UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORm 10-Q

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

For the quarterly period ended March 31, 2026

☐	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: 001-38529

AIRO Group Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware

3721

88-0812695

(State or other jurisdiction of

incorporation or organization)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer

Identification No.)

8444 Westpark Drive

McLean, Virginia 22102

(505) 338-2434

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Captain Joseph D. Burns

Chief Executive Officer

8444 Westpark Drive, McLean, Virginia 22102

(505) 338-2434

(Name, address, including zip code, and telephone number, including area code, of agent for service)

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 $0.000001 per share		AIRO		The NASDAQ Stock Market LLC

Indicate 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 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 ☐

Indicate 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 ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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. ☐

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

As of May 12, 2026, there were 31,445,644 shares of the registrant’s common stock, $0.000001 par value, outstanding.

AIRO GROUP HOLDINGS, INC.

Table of Contents

Item 1.	Financial Statements (Unaudited):	3

	Condensed Consolidated Balance Sheets as of March 31, 2026 and December 31, 2025	3

	Condensed Consolidated Statements of Operations for the three months ended March 31, 2026 and 2025	4

	Condensed Consolidated Statements of Comprehensive (Loss) Income for the three months ended March 31, 2026 and 2025	5

	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2026 and 2025	6

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2026 and 2025	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	29

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	31

Item 1A.	Risk Factors	31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31

Item 3.	Defaults Upon Senior Securities	31

Item 4.	Mine Safety Disclosures	31

Item 5.	Other Information	31

Item 6.	Exhibits	32

Signatures		33

Item 1. Financial Statements

AIRO Group Holdings, Inc.

Condensed Consolidated Balance Sheets

unaudited

(Amounts in thousands, except par value amounts)	March 31, 2026			December 31, 2025
ASSETS
Current assets:
Cash	$	54,227		$	74,358
Restricted cash		189			193
Accounts receivable, net		8,098			12,385
Related party receivables		74			393
Accounts receivable, net		74			393
Inventory		22,507			11,639
Prepaid expenses and other current assets		9,513			7,508
Total current assets		94,608			106,476
Property and equipment, net		9,917			8,986
Right-of-use operating lease assets		3,032			3,278
Goodwill		569,284			571,653
Intangible assets, net		82,064			83,487
Other assets		210			259
Total assets	$	759,115		$	774,139

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	10,661		$	6,599
Related party payables		7,807			8,892
Accounts payable		7,807			8,892
Accrued expenses		8,475			7,624
Operating lease liabilities, current		887			902
Deferred revenue		3,557			4,497
Related party borrowings		5			1,161
Current maturities of debt		740			1,190
Total current liabilities		32,132			30,865
Long-term debt, net of current maturities		500			500
Deferred tax liability		1,046			1,046
Long-term deferred revenue		16			8
Operating lease liabilities, noncurrent		2,224			2,478
Other long-term liabilities		800			50
Total liabilities		36,718			34,947

Commitments and contingencies (Note 8)		-

Stockholders’ equity:
Common stock, $0.000001 par value; 1,000,000 shares authorized; 32,653 issued and 31,435 outstanding as of March 31, 2026 and 32,594 issued and 31,376 outstanding as of December 31, 2025		-			-
Additional paid-in capital		964,524			963,022
Treasury shares, 1,218 shares as of March 31, 2026 and December 31, 2025		(21,220	)		(21,220	)
Accumulated other comprehensive income		5,103			7,947
Accumulated deficit		(226,010	)		(210,557	)
Total stockholders’ equity		722,397			739,192
Total liabilities and stockholders’ equity	$	759,115		$	774,139

The accompanying notes are an integral part of these condensed consolidated financial statements.

AIRO Group Holdings, Inc.

