Starfighters Space, Inc.: Form 10-Q for the period ended Sep 30, 2025

The following management's discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated interim financial statements and the related notes contained therein which have been prepared in accordance with US GAAP. This discussion contains forward-looking statements reflecting our current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the sections titled "Risk Factors" and "Statements Regarding Forward-Looking Information" appearing elsewhere in this discussion and analysis. All figures are in US dollars unless otherwise noted. Unless the context otherwise requires, for the purposes of this section, "Starfighters", "we", "us", "our", or the "Company" refer to Starfighters Space, Inc. and its subsidiaries.

Company Overview

Starfighters Space, Inc. was founded and incorporated under the laws of the State of Delaware on September 6, 2022. The Company's goal is to make space accessible to entrepreneurs, researchers, industry participants, and the government at a high cadence and the right cost.

The Company's head office and mailing address is located at Reusable Launch Vehicle Hangar, Hangar Rd, Cape Canaveral, FL, 32920 and the Company's phone number is 321-261-0900. The Company's registered and records office is located at 850 New Burton Road, Suite 201, Dover, Delaware 19904. The Company's website address is https://starfightersspace.com/.

Starfighters operates the world's only commercial fleet of flight-ready F-104 supersonic aircraft. Recent increases in government expenditures and commercial investment are driving growth in the space economy. This increase has created a demand for services such as the National Aeronautics and Space Administration ("NASA") owned F-104s used to provide. To the Company's knowledge, there is currently no other commercially available aircraft to the public with the capabilities of the Lockheed F-104 in terms of speed and climbing performance. Starfighters plans to fulfill these needs through a fleet of seven (7) F-104 aircraft. Based at NASA's Kennedy Space Center, the aircraft provide the following four groups of services:

Launch Services and Access to Space;

Research and Development (R&D) and Test and Evaluation (T&E) Test Bed;

Defense, Civil, Academic and Commercial Services; and

Pilot and Astronaut Training.

Recent Developments

Hangar Lease agreement in Texas

On June 1, 2025, the Company entered into a commercial hangar lease agreement with the City of Midland for the lease of hangar facilities at Midland International Air & Space Port in relation to its commitments in the Economic Development Agreement. The lease is for $18,535 per month with a term of one year, which may be extended upon mutual written consent for up to four additional years.

Midland Economic Development Agreement

On October 7, 2024, we through our wholly owned subsidiary, Starfighters International Inc. (Texas) ("SST", formerly "Starfighters Space Texas, Incorporated"), a Texas corporation, entered into an economic development agreement (the "Economic Development Agreement") with Midland Development Corporation ("MDC"), a Type A corporation pursuant to Chapter 504 of the Texas Local Government Code, as amended, having an effective date of September 24, 2024, whereby MDC has agreed to provide certain incentives to SST as consideration for SST's (i) expansion of its business operations to the Midland International Air & Space Port, (ii) creation and retention of primary jobs within the corporate limits of the City of Midland, and (iii) relocation of certain capital assets and equipment at the Midland International Air & Space Port. In connection with the Economic Development Agreement, MDC and SST agree to collaborate to obtain FAA approval and certification of a high-speed airspace corridor between Midland International Air & Space Port and Spaceport America, utilizing supersonic aircraft owned by the Company or its subsidiaries. In addition, SST agrees to exercise reasonable efforts to employ Midland residents and to advertise the availability of job opening in Midland, Texas, and additionally, when it is not possible to hire Midland residents, SST will exercise its best efforts to recruit new residents to live in Midland, Texas, and to advertise the availability of job openings in Midland, Texas. SST's obligations under the Economic Development Agreement include: (i) the relocation of assets to a facility at the Midland International Air & Space Port in the amount of assets totaling $60 million by December 31, 2025 and assets totaling $78 million by December 31, 2027; (ii) to use commercially reasonable efforts to relocate, create, and/or maintain full-time jobs with three (3) full-time jobs as of December 31, 2026, ten (10) full-time jobs as of December 31, 2030, fifteen (15) full-time jobs as of December 31, 2031, twenty (20) full-time jobs as of December 31, 2032 and twenty-three (23) full-time jobs as of December 31, 2033; (iii) complete annual compliance certifications setting out the full-time jobs created and maintained, and the total assets located at the Midland International Air & Space Port as of the last day of such compliance year; (iv) continuously conduct its business during the term of the Economic Development Agreement; (v) enter into a temporary hangar lease, short-term hangar lease and long-term hangar lease as and when such become available and any long-term hangar lease is subject to satisfaction of MDC's obligation under the Economic Development Agreement related to new hangar construction. MDC's obligations under the Economic Development Agreement include: (i) providing SST with relocation costs as set out in Exhibit C to the Economic Development Agreement up to an amount of $2,051,560.00; (ii) during the terms of a temporary hangar lease and short-term hangar lease, provide SST a monthly reimbursement in an amount not to exceed $8,000.00; and (iii) entering into a long-term ground lease with the City of Midland on real property located at the Midland International Air & Space Port and to construct a new hangar facility with approximately 100,000 square feet of usable space and to enter into a long-term hangar sublease with SST for same. The Economic Development Agreement shall terminate (i) on the tenth anniversary of the effective date, (ii) when terminated by mutual agreement of the parties, or (iii) when terminated as set forth in Section VIII or Section X.E of the Economic Development Agreement.

