

 -

 Allowance for credit losses, ending balance

 $
 16,465

 $
 158,689

 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.

 F- 13

 NOTES

 FOR

 Note

 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. As of December 31, 2024 and 2023, capitalized software development costs for internal-use
software, net of accumulated amortization, totaled $ 273,094
 and $ 582,148,
respectively, relate to the Company's implementation of its enterprise resource planning software. Internal-use software costs
are included in intangibles, net on the consolidated balance sheets.

 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. For the year ended December 31, 2024,
the Company reviewed the indicators for impairment and concluded that no impairment of its finite-lived intangible assets existed. For
the year ended December 31, 2023, the Company conducted an analysis of the intangibles, which indicated that the fair value was less
than the current value, resulting in an impairment to our reporting units in the amount of $ 5,899,307.

– 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.

the fourth quarter of 2024 and 2023, 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. The DCF analysis used a discount rate of 19 %. 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.

 F- 14

 NOTES

 FOR

 Note

 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 ASC 480 and FASB ASC Topic 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) are recognized
as derivative liabilities in accordance with ASC 815 due to the contractual terms resulting in variability in the warrants ultimate settlement.
Accordingly, the Company recognizes the warrant instruments 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. 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:

 a.

 the
 customer simultaneously receives and consumes the benefits as the entity performs; or

 b.

 the
 entity's performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or

 c.

 the
 entity's performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right
 to payment for performance completed to date.

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

 Sensor
 Sales – sales are recognized on products when the related goods have been shipped, title has passed to the customer, and there
 are no undeliverable elements or uncertainties. Amounts incurred related to shipping and handling are included in cost of revenue.

 Drone
 Sales - sales are recognized on products when the related goods have been shipped, title has passed to the customer, and there are
 no undeliverable elements or uncertainties. Amounts incurred related to shipping and handling are included in cost of revenue.

 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.

 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.

 F- 15

 NOTES

 FOR

 Note

 Additionally,
customer payments received in advance of the Company completing performance obligations are recorded as contract liabilities. As of
December 31, 2024, we have approximately $ 148,000 of advanced customer payments presented as contract liabilities. Contract
liabilities are short term in nature and are expected to be recognized in the next fiscal year. 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 represent customer prepayments and are recognized as revenue when the term of the sale or performance obligation is
completed.

 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, 2024 and 2023, 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, 2024 and 2023, shipping costs were $ 0.25 million and $ 0.26 million, respectively.

 Advertising
Costs – Advertising costs are charged to operations as incurred. For the years ended December 31, 2024, and 2023, advertising
costs, included in sales and marketing expenses in the consolidated statements of operations and comprehensive loss, were $ 0.01 million
and $ 0.10 million, respectively.

 Research
and Development – For the years ended December 31, 2024 and 2023, research and development expenses were $ 4.0 million and $ 5.5
million, respectively. Research and development costs are expensed as incurred and are included in the accompanying consolidated statements
of operations and comprehensive loss.

 Customer
Concentrations - As of December 31, 2024 and 2023,
we generated over 10 % of our consolidated revenues from one significant customer.

 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.

 Loss
Per Common Share – Basic loss per share is computed by dividing net loss by the weighted average number of common shares
outstanding for the year. Diluted loss per share is computed by dividing net loss by the weighted average number of common shares outstanding
plus Common Stock, par value $ 0.001 ("Common Stock") equivalents (if dilutive) related to warrants, options, and convertible
instruments.

 Potentially
Dilutive Securities – The Company has excluded all common equivalent shares outstanding for unvested restricted stock,
warrants and options to purchase Common Stock from the calculation of diluted net loss per share, because all such securities are anti-dilutive
for the periods presented. As of December 31, 2024, the Company had 3,850 unvested restricted stock units, and 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), and 4,462,716 from Series B, 5,935 of Series F Stock convertible into 4,856,492 shares of common
stock. As of December 31, 2023, the Company had 193 unvested restricted stock units, 64,671 common stock warrants, 2,505 options outstanding
to purchase shares of Common Stock and Series F Preferred Stock convertible into 60,750 shares of Common Stock.

 F- 16

 NOTES

 FOR

 Note

 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 operates in three segments:

 Drones,
 which comprises revenues earned from contractual arrangements to develop, manufacture and /or modify complex drone related products,
 and to provide associated engineering, technical and other services according to customer specifications.

 Sensors,
 which comprises the revenue earned through the sale of sensors, cameras, and related accessories.

 SaaS,
 which comprises revenue earned through the offering of online-based subscriptions.

 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.

 F- 17

 NOTES

 FOR

 Note

 Recently
Issued and Adopted Accounting Pronouncements

 In
December 2023, FASB issued ASU 2023-09,
 Income Taxes (Topic 740): Improvements to Income Tax Disclosure s ("ASU 2023-09"). The ASU focuses on income tax disclosures
around effective tax rates and cash income taxes paid. ASU 2023-09 requires public business entities to disclose, on an annual basis,
a rate reconciliation presented in both dollars and percentages. The guidance requires the rate reconciliation to include specific categories
and provides further guidance on disaggregation of those categories based on a quantitative threshold equal to 5% or more of the amount
determined by multiplying pretax income (loss) from continuing operations by the applicable statutory rate. For entities reconciling
to the US statutory rate of 21%, this would generally require disclosing any reconciling items that impact the rate by 1.05% or more.
ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024 (generally, calendar year
2025) and effective for all other business entities one year later. Entities should adopt this guidance on a prospective basis, though
retrospective application is permitted. The adoption of ASU 2023-09 is expected to have a financial statement disclosure impact only
and is not expected to have a material impact on the Company's consolidated financial statements.

 In
November 2023, the FASB issued ASU 2023-07, Segment Reporting – Improvements to Reportable Segment Disclosu res. The ASU
will now require public entities to disclose its significant segment expenses categories and amounts for each reportable segment. Under
the ASU, a significant segment expense is an expense that is:

 significant
 to the segment,

 regularly
 provided to or easily computed from information regularly provided to the chief operating decision maker and

 included
 in the reported measure of segment profit or loss.

 The
ASU is effective for public entities for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning
after December 15, 2024 (calendar year public entity will adopt the ASU in its 2024 Form 10-K). The ASU should be adopted retrospectively
unless it's impracticable to do so. Effective January 1, 2024, we adopted ASU 2023-07 and evaluated the application of ASU 2023-07
to these consolidated financial statements. We have included expanded disclosures in Note 16 to provide further information regarding
the measure of our three operating segment's gross profit and significant segment expenses as required by ASU 2023-07.

 Recently Issued Accounting Pronouncements Not Yet
Adopted

 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.

 F- 18

 NOTES

 FOR

 Note
3 - Balance Sheet Accounts

 Accounts
Receivable, Net

 As
of December 31, 2024 and 2023, accounts receivable, net consist of the following:

 Schedule of Accounts Receivable, Net

 Accounts receivable

 $
 1,448,935

 $
 2,216,235

 Less: Allowance for credit losses *

 ( 16,465
)

 ( 158,689
)

 Accounts receivable, net

 $
 1,432,470

 $
 2,057,546

 *

 Allowance
 for credit losses - Accounts receivable, net represent amounts billed and due from customers. Substantially all accounts receivable on
 December 31, 2024 are expected to be collected in 2025.

 Customer
Concentration

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

of Customer Concentration

 Percent of total accounts receivable for

 years ended December 31,

 Customers

 2024

 2023

 Customer A

 15.7
 %

 —

 Customer B

 —

 10.1
 %

 Inventories,
Net

 As
of December 31, 2024 and 2023, inventories, net consist of the following:

 Schedule of Inventories

 December 31,

 2024

 2023

 Raw materials

 $
 3,488,703

 $
 4,648,966

 Work in process

 912,397

 903,217

 Finished goods

 1,527,975

 1,806,239

 Gross inventories

 5,929,075

 7,358,422

 Less: Provision for obsolescence

 ( 453,218
)

 ( 421,442
)

 Inventories, net

 $
 5,475,857

 $
 6,936,980

 F- 19

 NOTES

 FOR

 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.

 As
of December 31, 2024 and 2023, property and equipment, net consist of the following:

of Property and Equipment, Net

 Estimated

 Useful
 Life

 December 31,

 Type

 (Years)

 2024

 2023

 Leasehold improvements

 $
 89,272

 $
 136,382

 Production tools and equipment

 874,995

 1,003,726

 Computer and office equipment

 3 - 5

 359,113

 407,747

 Furniture

 58,880

 74,420

 Drone equipment

 130,163

 170,109

 Total property and equipment

 1,512,423

 1,792,384

 Less: Accumulated depreciation

 ( 1,056,831
)

 ( 992,492
)

 Total property and equipment, net

 $
 455,592

 $
 799,892

 For
the years ended December 31, 2024 and 2023, depreciation expense is classified within the consolidated statements of operations and comprehensive
loss as follows:

of Property and Equipment Depreciation Expense

 For the Years Ended December 31,

 Type

 2024

 2023

 General and administrative

 $
 345,002

 $
 257,092

 Accrued
Liabilities

 As
of December 31, 2024 and 2023, accrued liabilities consist of the following:

 Schedule of Accrued Expenses

 December 31,

 2024

 2023

 Accrued purchases

 $
 —

 $
 290,126

 Accrued compensation and related liabilities

 569,079

 278,794

 Provision for warranty expense

 258,122

 303,217

 Accrued dividends

 746,666

 512,227

 Accrued professional fees

 652,530

 211,086

 Accrued interest

 47,123

 326,945

 Other

 87,255

 21,957

 Total accrued liabilities

 $
 2,360,775

 $
 1,944,352

 F- 20

 NOTES

 FOR

 Note
4 – Intangible Assets, Net

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

of Intangible Assets, Net Other Than Goodwill

 Name

 Estimated Life (Years)

 Balance as of

 Additions

 Amortization

 Balance
as of

 Intellectual property/technology

 5 - 7

 $
 606,354

 $
 —

 $
 ( 148,495
)

 $
 —

 $
 457,859

 3 - 10

 999,774

 —

 ( 141,145
)

 —

 858,629

 Tradenames and trademarks

 5 - 10

 427,005

 —

 ( 60,283
)

 —

 366,722

 Internal-use software costs

 582,148

 72,102

 ( 381,156
)

 —

 273,094

 Total intangible assets, net

 $
 2,615,281

 $
 72,102

 $
 ( 731,079
)

 $
 —

 $
 1,956,304

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

of Gross Carrying Intangible Assets

 Name

 Weighted Average Estimated Used Life
 (Years)

 Gross Carrying Amount

 Amortization

 Net
 Book
 Value as of

 Intellectual property/technology

 3.25

 $
 5,671,026

 $
 ( 2,154,628
)

 $
 ( 3,058,539
)

 $
 457,859

 6.17

 4,411,499

 ( 2,804,650
)

