What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-03-19 compared with 2024-08-08 · 97 added, 273 removed, 5 unchanged (99% of the section changed)

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion

should be read in conjunction with our audited consolidated financial statements and related notes and other financial data included

elsewhere in this Annual Report on Form 10-K.

In addition to our historical consolidated financial information, the following discussion

contains forward-looking statements that reflect our plans, estimates, and beliefs.

Our actual results could differ materially from those

discussed in the forward-looking statements.

For more information regarding forward-looking statements, please refer to the discussion

above under the heading “Forward-Looking Statements.”

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our audited consolidated financial statements and related notes and other financial data included elsewhere in this Annual Report on Form 10-K.

In addition to our historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs.

Our actual results could differ materially from those discussed in the forward-looking statements.

For more information regarding forward-looking statements, please refer to the discussion above under the heading “Forward-Looking Statements.”

Recent Developments

Corporate developments

during the two years ended April 30, 2024 include:

the first quarter of fiscal 2022, the Company completed two firm commitment underwritten public offerings with ThinkEquity, a division

of Fordham Financial Management.

The first offering, in May 2021, generated gross and net proceeds of $16 and $14.6 million, respectively.

The second offering, in July 2021, generated gross and net proceeds of $60 and $55.5 million, respectively.

December 11, 2023, the Company completed a firm commitment underwritten public offering with ThinkEquity of 18,400,000 shares of common

stock which generated gross and net proceeds of $9.2 and $8.4 million, respectively.

Plan of Operations

Since April 2016, the

Company's primary business has been to provide products, services, and solutions to the drone industry which it presently does through

its four wholly owned subsidiaries.

Beginning in January 2020, the Company expanded the scope of its drone products and services through

four acquisitions, including:

In January 2020, the Company acquired Rotor Riot, a provider of First

Person View (FPV) drones and equipment, primarily to the consumer marketplace.

The purchase price was $1,995,114.

In November 2020, the Company acquired Fat Shark Holdings, a provider

of FPV video goggles to the drone industry.

The purchase price was $8,354,076.

In May 2021, the Company acquired Skypersonic which provides hardware

and software solutions that enable drones to complete inspection services in locations where GPS is not available, yet still record

and transmit data even while being operated from thousands of miles away.

The purchase price was $2,791,012.

In August 2021,

the Company acquired Teal Drones, a leader in commercial and government UAV (Unmanned Aerial Vehicles) technology.

The purchase price

was $10,011,279.

Following the Teal

acquisition in August 2021, we concentrated on integrating and organizing these businesses.

Effective May 1, 2022, we established the

Enterprise segment and the Consumer segment to focus on the unique opportunities in each sector.

The Enterprise segment’s initial

strategy was to provide UAVs to commercial enterprises, and the military, to navigate dangerous military environments and confined industrial

and commercial interior spaces.

Subsequently, the segment narrowed its near-term attention on the military and other government agencies.

Skypersonic's technology has been redirected to military applications and its operations consolidated into Teal.

The Enterprise segment’s

current business strategy is focused on providing integrated robotic hardware and software for use across a variety of applications.

Its solutions provide critical situational awareness and actionable intelligence to on-the-ground warfighters and battlefield commanders

as well as firefighters and public safety officials.

Our Enterprise segment’s efforts are centered on developing and scaling an

American made family of systems.

We have since completed construction of a manufacturing facility in Salt Lake City and believe that

an increased focus by the United States government and American businesses on purchasing products that are “Made in America”

provide our Enterprise segment with a competitive advantage.

On February 16, 2024,

we closed the sale of our Consumer segment, consisting of Rotor Riot and Fat Shark, to Unusual Machines.

The sale reflects our decision

to focus our efforts and capital on defense where we believe there are more opportunities to create long term shareholder value.

Results of Operations

analysis of the Company's results of operations for the year ended April 30, 2024 ("Fiscal 2024") compared to the year ended

April 30, 2023 ("Fiscal 2023") includes only the Company’s Enterprise segment as our Consumer segment was divested in

February 2024.

At the end of Fiscal 2023, the Company recognized an impairment loss of $2,826,918 related to Skypersonic goodwill which

was written down to zero.

In addition, its operations were consolidated into Teal.

Skypersonic's operating results represented 0% and

2% of consolidated revenues and operating loss for Fiscal 2024.

Based on its immateriality, Skypersonic is not included in the operating

analysis set forth below.

