Financial Analysis

Business Combination On September 4, 2024, the Company entered into an Asset Purchase Agreement (APA) with FlightWave Aerospace Systems Corporation (the Seller) to broaden the Companys range of drone products. The Seller sold certain assets used in designing, developing, manufacturing, and selling long range, AI-powered UAVs for commercial use. Pursuant to the APA, the Company has acquired substantially all of the assets owned, controlled or used by the Seller for an aggregate purchase price of $14,000,000 worth of shares of the Companys common stock, and as such, the asset purchase will be treated as a business combination. The purchase price was payable as follows: $7 million worth of the Companys common stock issued on September 30, 2024, totaling 2,544,991 shares, equal to the VWAP on such date. $7 million worth of the Companys common stock issued on December 31, 2024, totaling 698,317 shares, equal to the VWAP on such date. Goodwill for FlightWave is ascribed to existing relationships with several U.S. government agencies including classification as approved vendors. The Company has reported net losses since its inception and is presently unable to determine when and if the tax benefit of this deduction will be realized. The summary of the purchase price and its related allocation at fair market value is as follows: Shares issued $ 14,000,000 Total Purchase Price $ 14,000,000 Assets acquired Inventory $ 297,630 Operating lease right-of-use assets 128,433 Other assets 69, …

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Commitments and Contingencies Legal Proceedings In the ordinary course of business, we may be involved, at times, in various legal proceedings involving a variety of matters. We do not believe there are any pending legal proceedings that will have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows. However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties. We have not recorded any litigation reserves as of September 30, 2025 . One pending legal matter is an action filed against Teal in a U.S. District Court in Delaware by Autonodyne, LLC. The complaint asserts claims for breach of contract which management denies. We are asserting vigorous defenses to the complaint. A motion for summary judgment was filed by Autonodyne, LLC that will be heard in Delaware Superior Court on December 11 2025. No discovery in this matter has occurred yet.

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Debt Obligations A. Decathlon Capital On August 31, 2021, Teal entered into an Amended and Restated Loan and Security Agreement with Decathlon Alpha IV, L.P. (DA4) in the amount of $1,670,294 (the Loan), representing the outstanding principal amount previously due and owing by Teal to DA4. Interest on the Loan accrued at a rate of ten (10%) percent per annum. Principal and interest were payable in monthly installments of $49,275. The balance was paid off in September 2024. B. Pelion Note In May 2021 , Teal entered into a note agreement totaling $350,000 which is payable upon demand. The Note bears interest at the applicable Federal Rate as of the date of the Note which was 0.13% on the date of issuance. The balance outstanding at September 30, 2025 and December 31, 2024 was $350,000 , respectively. Accrued interest at September 30, 2025 and December 31, 2024 totaled $1,980 and $1,639, respectively. C. Corporate Equity Beginning in October 2021, and amended in January 2022, Teal financed a total of $120,000 of leasehold improvements with Corporate Equity, LLC. The loan bore interest at 8.25% annually and required monthly payments of $3,595. The balance was paid off in December 2024. D. Ascentium Capital In September 2021, Teal entered into a financing agreement with Ascentium Capital to fund the purchase of a fixed asset totaling $24,383 with monthly payments of $656. The balance was paid off in October 2024. E. Summary Future annual principal payments at September 30, 2025 ar …

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The following table presents the Companys revenue disaggregated by revenue type: Three months ended September 30, Nine months ended September 30, 2025 2024 2025 2024 Product related $ 8,471,548 $ 1,292,447 $ 12,191,488 $ 11,115,346 Contract related 1,174,844 2,303,143 3,210,799 Total $ 9,646,392 $ 1,292,447 $ 14,494,631 $ 14,326,145 …

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Share Based Awards The 2019 Equity Incentive Plan (the 2019 Plan) and the 2024 Omnibus Equity Incentive Plan (the 2024 Plan) (collectively, the Plans) allow us to incentivize key employees, consultants, and directors with long term compensation awards such as stock options, restricted stock, and restricted stock units (collectively, the Awards). The number of shares issuable in connection with Awards under the 2019 Plan were not to exceed 11,750,000. However, no shares are issuable under the 2019 Plan after the 2024 Plan became effective on October 15, 2024. The number of shares issuable in connection with Awards under the 2024 Plan may not exceed 24,603,000 plus any underlying forfeited 2019 Plan awards. A. Options The range of assumptions used to calculate the fair value of options granted during the nine months ended September 30, 2025 was: Exercise Price $6.73 9.74 Stock price on date of grant 6.73 9.74 Risk-free interest rate 3.86 4.44% Dividend yield Expected term (years) 5.00 6.00 Volatility 135.54 191.15% A summary of options activity under the Plan since December 31, 2024 was: Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding as of December 31, 2024 5,645,325 $ 1.54 7.90 $ 59,779,836 Granted 1,930,850 7.50 Exercised (2,532,848) 1.26 Forfeited or expired (255,963) 2.16 Outstanding as of September 30, 2025 4,787,364 3.93 8.24 30,745,797 Exercisable as of September 30, 2025 1,117,144 $ 1.62 5.80 $ …