Condensed Consolidated Statements of Operations

unaudited


	Three months ended March 31,
(Amounts in thousands, except per share amounts)	2026			2025
Revenue	$	8,901		$	11,795
Cost of revenue		6,536			4,862
Gross profit		2,365			6,933

Operating expenses:
Research and development		6,704			3,666
Sales and marketing		1,977			1,433
General and administrative		10,842			4,915
Total operating expenses		19,523			10,014
Loss from operations		(17,158	)		(3,081	)
Other income (expense):
Interest income (expense), net		376			(1,267	)
Other (expense) income, net		(316	)		2,662
Total other income		60			1,395
Loss before income tax benefit (expense)		(17,098	)		(1,686	)
Income tax benefit (expense)		1,645			(287	)
Net loss	$	(15,453	)	$	(1,973	)

Net loss per share – basic and diluted	$	(0.49	)	$	(0.12	)

Weighted-average number of shares of common stock used in computing net loss per share, basic and diluted		31,395			16,387

The accompanying notes are an integral part of these condensed consolidated financial statements.

AIRO Group Holdings, Inc.

Condensed Consolidated Statements of Comprehensive (loss) Income

unaudited


	Three months ended March 31,
(Amounts in thousands)	2026			2025
Net loss	$	(15,453	)	$	(1,973	)
Other comprehensive (loss) income:
Foreign currency translation, net of tax		(2,844	)		5,640
Total other comprehensive (loss) income		(2,844	)		5,640
Comprehensive (loss) income	$	(18,297	)	$	3,667

The accompanying notes are an integral part of these condensed consolidated financial statements.

AIRO Group Holdings, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

unaudited


	Common Stock				Additional Paid-In		Treasury Stock					Accumulated Other Comprehensive Income			Accumulated			Total Stockholders’
(Amounts in thousands)	Shares		Amount		Capital		Shares		Amount			(Loss)			Deficit			Equity
Balance as of January 1, 2026		31,376	$	-	$	963,022		1,218	$	(21,220	)	$	7,947		$	(210,557	)	$	739,192
RSU vesting		59		-		-		-		-			-			-			-
Stock-based compensation		-		-		1,502		-		-			-			-			1,502
Foreign currency translation adjustment		-		-		-		-		-			(2,844	)		-			(2,844	)
Net loss		-		-		-		-		-			-			(15,453	)		(15,453	)
Balance as of March 31, 2026		31,435	$	-	$	964,524		1,218	$	(21,220	)	$	5,103		$	(226,010	)	$	722,397


	Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
(Amounts in thousands)	Shares		Amount		Capital		Loss			Deficit			Equity
Balance as of January 1, 2025		16,387	$	-	$	764,692	$	(9,509	)	$	(206,453	)	$	548,730
Stock-based compensation		-		-		125		-			-			125
Foreign currency translation adjustment		-		-		-		5,640			-			5,640
Net loss		-		-		-		-			(1,973	)		(1,973	)
Balance as of March 31, 2025		16,387	$	-	$	764,817	$	(3,869	)	$	(208,426	)	$	552,522

The accompanying notes are an integral part of these condensed consolidated financial statements.

AIRO Group Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

unaudited


	Three months ended March 31,
(Amounts in thousands)	2026			2025
Cash flows from operating activities:
Net loss	$	(15,453	)	$	(1,973	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		1,502			125
Provision for credit losses		15			8
Non-cash interest		-			417
Non-cash investor note interest		-			186
Depreciation and amortization		3,130			3,138
Amortization of right-of-use lease assets		289			84
Change in fair value of contingent consideration		-			(2,738	)
Changes in operating assets and liabilities:
Accounts receivable		4,064			8,175
Related party receivables		319			-
Prepaid expenses and other assets		(2,073	)		(5,762	)
Inventory		(11,110	)		(3,653	)
Accounts payable, accrued expenses and other long-term liabilities		5,141			(1,677	)
Related party payables		(2,064	)		36
Lease liabilities		(314	)		(74	)
Deferred revenue		(850	)		(6,288	)
Deferred compensation		-			243
Net cash used in operating activities		(17,404	)		(9,753	)
Cash flows from investing activities:
Purchase of property and equipment and investment in intangible assets		(2,073	)		(345	)
Net cash used in investing activities		(2,073	)		(345	)
Cash flows from financing activities:
Change in lines of credit		-			(127	)
Proceeds from borrowings		-			3,500
Repayments on borrowings		(464	)		(1,662	)
Proceeds from related party borrowings		-			200
Repayments on related party borrowings		(176	)		-
Debt issuance costs paid		-			(70	)
Net cash (used in) provided by financing activities		(640	)		1,841
Effect of exchange rate changes		(18	)		1,055
Net decrease in cash and restricted cash		(20,135	)		(7,202	)
Cash and restricted cash as of beginning of period		74,551			20,911
Cash and restricted cash as of end of period	$	54,416		$	13,709

