Note 2 - Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2025

Notes to Financial Statements

Significant Accounting Policies [Text Block]

Note 2 – Summary of Significant Accounting Policies

Risks and Uncertainties – Global economic challenges, including the impact of the war in Ukraine, rising inflation supply-chain disruptions, and adverse labor market conditions could cause economic uncertainty and volatility. The aforementioned risks and their respective impacts on the UAV industry and the Company’s operational and financial performance remain uncertain and outside of the Company’s control. Specifically, because of the aforementioned continuing risks, the Company’s ability to access components and parts needed in order to manufacture its proprietary drones and sensors, and to perform quality testing have been, and continue to be, impacted. If either the Company or any of its third parties used in our manufacturing and assembly processes continue to be adversely impacted by these matters, the Company’s supply chain may be disrupted, limiting its ability to manufacture and assemble products. The Company expects inflation and supply-chain disruptions and its effects to continue to have a significant negative impact on its business for an extended period of time. The company continues to monitor developments in trade policy and is evaluating alternatives to mitigate the impact of these tariffs, including supplier diversification. However, additional or sustained tariff actions could materially and adversely affect our operations, financial condition, and results of operations.

Use of Estimates – The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the reserve for obsolete inventory, valuation of intangible assets, fair value of derivative liabilities, and deemed dividends resulting from the triggering of down round provisions and modifications to equity-linked instruments.

Accounts Receivable and Credit Policy – Trade receivables due from customers are uncollateralized customer obligations due under normal and customary trade terms. Trade receivables are stated at the amount billed to the customer. As of September 30, 2025, December 31, 2024, and January 1, 2024, the Company had an accounts receivable balance of approximately $2.5 million, $1.4 million and $2.1 million, respectively. The Company generally does not charge interest on overdue customer account balances. Payments of trade receivables are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoices.

        Allowance for Credit Losses - We establish allowances for credit losses on accounts receivable, under ASC 326-20-55-37. The adequacy of these allowances is assessed quarterly through consideration of factors such as customer credit ratings, age of the receivable, expected loss rates and general economic conditions. It is reasonably possible that the Company’s estimate of the allowance for credit losses will change. As of September 30, 2025, December 31, 2024 and January 1, 2024, the Company had an allowance for credit losses balance of $0.22 million, $0.02 million and $0.16 million, respectively.

Revenue Recognition – Most of the Company’s revenues are derived primarily through the sales of drones, sensors and related accessories. The Company utilized ASC Topic 606 and the related amendments, Revenue from Contracts with Customers, which requires revenue to be recognized in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration to which the entity expects to be entitled in exchange for those goods or services.

The Company recognizes revenue on sales to customers, dealers, and distributors upon satisfaction of performance obligations which occurs once controls transfer to customers, which is when product is shipped or delivered depending on specific shipping terms and, where applicable, a customer acceptance has been obtained. The fee is not considered to be fixed or determinable until all material contingencies related to the sales have been resolved. The Company records revenue in the consolidated statements of operations and comprehensive loss, net of any sales, use, value added, or certain excise taxes imposed by governmental authorities on specific sales transactions and net of any discounts, allowances and returns. Therefore, revenue is recognized at a point in time. 

Pursuant to ASC 606, we have the following revenue recognition policies: 

● Sensor Sales – sales are recognized on products when the related goods have been shipped, title has passed to the customer, and there are no undeliverable elements or uncertainties. Amounts incurred related to shipping and handling are included in cost of sales.

● Drone Sales - sales are recognized on products when the related goods have been shipped, title has passed to the customer, and there are no undeliverable elements or uncertainties. Amounts incurred related to shipping and handling are included in cost of sales.

Additionally, customer payments or deposits received in advance of the Company completing performance obligations are recorded as contract liabilities. As of September 30, 2025, December 31, 2024, and January 1, 2024 we have $70,602, $148,054 and $226,316 of advanced customer payments presented as contract liabilities on the accompanying consolidated balance sheets, respectively. Contract liabilities are short term in nature and are expected to be recognized in the next fiscal year. During the nine months ended September 30, 2025, we recognized $96,781 of revenue that was deferred as a contract liability as of December 31, 2024.

Summary of Significant Accounting Policies - A description of all of the Company’s significant accounting policies and other financial information is included in the Company’s audited consolidated financial statements filed on March 31, 2025, with the SEC on Form 10-K for the year ended December 31, 2024. These policies have been applied consistently in these unaudited condensed interim consolidated financial statements.

Income (Loss) Per Common Share and Potentially Dilutive Securities – Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus Common Stock, equivalents (if dilutive) related to warrants, options, and convertible instruments.

For the nine months ended September 30, 2025, the Company has excluded all common equivalent shares outstanding for restricted stock units (“RSUs”), warrants and options to purchase Common Stock and convertible instruments from the calculation of diluted net loss per share, because these securities are anti-dilutive for the three month period due to the net loss incurred.  As of September 30, 2025, the Company had 106,797 unvested RSUs, 2,710,369 warrants and no options outstanding to purchase shares of Common Stock, and 2,143,977 of issuable shares upon the conversion of Series F preferred stock that have been excluded from diluted earnings per share as their inclusion would be anti-dilutive.