 ( 748,220
)

 858,629

 Tradenames and trademarks

 6.17

 2,082,338

 ( 592,674
)

 ( 1,122,942
)

 366,722

 Internal-use software costs

 1.96

 1,172,316

 ( 899,222
)

 —

 273,094

 Total intangible assets, net

 2.30

 $
 13,337,179

 $
 ( 6,451,174
)

 $
 ( 4,929,701
)

 $
 1,956,304

 As
of December 31, 2023, intangible assets, net, other than goodwill, consist of following:

 Name

 Estimated Life (Years)

 Balance as of

December 31, 2022

 Additions

 Amortization

 Balance
as of

 Intellectual property/technology

 5 - 7

 $
 4,473,861

 $
 —

 $
 ( 808,968
)

 $
 ( 3,058,539
)

 $
 606,354

 3 - 10

 2,885,657

 —

 ( 1,137,663
)

 ( 748,220
)

 999,774

 Tradenames and trademarks

 5 - 10

 1,757,891

 —

 ( 207,944
)

 ( 1,122,942
)

 427,005

 Non-compete agreement

 —

 335,933

 —

 ( 335,933
)

 —

 —

 Platform development costs

 —

 1,332,516

 357,724

 ( 720,634
)

 ( 969,606
)

 —

 Internal use software costs

 721,795

 203,889

 ( 343,536
)

 —

 582,148

 Total intangible assets, net

 $
 11,507,653

 $
 561,613

 $
 ( 3,554,678
)

 $
 ( 5,899,307
)

 $
 2,615,281

 F- 21

 NOTES

 FOR

 Note
4 – Intangible Assets, Net- Continued

 As
of December 31, 2023, the gross carrying intangible assets, accumulated amortization, impairments, and net book value, consist of following:

 Name

 Weighted Average Estimated Used Life
 (Years)

 Gross Carrying Amount

 Amortization

 Net
 Book
 Value as of

 Intellectual property/technology

 4.25

 $
 5,671,026

 $
 ( 2,006,133
)

 $
 ( 3,058,539
)

 $
 606,354

 7.17

 4,411,499

 ( 2,663,505
)

 ( 748,220
)

 999,774

 Tradenames and trademarks

 7.17

 2,082,338

 ( 532,391
)

 ( 1,122,942
)

 427,005

 Non-compete agreement

 —

 901,198

 ( 901,198
)

 —

 —

 Platform development costs

 —

 2,345,459

 ( 1,375,853
)

 ( 969,606
)

 —

 Internal-use software costs

 2.34

 1,100,212

 ( 518,064
)

 —

 582,148

 Total intangible assets, net

 3.42

 $
 16,511,732

 $
 ( 7,997,144
)

 $
 ( 5,899,307
)

 $
 2,615,281

 As
of December 31, 2024 and 2023, the weighted average remaining amortization period in years was 2.30 and 3.42 years, respectively. Amortization
expense for the years ended December 31, 2024 and 2023 was $ 731,079 and $ 3,554,678, respectively. For the year, ended December 31, 2024
and 2023, amortization expense of $ 0 and $ 720,635 related to the platform development costs were included as part of the cost of goods
sold, respectively.

 For
the year ended December 31, 2024, the Company reviewed the indicators for impairment and concluded that no impairment of its finite-lived
intangible assets existed. The annual intangible impairment conducted during the fourth quarter of 2023 indicated that the fair value
of the SaaS and Drones reporting units were less than carrying value. Accordingly, the Company recorded an impairment
charge to SaaS and Drones units for $ 2,398,618 and $ 3,500,689, respectively, which was included in "Impairment" on the accompanying
consolidated statements of operations and comprehensive loss.

 For
the following years ending, the future amortization expenses consist of the following:

of Intangible Assets Future Amortization Expenses

 For the Years Ending December 31,

 2025

 2026

 2027

 2028

 2029

 Thereafter

 Total

 Intellectual property/ technology

 $
 148,495

 $
 148,495

 $
 148,495

 $
 12,374

 $
 —

 $
 —

 $
 457,859

 152,904

 858,629

 Trade names and trademarks

 65,307

 366,722

 Internal-use software costs

 214,653

 48,520

 9,921

 —

 —

 —

 273,094

 Total Intangible Assets, Net

 $
 564,576

 $
 398,443

 $
 359,844

 $
 213,802

 $
 201,428

 $
 218,211

 $
 1,956,304

 F- 22

 NOTES

 FOR

 Note
5 – 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, 2024, the goodwill balance relates to business acquisitions completed in 2021.

 The
annual impairment assessment conducted during the fourth quarter of 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 of $ 2,943,000. The annual impairment assessment conducted during the third and
fourth quarter of 2023 indicated that the fair value of the SaaS and the Sensor reporting units were less than the carrying
value. The impairment assessment of the SaaS and the Company's Sensor reporting units was considered 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 to SaaS and Sensor for $ 4,206,515 and $ 11,570,252, respectively, during the year ended December 31, 2023.

 As
of December 31, 2024 and 2023, the change in the carrying value of goodwill for our operating segments (as defined in Note 16) is listed
below:

of Carrying Value of Goodwill for our Operating Segments

 SaaS

 Total

 Balance as of December 31, 2020

 $
 —

 $
 —

 $
 3,108,000

 $
 3,108,000

 Acquisitions

 12,655,577

 18,972,896

 42,488,730

 74,117,203

 —

 —

 ( 12,357,921
)

 ( 12,357,921
)

 Balance as of December 31, 2021

 12,655,577

 18,972,896

 33,238,809

 64,867,282

 ( 12,655,577
)

 —

 ( 29,032,294
)

 ( 41,687,871
)

 Balance as of December 31, 2022

 —

 18,972,896

 4,206,515

 23,179,411

 —

 ( 11,570,252
)

 ( 4,206,515
)

 ( 15,776,767
)

 Balance as of December 31, 2023

 —

 —

 —

 ( 2,943,000
)

 —

 ( 2,943,000
)

 Balance as of December 31, 2024

 $
 —

 $

 $
 —

 $

 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, 2024 and 2023, senseFly S.A. made the required
payments on the senseFly COVID Loans, including principal and accrued interest, aggregating approximately $ 318,793
and $ 91,856,
respectively. As of December 31, 2024, the Company's outstanding obligations under the senseFly COVID Loans are $ 511,853.
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 2025. The other COVID loan remains unchanged.

 As
of December 31, 2024, scheduled principal payments due under the senseFly COVID Loans are as follows:

of Maturity of SenseFly COVID Loans

 Year Ending December 31,

 2025

 $
 237,464

 2026

 91,473

 2027

 182,916

 Total

 $
 511,853

 F- 23

 NOTES

 FOR

 Note
7 – Promissory Note and Convertible Note

 On
December 6, 2022, the Company entered into a Securities Purchase Agreement (the "Promissory Note Purchase Agreement")
with an institutional Alpha Capital Anstalt ("Alpha") which has an existing shareholder of the Company. Pursuant
to the terms of the Promissory Note Purchase Agreement, the Company has agreed to issue to Alpha (i) an 8% original issue
discount promissory note (the "Note") in the aggregate principal amount of $ 3,500,000,
and (ii) a common stock purchase warrant (the "Promissory Note Warrant") to purchase up to 5,000
shares of the Company's Common Stock (the "Shares") at an initial exercise price of $ 440.00
per share, subject to standard anti-dilution adjustments. The Note was an unsecured obligation of the Company. It had an original
issue discount of 4 %
and bore interest at 8 %
per annum. The Company received net proceeds of $ 3,285,000
net of the original issue discount of $ 140,000
and $ 75,000 of issuance
costs. As disclosed below, this Note was exchanged for a Convertible Note in February 2024.

 The
Company determined the estimated fair value of the common stock warrants issued with the Note to be $ 1,847,200 using a Black-Scholes
pricing model. In accordance with ASC 470-20, Debt, the Company recorded a discount of $ 1,182,349 on the Note based on the relative
fair value of the warrants and total proceeds. At Note issuance, the Company recorded a total discount on the debt of $ 1,397,350 comprised
of the relative fair value of the warrants, the original issue discount, and the issuance costs. The aggregate discount was being amortized
into interest expense over the approximate two-year term of the Note.

to the original terms of the Note beginning June 1, 2023, and on the first business day of each month thereafter, the Company shall pay
1/20 th of the original principal amount of the Note plus any accrued but unpaid interest, with any remaining principal plus
accrued interest payable in full upon the maturity date of December 31, 2024 or the occurrence of an Event of Default (as defined in
the Note). Prior to February 2024, the Company and the Alpha entered into a series of Note Amendment Agreements as the Company was
not able to make the agreed upon monthly payments. A summary of these amendments is as follows:

 On
August 14, 2023, the Company and Alpha entered into a Note Amendment Agreement and the parties agreed to amend the Note as
follows:

 (i)

 defer
 payment of the Monthly Amortization Payments for June 2023, July 2023 and August 2023 in the aggregate amount of $ 525,000 (the "Deferred
 Payments"), and the September Monthly Amortization Payment, in the amount of $ 175,000, until September 15, 2023. The Company
 was not able to make the September 15, 2023 payment; and

 (ii)

 increase
 the principal amount of the Note by $ 595,000.

 On
October 5, 2023, the Company and Alpha entered into a Second Note Amendment Agreement (the "Second Amendment"), which
provided for the following:

 (i)

 the
 Deferred Payments were extended from September 15, 2023 to December 15, 2023; As of December 15, 2023, the Company was unable to
 meet its payment obligation as prescribed in the Second Amendment.

 (ii)

 the
 Amortization Payments (defined in the Note) scheduled for September 15, 2023, October 1, 2023, and November 1, 2023, were deferred
 and made part of the Amortization Payments commencing in January 2024; and

 (iii)

 50 %
 of any net proceeds above $ 2,000,000 from any equity financing between the date of the Second Amendment and December 15, 2023, were
 to be used to prepay the Note. The Second Amendment also partially waived the Event of Default in Section 3 (a)(vii) of the Note
 as a result of the resignation of a majority of the officers listed therein.

 F- 24

 NOTES

 FOR

 Note
7 – Promissory Note and Convertible Note- Continued

 The
Note Amendment Agreement and the Second Amendment resulted in a debt extinguishment due to the modified terms of the Note being
substantially different than the original terms primarily due to the substantial aggregate increase in principal of $ 1,004,500.
In accordance with ASC 470-50-40-2, the Company recorded a loss on debt extinguishment of $ 1,933,368
which is presented on the consolidated statements of operations and comprehensive loss for the difference between the reacquisition
price of the debt, of $ 4,504,500
and the net carrying amount of the extinguished debt of $ 2,571,133
comprised of $ 3,500,000
of principal less $ 928,867
of unamortized debt discounts and issuance costs on the original debt.