Supplemental disclosures of non-cash information:
Initial recognition of warrant liability	$	-		$	2,885
Deferred consideration for licensing arrangement	$	1,000		$	-
Reclass between related party payables and related party borrowings	$	1,007		$	-

The accompanying notes are an integral part of these condensed consolidated financial statements.

AIRO Group Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1.	The Company and Summary of Significant Accounting Policies

Nature of Operations

AIRO Group Holdings, Inc., a Delaware corporation (“Holdings” or the “Company”), is a technologically differentiated aerospace, autonomy, and air mobility platform targeting 21st century aerospace and defense opportunities. The Company is organized into four operating segments: (i) Drones, (ii) Avionics, (iii) Training, and (iv) Electric Air Mobility. The Drones segment develops, manufactures, and sells drones and expects to provide drone services, such as Drone as a Service (“DaaS”), for military and commercial end users. The Avionics segment develops, manufactures, and sells avionics for military and general aviation aircraft, drones, and electric vertical takeoff and landing (“eVTOL”) aircraft. The Training segment currently provides military pilot training. The Electric Air Mobility segment is developing autonomous eVTOL platforms for defense, government, cargo logistics, and remote operations applications.

Consolidation and Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Holdings and its wholly owned subsidiaries, including Old AGI, Inc. f/k/a AIRO Group, Inc., AIRO Drone, LLC (“AIRO Drone”), Agile Defense, LLC (“Agile Defense”), Coastal Defense, Inc. (“Coastal Defense”), Jaunt Air Mobility, LLC (“Jaunt”), Sky-Watch A/S (“Sky-Watch”) and Aspen Avionics, Inc. (“Aspen Avionics”). All intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of such interim results. Certain information and disclosures normally included in unaudited condensed consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, the unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 (“Form 10-K”) as filed with the Securities and Exchange Commission (“SEC”). The condensed consolidated balance sheet as of December 31, 2025 has been derived from the audited consolidated financial statements as of that date.

The results for the unaudited interim condensed consolidated statements of operations are not necessarily indicative of results to be expected for the year ending December 31, 2026 or for any future interim period.

Liquidity

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As of March 31, 2026, the Company had cash and restricted cash of $54.4 million of which $0.2 million was either restricted or was designated to only being used for Sky-Watch operations and working capital of $62.5 million.

Management believes that the existing cash on hand is sufficient to meet its obligations and fund planned operations for at least the next twelve months from the date these condensed consolidated financial statements are issued.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These judgments, estimates, and assumptions are used to determine litigation and claims and other asset and liability amounts. The Company bases its estimates and judgments on historical experience along with other pertinent information available at the time the estimate is made. However, future events are subject to change and the estimates and judgments may require adjustments. Actual results could differ from these estimates, and these differences may be material.

Business Risk and Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and accounts receivable. Cash is maintained with financial institutions and its composition and maturities are regularly monitored by management. Deposits at any time may exceed federally insured limits. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for accounts receivable. A large portion of the Company’s sales result in partial prepayments prior to shipment from customers. Otherwise, customer invoices generally have payment terms of net 30 days and do not contain a significant financing component.