For the three and nine months ended September 30, 2024, the Company has excluded all common equivalent shares outstanding for restricted stock units (“RSUs”), options and warrants to purchase Common Stock and convertible instruments from the calculation of diluted net loss per share, because these securities are anti-dilutive for the periods presented which consisted of 7,325 unvested RSUs, 174,807 warrants, 55 options, 183,259 shares issuable upon the conversion of convertible preferred stock and 242,707 shares issuable upon the conversion of convertible debt.

For the three months ended September 30, 2025 and the three and nine months ended September 30, 2024, no adjustments were made to the numerator or denominator in our computation of diluted earnings per share due to the net loss incurred during these periods. Therefore, any such adjustments would have an anti-dilutive effect.

Net income (loss) per common share basic and dilutive is as follows for the three and nine months ended September 30, 2025 and 2024:

		Three Months Ended September 30,						Nine Months Ended September 30,
	2025			2024			2025			2024
Numerator:
Net income (loss)	$	(2,615,163	)	$	(3,459,754	)	$	3,164,500		$	(12,705,049	)
Accrued dividends on Series F Preferred Stock		(36,112	)		(47,879	)		(155,800	)		(158,862	)
Deemed dividends		(208,526	)		(1,450,232	)		(4,942,669	)		(6,707,687	)
Numerator for basic EPS - net income (loss) available to common stockholders		(2,859,801	)		(4,957,865	)		(1,933,969	)		(19,571,598	)
Effect of convertible securities and liability classified equity instrument:
Accrued dividends on Series F Preferred Stock		—			—			155,800			—
Interest expense on convertible note payable		—			—			45,150			—
Gain on change in fair value of warrant liabilities		—			—			(8,511,000	)		—
Numerator for diluted EPS - net loss available to common stockholders	$	(2,859,801	)	$	(4,957,865	)	$	(10,244,019	)	$	(19,571,598	)
Denominator:
Denominator for basic EPS - weighted average shares		32,171,261			309,350			19,888,046			240,309
Effect of dilutive securities:
Incremental shares for outstanding warrants		—			—			—			—
Convertible Series F Preferred Stock		—			—			2,143,977			—
Series A Warrants outstanding alternate cashless exercise		—			—			60,973			—
Unvested restricted stock units		—			—			106,797			—
Denominator for diluted EPS - weighted average shares		32,171,261			309,350			22,199,793			240,309
Net loss per common share - basic	$	(0.09	)	$	(16.03	)	$	(0.10	)	$	(81.44	)
Net loss per common share - diluted	$	(0.09	)	$	(16.03	)	$	(0.46	)	$	(81.44	)

Segment Reporting – In accordance with ASC Topic 280, Segment Reporting, the Company identifies operating segments as components of an entity for which discrete financial information is available and is regularly reviewed by the chief operating decision maker in making decisions regarding resource allocation and performance assessment. The Company defines the term “chief operating decision maker” to be its chief executive officer.

The Company has determined that it operates in two segments:

● Drones, which comprises revenues earned from contractual arrangements to develop, manufacture and /or modify complex drone related products, and to provide associated engineering, technical and other services according to customer specifications.

● Sensors, which comprises the revenue earned through the sale of sensors, cameras, and related accessories.

● Corporate, which comprises corporate costs only, and is not considered an operating segment.

Recently Issued Accounting Pronouncements Not Yet Adopted – In March 2024, the Securities and Exchange Commission (“SEC”) released a final rule that requires registrants to provide comprehensive climate-related disclosures in their annual reports and registration statements, including those for IPOs, beginning with annual reports for the year ending December 31, 2027, for smaller reporting companies (“SRC”). Registrants must disclose climate-related financial metrics and impacts on their financial estimates and assumptions in a footnote to the audited financial statements. The disclosures will also need to be addressed as part of management’s internal control over financial reporting (“ICFR”) and will be subject to the financial statement and ICFR audit (if applicable) of an independent registered public accounting firm. We are currently evaluating the impacts of the improvements to our disclosure.

In December 2023, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). The ASU focuses on income tax disclosures around effective tax rates and cash income taxes paid. ASU 2023-09 requires public business entities to disclose, on an annual basis, a rate reconciliation presented in both dollars and percentages. The guidance requires the rate reconciliation to include specific categories and provides further guidance on disaggregation of those categories based on a quantitative threshold equal to 5% or more of the amount determined by multiplying pretax income (loss) from continuing operations by the applicable statutory rate. For entities reconciling to the U.S. statutory rate of 21%, this would generally require disclosing any reconciling items that impact the rate by 1.05% or more. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024 (generally, calendar year 2025) and effective for all other business entities one year later. Entities should adopt this guidance on a prospective basis, though retrospective application is permitted. The adoption of ASU 2023-09 is expected to have a financial statement disclosure impact only and is not expected to have a material impact on the Company’s condensed consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (“DISE”) a new accounting standard to improve the disclosures about an entity’s expenses and address requests from investors for more detailed information about the types of expenses included in commonly presented expense captions. The new standard is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with retrospective application permitted. The Company is evaluating the disclosure requirements related to the new standard and its impact on our consolidated financial statements.

Other recent accounting pronouncements issued by the FASB did not or are not believed by management to have a material impact on the Company’s present and future condensed consolidated financial statements.