 Further,
on September 15, 2023, the Company and Alpha entered into a Warrant Exchange Agreement pursuant to which the Company agreed to issue
to the Alpha 5,000
shares of common stock in exchange for the Warrant for no consideration. The Company accounted for the incremental value of the
Promissory Note Warrant modification of $ 190,500
as an increase in additional paid-in capital and interest expense on the consolidated statements of operations and comprehensive
loss. The incremental value was computed using a Black-Scholes pricing model pre and post modification and the following inputs:
stock price $ 190.00,
exercise price $ 440.00
(pre modification) and $ 0
(post modification), volatility of 129 %,
and discount rate of 4.45 %.

the year ended December 31, 2023, the Company recognized $ 412,188 of interest expense related to the amortization of the discounts prior
to the debt extinguishment which has been included in interest expense on the consolidated statements of operations and comprehensive
loss. As of December 31, 2023, the unamortized discount was $ 0.

 On
February 8, 2024, the Company and Alpha entered into a Securities Exchange Agreement (the "Exchange Agreement"),
pursuant to which the parties agreed to exchange the Note for a Convertible Note due January
8, 2025 ("Maturity Date") in the principal amount of $ 4,849,491
(the "Convertible Note"), convertible into Common Stock at the initial conversion price of $ 100.00
per share of Common Stock, 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 and is subject to adjustment pursuant to dilutive protection terms included in the
Convertible Note. The conversion price was adjusted downward several times during the year due to down round trigger events that
occurred (see below).

 The
principal amount of the Convertible Note did not change and includes: (i) the initial principal amount of the Original Note of $ 3,500,000,
(ii) the additional $ 595,000 in principal added pursuant to the 1 st Amendment, (iii) $ 192,111 in accrued interest at the rate
of 8 % from December 6, 2022 through August 13, 2023 on the original principal amount of $ 3,500,000, (iv) $ 152,880 in accrued interest
at the rate of 8 % from August 14, 2023 through February 8, 2024 on the original principal amount of $ 4,095,000, and (v) an additional
principal amount of $ 409,500. The Convertible Note accrues interest at 12 % per annum versus 8 % on the Note Payable Purchase Agreement.
The interest rate will increase to the lesser of 18 % per annum or the maximum rate permitted under applicable law upon an Event of Default
as defined under the Convertible Note. Commencing April 1, 2024, and on the first business day of each calendar month thereafter, the
Company shall pay $ 484,949, plus any accrued but unpaid interest, with any remaining principal plus accrued interest payable in full
upon the Maturity Date.

 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 Promissory Note which consisted of the scheduled principal payment of
$ 484,950 for the month of April 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.

 F- 25

 NOTES

 FOR

 Note
7 – Promissory Note and Convertible Note- Continued

to the Omnibus Agreement executed between the Company and Alpha in connection with the October 2024 Offering (see Note 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 is paid in full. The Company remitted the October and November 2024 monthly payments and the December 2024
payment was waived by the lender. As of December 31, 2024, the principal outstanding is $ 1,333,333
which is due March 2025.

the year ended December 31, 2024, the Company recorded $ 884,769 of interest expense related to the Note in the consolidated
statements of operations and comprehensive loss, and as of December 31, 2024, there is $ 47,123 of accrued interest included in accrued liabilities on the
consolidated balance sheet.

 Convertible
Note Conversion Price Adjustments

 On
March 6, 2024, the conversion price of the Convertible Note was reduced from $ 62.50 to $ 30.00 pursuant to down round provisions triggered
and due to the reduction in warrant exercise prices to $ 30.00 to induce exercise (see Note 9). The Company recognized interest expense
in the amount of $ 3,488,851 for the incremental value of the conversion feature due to the reduced conversion price. The incremental
value was determined using a Black-Scholes pricing model pre and post modification and the following inputs: expected term 0.92 years,
risk free rate of 4.83 %, volatility of 89.6 %, and dividend rate of 0 %.

 On
August 27, 2024, the Investor purchased 500 shares of Series F Convertible Preferred Stock and Series F Warrants, both convertible into
 24,765 shares of Common Stock at an initial conversion and exercise price of $ 20.19. Therefore, the conversion price of the Convertible
Note was reduced from $ 23.15 to $ 20.19. The Company recognized interest expense of $ 609,537 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 4.34 %, volatility of 101.70 %, and dividend rate of 0 %.

 In
October 2024, the conversion price of the Convertible Note was reduced twice (i) from $ 20.19
to $ 4.00
due to the effective price paid in the October 2024 Offering triggering the down round provision and (ii) 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 Company recognized interest expense of $ 2,252,833
for the incremental value of the conversion feature due to the reduced conversion price from the October 2024 Offering (see Note 9)
to $ 4.
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 presented on the statement of operations and comprehensive as a loss on debt extinguishment.

 The
October 2024 incremental values above were determined using a Black-Scholes pricing model pre and post modification and the following
inputs: expected term 0.50 years, risk free rates ranging from 3.96 % - 4.24 %, volatilities of 130.57 % – 144.88 %, and dividend rate
of 0 %.

 F- 26

 NOTES

 FOR

 Note
8 – Fair Value Measurements

 In
connection with the October 2024 Offering, we sold units comprised of common stock, Series A Warrants and a Series B Warrants (collectively
referred to as the "Warrants") (see Note 9). The Series A and B Warrants were deemed to be derivative liabilities due to
variability in the ultimate settlement of the Series A and B Warrants caused by various settlement provisions embedded within the Warrants.
Therefore, these Warrants meet the definition of a derivative liability requiring the Warrants to be reported at fair value upon issuance
and subsequently at each reporting period.

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

of Fair Value Hierarchy on Valuation Techniques

 (Level 1)

 (Level 2)

 (Level 3)

 Total

 Fair Value Measurements at October 1, 2024 (Issuance)

 Quoted Prices in Active Markets for Identical Assets

 Other Observable Inputs

 Significant Unobservable Inputs

 (Level 1)

 (Level 2)

 (Level 3)

 Total

 Derivative liabilities - warrants

 $
 —

 $
 —

 $

 $

 Total

 $
 —

 $
 —

 $

 $

 (Level 1)

 (Level 2)

 (Level 3)

 Total

 Fair Value Measurements at December
 31, 2024

 Quoted Prices in Active Markets for Identical Assets

 Other Observable Inputs

 Significant Unobservable Inputs

 (Level 1)

 (Level 2)

 (Level 3)

 Total

 Derivative liabilities - warrants

 $
 —

 $
 —

 $

 $

 Total

 $
 —

 $
 —

 $

 $

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

of Fair Value of Warrants

 October 1, 2024

 Exercise price

 $
 1.9445

 $
 12.00
 - $ 25.00

 Stock price

 $
 3.47

 $
 7.91

 Expected term

 4.75

 5.00

 Volatility

 133.00
 %

 108.00
 %

 Risk-free rate

 4.28
 %

 3.45
 %

 Dividend yield

 0.00
 %

 0.00
 %

 Probability of capital raise below exercise price

 %

 %

 As of December 31, 2024 and Issuance, the Company measured the Warrants using significant unobservable inputs that
are based on little or no verifiable market data, which is Level 3 in the fair value hierarchy, resulting in a fair value estimate of
approximately $ 13.1 million. Inherent in a Black Scholes options pricing model are assumptions related to expected share-price
volatility, expected term, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock based
on historical volatility. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for
a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their
remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero. The probability
of a capital raise below the Warrants' current exercise price is a significant unobservable input based on management's estimate
factoring in the Company's capital needs and the Company's stock price, which is volatile. Fluctuations to this estimate could
significantly impact the fair value.

 F- 27

 NOTES

 FOR

 Note
8 – Fair Value Measurements- Continued

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

of Fair Value of Net Asset Value

 Amount

 Gross proceeds

 $
 6,466,500

 Less: placement agent and legal fees

 ( 778,261
)

 Net proceeds

 5,688,239

 Less: Series F issued for Alpha consent

 ( 1,500,000
)

 Less: Fair value of warrant liabilities at Issuance

 ( 19,494,000
)

 Loss on equity financing

 $
 ( 15,305,761
)

the year ended December 31, 2024, we recognized a fair value gain on the warrant liabilities of $ 3,094,000 for the change in fair value
between issuance and year end. A reconciliation of the warrant liabilities is below:

of Fair Value of Warrant Liabilities

 Amount

 Balance, beginning of the year

 $
 —

 Warrant liabilities at issuance

 Change in fair value of warrant liabilities

 ( 3,094,00
)

 Balance, end of the year

 $

 Note
9 – Equity

 Capital
Stock Issuances

 Preferred
Series F Convertible Stock

 On
June 26, 2022 (the "Series F Closing Date"), the Company entered into a Securities Purchase Agreement (the "Series
F Agreement") with Alpha. Pursuant to the terms of the Series F Agreement, the Board of Directors
of the Company (the "Board") designated a new series of Preferred Stock, the Series F 5% Preferred Convertible Stock ("Series
F"), and authorized the sale and issuance of up to 35,000 shares of Series F. The sale of Series F includes 100 % warrant coverage
("Series F Warrants"). The Series F Warrants are not exercisable for the first six months after its issuance and have a three-year
term from its exercise date. The initial conversion and exercise price of the Series F and the Series F Warrants are based on the volume
weighted average market price for the four days prior to the issuance of the Series F and Serries F Warrants. Conversion and exercise
prices are subject to downward adjustment for any equity instrument or equity-linked instrument sold or granted at an effective price
per share that is lower than the initial conversion and exercise price ("Down Round Provision"). See Note 11 for warrant
related disclosures.

 On
the Series F Closing Date, the Company issued to Alpha 10,000 shares of Series F, initially convertible into 16,129 shares of Common
Stock at $ 620 per share, subject to adjustment for subsequent equity sales, and a warrant to purchase 16,129 shares of Common Stock at
$ 960 per shares and received net proceeds of $ 9,920,000. As of December 31, 2024, the Series F issued on the Series F Closing Date have
all been converted into shares of common stock. The warrant to purchase 16,129 shares of common stock remains outstanding at an exercise
price of $ 1.10 after several down round provision triggers (see below).

 F- 28

 NOTES

 FOR

 Note

 Additional
Investment Right

 Alpha
has the right, subject to certain conditions, including shareholder approval, to purchase up to $ 25,000,000 of additional shares of Series
F and Series F Warrants (collectively, the "Series F Option"). The Series F Option will be available for an initial period
of eighteen months, extended through June 1, 2026 (see Note 17). The Series F and Series F Warrants shall be identical to the initial
purchase, except the conversion and exercise price shall be adjusted to the volume weighted average price for three trading days prior
to the date that Alpha gives notice to the Company of its intent to exercise the Series F Option.