The Company’s operational structure includes an existing operating business and early-stage businesses in emerging and developing markets that are concentrated in an industry characterized by rapid technological advances, changes in customer requirements, and evolving regulatory requirements and industry standards. Any significant delays in the development or introduction of products or services, or any failure by the Company to anticipate or to respond adequately to technological developments in its industry, changes in customer requirements, or changes in regulatory requirements or industry standards, could have a material adverse effect on the Company’s business and operating results.

The Company’s business, results of operations, and financial condition for the foreseeable future will likely continue to depend on sales to a relatively small number of customers. In the future, these customers may decide not to purchase the Company’s products, may purchase fewer products than in previous years, or may alter their purchasing patterns. Further, the amount of revenue attributable to any single customer or customer concentration generally may fluctuate in any given period. In addition, a decline in the production levels of one or more of the Company’s major customers could reduce revenue. The loss of one or more key customers, a reduction in sales to any key customer, or the Company’s inability to attract new significant customers could negatively impact revenue and adversely affect the Company’s business, results of operations, and financial condition.

Significant Accounting Policies

No material changes have been made to the Company’s significant accounting policies disclosed in Note 1. The Company and Summary of Significant Accounting Policies, of its audited consolidated financial statements included in the Form 10-K.

Recently Adopted Accounting Standards

In July 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2025-05, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides a practical expedient to simplify the estimation of expected credit losses on current accounts receivable and current contract assets arising from revenue transactions under Accounting Standards Codification (“ASC”) 606. The Company adopted this guidance effective January 1, 2026. The adoption did not have a material impact on the Company’s condensed consolidated financial statements or related disclosures.

Recent Accounting Pronouncements Not Yet Adopted

In November 2024, the FASB issued ASU 2024-03, Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disclosure of certain costs and expenses on an interim and annual basis in the notes to the consolidated financial statements. The guidance is effective for annual reporting periods beginning after December 15, 2026 and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The guidance is to be applied either (1) prospectively to financial statements issued for reporting periods after the effective date or (2) retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the potential impact of adopting this new guidance on its consolidated financial statements and related disclosures.

In December 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities, which establishes authoritative guidance on the recognition, measurement, presentation, and disclosure of government grants received by business entities. The ASU requires entities to recognize a government grant when it is probable that both (1) the entity will comply with the conditions attached to the grant and (2) the grant will be received. For grants related to assets, an entity may apply either a deferred income approach or a cost accumulation approach, and for grants related to income, an entity should recognize income on a systematic basis as related expenses are incurred. The ASU also includes expanded disclosure requirements regarding the nature of government grants received, the accounting policies adopted, and significant terms and conditions of the grants. The guidance is effective for annual reporting periods beginning after December 15, 2029. Early adoption is permitted. The Company is currently evaluating the potential impact of adopting this new guidance on its consolidated financial statements and related disclosures.

In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, which amends the guidance in ASC 270, Interim Reporting. The objective of this new guidance is to improve the clarity and navigability of the interim reporting guidance without changing the fundamental nature of interim reporting or expanding or reducing the interim disclosure requirements currently in U.S. GAAP. The amendments clarify the scope and applicability of ASC 270, specify the form and content of interim financial statements and accompanying notes, and consolidate the interim disclosures required under U.S. GAAP into a single comprehensive list. The ASU also introduces a disclosure principle that an entity must disclose events and changes occurring after the end of the last annual reporting period that have a material impact on the entity, consistent with the principle that previously existed under certain SEC interim reporting rules. The amendments are effective for interim reporting periods within annual reporting periods beginning after December 15, 2028. Early adoption is permitted, and the amendments may be applied either prospectively or retrospectively to prior interim periods presented. The Company is currently evaluating the potential impact of adopting this new guidance on its consolidated financial statements and related disclosures.