Space Florida Loan Amendment

On October 29, 2024, we, our indirect wholly owned subsidiary, Starfighters, Inc. (the "SFI") and Space Florida, an independent special district, a body politic and corporate, and a subdivision of the State of Florida (the "Space Florida") entered into an Amendment to Loan and Security Agreements (the "Amendment to Loan and Security Agreements") effective November 1, 2024 (the "Effective Date"), to among other things:

(i) confirm that SFI and/or Space Florida previously executed and delivered the following loan documents: (a) Loan Agreement 12-096 dated February 16, 2012 (the "Loan Agreement"), (b) Security Agreement dated February 16, 2012, by SFI in favor of Space Florida (the "Security Agreement"), and (c) a Promissory Note dated February 16, 2012, made by SFI in favor of Space Florida in the principal amount of $1,436,000.63 (the "Promissory Note", and together with the Loan Agreement and the Security Agreement, the "Loan Documents"; the borrowing under the Loan Documents, as amended by the Amendment to Loan and Security Agreements, being referred to as the "Loan");

(ii) confirm that the Loan was originally made by Space Florida to SFI to purchase equipment used in SFI's business and that the Loan is secured by a first-priority security interest in the personal property described in Exhibit A to the Amendment to Loan and Security Agreement (the "Collateral"), which is owned by SFI free and clear of all other security interests or liens;

(iii) confirm that on or about September 16, 2022 (the "Rate Adjustment Date"), SFI and Space Florida agreed to make the Loan subject to a new interest rate of three percent (3%) per annum (the "Adjusted Rate") and began to accrue the interest on the Loan in accordance with the Adjusted Rate beginning on the Rate Adjustment Date, but did not memorialize the Adjusted Rate in writing;

(iv) confirm that the Adjusted Rate has been in effect as of the Rate Adjustment Date, and that the outstanding principal amount of the Loan, together with the accrued and unpaid interest thereon, is $1,512,627.17 as of the Effective Date; and

(v) memorialize the parties' agreement that, in full and final settlement of the aggregate principal amount of the Loan outstanding plus all accrued and unpaid interest outstanding (the "Conversion Amount"), will convert into shares of common stock of the Company ("Conversion Shares") on the date the Company completes a public listing on any national securities exchange registered under Section 6 of the United States Securities Exchange Act of 1934, as amended, which includes The Nasdaq Stock Market (a "Public Listing").

The Amendment to Loan and Security Agreements contemplates that the Conversion Amount will convert at (a) the price per security of the Company's initial public offering, (i) the deemed share price at which any other transaction involving the Company is effected, including without limitation, a merger, business combination, amalgamation arrangement, share exchange, reverse-takeover, capital pool transaction, or any similar transaction resulting in the shares, a derivative of the shares or common shares of another issuer exchanged therefor being listed on a national securities exchange in the United States, or (c) the reference price per share calculated in accordance with the policies of the applicable national securities exchange in the event the Company completes a direct public listing.

Space Florida has agreed that, upon the issuance of the Conversion Shares:

(i) all payment and other obligations of SFI to Space Florida under or in connection with the Loan Documents shall be satisfied in full and be terminated and Space Florida shall have no further obligation to extend further credit to SFI under or in connection with the Loan Documents;

(ii) Space Florida's security interests in, and other liens, charges, caveats or other encumbrances of any kind or character whatsoever on the Collateral, and any and all real or personal property, assets or undertaking of SFI granted under or in connection with the Loan Documents (collectively, the "Discharged Security Interests"), shall be immediately released;

(iii) Space Florida will (A) execute and deliver to SFI or as SFI may request, as soon as practicable, but in no event prior to the receipt of a certificate from the Company evidencing the Conversion Shares, registrable discharges and releases or similar instruments of the Discharged Security Interests, provided that all the foregoing shall be prepared at the cost of SFI, and (B) return to SFI or as SFI may direct, any and all assets or properties of SFI in its possession, in each case to effect the discharge and release of the Discharged Security Interests;

(iv) without limiting Space Florida's obligation to execute and the deliver discharges set out in paragraph (iii) immediately above, upon Space Florida's receipt of the certificates evidencing the Conversion Shares, Space Florida or any agent on its behalf, shall prepare, execute and file registrable discharges and releases of any and all security interests or any financing statement or notice in respect thereof representing the Discharged Security Interests; and

(v) the Loan Documents shall be terminated, cancelled and of no further force and effect.

On December 18, 2025, we issued 404,312 Conversion Shares at a price of $3.59 per share pursuant to the conversion of our Promissory Note payable to Space Florida, which had outstanding principal and interest of approximately $1,451,000, upon the listing of our shares of common stock on the NYSE American.

Aerovision Aircraft Acquisition Agreement

On October 31, 2024, our wholly owned subsidiary, Starfighters International, Inc. ("Starfighters International") entered into an aircraft acquisition agreement (the "Aircraft Agreement") with Aerovision LLC, a Florida limited liability company ("Aerovision"), pursuant to which Starfighters International agreed to purchase from Aerovision various used aircraft and associated spare equipment (the "Aircraft Transactions") in phases. The Aircraft Agreement contemplates that each Aircraft Transaction will be completed pursuant to a definitive agreement (each, a "Definitive Agreement") to be settled between the parties, in each case with a corresponding bill of sale and associated closing documents. The Aircraft Agreement provides that it, and any Definitive Agreement entered into by the parties, may be amended and/or extended in writing by the parties on a case-by-case basis.