Discussion and

Analysis of Fiscal 2024 compared to Fiscal 2023

revenues totaled $17,836,382 during the year ended April 30, 2024 (or the "2024 period") compared to $4,620,834 during the

year ended April 30, 2023 (or the "2023 period") representing an increase of $13,215,548, or 286%.

The increase primarily related

to higher product revenue related to the launch of the Teal 2 in April 2023.

Product revenue totaled $13,588,372 during the year

ended April 30, 2024 compared to $3,012,470 during the year ended April 30, 2023 representing an increase of $10,575,902, or 351%.

The increase in revenue also partially related to increased contract revenues during the 2024 period.

Contract revenues totaled $4,173,005

during the 2024 period compared to $1,312,427 during the 2023 period, representing an increase of $2,860,578, or 218%.

revenues are primarily sourced through government agencies and can fluctuate from period to period based on the timing of award deliverables

and amendments.

gross profit totaled $3,680,546 during the 2024 period compared to negative $834,311 during the 2023 period representing an increase

of $4,514,857, or 541%.

On a percentage basis, gross profit was 21% during the 2024 period compared to negative 18% during the 2023 period.

The percentage basis increase in gross profit in the 2024 period primarily related to obsolete inventory write-offs that occurred during

the 2023 period.

Additionally, lower manufacturing levels in the 2023 period resulted in higher relative overhead costs compared to the

Our manufacturing facility is presently producing drones at a lower level than it is designed for, and these lower production

levels, combined with higher overhead costs, continue to result in lower than targeted gross profits.

As production levels increase,

our fixed overhead costs, including labor, are expected to be allocated to a greater number of drones which is expected to drive our

per-drone production costs lower and increase gross profits.

Change in Fiscal Year

In September 2024, our Board of Directors approved a change in fiscal year end from April 30 to December 31, effective as of December 31, 2024.

In accordance with SEC regulations, our Consolidated Financial Statements are comprised of our Consolidated Balance Sheets as of December 31, 2025 and 2024 and our Consolidated Statements of Operations, Consolidated Statements of Stockholders' Equity, Consolidated Statements of Cash Flows for the year ended December 31, 2025, eight months ended December 31, 2024, and year ended April 30, 2024.

As a result, this Management’s Discussion and Analysis of Financial Condition and Results of Operations is comparing our results of operations for the year ended December 31, 2025 with our results of operations for the eight month period ended December 31, 2024 and the year ended April 30, 2024.

Capital Transactions

In April 2025, we entered into a securities purchase agreement with certain institutional investors pursuant to which we issued and sold, in a registered direct offering, an aggregate of 4,724,412 shares of our common stock, par value $0.001 per share, at a price of $6.35 per share.

The gross proceeds were approximately $30 million, before deducting the placement agents’ fees and other offering expenses.

In June 2025, we entered into a securities purchase agreement with certain institutional investors pursuant to which we issued and sold, in a registered direct offering, an aggregate of 6,448,276 shares of our common stock, par value $0.001 per share, at a price of $7.25 per share.

The gross proceeds were approximately $46.8 million, before deducting the placement agents’ fees and other offering expenses.

In September 2025, we entered into an underwriting agreement with a certain institutional investor pursuant to which we issued and sold, in a registered direct offering, an aggregate of 15,625,000 shares of our common stock, par value $0.001 per share, at a price of $9.60 per share.

We also granted the underwriters a thirty day option to purchase up to an additional 2,343,750 shares of common stock at the public offering price, which the underwriters exercised in full at closing.

The gross proceeds were approximately $172.5 million, before deducting the underwriters’ fees and other offering expenses.

Discussion and Analysis of Year Ended December 31, 2025 compared to Eight Month Transition Period Ended December 31, 2024 and Year Ended April 30, 2024

Consolidated revenues totaled $40.7 million during the year ended December 31, 2025 (or the “2025 Period”) compared to $4.9 million during the eight months ended December 31, 2024 (or the "Transition Period") and compared to $17.8 million during the year ended April 30, 2024 (or the "2024 Period").

This represents an increase of $35.8 million , or 739% compared to the Transition Period and an increase of $22.9 million, or 128% compared to the 2024 Period .

The increase compared to both periods is attributable primarily to increased revenue associated with the commencement and scaling of drone deliveries to the U.S.

Army under the SRR program.