In December 2025, the FASB issued ASU 2025-12, Codification Improvements, which provides technical corrections, clarifications, and improvements to the FASB ASC across multiple Topics. The amendments are generally not expected to change current accounting practices materially but may affect application of certain guidance such as diluted earnings per share in loss periods and other technical areas. The amendments are effective for annual reporting periods beginning after December 15, 2026, including interim periods within those annual periods, with early adoption permitted. An entity may elect the transition method on an issue-by-issue basis. The Company is evaluating the impact of ASU 2025-12 on its consolidated financial statements and related disclosures.

2.	Net Loss Per Share

Basic net loss per share is determined using the weighted average number of common shares outstanding during the period. Diluted net loss per share is based on the treasury stock method and computed by dividing net loss available to common stockholders by the diluted weighted-average shares of common stock outstanding during each period. The potentially dilutive shares are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when the effect is dilutive.

The potentially dilutive shares of common stock that have been excluded from the calculation of net loss per share because of the anti-dilutive effect are as follows as of March 31, 2026: 0.4 million warrants, 0.2 million stock options, and 0.5 million unsettled restricted stock units (“RSUs”). The potentially dilutive shares of common stock that have been excluded from the calculation of net loss per share because of the anti-dilutive effect are as follows as of March 31, 2025: 0.1 million warrants, 0.3 million stock options, and 0.3 million contingent restricted stock awards, 2.2 million potential shares issuable under debt conversion agreements, 0.6 million potential shares issuable for contingent interest payments, and 0.1 million shares potentially issuable under unsecured promissory notes in the event that the Company’s initial public offering was not completed by May 31, 2025. The number of potentially dilutive shares is based on the maximum number of shares issuable on exercise or conversion of the related securities as of the period end. Such amounts have not been adjusted for the treasury stock method or weighted-average outstanding calculations as required if the securities were dilutive.

3.	Stock, Warrants and Equity Incentive Plan

The Company’s authorized capital stock consists of 1.0 billion shares of common stock, par value $0.000001 per share, and 10.0 million shares of preferred stock, par value $0.000001 per share. All of the authorized preferred stock is undesignated.

Common Stock

The Company has reserved the following shares of authorized but unissued common stock as of March 31, 2026: 0.2 million shares for stock options, 0.4 million shares for warrants, 0.5 million shares for RSUs, and 2.0 million shares available for issuance under the Equity Incentive Plan described below.

Warrants

The Company assumed warrants to purchase 0.1 million shares of the Company’s common stock as part of the merger with Jaunt. These warrants expire ten years from the date of issuance, March 10, 2022, have an exercise price of $16.83 per share and were outstanding as of March 31, 2026 and December 31, 2025. The Company determined that these warrants are equity classified.

In September 2024, the Company executed a financing advisor agreement with Cantor Fitzgerald & Co. as compensation for assistance with the initial public offering (“IPO”), pursuant to which the Company agreed to issue warrants to certain of the underwriters upon the closing of the IPO (the “Underwriter Warrants”) exercisable for the number of shares of common stock equal to 5% of the total number of shares of common stock sold in such IPO. In conjunction with the IPO, the Company issued the Underwriter Warrants, which are exercisable into 345,000 shares of common stock. The Company determined the fair value of the Underwriter Warrants at the grant date on June 12, 2025 to be $2.0 million which was recorded as an issuance cost against IPO proceeds during the year ended December 31, 2025. The Underwriter Warrants have an exercise price of $11.00 and can be exercised between December 12, 2025 and June 12, 2030. The Underwriter Warrants remain outstanding as of March 31, 2026 and December 31, 2025.

Equity Incentive Plan

In March 2025, the Board of Directors adopted, and the stockholders approved, the AIRO Group Holdings, Inc. 2025 Equity Incentive Plan (the “2025 Plan”). The 2025 Plan provides for the grant of incentive stock options (“ISOs”) to employees, including employees of any parent or subsidiary, and for the grant of non-statutory stock options, stock appreciation rights, restricted stock awards, RSUs, performance awards, and other forms of stock awards to employees, directors, and consultants, including employees and consultants of the Company’s affiliates. The initial share reserve of the Company’s common stock authorized for issuance under the 2025 Plan was 1.9 million shares. Effective January 1, 2026, the share reserve automatically increased by 0.9 million shares pursuant to the plan’s “evergreen” provision.