The subject aircraft for acquisition pursuant to the Aircraft Agreement are: (i) twelve F-4 Phantom II aircraft, (ii) one MD-83 with U.S. Federal Aviation Administration ("FAA") Registration N572AA, and (iii) one DC-9 with FAA Registration N932NA. The subject aircraft are used-serviceable surplus aircraft offered on an "as-is-where-is" basis, with no warranty express or implied. The twelve F-4 Phantom II aircraft have recently been decommissioned by the Republic of Korea Air Force, and will have to be registered with the FAA after they are imported into the United States from South Korea.

The Aircraft Agreement requires an initial deposit advance in the amount of $5,000,000.00 to be made no later than ten business days after the signing of the Aircraft Agreement, which has been paid from funds received from the Company's Regulation A Tier 2 Offering. The payment of the deposit is considered to constitute "Phase 1" under the Aircraft Agreement.

Phase 2 will involve the payment of an additional $5,000,000.00 for the acquisition of eight of the twelve F-4 Phantom II aircraft. Such payment is due no later than December 15, 2024.

Phase 3 will involve the payment of an additional $5,000,000.00 for the acquisition of the final four F-4 Phantom II aircraft. Such payment is due no later than March 15, 2025.

Phase 4 shall involve the payment of an additional $5,000,000.00 for the acquisition of the MD-83 aircraft with FAA Registration N572AA, and the DC-9 aircraft with FAA Registration N932NA. The parties are to use their reasonable best efforts to complete Phase 4 by April 15, 2025.

Aerovision Aircraft Acquisition Agreement Amendment

As a result of the political situation in South Korea, Starfighters International was unable to view the F-4 Phantom II aircraft originally contemplated under the Aircraft Agreement to be acquired from the Republic of South Korea Air Force, and neither Starfighters International nor Aerovision have been able to confirm the continued availability of such aircraft. As such, Starfighters International did not pay the Phase 1 initial deposit advance nor the Phase 2 payment provided for under the Aircraft Agreement. On January 28, 2025, our wholly owned subsidiary, Starfighters International, entered into an amendment to the Aircraft Agreement with Aerovision regarding the Aircraft Transactions, pursuant to which:

(i) Starfighters International may elect not to proceed with Phase 3 and/or Phase 4;

(ii) The initial deposit advance of $5,000,000.00 is broken down into two payments of $2,500,000.00 each, with the first payment to be made on or before January 31, 2025 (which has been paid on January 24, 2025), and the second payment to be made within 10 days of Aerovision executing a binding agreement to acquire a minimum of eight F-4 Phantom II aircraft from an alternative supplier(s) (second payment of $2,500,000 was paid on March 3, 2025);

(iii) The due date for payment associated with Phase 2 is amended to be within five days of Aerovision providing confirmation of shipping of the F-4 Phantom II aircraft to the Company from the point of origin;

(iv) The due date for payment associated with Phase 3, if Starfighters International elected to proceed, is amended to be October 31, 2025; and

(v) The due date for payment associated with Phase 4, if Starfighters International elected to proceed, is amended to be January 31, 2026.

Regulation A Tier 2 Offering ("Reg A Offering")

On October 23, 2024, November 11, 2024, November 29, 2024, January 6, 2025, April 2, 2025, April 25, 2025, and July 16, 2025 we conducted closings of our offering under Regulation A of Section 3(b) of the Securities Act of 1933, as amended, for Tier 2 offerings, pursuant to which we sold an aggregate of 4,996,697 shares of common stock at a price of $3.59 per share, for gross proceeds of $17,938,174.

Results of Operations - Nine Months Ended September 30, 2025, Comparison Against the Nine Months Ended September 30, 2025

During the nine months ended September 30, 2025, we incurred a net loss of $6,261,319 compared to net loss of $7,266,250 for the nine months ended September 30, 2024. An analysis of the decrease in net loss of $1,004,931 including the major components our results for the periods, is below.

Advertising and promotion

During the nine months ended September 30, 2025, we incurred advertising and promotional expenses of $172,177 compared to $140,540 for the nine months period ended September 30, 2024, an increase of $31,637 period-over-period. For both periods, the Company embarked on and maintained a public relations campaign to raise awareness about its brand and business in light of the Company's plans to go public.

Business development

During the nine months ended September 30, 2025, we incurred business development expenses of $580,736 compared to $270,000 for the nine months ended September 30, 2024, an increase of $310,736 period-over-period. Such expenses are incurred for introductions to potential investors and investor presentations in connection with the Company's efforts to go public.

Consulting fees

During the nine months ended September 30, 2025, we incurred consulting fees of $1,189,450 compared to $659,217 for the nine months ended September 30, 2024, an increase of $530,233 period-over-period. The period-over-period increase relates to additional corporate advisory and consulting expenses incurred to facilitate the Company's efforts to go public.

Contract labor and fuel

During the nine months ended September 30, 2025, we incurred contract labor and fuel expenses of $489,702 compared to $282,450 for the nine months ended September 30, 2024, an increase of $207,252 period-over-period. The increase is due to increased flight operations in the current period.

Directors' fees

During the nine months ended September 30, 2025, we incurred directors' fees of $126,000 compared to $122,000 for the nine months ended September 30, 2024, an increase of $4,000 period-over-period, which is relatively consistent period-over-period.

Insurance

During the nine months ended September 30, 2025, we incurred insurance expense of $108,547 compared to $66,329 for the nine months ended September 30, 2024, an increase of $42,218. The Company entered into a directors' and officers' insurance in anticipation of going public.