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Right of Use Assets and Liabilities As of September 30, 2025 , the Company had operating type leases for real estate and no finance type leases. The Companys leases have remaining lease terms of up to 8.83 years , including options to extend certain leases for up to ten years . Operating lease expense totaled $698,756 and $286,428 for the nine months ended September 30, 2025 and 2024 , respectively. During the nine months ended September 30, 2025, the Company entered into two new operating leases, which resulted in right-of-use assets and lease liabilities of $5,276,592. The Company also amended an existing lease to expand its office space, which increased right-of-use assets and lease liabilities by $2,004,011. These transactions represent non-cash additions to right-of-use assets and lease liabilities. Supplemental information related to operating leases for the nine months ended September 30, 2025 was: Operating cash paid for leased facilities $ 708,929 Weighted average remaining lease term (in years) 6.28 Weighted average discount rate 12 % Future lease payments at September 30, 2025 were as follows: Fiscal Year Ended: 2025 $ 293,288 2026 1,564,559 2027 1,508,511 2028 1,306,843 2029 1,236,884 Thereafter 10,967,448 Total 16,877,533 Imputed interest (8,158,146) Total liability $ 8,719,387 …

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Recent Accounting Pronouncements In December 2023, the FASB issued ASU 2023-09 requiring enhanced annual disclosures regarding the rate reconciliation and income taxes paid, disaggregated by jurisdiction. This standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of ASU 2023-09 on its consolidated financial statements and related disclosures. In November 2024, the FASB issued ASU 2024-03 expanding disclosure requirements related to certain income statement expenses. The amendments require tabular disclosure of certain operating expenses disaggregated into categories, such as purchases of inventory, employee compensation, depreciation, and intangible asset amortization. The amendments are effective for our fiscal year ending December 31, 2027 and may be applied retrospectively. While the Company is still evaluating the specific impacts and adoption method, the Company anticipates this guidance will have a significant impact on our consolidated financial statement disclosures. Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements. …

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Related-Party Transactions In February 2024, the Company sold Rotor Riot and Fat Shark to UMAC, as further described in Note 4 and Note 7. UMACs Chief Executive Officer is a direct relative of a former member of the Companys management. …

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Common Stock Our common stock has a par value of $0.001 per share. We are authorized to issue 500,000,000 shares of common stock. Each share of common stock is entitled to one vote. A summary of shares of common stock issued by the Company since December 31, 2024 is as follows: Description of Shares Shares Issued Shares outstanding as of December 31, 2024 85,215,136 Exercise of stock options 1,997,350 Exercise of warrants 559,580 Vesting of restricted stock to employees 30,000 Acquisition adjustment (121,513) Issuance of common stock through public offerings 29,141,438 Conversion of convertible notes into common stock 1,446,609 Retirement of common shares (106,330) Shares outstanding as of September 30, 2025 118,162,270 In February 2025, the Company retired 106,330 shares of common stock that were previously held in escrow for payment as consideration for the Teal acquisition. Subsequent to the acquisitions modification period and prior to the settlement of escrowed shares, the Company paid cash for certain seller responsible expenditures which were then settled through the refund of these escrowed shares. This was treated as an equity transaction and goodwill was not affected. Public Offerings In April 2025, the Company entered into a securities purchase agreement with certain institutional investors pursuant to which the Company agreed to issue and sell, in a registered direct offering (the April Registered Direct Offering), an aggregate of 4,724,412 shares of the Companys …

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Subsequent Events Subsequent events have been evaluated through the date of this filing and there are no subsequent events which require disclosure, except as follows: On October 1, 2025, Lind converted $1,650,000 of the February 2025 Note into 213,178 shares of the Companys common stock at a conversion price of $7.74 per share. On October 6, 2025, Lind exercised 100,000 of the November 2024 Warrants at a price of $6.35 per share, resulting in proceeds of $635,000. Also on October 6, 2025, Lind exercised 135,000 of the February 2025 Warrants at a price of $7.62 per share, resulting in proceeds of $1,028,700. On October 9, 2025, Lind exercised 100,000 of the November 2024 Warrants at a price of $6.35 per share, resulting in proceeds of $635,000. On October 15, 2025, Lind exercised 126,000 of the November 2024 Warrants at a price of $6.35 per share, resulting in proceeds of $800,100. On October 22, 2025, the U.S. Army's SRR UAS Tranche 2 (T2) Program's Limited Rate Production (LRIP) contract, signed in July 2025, was expanded and is now valued at approximately $35 million. …

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