The share reserve will continue to increase annually through January 1, 2035 by 3% of the outstanding shares of common stock or a lesser amount approved by the Board of Directors. The maximum number of shares issuable upon exercise of ISOs under the 2025 Plan is 5.7 million.

During the three months ended March 31, 2026, the Company granted 0.3 million RSUs under the 2025 Plan and recognized $1.5 million of stock-based compensation expense related to these RSUs. The weighted-average grant date fair value per share of RSUs granted during the period was $10.63. As of March 31, 2026, there were 0.3 million unvested RSUs outstanding under the 2025 Plan. Total unrecognized compensation expense related to unvested RSUs was $3.2 million as of March 31, 2026, which is expected to be recognized over a weighted average period of 2.7 years.

4.	Goodwill

The changes in the carrying value of goodwill were as follows:

Schedule of Goodwill

(In Thousands)	Avionics		Drones			Electric Air Mobility		Training		Total
Balance as of January 1, 2026	$	-	$	121,765		$	434,347	$	15,541	$	571,653
Effect of exchange rate		-		(2,369	)		-		-		(2,369	)
Balance as of March 31, 2026	$	-	$	119,396		$	434,347	$	15,541	$	569,284

Balance as of January 1, 2025	$	-	$	107,620		$	434,347	$	15,541	$	557,508
Effect of exchange rate		-		4,514			-		-		4,514
Balance as of March 31, 2025	$	-	$	112,134		$	434,347	$	15,541	$	562,022

The Company evaluates goodwill for impairment as of October 1 each year, and more frequently if events or circumstances indicate that there may be impairment. The Company completed its most recent annual goodwill impairment test as of October 1, 2025 and determined that no goodwill impairment existed. No triggering events were identified during the three months ended March 31, 2026 that would require an interim impairment assessment.

5.	Intangible Assets, Net

Intangible assets, net, consist primarily of intangible assets acquired through business combinations. During the three months ended March 31, 2026, the Company also capitalized $1.3 million related to a manufacturing license agreement that provides rights to intellectual property, technical data, and know-how used to manufacture and commercialize products. The agreement is recorded as a definite-lived intangible asset and is amortized on a straight-line basis over its five-year contractual term.

Intangible assets, net consisted of the following as of March 31, 2026 and December 31, 2025:

Schedule of Intangible Assets, Net


	As of March 31, 2026
(In Thousands)	Weighted Average Remaining Life (Years)		Gross		Accumulated Amortization		Carrying Value

Developed technology - definite lived		8.7	$	100,045	$	35,069	$	64,976
Developed technology - indefinite lived		N/A		66		-		66
Tradenames - definite lived		3.1		1,926		1,225		701
Tradenames - indefinite lived		N/A		8,738		-		8,738
Customer relationships		3.1		20,285		14,159		6,126
Patents		6.2		586		358		228
Manufacturing license agreement		4.9		1,250		21		1,229
Intangible assets net			$	132,896	$	50,832	$	82,064


	As of December 31, 2025
(In Thousands)	Weighted Average Remaining Life (Years)		Gross		Accumulated Amortization		Carrying Value

Developed technology – definite lived		8.9	$	100,179	$	33,136	$	67,043
Developed technology – indefinite lived		N/A		66		-		66
Tradenames - definite lived		3.3		1,933		1,153		780
Tradenames - indefinite lived		N/A		8,738		-		8,738
Customer relationships		3.3		20,339		13,717		6,622
Patents		6.3		585		347		238
Intangible assets net			$	131,840	$	48,353	$	83,487

Amortization expense is reported on the condensed consolidated statements of operations line items as shown in the table below for the three months ended March 31:

Schedule of Amortization Expense

(In Thousands)	2026		2025
Cost of revenue	$	87	$	107
Research and development		1,910		1,893
Sales and marketing		496		701
General and administrative		110		87
Amortization expense	$	2,603	$	2,788

Total estimated future amortization expense as of March 31, 2026 is as follows:

(In Thousands)	Amount
2026 (remaining)	$	7,894
2027		10,307
2028		10,126
2029		8,648
2030		7,280
Thereafter		29,005
Amortization expense	$	73,260

6.	Inventory

Inventory consisted of the following as of March 31, 2026 and December 31, 2025:

Schedule of Inventory

(In Thousands)	March 31, 2026		December 31, 2025
Raw materials	$	11,477	$	7,052
Work in process		2,579		1,503
Finished goods		8,451		3,084
Total	$	22,507	$	11,639

Inventory increased by $10.9 million as of March 31, 2026 compared to December 31, 2025, primarily due to increased inventory levels in the Drones segment to support anticipated shipments during the remainder of 2026.

7.	Balance Sheet Details

Prepaid expenses and other current assets consisted of the following as of March 31, 2026 and December 31, 2025:

(In Thousands)	March 31, 2026		December 31, 2025
Prepaid insurance	$	506	$	835
Prepaid taxes		3,316		464
Value added tax		436		616
Vendor prepayments		4,226		4,984
Other		1,029		609
	$	9,513	$	7,508

Accrued expenses consisted of the following as of March 31, 2026 and December 31, 2025:

Schedule of Accrued expenses

(In Thousands)	March 31, 2026		December 31, 2025
Accrued legal and professional fees	$	995	$	945
Payroll related expenses		5,180		5,026
Accrued warranty		217		299
Accrued taxes		386		385
Other accrued expenses		1,697		969
Accrued expenses	$	8,475	$	7,624

8.	Commitments and Contingencies

Joint Venture Agreement

On November 13, 2025, AIRO Drone entered into a Joint Venture and Operating Agreement (the “JV Agreement”) with Nord Drone Group, LLC (“NDG”), a Ukrainian limited liability company, pursuant to which AIRO Drone and NDG will form AIRO Nord-Drone, LLC, a Delaware limited liability company (the “JV”). Pursuant to the terms of the JV Agreement, the JV will develop, manufacture, and commercialize unmanned aerial systems primarily designed for delivering munitions, targeting U.S., North Atlantic Treaty Organization (“NATO”), and Ukrainian defense markets. Each of the parties will contribute operational resources and capabilities to the JV. The Company will contribute business development, sales, manufacturing, engineering, and government certification resources, as well as manufacturing facilities in the United States, while NDG will contribute intellectual property, engineering data, operational resources, and manufacturing facilities in Ukraine. In addition, the Company will reimburse NDG for reasonable out-of-pocket costs incurred by NDG in obtaining NATO certification required by the JV Agreement, up to a maximum amount of $50,000 within 30 days of the closing of the JV.

Each party to the JV will receive 50% of the limited liability company interests of the JV. The JV will be governed by a five-member board of managers, with each party appointing two directors and the acting chairman of the Company’s board of directors serving as the fifth director and chairman of the JV.

The consummation of the JV is subject to various closing conditions, including executing certain ancillary agreements between the parties and the JV, including intellectual property license, manufacturing, and services agreements, and obtaining any regulatory approval required under applicable law or by any governmental authority. Unless revised, the JV Agreement (as amended) will terminate and the JV will not be consummated if closing does not occur on June 30, 2026.

There can be no assurance that closing conditions under the JV Agreement will be satisfied or when or that the JV will be consummated on the terms described herein or at all. The JV involves material risks including operational challenges related to NDG’s location in Ukraine during ongoing military conflict, complex export control and sanctions compliance requirements, and potential regulatory scrutiny regarding foreign defense partnerships.