Management fees

Management fees for the nine months ended September 30, 2025 were $235,097 compared to $166,500 for the nine months ended September 30, 2024, an increase of $68,597 period-over-period. Management fees consist of monthly management fees paid to the Company's CEO for overseeing the day-to-day operations.

Office and administrative

During the nine months ended September 30, 2025, we incurred office and administrative expenses of $236,604 compared to $140,180 for the nine months ended September 30, 2024, an increase of $96,424 period-over-period. The increase in administrative expenses is correlated to the additional administrative work required to facilitate the Company's efforts to go public and financings undertaken in 2025.

Listing fees

During the nine months ended September 30, 2025, we incurred listing fees of $27,426 compared to $94,027 for the nine months ended September 30, 2024, a decrease of $66,601 period-over-period. The period-over-period decrease relates to additional fees incurred in the comparative period to initiate the Company's Reg A Offering.

Professional fees

During the nine months ended September 30, 2025, we incurred professional fees of $687,330 compared to $582,120 for the nine months ended September 30, 2024, an increase of $105,210 period-over-period. Professional fees mainly relate to legal, audit, and accounting fees incurred to facilitate the Company's efforts to go public and financings undertaken, as well as to fulfill the Company's reporting obligations of being a Regulation A Tier 2 Issuer. The increase period-over-period was due to the Company incurring a higher audit expense in the comparative period for the audit for prior fiscal years.

Relocation costs

During the nine months ended September 30, 2025, we incurred relocation costs of $51,723 compared to $0 for the nine months ended September 30, 2024, an increase of $51,723 period-over-period. We incurred costs in relation to relocation of assets and operations to Midland, Texas, in accordance with the Economic Development Agreement with the MDC. Reimbursements we received from MDC on these costs are recognized as grant income.

Rent expense

During the nine months ended September 30, 2025, we incurred rent expense of $409,746 compared to $212,894 for the nine months ended September 30, 2024, an increase of $196,852 period-over-period. The Company entered into a new short-term lease for office spaces commencing December 2024, and a new temporary hangar lease in Texas commencing June 2025, which increased the rent expense incurred during 2025.

Repairs and maintenance

During the nine months ended September 30, 2025, we incurred repair and maintenance expenses of $31,380 compared to $42,276 for the nine months ended September 30, 2024, a decrease of $11,346. The expenditure fluctuates depending on repair and maintenance cycles of the Company's equipment.

Research and development

During the nine months ended September 30, 2025, we incurred research and development expenses of $636,205 compared to $0 for the nine months ended September 30, 2024, an increase of $636,205 period-over-period. During fiscal 2025, the Company has undertaken a number of flight tests related to the Company's StarLaunch platform.

Travel and entertainment

During the nine months ended September 30, 2025, we incurred travel and entertainment expenditures of $562,341 compared to $115,923 for the nine months ended September 30, 2024, an increase of $446,418 period-over-period. During fiscal year 2025, the Company was actively travelling and entertaining prospective investors, as well as Company management travelling to and from its offices in Florida.

Amortization of debt discount

During the nine months ended September 30, 2025, the Company recognized amortization of the discount on its convertible debt was $367,237, compared to $1,243,542 for the nine months ended September 30, 2024, a decrease of $876,305 period-over-period. The discount on the convertible debt relates to the fair value of the conversion option, which is bifurcated, and the transaction costs incurred for the financing and is amortized over the term of the convertible debt. The decrease period-over-period reflects less significant unwinding of debt discount, as there had been no new issuance of convertible debt since August 2024.

Change in fair value of derivative liability

During the nine months ended September 30, 2025, the Company recorded a change in the fair value of its derivative liability of $529,721 compared to $2,800,433 for the nine months ended September 30, 2024. The derivative liability results from the conversion option on the Company's convertible debt which has been bifurcated as the number of shares to be issued upon conversion may vary. The decrease period-over-period is due to a number of inputs into the Monte Carlo valuation of the derivative liability, including the increasing valuation of shares of the Company.

Other income

During the nine months ended September 30, 2025, we earned other income of $475,140 compared to $77,900 for the nine months ended September 30, 2024, an increase of $397,240 period-over-period. Other income consists of ancillary income earned for providing pilot training and equipment testing services, and varies with the availability of airspace, equipment and personnel.

Grant income

During the nine months ended September 30, 2025, we earned other income of $139,723 compared to $0 for the nine months ended September 30, 2024, an increase of $139,723 period-over-period. Grant income consists of expense reimbursement received or is receivable by the Company in connection with rent expenses and costs of relocation of assets and operations to Midland, Texas, in accordance with the Economic Development Agreement with the MDC.

Interest expense

During the nine months ended September 30, 2025, we incurred interest expenses of $424,345 compared to $386,474 for the nine months ended September 30, 2024, an increase of 37,871 period-over-period. Interest expense consists of interest on convertible debentures of the Company which are carried at 5% per annum and raised to 8% per annum in February 2025 and note payable to Space Florida which is carried at 3% per annum.

Interest income

During the nine months ended September 30, 2025, we earned interest income of $117,401 compared to $26,420 for the nine months ended September 30, 2024, an increase of $90,981 period-over-period.

Results of Operations - Three Months Ended September 30, 2025, Comparison Against the Three Months Ended September 30, 2024

During the three months ended September 30, 2025, we incurred a net loss of $2,049,910 compared to net loss of $2,434,774 for the three months ended September 30, 2024. An analysis of the decrease in net loss of $384,864 including the major components our results for the periods, is below.