 Since
the Series F Closing Date, the Company has sold and issued Series F and Series F Warrants to Alpha or Investors that Alpha has assigned
the Additional Investment Rights for cash proceeds through the exercise of their Series F Option. A summary of the Series F activity
during the years ended December 31, 2024 and 2023 is as follows:

 Summary
of Series F Activity

 Original

 Shares Outstanding

 Shares Issuable

 Date of Purchase

 Shares Purchased

 Gross Proceeds

 Net Proceeds

 Series
 F

 Converted

 March 9, 2023

 3,000

 3,000,000

 3,000,000

 $

 ( 3,000
)

 -

 -

 November 15, 2023

 1,850

 1,850,000

 1,850,000

 124.70

 ( 1,700
)

 136,364

 4,850

 $
 4,850,000

 $
 4,850,000

 -

 ( 4,700
)

 -

 136,364

 March 6, 2024

 1,000

 1,000,000

 950,000

 $
 60.29

 ( 565
)

 395,455

 April 12, 2024

 1,050

 1,050,000

 1,050,000

 37.00

 -

 1,050

 954,545

 May 31, 2024

 1,050

 1,050,000

 1,025,000

 32.15

 -

 1,050

 954,545

 July 25, 2024

 500,000

 500,000

 23.15

 -

 454,545

 August 27, 2024

 500,000

 500,000

 20.19

 -

 454,545

 October 1, 2024 (i)

 1,500

 -

 -

 12.00

 -

 1,500

 1,363,636

 December 18, 2024

 750,000

 750,000

 5.25

 -

 5.2500

 142,857

 6,350

 $
 4,850,000

 $
 4,775,000

 -

 ( 565
)

 5,785

 -

 4,720,128

 Grand Total

 11,200

 $
 9,700,000

 $
 9,625,000

 $
 -

 ( 5,265
)

 5,935

 -

 4,856,492

 (i)
 These shares were issued as consideration for
 executing the Omnibus Agreement in connection with the October 2024 Offering.

 F- 29

 NOTES

 FOR

 Note

the year ended December 31, 2024, an aggregate of 269,583 Series F Warrants were issued with the sale and issuance of the Series F with
initial exercise prices ranging from $ 20.19 and $ 60.29, subject to adjustment for subsequent equity sales or equity issuances below the
initial exercise price.

the years ended December 31, 2024 and 2023, a total of 6,490 and 4,638 Series F were converted into a total of 200,645 and 27,805 shares
of common stock, respectively. As of December 31, 2024 and 2023, accrued dividends on the Series F total $ 746,666 and $ 512,227 which
are included in accrued expenses on the consolidated balance sheets, at the rate per share (as a percentage of the $ 1,000 stated par
value per share of Series F) of 5 % per annum, beginning on the first purchase date of June 30, 2022. As of December 31, 2024, a total
of 13,800 Series F shares remain issuable on the Series F Option.

 Common
Stock and Warrant Transaction

 2023
Issuances

 On
June 5, 2023, the Company entered into a Securities Purchase Agreement (the "June 2023 Purchase Agreement") with certain
accredited investors, including Alpha (the "Investors"). Pursuant to the terms of the Purchase Agreement, the Company agreed to issue and
sell to Investors (i) 16,720 shares of Common Stock (the "Offering Shares") at $ 250.00 per share and (ii) warrants to purchase
up to 25,080 shares of common stock (the "Warrants"), exercisable at $ 380.00 per share and raised gross sales proceeds of
$ 4,180,000. The Warrant is for a term of 5.5 years commencing on the closing date but is not exercisable for the first six months after
closing. As a result, pursuant to the June 2023 Purchase Agreement the Company issued 16,720 shares of Common Stock for proceeds of $ 3,817,400,
net of issuance costs from the offering and warrants to purchase up to 25,080 shares of common stock exercisable at $ 380.00 per share.
The Offering Shares and Warrants triggered down round provisions embedded in outstanding Series F and Series F Warrants (the "June
2023 Down Round Trigger").

 For
twelve (12) months following the closing date of the Purchase Agreement, in the event the Company or any of its subsidiaries proposes
to offer and sell shares of Common Stock or common stock equivalents (the "Offered Securities") to investors primarily for
capital raising purposes (each, a "Future Offering"), the Investors shall have the right, but not the obligation, to participate
in each such Future Offering in an amount of up to 50 % in the aggregate of the Offered Securities.

 The
Offering Shares were issued pursuant to a prospectus supplement and was filed with the Securities and Exchange Commission (the "Commission")
on June 7, 2023, and the prospectus included in the Company's Registration Statement on Form S-3 (Registration No. 333-252801),
which was filed with the Commission on April 23, 2021, and was declared effective on May 6, 2021. The Warrants were issued in a concurrent
private placement under Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act") and have not been
registered under the Securities Act, or applicable state securities laws.

 F- 30

 NOTES

 FOR

 Note

 The
Warrants were issued on the date of closing. The exercise price of the Warrants and the number of Warrant Shares issuable upon the exercise
thereof will be subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization,
or similar transaction, as described in the Warrants, but has no anti-dilution protection or down round provisions. The Warrants will
be exercisable on a "cashless" basis only in the event there is no effective registration statement registering, or the prospectus
contained therein is not available for the sale of the Warrant Shares. The Warrants contain a beneficial ownership limitation, such that
none of such Warrants may be exercised, if, at the time of such exercise, the holder would become the beneficial owner of more than 4.99 %
or 9.99 %, as determined by the Investor, of the Company's outstanding shares of Common Stock following the exercise of such Warrant.

to the terms of the Purchase Agreement, the Company filed a registration statement on Form S-1 Registration No. 333-273332), which was
declared effective on July 27, 2023, providing for the resale by the Investors of the Warrant Shares issuable upon exercise of the Warrants.

 2024
Issuances

 On
February 16, 2024, the Company received a notification from the holder of the Convertible Note to convert $ 100,000 of principal outstanding
on a Convertible Note (see Note 7) into 1,597 shares of common stock at a conversion price of $ 62.62.

 On
March 6, 2024, the Company entered into a warrant exercise agreement with several institutional investors holding warrants issued to
such investors pursuant to a securities purchase agreement, dated as of June 5, 2023, in connection with a private placement. The warrant
exercise agreement provides that for those Investors who exercise their existing warrants they will receive a reduction in the exercise
price to $ 30 per share of Common Stock. The shares of Common Stock issuable upon exercise of the existing warrants were registered pursuant
to a registration statement on Form S-1 File No. 333-273332 and declared effective on July 27, 2023. The Company received up to $ 497,701
from the exercise of 16,590 warrants converted to 16,590 shares of common stock. The reduction in exercise price ("March 2024 Down
Round Trigger") triggered down round provisions embedded in the outstanding Series F and Series F Warrants (see below).

 October
2024 Unit Offering

 We
closed the following Offering on October 1, 2024.

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

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

 F- 31

 NOTES

 FOR

 Note

 The
Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. Each Series A Warrant is immediately
exercisable on the date of issuance at an exercise price of the public offering price of the Units of $ 12, or pursuant to an alternate
cashless exercise option, and expires five years from the closing date of the Offering. Each Series B Warrant is immediately exercisable
on the date of issuance at an exercise price of $ 25 and expires five years from the closing date of the offering.

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

 Each
Pre-Funded Warrant is immediately exercisable for one share of common stock at an exercise price of $ 0.001 per share. Subject to limited
exceptions, a holder of Pre-Funded Warrants does not have the right to exercise any portion of its Pre-Funded Warrants if the holder,
together with its affiliates, would beneficially own in excess of 4.99% (or, at the election of the holder, such limit may be increased
to up to 9.99%) of the number of shares of common stock outstanding immediately after giving effect to such exercise. The Pre-Funded
Warrants may be exercised at any time until all of the Pre-Funded Warrants are exercised in full.

 The
shares of common stock, the Pre-Funded Warrants, the Series A Warrants and the Series B Warrants and the shares of common stock issuable
upon exercise of the Pre-Funded Warrants, the Series A Warrants and the Series B Warrants described above, were offered by the Company
pursuant to a Registration Statement on Form S-1 (File No. 333-281897), filed with the Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "Securities Act") and declared effective by the SEC on September 30, 2024.

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

 Reverse
Stock Split and Share Combination Event

 On
October 3, 2024, the Board approved a reverse stock split of the Company's authorized, issued and outstanding shares of common
stock, par value $ 0.001 per share, at a ratio 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.

 F- 32

 NOTES

 FOR

 Note

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

 Omnibus
Agreement

 The
October 2024 Offering required the consent of Alpha, the holder of the Convertible Note (Note 7) and the primary holder
of our issued and outstanding Series F and Series F Warrants.

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

 Loss
on the October 2024 Offering

 As
more fully disclosed in Note 8, the Series A and B Warrants were determined to meet the definition of derivative liabilities due to the
variability embedded in the instruments due to multiple settlement scenarios which precludes the Series A and B Warrants from being equity
classified. Pursuant to ASC 815-40-35-4, liability classified contracts are initially and subsequently measured at fair value. Changes
in fair value are presented on the statements of operations and comprehensive loss within the other income (expense).

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

 Down
Round Triggers and Deemed Dividends

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

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

 F- 33

 NOTES

 FOR

 Note

the years ended December 31, 2024 and 2023, we used the following assumptions in the Black-Scholes model used to compute the incremental
value:

of Assumptions in the Black-Scholes Model

 Expected term (years)

 - 3

 - 3

 Volatility

 84.88
 - 152.24
 %

 89.35
 - 149.26
 %

 Risk-free rate

 3.52
 - 4.55
 %

 4.10
 - 4.90
 %

 Dividend yield

 0.00
 %

 0.00
 %

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

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

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

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

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

 F- 34

 NOTES

 FOR

 Note

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

of Deemed Dividends From various Down Round Triggers

 Deemed Dividends on Series F Preferred Stock

 Date of

 Description of

 Series F

 Conversion Prices

 Incremental Value

 Outstanding

 Prior to Trigger

 After Trigger

 Deemed Dividend

 March 6, 2024

 March 2024 Down Round Trigger

 3,945

 $
 60.29
 - 124.50

 $
 30.00

 $
 5,102,674

 August 27, 2024

 August 2024 Down Round Trigger

 3,755

 $
 23.15 - 37.00

 $
 20.19

 $
 1,233,685

 October 1, 2024

 October 2024 Offering

 5,200

 $
 12.00
 - 20.19

 $
 4.00

 $
 6,459,543

 October 22, 2024

 Share Combination Event

 5,200

 $
 4.00

 $
 1.10

 $
 4,159,552

 Deemed Dividends on Series F

 $
 16,955,454

 Deemed Dividends on Series F Warrants

 Date of

 Description of

 Series F

 Conversion Prices

 Incremental Value

 Warrants Outstanding

 Prior to Trigger

 After Trigger

 Deemed Dividend

 March 6, 2024

 March 2024 Down Round Trigger

 54,695

 $
 60.29
 - 124.50

 $
 30.00

 $
 147,030

 August 27, 2024

 August 2024 Down Round Trigger

 137,331

 $
 23.15
 - 37.00

 $
 20.19

 $
 216,546

 October 1, 2024

 October 2024 Offering

 162,096

 $
 20.19

 $
 4.00

 $
 365,665

 October 22, 2024

 Share Combination Event

 162,096

 $
 4.00

 $
 1.10

 $
 64,007

 Deemed Dividends on Series F Warrants

 $
 793,248

 Warrant Modification (i)

 $
 7,752

 Total Deemed Dividends

 $
 17,756,454

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

the year ended December 31, 2023, the following transactions resulted in down round triggers:

 On
March 9, 2023, the Company issued 3,000 shares of Series F Convertible Preferred convertible into 7,143 shares of Common Stock, in the
aggregate, at an initial conversion price of $ 420 and warrants to purchase up to 7,143 shares of Common Stock at an initial exercise
price of $ 420 for aggregate proceeds of $ 3,000,000. The transaction triggered several down round provisions embedded in the outstanding
Series F and Series F warrants as the conversion price and exercise price of the Series and Series F Warrants issued in the purchase
were less than the conversion and exercise price after the March 2024 Down Round Trigger of $ 30 (the "March 2023 Down Round Trigger").