Consolidated gross profit totaled $1.3 million during the 2025 Period compared to gross loss of $1.4 million during the Transition Period and gross profit of $3.7 million during the 2024 Period.

This represents an increase of $2.7 million , or 195% compared to the Transition Period and a decrease of $2.4 million, or 65% compared to the 2024 Period .

percentage basis, gross profit was 3% during the 2025 Period compared to gross loss of 28% during the Transition Period and gross profit of 21% during the 2024 Period .

Our manufacturing facility is currently operating below its designed production capacity.

These lower production levels, combined with higher fixed overhead costs, have resulted in lower gross margins during the 2025 Period.

As production volumes increase, we expect fixed overhead costs, including labor, to be allocated across a greater number of units, which is expected to reduce per-unit production costs and improve gross margins.

Operating Expenses

Research and development

expenses totaled $5,896,037 during the 2024 period compared to $5,595,281 during the 2023 period, representing an increase of $300,756,

Supplies and materials expense totaled $2,017,979 in the 2024 period compared to $1,444,051 in the 2023 period.

This increase

of $573,928, or 40%, primarily related to increased efforts in developing new products and represented substantially all of the total

increase in research and development costs.

Sales and marketing

costs totaled $4,568,617 during the 2024 period compared to $3,731,776 during the 2023 period, representing an increase of $836,841 or

The increase was driven by higher payroll expenses to support increased sales efforts of the Teal 2.

General and administrative

expenses totaled $10,679,105 during the 2024 period compared to $12,383,470 during the 2023 period, representing a decrease of $1,704,365

The decrease primarily related to lower professional fees.

During the 2024 period,

we incurred stock-based compensation costs of $3,609,267 compared to $3,656,724 in the 2023 period, resulting in a decrease of $47,457

Other expense totaled

$3,650,484 during the 2024 period compared to $1,004,887 during the 2023 period, representing a decrease of $2,645,597 or 263%.

the 2024 period, the divestiture of the Consumer segment resulted in a gain of $9,642,427, impairment of $11,353,875, and an equity method

loss of $503,625.

Additionally, during the 2024 period, the Company was awarded a manufacturing modernization grant from the State

of Utah for $750,000 of which $675,000 is attributable to the 2024 period.

Net Loss from Continuing

Net loss from continuing

operations totaled $21,526,696 for the 2024 period compared to $26,376,643 for the 2023 period, resulting in a decrease of $4,849,947

Total operating expenses totaled $21,556,758 for the 2024 period compared to $24,537,445 for the 2023 period.

The decrease in

operating expenses was offset by the increase in other expense.

Higher gross profit is attributable to the decrease in net loss from

continuing operations.

Results of Discontinued

Net loss from discontinued

operations totaled $2,525,933 for the 2024 period compared to $1,730,386 for the 2023 period, representing an increase of $795,547, or

Net loss for Fat Shark totaled $1,365,707 for the 2024 period, compared to $543,962 for the 2023 period, representing an increase

of $821,745 or 151%, and represents 103% of the total increase in net loss from discontinued operations.

Fat Shark’s results were

adversely impacted by a charge of $1,244,920 during the 2024 period related to the write-off of excess quantities of Dominator inventory

based on sales volumes.

Net loss for Rotor Riot totaled $1,160,226 for the 2024 period compared to $1,186,424 for the 2023 period, representing

a decrease of $26,198 or 2%.

Research and development expenses totaled $17.9 million during the 2025 Period compared to $6.6 million during the Transition Period and $6.3 million during the 2024 period.

This represents an increase of $11.3 million, or 171% compared to the Transition Period and an increase of $11.6 million, or 186% compared to the 2024 Period.

The increase compared to both periods was attributable primarily to increased investment in research and development activities, including engineering personnel costs, prototype development, testing, and other expenses associated with the development of new and enhanced drone platforms and related technologies.

Sales and marketing costs totaled $13.1 million during the 2025 Period compared to $6.3 million during the Transition Period and $5.1 million during the 2024 Period.

This represents an increase of $6.8 million, or 107% compared to the Transition Period and an increase of $8.0 million, or 158% compared to the 2024 Period.

The increase compared to both periods was attributable primarily to higher payroll and related personnel costs associated with expanding our sales and marketing team to support increased business development and customer engagement activities.

General and administrative expenses totaled $36.9 million during the 2025 Period compared to $11.5 million during the Transition Period and $11.2 million during the 2024 Period.