Advertising and promotion

During the three months ended September 30, 2025, we incurred advertising and promotional expenses of $76,151 compared to $41,625 for the three months period ended September 30, 2024, an increase of $34,526 period-over-period. In the current period, the Company incurred expenses related to its Regulation A financing, and made larger expenses on its public relations campaign to raise awareness about its brand and business in light of the Company's plans to go public.

Business development

During the three months ended September 30, 2025, we incurred business development expenses of $194,736 compared to $90,000 for the three months ended September 30, 2024, an increase of $104,736 period-over-period. Such expenses are incurred for introductions to potential investors and investor presentations in connection with the Company's efforts to go public.

Consulting fees

During the three months ended September 30, 2025, we incurred consulting fees of $423,490 compared to $224,817 for the three months ended September 30, 2024, an increase of $198,673 period-over-period. The period-over-period increase relates to additional corporate advisory and consulting expenses incurred to facilitate the Company's efforts to go public.

Contract labor and fuel

During the three months ended September 30, 2025, we incurred contract labor and fuel expenses of $145,258 compared to $100,750 for the three months ended September 30, 2024, an increase of $44,508 period-over-period. The increase is due to increased flight operations in the current period.

Directors' fees

During the three months ended September 30, 2025, we incurred directors' fees of $42,000 compared to $42,000 for the three months ended September 30, 2024, which is consistent period-over-period.

Insurance

During the three months ended September 30, 2025, we incurred insurance expense of $64,749 compared to $22,457 for the three months ended September 30, 2024, an increase of $42,292. The Company entered into a directors' and officers' insurance in anticipation of going public.

Management fees

Management fees for the three months ended September 30, 2025 were $75,000 compared to $55,500 for the three months ended September 30, 2024, an increase of $19,500 period-over-period. Management fees consist of monthly management fees paid to the Company's CEO for overseeing the day-to-day operations.

Office and administrative

During the three months ended September 30, 2025, we incurred office and administrative expenses of $64,685 compared to $54,464 for the three months ended September 30, 2024, an increase of $10,221 period-over-period. The increase in administrative expenses is correlated to the additional administrative work required to facilitate the Company's efforts to go public and financings undertaken in 2025.

Listing fees

During the three months ended September 30, 2025, we incurred listing fees of $17,527 compared to $78,623 for the three months ended September 30, 2024, a decrease of $61,096 period-over-period, which is reflective of less expenditures incurred by the Company in relation to its Reg A financing activity during the current quarter.

Professional fees

During the three months ended September 30, 2025, we incurred professional fees of $287,187 compared to $92,165 for the three months ended September 30, 2024, an increase of $195,022 period-over-period. Professional fees mainly relate to legal, audit, and accounting fees incurred to facilitate the Company's efforts to go public and financings undertaken, as well as to fulfill the Company's reporting obligations of being a Regulation A Tier 2 Issuer. The expense had been relatively consistent period-over-period.

Relocation costs

During the three months ended September 30, 2025, we incurred relocation costs of $14,712 compared to $0 for the three months ended September 30, 2024, an increase of $14,712 period-over-period. We incurred costs in relation to relocation of assets and operations to Midland, Texas, in accordance with the Economic Development Agreement with the MDC. Reimbursements we received from MDC on these costs are recognized as grant income.

Rent expense

During the three months ended September 30, 2025, we incurred rent expense of $145,457 compared to $71,428 for the three months ended September 30, 2024, an increase of $74,029 period-over-period. The Company entered into a new short-term lease for office spaces commencing December 2024, and a new temporary hangar lease in Texas commencing September 2025, which increased the rent expense incurred during the first half of 2025.

Repairs and maintenance

During the three months ended September 30, 2025, we incurred repair and maintenance expenses of $7,663 compared to $759 for the three months ended September 30, 2024, an increase of $6,904. The expenditure fluctuates depending on repair and maintenance cycles of the Company's equipment.

Research and development

During the three months ended September 30, 2025, we incurred research and development expenses of $194,213 compared to $0 for the three months ended September 30, 2024, an increase of $194,213 period-over-period. During fiscal 2025, the Company has undertaken a number of flight tests related to the Company's StarLaunch platform.

Travel and entertainment

During the three months ended September 30, 2025, we incurred travel and entertainment expenditures of $162,085 compared to $19,557 for the three months ended September 30, 2024, an increase of $142,528 period-over-period. During fiscal year 2025, the Company was actively travelling and entertaining prospective investors.

Amortization of debt discount

During the three months ended September 30, 2025, the Company recognized amortization of the discount on its convertible debt was $128,256, compared to $486,390 for the three months ended September 30, 2024, a decrease of $358,134 period-over-period. The discount on the convertible debt relates to the fair value of the conversion option, which is bifurcated, and the transaction costs incurred for the financing and is amortized over the term of the convertible debt. The decrease period-over-period reflects less significant unwinding of debt discount, as there had been no new issuance of convertible debt since August 2024.

Change in fair value of derivative liability

During the three months ended September 30, 2025, the Company recorded a change in the fair value of its derivative liability of a credit of $19,042 compared to $1,057,065 for the three months ended September 30, 2024. The derivative liability results from the conversion option on the Company's convertible debt which has been bifurcated as the number of shares to be issued upon conversion may vary. The decrease period-over-period is due to a number of inputs into the Monte Carlo valuation of the derivative liability, including the increasing valuation of shares of the Company.