Litigation

A civil action was filed against Old AGI, Inc. in the Circuit Court of Cook County, State of Illinois in February 2022 (the “2022 Lawsuit”). The claimant alleged that an agreement for certain services entered into in March 2020 was breached and resulted in damages to claimant. This case was dismissed on July 5, 2022. However, the court allowed the claimant to amend its complaint. On August 5, 2022, the claimant filed its amended complaint, and the Company filed its response on October 12, 2022. The parties have engaged in discovery and mandatory arbitration. The arbitration resulted in an award in favor of the Company, which was contested by the claimant. On December 19, 2024, the Circuit Court denied the Company’s motion for summary judgment. In February 2026, the Company and the claimant filed documents to request that the 2022 Lawsuit be dismissed in its entirety, and the matter was subsequently dismissed without prejudice.

Aside from the above matter, the Company is not a party to any material legal proceedings and is not aware of any pending or threatened claims. From time to time, the Company may be subject to various legal proceedings and claims that arise in the ordinary course of its business activities. Legal contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss or the measurement of a loss can be complex. The Company will accrue losses that are both probable and reasonably estimable.

9.	Segment Information

The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments. The Company’s chief operating decision maker has been identified as the chief executive officer. The Company periodically reevaluates its reportable and operating segments. The Company manages its business primarily based upon four operating segments: Avionics, Drones, Electric Air Mobility and Training. In accordance with the segment reporting accounting standard, the Company evaluated the economic similarity of its operating segments and determined that each of these operating segments represents a reportable segment.

●	*Avionics:* This segment develops, manufactures, and sells avionics and GPS sensors for general aviation (“GA”), unmanned aircraft systems (“UAS”) and eVTOL applications. The Company’s avionics products are focused on GA aftermarket, original equipment manufacturer (“OEM”) display, integration and connected panel solutions.

●	*Drones:* This segment offers direct operation of drones and drone systems, provision of drone-derived information, and the development of drone-optimized communication services. Additionally, it consists of development and commercialization of market leading mini unmanned aircraft systems (“mUAS”) for professional users, primarily in the defense and security markets. The mUAS includes internally developed software, hardware, and mechanical system components. Operations cover sourcing, manufacturing, assembly, quality assurance testing activities and logistics.

●	*Electric Air Mobility:* This segment is designing and developing dual-use electric and hybrid-electric compound rotorcraft aircraft, with a near-term focus on cargo-configured and multi-role autonomous platforms supporting middle-mile logistics, tactical resupply, emergency medical delivery, law enforcement, intelligence, surveillance and reconnaissance (“ISR”), and other commercial and government missions.

●	*Training:* This segment provides and operates military aircraft for U.S. military services and Department of War (“DoW”) (formerly referred to as the U.S. Department of Defense) contractors. Segment revenues are earned from (1) flying training missions as part of armed forces training groups, and (2) providing aircraft and support services to DoW contractors.

The Company evaluates the performance of its reportable segments based on the net income (loss) for each reporting segment. Presented below are reconciliations of the reportable segment total revenues to the condensed consolidated revenues and the reportable segment total net income (loss) to the condensed consolidated net loss for the three months ended March 31, 2026 and 2025:

Schedule of Segment Information

	Avionics		Drones			Electric Air Mobility		Training		Total
	Three months ended March 31, 2026
(In Thousands)	Avionics		Drones			Electric Air Mobility		Training		Total
Revenue	$	1,705	$	6,532		$	-	$	664	$	8,901
Cost of revenue		1,271		4,603			-		662		6,536
Gross profit		434		1,929			-		2		2,365
Research and development		708		3,803			2,193		-		6,704
Sales and marketing		284		1,192			-		496		1,972
General and administrative		723		4,101			370		1,003		6,197
Interest expense		-		2			-		14		16
Interest income		-		(64	)		-		-		(64	)
Other expense (income), net		-

SEC Form 10-Q filed by AIRO Group Holdings Inc.