 F- 35

 NOTES

 FOR

 Note

 The
June 2023 Down Round Trigger discussed above.

 On
November 15, 2023, the Company issued 1,850
shares of Preferred Stock pursuant to an Assignment, Waiver and Amendment Agreement (the "Assignment Agreement") with
the Investor pursuant to which, among other things, (i) the Investor transferred and assigned to certain institutional and
accredited investors (the "Assignees" or "Investors"), the rights and obligations to purchase up to $ 1,850,000
of Preferred Stock pursuant to the Additional Investment Right provided in the Original Purchase Agreement (the "Assigned
Rights"), (ii) the Original Purchase Agreement was amended so that the Assignees are party thereto and have the same rights
and obligations thereunder as the Investor to the extent of the Assigned Rights, (iii) the time period during which the Investor can
provide an investor notice was extended from August 3, 2024 until February 3, 2025; and (iv) the Investor and the Company agreed to
a onetime waiver of the Minimum Subscription Requirement to allow exercise of the Assigned Rights.

to the Assignment Agreement, the Company issued 1,850 shares of Preferred Stock convertible into convertible into 14,835 shares of Common
Stock at an initial conversion price of $ 124.70 per share and warrants to purchase up to 14,835 shares of our Common Stock an exercise
price of $ 124.70 exercisable upon issuance for three years. The Assignment Agreement triggered down round provisions embedded in outstanding
Series F and Series F Warrants (the "November 2023 Down Round Trigger").

 The
below is a summary of the deemed dividends resulting from various down round triggers that occurred during the year ended December 31,
2023:

 Deemed Dividends on Series F Preferred
 Stock

 Date of

 Description of

 Conversion Prices

 Incremental Value

 Series F Outstanding

 Prior to Trigger

 After Trigger

 Deemed Dividend

 March 9, 2023

 March 2023 Down Round Trigger

 5,159

 $
 440.00

 $
 420.00

 $
 217,750

 June 6, 2023

 June 2023 Down Round Trigger

 7,025

 $
 420.00

 $
 250.00

 3,867,095

 November 15, 2023

 November 2023 Down Round Trigger

 6,075

 $
 250.00

 $
 100.00

 5,832,000

 Deemed Dividends on Series F

 $
 9,916,845

 Deemed Dividends on Series F Warrants

 Date of

 Description of

 Series F

 Conversion Prices

 Incremental Value

 Warrants Outstanding

 Prior to Trigger

 After Trigger

 Deemed Dividend

 March 9, 2023

 March 2023 Down Round Trigger

 16,129

 $
 440.00

 $
 420.00

 $
 38,226

 June 6, 2023

 June 2023 Down Round Trigger

 23,272

 $
 420.00

 $
 250.00

 787,823

 November 15, 2023

 November 2023 Down Round Trigger

 23,272

 $
 250.00

 $
 100.00

 865,016

 Deemed Dividends on Series F Warrants

 $
 1,691,065

 Total Deemed Dividends

 $
 11,607,910

 F- 36

 NOTES

 FOR

 Note

 Stock-Based
Compensation

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

 2017
Omnibus Equity Incentive Plan

 On
March 26, 2018, the 2017 Omnibus Equity Incentive Plan (the "Equity Plan") became effective. Under the Equity Plan, the Company
may grant equity-based and other incentive awards to officers, employees, and directors of, and consultants and advisers to, the Company.
The purpose of the Equity Plan is to help the Company attract, motivate, and retain such persons and thereby enhance shareholder value.
The Equity Plan shall continue in effect, unless sooner terminated, until the tenth (10th) anniversary of the date on which it is adopted
by the Board (except as to awards outstanding on that date). The Board in its discretion may terminate the Equity Plan at any time with
respect to any shares for which awards have not theretofore been granted; provided, however, that the Equity Plan's termination
shall not materially and adversely impair the rights of a holder, without the consent of the holder, with respect to any award previously
granted. As of December 31, 2024, 15,000 shares of common stock have been reserved for issuance under the Equity Plan which was approved
at the Annual Shareholders' Meeting held on November 14, 2023.

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

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

 Restricted
Stock Units ("RSUs")

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

 Summary
of Restricted Stock Units Activity

 Grant Date

 Fair Value Per Share

 3,054

 $
 910.29

 7,959

 16.54

 Canceled

 ( 3,020
)

 25.16

 Vested and released

 ( 700
)

 782.79

 Outstanding as of December 31, 2024

 7,293

 $
 324.64

 Vested as of December 31, 2024

 3,443

 $
 661.60

 Unvested as of December 31, 2024

 3,850

 $
 16.74

 For
the year ended December 31, 2024, the aggregate fair value of RSUs at the time of grant was $ 131,606 based on the market price of our
common stock.

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

 F- 37

 NOTES

 FOR

 Note

 For
the year ended December 31, 2023, a summary of RSU activity is as follows:

 Grant Date

 Fair Value Per Share

 Outstanding as of December 31, 2022

 1,029

 $
 2,310

 3,227

 Canceled

 ( 173
)

 1,450

 Vested and released

 ( 1,029
)

 3,054

 $
 910.29

 Vested as of December 31, 2023

 2,861

 $

 Unvested as of December 31, 2023

 $

 For
the year ended December 31, 2023, the aggregate fair value of RSUs at the time of vesting was $ 839,247.

 As
of December 31, 2023, the Company had $ 39,280 of unrecognized stock-based compensation expense related to RSUs, which was amortized over
approximately eleven months. During the year ended December 31, 2023, the Company recognized $ 975,282 of stock compensation related to
restricted stock units.

 Issuance
of RSUs to Current Officers and Directors of the Company

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

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

 On
December 29, 2023, upon recommendation of the Compensation Committee of the Board ("Compensation Committee"), in lieu of
the payment of $ 55,133 for the three Board members as quarterly cash compensation, three (3) non-executive directors received 551 RSUs
equal to $ 55,133, which were immediately vested, also in lieu of the issuance of stock options for the purchase of 30 shares of common
stock, for each of these three (3) non-executive directors received a total of 90 in restricted stock awards, which vested immediately
for a fair value of $ 9,000 in the aggregate or $ 3,000 each.

 On
December 22, 2023, the Company granted its former chief commercial officer 580 RSUs as part of the resignation agreement. Mr. O'Sullivan's
termination was effective December 8, 2023.

 On
September 29, 2023, upon recommendation of the Compensation Committee, in lieu of the payment of $ 15,000 for each Board member or a total
of $ 45,000 as quarterly cash compensation, three (3) non-executive directors each received 88, totaling 265 RSUs equal to $ 45,000, which
were immediately vested, also in lieu of the issuance of stock options for the purchase of 30 shares of common stock, for each of these
three (3) non-executive directors received a total of 90 in restricted stock awards, which vested immediately for a fair value of $ 15,300
in the aggregate or $ 5,100 each.

 On
May 11, 2023, upon recommendation of the Compensation Committee, the Board granted to the officers of the Company in connection with
the 2022 executive compensation plan 969 RSUs, which vested immediately.

 On
March 29, 2023, upon recommendation of the Compensation Committee, the Board granted to the officers of the Company in connection with
the 2022 executive compensation plan 640 RSUs, which vested immediately.

 F- 38

 NOTES

 FOR

 Note

 For
the year ended December 31, 2023, the Company recognized stock-based compensation expense of $ 828,130, based upon the market
price of its Common Stock between $ 100.00 and $ 420.00 per share on the date of grant of these RSUs.

 Stock
Options

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

 Summary
of Options Activity

 Weighted Average Exercise Price

 Weighted Average Grant Date Fair
 Value

 Weighted Average Remaining Contractual
 Term (Years)

 Aggregate Intrinsic Value

 2,505

 $
 2,000

 $
 1,080

 1.49

 $
 2,294

 —

 —

 —

 —

 —

 Exercised

 —

 —

 —

 —

 —

 Expired/forfeited

 ( 2,449
)

 1,953

 1,060

 —

 —

 Outstanding as of December 31, 2024

 $
 5,342

 $
 2,874

 1.23

 $
 —

 Exercisable as of December 31, 2024

 $
 5,342

 $
 2,874

 1.23

 $
 —

 For
the year ended December 31, 2023, a summary of the options activity is as follows:

 Weighted Average Exercise Price

 Weighted Average Grant Date Fair
 Value

 Weighted Average Remaining Contractual
 Term (Years)

 Aggregate Intrinsic Value

 Outstanding as of December 31, 2022

 2,561

 $
 2,180

 $
 1,190

 3.33

 $
 31,124

 3.02

 —

 Exercised

 —

 —

 —

 —

 —

 Expired/forfeited

 ( 381
)

 1,830

 —

 —

 2,505

 $
 2,000

 $
 1,080

 1.49

 $
 2,294

 Exercisable as of December 31, 2023

 2,309

 $
 2,130

 $
 1,160

 1.27

 $
 2,294

 As
of December 31, 2024, the Company had no unrecognized compensation cost related to stock options.

 As
of December 31, 2023, the Company has $ 37,409 of total unrecognized compensation cost related to stock options, which was amortized over
approximately twenty-eight months.

the years ended December 31, 2024 and 2023, the Company recognized $ 0 and $ 330,047 of stock compensation related to stock options, respectively.

 The
Company uses the Black-Scholes valuation model to estimate the fair market value of the stock options at the grant date as of December
31, 2024.