Other income

During the three months ended September 30, 2025, we earned other income of $121,000 compared to a credit of $77,900 for the three months ended September 30, 2024, an increase of $43,100 period-over-period. Other income consists of ancillary income earned for providing pilot training and equipment testing services, and varies with the availability of airspace, equipment and personnel.

Grant income

During the three months ended September 30, 2025, we earned other income of $38,712 compared to $0 for the three months ended September 30, 2024, an increase of $38,712 period-over-period. Grant income consists of expense reimbursement received or is receivable by the Company in connection with rent expenses and costs of relocation of assets and operations to Midland, Texas, in accordance with the Economic Development Agreement with the MDC.

Interest expense

During the three months ended September 30, 2025, we incurred interest expenses of $153,803 compared to $71,523 for the three months ended September 30, 2024, an increase of $82,280 period-over-period. Interest expense consists of interest on convertible debentures of the Company which are carried at 5% per annum and raised to 8% per annum in February 2025 and note payable to Space Florida which is carried at 3% per annum.

Interest income

During the three months ended September 30, 2025, we earned interest income of $35,280 compared to $7,336 for the three months ended September 30, 2024, an increase of $27,944 period-over-period.

Liquidity and Capital Resources

We continually monitor and manage cash flow to assess the liquidity necessary to fund operations and capital projects. We manage our capital resources and adjust them to take into account changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust our capital resources, we may, where necessary, control the amount of working capital, pursue financing or manage the timing of our capital expenditures. As of September 30, 2025, we had a working capital deficit of $13,190,485 (current assets of $4,451,683, less current liabilities of $17,642,168) and as of December 31, 2024, we had a working capital deficit of $7,676,263 (current assets of $8,352,629, less current liabilities of $16,028,892).

Our continuing operations are dependent upon our ability to obtain debt or equity financing until such time that we achieve profitable operations. There can be no assurance that we will gain adequate market acceptance for our products or be able to generate sufficient gross margins to reach profitability.

Since our inception, we have incurred operating losses and have experienced negative cash flows from operations. We do not anticipate that cash on hand will be adequate to satisfy our obligations in the ordinary course of business over the next 12 months. Based on this assessment, we have material uncertainties about our business that may cast substantial doubt about our ability to continue as a going concern. Accordingly, our ability to continue as a going concern is dependent upon our ability to raise sufficient funds to pay ongoing operating expenditures and to meet our obligations. See further discussion related to our ability to continue as a going concern within Note 2 "- Basis of Presentation - Going Concern."

As of September 30, 2025, and December 31, 2024, we had $2,695,586 and $7,100,699 in cash (including restricted cash), respectively. We are actively managing current cash flows until such time that we are profitable.

The chart below highlights our cash flows for the periods indicated:

Cash Used in Operating Activities

Our net cash used in operating activities is primarily due to cash payments for operating expenses that we incur in the day-to-day operations of the business. Net cash used in operating activities for the nine months ended September 30, 2025, was $4,992,573 compared to $2,004,619 for the nine months ended September 30, 2024. The loss for the nine months ended September 30, 2025, of $6,261,319 was offset by $325,826 in working capital items and by $942,920 in non-cash items consisting mainly of the amortization of the convertible debt discount and change in fair value of derivative liability. This compares to a loss of $7,266,250 for the comparative period, that was offset by $1,157,873 in changes in working capital items and $4,103,758 in non-cash items consisting mainly of amortization of the convertible debt discount and change in fair value of derivative liability.

Cash Used in Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2025, was $6,067,689 and relates to deposits made toward the purchase of property, plant and equipment of $6,050,763 and the purchase of short-term investments of $318,603, partially offset by the sale of short-term investments of $301,677. Net cash used in investing activities during the comparative period was $50,000 which relates to our deposits made toward the purchase of property, plant and equipment, and the purchase of short-term investments of $295,252, partially offset by the sale of short-term investments of $291,500.

Cash Provided by Financing Activities

We have funded our business to date from the issuance of our common stock, warrants and convertible debentures through the Reg A Offering, private placements, and from loans from related parties.

Net cash provided by financing activities for the nine months ended September 30, 2025, was $6,655,149 compared to $4,161,572 for the nine months ended September 30, 2024.

During the nine months ended September 30, 2025, the Company received gross proceeds from the Reg A Offering of $7,247,931 net of cash paid for share issuance costs of $592,782.

During the nine months ended September 30, 2024, the Company received gross proceeds from convertible debentures of $743,400 net of cash paid for debt issuance costs of $19,950, proceeds from shares to be issued of $3,893,000 net of cash paid for share issuance costs of $409,878, and repaid $45,000 in related party notes payable.

Contractual Obligations

Issuance of options to consultant and officer

On September 1, 2023, the Company entered into an agreement with a consultant. Under the agreement, the Company was obligated to issue 100,000 options. Both the Company and the consultant have agreed to delay issuance of these options until an Offering price has been established as part of an initial public offering or other public offering ("Offering Price"). The agreement also calls for 150,000 contingent Options, subject to future approval by the Board of Directors, with an exercise price equal to the Offering Price.

On August 12, 2025, the Company granted 100,000 restricted stock units to the consultant in satisfaction of the original obligation to issue 100,000 options.

