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Note 2 - Basis of Presentation and Use of Estimates and Significant Accounting Policies

12 Months Ended

Dec. 31, 2025

Significant Accounting Policies [Text Block]

2. BASIS OF PRESENTATION AND USE OF ESTIMATES AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Use of Estimates

We have prepared the accompanying audited financial statements in accordance with Generally Accepted Accounting Principles (GAAP), which requires us to reflect all adjustments (which are of a normal recurring nature) that are, in our opinion, necessary in order to ensure that the financial statements are not misleading. References to GAAP in these footnotes are to the FASB Accounting Standards Codification™ (ASC). We believe that the disclosures are adequate to ensure that the information presented is not misleading. 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Although we regularly assess these estimates, actual amounts could differ from those estimates and are subject to change in the near term. Changes in estimates are recorded during the period in which they become known. Significant estimates include our valuation of inventory, deferred tax assets, and the impairment of long-lived assets.

Significant Accounting Policies

Cash and Cash Equivalents

We consider all highly liquid investment instruments that mature within three months of their purchase dates to be cash equivalents. Our cash equivalents are principally invested in securities backed by the U.S. government. We hold no cash or cash equivalents in excess of Federal Deposit Insurance Corporation (FDIC) limits of $250,000 per financial institution per depositor.

Trade Accounts Receivable

Accounts receivable are carried at the original invoice amount less an estimate made for credit losses, when applicable. Management determines the current estimate of expected credit losses on a monthly basis by identifying troubled accounts and by using historical experience applied to an aging of accounts and other relevant factors. Accounts receivable are considered to be past due if a portion of the receivable balance is outstanding for more than 30 days. Past due accounts receivable are subject to an interest charge. We did not charge interest on past due accounts during the years ended December 31, 2025 or 2024 because the time past due was not significant, and there was no accrual for such interest charges as of December 31, 2025 or 2024. As of December 31, 2025 and 2024, we determined that no allowance for credit losses was necessary. Accounts receivable are written off when deemed uncollectible. No accounts receivable were written off during the years ended December 31, 2025 or 2024. Recoveries of accounts receivable previously written off are recorded as income when received. No such recoveries were recorded during the years ended December 31, 2025 or 2024. See Note 3, "Trade Accounts Receivable".

Inventory

Inventory includes raw materials, work-in-process and finished goods and is recorded at the lower of cost, on the first-in, first-out method, or net realizable value (determined as the estimated selling price in the normal course of business, less reasonably predictable costs of completion, disposal and transportation). Work-in-process and finished goods inventories include materials, labor and manufacturing overhead. At each balance sheet date, we evaluate our ending inventories for excess quantities and obsolescence. Inventories that we consider in excess, expired, or obsolete are written down to their estimated net realizable value. Once inventory is written down and a new cost basis is established, it is not written back up.

Our policy is to maintain more than one source of supply for the components used in our products, when feasible. See Note 4, "Inventory".

Property, Plant and Equipment, Net

We record property, plant and equipment at cost, which we depreciate on the straight-line method by charges to operating expenses and costs of goods sold from the date they are first put into service to the end of the estimated useful lives of the assets.

Category	*Estimated Useful Lives (in years)*
Laboratory and manufacturing equipment	3-10
Buildings and improvements	10-39
Office furniture and equipment	3-10

Leasehold improvements are depreciated over the shorter of their estimated useful lives or the remaining lease term. Significant repairs to property, plant and equipment that benefit more than a current period are capitalized and depreciated over their useful lives. Insignificant repairs and all maintenance are expensed when incurred. See Note 6, "Property, Plant and Equipment, Net".

Operating Leases

We account for our real estate leases under ASC 842 Leases, which requires us to recognize a lease liability and corresponding right-of-use (ROU) asset at lease commencement. Our lease liability represents the present value of all non-cancellable fixed future lease payments. Our leases, at times, may include options to extend the term of the lease. When it is reasonably certain that we will exercise the option, we include the impact of the option in the lease term for purposes of determining future lease payments. Because our leases do not specify an implicit rate, we use an incremental borrowing rate based on information available at the lease commencement date to determine the present value of the lease payments. The incremental borrowing rate represents the rate for a secured loan with similar terms.

At the commencement date, we adjust the ROU asset for any lease prepayments made, lease incentives received and initial direct costs incurred, when applicable. We evaluate our ROU asset for impairment when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. For operating leases with lease payments that fluctuate over the lease term, the total lease costs are recognized on a straight-line basis over the lease term. Certain of our lease agreements include variable rent payments, consisting primarily of amounts paid to the lessor based on cost or consumption, such as maintenance and real estate taxes. For all underlying classes of assets, we made an accounting policy election to not recognize assets or liabilities for leases with a term of twelve months or less and to account for all components in a lease arrangement as a single combined lease component. Short-term lease payments are insignificant during both the years ended December 31, 2025 and 2024. These costs are recognized in the period in which the obligation is incurred. See Note 11, "Operating Leases".

Intangible Assets and Goodwill

We amortize intangible assets using the straight-line method by charges to costs of goods sold in amounts estimated to expense the cost of the assets from the date they are first put into service to the end of the estimated useful lives of the assets. We have recorded intangible assets related to customer relationships, non-compete agreements and developed technology, each with defined useful lives. Amounts paid in excess of the fair value of the net assets (including tax attributes) are recorded as goodwill under the acquisition method of accounting.

We assess the impairment of intangible assets that have indefinite lives (when applicable) and goodwill (at the reporting unit level) on an annual basis (as of December 31^st) and whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. We would record an impairment charge if such an assessment were to indicate that the fair value of such assets was less than the carrying value. Judgment is required in determining whether an event has occurred that may impair the value of goodwill or identifiable intangible assets. Factors that could indicate that an impairment may exist include significant under-performance relative to plan or long-term projections, significant changes in business strategy and significant negative industry or economic trends. Although we believe intangible assets and goodwill are properly stated in the accompanying financial statements, changes in strategy or market conditions could significantly impact these judgments and require an adjustment to the recorded balance in the future. No goodwill impairments were recorded during the years ended December 31, 2025 or 2024. See Note 7, "Intangible Assets".

Impairment of Long-Lived Assets

We periodically evaluate our long-lived assets, consisting principally of property, plant and equipment, net, operating lease ROU asset and amortizable intangible assets, for potential impairment. In accordance with the applicable accounting guidance for the treatment of long-lived assets, we review the carrying value of our long-lived assets or asset group that is held and used, including intangible assets subject to amortization, for impairment whenever events and circumstances indicate that the carrying value of the assets may not be recoverable. Under the held for use approach, the asset or asset group to be tested for impairment should represent the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the carrying amount of a long-lived asset group exceeds the related undiscounted future cash flows, we recognize an impairment loss by the amount that the carrying value of the asset exceeds fair value. See Note 6, "Property, Plant and Equipment, Net" for discussion of our impairment charge during the year ended December 31, 2025 as well as discussion of idle assets that are being monitored for potential impairment. No other impairments were recognized during the year ended December 31, 2025. There were no impairments recognized during the year ended December 31, 2024.

Fair Value Measurements

In determining fair value measurements, we follow the provisions of ASC 820, Fair Value Measurements and Disclosures. The ASC provides a consistent definition of fair value which focuses on an exit price, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The topic also prioritizes, within the measurement of fair value, the use of market-based information over entity-specific information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date.

The three-level hierarchy is as follows:

	Level 1 — Pricing inputs are quoted prices available in active markets for identical assets or liabilities as of the measurement date.

	Level 2 — Pricing inputs are quoted prices for similar assets or liabilities, or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data.

	Level 3 — Pricing inputs are unobservable for the assets or liabilities, that is, inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level of an asset or liability within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment.

We evaluate assets and liabilities subject to fair value measurements on a recurring and nonrecurring basis to determine the appropriate level at which to classify them for each reporting period. Some nonfinancial assets are measured at fair value only in certain circumstances, including the event of impairment. During the year ended December 31, 2025, we remeasured certain property, plant and equipment at fair value on a nonrecurring basis using Level 3 inputs. The fair value of the manufacturing equipment was determined by estimating the amount of future discounted cash flows expected to be generated from the manufacturing equipment, which represented the current estimate of the salvage value of the manufacturing equipment, since we determined that the assets have no additional future use or related cash flows aside from the proceeds resulting from their disposal. The salvage value estimates were determined based on quotes provided by an equipment broker. This remeasurement resulted in a $2,667,100 impairment charge related to property, plant and equipment, which is included in other expenses, net on the statement of operation for the year ended December 31, 2025. See Note 6, "Property, Plant and Equipment, Net" for further discussion. There were no assets or liabilities measured at fair value on a nonrecurring basis as of December 31, 2024.

As of December 31, 2025 and 2024, the carrying amounts of accounts receivable, inventory, prepaid expenses and other current assets, other assets, accounts payable and accrued expenses approximate fair value because of their short-term nature.

These assets and liability measured at fair value on a recurring basis are reflected in the following tables:

	*As of December 31, 2025*
	*Level 1*		*Level 2*		*Total*
Assets:
Cash and money market accounts⁽¹⁾	$	3,806,831	$	—	$	3,806,831

Liabilities:
Bank debt⁽²⁾	$	—	$	8,457,433	$	8,457,433

	*As of December 31, 2024*
	*Level 1*		*Level 2*		*Total*
Assets:
Cash and money market accounts⁽¹⁾	$	3,758,232	$	—	$	3,758,232

Liabilities:
Bank debt⁽²⁾	$	—	$	9,465,500	$	9,465,500

⁽¹⁾Cash and cash equivalents are stated at nominal value, which equals fair value. A portion of our cash and cash equivalents is invested in money market accounts. The fair value of these investments is based on their closing published net asset value.

⁽²⁾Due to inflation and the changing interest rate environment, the carrying values of our fixed rate bank debt as of December 31, 2025 and 2024 differed from their fair market values. The amount outstanding under our bank debt facilities is measured at carrying value in our accompanying balance sheets.

We assess the levels of the investments at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer in accordance with our accounting policy regarding the recognition of transfers between levels of the fair value hierarchy. During the years ended December 31, 2025 and 2024, there were no transfers between levels. We had no assets or liabilities measured at fair value using level 3 inputs as of December 31, 2025 and 2024

Concentration of Risk

Concentration of credit risk with respect to accounts receivable is principally limited to certain customers to whom we make substantial sales. To reduce risk, we routinely assess the financial strength of our customers and, as a consequence, believe that our accounts receivable credit risk exposure is limited. We maintain an allowance for potential credit losses when deemed necessary, but historically we have not experienced significant credit losses related to an individual customer or groups of customers in any particular industry or geographic area.

Sales to significant customers that amounted to 10% or more of total product sales are detailed in the following table:

	*During the Years Ended*
	*December 31,*
	*2025*			*2024*
Company A		46	%		47	%
Company B		26	%		30	%
Total		72	%		77	%

Trade accounts receivable due from significant customers that amounted to 10% or more of our total trade accounts receivable are detailed in the following table:

	*As of*			*As of*
	*December 31,*			*December 31,*
	*2025*			*2024*
Company A		45	%		57	%
Company B		24	%		21	%
Total		69	%		78	%

Revenue Recognition

We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers (ASC 606). ASC 606 requires that we recognize the amount of revenue to which we expect to be entitled for the transfer of promised goods to customers when a customer obtains control of promised goods in an amount that reflects the consideration we expect to receive in exchange for those goods.

We conduct our business with customers through valid purchase orders or sales orders which are considered contracts and are not interdependent on one another. A performance obligation is a promise in a contract to transfer a distinct product to the customer. The transaction price is the amount of consideration we expect to receive under the arrangement. Revenue is measured based on consideration specified in a contract with a customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized when or as the customer receives the benefit of the performance obligation. Product transaction prices on a purchase or sales order are discrete and stand-alone. We recognize revenue when we satisfy a performance obligation in a contract by transferring control over a product to a customer when product ships to a customer. Amounts due are typically paid approximately 30 days from the time control is transferred. Shipping and handling costs associated with outbound freight are accounted for as a fulfillment cost in costs of goods sold. We do not bill for or collect sales tax because our sales are generally made to distributors and thus our sales to them are not subject to sales tax. We generally have experienced an immaterial amount of product returns. See Note 13, "Revenue".

Expense Recognition

We do not incur costs in connection with product sales to customers that are eligible for capitalization. Advertising costs are expensed when incurred, which is generally during the month in which the advertisement is published. Advertising costs amounted to $109,506 and $35,696 during the years ended December 31, 2025 and 2024, respectively. All product development expenses are expensed as incurred, as are all related patent costs. We capitalize costs to produce inventory during the production cycle, and these costs are charged to costs of goods sold when the inventory is sold to a customer or is deemed to be expired or obsolete.

Income Taxes

We account for income taxes in accordance with ASC 740, Income Taxes, which requires that we recognize a current tax liability or asset for current taxes payable or refundable and a deferred tax liability or asset for the estimated future tax effects of temporary differences and carryforwards to the extent they are realizable. We consider future taxable income and feasible tax planning strategies in assessing the need for a valuation allowance against our deferred tax assets at the end of each quarter. If we determine that it is more likely than not that we will realize our deferred tax assets in the future in excess of the net recorded amount over a reasonably short period of time, a reduction of the valuation allowance would increase income in the period such determination was made. Likewise, if we determine that it is more likely than not that we will not realize all or part of our net deferred tax asset in the future, an increase to the valuation allowance would be charged to income in the period such determination was made.

ASC 740-10 clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position must meet before being recognized in the financial statements. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. In addition, we are subject to periodic audits and examinations by the Internal Revenue Service and other taxing authorities. With few exceptions, we are no longer subject to income tax examinations by tax authorities for years before 2022. We have evaluated the positions taken on our filed tax returns and have concluded that no uncertain tax positions existed as of December 31, 2025 or 2024. Although we believe that our estimates are reasonable, actual results could differ from these estimates. See Note 15, "Income Taxes".

Share-Based Compensation

We account for share-based compensation in accordance with ASC 718, Compensation-Stock Compensation, which generally requires us to recognize non-cash compensation expense for share-based payments using the fair-value-based method. The expected life is calculated utilizing the simplified method, which uses the mid-point between the weighted average vesting period and the contractual term as the expected life. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model and is recognized as compensation expense on a straight-line basis over the requisite service period for awards subject to time vesting conditions. See Note 12, "Stockholders' Equity".

Earnings Per Share

Net income (loss) per common share has been computed in accordance with ASC 260, Earnings Per Share. The basic net income per share has been computed by dividing net income by the weighted average number of common shares outstanding during the period. The diluted net income per share has been computed by dividing net income by the weighted average number of shares outstanding during the period, plus all outstanding stock options with an exercise price that is less than the average market price of the common stock during the period, less the number of shares that could have been repurchased at this average market price with the proceeds from the hypothetical stock option exercises and proceeds from unrecognized compensation. Stock options are excluded from the denominator in the calculation of dilutive earnings per share when their impact would be anti-dilutive. Outstanding stock options that were not included in this calculation because the effect would be anti-dilutive amounted to 801,760 and 664,000 during the years ended December 31, 2025 and 2024, respectively.

	*During the Years*
	*Ended December 31,*
	*2025*			*2024*
Net loss attributable to stockholders	$	(1,040,027	)	$	(2,156,629	)

Weighted average common shares outstanding - Basic		9,026,130			8,167,244
Dilutive impact of share-based compensation awards⁽¹⁾		—			—
Weighted average common shares outstanding - Diluted		9,026,130			8,167,244

⁽¹⁾ All stock options are excluded from the dilutive impact of share-based compensation awards when we are in a loss position because their inclusion would be anti-dilutive.

New Accounting Pronouncement Adopted

In December of 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which improves the transparency of income tax disclosures requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction. ASU 2023-09 also includes certain other amendments to improve the effectiveness of income tax disclosures. We adopted ASU 2023-09 for the year ended December 31, 2025, and applied retrospective disclosures for all prior periods presented. The adoption of ASU 2023-09 did not have a material impact on our financial statements.

New Accounting Pronouncements Not Yet Adopted

In November of 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses, to provide disaggregated disclosures of specific expense categories underlying all relevant income statement expense line items on an annual and interim basis. The disclosure requirements will be applied on a prospective basis, with the option to apply it retrospectively. The effective date for the standard is for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. We are evaluating ASU 2024-03 to determine its impact on our financial statements.