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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2023

Summary of Significant Accounting Policies

Principles of consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries as of September 30, 2023, and December 31, 2022. Significant intercompany balances and transactions have been eliminated.

Use of estimates

The condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. Preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable. This applies in particular to useful lives of long-lived assets, reserves for accounts receivable and inventory, valuation allowance for deferred tax assets, fair values assigned to intangible assets acquired, and impairment of long-lived assets. Actual results could differ significantly from our estimates. To the extent that there are material differences between these estimates and actual results, the Company’s future financial statement presentation, financial condition, results of operations and cash flows will be affected.

Reclassification

Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings and financial position. The following table summarize the effects of the reclassifications on each financial statement line item for the periods indicated.

Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2022


	Three months ended 9/30/22						Nine months ended 9/30/22
	Previously Filed		Effect of Reclassification		Current period presentation		Previously Filed		Effect of Reclassification		Current period presentation
Cost of revenue	21,218,317		676,442		21,894,759		60,283,597		1,993,591		62,277,188
Gross Profit	6,268,098		(676,442)		5,591,656		18,066,098		(1,993,591)		16,072,507
General and administrative expenses	10,186,857		(602,822)		9,584,035		28,604,937		(1,956,614)		26,648,323
Research and development	88,960		(62,358)		26,602		675,725		31,556		707,281
Total operating expenses	10,160,117		(665,180)		9,494,937		23,342,512		(1,925,058)		21,417,454
Loss from operations	(3,892,019)		(11,262)		(3,903,281)		(5,276,414)		(68,533)		(5,344,947)
Interest expense	(1,055,687)		4,448		(1,051,239)		(2,627,122)		(9,833)		(2,636,955)
Other income (expense)	(12,940)		6,814		(6,126)		278,439		78,366		356,805
Total other income (expenses)	(1,068,627)		11,262		(1,057,365)		(2,348,683)		68,533		(2,280,150)
Net income (loss)	$	(4,764,370)	$	—	$	(4,764,370)	$	(7,224,124)	$	—	$	(7,224,124)

Cash

Cash and cash equivalents consist of cash and short-term investments with original maturities of less than 90 days. As of September 30, 2023, and December 31, 2022, the Company had no cash equivalents.

The Company places its cash with credit quality institutions. At times, such amounts may be in excess of the FDIC insurance limit. As of September 30, 2023 and December 31, 2022, deposits in excess of FDIC limits were $2.3 million and $2.0 million, respectively.

Major Customers & Vendors

The Company had one customer within A4 Technology - RCA segment that made up 10% of total Company accounts receivable as of September 30, 2023. The Company had no customers that made up over 10% of total Company accounts receivable as of December 31, 2022.

For the nine months ended September 30, 2023, the Company had no customers that made up over 10% of total Company revenues. For the nine months ended September 30, 2022, the Company had one customer within the A4 Technology - RCA segment that made up 12% of total Company revenues.

For the nine months ended September 30, 2023 and 2022, the Company earned 10% and 11%, respectively, of total Company revenues from prime contractors.

For the nine months ended September 30, 2023, the Company had no vendors that made up over 10% of total Company purchases. For the nine months ended September 30, 2022, the Company had one vendor within the A4 Technology - RCA segment that made up 14% of total Company purchases.

Inventory

Inventory for all subsidiaries is valued at weighted average cost. Management compares the cost of inventory with its net realizable value and an allowance is made to write down inventory to net realizable value, if lower. Inventory is segregated into three areas, raw materials, work-in-process and finished goods. Inventory at September 30, 2023, and December 31, 2022, consisted of:


	September 30, 2023		December 31, 2022
Raw materials	$	9,419,043	$	9,116,824
Work in process	2,657,123		3,165,876
Finished goods	10,158,312		12,975,669
Inventory	$	22,234,478	$	25,258,369

Goodwill

In financial reporting, goodwill is not amortized, but is tested for impairment annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Events that result in an impairment review include

significant changes in the business climate, declines in our operating results, or an expectation that the carrying amount may not be recoverable. We assess potential impairment by considering present economic conditions as well as future expectations. All assessments of goodwill impairment are conducted at the individual reporting unit level. As of September 30, 2023, the reporting units with goodwill were: TDI and RCA. As of December 31, 2022, the reporting units with goodwill were: QCA-W, MSM, Alt Labs, TDI, IDT, Elecjet Corporation ("Elecjet"), and RCA. See Note 3 - Goodwill and Intangible Assets for additional details.