 F- 39

 NOTES

 FOR

 Note

 For
the years ended December 31, 2024 and 2023, the significant weighted average assumptions relating to the valuation of the Company's
stock options granted were as follows:

of Significant Weighted Average Assumptions

 2024

 2023

 Years Ended December 31,

 2024

 2023

 Stock price

 $
 —

 $
 0.32

 Dividend yield

 —
 %

 —
 %

 Expected life (years)

 —

 3.02

 Expected volatility

 —
 %

 63.64
 %

 Risk-free interest rate

 —
 %

 4.22
 %

 Issuances
of Options to Officers and Directors

 On
September 30, 2023, the Company issued to officers options to purchase 50
shares of Common Stock at an exercise price of $ 170.00
per share, which vests over a period of two years from the date of grant and expires on September 29, 2028. The Company determined
the fair market value of these unvested options to be $ 3,750.
For the year ended December 31, 2023, the Company recognized stock-based compensation expense of $ 234,
based upon the fair value market price of $ 80.00.

 On
June 30, 2023, the Company issued to directors and officers options to purchase 125
shares of Common Stock at an exercise price of $ 230.00
per share, which vests over a period of two years from the date of grant and expires on June 29, 2028. The Company determined the
fair market value of these unvested options to be $ 13,000.
For the year ended December 31, 2023, the Company recognized stock-based compensation expense of $ 2,945,
based upon the fair value market price of $ 100.00.

 On
March 31, 2023, the Company issued to directors and officers options to purchase 150
shares of Common Stock at an exercise price of $ 450.00
per share, which vests over a period of two years from the date of grant, and expires on March 30, 2028. The Company determined the
fair market value of these unvested options to be $ 31,350.
For the year ended December 31, 2023, the Company recognized stock-based compensation expense of $ 11,158,
based upon the fair value market price of $ 210.00.

 Cancellations
of Options

the year ended December 31, 2024, 2,449 options were cancelled with a grant-date fair value $ 2,554,225 due to employee terminations.
During the year ended December 31, 2023, as a result of employee terminations and options expirations, stock options aggregating 381,
with estimated values of approximately $ 378,869, were cancelled.

 F- 40

 NOTES

 FOR

 Note
10 – Retirement Plans

 Defined
Benefit Plan

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

 The
Projected Benefit Obligation ("PBO") includes in full the accrued liability for the plan death and disability benefits, irrespective
of the extent to which these benefits may be reinsured with an insurer. The actuarial valuations are based on the census data as of December
31, 2024, provided by GMP.

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

 The
net periodic benefit cost of the Defined Benefit Plan for the period from January 1, 2024 through December 31, 2024 was as follows:

of Net Periodic Benefit Cost of the Defined Benefit Plan

 2024

 Service cost

 $
 201,383

 Interest cost

 38,252

 Expected return on plan assets

 ( 95,629
)

 Amortization of prior service cost (credit)

 ( 2,250
)

 Loss recognized due to settlements and curtailments

 68,628

 Net periodic pension benefit cost

 $
 210,384

 The
PBO is the present value of benefits earned to date by plan participants, including the effect of assumed future salary increases. The
changes in the projected benefit obligation for the period from January 1, 2024 through December 31, 2024 were as follows:

 Schedule of Projected Benefit Obligation for the Period

 2024

 PBO, beginning of period

 $
 2,877,851

 Service cost

 201,383

 Interest cost

 38,252

 Plan participation contributions

 154,131

 Actuarial (gains) / losses

 ( 27,001
)

 Benefits paid through plan assets

 14,626

 Curtailments, settlements and special contractual termination benefits

 ( 1,175,674
)

 Foreign currency exchange rate changes

 ( 169,230
)

 PBO, end of period

 1,914,338

 Component representing future salary increases

 ( 88,911
)

 Accumulated benefit obligation ("ABO"), end of period

 $
 1,825,427

 For
the period from January 1, 2024 through December 31, 2024, the change in fair value of the Pension Plan assets was as follows:

 2024

 Fair value of plan assets, beginning of period

 $
 2,661,718

 Expected return on plan assets

 95,629

 Gain / (losses) on plan assets

 ( 38,252
)

 Employer contributions

 230,635

 Plan participant contributions

 154,131

 Benefits paid through plan assets

 14,626

 Settlements

 ( 1,175,674
)

 Foreign currency exchange rate changes

 ( 156,902
)

 Fair value of plan assets, end of period

 $
 1,785,911

 F- 41

 NOTES

 FOR

 Note
10 – Retirement Plans- Continued

 senseFly
S.A.'s investment objectives are to ensure that the assets of its Defined Benefit Plan are invested to provide an optimal rate
of investment return on the total investment portfolio, consistent with the assumption of a reasonable risk level, and to ensure that
pension funds are available to meet the plans' benefit obligations as they become due. senseFly S.A. believes that a well-diversified
investment portfolio will result in the highest attainable investment return with an acceptable level of overall risk. Investment strategies
and allocation decisions are also governed by applicable governmental regulatory agencies. senseFly's investment strategy with
respect to the Defined Benefit Plan is to invest in accordance with the following allocation: 32.6 %
in equities, 36.3 %
in bonds, 17.3 %
in real estate, 9.4 %
in alternative investments and 4.4 %
in cash and cash equivalents.

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

 Schedule of Defined Benefit Plan Assets by Major Categories

 Level 1

 Level 2

 Level 3

 Total

 Cash and equivalents

 $
 79,032

 $
 -

 $
 -

 $
 79,032

 Equity securities

 581,766

 -

 -

 581,766

 Bonds

 647,626

 -

 -

 647,626

 Real estate

 -

 309,543

 -

 309,543

 Alternative investments

 -

 167,944

 -

 167,944

 Total fair value of plan assets

 $
 1,308,424

 $
 477,487

 $
 -

 $
 1,785,911

 The following tables present
the fair value of the Defined Benefit Plan assets by major categories and by levels within the fair value hierarchy as of December 31,
2023:

 Level 1

 Level 2

 Level 3

 Total

 Cash and equivalents

 $
 117,463

 $
 -

 $
 -

 $
 117,463

 Equity securities

 846,910

 -

 -

 846,910

 Bonds

 942,056

 -

 -

 942,056

 Real estate

 -

 454,853

 -

 454,583

 Alternative investments

 -

 300,706

 -

 300,706

 Total fair value of plan assets

 $
 1,906,429

 $
 755,289

 $
 -

 $
 2,661,718

 The
following table shows the unfunded status of the Defined Benefit Plan, defined as plan assets less the projected benefit obligation as
of December 31, 2024:

 Schedule of Unfunded Status of the Defined Benefit Plan

 Fair value of plan assets

 $
 1,785,911

 Less: PBO

 ( 1,914,338
)

 Underfunded status, end of period

 $
 ( 128,427
)

 F- 42

 NOTES

 FOR

 Note
10 – Retirement Plans- Continued

 As
of December 31, 2024 and 2023, the underfunded status is included in defined plan obligation on the consolidated balance sheets.

 The
Defined Benefit Plan has a PBO in excess of Defined Benefit Plan assets. For the period from January 1, 2024 through December 31, 2024,
the amounts recognized in accumulated other comprehensive income (loss) related to the defined benefit plan were as follows:

 Schedule of Amounts Recognized in Accumulated Other Comprehensive Income (Loss) Related to the Defined Benefit Plan

 2024

 Net prior service (cost) / credit

 $
 -

 Net gain / (loss)

 ( 128,427
)

 Accumulated other comprehensive income (loss), net of tax

 $
 ( 128,427
)

 The
net prior service credit included in accumulated other comprehensive income (loss) as of December 31, 2024, is expected to be recognized
as a component of net periodic benefit cost during the year ending December 31, 2025.

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

of Assumption

 Benefit obligations:

 Discount rate

 1.50
 %

 Estimated rate of compensation increase

 1.25
 %

 Periodic costs:

 Discount rate

 1.50
 %

 Estimated rate of compensation increase

 1.25
 %

 Expected long term rate of return on plan assets

 3.79
 %

 Cash balance interest credit rate

 1.50
 %

 The
following table shows expected benefit payments from the Defined Benefit Plan for the next five fiscal years and the aggregate five years
thereafter:

of Expected Benefit Payments

 Year Ending December 31:

 Expected Plan

 Benefit Payments

 2025

 $
 336,985

 2026

 286,492

 2027

 243,683

 2028

 210,753

 2029

 185,506

 Thereafter

 803,495

 Total expected benefit payments by the plan

 $
 2,066,914

 Defined
Contribution Plan

 The
Company sponsors the AgEagle Aerial Systems 401(k) Plan (the "401(k) Plan") that covers substantially all eligible employees
in the United States. The Company matches contributions made by eligible employees, subject to certain percentage limits of the employees'
earnings. For the years ended December 31, 2024 and 2023, the Company's employer contribution to the 401(k) Plan totaled $ 97,845
and $ 77,240, respectively.

 F- 43

 NOTES

 FOR

 Note
11 – Warrants

 Warrants
Issued

 As
disclosed in Note 9, the Series F Agreement with Alpha includes 100% warrant coverage. Therefore, anytime we receive an investor notice
to purchase Series F Convertible Preferred Stock, we also issue Series F Warrants. The exercise price on all Series F Warrants outstanding
on October 22, 2024, the date of the Share Combination Event, were reduced to $ 1.10.

 Additionally,
on March 6, 2024 and November 24, 2023, pursuant to an engagement letter entered with a sole placement agent, the Company issued 2,737
and 1,484 common stock warrants to the placement agent, in connection with the sale of Series F and Series F Warrants, respectively.
The warrants have an initial exercise price of $ 75.50 and $ 124.70, respectively, per share are exercisable for five years from the date
of issuance and do not include any anti-dilution protection provisions in connection with a subsequent equity issuance, or otherwise.

 On
June 5, 2023, the Company issued warrants to purchase 25,080 shares of common stock at an exercise price of $ 380.00 per share in connection
with the June 2023 Purchase Agreement executed (see Note 9 for further disclosures). On March 6, 2024, the exercise price of these warrants
was reduced to $ 30.00 to induce exercise by interested Investors. The exercise price reduction resulted in the exercise of 16,590 warrants
and the receipt of gross proceeds of $ 497,701. On May 31, 2024, the Company agreed to reduce the exercise price on the warrants remaining
outstanding issued in June 2023 to $ 30.00 (see incremental value for modification above).

 The
warrants exercise price and warrants shares issuable issued to the placement agent and on June 5, 2023 will be subject to adjustment
in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described
in the Warrants, but has no anti-dilution protection provisions. The Warrants will be exercisable on a "cashless" basis only
in the event there is no effective registration statement registering, or the prospectus contained therein is not available for the sale
of the Warrant Shares.

 All
the Warrants contain a beneficial ownership limitation, such that none of such Warrants may be exercised, if, at the time of such exercise,
the holder would become the beneficial owner of more than 4.99 % or 9.99 %, as determined by the holder, of the Company's outstanding
shares of Common Stock following the exercise of such Warrant (the "Beneficial Ownership Limitation").

 As
disclosed in Notes 8 and 9 above, we issued Series A and B Warrants in the October 2024 Offering that were deemed to be derivative liabilities.
As of December 31, 2024, the fair value of the Series A and B Warrants has been classified and presented within long-term liabilities.