This represents an increase of $25.4 million, or 222% compared to the Transition Period and $25.7 million, or 229% compared to the 2024 Period.

The increase compared to both periods was attributable primarily to higher payroll and related personnel costs resulting from increased headcount, as well as higher stock-based compensation expense.

These increases reflect the expansion of our corporate, administrative, and compliance functions to support growth during the 2025 Period.

Other Expense

Other expense totaled $5.0 million during the 2025 Period compared to $17.8 million during the Transition Period and $2.2 million during the 2024 Period.

This represents a decrease of $12.8 million or 72% compared to the Transition Period and an increase of $2.8 million, or 126% compared to the 2024 Period.

During the 2025 Period, other expense consisted primarily of a fair value adjustment on convertible notes payable of $11.4 million, partially offset by a gain on extinguishment of convertible notes payable of $3.2 million and net interest income of $2.7 million.

During the Transition Period, other expense consisted primarily of a fair value adjustment on convertible note payable of $13.1 million and a loss on sale of equity method investment of $4.0 million.

During the 2024 Period, other expense consisted primarily of impairment on equity method investment of $11.4 million, partially offset by a gain of $9.6 million related to the divestiture of the Consumer segment.

Net loss from continuing operations totaled $72.1 million during the 2025 Period compared to $43.6 million during the Transition Period and $21.5 million during the 2024 period.

This represents a decrease of $28.5 million, or 65% compared to the Transition Period and a decrease of $50.6 million, or 235% compared to the 2024 Period.

Operating Activities

Net cash used in operating

activities was $17,687,063 during the 2024 period compared to net cash used in operating activities of $24,313,674 during the 2023 period,

representing a decrease of $6,626,611 or 27%.

The decreased use of cash primarily related to timing of accounts receivable receipts for

government customers.

Net cash used in operations, net of non-cash expenses, totaled $8,512,449 during the 2024 period, compared to $7,784,364

during the 2023 period, resulting in an increase of $728,085, or 9%.

Net cash used related to changes in operating assets and liabilities

totaled $4,672,816 during the 2024 period, compared to $5,721,395 during the 2023 period, representing a decrease of $1,048,579 or 18%.

Changes in operating assets and liabilities can fluctuate significantly from period to period depending upon the timing and level of

multiple factors, including inventory purchases, vendor payments, and customer collections.

Net cash used in operating activities was $89.1 million during the 2025 Period compared to $20.5 million during the Transition Period and $17.7 million during the 2024 Period.

This represents an increase of $68.6 million compared to the Transition Period and an increase of $71.4 million compared to the 2024 Period.

The increase compared to both periods was attributable primarily to the increase in net loss during the 2025 period.

Non-cash expenses totaled $20.5 million during the 2025 period, compared to $22.6 million during Transition Period and $8.5 million during the 2024 Period.

Net cash used related to changes in operating assets and liabilities totaled $37.6 million during the 2025 Period.

Net cash provided by related to changes in operating assets and liabilities totaled $0.4 million during the Transition Period.

used related to changes in operating assets and liabilities totaled $4.7 million during the 2024 Period.

Changes in operating assets and liabilities can fluctuate significantly from period to period depending upon the timing and level of multiple factors, including inventory purchases, vendor payments, and customer collections.

Investing Activities

Net cash provided by investing activities was $13,567,078

during the 2024 period compared to net cash provided by investing activities of $29,590,235 during the 2023 period, resulting in a decrease

of $16,023,157 or 54%.

Proceeds of $12,826,217 and $32,290,448 from the sale of marketable securities were used to fund operations during

the 2024 period and the 2023 period, respectively.

Net cash used in investing activities was $6.6 million during the 2025 Period compared to net cash provided by investing activities of $4.2 million during the Transition Period and $13.6 million during the 2024 Period.

During the 2025 Period, net cash used in investing activities consisted entirely of purchases of property and equipment totaling $6.6 million, compared to purchases of property and equipment of $0.2 million during the Transition Period and $0.3 million during the 2024 Period.

During the Transition Period, net cash provided by investing activities was primarily attributable to proceeds of $4.4 million from the sale of equity method investment and note receivable.

During the 2024 Period, net cash provided by investing activities was primarily attributable to proceeds of $12.8 million from the sale of marketable securities and $1.0 million from the divestiture of the consumer segment.