Impairment of Long-Lived Assets

The Company accounts for long-lived assets in accordance with the provisions of ASC Topic 360, Accounting for the Impairment of Long-Lived Assets. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when the estimated future cash flows from the use of the asset is less than the carrying amount of that asset. See Note 3 - Goodwill and Intangible Assets for additional details.

Fair value measurements

Accounting Standards Codification ("ASC") 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

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

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

We apply the provisions of fair value measurement to various nonrecurring measurements for our financial and nonfinancial assets and liabilities. The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, notes payable and lines of credit. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.

We calculate the estimated fair value of a reporting unit using a combination of the income and market approaches. For the income approach, we use DCF models developed in connection with our third-party valuation specialists that include the following assumptions, among others: projections of revenues, expenses, and related cash flows based on assumed long-term growth rates; and estimated discount rates. For the market approach, we use analyses based primarily on market comparables. We base these assumptions on historical data and experience, industry projections, and general economic conditions.

The carrying value of long-term debt approximates fair value since the related rates of interest approximate current market rates. As of September 30, 2023, and December 31, 2022, the Company had no financial assets or liabilities that were required to be fair valued on a recurring basis as all of our financial assets and liabilities were Level 1.

Research and Development

The Company focuses on quality control and development of new products and the improvement of existing products. All costs related to research and development activities are expensed as incurred. During the nine months ended September 30, 2023 and 2022, research and development costs totaled $3.1 million and $0.7 million, respectively.

Loss per share

The Company presents both basic and diluted net loss per share on the face of the condensed consolidated statements of operations. Basic net loss per share is computed by dividing net loss attributable to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted per share calculations give effect to all potentially dilutive shares of common stock outstanding during the period, including stock options and warrants, using the treasury-stock method. If antidilutive, the effect of potentially dilutive shares of common stock is ignored. The amount of

anti-dilutive shares related to stock options and warrants as of September 30, 2023 and 2022 was 2,878,496 and 2,725,270. respectively. The following table illustrates the computation of basic and diluted earnings per share (“EPS”) inclusive of all classes of common stock as the only difference between the classes of common stock are related to the voting rights for the Three and nine months ended September 30, 2023 and 2022:


	For the Three Months Ended September 30, 2023						For the Three Months Ended September 30, 2022
	Net Loss		Shares		Per Share Amount		Net Loss		Shares		Per Share Amount
Basic EPS
Net loss attributable to common shareholders	$	(40,867,608)	27,409,203		$	(1.49)	$	(4,764,370)	24,721,070		$	(0.19)



Total	$	(40,867,608)	$	27,409,203	$	(1.49)	$	(4,764,370)	$	24,721,070	$	(0.19)

	For the Nine Months Ended September 30, 2023						For the Nine Months Ended September 30, 2022
	Net Loss		Shares		Per Share Amount		Net Loss		Shares		Per Share Amount
Basic EPS
Net loss attributable to common shareholders	$	(51,038,858)	25,666,740		$	(1.99)	$	(7,224,124)	23,472,306		$	(0.31)



Total	$	(51,038,858)	25,666,740		$	(1.99)	$	(7,224,124)	23,472,306		$	(0.31)

Revenue Recognition

The Company recognizes revenue under ASC Topic 606, Revenue from Contracts with Customers ("Topic 606"). The following is a summary of the revenue recognition policy for each of the Company’s subsidiaries.

Revenue is recognized under Topic 606, at a point in time and over a period of time, in a manner that reasonably reflects the delivery of its services and products to customers in return for expected consideration and includes the following elements:

–executed contract with the Company's customers that it believes are legally enforceable;

–identification of performance obligations in the respective contract;

–determination of the transaction price for each performance obligation in the respective contract;

–allocation of the transaction price to each performance obligation; and

–recognition of revenue only when the Company satisfies each performance obligation.

QCA and Alt Labs

QCA (Circuit boards and cables) and Alt Labs (Supplements) are contract manufacturers and recognize revenue when the products have been built and control has been transferred to the customer. If a deposit for product or service is received prior to completion, the payment is recorded as deferred revenue until such point the product or services meets our revenue recognition policy. Management assesses the materiality and likelihood of warranty work and returns, and records reserves as needed, and have determined that the warranty and returns would be immaterial for the periods presented.