 F- 44

 NOTES

 FOR

 Note
11 – Warrants- Continued

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

 Summary
of Activity Related to Warrants Classified Within Stockholders' Equity (Deficit)

 Exercise Price

 Remaining Contractual Term

 Outstanding as of December 31, 2022

 21,129

 $
 1.10
 *

 —

 Issued – March 2023

 7,143

 1.10
 *

 —

 Issued – June 2023

 25,080

 30.00
 **

 —

 Issued – November 2023

 14,836

 1.10
 *

 —

 Issued – November 2023

 1,484

 124.70

 Exercised

 ( 5,000
)

 —

 —

 64,672

 $
 15.23

 3.43

 Exercised

 ( 16,590
)

 30.00
 **

 —

 Issued – March 6, 2024

 16,588

 1.10
 *

 —

 Issued – March 7, 2024

 2,737

 75.50

 —

 Issued – April 12, 2024

 28,378

 1.10
 *

 —

 Issued – May 31, 2024

 32,659

 1.10
 *

 —

 Issued – July 29, 2024

 21,598

 1.10
 *

 —

 Issued – August 27, 2024

 24,765

 1.10
 *

 Issued – December 18, 2024

 142,857

 5.25

 Outstanding as of December 31, 2024

 317,664

 $
 4.96

 2.60

 Exercisable as of December 31, 2024

 317,664

 $
 4.96

 2.60

 *
 Reflects the exercise
 price after a modification executed on May 31, 2024.

 **
 Reflects the exercise
price after the Down Round Trigger events (see Note 9).

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

 Summary of Activity Related to Series A and B Warrants

 Exercise Price

 Remaining Contractual Term

 -

 $
 -

 -

 Issued - October 2024 Offering

 1,076,000

 1.94
 *

 -

 Issued - Share Combination Event

 9,161,077

 1.94

 -

 Exercises Series A

 ( 3,154,537
)

 -
 **

 -

 Exercises Series B

 ( 2,454,228
)

 1.94

 -

 Outstanding as of December 31, 2024

 4,628,312

 $
 1.94

 4.75

 *
 Reflects the reduction in
 exercise price triggered by the Share Combination Event.

 **
 The
 Series A Warrants were exercised under the Alternate Cashless exercise provision resulting in the issuance of 6,309,074
 shares of common stock and no cash proceeds.

 F- 45

 NOTES

 FOR

 Note
12 – Leases

 The
Company has an operating lease in Wichita, Kansas, which serves as its corporate offices. The lease commencement date was November 1,
2023, and will expire on October 31, 2025, unless sooner terminated or extended. The estimated cash rent payments due through the expiration
of this operating lease total $ 146,674.

 As
a result of the MicaSense Acquisition, the Company assumed an operating lease for office space in Seattle, Washington, that expires in
January 2026 with a 3% per year increase, and two months of abated rent for December 2020 and January 2021. The estimated cash rent payments
due through the expiration of this operating lease total approximately $246,396. Starting late 2022, the Company engaged in
consolidating its business and manufacturing operations from multiple offices to two centralized locations in Wichita, Kansas and Lausanne,
Switzerland. In May 2023, the Company executed a sublease agreement for their facility located in Seattle, Washington; however, the Company
remains the primary obligor under the original lease.

 As
a result of the senseFly Acquisition, the Company assumed the operating leases for office spaces in Raleigh, North Carolina and Lausanne,
Switzerland. The operating lease in Raleigh expired in July 2023 and the operating lease in Lausanne was set to expire in April 2023.
The Company was required to notify the landlord of its intention to not renew the lease in March 2022. The Company neglected to provide
such notification, therefore, a five year renewal option was automatically triggered in March 2022. The Lausanne lease is now set to
expire in April 2028. The estimated cash rent payments due through the expiration of this operating lease total approximately $ 2,408,227.

 F- 46

 NOTES

 FOR

 Note
12 – Leases – Continued

 As
of December 31, 2024 and 2023, balance sheet information related to the Company's operating leases is as follows:

 Schedule of Company's operating leases

 Balance Sheet Location

 2024

 2023

 December 31,

 Balance Sheet Location

 2024

 2023

 Right-of-use assets

 Right-of-use assets

 $
 2,511,572

 $
 3,525,406

 Current portion of operating lease liability

 Current portion of lease liabilities

 $
 921,038

 $
 901,925

 Long-term portion of operating lease liability

 Long-term portion of lease liabilities

 $
 1,646,878

 $
 2,721,743

 For
the years ended December 31, 2024 and 2023, operating lease expense payments were $ 1,054,116 and $ 1,039,685, respectively, and are included
in general and administrative expenses in the consolidated statements of operations and comprehensive loss.

 As
of December 31, 2024, scheduled future maturities of the Company's lease liabilities are as follows:

 Schedule of Company's lease liabilities

 Year Ending December 31,

 2025

 $
 1,048,440

 2026

 826,617

 2027

 740,993

 2028

 185,248

 Total future minimum lease payments, undiscounted

 2,801,298

 Less: Amount representing interest

 ( 233,382
)

 Present value of future minimum lease payments

 2,567,916

 Present value of future minimum lease payments – current

 921,038

 Present value of future minimum lease payments – long-term

 $
 1,646,878

 As
of December 31, 2024 and 2023, the weighted average lease-term and discount rate of the Company's leases are as follows:

 Schedule of Weighted Average Lease-Term and Discount Rate Leases

 Years Ended December 31,

 Other Information

 2024

 2023

 Weighted-average remaining lease terms (in years)

 3.0

 3.9

 Weighted-average discount rate

 6.1
 %

 6.1
 %

 For
the years ended December 31, 2024 and 2023, supplemental cash flow information related to leases is as follows:

 Schedule of Cash Flow Supplemental Information

 Other Information

 2024

 2023

 Years Ended December 31,

 Other Information

 2024

 2023

 Cash paid for amounts included in the measurement of liabilities: Operating cash flows for
 operating leases

 $
 1,060,847

 $
 1,054,847

 F- 47

 NOTES

 FOR

 Note
13 – Commitments and Contingencies

 Legal
Matters

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

 Purchase
Commitments

 The
Company routinely places orders for manufacturing services and materials. As of December 31, 2024, the Company had purchase
commitments of approximately $ 1,723,399.
These purchase commitments are expected to be realized during the year ending December 31, 2025. As of December 31, 2023, the
Company had purchase commitments of $ 1,387,303 which were realized during the year ending December 31, 2024.

 Note
14 – Related Party Transactions

 The
following reflects the related party transactions during the years ended December 31, 2024 and 2023, respectively:

 One
of the Company's former directors, Mr. Thomas Gardner, is one of the principals of NeuEon, Inc., which provides services to
the Company as the Chief Technology Officer. For the years ended December 31, 2024 and 2023, the expenses related to services
provided by NeuEon, Inc. to the Company were $ 0
and $ 42,500,
respectively. These expenses are included within the general and administrative expenses in the Company's consolidated
statements of operations and comprehensive loss.

 Note
15 – Income Taxes

 Prior
to April 15, 2015, AgEagle Aerial Inc. was treated as a disregarded entity for income tax purposes. Income taxes, if any, were the responsibility
of the sole member. Effective April 22, 2015, the Company elected to be classified as a corporation for income tax purposes. On March
26, 2018, the Company's predecessor company, EnerJex Resources, Inc. ("EnerJex"), consummated the transactions contemplated
by the Agreement and Plan of Merger (the "Merger Agreement"), dated October 19, 2017, pursuant to which AgEagle Merger Sub,
Inc., a wholly owned subsidiary of EnerJex, merged with and into AgEagle Aerial Systems Inc., a then privately held company ("AgEagle
Sub"), with AgEagle Sub surviving as a wholly owned subsidiary of EnerJex (the "Merger"). In connection with the Merger,
EnerJex changed its name to AgEagle Aerial Systems Inc. AgEagle Sub changed its name initially to "Eagle Aerial, Inc. and then
to" AgEagle Aerial, Inc. Following the Merger, AgEagle Aerial Inc. became a wholly owned subsidiary of AgEagle Aerial Systems,
Inc., and the group files a consolidated U.S. federal income tax return as well as income tax returns in various states.

 As
of December 31, 2024 and 2023, the total of all net deferred tax assets was $ 20,169,952 and
$ 18,331,594
respectively. The amount of and ultimate realization of the benefits from the deferred tax assets for income tax purposes is
dependent, in part, upon the tax laws in effect, the Company's future earnings, and other future events, the effects of which
cannot be determined. Because of the uncertainty surrounding the realization of the deferred tax assets the Company has established
a valuation allowance of $ 19,672,250
and $ 17,794,764 as
of December 31, 2024 and 2023, respectively. The change in the valuation allowance during the years ended December 31, 2024 and 2023
was $ 1,877,486 and
$ 6,624,099,
respectively.

 F- 48

 NOTES

 FOR

 Note
15 – Income Taxes - Continued

 As
of December 31, 2024, the Company has a federal and state net operating loss carryforward of approximately $ 61,117,035
 and $ 26,659,210,
respectively. Of those balances, the Company has $ 6,296,936
 of federal net operating losses expiring in 2035-2037
 and the remaining amounts have no expiration.
The Company has a foreign net operating loss carryforward of $ 36,139,319
 which expire in 2028-2030.
The Company has state net operating carryforwards of $ 7,213,814
 which expire between 2024-2041,
and the remaining amounts have no expiration.

 As
of December 31, 2023, the Company has a federal and state net operating loss carryforward of approximately $ 55,288,195 and $ 20,863,524,
respectively. Of those balances, the Company has $ 6,296,936 of federal net operating losses expiring in 2035-2037 and the remaining amounts
have no expiration. The Company has a foreign net operating loss carryforward of $ 32,403,001 which expire in 2028-2029. The Company has
state net operating carryforwards of $ 15,181,695 which expire between 2024-2041, and the remaining amounts have no expiration.

 The
timing and manner in which we can utilize our net operating loss carryforward and future income tax deductions in any year may be limited
by provisions of the Internal Revenue Code regarding the change in ownership of corporations. Such limitations may have an impact on
the ultimate realization of our carryforwards and future tax deductions. Section 382 of the Internal Revenue Code ("Section 382")
imposes limitations on a corporation's ability to utilize net operating losses if it experiences an "ownership change."
In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a
corporation by more than 50 percentage points over a three-year period. Any unused annual limitation may be carried over to later years,
and the amount of the limitation may under certain circumstances be increased by the built-in gains in assets held by us at the time
of the change that are recognized in the five-year period after the change. The Company has not conducted a formal ownership change analysis
as required under Section 382; however, we intend to do so if we anticipate recognizing tax benefits associated with the net operating
loss carryforwards.