On January 1, 2024, the Company entered into an agreement with the Chief Financial Officer (the "CFO"). Under the agreement, the Company was obligated to issue 100,000 options. Both the Company and the CFO have agreed to delay issuance of these options until an Offering price has been established as part of an initial public offering or other public offering. The agreement also calls for 150,000 contingent Options, subject to future approval by the Board of Directors, with an exercise price equal to the Offering Price.

On August 12, 2025, the Company granted 750,000 restricted stock units to the CFO in satisfaction of all obligations of issuance of the 250,000 options.

Capital Management

Capital is comprised of our shareholders' deficiency and any debt that we may issue. Our objectives when managing capital are to maintain financial strength and to protect our ability to meet ongoing liabilities, to continue as a going concern, to maintain creditworthiness and to maximize returns for our shareholders over the long term. Protecting the ability to pay current and future liabilities includes maintaining capital above minimum regulatory levels, current financial strength rating requirements and internally determined capital guidelines and calculated risk management levels. We manage capital structure to maximize financial flexibility by making adjustments in response to changes in economic conditions and the risk characteristics of the underlying assets and business opportunities. We do not presently utilize any quantitative measures to monitor our capital, but rather we rely on our management's expertise to sustain the future development of the business. Management reviews its capital management approach on an ongoing basis and believes that this approach, given our size, is reasonable.

There were no changes to our approach to capital management during the period. We are not subject to externally imposed capital requirements.

Critical Accounting Policies and Estimates

Our unaudited condensed consolidated interim financial statements are prepared in accordance with generally accepted accounting principles in the U.S. The preparation of our unaudited condensed consolidated interim financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our unaudited condensed consolidated interim financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our summary of significant accounting policies are described in more detail in the notes to our unaudited condensed consolidated interim financial statements, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our unaudited condensed consolidated interim financial statements.

Derivative Liabilities

The Company evaluates its financial instruments and other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market at each balance sheet date and recorded as a liability and the change in fair value is recorded in the unaudited condensed consolidated interim statements of operations. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

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. Derivative instruments that become subject to reclassification are reclassified at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not settlement of the derivative instrument is expected within 12 months of the balance sheet date.

The Company uses the Monte Carlo simulation model to value derivative liabilities. This model uses Level 3 inputs in the fair value hierarchy established by ASC 820, Fair Value Measurement.

Off-Balance Sheet Arrangements

We have not entered into any material off-balance sheet arrangements such as guarantee contracts, contingent interests in assets transferred to unconsolidated entities, derivative financial obligations, or with respect to any obligations under a variable interest equity arrangement.

Proposed Transactions

We have not entered into any proposed transactions that have not been disclosed herein.

Subsequent Events

On December 2, 2025, the Company filed a post-qualification offering circular with the SEC in respect of the Reg A Offering in order to maintain the qualification of the Corporation's Reg A Offering beyond twelve months from the original qualification date.

On December 17, 2025, the Company closed the final round of its Reg A Offering and issued 6,145,364 shares of common stock (“Common Shares”) at a price of $3.59 per share, for gross proceeds of approximately $22,100,000. The Company also issued 61,402 agent’s warrants in connection with this closing, with each warrant exercisable into one Common Share at an exercise price of $3.59 per share and expiring on September 6, 2029.

On December 18, 2025, the Company's Common Shares commenced trading on the NYSE American LLC ("NYSE American") under the ticker symbol "FJET."

On December 18, 2025, the Company issued 3,834,857 Common Shares at a price of $2.154 per share pursuant to the automatic conversion of the Company's outstanding convertible debentures (Note 6), which had outstanding principal and interest of approximately $8,261,000, upon the listing of the Company's Common Shares on the NYSE American.

On December 18, 2025, the Company issued 404,312 Common Shares at a price of $3.59 per share pursuant to the conversion of the Company's notes payable (Note 5) to Space Florida, which had outstanding principal and interest of approximately $1,451,000, upon the listing of the Company's Common Shares on the NYSE American.

On December 26, 2025, the Company issued an aggregate of 11,676,166 Common Shares pursuant to the cashless exercise of 11,915,000 warrants outstanding (Note 8), at an exercise price of $0.33 per share.

On December 31, 2025, the Company issued 114,250 Common Shares upon the vesting of 114,250 RSUs (Note 8), which had an acceleration of vesting upon the achievement of a benchmark of the share price of the Company's Common Shares being traded on the NYSE American.

On January 5, 2026, the Company issued an aggregate of 29,341 Common Shares pursuant to the cashless exercise of 30,000 warrants outstanding (Note 8), at an exercise price of $0.33 per share.

On January 8, 2026, the Company issued 24,285 Common Shares pursuant to the cashless exercise of 25,000 warrants outstanding (Note 8), at an exercise price of $0.33 per share.

Implications of Being an Emerging Growth Company

The Company, as an issuer with less than $1.235 billion in total annual gross revenues during its last fiscal year, it will qualify as an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") and this status will be significant. An emerging growth company may take advantage of certain reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. In particular, as an emerging growth company, the Company:

• will not be required to obtain an auditor attestation on its internal controls over financial reporting pursuant to the Sarbanes-Oxley Act of 2002;
• will not be required to provide a detailed narrative disclosure discussing its compensation principles, objectives and elements and analyzing how those elements fit with its principles and objectives (commonly referred to as "compensation discussion and analysis");
• will not be required to obtain a non-binding advisory vote from its shareholders on executive compensation or golden parachute arrangements (commonly referred to as the "say-on-pay," "say-on-frequency" and "say-on-golden-parachute" votes);
• will be exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and CEO pay ratio disclosure;
• may present only two years of audited financial statements and only two years of related Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"); and
• will be eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards.

The Company intends to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under Section 107 of the JOBS Act. The Company's election to use the phase-in periods may make it difficult to compare its financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under Section 107 of the JOBS Act.

Under the JOBS Act, the Company may take advantage of the above-described reduced reporting requirements and exemptions for up to five years after the Company's initial sale of common equity pursuant to a registration statement declared effective under the Securities Act of 1933, as amended, or such earlier time should it no longer meet the definition of an emerging growth company. Note that the Company's Reg A Offering, while a public offering, is not a sale of common equity pursuant to a registration statement, since the Reg A Offering is conducted pursuant to an exemption from the registration requirements. In this regard, the JOBS Act provides that the Company would cease to be an "emerging growth company" if the Company has more than $1.235 billion in annual revenues, has more than $700 million in market value of its common stock held by non-affiliates, or issues more than $1 billion in principal amount of non-convertible debt over a three-year period.

Certain of these reduced reporting requirements and exemptions are also available to the Company due to the fact that it may also qualify, once subject to the reporting obligations under section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, as a "smaller reporting company" under the SEC's rules. For instance, smaller reporting companies are not required to obtain an auditor attestation on their assessment of internal control over financial reporting; are not required to provide a compensation discussion and analysis; are not required to provide a pay-for-performance graph or CEO pay ratio disclosure; and may present only two years of audited financial statements and related MD&A disclosure.

Our board of directors have overall responsibility for the establishment and oversight of our risk management policies on an annual basis. Management identifies and evaluates our financial risks and is charged with the responsibility of establishing controls and procedures to ensure financial risks are mitigated in accordance with the approved policies.

Our financial instruments consist of cash, restricted cash, short-term investments due from shareholders, accounts receivable and other receivables, amounts due to and from related parties, accounts payable and accrued liabilities, notes payable and convertible debt. The carrying value of the Company's cash, restricted cash, other receivable, amounts due and from related parties, notes payable and accounts payable and accrued liabilities approximate their fair value due to their short terms to maturity.

Our risk exposures and the impact on our financial instruments are summarized below:

Credit Risk

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. Our credit risk is primarily attributable to our liquid financial assets including cash and restricted cash. Our financial assets are cash, restricted cash, short-term investments due from shareholders, accounts receivable and other receivables. Our maximum exposure to credit risk, as at period end, is the carrying value of our financial assets, being $3,049,599 and $7,362,354 as of September 30, 2025, and December 31, 2024, respectively. We hold cash, restricted cash and short-term investments with major financial institutions, therefore minimizing our credit risk. We historically have had no issues with collecting amounts receivable.

Liquidity Risk

Liquidity risk is the risk that we will not be able to meet financial obligations as they fall due. We manage liquidity by maintaining adequate cash balances and by raising equity and debt financing. We have no assurance that such financings will be available on favorable terms in the future. In general, we attempt to avoid exposure to liquidity risk by obtaining corporate financing through the issuance of shares or convertible debt.

As of September 30, 2025, we had cash of $2,645,121 to settle current liabilities of $17,642,168 which fall due for payment within twelve months of the unaudited condensed consolidated interim balance sheet.

Market Risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect our income or value of holdings or financial instruments. As of September 30, 2025, and 2024, our exposure to market risk was insignificant as we did not hold material amounts of financial instruments in foreign currencies, not did we hold any debt that was subject to variable interest rates.

Inflation Risk

We do not believe that inflation had a significant impact on our results of operations for any periods presented in our unaudited condensed consolidated interim financial statements. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs, and our inability or failure to do so could harm our business, financial condition and results of operations.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal period ended September 30, 2025, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer concluded that during the period covered by this report, our disclosure controls and procedures were not effective as our management has identified a material weakness.

Material Weaknesses

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual financial statements will not be prevented or detected in a timely manner.

During the year ended December 31, 2024, a material weakness was identified in our financial reporting controls over complex debt accounting.

During the nine months ended September 30, 2025, two material weaknesses were identified. The first material weakness was incorrect recognition of stock-based compensation. The second material weakness was the Company did not obtain approval for all related party transactions.

Remediation Efforts to Address the Identified Material Weaknesses

We plan to enhance our processes to identify and appropriately apply applicable accounting requirements to better evaluate debt accounting requirements that apply to our financial statements. Our plans at this time include providing enhanced access to accounting literature and research materials, and increased communication among our personnel and third-party professionals. We plan to enhance our processes in our treasury functions to improve transparency and controls. Our plans at this time, include implementation of enhanced matrix of approval authorities and review requirements on banking transactions.

The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.

Changes in Internal Control over Financial Reporting

Except as described above under "Remediation Efforts to Address the Identified Material Weaknesses", there was no change in our internal control over financial reporting during the fiscal quarter ended September 30, 2025 covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item. You should carefully consider the risks discussed in the section entitled "Risk Factors" in our Offering Circular filed with the SEC on December 10, 2025, pursuant to Rule 253(g)(1) under the Securities Act, in relation to post-qualification amendment #3 to our offering statement on Form 1-A filed with the SEC on December 2, 2025, and qualified by the SEC on December 10, 2025 (the "Offering Circular"), which could materially affect our business, financial condition, or future results. The risks described in our Offering Circular are not the only risks we face. Additional risks and uncertainties not currently known to us or that we do not currently deem material, may also materially affect our business, results of operations, cash flows and financial position.