Financing Activities

Net cash provided by

financing activities totaled $7,802,076 during the 2024 period compared to net cash used in financing activities of $1,215,325 during

the 2023 period.

Financing activities can vary from period to period depending upon market conditions, both at a macro-level and specific

to the Company.

During the fiscal 2024 period, the company received net proceeds from issuance of common stock of $8,395,600.

Liquidity and

Capital Resources

At April 30, 2024,

the Company reported current assets totaling $22,397,549, current liabilities totaling $3,651,130 and net working capital of $18,746,419.

Cash totaled $6,067,169 at April 30, 2024.

Inventory related balances, including pre-paid inventory, totaled

Going Concern

Company has never been profitable and has incurred net losses related to acquisitions, as well as costs incurred to pursue its long-term

growth strategy.

During the year ended April 30, 2024, the Company incurred a net loss from continuing operations of $21,526,696

and used cash in operating activities of continuing operations of $17,687,063 .

As of April 30, 2024, working capital for continuing operations totaled $18,746,419 .

financial results and our financial position at April 30, 2024 raise substantial doubt about our ability to continue as a going

However, the Company has recently taken actions to strengthen its liquidity.

On December 11, 2023, we completed a public

offering of 18,400,000 shares of common stock which generated net proceeds of approximately $8,400,000.

Subsequent to year end, the Company

sold its equity method investment for $4,400,000.

In addition, the Company’s operating plan for the next twelve months has been

updated to reflect recent operating improvements.

Revenues have accelerated and are expected to continue growing.

The Company’s

manufacturing facility is scaling production and gross profits are projected to increase.

If necessary, the Company will seek to

obtain additional debt financing for which there can be no guarantee.

Management has concluded that these recent positive developments

alleviate any substantial doubt about the Company’s ability to continue its operations, and meet its financial obligations,

for twelve months from the date these consolidated financial statements are issued.

Critical Accounting

Policies and Estimates

Our financial statements

and accompanying notes have been prepared in accordance with GAAP applied on a consistent basis.

The preparation of financial statements

in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,

the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and

expenses during the reporting periods.

regularly evaluate the accounting policies and estimates that we use to prepare our financial statements.

A complete summary of these

policies is included in the notes to our financial statements.

In general, management's estimates are based on historical experience,

information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances.

Actual results could differ from those estimates made by management.

Significant estimates reflected in these financial

statements include those used to (i) complete purchase price accounting for acquisitions, (ii) the evaluation of long-term assets, including

goodwill, for impairment, and (iii) the evaluation of other-than-temporary-impairment of equity method investments.

and Long-lived Assets – Goodwill represents the future economic benefit arising from other assets acquired in an acquisition that

are not individually identified and separately recognized.

We test goodwill for impairment in accordance with the provisions of ASC

350, Intangibles – Goodwill and Other, (“ASC 350”).

Goodwill is tested for impairment at least annually at

the reporting unit level or whenever events or changes in circumstances indicate that goodwill might be impaired.

ASC 350 provides that

an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a

determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If, after assessing

the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit

is less than its carrying amount, then additional impairment testing is not required.

However, if an entity concludes otherwise, then

it is required to perform an impairment test.

The impairment test involves comparing the estimated fair value of a reporting unit with

its book value, including goodwill.

If the estimated fair value exceeds book value, goodwill is considered not to be impaired.

the fair value of the reporting unit is less than book value, then an impairment loss is recognized in an amount equal to the amount

that the book value of the reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting

estimate of fair value of a reporting unit is computed using either an income approach, a market approach, or a combination of both.

Under the income approach, we utilize the discounted cash flow method to estimate the fair value of a reporting unit.

Significant assumptions

inherent in estimating the fair values include the estimated future cash flows, growth assumptions for future revenues (including gross

profit, operating expenses, and capital expenditures), and a rate used to discount estimated future cash flow projections to their present

value based on estimated weighted average cost of capital (i.e., the selected discount rate).

Our assumptions are based on historical

data, supplemented by current and anticipated market conditions, estimated growth rates, and management’s plans.

Under the market

approach, fair value is derived from metrics of publicly traded companies or historically completed transactions of comparable businesses.

The selection of comparable businesses is based on the markets in which the reporting units operate and consider risk profiles, size,

geography, and diversity of products and services.

Values, Inputs and Valuation Techniques for Financial Assets and Liabilities and Related Disclosures – The fair value measurements

and disclosure guidance defines fair value and establishes a framework for measuring fair value.