 As
of December 31, 2024, the Company determined it is more likely than not that it will not realize our temporary deductible differences
and net operating loss carryforwards, and as such, has provided a full valuation allowance on our net deferred tax asset.

the years ended December 31, 2024 and 2023, the Company did not recognize any uncertain tax positions, interest or penalty expense related
to income taxes. AgEagle files U.S. federal and state income tax returns, as required by law. The federal return generally has a three-year
statute of limitations, and most states have a four-year statute of limitations; however, the taxing authorities can review the tax year
in which the net operating loss was generated when the loss is utilized on a tax return. We currently do not have any open income tax
audits. The Company is open to federal and state examination on the 2020 through 2022 income tax returns filed.

 F- 49

 NOTES

 FOR

 Note
15 – Income Taxes - Continued

 For
the years ended December 31, 2024 and 2023, a reconciliation of income tax expense at the federal statutory rate to income tax expense
at the Company's effective rate is as follows:

 Schedule of Reconciliation of Income Tax Expense

 2024

 2023

 Amount

 Rate

 Rate

 Amount

 Computed tax at the expected statutory rate

 $
 ( 7,358,751

)

 21.00

 %

 $
 ( 8,931,931
)

 21.00
 %

 State and local income taxes, net of federal

 ( 89,564

)

 0.26

 %

 ( 152,856
)

 0.36
 %

 Goodwill impairment

 618,030

 ( 1.76

)%

 3,313,121

 ( 7.79
)%

 Other permanent items

 1,818

 0.01

)%

 41,757

 ( 0.10
)%

 Other adjustments

 175,593

 ( 0.50

)%

 ( 1,762,090
)

 4.14
 %

 Stock compensation

 —

 0.0

 %

 ( 12,606
)

 0.03
 %

 Return to provision adjustment

 ( 39,243

)

 0.11

 %

 196,163

 ( 0.46
)%

 Loss on equity financing

 4,413,006

 ( 12.59

)%

 —

 0.00
 %

 Foreign tax differential

 401,625

 ( 1.15

)%

 684,343

 ( 1.61
)%

 Change in valuation allowance

 1,877,486

 ( 5.36

)%

 6,624,099

 ( 15.57
)%

 Income tax expense (benefit)

 $
 —

 0.00

 %

 $
 —

 0.00
 %

 As
of December 31, 2024 and 2023, the temporary differences, tax credits and carryforwards that gave rise to the following deferred tax
assets (liabilities):

 Schedule of Deferred Tax Assets (Liabilities)

 Deferred Tax Assets:

 2024

 2023

 Other current liabilities

 $
 —

 $
 17,806

 Equity compensation

 1,144,145

 1,109,854

 Other accrued expenses

 15,602

 16,406

 Net operating loss carry forward

 18,745,081

 16,889,316

 Tax credits

 150,351

 150,351

 Right of use (ROU) - liability

 87,795

 147,861

 Property and equipment

 26,978

 —

 Total deferred tax assets

 $
 20,169,952

 $
 18,331,594

 Valuation allowance

 ( 19,672,250

)

 ( 17,794,764
)

 Deferred Tax Liabilities:

 Property and equipment

 —

 ( 1,183
)

 Intangible assets

 ( 423,135

)

 ( 410,463
)

 Right of use (ROU) - asset

 ( 74,567

)

 ( 125,184
)

 Total deferred tax liabilities

 $
 ( 497,702

)

 $
 ( 536,830
)

 Net deferred tax

 $
 —

 $
 —

 F- 50

 NOTES

 FOR

 Note
15 – Income Taxes- Continued

 The
Company's provision is primarily driven by the full valuation allowance in 2024 and 2023.

 The
provision for income taxes consisted of the following for the years ended December 31, 2024 and 2023:

 Schedule of Provision for Income Taxes

 2024

 2023

 Current

 U.S. Federal

 $
 —

 $
 —

 U.S. State

 —

 ( 5,750
)

 U.S. Foreign

 —

 Total current provision

 —

 ( 5,750
)

 Deferred

 —

 —

 U.S. Federal

 —

 —

 U.S. State

 —

 —

 U.S. Foreign

 —

 —

 Total deferred benefit

 —

 —

 Change in valuation allowance

 —

 —

 Total provision for income taxes

 $
 —

 $
 ( 5,750
)

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

 Schedule of Loss Before Provision for Incomes Taxes

 2024

 2023

 For the Years Ended December 31,

 2024

 2023

 United States

 $
 ( 29,471,281

)

 $
 ( 32,930,150
)

 International

 ( 5,570,392

)

 ( 9,491,587
)

 Total net loss before provision for income taxes

 $

)

 $
)

 Note
16 – Segment Information

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

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

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

 As
of December 31, 2024 and 2023 and for the years then ended, operating information about the Company's reportable segments consisted
of the following:

and Assets

 Schedule of Goodwill and Assets

 Corporate

 SaaS

 Total

 As of December 31, 2024

 $
 —

 $
 —

 $

 $
 —

 $

 Assets

 $
 3,804,628

 $
 7,028,158

 $
 9,744,152

 $
 4,616

 $
 20,581,554

 As of December 31, 2023

 $
 —

 $
 —

 $

 $
 —

 $

 Assets

 $
 1,148,638

 $
 8,666,641

 $
 15,260,263

 $
 80,359

 $
 25,155,901

 F- 51

 NOTES

 FOR

 Note
16 – Segment Information- Continued

 Net
(Loss) Income

 Schedule of Net (Loss) Income

 Corporate

 SaaS

 Total

 Year ended December 31, 2024

 $
 —

 $
 6,410,305

 $
 6,663,196

 $
 319,276

 $
 13,392,777

 Cost of sales

 —

 3,288,665

 3,534,296

 281,180

 7,104,141

 Compensation and related expenses

 457,324

 5,643,297

 1,325,552

 827,418

 8,253,591

 Professional fees

 656,699

 794,842

 634,186

 271,888

 2,357,615

 Other operating expenses

 2,701,359

 1,946,947

 451,447

 270,046

 5,369,799

 Impairment charge

 —

 —

 2,943,000

 —

 2,943,000

 Loss
from operations

 $
 ( 3,815,382
)

 $
 ( 5,263,446
)

 $
 ( 2,225,285
)

 $
 ( 1,331,256
)

 $
 ( 12,635,369
)

 Other income (expense), net

 ( 22,331,474
)

 ( 60,841
)

 ( 13,989
)

 —

 ( 22,406,304
)

 $
 ( 26,146,856
)

 $
 ( 5,324,287
)

 $
 ( 2,239,274
)

 $
 ( 1,331,256
)

 $
)

 Year ended December 31, 2023

 $
 —

 $
 6,197,049

 $
 7,100,419

 $
 443,930

 $
 13,741,398

 Cost of sales

 —

 3,770,886

 3,439,350

 1,067,922

 8,278,158

 Compensation and related expenses

 687,487

 7,292,243

 2,438,643

 406,682

 10,825,055

 Professional fees

 268,439

 824,207

 479,912

 —

 1,572,558

 Other operating expenses

 6,473,857

 3,597,527

 373,887

 15,108

 10,460,379

 Impairment charge

 —

 —

 15,856,055

 5,899,305

 21,755,360

 Loss from operations

 $
 ( 7,429,783
)

 $
 ( 9,287,814
)

 $
 ( 15,487,428
)

 $
 ( 6,945,087
)

 $
 ( 39,150,112
)

 Other income (expense), net

 ( 2,060,844
)

 ( 211,698
)

 ( 998,580
)

 ( 503
)

 ( 3,271,625
)

 $
 ( 9,490,627
)

 $
 ( 9,499,512
)

 $
 ( 16,486,008
)

 $
 ( 6,945,590
)

 $
)

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

by Geographic Area

 Schedule of Geographical Revenues

 SaaS

 Total

 Year ended December 31, 2024

 North America

 $
 1,806,630

 $
 1,956,620

 $
 310,633

 $
 4,073,883

 Latin America

 1,040,864

 284,509

 5,185

 1,330,558

 Europe, Middle East and Africa

 3,299,302

 2,863,566

 6,163,363

 Asia Pacific

 263,509

 1,367,301

 2,468

 1,633,278

 Other

 —

 191,200

 191,695

 Total

 $
 6,410,305

 $
 6,663,196

 $
 319,276

 $
 13,392,777

 Year ended December 31, 2023

 North America

 $
 2,169,983

 $
 2,655,443

 $
 407,490

 $
 5,232,916

 Latin America

 1,571,956

 256,524

 28,671

 1,857,151

 Europe, Middle East and Africa

 2,183,763

 2,957,644

 1,254

 5,142,661

 Asia Pacific

 271,347

 1,117,485

 6,515

 1,395,347

 Other

 —

 113,323

 —

 113,323

 Total

 $
 6,197,049

 $
 7,100,419

 $
 443,930

 $
 13,741,398

 Note
17 – Subsequent Events

 On
February 7, 2025, the Company entered into a Funding Agreement with Alpha Capital Anstalt to provide quarterly financing to the Company
for the next twelve months, with such amounts and timing of funding to be agreed to by the parties.

 In
consideration for Alpha's commitment to additional funding, the Company has agreed to extend the period in which Alpha can exercise
its Additional Investment Right by extending the termination date of December 31, 2025 to June 1, 2026 and grant Alpha certain registration
rights related to the Series F Convertible Preferred it currently holds and will receive upon further exercises of its Additional Investment
Right. The Company has agreed to use its best efforts to register 5,500,000 shares of common stock underlying the Series F Convertible
Preferred stock.

 On
February 7, 2025, Alpha exercised its Additional Investment Right for the aggregate purchase of 1,000 shares of Series F Convertible
Preferred convertible into 450,390 shares of Common Stock, in the aggregate, at a conversion price of $ 2.2203 and warrants to purchase
up to 450,390 shares of Common Stock at an exercise price of $ 2.2203 per share for an aggregate purchase price of $ 1,000,000. The Warrants
will be immediately exercisable upon issuance and have a three-year term.

 On March 17, 2025, Alpha exercised its Additional Investment Right for
the aggregate purchase of 500 shares of Series F Convertible Preferred convertible into 415,420 shares of Common Stock, in the aggregate,
at a conversion price of $ 1.2036 and warrants to purchase up to 415,420 shares of Common Stock at an exercise price of $ 1.2036 per share
for an aggregate purchase price of $ 500,000. The Warrants will be immediately exercisable upon issuance and have a three-year term.

 On February
4, 2025, the Company entered into an asset purchase agreement for the sale of the Measure domain name and received cash proceeds of $ 250,000.

 As
of March 31, 2025, Alpha has converted 2,410 shares of Preferred Stock Series F into 2,190,909 shares of Common Stock, post reverse split.
In addition, Alpha converted $ 770,000 worth of principle of the Promissory Note into 700,000 shares of Common Stock, at a conversion
price of $ 1.10 post reverse split.

 F- 52