Elecjet

Elecjet is a manufacturer of electric components, and a research and development company for battery technology and recognizes revenue when the products have been shipped to the customer. If a deposit for a product or service is received prior to completion, the payment is recorded as deferred revenue until such point the product or services meets our revenue recognition policy. Management assesses the materiality and likelihood of warranty work and returns, and records reserves as needed, and have determined that the warranty and returns would be immaterial for the periods presented.

Identified Technologies

Identified Technologies provides 3D mapping drone software and data for industrial job sites and recognizes revenue when the service has been provided to the customer. If a deposit for a product or service is received prior to completion, the payment is recorded as deferred revenue until such point the product or services meets our revenue recognition policy.

Management assesses the materiality and likelihood of warranty work and returns, and records reserves as needed, and have determined that the warranty and returns would be immaterial for the periods presented.

Direct Tech Sales (“RCA”)

RCA is engaged in the design, manufacture and wholesale distribution of electronics such as televisions, mounting solutions, projectors and screens, audio equipment, digital signage, mobile audio and video systems, and all wire and connecting products throughout the United States of America. RCA recognizes revenue when the products have been shipped to the customer which is also when title transfers. If a deposit for a product or service is received prior to completion, the payment is recorded as deferred revenue until such point the product or services meets our revenue recognition policy. Management assesses the materiality and likelihood of warranty work and returns, and records reserves as needed, and have determined that the warranty and returns would be immaterial for the periods presented.

MSM, Excel and TDI

For our construction contracts, revenue is generally recognized over time as our performance creates or enhances an asset that the customer controls as it is created or enhanced. Our fixed price construction projects generally use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. For certain of our revenue streams, that are performed under time and materials contracts, our progress towards complete satisfaction of such performance obligations is measured using an output method as the customer receives and consumes the benefits of our performance completed to date. Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident.

Contract Assets and Contract Liabilities

The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from our construction projects when revenues recognized under the cost-to-cost measure of progress exceed the amounts invoiced to our customers, as the amounts cannot be billed under the terms of our contracts. Such amounts are recoverable from our customers based upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of a contract. In addition, many of our time and materials arrangements, are billed pursuant to contract terms that are standard within the industry, resulting in contract assets being recorded, as revenue is recognized in advance of billings. Our contract assets do not include capitalized costs to obtain and fulfill a contract. Contract assets are generally classified as current within the consolidated balance sheets.

Contract liabilities from our construction contracts arise when amounts invoiced to our customers exceed revenues recognized under the cost-to-cost measure of progress. Contract liabilities additionally include advanced payments from our customers on certain contracts. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation.

The following tables present our revenues disaggregated by type for the three months ended September 30, 2023 and 2022:


	Three Months Ended September 30, 2023
	Construction Services		Manufacturing		Defense		Technologies		Aerospace		Total
Sale of goods	$	—	$	10,767,541	$	—	$	8,062,587	$	—	$	18,830,128
Sale of services	4,305,614		—		2,074,058		—		391,004		6,770,676
Total revenues	$	4,305,614	$	10,767,541	$	2,074,058	$	8,062,587	$	391,004	$	25,600,804


	Three Months Ended September 30, 2022
	Construction Services		Manufacturing		Defense		Technologies		Aerospace		Total
Sale of goods	$	—	$	7,354,658	$	—	$	11,581,471	$	—	$	18,936,129
Sale of services	5,097,834		—		3,098,735		—		353,717		8,550,286
Total revenues	$	5,097,834	$	7,354,658	$	3,098,735	$	11,581,471	$	353,717	$	27,486,415

The following tables present our revenues disaggregated by type for the nine months ended September 30, 2023 and 2022:


	Nine Months Ended September 30, 2023
	Construction Services		Manufacturing		Defense		Technologies		Aerospace		Total
Sale of goods	$	—	$	32,974,478	$	—	$	24,278,970	$	—	$	57,253,448
Sale of services	12,112,504		—		7,457,508		—		1,161,083		20,731,095
Total revenues	$	12,112,504	$	32,974,478	$	7,457,508	$	24,278,970	$	1,161,083	$	77,984,543


	Nine Months Ended September 30, 2022
	Construction Services		Manufacturing		Defense		Technologies		Aerospace		Total
Sale of goods	$	—	$	23,533,228	$	—	$	30,631,117	$	—	$	54,164,345
Sale of services	14,823,297		—		8,258,923		—		1,103,130		24,185,350
Total revenues	$	14,823,297	$	23,533,228	$	8,258,923	$	30,631,117	$	1,103,130	$	78,349,695