Fair value is defined as the price that

would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants

at the measurement date.

In accordance with this guidance, the Company has categorized its recurring basis financial assets and liabilities

into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique.

fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and

the lowest priority to unobservable inputs (Level 3).

The inputs used to measure fair value may fall into different levels of the fair

value hierarchy.

In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has

been determined based on the lowest level input that is significant to the fair value measurement in its entirety.

The Company's assessment

of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific

to the asset or liability.

guidance establishes three levels of the fair value hierarchy as follows:

Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices

for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated

by observable market data for substantially the full term of the related assets or liabilities;

Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported

by little or no market data.

Financial Instruments

The Company's financial

instruments mainly consist of cash, receivables, current assets, accounts payable, accrued expenses and debt.

The carrying amounts of

cash, receivables, current assets, accounts payable, accrued expenses and current debt approximates fair value due to the short-term

nature of these instruments.

Off-Balance Sheet

We have no off-balance

sheet arrangements.

Recently Issued

Accounting Pronouncements

The Company has implemented

all new accounting pronouncements that are in effect.

These pronouncements did not have any material impact on the financial statements

unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued

that might have a material impact on its financial position or results of operations.

AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting

company, we are not required to provide this information.

Net cash provided by investing activities was $254.5 million during the 2025 Period compared to $19.4 million during the Transition Period, and $7.8 million during the 2024 Period.

This represents an increase of $235.1 million compared to the Transition Period and an increase of $246.7 million compared to the 2024 Period.

The increase compared to both periods relates to the proceeds from issuance of common stock during the 2025 Period.

Liquidity and Capital Resources

At December 31, 2025, the Company reported current assets totaling $226.9 million, current liabilities totaling $14.8 million and net working capital of $212.1 million.

Cash totaled $167.9 million at December 31, 2025.

Inventory related balances, including pre-paid inventory, totaled $30.4 million.

Critical Accounting Policies and Estimates

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements.

A complete summary of these policies is included in the notes to our financial statements.

In addition to our critical accounting estimates and polices below, refer to “Note 2 – Summary of Significant Accounting Policies” for further information.

Revenue Recognition

We recognize revenue in accordance with ASC Topic 606 - Revenue from Contracts with Customers, issued by the Financial Accounting Standards Board (“FASB”).

This standard includes a comprehensive evaluation of factors to be considered regarding revenue recognition including (i) identifying the promised goods, (ii) evaluating performance obligations, (iii) measuring the transaction price, (iv) allocating the transaction price to the performance obligations if there are multiple components, and (v) recognizing revenue as each obligation is satisfied.

We determined there to be judgment in the determination of performance obligations identified in certain contracts.

Our revenue transactions include the shipment of goods to customers as orders are fulfilled, completion of non-recurring engineering, completion of training, and customer support services.

We recognizes revenue upon shipment of product or prototypes unless otherwise specified in the purchase order or contract.

Recent Accounting Pronouncements

Recently adopted accounting pronouncements

In December 2023, the FASB issued ASU 2023-09 requiring enhanced annual disclosures regarding the rate reconciliation and income taxes paid, disaggregated by jurisdiction.

This standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

We adopted this ASU on a prospective basis effective January 1, 2025.

Refer to Note 13, Income Taxes for inclusion of new disclosures required.

Recently issued accounting pronouncements not yet adopted

In November 2024, the FASB issued ASU 2024-03 expanding disclosure requirements related to certain income statement expenses.

The amendments require tabular disclosure of certain operating expenses disaggregated into categories, such as purchases of inventory, employee compensation, depreciation, and intangible asset amortization.

The amendments are effective for our fiscal year ending December 31, 2027 and may be applied retrospectively.

While we are still evaluating the specific impacts and adoption method, we anticipate this guidance will have a significant impact on our consolidated financial statement disclosures.

In December 2025, the FASB issued ASU No.

2025-11, Interim Reporting (Topic 270):

Narrow-Scope Improvements.

The ASU clarifies interim disclosure requirements and the applicability of Topic 270.

The objective of the amendments is to provide further clarity about the current interim disclosure requirements.

The ASU is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027.

Adoption of this ASU can be applied either a prospective or a retrospective approach.

Early adoption is permitted.

We are currently evaluating the provisions of this ASU and do not expect this ASU to have a material impact on our consolidated financial statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide this information.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis